CONTENTS
YEARS OF
u GROWTH
u INNOVATION
u BUSINESS SUPPORT
u CORPORATE
RESPONSIBILITY
TBC Bank
TBC Bank1, Georgia’s largest banking group, celebrates its 25th
anniversary of growth, innovation, customer support and corporate
responsibility. Built from scratch in 1992, soon after the country’s
independence in 1991, TBC Bank’s substantial growth mirrors the
country’s fast-paced development over the last 25 years2. Today, TBC
Bank is a FTSE 250 constituent with a listing on the London Stock
Exchange’s premium segment.
CONTENTS
Strategic report
Overview
Financial highlights
2
Operational highlights
3
At a glance
4
Investment case
8
10 Chairman’s statement
12 CEO letter
Strategy and performance
16 Georgia
20 Business model and strategy
30 Divisional review
56 Principal risks and uncertainties
60 Risk management
74 Corporate responsibility
82 Financial review
Governance
104 Directors’ governance statement
109 Directors’ report
114 Board biographies
118 The Bank’s Management Board biographies
121 Corporate governance and nomination
committee report
123 Risk, ethics and compliance committee report
126 Directors’ remuneration report
148 Audit committee report
1 TBC Bank Group PLC (the Company), the UK-incorporated parent
company of JSC TBC Bank (the Bank) and its subsidiaries (together
TBC Bank or the Group)
2 Source: Geostat
Independent auditors’ report
Financial statements
157
163 Separate statement of financial position
164 Separate statement of changes in equity
165 Separate statement of cash flows
166 Consolidated statement of financial position
167 Consolidated statement of profit or loss and
other comprehensive income
168 Consolidated statement of changes in equity
169 Consolidated statement of cash flows
170 Notes to the consolidated financial statements
Additional information
255 Shareholder information
256 Glossary
257 Abbreviations
For more information visit our
website www.tbcbankgroup.com
TBC Bank Annual Report and Accounts 2017
01
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Strategic Report Strategy & PerformanceStrategic Report Overview
FINANCIAL HIGHLIGHTS
Underlying net profit (GEL million)
35.1% growth
2017
2016
2015
369.2
273.3
218.7
Reported net profit (GEL million)
20.7% growth
2017
2016
2015
359.9
298.3
218.7
Underlying return on average equity
0.8pp growth
2017
2016
2015
21.4%
20.6%
20.1%
Underlying return on average assets
0.4pp reduction
2017
2016
2015
3.2%
3.6%
3.4%
Underlying cost to income ratio
2.4pp reduction
40.5%
42.9%
43.9%
2017
2016
2015
Cost of risk
0.2pp growth
2017
2016
2015
1.2%
1.0%
1.7%
Total assets (GEL million)
20.4% growth
Total deposits (GEL million)
21.1% growth
2017
2016
2015
4,177.9
7,816.8
6,454.9
Gross loans (GEL million)
16.2% growth
2017
2016
2015
4,639.0
8,553.2
7,358.7
Non-performing loans
0.2pp reduction
2017
2016
2015
6,935.0
12,965.9
10,769.0
2017
2016
2015
3.3%
3.5%
4.8%
02
TBC Bank Annual Report and Accounts 2017
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21.4%
UNDERLYING RETURN ON EQUITY
OPERATIONAL HIGHLIGHTS
159
Branches
167 (2016)
2.2m
Customers
2.2m (2016)
2,790
Self-service terminals
2,500 (2016)
14,824
POS terminals
13,220 (2016)
7,084
Employees
6,292 (2016)
480
ATMs
531 (2016)
88.3%
Offloading ratio
84.1% (2016)
31.4%
Mobile banking penetration ratio
24.2% (2016)
TBC Bank Annual Report and Accounts 2017
03
Strategic Report Strategy & PerformanceStrategic Report Overview
AT A GLANCE
TBC Bank has affirmed its leading position as Georgia’s largest banking group
with its outstanding financial performance, superior customer experience, strong
brand and best-in-class digital banking channels.
We continue to innovate and develop unique digital solutions in line with our strategy of becoming the best digital financial services company in
the region1, while customer satisfaction remains at the heart of everything we do. We acknowledge responsibility towards all our stakeholders
and are focused on achieving strong financial results and maximising our shareholders’ returns, as well as creating value for our customers,
employees, community and environment.
What we do
TBC Bank is the number one banking group in Georgia by all key
metrics, including total assets, total loans and total deposits2.
While our main business activities include retail, micro, small and
medium enterprises (MSME) and corporate banking, we also offer
other financial services through our subsidiaries, including
leasing, insurance, brokerage and corporate advisory products.
TBC Bank has strong coverage across the country through its
well-developed multichannel network serving around 75% of
Georgia’s adult population.
Our vision
To be the best digital financial
services company in the region1
Retail banking
TBC Bank is the undisputed leader in the retail segment, which it
has been serving since 2006. We work diligently to offer our
clients the best products and services in the market. We are
committed to building trusted, mutually beneficial relationships
with our customers by concentrating on their financial needs and
offering them well-suited banking solutions. Customer
satisfaction is a vital part of our success and we are dedicated to
delivering a unique experience in all our channels. We also pride
ourselves on having advanced private banking offerings for our
affluent and high-net-worth individuals, which include dedicated
multichannel, full life cycle management, tailor-made products
and value-added services.
49% in total loan book, 56% in total deposits
Strategic priorities
Deepen our relationship with customers
and deliver sustainable growth
Further enhance the digital capabilities
of our best-in-class multichannel platform
Further improve customer experience
Increase operational efficiency and automation
Proactively manage net interest margin
Find out more about our strategy on pages 24-27
1 Region in this context comprises Armenia, Azerbaijan and Georgia
04
TBC Bank Annual Report and Accounts 2017
Corporate and investment banking (CIB)
TBC Bank has a well-deserved leading position in the corporate
segment due to its advisory model, focus on long-term
partnership, top-quality financial products and services, and
highly experienced and professional team. We have a strong
presence and a diversified portfolio across all major sectors of
Georgia’s economy, divided among dedicated coverage teams with
strong sector knowledge. We have strong positions in traditional
lending and trade finance products, and have also started
introducing brokerage and advisory services through our
subsidiary, TBC Capital. Thanks to our broad product offering and
operational excellence, an increasing number of leading industry
players are choosing TBC Bank as their core bank.
29% in total loan book, 31% in total deposits
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MSME banking
TBC Bank is the bank of first choice for most MSME clients, with 63%3
of new companies registered in Georgia in 2017 opening accounts with
TBC Bank. We do not find this surprising, since we put a lot of effort
into developing the most convenient and innovative solutions for our
clients. In addition, we differentiate ourselves by offering extensive
non-financial services through our business support programme,
which features various opportunities for training sessions, individual
consultations, useful business tools and a renowned annual business
award ceremony. This year, we have also undertaken an initiative to
support the new generation of businesses in Georgia by launching a
unique programme, focused on start-ups, that provides financial and
non-financial services to early-stage companies.
22% in total loan book, 13% in total deposits
Our people are key to our success
We consider our people to be one of our most valuable assets
and the key to our success. We employ more than 7,000 highly
skilled, loyal and motivated people, who together form a big
“TBC family”.
Engagement index of 91%
Find out more about our people on pages 75-78
Corporate responsibility
We strive to make a difference for Georgia, not only by contributing
to economic development, but also by faithfully serving our
customers, protecting our country’s cultural heritage, promoting
national sports, supporting the young generation through various
projects and initiatives, and caring for the environment.
Find out more about our segments on pages 30-53
Find out more about our corporate responsibility on pages 74-81
Number one market position by all key metrics
MARKET SHARES2
Total assets
Total loans
Total deposits
Loans to individuals
Loans to legal entities
Deposits to individuals
Deposits to legal entities
36.4%
38.2%
39.8%
40.2%
36.0%
41.3%
37.9%
2 Based on data published by the National Bank of Georgia as of 31 December 2017
3 Data is for FY 2017, source: www.napr.gov.ge, the National Agency of Public Registry
TBC Bank Annual Report and Accounts 2017
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Strategic Report Strategy & PerformanceStrategic Report Overview
INFOCUS
YEARS OF
GROWTH
TOTAL ASSETS
2017
13.0 bn
$500
1992
INVESTMENT CASE
WHY INVEST IN TBC BANK?
We base our strategy on understanding
our customers’ evolving preferences for
using digital channels instead of
branches and aim to become the best
digital financial services company in the
region1 by developing the most intuitive,
user-friendly and innovative digital
solutions in the market.
1 Region in this context comprises Armenia, Azerbaijan and Georgia
Our four main competitive advantages are:
Focus on financial services
TBC Bank is focused on financial services activities and 99.7% of
our total assets relate to banking, insurance, leasing, brokerage
and corporate advisory services. We have several small
subsidiaries, including card processing and a self-service terminal
operating company, which play a supporting role to strengthen
our core business. Over the past 25 years, we have built a sound,
straightforward and resilient operating model, as well as gained
strong business expertise and market knowledge. Our clear
strategic focus and experience provides a significant advantage
and solid basis for our future growth and development, and clearly
differentiates us from our peers.
Financial service activities account
for 99.7% of TBC Bank’s total assets
08
TBC Bank Annual Report and Accounts 2017
Best-in-class digital channels
We continue to leverage our leading digital capabilities to achieve
business growth and operating efficiency. TBC Bank has world-
class digital banking channels, which include the award-winning
internet and mobile banking applications, a call centre and a vast
network of ATMs, POS terminals and self-service terminals. Due
to our continued efforts, the number of retail transactions
conducted via digital channels continues to grow, resulting in a
retail offloading ratio as high as 88.3% in December 2017. At the
same time, we continue to innovate and enhance our digital
product offerings. This year, we have developed and introduced
the first Georgian-speaking chatbot, Ti Bot, using Facebook
Messenger. It can understand questions and provide helpful
answers about currency exchange rates, various product
offerings, branch and ATM locations, as well as conduct P2P
transactions and purchase cinema tickets. We are also proud
that our digital capabilities gained global recognition and Global
Finance magazine named TBC Bank the world’s “Best Integrated
Corporate Bank Site” in 2017, in addition to receiving multiple
regional (CEE) and country awards in many digital
banking categories.
Global Finance named TBC Bank the
world’s “Best Integrated Corporate
Bank Site” in 2017
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Superior customer experience
We pride ourselves on having the highest customer satisfaction
score in the Georgian banking sector, including the NPS and CSAT
scores2. We achieved this by fostering a customer-focused culture,
where every employee strives to create maximum comfort and
value for our customers. We base our customer satisfaction on
four main principles: (i) simplicity and comfort; (ii) professionalism
and stability; (iii) individual approach and (iv) care. We are
dedicated to providing the best customer experience in Georgia by
constantly improving our service proposition and offering the most
competitive and innovative solutions in the market. Our goal is to
be able to anticipate our customers’ preferences to offer them the
right products and services at the right time. We also continuously
work to simplify customer service processes and eliminate
unnecessary procedures in order to create a pleasant experience
for our clients. Our customers’ feedback is very important to us,
and we listen carefully to our clients and value their opinions.
Strong brand
For 25 years, we have been supporting the growth and prosperity of
our customers, colleagues, partners and the community at large.
We have always acted with integrity and transparency in all our
undertakings, acknowledging our responsibility towards all our
stakeholders. We strive to generate added value for our customers by
creating straightforward and flexible products and services. We aspire
to foster the best working environment for our employees and build
long-term relationships with our partners, as well as make a positive
contribution to society by supporting business, culture, sports and the
young generation. As a result, TBC Bank today is one of the most
well-known and trusted brands in the country. We are associated with
creating opportunities for young people and businesses, supporting
innovation and progress. TBC Bank has also gained international
recognition and, among other things, received country, regional and
global awards, including “Best Bank in Georgia” awards from Global
Finance, EMEA Finance, Euromoney and the Banker magazines for
many years in a row (Find out more about our awards at
www.tbcbankgroup.com).
NPS: gap with peer Bank-16.7%2,
CSAT: gap with peer Bank-16.6%2
TBC Bank has been awarded “Best Bank
in Georgia” 14 times in the last 16 years
2 Based on surveys conducted by independent research companies ACT
and IPM in December 2017
TBC Bank Annual Report and Accounts 2017
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Strategic Report Strategy & PerformanceStrategic Report Overview
CHAIRMAN’S STATEMENT
Dear shareholders,
It is with great pleasure that
I present our 2017 annual report.
As the year also marks our 25th
anniversary, I would like to reflect
on where we started and how far
we have come over this past quarter
of a century.
Mamuka Khazaradze
Chairman
We established TBC Bank in 1992, shortly after Georgia had
restored its independence following the collapse of the Soviet
Union. We have since grown side-by-side with our country
throughout its economic and political development. As Georgia
lacked a functioning financial system at the time of TBC Bank’s
inception, we became true pioneers in establishing a well-run
banking institution with a long-term perspective.
We set ourselves a challenging task: to build a banking business
that would earn trust and credibility with our customers. For that
reason, from the outset, we adopted a customer-centric approach
in our business. To help achieve our goal, we have sought to
employ people who share our mindset and have created a strong,
committed team with common values.
Over the past 25 years, TBC Bank has been growing together with
its customers, supporting them in meeting their financial needs,
helping them to achieve success and contributing to the entire
country’s development.
Today, we take pride in being the largest privately-owned bank in
the region1. In addition to our strong team spirit, we attribute our
continued success to having one of the most recognised brands in
Georgia, a superior customer experience, the best multichannel
network and a full range of innovative services and products.
Strategy
We believe that TBC Bank’s future success depends on its digital
competence, as customers are increasingly shifting towards digital
banking. The banking industry is entering a digital era and we need
to stay abreast of upcoming changes. Last year, we announced an
updated strategy to become the best digital financial services
company in the region1. We remain committed to this strategy.
We are also focused on our customer experience. We have made
significant efforts to anticipate our customers’ needs and offer
them the best products and services. We measure customer
satisfaction regularly to identify areas that need improvement,
and we work diligently to enhance our offerings. We pride
ourselves on having the highest customer satisfaction scores in
the Georgian banking sector2, as well as on holding leading
positions in the country’s broader retail industry.
We will continue to use our strengths to keep growing with the
market and more actively engage with our customers by creating
innovative, value-added solutions for them. At the same time, we
will remain focused on operating efficiency and automation to
become more agile in our fast-changing environment.
Key achievements
In May, we successfully completed the integration of Bank Republic,
well ahead of schedule. As a result, we have expanded our
distribution network and increased our client base by around
380,000 customers, all of whom now have full access to our
innovative range of products and services.
Another significant development in 2017 was the inclusion of our
shares into the FTSE 250 Index, reflecting the improved liquidity
of our shares and the increased valuation of our business. Since
then, we have begun to benefit from a more diversified shareholder
base and are seeing greater interest from potential investors.
10
TBC Bank Annual Report and Accounts 2017
of Georgia
1 Region in this context comprises Armenia, Azerbaijan and Georgia
2 Based on surveys conducted by independent research companies: IPM and ACT
3 According to data as of 31 December 2017 published by the National Bank
Over the past year, we made good progress towards our updated
strategy of becoming the best digital financial services company in
the region1. The number of transactions and sales conducted in
remote channels continue to grow rapidly, as do internet and mobile
banking penetration levels. We also launched the first Georgian-
speaking chatbot,Ti Bot, which allows customers to conduct simple
banking transactions via Facebook Messenger. It also provides
useful information about our products, as well as entertainment
events and weather forecasts. The chatbot has been well received
by our customers and has become a highly popular channel,
attracting more than 124,000 users since its launch in March 2017.
Our strong operating performance during 2017 translated into robust
financial results. For 2017, TBC Bank recorded an underlying net
profit of GEL 369.2 million, up 35.1% year-on-year. In addition, our
underlying return on equity and return on assets stood at a respective
21.4% and 3.2%. In terms of our loan book, our loan portfolio grew by
16.2% year-on-year, leading to a market share of 38.2%3.
Operating environment
2017 was another remarkable year in Georgia’s continued
development. The country’s citizens were granted visa-free access
to the Schengen zone, which is a significant advancement and will
support our deeper integration with the EU countries. Visa
liberalisation would also have a positive impact on tourism, leading
to increased awareness about Georgia and greater tourist inflow
from the EU. The country is already being promoted as one of the
best places to visit, including by many reputable magazines4, which
have named it in their lists of the top 10 tourist destinations.
In 2017, Georgia recorded strong economic growth with GDP
reaching 5.0%5, which is one of the largest increases among
countries in the CIS and Eastern Europe. This improvement was
mainly driven by high tourism income and an increase in net
exports. Another positive factor was the improvement in the current
account deficit, which decreased to 7.1% of GDP6 for 9M 2017,
compared with 11.2% a year earlier, indicating that the country is
experiencing more sustainable economic development.
Other important developments in 2017 included the official opening
of the long-awaited Baku-Tbilisi-Kars railway and the beginning of
a new phase of development at Anaklia Deep Sea Port, where
construction work started in December. These projects will
strengthen Georgia’s position as a regional tourism and
transportation hub, as it offers the shortest route to connect the
economies of China and countries in Central Asia to those of
European countries. These transportation links, coupled with free
trade agreements with the EU, China and all major economic
powers in the broader region, will further support the growth of
Georgia’s economy and diversify trade exports.
Finally, Georgia regained its position among the top 10 countries in
the World Bank’s Doing Business 2018 ranking, moving up by seven
positions to ninth place to become the best performer in Europe
and Central Asia. This outstanding performance in these rankings
highlights the government’s continued efforts to improve the
business environment and to make Georgia one of the world’s
most attractive places to do business.
Governance
TBC Bank is committed to the highest standards of corporate
governance and business transparency. Our experienced Board of
Directors takes the leading role in framing our strategy,
overseeing our risk management and challenging our
performance. With their diverse and unique skillsets, our
Directors help to guide our strategic development and create
sustainable value for our stakeholders.
4 Conde Nast Traveller, Vogue, and Lonely Planet
5 Source: Geostat
6 Source: NBG, Geostat
I would like to thank all our Directors for their active involvement
and valuable contribution towards our achievements in 2017.
I firmly believe that, together, we are well positioned to realise
our strategy of becoming the best digital financial services
company in the region1.
As already announced, two non-executive Directors, Stefano
Marsaglia and Stephan Wilcke will be leaving TBC Bank and
stepping down from the Board as and when suitable replacements
are found during 2018. I would like to extend the Board’s thanks
to both Stefano and Stephan for their important contributions to
TBC Bank and we wish them every success in the future.
Acting responsibly
Corporate responsibility has always been one of our overriding
values. During the past 25 years, TBC Bank has actively supported
culture, sports, young talent and other important social projects.
We continue to hold a firm belief and commitment to supporting
the community, the environment, the human rights, and our wider
stakeholders, including our shareholders, employees and
customers. We also aspire to conduct business in a way that
promotes high ethical standards, values and encourages our
employees to act with integrity and responsibility towards each
other and our customers, partners and community.
This year, we launched an innovative platform, statusdonates.ge,
which focuses on supporting success and features short videos
about individuals and organisations that need financing, enabling
people to select a specific cause that they would like to promote
and support.
We remain long-term partners with the Georgian Rugby Union and
are the title sponsor of the national rugby team. In 2017, Georgia
hosted the World Rugby Under-20 Championship and we actively
promoted the games using our social and media channels, helping
to attract many fans to the stadiums. This championship put
Georgia on the international sports map and introduced world
rugby fans to the country from a different angle.
Outlook
While we have achieved significant success over the past 25 years,
we continuously seek ways to improve our business. We remain
eager to go further after achieving each new accomplishment. We
will continue to innovate and offer unbeatable digital solutions, a
superior customer experience and tailor-made financial products.
In 2018, we will progress towards our strategy of becoming the
best digital financial services company in the region1.
On behalf of the Board, I would like to express my deep gratitude
to our management team, employees and partners for their
continued hard work and dedication. I am confident that our joint
efforts will enable us to achieve success in all our undertakings
and create maximum value for all our stakeholders over the next
25 years.
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Mamuka Khazaradze
Chairman
28 March 2018
TBC Bank Annual Report and Accounts 2017
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Strategic Report OverviewStrategic Rreport Strategy & Performance
CEO LETTER
Dear shareholders,
In 2017, TBC Bank celebrated its
25th anniversary. The Bank was
established during one of the most
challenging periods in Georgia’s recent
history and our story today is an
outstanding example of how to build a
sustainable business.
Vakhtang Butskhrikidze
CEO
12
TBC Bank Annual Report and Accounts 2017
The driving force behind our success has always been a strong
commitment to our goals, the dedication of our team and our
clear long-term vision. The shareholders have entrusted me with
the leadership of TBC Bank since 1998 and I am extremely proud
of our accomplishments throughout these years. While TBC Bank
has mostly grown organically, it has also strengthened its position
through the acquisitions of Bank Constanta in 2011 and Bank
Republic in 2016. Today, TBC Bank is the leading bank in Georgia
and is well positioned to become the best digital financial services
company in the region1 due to our outstanding digital capabilities.
Highlights of 2017
TBC Bank delivered another strong financial performance in 2017,
posting a record high net underlying profit of GEL 369.2 million, up
by 35.1% year-on-year. Our strong profitability was underpinned
by the integration of Bank Republic, which we completed well
ahead of schedule in the second quarter of the year. We are using
the merger to drive cost synergies and significantly improve our
efficiency, delivering an underlying cost to income ratio of 40.5% in
2017. The integration has also increased our distribution network
and expanded our customer base, allowing us to cross-sell our
products to the newly acquired customers. As a result, our
product per customer ratio in the retail segment increased to 3.9
in 2017, compared with 3.7 a year earlier.
In 2017, we recorded strong balance sheet growth, increasing our
loan and deposit portfolios by a respective 16.2% and 21.1%
year-on-year. As a result, we had market shares of 38.2%2 of total
loans and 39.8%2 of deposits in Georgia. In line with our strategy,
we also increased our net fee and commission income by 39.5% in
2017, mainly driven by settlement, card and trade finance
operations. Robust growth, paired with a significant increase in
net fee and commission income and improved efficiency, offset the
expected reduction in the net interest margin and led to strong
profitability. Our underlying return on equity was 21.4% and our
underlying return on assets was 3.2%. At the same time, we
continue to maintain sound asset quality and our ratio of non-
performing loans was low at 3.3%.
I am pleased to report that we are on track towards achieving our
strategic goal of becoming the best digital financial services
company in the region1. Our customers benefit from our reliable
and user-friendly internet and mobile banking applications, as
well as from our wide network of self-service terminals, allowing
them to conduct most banking transactions remotely. As a result,
our offloading ratio in retail segment reached 88.3%, while our
mobile banking penetration ratio increased by 7.2 percentage
points year-on-year to 31.4%.
In 2017, we also introduced the first Georgian-speaking chatbot on
Facebook Messenger, Ti Bot, which gained popularity in a very
short time and attracted around 124,000 customers and received
6.5 million messages since launch in March. Ti Bot serves as an
efficient new sales channel and can also be used to conduct
simple banking transactions. In December, we also deployed a
biometric voice recognition system in our call centre to simplify
customer identification and improve the safety of our customers’
personal and account data. We are the first bank in the region1 to have
implemented such a system.
We continue to deliver a superior customer experience by carefully
analysing feedback received and continuously improving our products
and service levels. Over the past year, we introduced a fully digital
onboarding system for our business clients, allowing them to open a
current account online and perform their transactions without delay.
The usage of this service is increasing rapidly and, in December, around
20% of new legal entities registered online. We also launched a loyalty
programme called Ertguli for our retail customers. Ertguli is a credit
1 Region in this context comprises Armenia, Azerbaijan and Georgia
2 Based on data published by the National Bank of Georgia as of
31 December 2017
card with a pre-approved instalment limit, which also allows customers
to gather loyalty points and take advantage of special offers and
discounts. This programme has proven extremely successful, helping
to increase the use of our credit cards by 79.4% year-on-year.
On the corporate side, we continue to enhance our product
offerings. To better serve our customers, we are currently
developing comprehensive brokerage and corporate advisory
services, aiming to offer corporate clients a “one-stop shop”. On
the MSME side, we launched a new financing programme called
Startuperi for early-stage companies. The programme aims to
support start-ups not only financially, but also by providing
non-financial services, including training sessions, master classes
and special discounts with TBC Bank’s partners.
I am delighted with the first-year results of our newly acquired
business, TBC Insurance, which grew rapidly in 2017. The number of
customers increased to around 277,000 from just 3,000 at the time of
the acquisition in October 2016. Our market share, excluding health
insurance, reached 13.3%3 as of 31 December 2017, compared with
3.5%3 as of 31 December 2016, making us the third-largest player on
the market and the second-largest player in retail segment, with
market share of 28.9%3.
Macroeconomic overview
2017 was quite a successful year for Georgia’s economy. The country’s
GDP growth rate almost doubled from the levels seen over the past two
years, reflecting improvements in the external environment and continued
domestic reform efforts, which helped to strengthen the confidence of
consumers and businesses in the country. In 2017, Georgia’s GDP grew by
around 5.0%4, placing the country among the fastest-growing economies
in CEE, as well as in the CIS region. Improved macroeconomic
performance across all directions was reflected in the sovereign credit
rating of the country. In September, 2017 Moody’s upgraded Georgia’s
credit rating to Ba2 from Ba3 previously with the stable outlook. An
improved trade and investment relationships, together with strengthened
banking supervision framework, were named as underlying factors of the
improved credit rating. Fitch also revised Georgia’s credit rating outlook
from stable to positive in March 2018 to reflect accelerating growth and
improved resilience of the economy.
Georgia continues to benefit from its open trade policies with all major
economic players in the region. Exports of goods went up by a solid
29.1% year-on-year in 2017, reflecting the recovery witnessed among
the country’s major trading partners. Starting from 2018, a free-trade
agreement with China has entered into force, which should give
additional impetus to Georgia’s growing exports.
Tourism remained a source of strength for Georgia’s economy, as the
number of visitors exceeded 7.5 million in 2017, which represented a
significant increase on previous years. Tourism revenue surged by
26.9% year-on-year in 2017 and remained one of the country’s most
important sources of foreign currency inflows. Georgia’s growing
image as an attractive year-round tourist destination is expected to
continue to drive its economy.
Growth in lending and the broader economy were reinforcing each
other throughout 2017. Banking sector lending to the economy
increased by 17.8% year-on-year, while loans to legal entities rose by
10.4% year-on-year. After the subdued growth seen in 2015 and 2016,
this suggests a revival of investment activity by local companies.
The continuing trend of growing employment and household
disposable income contributed to the 25.7% year-on-year growth
of loans to individuals.
Another positive development in 2017 was the reduction of
dollarisation of the banking sector, reflecting joint efforts of the public
and financial sectors. At the year-end, the share of deposits
denominated in foreign currency was down by 5.95 percentage points
3 Based on data provided by Georgia’s State Insurance Supervision Service
4 Source: Geostat
5 Without foreign currency effect the decrease was 5.4pp for deposits and 7.8pp
for loans
year-on-year at 65.3%, while the share of loans denominated in
foreign currency was down by 8.35 percentage points year-on-year at
57.1%. Lower dollarisation together with a proven track record of
sound macro and micro risk management have further supported the
resilience of the banking sector, which traditionally positioned itself
with high capital, liquidity and profitability ratios, low levels of
non-performing loans, as well as a prudent regulatory framework.
Strategic priorities
Our strategic priorities for the coming years include:
deepening our relationships with customers and delivering
sustainable growth
further developing the digital capabilities of our multichannel
platform
continuing to improve our customer experience
increasing operating efficiency and automation
proactively managing our net interest margin in the context of
market maturity, competition and regulatory initiatives.
To strengthen our relationships with customers, we actively engage
with them and offer an innovative range of products and services to
maintain our leading positions. Currently, our retail customer base is
more than 2 million people, which is around 75% of Georgia’s adult
population, providing us with vast opportunities to cross-sell and
move clients further along our value chain.
In parallel to deepening our relationships with clients, we consistently
provide a superior customer experience, as measured by the net
promoter6 and customer satisfaction6 scores. On these metrics, TBC
Bank ranks the highest in the Georgian banking industry. Moreover,
we have one of the top net promoter scores among the leading service
industries in the country.
As digital channels are vital to our long-term success, our team
strives to further enhance our digital multichannel capabilities and
offer reliable solutions to our customers. The number of transactions
conducted via digital channels continues to grow, especially in mobile
banking and self-service terminals, indicating customers’ preferred
digital channels.
I am confident that we are well positioned to implement our strategy.
For the medium term, we maintain our guidance as follows:
annual loan book growth of around 15%
return on equity target of 20% or more
cost to income ratio of below 40%
dividend payout ratio of 25-35% of consolidated net profit.
Acknowledgement
In 2017, we made significant progress towards achieving our
goals. I would like to thank all my colleagues for their dedicated
hard work and commitment. Over the past 25 years, we as a team
have worked hard to build a success story. I am confident that we
will continue to develop and set new standards for the region’s1
banking industry in 2018 and beyond.
The Strategic Report as set out on pages 2 to 103 was approved by
the Board, and signed on behalf of the Board by:
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Vakhtang Butskhrikidze
Chief Executive Officer
28 March 2018
6 Based on survey conducted by independent research companies: ACT and IPM
TBC Bank Annual Report and Accounts 2017
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Strategic Report OverviewStrategic Rreport Strategy & Performance
IN FOCUS
TI Bot
YEARS OF
INNOVATION
DIGITAL SERVICE
2017
THE FIRST
GEORGIAN-SPEAKING
CHATBOT
OUR FIRST INTERNET
BANKING SERVICES
2001
GEORGIA
MARKET OVERVIEW
Our operations are primarily based in
Georgia and are focused on providing
a full range of financial services to
both retail and business customers.
Georgia’s growing role as a regional
hub for tourism, trade, transport and
logistics supports its position as one
of the fastest-growing economies in
CEE as well as in the CIS.
Economic growth and employment
In 2017, Georgia’s real GDP growth accelerated to 5.0%, well above
the 2.8% reported in 2016, amid a favourable external environment.
Continued reform efforts and improved domestic business and
consumer sentiment added more thrust to economic growth.
The economy benefitted from considerable positive spillover from
the higher than expected growth in the EU, Georgia’s largest trading
partner. Most CIS countries started to recover from the slowdown
experienced in 2014-16. This translated into a sharp increase in
exports of goods, as well as higher tourism and remittance inflows
from these countries.
Growth was synchronised across a broad range of economic
sectors, mostly driven by services. In 2017, acceleration of growth
was mostly on the back of the transport and communications and
trade sectors. Transport and communications expanded by 6.2%
YoY, compared with a contraction of 3.1% YoY in 2016, while the
trade and repairs sector posted 6.6% YoY growth in 2017, up from
2.4% a year earlier. Growth remained in double digits in the
construction sector (up 11.2% YoY) and hotels and restaurants
(up 11.2% YoY), the former supported by higher public investments
and the latter by a sharp increase of tourism inflows.
This solid macroeconomic performance was reflected in Moody’s
decision in September 2017 to upgrade Georgia’s Sovereign credit
rating from Ba3 to Ba2, maintaining the outlook at stable, due to the
improved trade and investment relationship and the strengthened
banking supervision framework. Fitch also revised Georgia’s credit
rating outlook from stable to positive in March 2018 to reflect
accelerating growth and improved resilience of the economy.
The existing dynamics of decreasing unemployment and pick-up
in jobs in business sector continued in 2017 as well. In 2017
employment in the business sector went up by 5.6% YoY.
External inflows and exchange rate
Given the positive trend in external inflows, Georgia’s current
account balance improved markedly. In 9M 2017, the current
account deficit stood at 7.1% of GDP, compared with 11.2% a
year earlier. From the perspective of the saving-investment gap,
the lower current account deficit was primarily due to the
increased saving level in the country, which sets the stage for
even more sustainable growth and a reduced current account
deficit going forward.
Chart 1. Current account deficit and net foreign direct
investment (% of GDP)
%
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Source: National Bank of Georgia, National Statistics Office of Georgia (Geostat)
%
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Chart 2. Exports, tourism and remittances YoY
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TBC Bank Annual Report and Accounts 2017
Exports
Tourism
Remittances
2013
2014
2015
2016
2017
In 2017, exports of goods surged by 29.1% YoY with diversified
growth across different regions. Exports to CIS countries
increased the most (up 60.0% YoY) due to the recovery seen in
these economies, albeit from the low base of the previous year,
as exports to the CIS had halved from 2013 to 2016. Exports
continued to grow to the EU (up 13.0% YoY) and other countries
(up 12.2% YoY) as well. Notable export growth to China continued
(up 23.4% YoY), making it the fifth-largest destination for Georgian
goods. The free trade agreement with China that came into effect
from the beginning of 2018 should further boost Georgian exports
to one of the world’s largest markets.
Imports of goods increased by 9.4% YoY amid a domestic demand
recovery and higher oil prices. Imports went up by 18.4% for
petroleum products, by 10.6% for consumer goods and by 5.0%
for capital and intermediate goods. The balance of trade in goods
worsened slightly, edging down by 1.4%, or roughly US$ 70 million
in absolute terms.
Tourism revenue grew by an estimated 26.9% YoY with the total
number of visitors exceeding 7.5 million as Georgia is becoming
an increasingly popular tourist destination for visitors from ever
more countries. While its immediate neighbours still account for
most incoming visitors, tourism inflows from the EU and Middle
East have been on an upward trend.
Remittances climbed by 19.8% YoY, including by 15.1% YoY from
the EU and by 15.6% YoY from the CIS. Growth of remittances
from other countries stood at a sizeable 31.3% YoY. Among the
latter group of countries, Israel and Turkey made the highest
contributions with respective YoY increases of 96.1% and 25.6%.
The real effective exchange rate supported the competitiveness of
Georgian goods and services exports, as it remained somewhat
below its long-term trend, depreciating by 4.5% QoQ and 2.2% YoY
in Q4 2017.
As of the year-end, the USD/GEL exchange rate appreciated by
2.1% YoY, while the EUR/GEL rate depreciated by 11.1%, reflecting
the EUR strengthening against the USD. As expected, the stronger
EUR coincided with improved growth in the EU, as well as higher
commodity prices, which had an overall positive impact on the
Georgian economy.
Inflation and monetary policy
Annual inflation as measured in terms of CPI was relatively high
throughout 2017, reaching 6.7% by the year-end. Inflation
exceeded the target as a result of the one-off increase of excise
taxes on petroleum and tobacco and the customs tax on
automobiles. In 2H 2017, higher oil prices and a weaker nominal
effective exchange rate added to the inflationary pressure. To curb
second-round effects on inflation, the National Bank of Georgia
raised its policy rate by 0.25 pp to 7.25% in December 2017, where
it remained at the year-end, as the pressure on prices from the
exchange rate eased along with the appreciation of the GEL’s
nominal effective exchange rate. In its latest guidance, the
National Bank of Georgia reported that inflation should align
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closer to the 3% target in 2018, when the one-off effects of the
increased import taxes on petroleum, automobiles and tobacco
will drop out of the CPI inflation figures. This is confirmed by the
deceleration of annual inflation to 4.3% and 2.7% in January and
February 2018, respectively.
The National Bank of Georgia continues to follow its inflation
targeting framework, which calls for a flexible exchange rate
to support economic growth and the GEL’s long-term stability.
For 2018, the inflation target was decreased to 3%, which
should support a stronger nominal exchange rate for the GEL
going forward.
Fiscal policy
The Ministry of Finance delivered on its commitment to maintain
a sustainable budget deficit in 2017 while accelerating the pace
of investment in public infrastructure. The budget deficit came in
at 3.8% of GDP, down from 3.9% in 2016. As a percent of GDP,
capital spending edged up from 4.1% in 2016 to 4.8% in 2017,
while social expenditures declined from 10.0% to 9.3%, and
government consumption1 fell from 9.2% to 8.4%. The ratio of
government consumption to GDP reached the lowest level of the
past 10 years, reflecting the successful attempts to optimise
government spending on salaries and the purchase of goods
and services. Further steps were taken to enhance the cost
efficiency of public institutions. Starting from 2018, the number
of ministries was reduced from 18 to 14. This initiative is a
welcome development from the perspective of reducing the
bureaucratic burden.
The public debt level remains comfortable at around 44.0% of GDP
as of the year-end, well below the upper limit of 60%.
In addition, the government has continued its efforts to increase
the transparency of public finances. According to the 2017
assessment by the International Budget Partnership, Georgia
ranked fifth among the 102 countries surveyed, indicating its high
levels of transparency, oversight and public participation in the
budgeting process. In the Open Budget Index ranking, Georgia
outscored all EU countries except for Sweden and Norway.
Financial sector
The financial sector, dominated by banks, continues to grow under
a prudent regulatory framework. In 2017, the banking sector’s
total assets increased by 14.7% YoY to GEL 34.6 billion.
The total loan portfolio increased by 17.8% YoY to GEL 22.3 billion,
or 58.6% of GDP, while the growth excluding FX effect was 19.3%.
The loan portfolio growth was primarily driven by loans in the
national currency (up 46.3% YoY), while foreign currency loans
increased by 5.0% (excluding foreign exchange effect).
In 2017, the National Bank of Georgia and the government
introduced measures to reduce the economy’s dependence on
foreign currency, bringing down the share of the loan portfolio
denominated in foreign currency. Additionally, new liquidity
1 Budget spending on salaries and goods and services
TBC Bank Annual Report and Accounts 2017
17
Strategic Report OverviewStrategic Report Strategy & Performance
management instruments and an expanded collateral base allowed
banks to promote lending in GEL more actively. The share of foreign
currency deposits declined by 5.9 pp YoY (5.4 pp without the FX effect)
to 65.3%, while the share of loans in foreign currency declined by 8.3
pp YoY (7.8 pp without the FX effect) to 57.1%.
The National Bank of Georgia has enhanced the capital adequacy
framework according to the Basel III requirements. The new
regulatory requirements are aimed at further increasing the banking
sector’s capacity to absorb any possible shocks in the future.
The updates envisage the introduction of additional capital
requirements for systemically important banks, as well as a
countercyclical capital buffer. These requirements will be phased in
gradually and will further increase the banking sector’s resilience.
The quality of the financial sector’s credit portfolio remains robust.
In Q4 2017, the share of non-performing loans1 in the total loan
portfolio stood at 2.8%, down 0.3 pp QoQ and 0.7 pp YoY.
Going forward
In 2018, the International Monetary Fund (IMF) expects the
momentum of global growth to remain high in advanced, emerging
and developing market economies. Georgia’s economy should
continue to benefit from the healthy growth of its main trading
partners, buoyed by the further expansion of inflows from exports,
tourism and remittances.
Aside from the favourable external environment, ongoing structural
reforms, improved trade and investment relationships and a
strengthened banking supervision framework further improve the
country’s investment environment. For 2018, the IMF expects growth
of 4.2% of GDP, while the European Bank for Reconstruction and
Development (EBRD), the government and the National Bank of
Georgia project a slightly higher rate of 4.5%. As for 2022, IMF
forecasts GDP growth rate of 5.5%. Growth at these levels should
allow Georgia to remain one of the fastest-growing economies in
CEE and the CIS.
1 90 days past due loans
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TBC Bank Annual Report and Accounts 2017
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Strategic Report OverviewStrategic Report Strategy & Performance
BUSINESS MODEL AND STRATEGY
OUR KEY STRENGTHS
Our key strengths underpin our strategy and
business model. As we live and operate in
the era of digitalisation, our ambition has
been translated into a clear vision to be the
best digital financial services company in
the region1.
1 Region in this context comprises Armenia, Azerbaijan and Georgia.
Leading position in the market with a track record
of growth and profitability
TBC Bank is the largest bank in Georgia by all key metrics, with market
shares of 38.2%2 and 39.8%2 in total loans and total deposits respectively.
Straightforward business model focused on
financial service activities
We have a straightforward business model focused on financial
service activities.
We continue to record strong organic growth and strengthen our
positions by the acquisition and subsequent integration of Bank
Republic in 2016 and 2017.
As a result, we recorded respective compound annual growth rates
of 32.1% and 33.0% for loans and deposits over 2014-17 (26.2% and
30.2%, respectively, excluding Bank Republic). Over the same period,
return on equity (ROE) for the full year stood above 20%, supported
by strong interest and non-interest income, as well as improving
cost efficiency.
This allows us to fully concentrate on our strategy and execution,
as well as to build trusted relationships with our business clients.
We invest in subsidiaries that operate in financial services and related
fields, and support the expansion of our business.
Leading partner for businesses in Georgia
Our business model is based on building long-term partnerships
with businesses, guiding and supporting them at every stage of
their development.
Superior customer experience
We offer a superior customer experience in all our channels by caring
about our customers’ needs and constantly seeking to improve our
service levels. We strive to create maximum value for our customers
and eliminate unnecessary barriers in our communication.
We have been growing together with our business customers from
the very beginning of Georgia’s independence. Over the past 25 years,
we have gained strong market expertise and a solid understanding of
our customers’ financial needs. This allows us to offer them the right
solutions at the right time.
We have the highest customer satisfaction scores3 in the Georgian
banking sector and hold a leading position across the country’s entire
retail industry.
To further support our business customers, we offer added-value,
free-of-charge non-financial services, including various training
courses, individual consultations and conferences.
2 Based on data published by the National Bank of Georgia as of 31 December 2017
3 Based on surveys conducted by independent research companies IPM and ATC
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Strong brand
TBC Bank is one of the most trusted and reputable brands in Georgia.
We are not only the first bank of choice for customers, but are also widely
recognised as one of the most desirable employers and the leading
company in the country in terms of corporate responsibility.
We are proud to have been named “Best Bank in Georgia” for many years
in a row by leading international financial magazines, including Global
Finance, EMEA Finance, Euromoney and the Banker.
Our listing on the London Stock Exchange’s premium segment and
inclusion in the FTSE 250 Index have further strengthened our brand
in both local and international markets.
Skillful and engaged team
Our people play a vital role in our success and we are committed to
building the best team by coaching, engaging and motivating them to
excel in their areas of responsibility and beyond.
We have a strong team of more than 7,000 people who are dedicated
to achieving the company’s strategic objectives and are proud to be
members of our big “TBC family”.
Our staff engagement score stands as high as 91%1 and we continuously
strive to create the best working environment for our people.
Powerful multichannel capabilities with a strong
focus on digital
We operate a wide distribution channel platform, which allows our
customers to choose their preferred way of interacting with us.
As the usage of our digital channels is growing rapidly, especially
mobile banking, we continue to invest in smart, remote solutions
offering our customers such innovative services as chatbot, mobile
wallet and a voice biometric recognition system.
At the same time, we continue to expand our network of self-service
terminals, which offer both cash and cashless payment functionality.
By the end of 2017, the number of these terminals reached 2,790.
Experienced management team and
high-quality corporate governance
We pride ourselves on having one of the most experienced and
well-balanced boards in the region with a firm commitment to the
highest standards of corporate governance.
The Board consists of nine members, with two founding shareholders
being among the most successful businesspeople in the county,
five independent non-executives with vast experience and established
reputations in the world’s financial centres, and two highly skilled
and experienced executives.
Our management team is comprised of eight members with a unique
mix of international experience and strong local expertise. The CEO
and first deputy CEO have been with the bank for almost 25 years.
1 91% of all employees feel involved in and committed to TBC Bank
TBC Bank Annual Report and Accounts 2017
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Strategic Report OverviewStrategic Report Strategy & Performance
BUSINESS MODEL AND STRATEGY
CONTINUED
OUR MODEL IS DESIGNED TO
CREATE VALUE FOR ALL OF
OUR STAKEHOLDERS
We offer a full range of banking services
to retail and business customers,
structuring our business into three
segments:
Our key strengths
What we do
u Leading position in the market with a
u Retail, which serves around 75% of
track record of growth and
profitability
u Straightforward business model
focused on financial service activities
u Strong brand
u Powerful multichannel capabilities
with a strong focus on digital
u Superior customer experience
u Leading partner for businesses in
Georgia
u Skillful and engaged team
u Experienced management team and
high-quality corporate governance
Georgia’s adult population
• Mass retail
• Affluent customers (“TBC Status”)
• High net worth individuals
u Corporate and investment banking,
which serves all major sectors of the
economy
• Large corporates
• Mid-sized corporates
u Micro, small and medium enterprise
(MSME), which serves 63%1 of newly
registered businesses in Georgia
• Micro and small businesses
• Medium-sized businesses
• Start-ups
Read more on page 20-21
Read more on page 30-53
1 Data is for FY 2017, source: www.napr.gov.ge, the National Agency of Public Registry
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TBC Bank Annual Report and Accounts 2017
How we generate profit
How we share value
u Interest income mainly from lending
u Sustainable returns for our
activities
shareholders
u Fee and commission income primary
related to card operations, settlement
transactions, trade finance and
insurance
u Additional source of income from
brokerage, investment banking and
asset management
u Prudent risk management resulting in
low cost of risk
u Cost savings from streamlining
internal processes and increasing
automation
u Well-suited solutions and superior
service to enable our customers to
succeed
u Challenging and rewarding careers
for our people
u Supporting young generation, sports
and culture
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TBC Bank Annual Report and Accounts 2017
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BUSINESS MODEL AND STRATEGY
CONTINUED
STRATEGY
TBC Bank’s main source of income is interest income and fee and
commission income generated by the core banking business and
other related financial activities. In the long term, we aim to continue
offsetting the decreasing trend in net interest margins through
increasing fee and commission income and operational efficiency.
We see significant opportunities in the insurance business through
our recently acquired subsidiary, TBC Insurance, with the ambition to
become a market leader in the medium term. Our payment business,
including its card business, also offers tremendous growth potential
and we are actively utilising this by developing new products.
With Georgia’s increasing trade flows, we see rising demand for trade
finance products, which gives us a great opportunity to leverage our
strong trade finance capabilities. Our brokerage, investment banking
and asset management businesses will become an increasingly
important source of income in the future, especially with upcoming
pension reforms and the development of capital markets in Georgia.
At the same time, we are focused on streamlining our internal
processes and increasing automation levels within the Group in order
to improve efficiency and flexibility, as well as to lower operating costs.
Our strategic priorities
Progress
Deepen relationship with customers and deliver sustainable growth
As the market leader and holding 38.2%1 of total loans and 39.8%1 of total
deposits, we aim to continue to grow in line with the market and to maintain our
leadership position. At the same time, we seek to engage with our clients more
by offering them new products and services, and creating various ecosystems.
Progress in 2017
Product per customer ratio in retail
segment increased to 3.9 from 3.7
Non-interest income grew by 34.8%
year-on-year
Further improve our customer experience
We take customer experience very seriously and are committed to exceeding our
clients’ expectations rather than just meeting their needs. Our front office staff
are more than just sales people; they listen carefully to clients and try to find the
most suitable solutions for them, acting as consultants.
Progress in 2017
Offloading ratio increased by 4.2pp to 88.3%
Mobile banking penetration ratio increased by
7.2pp to 31.4%
Further enhance digital capabilities of our multichannel platform
As more and more customers are moving to digital channels, we strive to
respond to the changing preferences of our clients by continually developing and
enhancing our digital value propositions. We are continuously working on adding
new features and capabilities to our award-winning internet and mobile banking
applications, as well as by introducing additional innovative solutions.
Progress in 2017
Net promoter score2 (NPS)in mass retail – the
gap with our peer bank improved by 2.8 pp
Customer satisfaction score3 in mass retail –
the gap with our peer bank improved by 0.9 pp
Increase operating efficiency and automation
We continue to simplify and streamline our business process in the front and
back offices by eliminating unnecessary bureaucratic procedures. We also
continue to upgrade our banking systems and capabilities to keep in line with
the newest technological developments.
Progress in 2017
Underlying cost to income ratio
decreased by 2.4pp to 40.5%
Cost per asset ratio decreased
by 1.0pp to 3.1%
1 Based on data published by the National Bank of Georgia as of 31 December 2017
2 Based on survey conducted by independent research company ACT
3 Based on surveys conducted by independent research companies ACT and IPM
24
TBC Bank Annual Report and Accounts 2017
conducting a proper product and segment profitability analysis, and
targeting the right portfolio mix.
As discussed above, we aim to offset the decrease in NIM by increasing
other operating income through our initiatives, including increasing
fees from the insurance business, card operations, trade finance, and
brokerage and asset management products and services.
Last year we observed an accelerated pressure on net interest margin
(NIM) due to competition in loans and regulatory changes. As these
factors will remain in the future, we have added a new strategic
priority: to proactively manage our NIM.
Our goal is to ensure that our NIM remains stable in the short to
medium term.
We will be working on various initiatives, both internally and with one
of the world’s leading consulting firms. This will include introducing
appropriate customer segmentation and pricing methodologies,
Medium-term targets
Medium-term financial targets
Loan book growth rate at c.15% per year
Return on equity target of above 20%
Cost to income ratio below 40%
Dividend payout ratio 25-35% of consolidated
net profit
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25
Strategic Report OverviewStrategic Report Strategy & Performance
BUSINESS MODEL AND STRATEGY
CONTINUED
KEY PERFORMANCE INDICATORS
We closely monitor the progress against our strategy and have developed key
performance indicators (KPIs) that measure our financial and operational
performance. These KPIs are closely aligned with our strategy and ensure that we
deliver on our goals and achieve sustainable growth.
In 2017, we have recorded strong underlying and reported net profit,
which was up by 35.1% and 20.7% year-on-year respectively. Our
underlying return on equity stood at 21.4% in line with our medium-
term target of above 20%. Underlying NIM decreased by 1.1pp due to
increased competition and more stringent liquidity requirements, but
still remained solid. The decrease in NIM was offset by the increased
non-interest income, which grew by 34.8% year-on-year, improved cost
efficiency, which resulted in underlying cost to income ratio of 40.5%,
as well as prudent cost of risk management, leading to 1.2% cost of
risk. Over the same period, our loan book grew by 16.2%, while the
asset quality remained solid, with our non-performing loans ratio
standing at 3.3%. We also achieved strong performance in
digitalisation: our offloading ratio increased by 4.2pp and our mobile
banking penetration ratio increased by 7.2pp. Furthermore, our
customer and employee satisfaction scores remain exceptionally high.
Underlying net profit (GEL million)
Reported net profit (GEL million)
35.1% growth
20.7% growth
2017
2016
2015
273.3
218.7
369.2
2017
2016
2015
359.9
298.3
218.7
Underlying return on average equity
(ROE, %)
Underlying net interest margin
(NIM,%)
0.8pp growth
1.1pp reduction
2017
2016
2015
21.4%
20.6%
20.1%
2017
2016
2015
6.5%
7.6%
7.8%
Reported non-interest income (GEL
million)
34.8% growth
Underlying cost to income ratio
2.4pp reduction
2017
2016
2015
190.6
164.8
257.0
2017
2016
2015
40.5%
42.9%
43.9%
26
TBC Bank Annual Report and Accounts 2017
Cost of risk (%)
Loan book market share1 (%)
0.2pp growth
0.7pp reduction
2017
2016
2015
1.2%
1.0%
2017
2016
2015
1.7%
38.2%
38.9%
28.7%
Retail transactions offloading ratio
Mobile banking penetration ratio (%)
4.2pp growth
7.2pp growth
2017
2016
2015
88.3%
84.1%
79.1%
2017
2016
2015
31.4%
24.2%
15.4%
Employee satisfaction2
ENPS
11pp growth
Employee satisfaction2
Engagement index
3pp growth
2017
2016
2015
55%
44%
49%
2017
2016
2015
Customer experience3
NPS in mass retail segment,
gap with peer bank
2.8pp growth
Customer experience3
CSAT in mass retail segment,
gap with the peer bank
0.9pp growth
2017
2016
2015
4.7%
16.7%
13.9%
2017
2016
2015
5.5%
91%
88%
91%
16.6%
15.7%
1 Based on data published by the National Bank of
Georgia as of 31 December 2017; 2016 market
share includes Bank Republic
2 Employee Engagement Index and Employee
Net Promoters Score were measured by an
independent consultant
3 Based on survey conducted by independent
research companies: ACT and IPM; 2015
figures are not directly comparable with 2016
and 2017 data, as they are calculated per
different methodology
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TBC Bank Annual Report and Accounts 2017
27
Strategic Report OverviewStrategic Report Strategy & Performance
INFOCUS
YEARS OF
BUSINESS
SUPPORT
NUMBER OF CLIENTS
2017
c. 2.2 m
0
1992
DIVISIONAL REVIEW
RETAIL BANKING
Overview
Retail banking is our largest segment. We serve more than 2 million
customers, which is around 75% of the adult Georgian population.
Our retail banking is differentiated by our outstanding customer
experience, world-class digital channels, strong brand, advanced
analytical capabilities, as well as innovative products. We are pioneers in
Georgia following the launch of the first Georgian speaking chatbot
available through facebook messenger and a voice biometric recognition
system in our call center.
Our retail segment is comprised of three sub-segments: high-net-worth
individuals (HNWI), affluent customers (TBC Status) and mass retail.
Number of clients
Loan book share
Deposit share
Cross-selling ratio
Mass retail
TBC Status
HNWIs
2.0 m
61.1%
38.3%
3.8
30,052
36.9%
28.8%
9.0
2,354
2.0%
32.9%
6.3
2017 highlights
40.2%1
Retail loan market share
41.3%1
Retail deposit market share
49.5%
Retail share in total loan book
56.0%
Retail share in total deposits
c. 2 million customers
Around 75% of adult population in Georgia
88.3%
Offloading ratio in mass retail
1 Based on data published by the National Bank of Georgia as of 31 December
2017; in this context retail refers to individual customers
See our Case Studies starting from page 34
30
TBC Bank Annual Report and Accounts 2017
Strategy
Further enhance our customer
experience
Continue to innovate and offer the
most up-to-date digital solutions
on the market
Improve customer engagement
by increasing the products per
customer ratio in mass retail
Increase the number of customers
in the affluent segment
Increase assets under management
in the high-net-worth individuals
segment
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Retail sub-segments
TBC Bank serves mass retail customers through a well-
developed multichannel network with a special focus on digital
channels. Most banking transactions can be carried out online,
via self-service terminals or ATMs, and clients need to come to
branches only if they want to take out a mortgage or conduct
non-standard transactions.
Our TBC Status brand serves the affluent segment, including
individual clients with minimum monthly income of GEL 3,000
or a loan or deposit amount of at least GEL 30,000. TBC Status
differentiates itself with best-in-class personal bankers,
dedicated multichannel and tailored products and
value-added services.
Our personal bankers are highly qualified professionals who are
committed to understanding the clients’ financial needs and
offering them well-suited solutions. They strive to build lasting
relationships with customers, becoming trusted partners who
can always be relied on and are easily accessible. As our
customers’ long-term well-being is of utmost importance to us,
we carefully analyse their personal circumstances and goals
before coming up with solutions.
While we understand the importance of personal relationships,
we also realise that our affluent customers are busy and have
less time for banking, so we have modelled our TBC Status
banking concept around this idea. We have created dedicated
multichannel services for our affluent customers with a special
focus on digital channels. We serve our TBC Status clients
through a separate call centre with extended capabilities, as
well as internet and mobile banking offerings with enhanced
functionality, allowing most transactions to be conducted
remotely. In cases where our affluent customers still need to
come to a branch, they are seen in specially designed service
areas that offer additional comfort. We have around 70 TBC
Status service areas in 27 branches. In addition, our affluent
customers are entitled to a priority pass in all branches that
allows them to skip any lines and be served first.
Other benefits of TBC Status include:
preferential rates on various TBC Bank products and
services, including higher interest rates on deposits and
lower commissions on money transfers;
special offers, discounts or cash back from certain retailers,
hotels, restaurants and other partners; and
exclusive events for TBC Status customers and special
discounts for main concerts, such as our annual
Jazz Festival.
In addition, we offer a wide range of lifestyle products through
our concierge service, including:
holiday planning;
restaurant reservations;
flower delivery;
cleaning service; and
auto services.
The HNWI segment is comprised of resident and non-resident
clients with deposit amounts equal to or above US$ 100,000.
Our representative office in Israel, TBC Invest, allows us to
attract non-resident clients more effectively from all over the
world. We serve our HNWI clients in our VIP service area, which
offers an impeccable combination of luxury, comfort and
privacy. Our personal bankers are much more than just service
managers, they are consultants and wealth planners dedicated to
maximising customers’ prosperity by offering them the best
investment opportunities available on the market.
TBC Bank Annual Report and Accounts 2017
31
Strategic Report OverviewStrategic Report Strategy & Performance
DIVISIONAL REVIEW CONTINUED
Key strengths
Multichannel distribution platform
Branches
We have one of the most productive, modern and visually appealing
branch networks in Georgia with 77 branches in Tbilisi and 77
regional offices. Following the merger with Bank Republic, we have
redesigned and rebranded its former branches.
ATMs
We have the largest ATM network in Georgia with about 1,150 ATMs,
including partner banks.
Self-service terminals
As Georgia is still largely a cash-based society, our self-service
terminals with cash payment functionality remain a very important
channel for our customers. It represents a strong substitution for the
bank branches, as it offers the majority of branch functionality. We
have 2,790 self-service terminals around Georgia.
Call centre
Our best-in-class call centre operates 24/7 and is a particularly
strong channel for sales and customer inquiries. Around 21.6% of all
products sold in remote channels are conducted in the call centre.
The call centre is integrated with our Siebel CRM system, which
allows us to deliver personalised services to our customers, as well
as achieve faster lead conversion.
Internet and mobile banking
We pride ourselves on having the best-in-class internet and mobile
banking applications with customer review ratings of 4.9 stars on
Google Play, 4.8 stars in the Apple App Store and the highest number
of active online users in Georgia. Since its launch in 2012, we have
received many digital awards at the national and regional levels from
Global Finance, as well as three global awards: the world’s “Best
Integrated Corporate Bank Site” in 2017, the world’s “Best
Integrated Internet Bank Site” in 2013, and the world’s “Best Bill
Payment and Presentment” in 2013.
Strong brand and superior customer experience
TBC Bank is one of the most trusted and well-known brands in Georgia
and is associated not only with the best financial services, but also with
an outstanding contribution to the country as a whole. For 25 years,
we have been working diligently to build long-standing relationships
and deliver a superior customer experience to strengthen our brand and
gain the trust of prospective customers, thus encouraging them to
explore our services and become clients. As customer satisfaction is a
vital part of our success, we are committed to continually improving our
customer experience to further enhance our leading position.
Advanced analytical capabilities
Since 2014, we have operated advanced data analytics that help
us to better understand our customers’ needs and anticipate their
behaviour. This, in turn, enables us to increase sales efficiency
and productivity, as well as improve customer loyalty. As a result,
this year we have increased our customer reactivation rate1 by
22.8% and decreased our churn rate2 by 8.2%.
32
TBC Bank Annual Report and Accounts 2017
Main achievements of 2017
In 2017, our retail loan book grew by 15.0% to GEL 4,233.2 million,
while retail deposits increased by 16.8% to GEL 4,378.3 million in
2017. As a result, the share of retail book in total loan portfolio stood
at 49.5% and the share of retail deposits in the total deposit portfolio
amounted to 56.0% as of 31 December 2017.
As the number one bank in Georgia, we are constantly working to
provide our customers with innovative, added-value services and
products tailored to their needs and interests. We continue to invest
our time and money to strengthen our multichannel platform and to
reinforce our leadership in retail banking.
One innovative project implemented during the year was the first
chatbot available via Facebook Messenger. We developed and
introduced the first Georgian-speaking chatbot, Ti Bot, which can not
only understand typed messages, but also understand voice
messages and respond accordingly. Ti Bot can perform simple
transactions including P2P transfers and purchasing tickets, as well
as provide helpful information about subjects as diverse as the
weather forecast, currency exchange rates, various entertainment
offerings, branch and ATM locations. Ti Bot has proven very popular
among our clients and we have received around 6.5 million
messages from 124,000 customers since launch.
We have also achieved outstanding results in terms of offloading our
branches. In 2017, 88.3% of all retail transactions were conducted
remotely. The main drivers were increased transactions through our
mobile banking and self-service terminals. In addition, mobile
banking penetration jumped from 24.2% to 31.4% YoY. At the same
time, 44.5%3 of total sales were conducted digitally or through the
call centre.
As an innovator in the card business, we constantly develop new
products and offerings to support cashless transactions. In April
2017, we launched a new loyalty programme called Ertguli. The
literal Georgian meaning of the word is “loyal”, but it can also be
deconstructed into two separate words, “one” and “heart”, which is
where the inspiration for our logo is drawn from. All customers who
own TBC Bank plastic cards automatically participate in the
programme and can accumulate points on each purchase.
Furthermore, within the Ertguli loyalty programme, we have
developed a new credit card that gives our customers an opportunity
to collect more points at partner merchants, as well as participate in
special promotions and receive exclusive discounts. In addition, the
card has a pre-approved instalment limit and it is no longer
necessary to fill out a special form and wait for approval at a branch
desk. As a result, our credit card sales increased significantly in
2017, when we issued around 160,000 new credit cards, up 79.4%
YoY. Our priority for 2018 is to increase card transactions by fully
automating and simplifying processes. In addition, in May 2017, we
developed youth and student cards with distinctive benefits tailored
to these clients’ interests. The cards also have a unique design,
which can be changed based on owners’ wishes and interests. For
youth cards, parents can set maximum daily expenditure limits to
foster appropriate spending habits in their children.
Furthermore, in December, we launched a mobile wallet application that
allows customers to pay directly using the near-field communication
(NFC) technology built into their smartphones. Another 2017 innovation
was the addition of a new feature to our ATMs allowing our customers to
withdraw money by means of contactless cards, which reduces the time
per transaction from around 40 seconds to 25 seconds.
Another breakthrough this year was the introduction of a voice
biometrics recognition system. In partnership with Verint Systems, a
global leader in actionable intelligence solutions, we developed and
implemented a voice biometrics recognition system in our call centre
that helps us to identify a person based on their voice. The main benefits
are that customers can be verified quickly, enabling us to deal with a
greater number of calls and reduce fraud through identity theft. We are
the first bank in the region4 to have implemented such a system.
To serve our clients better, we constantly refine our IT infrastructure and
analytical capabilities. In 2017, we tested big data solutions and data
architecture, successfully developed a proof of concept and are currently
working on implementing the big data cluster, which will allow us to
generate new revenue streams, deliver better customer service and
improve operational efficiency. In addition, we developed spending
analysis that enables us to accommodate customer needs and offer
them products and services tailored to their interests. As a result, we
have achieved strong results in cross-selling and increased our products
per customer ratio by to 3.9 in December 2017 from 3.7 in 2016.
1 Customers who were passive at the beginning of the period and became active at the
end of the period / total number of active customers at the beginning of the period
2 Customers who were active at the beginning of the period and became passive at the
end of the period / total number of active customers at the beginning of the period
3 For products that are being sold in remote channels
4 Region in this context comprises Armenia, Azerbaijan and Georgia
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33
Strategic Report OverviewStrategic Report Strategy & Performance
RETAIL: CASE STUDY
TINATIN RUKHADZE
LONG-STANDING
PARTNERSHIP
WITH TBC STATUS
Tinatin Rukhadze is a successful Georgian businesswoman.
In 2002, she founded ACT, a leading research and consulting
company with offices in Georgia, Azerbaijan and Kazakhstan.
In addition, in 2015, she established the first coaching company
in Georgia, GROWIN, which provides a wide range of professional
training courses and coaching sessions. To support women and
encourage their active participation in business, she co-founded
the “Women for Tomorrow” business federation.
Fifteen years ago, Tinatin became a TBC Bank customer and began an
enduring partnership with the Bank. Since 2010, she has been a TBC
Status client and benefited from the bespoke services that the Bank offers.
For Tinatin, TBC Bank has been a consistently reliable partner that facilitates
her financial needs and offers a superior customer experience. Her personal
banker anticipates her needs and always accommodates her requests,
offering tailor-made solutions. Tinatin highly values the flexibility of our
digital channels and performs most of her transactions remotely and,
whenever necessary, she can also easily contact her personal banker,
who is always ready to assist, via Viber, email or phone. In addition,
Tinatin makes good use of spending analytics, which is available via the
internet and mobile banking, to monitor monthly expenses and plan
future finances.
34
TBC Bank Annual Report and Accounts 2017
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“TBC Bank is the perfect partner for
businesspeople. I often have to travel, and can
always rely on TBC Bank’s innovative digital
channels to perform the transactions that I
need. In addition, I acknowledge TBC Bank’s
strong corporate responsibility towards the
community. During the years I have been
a customer, I have witnessed many social
projects that have been financed by the bank
and I would like to especially highlight the
innovative statusdonates.ge platform, which
was launched in 2017 and allows people to
choose the project that they want to support.”
Tinatin Rukhadze
Successful Georgian businesswoman
TBC Bank Annual Report and Accounts 2017
35
Strategic Report OverviewStrategic Report Strategy & Performance
“TBC Bank is an undisputed leader in the
digital segment. I can’t remember when I
last visited a branch, since I can conduct
all my banking transactions online. I am
very excited about the new digital product,
TBC Wallet, which was just launched and
I started using from the first day. It allows
me to pay for items using a mobile device
instead of a credit or debit card, which is
much faster and more convenient.”
Giga Paitchadze
Head of e-governance development at the
Administration of the Government of Georgia
36
TBC Bank Annual Report and Accounts 2017
RETAIL: CASE STUDY
GIGA PAITCHADZE
A STRONG SUPPORTER
OF OUR DIGITAL
BANKING SOLUTIONS
Giga Paitchadze has been with TBC Bank for more than 15
years. He is head of e-governance development at the
Administration of the Government of Georgia, as well as a
board member at JumpStart Georgia, a lecturer at Georgian
Institute of Public Affairs, and a mentor for a project at
International Black Sea University.
Due to his very busy schedule, he has no time to visit
branches and therefore actively uses our digital channels.
Mr Paitchadze is an active user of our internet and mobile
banking services and performs most transactions online,
including opening deposit accounts, ordering cards, paying
utilities, transferring funds and exchanging currency. He
considers our call-centre services to be among the best in
Georgia, especially after implementing the voice biometric
recognition system, which allows for much faster customer
authentication and reduces the possibility of fraud.
Mr Paitchadze is one of the most avid members of our loyal customers’
group on Facebook, which helps us to test our newly introduced digital
products and provides feedback and valuable customer insights. As
superior customer experience is such a crucial part of our business
model, we highly value our clients’ opinions and consider their
suggestions to further develop our digital products and services.
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TBC Bank Annual Report and Accounts 2017
37
Strategic Report OverviewStrategic Report Strategy & Performance
DIVISIONAL REVIEW CONTINUED
CORPORATE AND
INVESTMENT BANKING (CIB)
Overview
TBC Bank is a leading corporate bank in Georgia with a strong
presence in all major economic sectors. In recent years, we have been
transforming into a “one-stop-shop” bank that offers a full range of
core and supplementary products, including lending products, trade
finance and factoring, treasury solutions, cash management and
digital banking services, as well as corporate finance advisory, debt
and equity capital markets, brokerage and research services through
our wholly-owned subsidiary, TBC Capital.
We differentiate ourselves by creating a client-centric, advisory-
focused business model whereby our highly skilled bankers find a
customised solution for each customer, optimising their financial
and capital structure. We have dedicated coverage teams for each
major sector of the economy, comprised of professionals with an
average experience of 10 years and strong sector expertise. Our
main priority is to build long-term relationships with our clients and
to become the preferred partner in all their business undertakings.
Strategy
Further accelerate the development
of the capital markets and
investment banking business in
Georgia and increase our footprint
in this area in the region
Further strengthen our coverage
of Georgian regions and mid-
corporate segment
Increase penetration of corporate
clients through the TBC Bank’s
services and products
2017 highlights
36.0%1
Corporate loan market share
37.9%1
Corporate deposit market share
28.9%
Corporate share in total loan book
30.8%
Corporate share in total deposits
c. 2,300 customers
1 Based on data published by the National Bank of Georgia as of
31 December 2017; in this context corporate refers to legal entities
See our Case Studies starting from page 40
38
TBC Bank Annual Report and Accounts 2017
Main achievements in 2017
We had a strong performance in 2017, increasing our loan book
by 20.0% YoY to GEL 2,475.4 million, while our trade finance
portfolio grew by 38.6% YoY to GEL 1,589 million. At the same time,
our deposits expanded by 28.6% YoY to GEL 2,410.9 million.
Consequently, our market shares reached 36.0%1 and 37.9%1 in
loans and deposits to legal entities, respectively.
We supported our robust growth by becoming the core bank for
leading industry players such as Coca-Cola, McDonald’s, Nikora2,
Silknet3 and Nova4. Our performance was further strengthened by
the contribution from the Bank Republic integration, including the
retention of key customers and employees. As a result, we gained
a high-quality pool of international customers, together with a
well-diversified, mid-corporate segment and advanced trade
finance capabilities.
As the demand for capital markets products and corporate finance
advisory services is increasing among large corporates in Georgia,
the need for sophisticated investment banking products and services
is becoming increasingly prominent. At the same time, evolving
legislation and regulation further supports the development of
capital markets in Georgia, which should, in turn, attract more
international investors. We aim to harness this opportunity by
developing a strong suite of investment banking products and
services to help our clients achieve their corporate goals and growth
objectives. In 2017, we further strengthened our investment banking
subsidiary by appointing a new managing director Irakli Elashvili,
who has more than 15 years of experience in Georgia and in global
universal and investment banks. We broadened the deal team and
revamped TBC Capital’s strategy to position it to benefit from
increased capital markets activity in Georgia and the region. During
the year, we completed several notable transactions: TBC Capital
was the sole arranger of Silknet3, Nikora2 and Imereti Greenery5
bonds via public and private placements. TBC Capital also advised
Tegeta Motors6 on obtaining a global credit rating.
Contribution to the economy
TBC Bank plays an important role in the growth of Georgia’s
economy by supporting leading players in all major economic
sectors to access financing, diversifying their source of funding
and gaining expert advice.
0.8%
2.1%
1.8%
1.7%
4.7%
4.3%
4.2%
4.4%
13.3%
2.8%
9.3%
3.3%
17.5%
■ Agriculture
■ Automotive
■ Communication
■ Construction
■ Energy & Utilities
■ Financial Services
■ Food Industry
■ Healthcare
28.0%
1.7%
■ Hospitality & Leisure
■ Metals and Mining
■ Real Estate
■ Services
■ Trade
■ Transportation
■ Other
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2 Nikora is a leading food producer company in Georgia
3 Silknet is a leading telecommunication company in Georgia
4 Nova is a leading manufacturer and importer of building materials in Georgia
5
Imereti Greenery is an agricultural company operating a modern greenhouse facility in
the Imereti region of Georgia
Tegeta is a leader in an automotive industry in Georgia
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Strategic Report OverviewStrategic Report Strategy & Performance
CIB: CASE STUDY
LOPOTA LAKE RESORT AND SPA
SUPPORTING
GEORGIAN TOURISM
Lopota Lake Resort and Spa is a luxury resort located on
a private lakeside surrounded by the Caucasus Mountains
in the heart of the Kakheti region. The breathtaking views,
cosy atmosphere and comfortable infrastructure makes it
an ideal place for relaxation and peaceful rest. The hotel
features 103 beautifully decorated rooms, three
restaurants, a night club, outdoor and indoor swimming
pools, and a deluxe spa. It also offers a wide range of
activities, including horse riding, quad-bike tours,
mini-golf and fishing.
The hotel started its operations in 2008 with just seven rooms and
TBC Bank actively assisted the company from a very early stage.
Since then, the resort has been growing rapidly with our support,
with annual revenue expanding from GEL 280,000 in 2008 to GEL 12
million in 2016, recording a compound annual growth rate of 60%
over the eight-year period. Alongside the provision of direct financing
to the company, we have also advised and assisted the hotel in raising
equity for its future development. In 2017, the company successfully
closed a transaction with the Georgian State-owned Equity
Partnership Fund, obtaining US$ 5.4 million. These funds will be
used to further expand the resort, allowing it to almost double the
number of rooms by the end of 2018. This should result in a sharp
increase in the number of guests from the current level of around
47,000 local and international visitors per year.
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“TBC Bank has been supporting us from
the very beginning and played an important
role in helping us to realise our ambition of
building a magnificent resort on a wild plot
of land, which helps to promote and support
Georgian tourism and hospitality.”
George Maisuradze
CEO and founder of Lopota Lake Resort and Spa
TBC Bank Annual Report and Accounts 2017
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Strategic Report OverviewStrategic Report Strategy & Performance
“Today, Georgian Beer Company exports
only a small portion of its products to
neighbouring countries, but we see great
potential to increase the share of exports
in the coming years due to our products’
unique qualities. Our goal is to establish
our brand in the region and become
ambassadors of Georgian products. We trust
that TBC Bank will continue supporting us
on our challenging journey.”
Kakha Kotrikadze
CEO of Georgian Beer Company
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TBC Bank Annual Report and Accounts 2017
CIB: CASE STUDY
GEORGIAN BEER COMPANY
LEADING PRODUCER
OF BEVERAGES
IN GEORGIA
Georgian Beer Company is a major domestic company that
produces beer and non-alcoholic beverages. It has a
modern factory near Tbilisi, in Saguramo village, that is
equipped with state-of-the-art European equipment. Its
products are based on unique spring water from the base
of Zedazeni mountain – a vital component of its high-
quality beverages. Among the company’s various brands,
Zedazeni is one of the most popular on the local market.
The company became TBC Bank’s customer in 2012, when it was
starting its operations. With our financial assistance, it has
significantly expanded its business and is now one of the leading
players on Georgia’s beverage market. In 2016, the company decided
to enter a new segment and start producing natural juice. We
provided funding for this purpose and the company built a facility
adjacent to the brewery for receiving and processing fruit from
nearby farmers. The new business line will contribute to economic
development by producing new Georgian products and creating new
jobs, and will also support agriculture.
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TBC Bank Annual Report and Accounts 2017
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Strategic Report OverviewStrategic Report Strategy & Performance
“I am impressed with the professional
attitude of TBC Bank’s team. They not
only provide loans for us, but also advise
on the most optimal financing structure,
as well as offer various useful products,
including payroll and treasury products.
In partnership with TBC Bank, we are
committed to further developing our
business and delivering valuable
services to our society.”
Nugzar Abramishvili
CEO of MediClubGeorgia
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TBC Bank Annual Report and Accounts 2017
CIB: CASE STUDY
MEDICLUBGEORGIA
PROVIDING HIGH-
QUALITY HEALTHCARE
TO GEORGIANS
MediClubGeorgia (MCG) is a leading provider of medical services in Georgia.
Its facilities are equipped with the latest technology from the world’s
leading manufacturers. MCG was established in 1999 and is part of an
international holding that aims to provide high-quality medical services in
the South Caucasus. The company consists of two strategic business units:
a multifunctional clinic and a learning resource centre.
• MCG’s clinic offers its customers a comprehensive range of services, including
general practitioner, paediatrics, therapy, cardiology, rehabilitation, surgery, and
world-class emergency aid. The clinic is equipped with three surgical suites and
features individual and common medical wards with 55 beds in total.
• The learning resource centre, a training unit, was established in 2004 as part of MCG
and provides CPR/first aid and emergency care training programmes to MCG staff
and outside contractors.
MCG has been accredited by Joint Commission International (JCI), an international
organisation working in more than 100 countries to improve patient safety and quality
of healthcare. JCI accreditation is considered the ‘gold standard’ in global healthcare.
MCG was the first clinic to be accredited by JCI in Georgia.
In 2011, TBC Bank became a partner of MCG and supported the company’s expansion by
providing a syndicated loan together with the EBRD (European Bank for Reconstruction
and Development) to purchase and renovate a new building and to acquire high-quality
equipment for the clinic. Since then, we have been closely cooperating with the company
and have provided a number of short-term loans for working capital needs, as well as other
operating products.
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TBC Bank Annual Report and Accounts 2017
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Strategic Report OverviewStrategic Report Strategy & Performance
DIVISIONAL REVIEW CONTINUED
MICRO, SMALL AND
MEDIUM ENTERPRISES
SEGMENT
2017 highlights
63%1
of newly registered legal entities choose TBC Bank
21.6%
MSME share in total loan book
13.1%
MSME share in total deposit portfolio
92.0%2
Offloading ratio of MSME segment
See our Case Studies starting from page 48
Overview
The micro, small and medium enterprises (MSME) segment serves
TBC Bank’s business clients that are not included in our corporate
portfolio. We take pride in being the leading bank for MSME clients
in Georgia, not only by the size of loan and deposit portfolios, but
also by being the top choice for MSME companies. Overall, 63%1
of newly registered legal entities in Georgia choose to bank with us.
We achieve this position by placing our customers’ needs first.
TBC Bank distinguishes itself by superior customer experience,
innovative offerings and extensive non-financial services.
Strategy
Continue to improve our superior
customer experience
Further develop our flagship
business support programme
Maintain our focus on digitalisation
by further enhancing our
multichannel platform
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TBC Bank Annual Report and Accounts 2017
Main achievements in 2017
Our MSME loan portfolio grew by 14.2% during the last year to
GEL 1,844.7 million, accounting for 21.6% of the total loan portfolio.
In 2017, the deposit portfolio increased by 23.6% and to GEL 1,027.7
million, representing 13.1% of the total deposit portfolio.
TBC Bank continues to attract and increase the number of MSME
customers. By the end of 2017, we served around 110,000 MSME clients.
To make banking easier and more comfortable for MSMEs, we offer
fully digital on-boarding, so that a prospective client can fill in the
application and open a current account without visiting our branch
(www.businessregistration.ge). If the client prefers to receive hard copies,
all the necessary documents are delivered by our eco-friendly car.
In addition, our award-winning multichannel offering enables our clients
to perform most transactions remotely, driving our offloading ratio as
high as 92.0%2 by the end of 2017.
We also actively cooperate with the government programme, “Produce in
Georgia”, which aims to support agriculture, manufacturing and hospitality
industries. Within the programme, borrowers can apply for a subsidy from
the government to lower their interest expense during the grace period.
This year, we also launched an innovative programme named “Startuperi”,
giving early-stage companies access to financing from a bank. The
programme also involves extensive non-financial support, such as
training, masterclasses, individual consultations and media coverage
for young companies. In addition, participant companies also receive
special offers from TBC Bank and its partners. The programme has
proved to be very successful and, by the end of 2017, 13,000 companies
took part in “Startuperi”, and we disbursed 168 loans totalling around
GEL 21 million. Please see figure 1 for more information.
The MSME segment’s strong performance is shaped by our continuous
efforts to transform our customer experience via innovative offerings.
We are the sole bank in Georgia offering a business support programme
to our clients, including training, workshops and individual consultations.
In 2017, around 4,400 companies attended training in areas such as
budgeting and analysis, innovations management, taxation, digital
marketing and simplified IFRS. Through these training sessions, we
provide an essential business toolkit to our clients, encouraging them to
fine-tune their businesses and become even more successful. We strive
to make our clients confident that we are more than just a bank: we are
their partners.
In collaboration with Georgia’s Revenue Service, we have created Business
Map (www.businessmap.ge), a useful benchmarking tool for companies.
We have analysed public big data and built an online business map where
companies can evaluate their performance against their competitors by
district, city, or nationwide. Business Map presents the following metrics:
revenue, costs, number of employees and payroll.
In November 2017, we organised our second annual business awards
ceremony, attracting up to 700 participants. This year, we have announced
winners in seven categories. We try to find and promote successful
Georgian businesses and encourage entrepreneurship in the country.
The event was a huge success and attracted 5.3 million views.
1 Data is for FY 2017, source: www.napr.gov.ge, the National Agency of Public
Registry
2 Excluding cash transactions
Figure 1
Within this programme, we offer three types of start-up loans:
General start-up loan
Start-up loan for hotels
Maximum amount
GEL 100,000,
Maximum amount
GEL 3,500,000
Maximum term - 7
years, grace period
- up to 1 year,
Maximum term - 12
years
Start-up loan
for agro business
Maximum amount
GEL 1,500,000
Maximum term
- 10 years
Grace period - up to
Grace period - up
Individual payment
2.5 years
schedule
Individual payment
to 5 years
Individual
schedule
payment schedule
Ability to participate
Ability to
participate in
“Preferential Agro
Credit Project”
which is
supported by
Georgian Ministry
of Agriculture
in government
programme
“Produce in
Georgia”
Ability to participate
in EBRD
programme, which
allows
10 - 15% cash-back
for purchase of the
equipment
31 December 2017
Outstanding
portfolio – GEL
c.3,200,000
Number of loans
31 December 2017
Outstanding
portfolio - GEL
c.12,000,000
Number of loans
31 December 2017
Outstanding
portfolio - GEL
c.5,800,000
Number of loans
- 76
- 38
- 54
No overdue loans
No overdue loans
No overdue loans
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TBC Bank Annual Report and Accounts 2017
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Strategic Report OverviewStrategic Report Strategy & Performance
MSME: CASE STUDY
IB MTHIEBI
RAISING
NEW TALENT
IB Mthiebi is one of the pioneer private secondary schools in Georgia.
Since 1995, the school has distinguished itself by the high standards
of its academic programme, as well as by its qualified faculty and
modern infrastructure.
The school was founded with the aspiration to set a new standard and create a
positive learning environment. When the school was set up, very few parents
entrusted a start-up school with their children, but today it is highly ranked and has
more than 1,200 students. The school’s founder is actively involved in continuously
developing the educational programme. In partnership with German shareholder IB,
the school faculty regularly participates in exchange training to enhance their
qualifications and learn about new teaching practices. As demand for the school
has grown, IB Mthiebi has decided to invest in its infrastructure to increase capacity
and create classrooms equipped with modern technology.
For TBC Bank, this was not just another commercial loan, it was a chance to have
a direct impact on developing an education system. In 2012-16, with financing from
the Bank, IB Mthiebi renovated its existing premises and built a new, 2,000 m2
campus that is fully equipped with the latest laboratories and IT infrastructure.
IB Mthiebi is one of the few schools in Georgia that has implemented the highest
safety and quality management standards, receiving the OHSAS 18001:20017 and
ISO 9001:2015 certificates.
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“We started our long-term relationship
with TBC Bank in 2003. We chose TBC Bank
because we are confident that the TBC team
understands the importance of education in
Georgia and encourages us to succeed.”
Nino Chikvaidze
Founder and director of IB Mthiebi
TBC Bank Annual Report and Accounts 2017
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Strategic Report OverviewStrategic Report Strategy & Performance
“TBC Bank had just launched its
Startuperi programme, which aims
to financially support start-ups and
promote entrepreneurship. So, when we
came up with the business idea and
needed financing, we decided to apply
for Startuperi.”
One of X-Park’s founders
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TBC Bank Annual Report and Accounts 2017
MSME: CASE STUDY
X-PARK
A NEW FORM OF
ENTERTAINMENT
In recent years, Georgia has entered the lists of top must-
see destinations from Condé Nast Traveler, Vogue and
Lonely Planet. Once a hidden gem, it is now under an
international spotlight. With growing numbers of tourists
visiting the country every year, hospitality and leisure
services have developed to offer a wide variety of
entertainment options. Three experienced enthusiasts
decided to set up the country’s only large-scale adventure
park in Dusheti region’s Tvalivi village.
X-Park offers its visitors an unforgettable experience, full of
excitement and adrenaline. The park covers 7,000 square metres
and is equipped with outdoor adventure tracks in the air and on land.
Visitors can choose from four available routes with varying difficulty
levels. The park is suitable both for lovers of extreme outdoor sports
and for teambuilding events.
The founders came up with the X-Park idea after successfully
operating another club for white water rafting.
The X-Park required a significant upfront investment to purchase
necessary safety and outdoor equipment. TBC Bank disbursed a
US$100,000 loan in March 2017 and X-Park started operating in
August 2017. Since opening, the park has become quite popular
and has attracted many visitors.
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MSME: CASE STUDY
NADIA KANDELAKI
SUCCESSFUL WOMAN
IN AGRICULTURE
Agriculture is one of the oldest, most widespread occupations in
Georgia, where a large share of the labour force is engaged in
farming. However, employment in the agricultural sector is mostly
dominated by male farmers, while female farmers are under-
represented. Nadia Kandelaki is an example of a daring woman
who decided to take up agriculture and start a farm.
In 2013, Nadia approached TBC Bank to finance her expansion plans. At the
time, she had some land, orchards, vineyards, beehives and livestock. She
decided to increase the number of beehives, as natural honey was in high
demand and quite profitable. She also bought dairy cattle and expanded her
dairy production. Nadia is very hard working, managing the farm on her own.
As her first expansion project was successful, she decided to grow her
business further. In 2016, TBC Bank provided Nadia with the funds she
needed to set up a vineyard and build a wine cellar. This year, she fermented
her first harvest in her cellar. Nadia’s successful business endeavours
encourage women to be more active and entrepreneurial. TBC Bank
supports women in business and has a special programme aimed at financing
women’s start-ups.
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“When I started to expand my farm in 2013,
I chose TBC Bank to be my financial partner.
I could feel the bank’s caring attitude
from the first day. They genuinely tried to
accommodate my financial needs and did
their best in supporting my business to
succeed.”
Nadia Kandelaki
Farmer
TBC Bank Annual Report and Accounts 2017
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DIVISIONAL REVIEW CONTINUED
SUBSIDIARIES
TBC Insurance
TBC Insurance is a wholly owned subsidiary of TBC Bank and the
main bancassurance partner of the Bank. It was acquired by the
Group in October 2016 and has been growing rapidly since then.
TBC Insurance’s product offerings comprise motor, travel, personal
accident, credit life and property, business property, liability and
cargo insurance products. The company uses a broad range of
channels to sell its products, including insurance agents, auto
dealerships and web platforms, as well as TBC Bank’s market-
leading multichannel network.
In line with the Group’s digitalisation strategy, TBC Insurance
actively uses digital channels to market and sell its products. In
2017, TBC Insurance launched the first insurance chatbot, B Bot, on
the local market, which sells different types of insurance products.
B Bot is great fun to use and is quickly gaining popularity among our
clients, especially the younger generation. Another popular sales
channel is the wide network of TBC Bank’s self-service terminals,
where customers can buy travel, casualty and collision (CASCO), and
motor third-party liability (MTPL) insurance in a very short time. In
addition, travel insurance can be purchased through TBC Bank’s
internet and mobile banking services, and more products are
planned to be added to this channel in 2018, including payment
protection insurance (PPI), CASCO and MTPL.
Georgia’s insurance market is promising with high growth potential.
The penetration level, measured as gross written premium to GDP,
stood at 0.62%1 for the property and casualty (P&C) insurance
market as of 31 December 2017, which is the lowest among CEE
countries. The density, which is measured as gross written premium
per capita, is also low compared with peer countries at US$24.41.
The insurance business is regulated by the Insurance State
Supervision Service of Georgia, which closely monitors insurance
companies, and sets the minimum and solvency capital
requirements. There are 16 insurance companies operating in the
Georgian P&C insurance market. The two largest players hold
respective market shares2 of 37.4% and 17.2%, followed by TBC
Insurance in third place with 13.3%.
During the last five years, the P&C insurance market in Georgia has
grown at a significant compound annual growth rate of 11.7%. The
largest insurance product lines are motor (35.1%) and property
insurance (29.8%), followed by credit life and personal accident (11.7%),
liability insurance (11.4%), travel insurance (3.2%) and other (8.8%). We
see particular growth potential in car insurance due to the introduction
of mandatory MTPL insurance starting from March 2018. Travel
insurance is another promising segment, as the number of outbound
tourists has been growing significantly since the introduction of a
visa-free regime with EU countries in March 2017.
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TBC Bank Annual Report and Accounts 2017
TBC Insurance has grown rapidly since our acquisition and has
increased its market share to 13.3%2 as of 31 December 2017,
compared with 3.5% in December 2016. It has particularly
strengthened its position in the retail segment by reaching 28.9%2 to
become the second-largest player. Over the same period, the
number of clients reached 276,848 compared to 2,887 one year prior.
Gross insurance profit amounted to GEL 6,8 million in 2017. At same
time, the company has significantly improved its efficiency and
decreased the net combined ratio to 95.9% in 2017 from 110.3% one
year prior. As a result, TBC Insurance recorded a net profit of GEL
935,000 in 2017.
TBC Insurance aims to further strengthen its positions on the
market and become the number one retail insurance company in
Georgia in the medium term. Our strategic priorities include:
increase the usage of digital channels;
diversify our product offerings and develop new products,
including agricultural insurance, financial risks insurance and
personal risks insurance;
offer a best-in-class customer experience to achieve the highest
net promoter score among industry players; and
achieve a total market share of 25-30% and retail market share
of 30-35% in the medium term.
TBC Leasing
TBC Leasing is the leading leasing company in Georgia with a
market share of over 74.3%3. The company was founded in 2003 by
TBC Bank, which currently holds a 99.6% interest. By the end of
2017, TBC Leasing’s portfolio amounted to around GEL 145 million,
with approximately 2,150 customers and up to 3,450 active leasing
agreements.
In 2017, the company had one of the most successful years in its
history. TBC Leasing launched two new products: used car financing for
the retail segment (product named “Starto”) and full-service
operational leasing for both corporate clients and individuals. We also
enhanced our value proposition by beginning to offer advisory services.
Additionally, TBC Leasing strengthened its collaboration with the
Bank by beginning to use banking channels to sell its products to
TBC Bank’s MSME customer base. As a result, we disbursed record
high leases in the amount of GEL125 million to MSME clients.
In 2017, TBC Leasing also enhanced its internal operations and
processes by:
launching the first bespoke leasing core software system, which
was developed by a local IT company;
establishing an independent call centre separate from that of the
Bank; and
enhancing operational risk management procedures.
Our mission is to contribute to Georgia’s economic development by
providing comprehensive leasing solutions and premium advisory
services to our customers, making it easier for them to invest in
capital assets.
Our medium-term strategy consists of the following main goals:
develop digital solutions and innovative products;
become more socially conscious by offering eco-friendly
solutions (financing electric cars, solar systems, etc);
develop premium advisory services for our customers; and
optimise sales channels by forming strategic alliance with
vendors and dealers, as well as by utilising the parent company’s
resources.
TBC Capital
TBC Capital is TBC Bank’s wholly owned investment banking
subsidiary. In 2017, TBC Capital became an integral part of TBC
Bank’s corporate and investment banking franchise. Its main lines
of business include corporate advisory, debt and equity capital
markets, brokerage and research. TBC Capital is also a shareholder
in the Georgian Stock Exchange and plays an active role in the
development of its infrastructure.
TBC Pay
TBC Pay was founded in 2008 by TBC Bank and is its wholly owned
subsidiary. The company provides fast and easy payment options for
individuals all over the country through its wide network of
self-service terminals on a 24-hour basis. Customers can conduct
various transactions, including paying for utilities or state services,
depositing money in their accounts, repaying loans, topping up their
mobile balance and many more.
Starting from 2017, in addition to cash payments, our self-service
terminals were equipped with card readers and pin pads, allowing
our customers to pay for their services both with cash and credit/
debit cards. We also started using our terminals as a channel to
originate fast, preapproved loans for the Bank’s customers.
In 2017, TBC Pay updated its online payment platform (www.tbcpay.
ge), which has the same functionality as the self-service terminals
but offers a significantly improved user experience. The company
was also successful in increasing the number of transactions by
improving the availability of services and adding 200 new self-
service terminals. In addition, we won an important tender process
in 2017 allowing us to place our terminals in metro stations, thus
capturing more attractive locations. As a result, the number and
volume of transactions increased by a respective 9.5% and 43.5%
YoY in 2017.
In addition to the existing business, TBC Pay started a cash
management business for companies with a large volume of cash
operations. We placed our terminals at retailers’ sites, allowing
them to deposit money directly to their bank accounts, which will be
reflected instantly. Customer interest in this service is tremendous
and we plan to further expand this business in 2018.
The company’s strategy in 2018 is to further develop and improve its
online platform (www.tbcpay.ge) by adding new functions, such as
wallet, mobile apps and loyalty programmes, which will further our
ambition to become the number one payment company in Georgia in
the medium term.
1 Source: Geostat and Insurance.gov.ge
2 Source: Insurance.gov.ge
3 Based on internal estimates
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More information about TBC Capital can be found in the corporate
and investment banking section on page 39.
International operations
Most of TBC Bank’s operations are conducted in Georgia (99.7% of
total assets). However, we have two international subsidiaries,
one in Azerbaijan and one in Israel.
TBC Invest
TBC Invest is a representative office of TBC Bank in Israel that
acts as an intermediary with Israeli clients, offering information
regarding products, fees and interest rates on TBC Bank’s products.
TBC Kredit
TBC Kredit is a non-banking credit organisation that has operated
in Azerbaijan since 1999. It mainly focuses on the SME, consumer
and mortgage lending sectors. TBC Bank has owned 75% of TBC
Kredit since 2008.
TBC Kredit’s total loan portfolio stood at US$16.3 million at 31
December 2017. SME lending accounted for 49.3%, while consumer
and mortgage loans accounted for a respective 36.7% and 14.0%.
Other local subsidiaries
The Group also includes the following subsidiaries:
United Financial Corporation is the largest card-processing
centre in Georgia, serving nine banks, five financial institutions
and one loyalty company. It provides a full range of services
according to VISA International and MasterCard Worldwide
regulations, as well as payment card industry data
security standards.
Real Estate Management Fund and Mali manage property that
TBC Bank has repossessed for future sale.
Banking Systems Service Company provides hardware and
software maintenance of ATMs, POS terminals and other
electronic banking systems.
The Bank
International Operations
Other local operations
Breakdown of
total assets
Breakdown of
net income
97.6%
0.3%
2.1%
94.4%
0.3%
5.3%
TBC Bank Annual Report and Accounts 2017
55
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. To
perform it effectively, it is essential to identify emerging risks and
uncertainties. The principal risks that could adversely impact on the
Group’s performance, financial condition and prospects are
presented below. Performance may be affected by additional risks
and uncertainties other than those listed below and some as-yet-
unknown risks that emerge in the future. More details regarding
risk management practices can be found on pages 60-69.
The Board has undertaken a robust assessment of the principal
risks facing the Group 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 111 to 112.
Risk mitigation
Specific attention is paid to currency-induced credit risk due to the
high share of loans denominated in foreign currencies in the
portfolio. The vulnerability to exchange rate depreciation is
monitored on a frequent basis to be able to promptly implement an
action plan, when and as needed. The ability to withstand certain
exchange rate depreciation is incorporated into the credit
underwriting standards, which also include applying significant
currency devaluation buffers for 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 exchange rate depreciation risks.
In 2017, the government enacted a law aimed at reducing the
economy’s dependence on foreign currency by requiring loans for
amounts of less than GEL 100,000 to be disbursed in local currency.
1. Principal risk
The Group faces currency-induced credit risk due to the high share
of loans denominated in foreign currencies in the Group’s portfolio.
This and other initiatives have helped to reduce the share of loans
denominated in foreign currencies in TBC Bank’s retail portfolio
from 58.1% at the end of 2016 to 49.3% at the end of 2017.
The potential for further GEL depreciation is one of the most
significant risks that could negatively impact on portfolio quality due
to the large presence of foreign currencies on the Group’s balance
sheet. Unhedged borrowers could suffer from increased debt burden
when their liabilities denominated in foreign currencies are amplified.
Risk description
A significant share of the Group’s loans (and a large share of the
total banking sector loans in Georgia) is denominated in currencies
other than the GEL, particularly the USD. As of 31 December 2017,
the National Bank of Georgia reported that 58.1%1 of total banking
sector loans were denominated in foreign currencies. As of the
same date, 59.7% of the Group’s total gross loans and advances to
customers (before provision for loan impairment) were denominated
in foreign currencies.
The income of many customers is directly linked to USD via
remittances, or exports in case of business borrowers. Nevertheless,
customers may not be protected against significant fluctuations in the
GEL’s exchange rate against the currency of the loan.
In 2017, the USD/GEL exchange rate appreciated by 2.1% YoY,
supported by the relative stability of major trading partners’
currencies and the solid improvement in external inflows. The USD/
GEL exchange rate remained volatile throughout the year due to the
free-floating exchange rate regime and Georgia’s small forex
market. However, the amplitude of volatility remained within the
acceptable range.
The National Bank of Georgia operates effectively under its
inflation-targeting framework. However, the GEL remains in free
float and is exposed to many internal and external factors that in
some circumstances could result in devaluation against the USD.
1 excluding Credo Bank effect, which obtained banking licence in March 2017
56
TBC Bank Annual Report and Accounts 2017
2. Principal risk
The Group’s performance may be compromised by adverse
developments in the economic environment.
A slowdown of economic growth in Georgia would have an adverse
impact on the repayment capacity of the borrowers, restraining their
future investment and expansion plans. These occurrences would be
reflected in the Group’s portfolio quality and profitability and would also
impede the portfolio growth rates. Negative macroeconomic
developments could compromise the Group’s performance through
various parameters, such as rising unemployment rates, increasing retail
sector default rates, falling property values, worsening loan
collateralisation, or falling debt service capabilities of companies
suffering from decreasing sales.
Potential political and economic instability in the neighbouring and
main trading partner countries could negatively impact the economic
outlook of Georgia through a worsening current account (eg decreased
exports, tourism inflows, remittances and foreign direct investments).
Risk description
As the Group operates primarily in, and sources nearly all its
revenue from Georgia, its business, financial condition and operating
results are, and will continue to be, highly dependent on the general
economic conditions in the country.
During 2011-17, the Georgian economy recorded average real GDP
growth of 4.6% per annum. In 2017, economic growth recovered
significantly to 5.0%, compared with 2.8% in 2016. The sharp
improvement was primarily driven by a recovery in exports, tourism
and remittance inflows.
Georgia’s economy is open, liberal, well diversified and reasonably
reformed. While it has shown 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.
Risk mitigation
To decrease its vulnerability to economic cycles and adverse
developments, the Group identifies and limits its exposure to cyclical
industries within its risk appetite framework.
The Group has in place a macroeconomic monitoring process that
relies on close, recurrent observations of the economic
developments in Georgia, as well as its neighbouring countries, to
identify early warning signals indicating imminent economic risks.
This system allows the Group to promptly 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 the limits for
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 the Group’s credit underwriting standards. As
such, borrowers are expected to withstand certain adverse economic
developments through prudent financials, debt-servicing
capabilities and conservative collateral coverage.
3. Principal risk
The Group encounters the capital risk of not meeting the minimum
regulatory requirements, which may compromise growth and
strategic targets.
The Bank is regulated by the National Bank of Georgia. The
regulations and various terms of its funding and other arrangements
require compliance with certain capital adequacy 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 additional regulations on a bank if it perceives
excessive risks and uncertainties in that lender or in the market.
Risk description
The National Bank of Georgia has introduced a new capital adequacy
framework that came into force in December 2017. The updated
regulation divides the current capital requirement across Pillar 1
and Pillar 2 buffers that are introduced gradually over a four-year
period. The Bank’s capitalisation as of December 2017 stood at
13.4% and 17.5% against the regulatory minimum requirement of
10.3% and 12.9% for Tier 1 and Total capital, respectively. The ratios
are well above the respective regulatory minimums.
From January 2018, the National Bank of Georgia has fully phased
out the Basel I and Basel II/III capital adequacy standards and
replaced them with the updated capital framework, which is more
compliant with the Basel III guidelines. More information about the
new regulation can be found in the Risks, Ethics and Compliance
Committee (RECC) report on pages 123-125.
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Risk mitigation
The Group undertakes stress-testing and sensitivity analysis to
quantify extra capital consumption under different scenarios. Such
analyses indicate that the Group holds sufficient capital to steadily
meet the minimum regulatory requirements.
Capital forecasts, as well as the results of the stress-testing and
what-if scenarios, are actively monitored with the involvement of the
Bank’s Management Board and Risk Committee to ensure prudent
management and timely actions when needed. In addition, under the
new capital adequacy framework, the Pillar 2 minimum capital
requirements can be reduced by the amount equal to the additional
capital needed, as a result of the increased risk-weighted assets
due to the technical effect of GEL devaluation.
4. Principal risk
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.
Risk description
The Bank is regulated by the National Bank of Georgia. In addition to
mandatory capital adequacy ratios, the regulator sets lending limits
and other economic ratios, including, inter alia, lending, liquidity 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 Financial Conduct 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 local 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 242 in the Group’s
Audited Financial Statements.
Risk mitigation
The Group has established systems and processes to ensure full
regulatory compliance.
TBC Bank Annual Report and Accounts 2017
57
Strategic Report OverviewStrategic Report Strategy & Performance
PRINCIPAL RISKS AND UNCERTAINTIES
CONTINUED
The dedicated compliance department reports directly to the Chief
Executive Officer and bears the primary responsibility for regulatory
compliance. However, compliance is embedded in all levels of the
Bank’s operations.
The National Bank of Georgia’s new capital framework introduced
a concentration buffer under Pillar 2 that helps to ensure that
the Group remains adequately capitalised to mitigate
concentration risks.
The Group’s RECC is responsible for regulatory compliance at the
Board level.
6. Principal risk
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 numerous factors. These include an overreliance on,
or an inability to access, a particular source of funding, as well as
changes in credit ratings or market-wide phenomena, such as the
global financial crisis that commenced in 2007.
Access to credit for companies in emerging markets is significantly
influenced by the level of investor confidence and, as such, any
factors affecting investor confidence (eg 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.
Risk description
Throughout 2017, the Group was in compliance with the risk appetite
limits, as well as the minimum liquidity requirements set by the
National Bank of Georgia, which introduced a liquidity coverage ratio
in 2017. This is in addition to the Basel III guidelines, under which a
conservative approach was applied to the weighting of mandatory
reserves and to the deposit withdrawal rates, depending on the
concentration of client groups.
As of 31 December 2017, the net loan to deposits plus international
financial institution funding ratio stood at 92.5%, the liquidity
coverage ratio at 112.7%, and the net stable funding ratio at 124.4%.
All are comfortably above the National Bank of Georgia’s minimum
requirements or guidance for such ratios.
Risk mitigation
To mitigate this risk, the Group holds a solid liquidity position and
performs an outflow scenario analysis for both normal and stress
circumstances to make sure that it has adequate liquid assets and
cash inflows. The Group maintains a 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, results of operations and/or
prospects. As part of its liquidity risk management framework, the
Group has a liquidity contingency plan in place outlining the risk
indicators for different stress scenarios and respective action plans.
In terms of banking regulations and 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.
Although decisions made by regulators are beyond the Group’s
control, significant regulatory changes are usually preceded by a
consultation period that allows all lenders to provide feedback and
adjust their business practice.
5. Principal risk
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
whose potential default would 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.
Risk description
The Group’s loan portfolio is diversified, with maximum exposure to
a single industry (ie energy and utility) standing at 8.4%. Considering
the macroeconomic outlook, this figure is reasonable and
demonstrates adequate credit portfolio diversification.
The exposure to the 20 largest borrowers stands at 12.4%, which is
in line with the Bank’s target of alleviating concentration risk.
Risk mitigation
The Group constantly checks the concentrations of its exposure to
single counterparties, as well as sectors and common risk drivers,
and introduces limits for risk mitigation.
As part of its risk appetite framework, the Group limits both
single-name and sector 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
to mitigate emerging risk concentrations. Stringent monitoring tools
are in place to ensure compliance with the established 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 more efficient handling and,
ultimately, to limit resulting credit risk losses.
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TBC Bank Annual Report and Accounts 2017
7. Principal risk
Any decline in the Group’s net interest income or net interest
margin could lead to a reduction in profitability.
Net interest income accounts for the majority of the Group’s total
income. Consequently, fluctuations in its NIM 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.
Risk description
The majority of the Group’s total income derives from net interest
income. Consequently, the Group’s results of operations are affected
by fluctuations in its NIM.
In 2017, the NIM decreased by 1.3 pp YoY to 6.5%, which the Bank
had expected and included in the forecast that provides the basis for
the Group’s guidance.
The decrease in the net interest margin is mainly caused by the
faster repricing of the assets than liabilities, through the competition
for newly disbursed loans and through prepayment of loans at times
when market interest rates are falling.
Finally, the Group limits its direct exposure to the LIBOR and local
refinancing rates or, where this is not feasible, prices them
appropriately between assets and liabilities. As of 31 December
2017, GEL 2,532 million in assets (19.5%) and GEL 1,308 million in
liabilities (11.8%) were floating, related to the LIBOR/FED/ECB
(deposit facility) rates. During the same period, GEL 1,786 million of
assets (13.8%) and GEL 2,131 million of liabilities (19.2%) were
floating, related to the National Bank of Georgia’s refinancing rate.
Risk mitigation
The high current margin levels, increase in fee and commission
income and continuous cost optimisation efforts represent a safeguard
against margin declines, posing profitability concerns for the Group.
The Group has also launched an enhancement programme for
margin management, including an adequate pricing framework and
profitability analysis, to assist in decision making. In cases where
loans are extended on fixed rather than floating terms, the interest
rate risk is adequately translated into price premiums, safeguarding
against changes in the interest rates.
The Group expects margins to stabilise in the medium term. The
Group expects that the decreasing margins will be compensated in
practice by increased fee and commission income and decreased
unit cost spent per transaction.
8. Principal risk
The threat posed by cyber-attacks has increased in recent years
and 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.
Risk description
No major cyber-attack attempts have targeted Georgian commercial
banks in recent years. Nonetheless, the Group’s rising dependency
on IT systems increases its exposure to potential cyber-attacks.
Risk mitigation
The Group actively monitors, detects and prevents risks arising from
cyber-attacks. Staff monitor the developments on both local and
international markets to increase awareness of emerging forms of
cyber-attacks. Intrusion prevention and Distributed Denial of Service
(DDoS) protection systems are in place to protect the Group from
external cyber-threats. Security incident and event monitoring
systems, in conjunction with respective processes and procedures,
are in place to handle cyber-incidents effectively.
Processes are continuously updated and enhanced to respond to
new potential threats. A data recovery policy is in place to ensure
business continuity in case of serious cyber-attacks.
9. Principal risk
External and internal fraud risks are part of the operational risk
inherent in the Group’s business. Considering the increased
complexity and diversification of operations together with the
digitalisation of the baking sector, fraud risks are evolving. Unless
proactively managed, fraud events may materially impact the
Group’s profitability and reputation.
Risk description
External fraud events may arise from the actions of third parties
against the Bank. Most frequently, this involved events related to
banking cards and cash. Internal fraud arises from actions committed
by the Bank’s employees and such events happen less frequently.
During the reporting period, the Group faced few instances of fraud
events which had an immaterial impact on the Group’s profit and
loss statement (the details on the largest case in 2017 are
summarised on page 68.
Nonetheless, fraudsters are adopting new techniques and
approaches to exploit various possibilities to illegally obtain funds.
Therefore, unless properly monitored and managed, the potential
impact can become material.
Risk mitigation
The Group actively monitors, detects and prevents risks arising from
fraud events. There are permanent monitoring processes in place
for the timely detection of unusual activities. The risk and control
self-assessment exercise focuses on identifying residual risks in key
processes, subject to respective corrective actions. Given our
continuous efforts to monitor and mitigate fraud risks, together with
the high sophistication of our internal processes, the Bank ensures
timely identification and control of fraud-related activities.
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TBC Bank Annual Report and Accounts 2017
59
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 the implementation of an efficient risk management system. The Group has adopted four primary risk
management principles to better accomplish its major objectives:
Govern risks transparently to obtain understanding and trust. Consistency and transparency in risk-related processes and policies are
preconditions for gaining the trust of various stakeholders. Communicating risk goals and strategic priorities to governing bodies and
providing a comprehensive follow-up in an accountable manner are key priorities for staff responsible for risk management.
Manage risks prudently to promote sustainable growth and resiliency. Risk management acts as 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 underpins the implementation of strategy. Staff responsible for risk management provide assurance on the
feasibility of achieving objectives through risk identification and management. Identifying and adequately pricing risks, as well as taking risk
mitigation actions, support generating the desired returns and achieving planned targets.
Use risk management to gain a competitive advantage. 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.
Risk management framework
The Group’s risk management framework incorporates all necessary components for comprehensive risk governance and 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.
60
TBC Bank Annual Report and Accounts 2017
Group risk management framework
Enterprise risk management
• Risk appetite
• Risk strategy
• Business planning
Credit risk
Financial risk
Non-financial risk
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
and processes
Credit process
Credit risk modelling
Asset and Liability Management
(ALM) and liquidity
risk modelling and processes
Operational risk
modelling and processes
Cross-risk
analytics
Internal Capital Adequacy Assessment Process (ICAAP) and stress-tests
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TBC Bank Annual Report and Accounts 2017
61
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. The involvement of all
governance levels in risk management, clear segregation of authorities and effective communications between different entities facilitate clarity
regarding the Group’s strategic and risk objectives, adherence to the established 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.
Board
Board
Risk, Ethics and
Compliance Committee
Audit Committee
Supervisory
Board
Management
Board
Risk
management
structure
Supervisory Board
Risk, Ethics and
Compliance Committee
Audit Committee
Risk Committee
Operational Risk
Committee
ALCO
Functions:
Enterprise
risk
Credit
risk
Financial
risk
Operational
risk
Committees:
Loan approval committees
Restructuring and Collections committees
The risk governance structure consists of three board levels, including the Board, Supervisory Board and Management Board. All three boards
have dedicated risk committees. The Board and Supervisory Board each have a Risk, Ethics and Compliance Committee that supervises the risk
profile and risk governance practice within the Group, as well as an Audit Committee that is responsible for implementing key accounting policies
and facilitating internal and external auditor activities.
The Management Board’s Risk Committee was established to guide the Group-wide risk management activities and monitor major risk trends to
ensure that the risk profile complies with the established risk appetite. The Management Board’s Operational Risk Committee makes decisions
related to operational risk governance while the Assets and Liabilities Management Committee (ALCO) is responsible for the implementation of
asset-liability management policies.
The Board, Supervisory Board and the Bank’s senior management govern risk objectives through the Risk Appetite Statement, which establishes
the desired risk profile and risk limits for different economic environments. The statement 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 day-to-day operations, Risk Appetite Statement metrics are cascaded
into more granular limits at the business unit level, establishing risk allocation across different segments and activities.
The process of setting and cascading the risk appetite 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.
62
TBC Bank Annual Report and Accounts 2017
The daily management of individual risks is based on the three lines of
defence principle. While business lines are the primary owners of risks,
risk teams act as the second line of defence by sanctioning transactions,
tools and techniques for risk identification, analysis, measurement,
monitoring and reporting. The committees established at operational
levels are charged with 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 that 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,
the compliance department reports directly to the CEO and is
specifically in charge of anti-money laundering and compliance risk
management. As a third line of defence, the internal audit
department is responsible for providing independent and objective
assurance and recommendations to the Group to promote the
further improvement of operations and risk management.
Enterprise risk management
The centralised enterprise risk management (ERM) function is in place
to ensure the effective development, communication and
implementation of risk strategy and risk appetite across the Group. The
ERM function facilitates cross-risk activities such as aggregation,
analytics and 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. The major
ERM functions can be summarised as follows:
Risk appetite development, cascading and monitoring are
essential elements of the Group’s strategy. A risk budget is
allocated to individual business lines to ensure achievement of
aggregated metrics.
Internal capital adequacy assessment is a continuous process
within the Group to ensure adequate calculation of unexpected
losses and prompt respective mitigation actions to assure
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 enterprise-wide stress-tests. Based on the
selected stress scenarios, the Group calculates losses and
projects capital adequacy ratios. This exercise helps the Group to
define the capital buffers that are to be held to meet the
regulatory requirements under predefined stress scenarios.
Stress-testing exercises are one of the crucial tools for effective
risk identification, measurement and mitigation. In that regard,
the Group continuously advances its stress-testing capabilities
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and tools. Stress-testing at both the transaction and portfolio
levels forms 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 the recent acquisition of two
significant financial institutions.
Generating adequate return on risk plays a crucial role in the
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 the 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.
Due to the significant reliance on foreign currencies in Georgia’s
economy, currency-induced credit risk is a significant component of
credit risk, which relates to risks arising from foreign currency-
denominated loans to unhedged 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.
The major objectives of credit risk management are to put in place a
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, the
corporate, MSME and retail portfolios are managed separately to
address the specifics of individual segments. Corporate and MSME
(except micro) borrowers have larger exposures and are managed
on an individual basis, whereas micro and retail borrowers are
managed on a portfolio basis. 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 lending criteria and building up an
efficient process for the 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 to reflect the differing 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.
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After a thorough assessment of borrowers’ requirements, credit
analysts in the case of corporate and loan officers in the case of SME
borrowers prepare a presentation containing certain key information
in relation to the potential borrower and submit it for review to the
business underwriting risk management unit. An underwriting risk
manager ensures that the project analysis provided by the credit analyst/
loan officer is complete, all risks and mitigating factors are identified
and adequately addressed, and the loan is properly structured. Business
underwriting risk managers specialise in a particular sector to be aware
of current industry trends and developments.
For exposures above GEL 5 million, a risk report assessing the credit
application and recommending a decision is issued for a loan
approval committee to review. A multi-tiered system of loan approval
committees is in place with different approval levels to consider the
borrower’s overall indebtedness and risk profile. These committees
are responsible for reviewing credit applications and approving
exposures, with different committees based on the size and risk of
the loan. At the highest level, the Chief Executive Officer, corporate
business director and chief risk officer are involved. In addition,
loans to the 20 largest borrowers or for amounts exceeding 5% of
the Bank’s regulatory capital would require review and approval of
the RECC.
Loan officers submit the credit applications for retail and micro
exposures to the respective underwriting risk management units.
Depending on the amount of the loan, a loan approval committee
will review the loan request based on specified limits as to the risk
level of the customer.
Underwriting of unsecured retail loans, point-of-sale loans and
credit cards is largely automated with decisions based on internal
scorecard models and ratings provided by the credit bureau.
Different scorecard models are developed based on the type of
product and the borrowers’ segment, taking into consideration
various internal and external data. The performance of scorecard
models is closely monitored to ensure that decisions are in line with
predefined risk limits.
Currency-induced credit risk
The Group faces currency-induced credit risk, given that a large part
of its exposure is denominated in foreign currency, in line with the
Georgian economy’s significant reliance on currencies other than
the GEL. However, limits have been established within the risk
appetite framework to ensure that the Group continues its efforts
toward minimising the share of foreign currencies in the portfolio.
Various management tools and techniques are applied to mitigate
the inherent currency-induced credit risk in the loan book,
encompassing all phases of credit risk management. In addition, in
the beginning of 2017, the government introduced a legislative
initiative to support reducing the banking sector’s reliance on foreign
currencies. As part of this initiative, all loans to individual borrowers
in amounts of less than GEL 100,000 should be disbursed in GEL.
The Group applies conservative lending standards to unhedged
borrowers with exposures denominated in foreign currencies to
ensure that they can withstand a certain amount of forex
depreciation without credit quality deterioration.
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Apart from the measures in place throughout the underwriting
process, the Group actively monitors and assesses the quality of loans
denominated in foreign currencies through stress-testing exercises
and holds sufficient capital buffers against unexpected losses.
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. It has established a set of tools to efficiently manage
concentration risk and, particularly, concentrations of single names
and sectors in the portfolio.
The Group is subject to concentration limits on single names and
the largest 20 borrowers and is focused on optimising the structure
and quality of the latter portfolio. 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 monthly. 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, thus ensuring that sufficient capital is
held against concentration risk.
Collateral policies
Collateral represents the most significant credit risk mitigation tool
for the Group, making effective collateral management one of the
key risk management components. Collateral on loans extended by
the Group may include, but is not limited to, real estate, cash
deposits, vehicles, equipment, inventory, precious metals, securities
and third-party guarantees. The collateral accepted against a loan
depends on the type of credit product and the borrower’s credit risk.
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, a haircut system
throughout the underwriting process, monitoring and revaluations.
Throughout the underwriting process, provided collateral is
appraised by the Group’s internal appraisal function in accordance
with internal policies. In specific instances, such as lending to
related parties and material transactions, external appraisers
validate these appraisals. The internal appraisal group is part of the
collateral management unit and is independent from the loan-
granting process to ensure that adequate appraisals are obtained
and proper 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 promptly 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 on the portfolio’s risk profile. Early warning signals
serve as an important advance alert system for the detection of
credit deteriorations, leading to mitigating actions.
The Board’s RECC reviews reports relating to the credit quality of
the loan portfolio quarterly. By comparing current data with
historical figures and analysing forecasts, the management believes
that it can identify risks and respond 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 and promptly take early
remedial actions when necessary. The collection and recovery
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 restructuring unit’s primary goal 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 extent possible, or to negotiate
repayment through the sale or repossession of collateral.
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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 team monitors retail
borrowers in delinquency which, coupled with branches’ efforts,
aims to maximise 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 60-90 days past due. Collateralised loans are transferred to the
internal recovery unit, whereas the Group collaborates with external
collection agencies for unsecured loans. To recover collateralised
loans, the recovery plan is outlined considering the individual
borrower’s specifics 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
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.
Provision assessment
In assessing the credit risk and calculating provisions according to
IAS 39, 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.
Starting from 1 January 2018, the Group moved to the new
provisioning methodology in line with IFRS 9 requirements.
The updated methodology makes it possible to assess loan-loss
provisions and allowances accurately with the incorporation of
forward-looking information. Along with methodology development,
an IT tool for provisioning was implemented.
During 2016-17, significant work was performed to develop the
impairment methodology and models per IFRS 9 requirements
and set up the respective systems and processes. The project was
undertaken with the support of Deloitte. Representatives of the
Group’s risk, finance and IT departments were responsible for the
methodology and IT tool implementation.
The new models are more complex and make it possible to
incorporate expectations of macro developments based on
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predefined scenarios. Under the IFRS 9 methodology, the Bank
classifies its exposures in three stages:
Stage I – assets for which no significant increase of credit risk
since initial recognition is identified;
Stage II – assets for which significant increase in credit risk since
initial recognition is identified; and
Stage III – credit-impaired exposures.
The implementation of IFRS 9 has resulted in a one-time impact of GEL
64 million, which will be passed directly to IFRS equity. The impact did
not affect the Bank’s profit and loss statement or capital adequacy.
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 its obligations and
commitments as they fall due, or may only be able to 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 monitored by the Management Board’s
Risk Committee or the 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 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 ongoing basis to ensure that
approved business targets are met without compromising the
Group’s risk profile.
The Management Board reviews the Liquidity Risk Management
Policy, which is then presented to the Board and the Supervisory
Board for approval.
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 flows without affecting either its daily operations or its financial
condition under both normal conditions and during a crisis. To
manage funding liquidity risk, the Group has an internally developed
model using a liquidity coverage ratio (LCR) and a net stable funding
ratio (NSFR), both under Basel III liquidity guidelines.
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Additionally, the Group applies stress-tests and “what-if” scenario
analyses and monitors the National Bank of Georgia’s minimum liquidity
ratio. In 2017, the National Bank of Georgia introduced its own LCR for
liquidity risk management purposes. In addition to the Basel III
guidelines, the ratio applies conservative approaches to the weighting of
mandatory reserves and deposit withdrawal rates depending on the
client group’s concentration. From September 2017, the Bank also
monitors compliance with the National Bank of Georgia’s LCR limits. In
addition to the total LCR limit, the National Bank of Georgia has also
defined limits per currency for the GEL and foreign currencies.
The LCR is calculated by reference to the qualified liquid assets divided
by 30-day cash net outflows. It is used to help manage short-term
liquidity risks. The NSFR is calculated by dividing available stable
funding by required stable funding. It is used for long-term liquidity risk
management to promote resilience over a longer time horizon by
creating additional incentives for the bank 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 the Basel III guidelines on high-
quality liquidity asset eligibility to ensure that the Group’s high-
quality liquid assets can be sold without causing a significant
movement in price and with minimum loss of value.
In addition, the Group has a liquidity contingency plan, which forms
part of the overall prudential liquidity policy. The plan is designed to
ensure that the Group can 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
accounts, borrowings from local and international banks and financial
institutions, subordinated loans from international financial institution
investors, local interbank short-duration term deposits and loans,
proceeds from sales of investment securities, principal repayments on
loans, interest income and fee and commission income.
The Board believes 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 its 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. The
Board believes that the Group has sufficient liquidity to meet its
current on- and off-balance-sheet obligations. For further
information on the management of liquidity risk, please refer to
Note 36 to the Audited Consolidated Financial Statements.
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 the Georgian economy’s significant reliance on foreign
currencies, 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 National Bank of Georgia 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 2017, the
Bank maintained an aggregate balance open currency position of 1.5%.
In addition, the Supervisory Board sets further limits on open currency
positions. The ALCO has set limits on the level of exposure by currency
and for total aggregate position that are more conservative than those
set by the National Bank of Georgia and the Supervisory Board. The
heads of the treasury and financial risk management departments
separately monitor the Bank’s compliance with these limits daily.
Compliance with these limits is also reported daily to the Management
Board and periodically to the Supervisory Board and its Risk, Ethics and
Compliance Committee. On the Group-wide level, foreign-exchange risk
is monitored and reported monthly. A value-at-risk analysis following
the Basel guidelines is used to assess the Bank’s minimum capital
requirements under the Internal Capital Adequacy Assessment Process
(ICAAP) framework monthly.
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 interest rate.
The Group’s floating rate borrowings are, to a certain extent, hedged
because the National Bank of Georgia pays a floating interest rate on the
minimum reserves that TBC Bank holds with it. Furthermore, many of
TBC Bank’s loans to and deposits from customers contain a clause
allowing it to adjust the interest rate on the loan/deposit in case of
adverse interest rate movements, thereby limiting exposure to interest
rate risk. The management also believes that TBC Bank’s interest rate
margins provide a reasonable buffer to mitigate the effect of a possible
adverse interest rate movement.
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The Group employs an advanced framework for the management of
interest rate risk by establishing appropriate limits, monitoring
compliance with them and preparing forecasts. Interest rate risk is
managed by the financial risk management department and is
monitored by the ALCO, which decides on actions that are necessary
for effective interest rate risk management and follows up on their
implementation. The major aspects of interest rate risk management
development and the respective reporting are periodically provided to
the Management Board, the Supervisory Board, the Board and the 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 numerous stress scenarios, including different
yield curve shifts and behavioural adjustments to cash flows (such as
deposit withdrawals or loan prepayments), to calculate the impact on
one-year profitability and enterprise value. Appropriate limits are set by
the Supervisory Board and the Management Board’s Risk Committee.
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.
Counterparty risk
Through performing banking services, as lending in the interbank
money market, settling a transaction in the interbank foreign exchange
market, entering into interbank transactions related to trade finance or
investing in securities, TBC Bank is exposed to the risk of losses due to
the failure of a counterparty bank to meet its obligations.
To manage counterparty risk, the Bank defines limits on an individual
basis for each counterparty and as well on a portfolio basis by limiting
the expected loss from both treasury and trade finance exposures. As of
31 December 2017, TBC Bank’s interbank exposure was concentrated
with banks that external agencies, such as Fitch, Moody’s and Standard
and Poor’s, have assigned high A-grade credit ratings.
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 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 organisation’s overall risk culture.
The Group is exposed to many types of operational risk, including:
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.
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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 its control, for example, natural
disasters, transport or utility failures, etc, which may result in losses or
reductions in service to customers and/or economic losses 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 heightened to ensure risk
prevention and reduce the risk of loss to the Group.
To oversee and mitigate operational risk, the Group has established an
operational risk management framework, 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 framework.
The Management Board ensures a strong internal control culture
within the Group, where control activities are an integral part of
operations. The Board sets the operational risk appetite and the
Operational Risks Committee oversees compliance with the limits. The
Operational Risks Committee discusses the Group’s operational risk
profile and risk minimisation recommendations on a regular basis.
The operational risk management department acts as second line of
defence. It is responsible for implementing the framework and
appropriate policies and procedures to enable the Group to manage
operational risks, as well as monitoring operational risk events, risk
exposures against risk appetite and material control issues.
The department is also responsible for the day-to-day management
of operational risks using various techniques. These include but are
not limited to:
running risk and control self-assessments, which are aimed at
detecting possible gaps in operations and processes with the
purpose of suggesting appropriate corrective actions;
forming an internal risk event database for further quantitative
and qualitative analysis;
performing internal control to detect systematic errors in
banking operations, internal fraud events and monitoring key risk
indicators;
conducting scenario and root-cause analyses;
providing business advisory services regarding non-standard
cases as well as assessments of new products and procedures;
monitoring IT incident occurrence and overseeing activities
targeted at solving identified problems; and
obtaining insurance policies to transfer the risk of losses from
operational risk events.
The operational risk management department has reinforced its
internal control, risk assessment teams and methodologies to further
fine-tune the existing control environment. The same applies to the set
of actions directed to homogenise operational risk management
processes throughout the Group’s member companies. The operational
risk management department reports to the chief risk officer.
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Various policies, processes and procedures are in place to control and
mitigate operational risks, including:
enacting an 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;
implementing procedures to analyse systemic flaws and take
corrective measures to prevent the reoccurrence of significant losses
involving the operational risk management department in the
approval process for new products and services to minimise risks
relating thereto; and
developing a special operational risk awareness programme for the
Group’s employees and providing regular training to further
strengthen the Group’s internal risk culture.
During 2017 particular attention was given to operational risk
concerns arising from an incidence of identity fraud in the fourth
quarter 2017. Using an apostilled power of attorney, which was
ultimately confirmed as fraudulent by the account owner, a third
party was able to gain access to our client’s bank account and
withdraw approximately US$ 800,000 in cash. To prevent any
reoccurrence of this type of fraud, extra control measures were
added to the Bank’s identity verification process and its
corresponding policies.
Compliance
The compliance department is a key body executing the Bank’s
compliance function, has a formal status and is independent from
operating structural units and business lines. The compliance
function’s role is executed by a compliance officer, who acts as a
compliance adviser and coordinator, addressing compliance issues
in structural units or business lines. The chief compliance officer
reports quarterly to the Risk, Ethics and Compliance Committee,
with a disciplinary reporting line to the CEO.
The department is responsible for the Group’s compliance and
reputational risk management. It implements and monitors the
fulfilment of requirements of the following policies:
the Anti-Money Laundering and Counter-Terrorist Financing Policy;
the Anti-Bribery, Anti-Corruption and Anti-Facilitation of Tax
Evasion Policy;
the Related-Party Transaction Policy;
the Share Dealing Policy; and
the Whistleblowing Policy.
The compliance department manages regulatory risk by conducting
root cause analyses of customer complaints, the operational risk
event database, internal audit findings and litigation cases. Based on
the outcomes of these analyses, it then initiates changes to internal
instructions or gives recommendations to the Bank’s structural
units on relevant process amendments. The compliance officer has
the role of educator and adviser on compliance issues. The
compliance department delivers training courses via distance-
learning and face-to face sessions to existing staff members and
newcomers, and promotes a compliance culture within the Group.
As part of its ongoing operations in 2017, the National Bank of
Georgia has conducted a thematic inspection of the Bank covering the
past six years. Over this period, it has identified a certain number of
transactions in connection with which the Bank was required to pay
penalties in the aggregate amount of GEL 1.9 million. The majority of
these transactions were related to few companies, which were
considered not to be properly identified and the amount of a single
penalty for most of these transactions did not exceed GEL 1,000.
However, the National Bank of Georgia noted the progress that the
Bank has made to date, as well as the planned actions going
forward, and assessed the level of anti-money laundering and
counter-terrorist financing controls as acceptable. The Bank paid
these penalties from the appropriate provisions that had been
created for similar actions and operations in the previous years and,
accordingly, there was no impact on the Bank’s profit and loss
statement in the 2017 results.
The new EU General Data Protection Regulation (GDPR) will come
into force on 25 May 2018, which will apply mainly to our holding
company, TBC Bank Group PLC. Given the fact that the Group’s
operations are mainly in Georgia, which is outside EU, the impact of
GDPR on the Group will be limited. However, the Group is in the
process of assessing the scope, given that the GDPR applies to
entities outside the EU offering goods and services into the EU, and
developing respective actions.
Information Security Steering Committee
An Information Security Steering Committee has been established and
charged with continuously improving information security and business
continuity management processes and minimising information security
risks. The committee has been formed to centralise the information
security function, including physical security, HR security, data security,
IT security and business continuity.
The 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
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 Group’s employees undertake and perform their responsibilities
with honesty and integrity. They are critical to maintaining trust and
confidence in its operations and upholding the important values of
trust, loyalty, prudence and care.
Additionally, the Group’s management 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 the confidence of investors
and financial markets. The Group’s directors strive to 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 the Group’s 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 to ensure
that the respective departments and individual employees
comply with the provisions set out by regulatory provisions, best
practice and the Group’s internal handbook;
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 given client;
4. maintaining 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
regarding 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 fear of punishment. Specifically, this means setting up
processes for the prevention and detection of conflicts of interest,
creating ethical incentives and bonus formulas, and aligning
incentives and disciplinary 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
that 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 2017, see pages 111 to 112. The
assessment involved consideration of the Group’s current financial
position over three years of coverage ending 1 January 2021, which
is relevant to the strategic considerations of the Group.
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69
Strategic Report OverviewStrategic Report Strategy & Performance
INFOCUS
YEARS OF
CORPORATE
RESPONSIBILITY
PETRE OTSKHELI
WINGED PAINTER (1936)
CORPORATE RESPONSIBILITY AREAS OF FOCUS
ARTS
SPORTS
PEOPLE
CULTURE
INFOCUS
YEARS OF
OUR PEOPLE
CORPORATE RESPONSIBILITY
In the 25 years that have passed since
TBC Bank’s inception, we have faithfully
served our customers and businesses,
supporting the wider Georgian
community, creating a positive work
environment for our colleagues, and
preserving the environment. We are
privileged to be the leading bank in
Georgia, but this carries the added
responsibility of making a sustainable
positive impact for all our stakeholders.
We are committed to having a
collaborative approach with all our
stakeholders and contributing to building
a prosperous and independent country.
WE SERVE MORE THAN
2.0mretail customers, which
is around 75% of the total adult
population of Georgia
OUR CUSTOMERS
Retail customers
We serve more than 2 million retail customers, which is around 75%
of the total adult population of Georgia.
We do our best to provide superior customer service through our
wide distribution network, with special focus on digital channels, as
more and more of our clients are shifting to online solutions. Our
advanced internet and mobile banking applications have received
many different digital awards from Global Finance, recognising our
excellence in Georgia, CEE, and globally. Our mobile banking
application enjoys ratings of 4.9 stars in the Google Play store and
4.8 stars in the Apple App Store.
We continuously innovate to offer our customers new products
tailored to their needs, which are delivered with high-quality service.
We actively listen to our customers and use their feedback to
improve our offerings. As a result, we have the highest customer
satisfaction scores1 in the Georgian banking industry and hold a
leading position among other major retail companies.
We have introduced several innovative products to make our customers’
lives more comfortable, including the first Georgian-speaking chatbot, a
mobile wallet, a voice biometric recognition system in our call centre,
our Ertguli loyalty programme, as well as student and school banking
cards. More information on our customer value proposition can be
found in the retail banking section on pages 30-33.
Business customers
We believe that one of our main responsibilities is to help
businesses grow and develop. Increasing the number of successful
businesses in our country makes it stronger, increases its economic
potential and fosters an attractive investment environment.
TBC Bank was a start-up 25 years ago, and we understand the
importance of having a steady partner through different
development stages. Early-stage businesses need financial
assistance as well, but it is common for established banks to refrain
from financing them because of the risks associated with start-ups.
In 2017, we launched our first project oriented at start-ups, called
Startuperi, which aims to mentor start-ups on their strategy, assist
them to become thriving businesses and provide financing for
further development. The word “startuperi” in Georgian means
“start-up nation,” reflecting our belief that our country’s prosperity
is related to the number of flourishing businesses in Georgia. The
project has partnerships with several leading companies, offering
the participating start-ups tailored services for their needs. This
year we co-organised a special annual conference called Spotlight
for the start-ups, where the speakers were founders of successful
firms sharing their stories of failures and successes. The project has
been a huge success since its launch. Start-ups received individual
consultations with leading professionals about topics such as
marketing, human resources, management, finance and taxes. In
total, up to 13,000 start-ups were involved, and we disbursed 168
loans totalling GEL 21.0 million in financing for their businesses.
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1 Based on surveys conducted by independent research companies: IPM and ACT
Furthermore, we have provided more than GEL 160.4 million for micro,
small and medium enterprises (MSMEs) in rural areas, supporting
agriculture, manufacturing, tourism and other economic activities in
those regions. We also continue to support MSMEs through our
business support programme, which we launched in 2013. The
programme offers free training courses, individual consultations,
networking events, conferences and masterclasses. During the past
year, around 4,400 companies have attended the training courses and
workshops, and 116 MSMEs have received individual consultations.
Participation in the business support programme is free of charge.
Another remarkable idea put into action in 2017 was making basic
information about various industries easily accessible for
businesses. We collaborated with Georgia’s Revenue Service to
analyse available public data and create a business map that is
accessible to any person free of charge, allowing them to
benchmark against actual average industry metrics like revenues,
costs, number of employees and payroll. This tool will enable
companies to measure their place and performance against their
competitors.
This year, we held our annual business awards ceremony for the second
time. After the successful ceremony last year, this year the number
of participants increased up to 700. The awards ceremony promotes
entrepreneurship in Georgia and presents thriving business examples
to a wider audience, encouraging innovative businesses to set up. The
event was covered by traditional and social media channels, reaching
5.3 million views. For the 2017 business awards, we introduced a new
“Business of the Year” category. To select a winner for the new
category, we paid special attention to a company’s corporate
responsibility strategy and assessed their activities, along with
other criteria.
Georgia’s mountainous regions are an area that is less developed,
but has high potential to grow economically and attract a significant
number of tourists to the country due to their unique nature and
beauty. Georgian ski resorts are becoming increasingly popular but
need support to transform them into high-class destinations with
proper infrastructure, thereby improving their reputations among
tourists. We have been supporting Georgian mountain resorts since
2016. The primary focus of our partnership is developing
infrastructure and innovative payment systems at Georgian
mountain resorts, which will improve their efficiency and facilitate
increased demand for skiing treks, positively reflecting on the
Georgian economy and promoting local businesses.
Priorities for 2018
In 2018, we will carry on innovating and developing new offerings for
our customers, as well as continue focusing on increasing customer
satisfaction levels.
We will also increase lending volumes in rural areas to encourage
economic activities and help to lower the unemployment rate in
those regions. We firmly believe that each employee is part of our
success and we are committed to attracting and retaining top talent
by providing competitive remuneration and attractive benefits;
fostering fair, honest and collaborative working relationships; and
supporting professional development. As of the end of 2017, we
employed more than 7,000 people who all share the same values
and are dedicated to achieving our vision of becoming the best
digital financial services company in the region2.
OUR PEOPLE
Promoting equal opportunity
We are an equal-opportunity employer and do not discriminate
based on race, ethnicity, religion, gender, age or disability. We aim
to create a corporate culture that welcomes and benefits
from diversity.
We promote gender equality and support women in the workforce.
We are proud that women comprised 67% of our total workforce
at the end of 2017. To better support women employees, we offer
them six months of maternity leave at full pay and other
childcare benefits.
Years with TBC Bank, 2017
0-1 years
1-5 years
5-10 years
>10 years
29%
37%
22%
12%
We give fair consideration to job applications from candidates who
may have disabilities. We also support and retain employees who
become disabled during their employment at TBC Bank and aim to
adjust our workplace in order to make it more comfortable for
disabled people.
Board of directors
2017
Male
Female
100%
0%
Top management
2017
Male
Female
12%
88%
Middle management
2017
Male
Female
66%
34%
All employees
2017
Male
Female
33%
67%
2016
Male
Female
2016
Male
Female
12%
100%
0%
88%
2016
Male
Female
65%
35%
2016
Male
Female
35%
65%
2 Region in this context comprises Armenia, Azerbaijan and Georgia
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CORPORATE RESPONSIBILITY
CONTINUED
Performance assessment
The Bank runs a transparent and fair assessment system to
evaluate the performance and skills of all employees. Actively
engaging employees in their goal setting, monitoring performance
progress and providing constructive feedback are the key
components of our performance assessment system.
We use the management-by-objectives (MBO) system for most of
our back-office staff, under which specific objectives, aligned to the
organisational goals, are defined and agreed at the beginning of the
assessment period. After setting goals, employees have a clear
understanding of their roles, responsibilities and contribution to the
Group’s overall strategy. The process includes ongoing tracking and
semi-annual feedback on employee achievements. The scoring
system is the same for all employees within the MBO system and
ensures fairness throughout the organisation.
For front-office staff, we have a target-based system developed by
external consultants. Under our target-based system, employee
performance is linked to quantitative and qualitative KPIs that are
closely aligned to the Group’s strategic objectives. Compared with
the MBO system, the target-based system’s progress is measured
monthly, quarterly or annually.
We also run a 360-degree feedback system for our middle
managers, which allows them to receive a well-rounded and
balanced view of their skills and behaviours, assisting them to build
on current strengths and develop new skills.
To further enhance our performance-assessment system for middle
management, in 2017, we introduced a new system that we
developed together with Mercer, a leading international HR
consulting company. The new system utilises a more standardised
approach and helps to better align the managers’ tactical goals with
the Group’s overarching strategy, and assists them in developing
critical competencies.
Financial rewards and non-monetary benefits
To attract and retain the best talent, we offer a competitive
remuneration and market-leading benefits package. Our employee
remuneration package consists of monthly salaries and an attractive
bonus scheme, which vary by position and are linked to
performance. To promote a longer-term view and align middle
managers’ interests with those of shareholders, we offer a deferred
share bonus scheme, whereby 15-20% of the annual bonus is paid in
TBC PLC shares with a three-year vesting period as follows: 10% is
awarded on the first anniversary of the award, a further 10% on the
second anniversary and the remaining 80% on the third anniversary.
The company awarded around 136,000 shares as annual bonuses in
2018 based on 2017 performance. The directors’ remuneration
system is described in detail in the remuneration report on pages
126 to 147.
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We provide our colleagues with attractive insurance and pension
benefits, six months of maternity and paternity leave at full pay, and
paid annual and sick leave. We also offer corporate mobile numbers
with free internal calls and special discounted fees for other calls.
In the case of both marriage and childbirth, we provide our team
members and their families with monetary awards, as well as
compensation in the case of serious illness or death. We also
support large families and provide a special, one-time gift of GEL
10,000 to all TBC Bank employees upon the birth of their fourth
child or more.
Talent attraction and development
As we believe that our people are one of our key competitive
advantages, we seek to recruit, retain and develop highly qualified
and engaged individuals.
We actively participate in numerous job fairs organised by top
universities and leading HR consultancies to help us in selecting the
best candidates with the highest growth potential.
Since 2012, we have run a special internship programme for college
students in their third or fourth year of study. We partner with top
Georgian universities and give the best students an opportunity to
become part of our team. During our one-year internship
programme, students can rotate through different departments of
the bank. After they complete their internships, we offer permanent
jobs to the most successful trainees. We pride ourselves on being
named the best supporter of education in 2017 by Free University of
Tbilisi, the leading university in Georgia.
Supporting the development of our people and helping them to
realise their potential is one of our top priorities. For this purpose,
we offer various in-house training sessions and courses, in addition
to sponsoring various international certification programmes,
including CFA, ACCA and FRM, for all our employees. We also
provide financial support to our brightest people to pursue graduate
education at leading universities worldwide. In 2017, 19 managers
received TBC scholarships.
Since 2011, the Bank has run TBC Academy, an in-house educational
centre available to all employees that offers numerous courses in
banking and related fields. The Bank’s top and middle management
teach the courses. For new employees, we provide introductory
training in order to share with them our corporate values and
culture, and to give them a brief overview of the Group. In 2017,
several new classes were added, including regulations, ethics and
financial fraud management, as well as soft skills like leadership
and change management. In addition, we regularly organise various
job-related training for our employees. We also use a distance
learning system for many training programmes, allowing employees
more flexibility in completing the courses. Furthermore, in May
2017, we started a session of masterclasses for personal
development, which were delivered by leading professionals who
shared their knowledge and experience with our employees.
In total, six masterclasses were held, and more than 1,800
employees attended.
As we care about our employees’ appearance and comfort, this year
we decided to upgrade our corporate apparel. To take into
consideration our employees’ ideas and wishes, we conducted a
survey that more than 2,500 employees participated in. Based on the
survey results, we created 10 different designs of scarves and ties in
partnership with leading Georgian designers. These accessories
were distributed to front-office employees as gifts and are also
available for sale at our corporate online brand shop. Our brand
shop is subsidised by TBC Bank and features other products as well,
including branded stationery, clothing, accessories and gift items.
We continuously add new collections to our brand shop that are
designed exclusively for TBC Bank.
We offer our employees various promotions and discounts through
our internal network, including free tickets to exhibitions, the
cinema, opera and ballet, and rugby games. We also host book fairs,
where our employees can buy books with special discounts. In
addition, we provide back-to-school packages to the youngest
members of our “TBC family”.
Regular communication with employees is an integral part of our
corporate culture. We strive to provide our employees with the latest
information and developments about the Group. Since 2012, we have
conducted an annually employee satisfaction and engagement survey to
get feedback from our staff and take actions accordingly. These surveys
are conducted in partnership with leading international universities and
research firms. Our most recent survey, conducted in December 2017,
generated an employee engagement index as high as 91%1 and
employee net promoter score of 55.
Employee motivation and engagement
We constantly work on improving our people’s motivation and
engagement levels by exploring their interests and doing our best to
surprise and celebrate with them.
To support internal communications, we have established several
clubs based on employee interests that unite photographers,
football lovers, TBC talents and employees with other interests.
Clubs bring together employees from different departments and
give them an opportunity to get to know each other, share their ideas
and views. One such employee gathering is an internal
championship of the intellectual game “What? Where? When?” in
which over 30 teams participated.
To promote a healthy work - life balance, we organise weekend field
trips, team-building events and retreats for our employees, as well
as numerous internal championships, including bowling, football,
basketball and sand rugby. We also participate in external running
competitions and various sporting events. As part of our efforts to
promote a healthy lifestyle, we offer our employees medical
check-ups and free consultations. In 2017, nearly 2,000 employees
benefited from these benefits. In addition, our team members can
receive special discounts and offers at various sport centres. Most of
our employees also donate up to 2% of their salary to the TBC Fund,
which supports our team members and their relatives with severe
diseases and helps to finance their medical treatment costs. TBC
Fund was established in 2009 and has since helped around
1,000 people.
For middle management, we organise annual overseas workshops.
As national rugby team supporters, we try to combine these
workshops with important rugby matches. Last year, we supported
our national team in an autumn test match with Scotland. In 2017,
we took our middle managers to Wales to support the Georgian
national rugby team in a challenging game versus Wales as part of
Autumn Internationals 2017. This type of event both creates strong
team spirit and is in line with our strategy of becoming the
ambassadors for rugby in Georgia.
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TBC Bank Annual Report and Accounts 2017
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To ensure employee protection and improve working conditions, we
have a whistleblowing policy in place that is available to all
employees and aims to identify and respond to potential violations
that may jeopardise employee work effectiveness. 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 that a violation of internal standards or legal requirements
has taken place but is uncomfortable using the normal reporting
lines. Our guidelines seek to ensure that complaints are recorded
and that employees are safe from any potential retaliation.
The Compliance Department regularly conducts employee training
sessions in order to raise awareness and highlight the importance of
anti-corruption and anti-bribery issues. Periodic audits are also
conducted by the Internal Audit Department to identify any violations
or inappropriate behaviour. No such material instances were
identified during 2017. In terms of whistleblowing, 45 whistleblowing
reports were received according the Group’s internal policy, which
were escalated and resolved, as appropriate.
Priorities for 2018
To maintain and enhance our position as one of the most desired
employers in the country, we continuously work in partnership with
the leading HR consulting companies to further improve our human
resources systems and remain abreast of new market trends.
Our 2018 initiatives include:
introducing a job classification system, which means assessing
and grading head office staff positions. The job classification
system will make it easier to compare different positions
throughout the Bank and will facilitate transparent and
consistent people management and career development
processes; and
implementing a self-service platform through our internal
network and mobile application, which will allow each employee
to control their job-related information, such as updating
personal information, applying for annual leave or registering for
health insurance. Employee self-service systems will help us to
save time, make processes easier and more efficient, and give
our employees more autonomy to manage their employment-
related issues.
CORPORATE RESPONSIBILITY
CONTINUED
Ethics and conduct
We aspire to conduct business in a way that promotes high ethical
standards, values and respects human rights, and encourages our
employees to act with integrity and responsibility towards each other
and our customers, partners and community.
For this purpose, we have implemented a set of internal policies and
procedures and closely monitor their execution:
Code of Ethics
Code of Conduct
Anti-Bribery, Anti-Corruption and Prevention of the Facilitation of
Tax Evasion Policy (which was approved in January 2018 to
replace the former Anti-Bribery and Anti-Corruption Policy)
Whistleblowing Policy
These policies can be found on our IR website at www.tbcbankgroup.
com.
The Code of Ethics and Code of Conduct regulate employee rights
and responsibilities, and set appropriate relationship norms and
principles. TBC Bank’s employees are expected to act honestly and
fairly at all times and to comply with both the spirit and intent of all
laws. All employees are responsible for ensuring that the working
environment is free of any form of harassment, discrimination
(including gender, age, physical disability or religious affiliations) or
inappropriate behaviour. In dealing with customers, the TBC Bank is
dedicated to offering top-quality products and services, as well as to
providing straightforward information. In regard to suppliers, the
Group engages only in arm-length transactions.
Compliance with the Group’s Code of Ethics and Code of Conduct is
closely monitored by the HR Department, Compliance Department
and Information Security Department on regular basis. Periodic
audits are also conducted by the Internal Audit Department in order
to identify any breach or misconduct in relation to compliance with
these policies. No material breaches of the Group’s Code of Ethics
and Code of Conduct were identified during 2017.
Our Anti-Bribery, Anti-Corruption and Prevention of the Facilitation
of Tax Evasion Policy complies with all relevant local and
international laws and regulations, and applies to all employees of
the Group. The policy provides comprehensive guidance on the types
of behaviour that may give rise to violations of anti-bribery and
anti-corruption laws and/or Criminal Finance Bill requirements, and
reinforces a culture of honesty and openness among employees.
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OUR COMMUNITY
We take care of our community and support those areas that are
pivotal for our country and its future: the young generation, sports
and culture. These are the directions that we believe require the
most attention to develop and foster success.
Young generation
As the leading Georgian bank, we are convinced that it is our social
responsibility to set examples and encourage the young generation
to succeed. In 2017, we continued to sponsor numerous campaigns
encouraging young people to undertake challenging endeavours.
For the second year in a row, we hosted the Da Vinci scientific
festival, which aims to popularise STEM fields among young people.
The winning team received a one-year scholarship from TBC Status.
We also supported last years’ winners to participate in the Intel
International Science and Engineering Fair. Our talented participants
took third place out of 800 teams. Besides the local festival, TBC
Bank sponsored the participation of Georgian teams in the
international scientific Olympiads, such as First Global, Intel
International Science and Engineering Fair, etc.
To encourage innovative business ideas and entrepreneurship, TBC
Bank’s Startuperi programme, in partnership with Estonian firm
Garage 48, organised a three-day training course for Georgian
students in small towns. Students received training from leading
marketers, software developers, project managers and, on the last
day, had to work on an idea and create a prototype of their product.
The winning teams participated in a hackathon organised in Tbilisi.
More than 100 people with a start-up mindset took part in the
hackathon, creating business prototypes for gamification
and entertainment.
After renovating Tbilisi’s renowned Mziuri Park and opening the
non-profit Mziuri Cafe last year, we continued to support the cafe.
We also initiated Sunday meetings for primary schoolchildren,
where invited experts would discuss a variety of intriguing topics
and develop children’s curiosity and fantasy.
Statusdonates.ge
In the beginning of 2017, TBC Bank’s private banking brand, TBC
Status, launched statusdonates.ge, an innovative donation platform
featuring different stories of people in need, organisations or
specific projects. Short movies are made on each story and uploaded
to the platform, where people can view and choose which project
they want to support. The platform is innovative, since it mainly
focuses on supporting success and it gives donors an opportunity to
select a particular case that they want to support. Different stories
are submitted to appear on the platform, but a specially designated
committee reviews cases and selects the most appropriate ones.
Since its launch, statusdonates.ge has financed 13 projects.
Rugby
TBC Bank is a title sponsor of the Georgian Rugby Union and
supports numerous tournaments throughout the year. We have a
long-term partnership with the Rugby Union and, in addition to the
sponsorship, we use our social media channels to promote the sport
of rugby and increase the number of national team fans.
Georgian rugby had a remarkable year in 2017; it is the first time that the
country hosted the World Rugby Under-20 Championship. A total of 12
leading teams from all over the world visited Georgia in June to play in
the Championship, which is the second most important event in rugby,
following the Rugby World Cup.
Our partnership with Rugby Union entered a new phase in November,
when we branded the autumn international rugby test-series as the TBC
Rugby Series, attracting more fans to the matches. This is another
example of our successful cooperation with sports.
Culture
TBC Bank remains an avid supporter of Georgian culture, including
the visual arts, literature and ballet. During the past 25 years, we
have organised numerous exhibitions, supported young artists and
financed the restoration of artwork.
In 2017, we restored two masterpieces by prominent Georgian
painter Niko Pirosmani, “Tamar King” and “Rustaveli”, providing an
opportunity for Georgian society to view these unique paintings for
the first time. TBC Bank also organised special educational tours for
schoolchildren to introduce them to Pirosmani’s life and work.
Another significant exhibition during the year was presenting the
works of Petre Otskheli, one of the founders of Georgian
modernism. For the 110th anniversary of Otskheli’s birth, we
financed the conservation and restoration of 30 paintings. The
exhibition drew special attention from a wider audience and received
excellent reviews.
In 2003, TBC Bank established Saba, the main literary award in
Georgia. Since then, it remains the country’s most prestigious
annual cultural event. Saba popularised not only known Georgian
writers, it also helped to uncover new talent and introduce them to a
wider audience. In 2017, Saba introduced a mobile audiobook
application that provides free audiobooks to blind users.
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Strategic Report OverviewStrategic Report Strategy & Performance
CORPORATE RESPONSIBILITY
CONTINUED
Another milestone project that began in 2016 is the translation
platform supported by Microsoft, GeoLab, Leavingstone, PH
International and TBC Bank. For the project, more than 500 million
Georgian sentences from the database of the Georgian e-book
application, Saba, were analysed, translated and contributed to the
platform. Translated sentences were loaded into Microsoft’s
machine-learning platform. As a result, the Microsoft text API will
support the Georgian language and will accurately translate
Georgian sentences into English. Microsoft has already started to
integrate Georgian language translation capability into its products,
such as the Bing search engine, Microsoft Office, Skype, etc. This is
an important advancement for the Georgian language in the
information age.
Another initiative that we have curated since 2013 is Artarea, the
first online TV Channel dedicated to art and culture. The channel
offers its viewers various culturally themed lectures,
recommendations, entertainment programmes and live concerts,
which are quite popular among all generations. One of the most
successful projects is Tbilisuri Ezo (Tbilisian Yard), which gathers an
audience in a random yard of Old Tbilisi and organises a classical
music concert by the National Symphony Orchestra.
Priorities for 2018
While TBC Bank continues growing and developing as a financial
institution, we reaffirm adherence to our chosen directions: the
young generation, culture and sports. We are convinced that
these are the key areas where we can have a positive impact on
the community and dedicate our efforts to building a
prosperous country.
In 2018, we will increase the number of projects that we support, in
line with our strategy; actively promote them; and ensure that they
remain transparent, to allow more people to benefit from our
endeavours. As the number one bank in Georgia, we will set a
leading example and encourage other businesses to engage in
corporate responsibility activities.
80
TBC Bank Annual Report and Accounts 2017
ENVIRONMENT
As the largest banking group in the country, we fully understand the
importance of doing business with minimal impact on the
environment. We are strongly committed to preserving the
environment by operating our business in a sustainable and ethical
manner, and to take action to reduce our negative impact from both
direct and indirect activities.
Lending responsibly
We lend responsibly and do not finance projects that have an adverse
environmental or social impact. For this purpose, the Bank has adopted
an 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.
Compliance with the Bank’s Environmental and Social Risk Management
Policy is closely monitored by the Social and Environmental Risk
Manager. In terms of lending activities, credit officers undertake periodic
monitoring visits to their clients to ensure that all environmental and
social norms are adhered to. Periodic audits are also conducted by
Internal Audit Department in order to identify any breaches. No such
material breaches of the Bank’s Environmental and Social Risk
Management Policy were identified during 2017.
We are also committed to promoting eco-friendly projects. This year we
attracted around US$70 million in the form of debt finance from
international financial institutions to foster investments in areas related
to energy efficiency, renewable energy and pollution reduction.
Waste management and energy conservation
Since 2016, TBC Bank has implemented a waste management
programme that has been approved by Georgia’s Ministry of
Environment and Natural Resources Protection and has ensured that
we closely monitor and effectively manage our non-hazardous and
hazardous waste.
The non-hazardous waste mainly arises from printing paper, which we
shred and exchange with a recycling company in return for books that
we donate to orphanages, vulnerable families and libraries in remote
villages in Georgia’s mountainous regions. This year we introduced
several changes to reduce the usage of paper in line with the Bank’s
Environmental and Social Risk Management Policy. In June 2017, we
transformed several client authorisation procedures paperless and
saved around 1.7 million sheets of paper. We also simplified our
banking product agreements and reduced the number of pages per
agreement. Moreover, our customers can apply for and receive
pre-approved fast consumer loans via remote channels, meaning that
no additional paperwork is needed for disbursing a loan. In 2017 we
disbursed around 23,000 such loans.
For hazardous office waste, such as printer cartridges, we
collaborate with a company that specialises in supplying new
cartridges and recycling used ones.
Since 2016, we have used only energy-efficient LED lighting in our
premises, which has helped us to reduce the consumption of
electricity by around 9% this year. In addition, we operate an
energy-efficient heating and cooling system in our offices.
Greenhouse gas emissions
As one of the largest financial institutions in Georgia and a
premium-listed company trading on the LSE, TBC Bank has a
commitment to calculate and report upon its greenhouse gas (GHG)
emissions from the usage of fuel and electricity for its direct
operations. To this end, we commissioned the Energy Efficiency
Centre Georgia (EECG) 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 2017 and
2016, by calculating GHG emissions from TBC Bank’s business
activities in tonnes of carbon dioxide (CO2) equivalent, based on the
scopes set out in the GHG protocol (Scopes 1, 2 and 3).
Total CO2e emissions data
for the FY 2017
Total CO2e emissions data
for the FY 2016
Tonnes
Tonnes
2,409
1,375
366
4,150
0.60
1,804
1,147
268
3,219
0.52
Scope 1*
Scope 2
Scope 3
Total emissions
Total emission per full
time employee
* Scope 1 – 1,538 CO2e emissions in tonnes (from combustion of fuel (NG) from
owned operation and facilities of TBC Bank) in 2017 compared to 1,209 CO2e
in 2016
763 CO2e emissions in tonnes (from owned vehicles of TBC Bank) in 2017
compared to 533 CO2e in 2016
108 CO2e emissions in tonnes (from owned generators of TBC Bank) in 2017
compared to 63 CO2e
Whilst we remain committed to reducing our GHG emissions, the
increase in our CO2 emissions between 2016 and 2017 is, in part,
attributable to TBC Bank’s increased scale of operations following the
completion of TBC Bank’s acquisition of Bank Republic in 2017, and
partially the result of a change in methodology, which incorporated
an assessment of 100% of TBC Bank’s operations in 2017.
Calculation methodology
The EECG report considers all emission sources required under the
Companies Act 2006 (Strategic Report and Directors’ Reports)
Regulations 2013 (Scope 1 and 2) and the emission sources 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 2017
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 to address the
scope of TBC Bank’s main banking activities, which includes all
offices and/or retail branches where TBC Bank 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 2017 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 2017
81
Strategic Report OverviewStrategic Report Strategy & Performance
FINANCIAL REVIEW
Overview
These financial results are presented for TBC Bank Group PLC (“TBC
Bank” or “the Group”), which was incorporated on 26 February 2016
as the ultimate holding company for JSC TBC Bank. TBC Bank
became the parent company of JSC TBC Bank on 10 August 2016,
following the Group’s restructuring. As this was a common ownership
transaction, the results have been presented as if the Group existed at
the earliest comparative date as allowed under the International
Financial Reporting Standards (“IFRS”) as adopted by the European
Union. TBC Bank successfully listed on the London Stock Exchange’s
premium listing segment on 10 August 2016.
In Q4 2016, TBC Bank acquired Bank Republic (BR) which has been
consolidated into the Group’s results.
Results reported below prior to 30 September 2016 relate to the
group previously headed by JSC TBC Bank.
TBC Bank Group PLC financial results are prepared in accordance
with International Financial Reporting Standards (as endorsed by the
European Union) ("IFRS") and are adjusted for certain one-off items to
enable better analysis of the Group’s performance. The reconciliation
of the underlying profit and loss items with the reported profit and
loss items and the underlying ratios are given under annex 1 section
on pages 99-100. To further enhance the analysis, the Group
separately discloses BR effects in 2016 and 2017. Detailed information
is given in annex 2 section on pages 100-103.
Tax strategy
TBC Bank is committed to complying with all applicable tax laws in
all jurisdictions where TBC Group operates, including in the UK. In
particular, we aim to pay the correct amount of tax within applicable
time limits.
Our objectives are built around the following key principles:
transparency;
responsibility; and
effective interaction with tax authorities.
We ensure that the management of tax risk and proper governance
around our tax operations is supported by appropriately trained
personnel who have clear responsibilities to identify, analyse, assess
and manage tax risks. For more details, please view our tax strategy
on our website at www.tbcbankgroup.com under "about us" section.
IFRS 9 implementation
In January 2018, we have completed the IFRS 9 implementation,
which is expected to increase the provision level by GEL 64 million
and our non-performing loans coverage ratios with IFRS impact will
stand at 104.7% or 209.4% including collateral. As anticipated, IFRS
9 will have no impact on our local regulatory capital requirements as
established by NBG and profit and loss statement.
1 Excluding one-off items. Detailed information and effects are given in annex 1
on pages 99 to 100.
2 Market share figures are based on data from the National Bank of Georgia
(NBG). NBG includes interbank loans for calculating market share in loans
82
TBC Bank Annual Report and Accounts 2017
Financial highlights
FY 2017 profit & loss highlights
Underlying1 net profit amounted to GEL 369 million, up by 35.1%
YoY, hence delivering an underlying ROE of 21.4% (FY 2016: 20.6%)
Reported net profit was up by 20.7% YoY to GEL 360 million,
delivering a reported ROE of 20.9% (FY 2016: 22.4%)
Underlying1 ROA was 3.2% (FY 2016: 3.6%)
Reported ROA was 3.1% (FY 2016: 3.9%)
Total operating income for the period was up by 26.4% YoY to
GEL 861 million
Underlying1 cost to income ratio stood at 40.5% (FY 2016: 42.9%)
Reported cost to income stood at 41.7% (FY 2016: 45.8%)
Cost of risk stood at 1.2% (FY 2016: 1.0%)
Net interest margin (NIM) stood at 6.5% (FY 2016: 7.8%)
Risk adjusted NIM stood at 5.1% (FY 2016: 6.4%)
Balance sheet highlights as at 31 December 2017
Total assets amounted to GEL 12,966 million as of 31 December
2017, up by 20.4% YoY
Gross loans and advances to customers stood at GEL 8,553
million as of 31 December 2017, up by 16.2% YoY
Net loans to deposits + IFI funding stood at 92.5% and Net
Stable Funding Ratio (NSFR) stood at 124.4%
Non performing loans (NPLs) stood at 3.3%, down by 0.2 pp YoY
NPLs coverage ratios per IFRS 9 will be 104.7% and 209.4%
with collateral (NPL coverage ratios per IAS 39 stood at 81.8% or
186.5% with collateral) on 31 December 2017 compared to 88.4%
or 222.5% with collateral on 31 December 2016
Total customer deposits stood at GEL 7,817 million as of
31 December 2017, up by 21.1% YoY
As of 31 December 2017, the Bank’s Tier 1 and Total Capital
Adequacy Ratios (CAR) per new NBG methodology stood at
13.4% and 17.5% respectively, while minimum requirements
amounted to 10.3% and 12.9%
Market shares2
Market share in total assets stood at 36.4% up by 1.2 pp YoY
Market share in total loans was 38.2% as of 31 December 2017,
down by 0.6 pp YoY
In terms of individual loans, the Bank had a market share of
40.2% (or 42% without Credo Bank effect, which is a former
microfinance organisation registered as a bank in Q1 2017 and is
mainly focused on retail clients) as of 31 December 2017, down
by 4.0 pp YoY. The market share for legal entity loans was 36.0%
up by 2.5 pp YoY
Market share of total deposits stood at 39.8% as of 31
December 2017, up by 2.0 pp YoY
The Bank maintains its long-standing leadership in individual
deposits with a market share of 41.3% up by 0.5 pp YoY. In terms
of legal entity deposits, TBC Bank holds a market share of
37.9%, up by 3.7 pp YoY.
Consolidated financial results overview FY 2017
Income statement highlights
In thousands of GEL
Net Interest Income
Net Fee and Commission Income
Other Operating Non-Interest Income
Provisioning Charges
Operating Income after Provisions for Impairment
Operating Expenses
Profit Before Tax
Income Tax Expense
Profit for the Year
Underlying profit for the Year
Balance sheet and capital highlights
In thousands
Total Assets
Gross Loans
Customer Deposits
Total Equity
Regulatory Tier I Capital (Basel III)*
Regulatory Total Capital (Basel III)*
Regulatory Tier I Capital (Basel II/III)**
Regulatory Total Capital (Basel II/III)**
Regulatory Risk Weighted Assets (Basel III)*
Regulatory Risk Weighted Assets (Basel II/III)**
2017
2016
Change YoY
604,015
490,453
125,961
90,268
131,009
100,341
23.2%
39.5%
30.6%
-106,907
-53,395
100.2%
754,078
627,667
-359,400
-311,988
394,678
315,679
-34,750
-17,421
359,928
298,258
369,214
273,318
20.1%
15.2%
25.0%
99.5%
20.7%
35.1%
Dec-17
Dec-16
Change YoY
GEL
US$
GEL
US$
%
12,965,910 5,001,894 10,769,032 4,068,699
3,299,598
2,780,234
8,553,217
3,015,515
2,438,775
7,816,817
729,285
597,941
1,890,454
554,440
N/A
1,437,218
727,292
1,885,287
N/A
393,407
554,440
1,437,218
537,260
1,883,835
726,732
10,753,189 4,148,287
N/A
13,908,927 5,365,684 10,021,457 3,786,254
7,358,725
6,454,949
1,582,631
N/A
N/A
1,041,270
1,422,021
N/A
20.4%
16.2%
21.1%
19.5%
N/A
N/A
38.0%
32.5%
N/A
38.8%
* Per new NBG regulation, which came into force in December 2017
** Figures for December 2017 are based on internal estimates and are presented for comparison purposes
Key ratios1
Underlying ROE
Reported ROE
Underlying ROA
Reported ROA
Underlying Cost to Income
Reported Cost to Income
Cost of Risk
NPL to Gross Loans
Regulatory Tier 1 CAR (Basel III)*
Regulatory Total CAR (Basel III)*
Regulatory Tier 1 CAR (Basel II/III)**
Regulatory Total CAR (Basel II/III)**
Leverage (Times)
* Per new NBG regulation, which came into force in December 2017
** Figures for December 2017 are based on internal estimates and are presented for comparison purpose
1 Please refer to page 98 for key ratio definitions
2017
2016
Change YoY
in pp
21.4%
20.9%
3.2%
3.1%
40.5%
41.7%
1.2%
3.3%
13.4%
17.5%
10.3%
13.5%
6.9x
20.6%
22.4%
3.6%
3.9%
42.9%
45.8%
1.0%
3.5%
N/A
N/A
10.4%
14.2%
6.8x
0.8
-1.5
-0.4
-0.8
-2.4
-4.1
0.2
-0.2
N/A
N/A
-0.1
-0.7
0.1x
TBC Bank Annual Report and Accounts 2017
83
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Strategic Report OverviewStrategic Report Strategy & Performance
FINANCIAL REVIEW CONTINUED
Income statement discussion
Net interest income
In thousands of GEL
Loans and Advances to Customers
Investment Securities Available for Sale
Due from Other Banks
Bonds Carried at Amortised Cost
Investment in Leases
Other
Interest income
Customer Accounts
Due to Credit Institutions
Subordinated Debt
Debt Securities in Issue
Interest expense
Net interest income
Net interest margin
NMF – no meaningful figures
2017
2016
Change YoY
919,796
43,735
14,807
32,328
23,273
–
688,724
25,707
4,550
30,714
16,566
165
1,033,939
766,426
233,884
157,122
36,975
1,943
154,840
85,030
34,325
1,778
429,924
275,973
604,015
490,453
33.6%
70.1%
NMF
5.3%
40.5%
-100.0%
34.9%
51.0%
84.8%
7.7%
9.3%
55.8%
23.2%
6.5%
7.8%
-1.3pp
In FY 2017, net interest income grew by 23.2% YoY to GEL 604.0 million (GEL 493.3 million without the Bank Republic estimated contribution effect).
Without the Bank Republic estimated contribution effect, the interest income increased by GEL 142.0 million, or 19.5% YoY, mainly driven by a
higher interest income from loans to customers by GEL 114.3 million, or 17.5%. This is primarily related to the 26.2% gross loan portfolio
increase. A rise in interest income from investment securities (comprising both investment securities available for sale and bonds carried at
amortised cost) of GEL 13.5 million, or 25.1%, also contributed to the overall increase in loan portfolio. That in turn was driven by the significant
rise in the respective portfolio. In addition, net interest income from due from other banks grew by GEL 7.7 million, which was also determined by
the large increase in respective portfolio.
In FY 2017 the Bank Republic effect mainly contributed GEL 152.0 million, or 16.5% to the interest income from loans and advances to customers,
which totalled GEL 919.8 million, and GEL 8.7 million, or 11.5%, to interest income from investment securities, which amounted to GEL 76.1
million. As a result, the overall Bank Republic estimated contribution effect was GEL 163.3 million, or 15.8%, to the interest income.
Loan yields declined over the same period from 13.4% to 12.1%. The drop was driven by a decrease in rates on foreign currency-denominated loans,
from 10.4% to 9.1%, as well as by decline in GEL-denominated loan rates from 19.0% to 16.9% broadly in line with the overall market trend. The
decline of yields on investment securities, from 8.6% to 7.8%, over the same period is related to a lower average refinance rate in the country in FY
2017 compared to FY 2016. As a result, the yields on average interest earning assets dropped from 12.2% in FY 2016 to 11.1% in FY 2017.
In the reporting period, without the Bank Republic estimated contribution effect, interest expense increased by GEL 115.3 million, or 44.0% YoY.
The rise was mainly due to a higher interest expense on customer accounts of GEL 61.2 million, or 41.6%, and due to credit institutions of GEL
54.9 million or 69.8%. The growth in interest expense on both customer accounts and on due to credit institutions was driven by the large
increase in respective portfolios related to the overall business growth.
The Bank Republic estimated contribution effect added GEL 25.4 million, or 10.9%, to the interest expense on customer accounts, which
amounted to GEL 233.9 million in FY 2017, and GEL 23.5 million or 15.0% to interest expense due to credit institutions, which amounted to GEL
157.1 million. As a result, the overall Bank Republic contribution effect was a GEL 52.5 million, or 12.2%, to the interest expense.
The cost of deposits increased slightly by 0.1pp to 3.4% in FY 2017 and in the same period the cost of borrowing dropped to 6.5%, from 7.0% in
FY 2016. This was mainly due to the 1.2 pp decrease in rates on GEL-denominated borrowings and the 0.2 pp decrease in rates on FC-
denominated borrowings. As a result, the cost of funding ratio remained flat at 4.5%.
Consequently, NIM was 6.5% in FY 2017, compared to underlying NIM of 7.6% in FY 2016 (or reported NIM of 7.8%)
84
TBC Bank Annual Report and Accounts 2017
Fee and commission income
In thousands of GEL
Card Operations
Settlement Transactions
Guarantees Issued
Letters of Credit
Cash Transactions
Foreign Exchange Operations
Other
Fee and commission income
Card Operations
Settlement Transactions
Guarantees Issued
Letters of Credit
Cash Transactions
Foreign Exchange Operations
Other
Fee and commission expense
Card Operations
Settlement Transactions
Guarantees
Letters of Credit
Cash Transactions
Foreign Exchange Operations
Other
Net fee and commission income
NMF – no meaningful figures
2017
2016
Change YoY
82,525
59,739
15,121
5,735
17,424
1,339
12,061
61,115
43,434
11,699
6,215
13,013
1,277
6,047
35.0%
37.5%
29.3%
-7.7%
33.9%
4.9%
99.5%
193,944
142,800
35.8%
46,360
7,421
1,801
1,072
4,393
94
6,842
34,906
5,795
796
1,624
2,633
190
6,588
32.8%
28.1%
126.3%
-34.0%
66.8%
-50.5%
3.9%
67,983
52,532
29.4%
36,165
52,318
13,320
4,663
13,031
1,245
5,219
26,209
37,639
10,903
4,591
10,380
1,087
-541
38.0%
39.0%
22.2%
1.6%
25.5%
14.5%
NMF
125,961
90,268
39.5%
In FY 2017, net fee and commission income totalled GEL 126.0 million, marking an increase of GEL 35.7 million, or 39.5%, compared to FY 2016.
The rise resulted mainly from a GEL 14.7 million, or 39.0%, gain in net fee and commission income from settlement transactions; a GEL 10.0
million, or 38.0%, increase in net card operations; a GEL 2.7 million, or 25.5%, rise in net cash transactions, and a GEL 2.4 million, or 22.2%,
increase in net guarantees. The Bank Republic estimated contribution was GEL 6.9 million, or 5.5%, in the net fee and commission income.
Net fee and commission income from card operations expanded due to an increase in the number of active cards by 35.6% YoY, as well as a rise
in number of POS terminals by 12.1% YoY. Net Fee and commission income from settlement transactions increased mainly due to increased
commission income from money transfers by 40% and an increased volume of settlement transactions by 44% for one of the subsidiaries, TBC Pay.
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85
Strategic Report OverviewStrategic Report Strategy & Performance
FINANCIAL REVIEW CONTINUED
Other operating non-interest income and gross insurance profit
In thousands of GEL
2017
2016
Change YoY
Gains less losses from trading in foreign currencies and foreign exchange translations
91,473
67,762
Share of profit of associates
Gains less losses/(losses less gains) from derivative financial instruments
Gains less losses from disposal of investment securities available for sale
Revenues from cash-in terminal services
Revenues from operational leasing
Gain from sale of investment properties
Gain from sale of inventories of repossessed collateral
Administrative fee income from international financial institutions
Revenues from non-credit related fines
Gain on disposal of premises and equipment
Other
Other operating income
Other operating non-interest income
Gross insurance profit
909
-36
93
1,093
6,544
4,353
2,383
–
1,408
1,017
14,999
–
-206
9,293
1,100
5,772
2,623
2,382
644
658
208
9,849
31,797
23,236
124,236
100,085
6,773
256
35.0%
NMF
-82.5%
-99.0%
-0.6%
13.4%
66.0%
0.0%
-100.0%
114.0%
NMF
52.30%
36.8%
24.1%
NMF
Other operating non-Interest income and gross insurance profit
131,009
100,341
30.6%
NMF – no meaningful figures
In FY 2017 total other operating non-interest income and gross insurance profit increased by GEL 30.7 million, or by 30.6%, YoY to GEL 131.0
million in FY 2017. This increase was mainly driven by a GEL 23.7 million or 35.0% rise in net gains less losses from trading in foreign currencies
and foreign exchange translations mainly driven by increased trade volume and Bank Republic contribution. Another large contributor to the
increase in other operating non-interest income and gross insurance profit is a GEL 6.5 million increase in gross insurance profit from our
subsidiary - TBC Insurance, which was acquired in October 2016. As a result, the Group’s consolidated figures include contribution from
TBC Insurance only in the 4Q 2016, while it has been consolidated on a full year basis in 2017.
During 2017, we have significantly increased the number of customers to around 277,000 from only 3,000, which in turn led to high increase in
gross written premium which amounted to GEL12.2 million in 2017 on a stand-alone basis. As a result, market share increased to 13.3% from
3.5% establishing TBC Insurance as the third-largest player on market.1
The growth is also due to a GEL 1.7 million increase in gain from the sale of investment properties as well as GEL 5.2 gain in the “other”
subsection of other operating income. The latter is mainly attributable to GEL 2.6 million reimbursed taxes; a GEL 2.9 million related to fair value
adjustment of previously acquired portfolio due to a better than expected performance, and a GEL 2.1 million related to a expense-sharing
programme by our partner payment technology companies. The rise across these items was largely offset by a GEL 8.8 million drop in net gains
less losses from disposal of investment securities available for sale due to a one-off gain from the sale of investment security in Q2 2016.
The Bank Republic’s estimated contribution in total other operating non-interest income was GEL 22.8 million or 17.4%, out of which GEL 14.1
million was related to gains less losses from trading in foreign currencies and foreign exchange translations.
1 Source insurance.gov.ge
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TBC Bank Annual Report and Accounts 2017
Provision for impairment
In thousands of GEL
Provision for loan impairment
Provision for impairment of investments in finance lease
Provision for performance guarantees and credit related commitments
Provision for impairment of other financial assets
Impairment of investment securities available for sale
Total provision charges for impairment
Operating income after provisions for impairment
Cost of risk
NMF – no meaningful figures
2017
2016
Change YoY
-93,823
-492
-153
-12,439
–
-49,202
-558
-771
-2,853
-11
90.7%
-11.8%
-80.2%
NMF
-100.0%
-106,907
-53,395
100.2%
754,078
627,667
20.1%
1.2%
1.0%
0.2pp
In 2017, total provision charges rose to GEL 106.9 million, up by GEL 53.5 million, compared to FY 2016, mainly driven by the increased charges on loans
by GEL 44.6 million and a GEL 9.6 million rise in provision for impairment of other financial assets. The cost of risk increased by 0.2pp to 1.2%.
Further details on asset quality are available under the Balance Sheet Discussion section.
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Operating expenses
In thousands of GEL
Staff costs
Provisions for liabilities and charges
Depreciation and amortisation
Professional services
Advertising and marketing services
Rent
Utility services
Intangible asset enhancement
Taxes other than on income
Communications and supply
Stationery and other office expenses
Insurance
Security services
Premises and equipment maintenance
Business trip expenses
Transportation and vehicles maintenance
Charity
Personnel training and recruitment
Write-down of current assets to fair value less costs to sell
Loss on disposal of inventory
Loss on disposal of investment properties
Loss on disposal of premises and equipment
Impairment of intangible assets
Acquisition costs
Other
Administrative and other operating expenses
Operating expenses
Profit before tax
Income tax expense
Profit for the year
Cost to income
ROE
ROA
NMF – no meaningful figures
2017
2016
Change YoY
203,100
172,221
-2,495
37,265
14,332
18,430
23,132
6,067
10,304
5,670
4,063
4,936
2,461
1,965
5,413
2,021
1,637
1,045
1,444
-538
1,239
442
492
1,916
2,447
12,612
2,210
28,082
29,926
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
1,272
-4,424
1,690
61
423
2,043
207
8,694
121,530
109,475
359,400
311,988
394,678
315,679
-34,750
-17,421
359,928
298,258
41.7%
20.9%
3.1%
45.8%
22.4%
3.9%
17.9%
NMF
32.7%
-52.1%
33.6%
26.4%
18.8%
38.4%
20.7%
-2.9%
43.2%
-8.4%
4.4%
39.2%
7.5%
18.1%
18.2%
13.5%
-87.8%
-26.7%
NMF
16.3%
-6.2%
NMF
45.1%
11.0%
15.2%
25.0%
99.5%
20.7%
-4.1pp
-1.5pp
-0.8pp
Total operating expenses, excluding one-offs and the Bank Republic estimated contribution effect, amounted to GEL 287.7 million, up by GEL 17.5
million, or 6.5% YoY. The growth was mainly driven by a GEL 15.3 million increase in administrative expenses and a GEL 4.4 million rise in depreciation
and amortisation.
In FY 2016, the one-off costs related to the Premium Listing and the Bank Republic integration amounted to GEL 16.2 million and GEL 12.2 million
respectively. In FY 2017, one-off costs were related to the Bank Republic integration and totalled GEL 10.9 million.
Out of the total operating expenses, the Bank Republic estimated contribution amounted to GEL 60.8 million, or 16.9%, of which staff costs amounted
to GEL 35.2 million and administrative and other operating expenses to GEL 20.9 million. Total operating expenses including one-offs and the Bank
Republic estimated contribution effect amounted to GEL 359.4 million.
Annualised cost synergies are expected to be GEL 24 million. In 2017, the estimated realised synergies were around GEL 20.5 million. As a result,
the cost to income ratio stood at 41.7% (40.5% with one-offs) in FY 2017, compared to 45.8% (42.9% with one-offs) in FY 2016.
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TBC Bank Annual Report and Accounts 2017
Balance sheet discussion
In thousands of GEL
Cash, Due from Banks and Mandatory Cash Balances with NBG
Loans and Advances to Customers (Net)
Financial Securities
Fixed and Intangible Assets & Investment Property
Other Assets
Total Assets
Due to Credit Institutions
Customer Accounts
Debt Securities in Issue
Subordinated Debt
Other Liabilities
Total Liabilities
Total Equity
Dec-17
Dec-16
Change
2,504,938
8,325,353
1,107,476
529,637
498,506
1,960,547
7,133,702
803,659
470,604
400,520
27.8%
16.7%
38.0%
12.5%
24.1%
12,965,910 10,769,032
20.4%
2,620,714
7,816,817
20,695
426,788
190,442
2,197,577
6,454,949
23,508
368,381
141,986
11,075,456 9,186,401
1,890,454 1,582,631
19.3%
21.1%
-12.0%
15.9%
34.1%
20.6%
19.5%
Assets
As of 31 December 2017, TBC Bank’s total assets amounted to GEL 12,965.9 million, up by GEL 2,196.9 million, or 20.4%, YoY. This was mainly due
to the increase in gross loans to customers by GEL 1,194.5 million, or 16.2%. In addition, the YoY rise resulted from a GEL 303.8 million, or 37.8%,
increase in financial securities, a GEL 486.3 million or 51.5% increase in cash and cash equivalents, a GEL 52.9 million, or 16.8% increase in
premises and equipment and a GEL 22.5 million, or 37.0% increase in intangible assets, largely attributable to the Bank Republic estimated
contribution effect.
Asset quality
PAR 301 by segments and currencies
PAR 30
Corporate
Retail
MSME
Total
loans overdue by more than 30 days to gross loans
1
* Par 30 for December 2016 is given per new segmentation
Dec-17
FC
2.0%
2.0%
3.1%
2.2%
GEL
0.0%
2.9%
1.5%
2.1%
Total
1.5%
2.4%
2.5%
2.2%
Dec-16*
FC
1.4%
2.3%
3.5%
2.3%
GEL
0.0%
2.5%
1.8%
1.9%
Total
1.0%
2.4%
3.0%
2.2%
Total
The total PAR 30 ratio remained stable YoY at 2.2%. PAR 30 in local currency increased by 0.2pp to 2.1%, while PAR 30 in foreign currency
dropped by 0.1pp to 2.2%.
Retail
The retail segment PAR 30 amounted to 2.4%, unchanged from December 2016. The Retail PAR 30 in local currency increased by 0.4pp to 2.9%,
while PAR 30 in foreign currency declined by 0.3pp to 2.0%.
Corporate
The corporate segment PAR 30 amounted to 1.5%, an increase of 0.5pp YoY. The increase is driven by one large borrower falling in PAR 30;
this exposure is guaranteed by the AAA-rated Export Development Agency, according to international credit rating agencies.
The corporate PAR 30 in local currency remained stable at 0.0%, while PAR 30 in foreign currency rose by 0.6pp to 2.0%.
MSME
The MSME segment PAR 30 amounted to 2.5%, down by 0.5% YoY. The decrease is driven by overall improved performance of the book.
The MSME PAR 30 in local currency decreased by 0.3pp to 1.5%, while PAR 30 in foreign currency decreased by 0.4pp to 3.1%.
TBC Bank Annual Report and Accounts 2017
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FINANCIAL REVIEW CONTINUED
NPLs
NPLs
Corporate
Retail
MSME
Total
Dec-17
FC
4.2%
2.8%
6.0%
4.1%
GEL
0.0%
2.6%
2.2%
2.1%
Total
3.2%
2.7%
4.6%
3.3%
Dec-16*
FC
6.1%
3.0%
4.9%
4.4%
GEL
0.7%
1.8%
1.8%
1.6%
Total
4.8%
2.5%
4.0%
3.5%
* NPL for December 2016 is given per new segmentation
Total
Total NPLs stood at 3.3% down by 0.2 pp on YoY basis. The NPLs in local currency increased by 0.5pp to 2.1%, while NPLs in foreign currency
decreased by 0.3pp to 4.1%.
Retail
Retail NPLs stood at 2.7% up by 0.2pp on YoY. The Retail NPLs in local currency increased by 0.8pp to 2.6%, while NPLs in foreign currency
declined by 0.2pp to 2.8%.
Corporate
Corporate NPLs stood at 3.2%, down by 1.6pp on a YoY basis. The decline was driven by the write-off of one large corporate borrower in Q1 2017,
which was almost fully provisioned, as well as by improved financial conditions of several other borrowers.
The corporate NPLs in local currency decreased by 0.7pp to 0.0%, while NPLs in foreign currency dropped by 1.9pp to 4.2%.
MSME
MSME NPLs expanded by 0.6pp on a YoY basis to 4.6%. The YoY increase is driven by worsened financial standing of a few borrowers.
The MSME NPLs in local currency increased by 0.4pp to 2.2%, while NPLs in foreign currency increased by 1.1pp to 6.0%.
Dec-17
(including IFRS9 impact)
Excl.
collateral
86.6%
154.0%
54.6%
Incl.
collateral
211.0%
237.3%
170.6%
Dec-16*
Excl.
collateral
91.8%
106.6%
57.7%
Incl.
collateral
262.2%
205.6%
186.4%
104.7%
209.4%
88.4%
222.5%
NPLs coverage
Corporate
Retail
MSME
Total
* NPLs coverage for December 2016 is given per new segmentation
Total
NPL coverage ratios per IAS 39 stood at 81.8% and 186.5%, including collateral.
Retail
NPL coverage ratios per IAS 39 stood at 120.8% and 204.1%, including collateral.
Corporate
NPL coverage ratios per IAS 39 stood at 63.2% and 187.7%, including collateral.
MSME
NPL coverage ratios per IAS 39 stood at 46.1% and 162.2%, including collateral
90
TBC Bank Annual Report and Accounts 2017
Liabilities
As of 31 December 2017, TBC Bank’s total liabilities amounted to GEL 11,075 million, up by 20.6% YoY. The YoY growth of GEL 1,889.1 million was
primarily due to a GEL 1,361.9 million, or 21.1%, increase in customer deposits. Total liabilities also grew following the increase in amounts due
to credit institutions by GEL 423.1 million as well as a rise in subordinated debt by GEL 58.4 million.
Liquidity
The Bank’s liquidity ratio, as defined by the NBG, stood at 32.5% as of 31 December 2017, compared to 30.8% as of 31 December 2016. The newly
introduced short-term liquidity ratio, total LCR, as defined by NBG, stood at 112.7% above the 100.0% limit. The LCR for GEL and FC stood at
95.6% and 122.9% respectively, both higher than their respective limits of 75% and 100%.
Total equity
As of 31 December 2017, TBC’s total equity amounted to GEL 1,890 million, up from GEL 1,583 million as of 31 December 2016. The YoY change
in equity was mainly due to the net profit contribution of GEL 359.9 million, which was offset by a GEL 74.8 million dividend distribution (gross of
tax and consisting of GEL 66.7 million cash-based and GEL 8.1 million share-based).
Regulatory capital
In December 2017, the National Bank of Georgia introduced new capital adequacy requirements in order achieve better compliance with Basel III
framework.
The regulatory Capital Adequacy Ratios (CAR) is already based on the new regulation. As of 31 December 2017, the Bank’s Basel III Tier 1 and
total CAR stood at 13.4% and 17.5%, compared to the required levels of 10.3% and 12.9%, respectively. The Bank’s Basel III Tier 1 Capital
amounted to GEL 1,437 million and Bank’s Basel III Total Regulatory Capital amounted to GEL 1,885 million. Risk Weighted Assets amounted to
GEL 10,753 million as of 31 December 2017.
Results by segments and subsidiaries
The segment definitions are:
Corporate – Legal Entities 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 this segment or transferred to the MSME segment on a
discretionary basis.
MSME (Micro, Small and Medium Enterprises) – all business customers who are not included in either Corporate and Retail segments; or
Legal Entities who have been granted a pawn shop loan;
Retail – all non-business individual customers or individual business customers who have been granted a loan in an amount equivalent below
US$ 8.0 thousand. All individual customers are included in retail deposits; and
Corporate centre – comprises the Treasury, other support and back office functions, and non-banking subsidiaries of the Group.
Businesses customers are all legal entities or individuals who have been granted a loan for business purposes.
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Income Statement by Segments
2017
Interest Income
Interest Expense
Net Transfer Pricing
Net Interest Income
Fee and Commission Income
Fee and Commission Expense
Net fee and Commission Income
Gross Insurance Profit
Gains Less Losses from Trading in Foreign Currencies
Foreign Exchange Translation Gains Less Losses
Net Losses from Derivative Financial Instruments
Gains Less Losses from Disposal of Investment Securities Available for Sale
Other Operating Income
Share of profit of associates
Other Operating Non-Interest Income
(Provision)/ Recovery of provision for Loan Impairment
(Provision)/Recovery of Provision for Liabilities, Charges and Credit Related
Commitments
Provision for Impairment of Investments in Finance Lease
Provision for Impairment of other Financial Assets
Corporate
Retail
MSME
Corp. Centre
Total
203,082
-103,707
22,489
535,851
-118,516
-73,141
184,008
-11,661
-51,488
110,998
-196,040
102,140
1,033,939
-429,924
–
121,864
344,194
120,859
17,098
604,015
30,037
-6,942
140,582
-51,199
20,335
-8,949
2,990
-893
193,944
-67,983
23,095
89,383
11,386
2,097
125,961
–
38,885
–
–
–
13,465
–
–
22,597
–
–
–
12,670
–
–
26,885
–
–
-
1,726
–
6,773
-1,268
4,374
-36
93
3,936
909
6,773
87,099
4,374
-36
93
31,797
909
52,350
35,267
28,611
14,781
131,009
27,031
-106,579
-14,275
–
-93,823
183
–
-7,666
-261
–
-17
467
–
-64
-542
-492
-4,692
-153
-492
-12,439
Operating income after provisions for impairment
216,857
361,987
146,984
28,250
754,078
Staff Costs
Depreciation and Amortisation
Recovery of provision for Liabilities and Charges
Administrative and Other Operating Expenses
Operating Expenses
Profit before Tax
Income Tax Expense
Profit for the Year
Portfolios by Segments
In thousands of GEL
Loans and advances to customers
Consumer
Mortgage
Pawn
Retail
Corporate
MSME
Total loans and advances to customers (Gross)
Less: Provision for Loan Impairment
Total loans and advances to customers (Net)
Customer accounts
Retail
Corporate
MSME
Total customer accounts
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TBC Bank Annual Report and Accounts 2017
-25,989
-1,438
–
-7,457
-128,331
-29,813
–
-81,356
-31,225
-4,972
–
-15,118
-17,555
-1,042
2,495
-17,599
-203,100
-37,265
2,495
-121,530
-34,884
-239,500
-51,315
-33,701
-359,400
181,973
122,487
95,669
-5,451
394,678
-27,738
-15,527
-13,820
22,335
-34,750
154,235
106,960
81,849
16,884
359,928
Dec-17
Dec-16
1,838,895
2,128,658
1,808,434
2,069,728
33,247
34,767
3,680,576
4,233,153
2,062,229
2,475,392
1,844,672
1,615,920
8,553,217 7,358,725
-225,023
8,325,353 7,133,702
-227,864
3,747,775
4,378,265
1,875,576
2,410,862
1,027,690
831,598
7,816,817 6,454,949
Retail banking
As of 31 December 2017, retail loans stood at GEL 4,233.2 million (or GEL 3,518.2 million without Bank Republic estimated contribution effect),
up by GEL 552.6 million, or 15.0%, YoY. The main drivers were GEL 289.8 million, or 15.8%, increase in consumer loans, and a GEL 261.3 million,
or 14.4% rise in mortgage loans. As of 31 December 2017, TBC Bank’s retail loans accounted for 40.2% market share of total individual loans.
As of 31 December 2017, foreign currency loans represented 49.3% of the total retail loan portfolio.
In the reporting period, retail deposits increased to GEL 4,378.3 million (or to GEL 4,066.3 million without Bank Republic estimated contributed
effect), up by GEL 630.1 million or 16.8% YoY. Retail deposits accounted for 41.3% market share of total individual deposits. The increase in retail
deposits was attributable to a GEL 355.2 million, or 21.9%, rise in current deposits, and a GEL 274.9 million, or 12.9% increase in term deposits
YoY. Term deposits accounted for 54.9% of the total retail deposit portfolio as of 31 December 2017, while foreign currency deposits represented
83.8% of the total retail deposit portfolio, compared to 86.4% as of December 2016.
In FY 2017, retail loan yields and deposit rates stood at 14.0% and 3.1% respectively, and the segment’s cost of risk on loans was 2.8%. The retail
segment contributed 29.7%, or GEL 107.0 million, to the TBC’s total net income in the respective period.
Corporate banking
As of 31 December 2017, corporate loans amounted to GEL 2,475.4 million (or GEL 2,230.2 million excluding Bank Republic estimated effect),
up by GEL 413.2 million or 20.0% YoY. Foreign currency loans accounted for 74.6% of the total corporate loan portfolio. The market share for legal
entities increased by 2.3% YoY to 36.0% mainly due to newly acquired blue chip customers.
As of the same date, corporate deposits totalled GEL 2,410.9 million (or GEL 2,297.5 million without the Bank Republic effect), up by GEL 535.7
million or 28.6% YoY. Foreign currency corporate deposits represented 49.8% of the total corporate deposit portfolio. Market share stood at 37.9%.
In FY 2017, corporate loan yields and deposit rates stood at 9.5% and 5.2%, respectively. In the same period, the cost of risk on loans was -1.3%.
Negative CoR in 2017 is driven by good performance of the book. In terms of profitability, the corporate segment’s net profit reached GEL 154.2
million, or 42.9% of the Bank’s total net income.
MSME banking
As of 31 December 2017, MSME loans amounted to GEL 1,844.7 million (GEL 1,708.7 million excluding Bank Republic estimated loan portfolio),
up by GEL 228.8 million, or 14.2% YoY. Foreign currency loans accounted for 63.8% of the total MSME portfolio.
As of the same date, MSME deposits stood at GEL 1,027.7 million (GEL 964.2 million excluding Bank Republic estimated deposit portfolio), up by
GEL 196.1 million or 23.6% YoY. Foreign currency MSME deposits represented 53.7% of the total MSME deposit portfolio.
In FY 2017, MSME loan yields and deposit rates stood at 10.9% and 1.3% respectively, while the cost of risk on loans was 0.8%. In terms of
profitability, net profit for the MSME segment amounted to GEL 81.8 million, or 22.7% of TBC’s total net income.Consolidated Financial
Statements of TBC Bank Group PLC
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FINANCIAL REVIEW CONTINUED
Consolidated Balance Sheet
In thousands of GEL
Cash and cash equivalents
Due from other banks
Mandatory cash balances with the National Bank of Georgia
Loans and advances to customers
Investment securities available for sale
Bonds carried at amortised cost
Investments in finance leases
Investment properties
Current income tax prepayment
Deferred income tax asset
Other financial assets
Other assets
Premises and equipment
Intangible assets
Goodwill
Investments in associates
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
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
94
TBC Bank Annual Report and Accounts 2017
Dec-17
Dec-16
1,431,477
39,643
1,033,818
8,325,353
657,938
449,538
143,836
79,232
19,084
2,855
146,144
156,651
366,913
83,492
28,658
1,278
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
–
12,965,910 10,769,032
2,620,714
7,816,817
91,753
447
20,695
602
13,200
84,440
426,788
2,197,577
6,454,949
50,998
2,577
23,508
5,646
16,026
66,739
368,381
11,075,456 9,186,401
1,605
714,651
1,232,865
-162,166
9,828
70,045
1,730
-7,359
1,581
677,211
955,173
-162,166
23,327
70,460
-3,681
-7,538
1,861,199 1,554,367
29,255
28,264
1,890,454 1,582,631
12,965,910 10,769,032
2017
2016
1,033,939
-429,924
766,426
-275,973
604,015
490,453
193,944
-67,983
142,800
-52,532
Net fee and commission income
Net insurance premiums earned
Net insurance claims incurred
Insurance profit
Net gains from trading in foreign currencies
Net gains /(losses) from foreign exchange translation
Net losses from derivative financial instruments
Net gains from disposal of investment securities available for sale
Other operating income
Share of profit of associates
Other operating non-interest income
Provision for loan impairment
Provision for impairment of investments in finance lease
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
Recovery of provision/ (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:
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
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125,961
90,268
12,633
-5,860
6,773
87,099
4,374
-36
93
31,797
909
1,222
-966
256
70,269
-2,507
-206
9,293
23,236
-
124,236
100,085
-93,823
-492
-153
-12,439
–
-49,202
-558
-771
-2,853
–11
754,078
627,667
-203,100
-37,265
2,495
-121,530
-172,221
-28,082
-2,210
-109,475
-359,400
-311,988
394,678
315,679
-34,750
-17,421
359,928
298,258
5,489
522
–
-11,611
181
–
-948
1,649
-422
5,248
10,928
540
365,176
298,798
354,410
299,145
5,518
-887
359,928
298,258
359,585
299,685
5,591
-887
365,176
298,798
TBC Bank Annual Report and Accounts 2017
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FINANCIAL REVIEW CONTINUED
Consolidated Statements of Cash Flows
In thousands of GEL
Cash flows from (used in) 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
2017
2016
1,000,571
-424,105
195,285
-68,036
23,518
-9,127
87,099
8,992
-187,520
-112,270
-53,916
735,705
-273,795
144,247
-52,154
1,591
-703
70,411
8,411
-148,656
-104,077
-34,279
Cash flows from operating activities before changes in operating assets and liabilities
460,491
346,701
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 flows from operating activities
Cash flows used in (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
Proceeds from disposal of premises, equipment and intangible assets
Proceeds from disposal of investment property
Net cash flows used in investing activities
Cash flows from (used in) 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
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
96
TBC Bank Annual Report and Accounts 2017
-98,586
-448,582
-1,330,105 -1,219,501
-11,687
-22,965
-843
-49,297
-38,064
73,814
-228,486
1,329,071
18,263
3,487
265,679
1,150,146
5,724
332
140,588
65,004
-560,226
-
345,748
-273
-307,248
242,380
-114,383
1,932
19,082
-143,980
11,868
166,871
-91,404
-304,109
314,231
-50,689
1,273
7,822
-372,988
-88,117
1,461,191
-800,333
119,859
-59,671
–
-2,123
-67,927
–
29
903,502
-666,156
136,817
-90,416
4,354
-4,636
-54,560
-3,495
–
651,025
225,410
67,672
22,536
486,297
224,833
945,180
720,347
1,431,477
945,180
Key ratios
Average balances
Average balances included in this document are calculated as the average of the relevant monthly balances as of each month-end. Balances have
been extracted from TBC's consolidated management accounts prepared from TBC's accounting records, which were used by Management for
monitoring and control purposes.
Key ratios
Ratios (based on monthly averages, where applicable)
Underlying ROE1
Reported ROE2
Underlying ROA3
Reported ROA4
Underlying Cost to Income5
Reported Cost to Income6
Cost of Risk7
NIM8
Risk Adjusted NIM9
Loan Yields10
Risk Adjusted Loan Yields11
Deposit rates12
Yields on interest Earning Assets13
Cost of Funding14
Spread15
PAR 90 to Gross Loans16
NPLs to Gross Loans17
NPLs coverage per IAS 3918
NPLs coverage with collateral per IAS 3919
NPLs coverage per IFRS 920
NPLs coverage with collateral per IFRS 921
Provision Level to Gross Loans22
Related Party Loans to Gross Loans23
Top 10 Borrowers to Total Portfolio24
Top 20 Borrowers to Total Portfolio25
Net Loans to Deposits plus IFI Funding26
Net Stable Funding Ratio27
Liquidity Coverage Ratio28
Leverage29
Regulatory Tier 1 CAR (Basel III)30
Regulatory Total CAR (Basel III)31
Regulatory Tier 1 CAR (Basel II/III)32
Regulatory Total CAR (Basel II/III)33
Dividend Pay-out ratio34
* Estimated Basel II/III ratios as of 31 December 2017
2017
2016
21.4%
20.9%
3.2%
3.1%
40.5%
41.7%
1.2%
6.5%
5.1%
12.1%
10.7%
3.4%
11.1%
4.5%
6.6%
1.4%
3.3%
81.8%
186.5%
104.7%
209.4%
2.7%
0.1%
8.2%
12.4%
92.5%
124.4%
113%
6.9x
13.4%
17.5%
10.3%*
13.5%*
25.4%
20.6%
22.4%
3.6%
3.9%
42.9%
45.8%
1.0%
7.8%
6.4%
13.4%
12.1%
3.3%
12.2%
4.5%
7.8%
1.3%
3.5%
88.4%
222.5%
N/A
N/A
3.1%
0.1%
7.6%
11.3%
93.4%
108.4%
N/A
6.8x
N/A
N/A
10.4%
14.2%
25.2%
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TBC Bank Annual Report and Accounts 2017
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FINANCIAL REVIEW CONTINUED
Ratio definitions
1. Underlying return on average total equity (ROE) equals underlying net income attributable to owners divided by monthly average of total shareholders ‘equity
attributable to the PLC’s equity holders for the same period adjusted for the respective one-off items; Annualised where applicable.
2. Return on average total equity (ROE) 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; Annualised where applicable.
3. Underlying return on average total assets (ROA) equals underlying net income of the period divided by monthly average total assets for the same period. Annualised
where applicable.
4. Return on average total assets (ROA) equals net income of the period divided by monthly average total assets for the same period. Annualised where applicable.
5. Underlying cost to income ratio equals total underlying operating expenses for the period divided by the total underlying revenue for the same period. (Revenue
represents the sum of net interest income, net fee and commission income and other non-interest income).
6. 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).
7. Cost of risk equals provision for loan impairment divided by monthly average gross loans and advances to customers. Annualised where applicable.
8. Net interest margin (NIM) is net interest income divided by monthly average interest-earning assets. Annualised where applicable. Interest-earning assets include
investment securities excluding corporate shares, net investment in finance lease, net loans, amount due from credit institutions. The latter excludes all items
from cash and cash equivalents, excludes EUR mandatory reserves with NBG which currently has negative interest, and includes other earning items from due
from banks.
9. Risk Adjusted Net interest margin is NIM minus cost of risk without one-offs and currency effect.
10. Loan yields equal interest income on loans and advances to customers divided by monthly average gross loans and advances to customers. Annualised where
applicable.
11. Risk Adjusted Loan yield is loan yield minus cost of risk without one-offs and currency effect.
12. Deposit rates equal interest expense on customer accounts divided by monthly average total customer deposits. Annualised where applicable.
13. Yields on interest earning assets equal total interest income divided by monthly average interest earning assets. Annualised where applicable.
14. Cost of funding equals total interest expense divided by monthly average interest bearing liabilities. Annualised where applicable.
15. 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).
16. 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.
17. 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.
18. NPLs coverage ratio equals total loan loss provision calculated per IAS 39 divided by the NPL loans.
19. NPLs coverage with collateral ratio equals loan loss provision calculated per IAS 39 plus total collateral amount of NPL loans (excluding third-party guarantees)
discounted at 30-50% depending on segment type divided by the NPL loans.
20. NPLs coverage ratio equals total loan loss provision calculated per IFRS 9 divided by the NPL loans.
21. NPLs coverage with collateral ratio equals loan loss provision calculated per IFRS 9 plus total collateral amount of NPL loans (excluding third-party guarantees)
discounted at 30-50% depending on segment type divided by the NPL loans.
22. Provision level to gross loans equals loan loss provision divided by the gross loan portfolio for the same period.
23. Related party loans to total loans equals related party loans divided by the gross loan portfolio.
24. Top 10 borrowers to total portfolio equals total loan amount of top 10 borrowers divided by the gross loan portfolio.
25. Top 20 borrowers to total portfolio equals total loan amount of top 20 borrowers divided by the gross loan portfolio.
26. Net loans to deposits plus IFI funding ratio equals net loans divided by total deposits plus borrowings received from international financial institutions.
27. Net stable funding ratio equals available amount of stable funding divided by required amount of stable funding as defined in Basel III. NSFR ratio for before Q2
2017 is calculated per updated internal methodology in line with Basel 2014 guidelines.
28. Liquidity coverage ratio equals high-quality liquid assets divided by total net cash outflow amount as defined by NBG.
29. Leverage equals total assets to total equity.
30. Regulatory 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 III
standards. The reporting started from the end of 2017. Calculations are made for TBC Bank stand-alone, based on local standards.
31. Regulatory Total CAR equals total capital divided by total risk-weighted assets, both calculated in accordance with the Pillar 1 requirements of NBG Basel III
standards. The reporting started from the end of 2017. Calculations are made for TBC Bank stand-alone, based on local standards.
32. Regulatory Tier 1 CAR equals Tier I Capital divided by total risk-weighted assets, both calculated in accordance with the NBG Basel II/III requirements.
33. Regulatory Total CAR equals total capital divided by total risk-weighted assets, both calculated in accordance with the NBG Basel II/III requirements
34. Dividend pay-out ratio for 2017 is based on 2016 performance. Dividend pay-out ratio for 2016 is based on 2015 performance.
Exchange rates
To calculate the QoQ growth of Balance Sheet items without the currency exchange rate effect, we used USD/GEL exchange rate of 2.4767 as of 30 September 2017.
For calculations of the YoY growth without the currency exchange rate effect, we used USD/GEL exchange rate of 2.6468 as of 31 December 2016. The USD/GEL
exchange rate as of 31 December 2017 equalled 2.5922. For P&L items growth calculations without currency effect, we used the average USD/GEL exchange rate for
the following periods: Q4 2017 of 2.5933, Q3 2017 of 2.4207, Q4 2016 of 2.4958.
98
TBC Bank Annual Report and Accounts 2017
Annex 1
In thousands of GEL
Reported net interest income
One-off interest income related to large corporate borrowers
One-off interest expense related to prepayment of subordinated loans
Underlying net interest income
Reported net fee and commission income
Reported gross insurance profit
Reported other operating income
One-off gain on sale of investment securities
Underlying other operating income
Reported operating income
Underlying operating income
Reported total provision expenses
One-off recovery of previously written-off principal
One-off currency effect on provisions
Underlying total provision expenses
Reported operating income after provisions
Underlying operating income after provisions
Reported operating expenses
One-off costs related to premium listing
One-off costs related to Bank Republic integration (consulting costs)
One-off costs related to impairment of intangible assets of Bank Republic
One-off costs related to staff redundancy provision related to Bank Republic acquisition
Underlying operating expenses
Reported profit before tax
Underlying profit before tax
Reported income tax
One-off tax credit
Effect on tax of one-off items (sum of one-off items is multiplied by income tax rate)
Underlying income tax
Reported net profit
Underlying net profit
Non-controlling interest (NCI)
Reported net profit less NCI
Underlying net profit less NCI
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2016
490,453
13,814
-2,457
479,096
90,268
256
100,085
8,795
91,290
681,062
660,910
-53,395
26,217
-9,595
-70,017
627,667
590,893
-311,988
-16,227
-8,000
-2,025
-2,210
-283,536
315,679
307,367
-17,421
17,875
-1,247
-34,049
298,258
273,318
-887
299,145
274,205
TBC Bank Annual Report and Accounts 2017
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FINANCIAL REVIEW CONTINUED
In thousands of GEL
Reported net interest income
Reported net fee and commission income
Reported gross insurance profit
Reported other operating income
Reported operating income
Reported total provision expenses
Reported operating income after provisions
Reported operating expenses
One-off costs related to Bank Republic integration (consulting costs)
Underlying operating expenses
Reported profit before tax
Underlying profit before tax
Reported income tax
Effect on tax of one-off items
Underlying income tax
Reported net profit
Underlying net profit
Reported non-controlling interest (NCI)
Underlying non-controlling interest (NCI)
Reported net profit less NCI
Underlying net profit less NCI
Underlying ROE
Underlying ROA
Underlying cost to income
Underlying NIM
2017
604,015
125,961
6,773
124,236
860,985
-106,907
754,078
-359,400
-10,925
-348,475
394,678
405,603
-34,750
1,639
-36,389
359,928
369,214
5,518
5,638
354,410
363,576
2017
2016
21.4%
3.2%
40.5%
6.5%
20.6%
3.6%
42.9%
7.6%
Annex 2
Please note: Bank Republic figures after the merger on 8 May 2017 are based on internal estimates as described below.
Bank Republic contribution assumptions:
To make the YoY analyses more comparable, the Bank has segregated the Bank Republic contribution after the merger on 8 May 2017, which is
based on direct income and cost attribution calculation and, where not applicable, based on established allocation rules, appropriate
management assumptions, and estimates.
The management has estimated the Bank Republic contribution effect within the Group's financial results based on the following rationale:
Loan and deposit portfolio as well as the interest income and expense from these portfolios have been calculated for all Bank Republic’s
existing clients with outstanding exposure for the reporting period, as well as for all new clients attracted through the former branches of
Bank Republic.
For the remaining items of B/S and P&L where the direct attribution is not practical, the management has used the allocation based on
Bank Republic loan and deposit books contribution to each operating segment.
100
TBC Bank Annual Report and Accounts 2017
Reported figures for TBC and BR
In thousands of GEL
Interest income (TBC)
Interest income (BR)
Interest income (TBC+BR)
Interest expense (TBC)
Interest expense (BR)
Interest expense (TBC+BR)
Net interest income (TBC)
Net interest income (BR)
Net interest income (TBC+BR)
Net fee and commission Income (TBC)
Net fee and commission Income (BR)
Net fee and commission income (TBC+BR)
Other operating non-interest income (TBC)
Other operating non-interest income (BR)
Other operating non-interest income (TBC+BR)
Operating income (TBC)
Operating income (BR)
Operating income (TBC+BR)
Total provisions (TBC)
Total provisions (BR)
Total provisions (TBC+BR)
Operating expenses (TBC)
Staff costs
Depreciation and amortisation
Provision for liabilities and charges
Administrative and other operating expenses
Operating expenses (BR)
Staff costs
Depreciation and amortisation
Provision for liabilities and charges
Administrative and other operating expenses
Operating Expenses (TBC+BR)
Staff costs
Depreciation and amortisation
Provision for liabilities and charges
Administrative and other operating expenses
Income tax expense (TBC)
Income tax expense (BR)
Income tax expense (TBC+BR)
Net profit (TBC)
Net profit (BR)
Net profit (TBC+BR)
2017
2016
870,689
163,250
728,663
37,763
1,033,939
766,426
-377,404
-52,520
-262,087
-13,886
-429,924
-275,973
493,285
110,730
466,576
23,877
604,015
490,453
119,050
6,911
88,076
2,192
125,961
90,268
108,242
22,767
88,358
11,983
131,009
100,341
720,577
140,408
643,010
38,052
860,985
681,062
N/A
N/A
-41,597
-11,798
-106,907
-53,395
-298,625
-167,925
-32,563
2,495
-100,632
-60,775
-35,175
-4,702
–
-20,898
-296,686
-164,604
-28,141
-2,210
-101,731
-15,302
-7,617
59
-
-7,743
-359,400
-311,988
-203,100
-37,265
2,495
-121,530
N/A
N/A
-172,221
-28,082
-2,210
-109,474
-17,146
-275
-34,750
-17,421
N/A
N/A
287,581
10,677
359,928
298,258
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Underlying figures for TBC and BR
In thousands of GEL
Interest income (TBC)
Interest income (BR)
Interest income (TBC+BR)
Interest expense (TBC)
Interest expense (BR)
Interest expense (TBC+BR)
Net interest income (TBC)
Net interest income (BR)
Net interest income (TBC+BR)
Net fee and commission income (TBC)
Net fee and commission income (BR)
Net fee and commission income (TBC+BR)
Other operating non-interest income (TBC)
Other operating non-interest income (BR)
Other operating non-interest income (TBC+BR)
Operating income (TBC)
Operating income (BR)
Operating income (TBC+BR)
Total provisions (TBC)
Total provisions (BR)
Total provisions (TBC+BR)
Operating expenses (TBC)
Staff costs
Depreciation and amortisation
Provision for liabilities and charges
Administrative and other operating expenses
Operating expenses (BR)
Staff costs
Depreciation and amortisation
Provision for liabilities and charges
Administrative and other operating expenses
Operating expenses (TBC+BR)
Staff costs
Depreciation and amortisation
Provision for liabilities and charges
Administrative and other operating expenses
Income tax expense (TBC)
Income tax expense (BR)
Income tax expense (TBC+BR)
Net income (TBC)
Net profit (BR)
Net profit (TBC+BR)
102
TBC Bank Annual Report and Accounts 2017
2017
2016
870,689
163,250
714,849
37,763
1,033,939
752,612
-377,404
-52,520
-259,630
-13,886
-429,924
-273,516
493,285
110,730
455,219
23,877
604,015
479,096
119,050
6,911
88,076
2,192
125,961
90,268
108,242
22,767
79,563
11,983
131,009
91,546
720,577
140,408
622,858
38,052
860,985
660,910
N/A
N/A
-58,219
-11,798
-106,907
-70,017
-287,701
-164,852
-32,563
2,495
-92,781
-60,775
-35,175
-4,702
–
-20,897
-270,249
-164,604
-28,141
–
-77,504
-13,277
-7,617
58
–
-5,719
-348,475
-283,526
-200,027
-37,265
2,495
-113,678
N/A
N/A
-172,221
-28,082
–
-83,223
-33,470
-579
-36,389
-34,049
N/A
N/A
260,920
12,398
369,214
273,318
Loan and deposit portfolios reconciliation
Loan portfolio
In thousands of GEL
Total gross loans (TBC)
Retail
Corporate
MSME
Total gross loans (BR)
Retail
Corporate
MSME
Deposit portfolio
2017
2016
In thousands of GEL
7,457,060
5,911,152
3,518,195
2,230,158
1,708,707
3,240,585
1,789,309
881,258
1,096,157
1,447,573
714,958
245,234
135,965
439,991
272,920
734,662
Total deposits (TBC)
Retail
Corporate
MSME
Total deposits (BR)
Retail
Corporate
MSME
Total gross loans (TBC+BR)
8,553,217 7,358,725
Total deposits (TBC+BR)
Retail
Corporate
MSME
4,233,153
2,475,392
1,844,672
3,680,576
2,062,229
1,615,920
Retail
Corporate
MSME
2017
2016
7,327,962
5,641,123
4,066,282
2,297,455
964,225
3,418,681
1,468,771
753,671
488,855
813,826
311,983
113,407
63,465
329,470
406,429
77,927
7,816,817 6,454,949
4,378,265
2,410,862
1,027,690
3,747,775
1,875,576
831,598
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Strategic Report OverviewStrategic Report Strategy & Performance
DIRECTORS’ GOVERNANCE STATEMENT
Chairman’s governance overview
The Board is responsible for promoting the highest standards of
corporate governance within the Group and we are committed to
further developing and strengthening our governance structure to
achieve the highest level of effectiveness.
Mamuka Khazaradze
Chairman
28 March 2018
CORPORATE GOVERNANCE FRAMEWORK
The Group’s 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 2017.
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 in full.
The Code and associated guidance is published by the Financial
Reporting Council and is available at www.frc.org.uk.
The Board
The Board is collectively responsible for promoting the Group’s
long-term success and the delivery of sustainable value to
shareholders 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.
Board Committees
The Board places significant reliance on its committees (the
“Committees”) and delegates a broad range of responsibilities to
them, while maintaining the effective links between Committees and
the Board where required. 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. The chairs of each
Committee report matters of significance to the Board after each
meeting. The detailed roles and responsibilities of each committee
are set out in its terms of reference, which can be found on the
website at www.tbcbankgroup.com.
Dear shareholders,
I am pleased to present our corporate governance report for 2017.
My role as Chairman is to lead the Board and ensure that it works
effectively in the pursuit of sustainable, long-term shareholder value.
We believe that an effective governance structure and strong oversight
of the Company’s business by the Board is vital in providing necessary
checks and balances, thus supporting better decision-making and
accountability in turn. The effective delivery of long-term, sustainable
value for shareholders requires an effective Board.
We understand that the Board requires the right balance of skills,
country-specific knowledge, and diversity of experience and
perspectives to achieve maximum effectiveness. As Chairman, I
ensure that there is constructive debate in the boardroom in order to
create and maintain an environment where the Board remains open
to different viewpoints and ideas. Our Board is comprised of nine
members, of which five (namely, Nikoloz Enukidze (SID), Stefano
Marsaglia, Nicholas Haag, Eric Rajendra and Stephan Wilcke) are
considered independent non-executive Directors. The Board views
each of these non-executive Directors as being independent of
management judgement and character, and free from any business
or other relationship that could materially interfere with their
exercise of independent judgement. In accordance with the UK
Corporate Governance Code (the “Code”), all Directors are subject to
annual re-election by shareholders at our Annual General Meeting.
As previously announced, two non-executive Directors, Stefano
Marsaglia and Stephan Wilcke will be leaving TBC Bank and
stepping down from the Board as and when suitable replacements
are found during 2018. I would like to extend the Board’s thanks to
both Stefano and Stephan for their important contributions to TBC
Bank and wish them every success in the future. Both non-executive
Directors will remain in post pending the appointment of
successors, which may or may not have occurred by the time of the
Annual General Meeting. Stefano and Stephan will, therefore, only
be re-elected if they remain Directors at the opening of the Annual
General Meeting.
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TBC Bank Annual Report and Accounts 2017
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
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 of 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 the 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 is available on our website at www.tbcbankgroup.com.
Board composition
The Board currently comprises a Chairman, five non-executive Directors and two executive Directors. In accordance with the Code, the 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 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.
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 (in 2016) 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.
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 114-117.
Time commitment
Each non-executive Director is required to devote such time as necessary for the effective discharge of their duties. 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.
TBC Bank Annual Report and Accounts 2017
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DIRECTORS’ GOVERNANCE STATEMENT CONTINUED
Board and Committee meeting attendance
In 2017, the Company held three scheduled and eleven additional meetings. In addition, 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. 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 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 on the Company or solely the Bank.
Attendance of meetings of the Board and its Committees in 2017 are set out below:
Board Attendance
Vakhtang Butskhrikidze (Chief Executive Officer)
Giorgi Shagidze (Chief Financial Officer))1
Non-executive Directors
Mamuka Khazaradze (Chairman)2
Badri Japaridze
Eric J. Rajendra
Nikoloz Enukidze
Nicholas Dominic Haag
Stefano Marsaglia3
Stephan Wilcke
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
14/14
14/13
14/13
14/14
14/14
14/14
14/14
14/13
14/14
8/8
8/8
8/8
8/7
8/8
4/4
4/4
4/4
4/3
5/5
5/5
5/5
5/5
4/4
4/4
4/4
4/2
4/4
1. Mr Shagidze was unable to join one Board meeting conference call held on 4 July 2017 due to delay of his business related flight, however, he had provided his opinion on the
matters under consideration via email correspondence in advance of the meeting, as soon as he became aware about the delay.
2. Mr Khazaradze was unable to attend one Board meeting held on 22 March 2017 due to a prior business-related travel commitment; however, 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.
3. Mr Marsaglia was unable to join one Board meeting and four committee meetings due to personal reasons.
Attendance of meetings of the Supervisory Board and its committees in 2017 are set out below:
Supervisory Board Attendance
Mamuka Khazaradze (Chairman)
Vakhtang Butskhrikidze (Chief Executive Officer)
Giorgi Shagidze (Chief Financial Officer)
Badri Japaridze
Eric J. Rajendra
Nikoloz Enukidze
Nicholas Dominic Haag
Stefano Marsaglia
Stephan Wilcke
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
55/55
75/75
77/77
58/58
77/77
77/77
77/77
77/75
77/77
8/8
8/8
8/8
8/7
8/8
7/7
7/7
7/7
7/6
4/4
4/4
4/4
4/4
34/34
34/34
34/34
34/32
34/34
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TBC Bank Annual Report and Accounts 2017
Diversity policy
We recognise the importance of ensuring diversity and see
significant benefit to our business in having a Board and
management team that is drawn from a diverse range of
backgrounds. This brings the required expertise, cultural diversity
and different perspectives to the Board discussions and helps to
improve the quality of decision-making.
The Board is mindful that it does not currently include any female
members and, although the Board is satisfied with the current level
of diversity, relevant skills and expertise of its members, it intends
to ensure that the next appointments to the Board address this
concern and complement the Board’s diversity in terms of ethnicity,
cultures, gender, age levels, relevant skills and work experience.
The Board notes the number of talented women in key positions
reporting to the CEO and other management board members and,
going forward, the Board intends to increase diversity by identifying
qualified female candidates for appointment to the Board and senior
management teams.
Induction and training
A formal induction is arranged for newly appointed Directors based
on the individual’s need, skills and experience. Typically, these
included a series of meetings with the Chairman and other Directors
and senior executives, as well as local site visits to provide
familiarity with the business. During the year, the Company did not
have any new appointments to the Board or its Committees.
In addition, 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 that there are information exchanges 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.
Members of the Board are required to complete a self-assessment
process at the end of the year, which is considered as part of the
Board’s annual effectiveness evaluation.
Annual Board effectiveness evaluation
The Board and Committees continually strive to improve their
effectiveness and recognise that their annual evaluation process is
an important tool in reaching that goal. Non–executive Directors’
individual performance evaluations were undertaken by the
Chairman, which involved a discussion about a Director’s individual
contribution, the time commitment that is required to continue to
deliver the role effectively, and their training and development needs.
The Chairman has confirmed that all non-executive Directors
continue to perform effectively, contribute positively to the governance
of the Group and are able to commit the time required for their role.
The Chairman’s performance is evaluated by the independent
non-executive Directors led by the senior independent Director.
Executive Directors’ individual performance evaluation is undertaken
as part of the performance management process for all employees.
The results are considered by the Remuneration Committee when
determining pay awards each year.
Having assessed the overall findings of the effectiveness review,
the Directors were satisfied that the Board, collectively, and its
individual members operated effectively during 2017.
Following last year’s evaluation, the Board discussed the previous
suggestion to establish a strategy committee and unanimously
decided that since all of the directors need to be engaged in setting
the Group’s strategy, this topic should be a focus for the full Board.
Therefore, instead of establishing a new committee, the Board
decided to add new meeting dates dedicated solely to the discussion
of the Group’s strategy. Furthermore, the Chairman defined several
areas of focus to help maintain and improve its effectiveness in the
following areas:
Continuing to focus the Board’s attention on the Company’s
strategic planning by dedicating specific meeting days on
this topic.
Further refining the quality of debate on strategic matters
by increasing the length of meetings dedicated to this topic.
In addition, as required by the Code, the Company, in 2018, and going
forward, once every three years will conduct an independent,
externally facilitated self–assessment of the effectiveness of the
Board, the Committees and individual Directors.
Directors’ commitments
The Directors are required to disclose to the Board their external
appointments 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, in accordance with the Code, all Directors are
subject to annual re-election by shareholders at our Annual General
Meeting. Biographical details of the Directors are included on pages
114 to 117.
As already announced, two non-executive Directors, Stefano
Marsaglia and Stephan Wilcke will be stepping down from the Board
but remain in post pending the appointment of successors, which
may or may not have occurred by the time of the Annual General
Meeting. Stefano and Stephan will, therefore, only be re-elected if
they remain Directors at the opening of the Annual General Meeting.
Remuneration Committee
Information on the Remuneration Committee is included in the
Directors’ Remuneration Report on pages 126 to 147.
Engagement with shareholders
Effective communication with shareholders is one of the Board’s
highest priorities. The Chief Executive Officer and the Chief Financial
Officer, together with the deputy Chairman and/or the Chairman,
remain in regular contact with the Company’s major shareholders.
They hold regular investor calls and also conduct face-to-face
meetings with investors visiting Georgia. Moreover, they participate
in regular roadshows, as well as various investor conferences across
numerous geographic locations to promote awareness and
understanding of the Group’s business. In addition, they take an
active part in government events abroad aimed at increasing
investor confidence in the economic stability of the country and its
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DIRECTORS’ GOVERNANCE STATEMENT CONTINUED
sustainable development. The Bank’s senior executive team and
Directors are also involved in hosting an annual Capital Markets Day
in London. Senior non-executive Director, Nikoloz Enukidze, together
with the chairman of the Remuneration Committee met with large
institutional shareholders to discuss remuneration matters in
advance of the 2018 annual general meeting.
The Company has a dedicated investor relations website, which
contains information on all disclosures made to the market,
including results presentations and annual reports.
All announcements issued to the LSE are available on the Group’s
website at www.tbcbankgroup.com.
The Group maintains a permanent representative in London, who
handles matters relating to investor relations and international
media on behalf of the management team. In addition, the Chief
Executive Officer, Chief Financial Officer, as well as Chairman,
deputy Chairman and senior independent Director are available to
discuss the concerns of shareholders at any point during the year.
Annual General Meeting
The last Annual General Meeting (“AGM”) of the Company was held
on 5 June 2017 at the offices of Baker McKenzie, 100 New Bridge
Street, London. At the AGM, 74.93% of total voting rights were
exercised by shareholders. All resolutions put to shareholders
were passed, with votes in favour ranging from 92% to 99% of the
votes cast.
The 2018 AGM is scheduled for 21 May 2018 in London. The Notice of
AGM will be circulated to all the shareholders at least 21 working
days before the AGM 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 website at www.tbcbankgroup.com.
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TBC Bank Annual Report and Accounts 2017
DIRECTORS’ REPORT
The Directors present their Annual Report together with the audited
consolidated accounts for the year ended 31 December 2017, which
can be found on pages 157 to 254.
The Strategic Report on pages 2 to 103 was approved by the Board
on 28 March 2018 and signed on its behalf by Vakhtang
Butskhrikidze, the Company’s Chief Executive Officer.
The Management Report together with the Strategic Report on
page 2 to 103 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
Risk, Ethics and Compliance Committee report
Audit Committee report
Remuneration Committee report
Viability statement
Going concern statement
Greenhouse gas emissions
Risk management
Principal risks and uncertainties
Board of Directors
Employee matters
Environmental matters
Share capital
Disclosures required under Listing Rule 9.8.4:
Details of long-term incentive schemes
Agreements with controlling shareholders
The remaining disclosures required by Listing Rule 9.8.4 are
not applicable to the Group.
Information on the Group’s financial risk management
and its exposure to credit risk, liquidity risk, interest rate
risk and foreign currency risk
Page
104
121
123
148
126
111
111
81
60
56
114
75
80
209
140
109
223
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 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. 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 and the company secretary. The Company has also
granted indemnities to each of its Directors 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. The above referred liability
insurance and indemnities were in force during the course of the
financial year ended 31 December 2017 and remain in force as at the
date of this report.
Political donations
The Group did not make any political donations or incur any political
expenditure during 2017.
Relationship agreement
On 31 May 2016, the Company entered into a relationship agreement
with Mamuka Khazaradze, Badri Japaridze, Vakhtang Butskhrikidze,
Temur Japaridze, Bob Meijer and David Khazaradze (together the
“Presumed Concerted Party Group”) (the “Relationship
Agreement”) 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.
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DIRECTORS’ REPORT CONTINUED
Share capital
As of 28 March 2018, the Company’s issued ordinary share capital
comprised 53,550,507 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 209 of this Annual Report.
Profit and dividends
The profit for the financial year ending 31 December 2017
attributable to the Company’s shareholders, after taxation, amounts
to GEL 354,410,352. The Board intends to recommend GEL 1.64 per
share, which will represent about 25% of the net profit, to be
distributed to the Company’s shareholders as dividend, payable in
British Pounds Sterling at an official exchange rate of the National
Bank of Georgia for 24 May 2018, which is subject to shareholders’
approval at the 2018 AGM. If approved, the final dividend will be paid
on 22 June 2018 to shareholders on the Register of Members at the
close of business in the UK (ie 6pm London time) on 18 May 2018.
Shareholders may have their dividends reinvested in the Company
by joining Company’s scrip dividend programme approved at the
2017 Annual General Meeting. The scrip dividend programme
enables shareholders, if they wish, to receive new fully-paid ordinary
shares in the Company instead of a cash dividend.
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.
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TBC Bank Annual Report and Accounts 2017
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 2017, 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.
Shareholder
Mamuka Khazaradze
Badri Japaridze
Schroder Investment Management
JPMorgan Asset Management
European Bank for Reconstruction and
As of 31 December 2017
% of voting
rights
# of voting
rights
13.87% 7,343,936
6.93% 3,669,878
9.53% 5,045,558
9.21% 4,877,138
Development
8.38% 4,436,406
Subsequent to year end, Dunross & Co Holding Ltd notified the Company
in accordance with DTR5 of an indirect holding of 2,986,157 ordinary
shares, representing 5.58% of the Company’s issued share capital.
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.
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 5 June
2017, 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 2017.
This authority will apply until the conclusion of the 2018 AGM.
Shareholders will be requested to renew these authorities at the
2018 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 UK Corporate Governance
Code and the Companies Act 2016 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 Annual
General Meeting. As already mentioned, two non-executive
Directors, Stefano Marsaglia and Stephan Wilcke will be stepping
down from the Board but remain in post pending the appointment of
successors, which may or may not have occurred by the time of the
Annual General Meeting. Stefano and Stephan will, therefore, only
be re-elected if they remain Directors at the opening of the Annual
General Meeting. Vakhtang Butskhrikidze and Giorgi Shagidze have
service contracts with the Company, which came into effect on 10
August 2016 and will continue until terminated by either party to
such contracts, giving the other not less than seven months written
notice. They also have service contracts with the Bank, which both
came into effect on 1 July 2015 and will continue until 31 December
2018. Further details on the Directors’ service contracts are
available in the Remuneration Report on pages 146 to 147.
Biographical details and reasons for the reappointment for the
Directors are given in the Notice of AGM.
Change of control
There are no significant agreements to which the Company is a party
of 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 a 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 on pages 75 to 78 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/she reasonably should
have taken as a Director in order to make him/herself 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 2018. The Directors have determined the three-year period
ending on 1 January 2021 to be appropriate, as it is consistent with
the Group’s planning cycle, covering, financial forecasts and
strategic considerations of the Group. In considering the longer-
term viability of the Group and its operations, the Directors have
carried out a robust and thorough assessment of the Groups risk
profile including all material existing and emerging risks that could
cause the deviation of the group’s financial condition, operations
and prospects from the expectations over the period of assessment.
In addition, the Directors analysed the Groups ability to meet all
regulatory requirements.
The Directors’ assessment considered:
All principal risks and uncertainties of the Group and
effectiveness of current and proposed mitigating actions.
The key areas of focus were:
(i) foreign exchange rate risk which is significant due to the high
dollarisation of the Group’s portfolio;
(ii) the risk of economic and political instability and its impact on the
Groups future performance;
(iii) the risk of economic and political instability and its impact on the
Groups future performance;
(iv) the risk of not meeting minimum regulatory and liquidity
requirements. This particular topic was extensively analysed
during the year due the recent regulatory changes introduced by
the National Bank of Georgia. (Please refer to more details on
page 125; and
(v) interest rate risk, in order to ensure that the Group will meet its
profitability expectations.
A summary of all material risks the Group is exposed to and the
mitigating actions taken by the Group are set out on pages 56 to 59.
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DIRECTORS’ REPORT CONTINUED
The Group’s strategic plans
While reviewing and analysing the Group’s strategic plans, the
Directors assessed all potential risks related to the strategic plans
the achievement of the Group’s strategic objective and ensured that
those risks were properly managed. The key focus areas were:
(i) the current business position and future prospects of the Group
(ii) capital, funding and liquidity profile of the Group
(iii) the use of stress tests to ensure that the Bank holds adequate
economic capital to withstand the predefined stress scenarios.
The stress scenarios incorporate external and internal
macroeconomic shocks, specific idiosyncratic risks such as
increased competition in the market and regulatory changes.
(iv) availability and efficient use of respective human and
technical resources.
Effectiveness of the Group’s risk management framework,
practice and internal control mechanisms.
The Directors ensure that the Group’s governance structure enables
adequate oversight and accountability, as well as a clear segregation
of duties. The involvement of all governance levels in risk
management, clear segregation of authorities and effective
communications between different entities facilitates clarity
regarding the Group’s strategic and risk objectives, adherence to the
established risk appetite, risk budget and sound risk management.
The centralised ERM function ensures effective development,
communication and implementation of risk strategy and risk
appetite across the Group.
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 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 2021 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 2018 to 1 January 2021.
Directors’ responsibilities
The following statement, which should be read together with the
Auditor’s report set out on pages 157 to 254, is required by the
Companies Act 2006 (the “Act”).
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 group has in place an effective internal control system in order
to ensure accurate and reliable financial reporting. The group has a
well-defined framework of accountability and delegation of
authority, as well as policies and procedures that include financial
planning and reporting; preparation of monthly management
accounts; project governance; information security; and review of
the disclosures within the annual report and accounts from the
respective leads, to appropriately disclose all relevant developments
within the group in the year and to meet the requirements of a true
and fair presentation.
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 judgements 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 111 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.
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TBC Bank Annual Report and Accounts 2017
Directors’ responsibility statement
Each of the Directors, whose names and functions are listed on
pages 114 to 117 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, 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:
Mamuka Khazaradze
Chairman
28 March 2018
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BOARD BIOGRAPHIES
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TBC Bank Annual Report and Accounts 2017
Mamuka Khazaradze
Chairman
Mamuka Khazaradze graduated from the Technical University of Georgia in 1988 and
holds a diploma from Harvard Business School, 1998-2000. 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 2010 he 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 at Tbilisi State University in
1982 and holds a postgraduate qualification from the Faculty of Psychology at Moscow
State University. In addition, in 2001, he completed an executive course at the London
School of Economics and Political Science. Between 1990 and 1992, Mr Japaridze was
a member of parliament in Georgia. In 1992, he was appointed as head of the Foreign
Relations department at TBC Bank and became the Bank’s vice president in 1993.
In 1996-2014, he was chairman of the Board at TBC TV. Between 1995 and 2003, he
served as a vice president at Georgian Glass and Mineral Water, of which he was a
co-founder. The company was later renamed IDS Borjomi and he was a member of the
Board between 2004 and 2010. In 1995, Mr Japaridze was elected to TBC Bank’s
Supervisory Board and has been deputy chairman of it since 1996. In 2004, he was also
elected as a member of the Board of Directors of the American Chamber of Commerce
in Georgia and the Georgian Reconstruction and Development Company, of which he is a
co-founder. In 2006, Mr Japaridze was elected to the supervisory board of the EU-
Georgian Business Council and simultaneously became the council’s deputy chairman.
In 2008, he became a member of the Supervisory Board at Geoplant, a position that he
retains today. Mr Japaridze is also chairman of the supervisory board at TBC Kredit and
deputy chairman of the supervisory board at TBC Leasing. Mr Japaridze was appointed
as a deputy chairman of the Board at TBC Bank 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. At present, Mr Enukidze serves as
executive chairman of JSC Caucasus Minerals, a Georgian mineral resources
exploration company. He is also member of the board of Nikoil Bank in Azerbaijan.
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.
Stefano Marsaglia
Non-executive Director
As previously announced Stefano will be leaving TBC Bank and stepping down from the Board as and when
suitable replacement is found during 2018. Stefano will remain in post until his successor is appointed.
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 and
technology. 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 specialising in capital raisings and stock exchange flotations.
He also serves as an independent non-executive director of Bayport Management
Limited (pan-African and Latin American retail lender) 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. Nicholas Haag has the recent and relevant financial experience required
by the UK Corporate Governance Code to fulfil his responsibilities as a designated
financial expert on the Audit Committee of TBC Bank Group PLC.
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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 adviser to the IFC and has served as a board
director or consulting adviser 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
As previously announced Stephan will be leaving TBC Bank and stepping down from the Board as and when
suitable replacement is found during 2018. Stephan will remain in post until his successor is appointed.
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 adviser 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.
BOARD BIOGRAPHIES CONTINUED
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Vakhtang Butskhrikidze
Chief Executive Officer
Vakhtang Butskhrikidze 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. Mr
Butskhrikidze was appointed as Chief Executive Officer of the Company in May 2016 and
as a member of the Supervisory Board in September 2016. Mr Butskhrikidze 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, Mr Butskhrikidze joined the Visa Central & Eastern Europe,
Middle East and Africa (CEMEA) Business Council. In his earlier career, Mr
Butskhrikidze 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.
Giorgi Shagidze
Deputy CEO, 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. 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. He is a board member of Georgian Stock Exchange and also
served as member of the supervisory board of Bank Constanta until its merger with
TBC Bank in 2015. Prior to joining TBC Bank, Mr Shagidze acted as a global operations
executive for Barclays Bank Plc between 2008 and 2010. In his earlier career, Mr
Shagidze worked as director of the Distribution Channels Division at Bank of Georgia
and deputy CEO of Peoples Bank of Georgia, as well as occupied various senior
positions at Tbiluniversalbank and Agro Industrial Bank of Georgia. Mr Shagidze
obtained an MBA from the University of Cambridge Judge Business School in 2008 and
he graduated from Tbilisi State University in 1997 with a degree in economics. He is
also a CFA Charterholder and the member of the CFA Society in the UK.
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THE BANK’S MANAGEMENT BOARD BIOGRAPHIES
(EXCEPT FOR CEO’S AND CFO’S BIOGRAPHIES, WHICH ARE PRESENTED ON PAGE 117)
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 appointed 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 has served as a lecturer at the Free University, Georgia. In 2017, he
was appointed as CEO of TBC Insurance and continues to hold the position of First
Deputy CEO at TBC Bank. 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 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.
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 overtook the responsibility for the CIB. 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).
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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 risk management, balance sheet
strategy and regulation. Prior to that, he served as senior vice president at PIMCO
responsible for the risk advisory practice. In 2009-2011, David worked at European
Resolution Capital helping Western European banks with NPL management and
recovery strategies in CEE 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 assignments. David started his career at the EBRD
executing debt and equity investment transactions in CEE as well as has worked 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.
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 in 2002 he was appointed to the position of deputy
CEO, supervising finance and operations departments. In 2010, he became chief
operating officer. Since 2008, Vano has held the position of chairman of the supervisory
board of UFC and since 2016 he has been a member of the supervisory board of TBC
Pay. Vano also supervises activities of TBC Bank’s subsidiaries: Banking System
Service Company and Mali since 2009 and 2015 respectively. 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 of 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.
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THE BANK’S MANAGEMENT BOARD BIOGRAPHIES CONTINUED
(EXCEPT FOR CEO’S AND CFO’S BIOGRAPHIES, WHICH ARE PRESENTED ON PAGE 117)
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. During
2011-2016, 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 fifteen 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, Nika was managing director at Kaspi Bank, a leading retail
bank in Kazakhstan. Prior to obtaining his MBA degree in 2007, he served as head of the
retail banking division of Bank Republic Georgia, Société Générale Group, and also held
several positions at Bank of Georgia between 2003 and 2006. He has expertise in
post-acquisition integration and restructuring, as well as retail and SME banking.
Between 2008 and 2010, Nika held the position of senior sales support expert at the
CEE retail division of Bank Austria, UniCredit Group, responsible for Turkey,
Kazakhstan, Ukraine and Serbia. Between 2010 and 2013, he was head of the retail
division of ATF Bank, UniCredit Group in Kazakhstan. Nika obtained his MBA degree
from IE Business School in 2007. He also holds an MSc degree in International
Economics from the Georgian Technical University and completed BBA studies at Ruhr
University Bochum in Germany and the Caucasus School of Business.
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CORPORATE GOVERNANCE AND NOMINATION COMMITTEE REPORT
Chairman’s Letter
Dear shareholders,
The Corporate Governance and Nomination Committee (the
“Committee”) is responsible for developing corporate governance
principles and guidelines applicable to the Group and 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 aligned to the Group’s strategic objectives
and recognises the importance of building upon Board diversity
whilst maintaining the meritocratic approach to Board appointments
that has served the Group well during recent years. In addition, the
Committee’s role extends to recommendations of appointments to
the Management Board of its main subsidiary, JSC TBC Bank (the
“Bank”).
During 2017, succession planning and the composition of the Board
and its Committees remained the key focuses of the Committee. The
Committee regularly considered the balance of skills, experience
and diversity needed on the Board to ensure that the Group has the
best calibre of individuals and a clear plan for both executive and
non-executive succession. As at the date of this Report the
Committee is engaged in selecting an external search firm to
identify suitable candidates to join the Board as additional
Independent non-executive Directors.
Eric J. Rajendra
Chairman of the Corporate Governance and Nomination Committee
28 March 2018
Members of the Committee
There have been no changes in the composition of the Committee
and as at 28 March 2018, the Committee is composed of three
independent non-executive Directors, namely Eric Rajendra
(Chairman), Nikoloz Enukidze and Stephan Wilcke, and Badri
Japaridze, who is not considered to be independent for the purposes
of the UK Corporate Governance Code. As such, the Board believes
that the composition of the Committee complies with the UK
Corporate Governance Code and that the majority of the Committee
members are free from any relationship or circumstances which
may, could, would be likely to, or appear to, affect their judgement.
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 is set out on page 106.
Committee role and responsibilities
The Committee’s 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 the establishment and oversight of
the Group’s compliance with the corporate governance guidelines
and for making recommendations to the Board in respect of changes
or additional actions as the Committee deems necessary. The
Committee is responsible for leading the process for appointments
to the Board and the Bank’s Management Board. The Committee is
also responsible for identifying and nominating candidates with the
appropriate 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 management to ensure that 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 of the Board and within the senior
management team and, in light of this evaluation, preparing a
description of the role and capabilities required for particular
appointments;
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;
TBC Bank Annual Report and Accounts 2017
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overseeing the orientation programme for new members of the
Board with respect to their Board responsibilities and roles, as
well as the contribution that 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 and diverse balance of
skills and experience, and to ensure progressive refreshing.
Appointment and re-election of Directors
The Committee considers a skills matrix for the Board, and the
Board’s committees, and identifies the skills, core competencies,
diversity and experience that the Group needs in order to be able to
deliver its strategic aims, to govern the Group appropriately and
align with the Group’s corporate culture and values.
In order to assess the overall effectiveness of the Committee in
accordance with the requirements of the UK Corporate Governance
Code, the Chairman of the Committee carried out an internal
evaluation and Committee is of the view that each Director
demonstrated the level of commitment required in connection with
their role on the Committee.
In accordance with the UK Corporate Governance Code, all the
Directors will stand for re-election at the Company’s Annual General
Meeting. As already announced, two non-executive Directors,
Stefano Marsaglia and Stephan Wilcke will be stepping down from
the Board but remain in post pending the appointment of
successors, which may or may not have occurred by the time of the
Annual General Meeting. Stefano and Stephan will, therefore, only
be re-elected if they remain Directors at the opening of the Annual
General Meeting.
In addition, as required by the UK Corporate Governance Code, in
2018, (and going forward, once every three years) the Board and its
Committees will conduct an independent, externally facilitated self
–assessment.
Diversity
The Committee recognises the importance of ensuring that there is
diversity on the Board, while continuing to recommend all appointments
based on merit in the context of the skills and experience required. The
Committee is very mindful that the Board does not currently include any
female members and has resolved to ensure that the next appointments
to the Board address this concern and complement the Board’s diversity
in terms of ethnicity, cultures, gender, age levels, relevant skills and work
experience. The Committee notes the number of talented women in key
positions reporting to the CEO and other Management Board members
and, going forward, the Committee intends to increase diversity by
identifying qualified female candidates for appointment to the Board and
senior management teams.
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 advisers, but may also use external search consultancies to
facilitate the recruitment. As at the date of this Report the
Committee is engaged in the selection of an external search firm to
assist in the requirement of additional non–executive Directors to
the Board.
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TBC Bank Annual Report and Accounts 2017
The Committee carefully assesses each candidate for membership
of the Board against our criteria for Board appointments and
ensures that appointees have enough time available to devote to the
position. The Committee then decides whether to recommend an
appointment to the Board and the Board decides whether to make
the appointment.
The Committee’s work
In 2017, the Committee remained focused on succession planning,
diversity matters, assessment of effectiveness of the Board and its
committees.
Succession
The Committee recognises that good succession planning
contributes to the delivery of the Group’s strategy, by ensuring there
is the desired mix of skills and experience in current and future
Board members. During the course of 2017, the Committee
chairman personally met with key members of the Management
Board and middle management to ensure that the Group creates
opportunities for current and future leaders. 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 relevant skills as needed.
Corporate governance, independence and diversity
The Committee oversaw the continued developments of the Group’s
corporate governance framework and reviews of its compliance with
the Code requirements; the independence of non-executive Directors,
together with non-executive Directors re-election and suitability to
continue in office. The review of Directors’ independence was also
satisfactory, as throughout 2017 all independent non-executive
Directors remained independent as to both character and judgement.
Although Board appointment recommendations are always based on
merit, the Committee and the Board recognise the importance of
diversity and are committed to increasing the diversity of the Board
including by adding one or more female members to the Board.
Assessment of effectiveness
The Committee effectiveness review is conducted every year in order
to assess the Committee’s performance. This assessment is carried
out by the Committee as part of the annual evaluation process. The
2017 Corporate Governance and Nomination Committee evaluation
has found that the Committee effectively fulfilled all of its
responsibilities and obligations.
Looking forward to 2018
In the coming year, the Committee will continue its focus on
increasing gender diversity by seeking to identify talented female
candidates for appointment to the Board and to the Group’s senior
management team. In addition, the Committee will further elevate
the performance standards expected of each member of the Board
and oversee an external evaluation of the Board’s performance.
Lastly, the Committee will continue its effort to strengthen the
development of the skillset of the Group’s senior management team
via specialised local and international training programmes.
RISK, ETHICS AND COMPLIANCE COMMITTEE REPORT
Chairman’s Letter
Dear shareholders,
I am pleased to present Risks, Ethics and Compliance Committee
(the “RECC”) report for the Group.
Throughout 2017, the RECC continued to take a proactive approach
to risk management by closely monitoring and discussing the
internal and external challenges facing the Group. Along with
regular updates regarding the macroeconomic environment, the
Group’s risk profile, risk management practices and results, the
committee focused on several other issues, namely:
the recent regulatory changes concerning the new liquidity
coverage ratio, risk weighting rules and capital management
framework, the details of which are given below under
“Regulatory updates”;
the successful project to implement IFRS 9, including updating
the Group’s provisioning methodology; and
the post-merger integration of Bank Republic into the Group,
which was successfully finalised in May 2017.
In January 2017, TBC Bank appointed a new CRO, David Chkonia, to
further strengthen the risk function. He has 15 years of experience
in risk management. In previous positions held before joining the
Group, Mr Chkonia consulted companies regarding risks, especially
those associated with credit and capital market transactions. The
RECC worked closely with the new CRO and oversaw the transition
process to ensure that he was equipped with all the necessary
information to perform his
duties effectively.
The report below summarises the RECC’s activities for the year.
Nikoloz Enukidze
Chairman of the Risk, Ethics and Compliance Committee
28 March 2018
Committee responsibilities
The RECC’s primary function 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 the Group’s risk appetite
limits to the Board and monitoring the risk profile to make sure that
it complies with the established limits. It is also responsible for
reviewing, assessing and recommending any actions for the Board
to take regarding the Group’s overall risk management strategy, as
well as the risk management system and associated policies.
In addition, the committee reviews and approves credit facilities
to large borrowers (if the borrower represents one of the top 20
groups of borrowers of the Bank or exceeds 5% of the Bank’s
supervisory capital).
The RECC is also responsible for overseeing the Group’s compliance
activities to ensure that it complies with all applicable laws and
regulations and maintains the highest standards of ethical
behaviour. The committee supports fostering an ethical culture
within the Group based on the principles of honesty, integrity,
fairness and transparency.
The RECC’s terms of reference are available on the Group’s 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. Their biographies can be found
on pages 114 to 117.
The committee meets in person on a quarterly basis. At each
meeting its members review a thorough report on risk management
results for the quarter, as well as updates on compliance and other
areas within its remit. The Chief Executive Officer, CRO, head of
compliance and key members of the Group’s risk and compliance
teams normally attend the meetings. Additional meetings, as
needed, are held electronically.
The attendance of members at the RECC’s meetings during the year,
at the Company and the Bank levels, are set out in the Directors’
Governance statement on page 106.
RECC activities during 2017
In 2017, one of the Group’s primary focus areas was to ensure a
smooth post-merger integration with Bank Republic. The RECC
played an important role in monitoring the project of aligning all
processes, which was successfully completed in the first half of the
year. Additionally, the NBG introduced various regulatory changes
during the reporting period. The committee closely monitored these
changes, including through reviews of periodical regulatory updates
and frequent discussions regarding these changes, assessing
potential implications for the Group’s capital and liquidity
management processes, and outlining ways to manage these
processes more effectively.
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RISK, ETHICS AND COMPLIANCE COMMITTEE REPORT CONTINUED
The RECC was actively involved in the IFRS 9 implementation project
by, amongst other things, systematically reviewing its progress and
the key changes in the provisioning methodology, as well as
analysing the expected impact on the Group’s level of allowances.
Apart from the above activities, the committee maintained its focus
on its key responsibilities of monitoring the Group’s risk
management processes, promoting progress in risk management
tools and techniques, and implementing mitigation actions against
prevailing risks.
Risk appetite
The RECC received and reviewed the risk appetite compliance
reports at each of its quarterly meetings, during which the
committee members discussed the Group’s risk profile and
respective outlook with the management.
In the beginning of 2017, the RECC discussed updates in risk
appetite limits that the CRO proposed, as well as assumptions and
drivers for change. The committee suggested certain revisions to the
currently proposed limits, which they subsequently considered and
approved.
Macroeconomic environment in Georgia
The RECC received a comprehensive report on Georgia’s
macroeconomic environment and discussed the medium-term
economic outlook. Considering that a significant part of the Group’s
loan book is denominated in foreign currency, the GEL’s volatility
remained a key focus for discussions throughout the year. The
committee discussed potential implications of GEL depreciation on
the Group’s performance and respective actions that it undertakes
to mitigate these risks. The RECC continued to closely monitor how
government initiatives launched in the beginning of 2017, which are
aimed at reducing the economy’s dependence on currencies other
than GEL, affected the Group’s portfolio composition and discussed
expectations going forward.
Credit risk
The RECC reviewed the performance of the Group’s loan book at
each meeting during 2017. The reports covered the structure of the
Group’s portfolio, including segmentation by currency, business
segments and economic sectors.
The committee received a detailed update regarding the Group’s
largest exposures during the meetings from the CRO and corporate
business director. They presented the strategy for growing the
corporate loan book to ensure that it is balanced with proper risk
assessment processes. The RECC encouraged the CRO to maintain
a balanced growth approach.
Operational risk
Throughout the year, the RECC focused on reviewing the results of
internal loss data collection and fraud risk management. The
committee discussed establishing and segregating duties among the
lines of defence of the Group’s internal control system with the aim
of further fine-tuning the operational risk management framework.
Following a recent incident of identity fraud, a summary of which is
set out on page 68, the RECC conducted a further review of TBC
Bank’s internal control system and recommended the following
actions to the Board:
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TBC Bank Annual Report and Accounts 2017
the enhancement of authorisation processes related to execution
of large cash transactions, including those authorised under
powers of attorney; and
the assessment of risks and controls involved with the Bank’s
operating procedures, with a focus on branch operations.
Financial risks
The RECC closely reviewed the Group’s financial risk positions and
produced a report that included an assessment of TBC Bank’s risks
associated with liquidity, foreign exchange, banking book interest
rates and counterparties. As part of assessing compliance with the
approved risk appetite limits, the committee monitored TBC Bank’s
readiness to meet the NBG’s new regulatory ratio, the liquidity
coverage ratio, which came into force in September 2017. In
addition, the RECC received comprehensive updates on optimising
the liquidity coverage ratio and reviewed a thorough report on the
interbank portfolio’s performance within the counterparty risk
management framework. The committee focused on developing a
deep understanding of the interbank limits approval process. At the
year-end, the Supervisory Board approved the Bank’s counterparty
risk management policy in light of the RECC’s positive
recommendation.
The RECC paid special attention to the reduction in margins,
reviewing the interest rate risk positioning of the Bank’s net interest
income and reports analysing the economic value sensitivities for
different interest rate scenarios.
Capital management
The RECC continued to review the internal capital adequacy process
and closely monitored compliance with regulatory ratios under
different macroeconomic scenarios. During the committee’s
meetings, it also examined the changes and impacts associated with
various capital framework initiatives that the NBG introduced during
the reporting period.
In addition to the updated framework discussed below, under the
new capital regulations, the NBG initiated a stress-testing exercise.
During the RECC’s meetings, it reviewed comprehensive
presentations covering the methodology of the stress-testing and
discussed the results extensively. The main purpose of the stress-
testing framework is to use it in the future to define Pillar II buffers.
Compliance
Throughout 2017, the RECC reviewed the Group’s compliance
programmes on a quarterly basis. The topics of discussion included
the following:
the status of the compliance and anti-money laundering
programme’s implementation;
information on the supervision of subsidiaries;
identified weaknesses and compliance failures, as well as
follow-up corrective measures;
a summary of regulatory changes; and
a report on whistleblowing cases.
In addition, the committee closely scrutinised the Group’s related-
party list and transaction tracker for the purposes of the UK Listing
Rules during 2017.
Committee effectiveness review
The Board and RECC members conduct a review of the committee’s
effectiveness every year. The main role of the review is to assess the
RECC’s performance as per international standards of best practice
in corporate governance. During 2017, the RECC was found to be
effective in overseeing the Group’s risk management, compliance
activities and ethical standards.
Looking ahead to 2018
Going forward, the RECC will continue to focus on its key
responsibilities of assessment of quarterly risk results and
compliance with the Bank’s risk appetite, providing sign-off on
transactions with the largest exposures, and facilitate progress in
risk management tools and techniques. The RECC will continue the
close monitoring of the impact that recent and upcoming regulatory
changes may have on the Bank’s financial standing and respective
implications for risk management processes. In addition, key
attention will be paid to proper management of risks that may arise
from further digitalisation of TBC Bank’s services. Moreover, review
and monitoring of results produced from newly introduced IFRS 9
models will stay as one of the key focus areas of the RECC, to
ensure that respective results adequately capture TBC Bank’s
expected losses.
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As part of the NBG’s ongoing operations, it conducted a thematic
inspection of the Bank covering the last six years, a summary of
which is set out on page 69. The RECC followed up on agreed
actions in response to the recommendations that the NBG provided
after its inspection.
Regulatory updates
The NBG introduced numerous initiatives during the reporting
period. The RECC examined all key initiatives that were relevant for
risk management by analysing their impact on the Group’s
performance. The NBG introduced capital buffers compliant with the
Basel III regulatory framework, which are based on the updated
capital requirements that will be divided across Pillar I and II
buffers. These initiatives include:
the capital conservation buffer (which is currently incorporated in
minimum capital requirements), which has been separated;
over a four-year period, a systemic risk buffer, which will be
introduced for systemically important banks;
a countercyclical capital buffer, which has been introduced and
initially set to 0%;
a currency-induced credit risk (CICR) buffer, which has replaced
the current conservative weighting for un-hedged loans
denominated in foreign currencies;
concertation buffer, which will be introduced for sectoral and
single borrower exposures;
a net stress buffer, which will be introduced based on the
stress-testing results that the Group provided; and
a General Risk-Assessment Programme (GRAPE) buffer, which is
defined by the regulator and will be applied based on the Bank’s
specific risks.
In addition, based on the updated methodology, the NBG has
introduced specific payment-to-income (PTI) and loan-to-value (LTV)
thresholds, applying higher risk weights to exposures that do not fall
into the pre-defined limits for the PTI and LTV ratios.
Apart from the capital changes, the NBG has introduced a liquidity
coverage ratio, which is used to manage liquidity risk. This is in
addition to the Basel III guidelines, under which a conservative
approach was applied to the weighting of mandatory reserves and to
the deposit withdrawal rates, depending on the concentration of
client groups.
IFRS 9 implementation
The implementation of IFRS 9 began in 2016 and was one of the
most significant projects in 2017. The Group developed an enhanced
provisioning methodology in line with the IFRS 9 requirements. With
the updated methodology, the Group can assess loan loss provisions
and allowances accurately with the incorporation of forward-looking
information. In addition to developing the methodology, the Group
also implemented an accompanying IT tool. The impact of IFRS 9 on
the equity, as of the transition moment, amounts to GEL 64 million.
Major impacts were observed in the retail segment.
TBC Bank Annual Report and Accounts 2017
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REMUNERATION REPORT
CHAIRMAN’S STATEMENT
Dear shareholders,
As Chairman of the Board Remuneration Committee (the
“Committee”), I am pleased to present the Directors’ Remuneration
Report for 2017, which describes the Remuneration Policy (the
“Policy”) for our executive and non-executive directors.
The Committee continues to ensure that directors’ remuneration is
aligned with their performance and creates strong motivation to
achieve the Group’s strategy, meets appropriate regulatory and best
practice requirements and takes into the account the views of
shareholders as well as other stakeholders.
The executive members’ remuneration is comprised of:
Fixed compensation consisting of both cash-based and
share-based payments;
Annual bonus based on the level of achievement of short-term
key performance indicators (KPIs) and consisting of share-based
payments only
The non-executive members’ remuneration is in the form of monthly
fixed cash payments and is based on best practice and specifically
FTSE 250 financial companies board membership payments, as well
as reflecting the unique individual roles the chairman and deputy
chairman play within the Group.
2017 Performance
2017 year was another successful year as the Group recorded high
underlying net profit of GEL 369.2 million, 35.1% up compared to the
last year. High profits were supported by strong NIM, growth in
non-interest income, operating efficiency and strong asset quality.
As a result, all corporate financial KPIs were met in full. In addition,
the executives achieved a number of corporate non-financial and
personal KPIs, as explained below. Hence, executive directors
received cash salary equal to the amounts received in 2016, as well
as a number of deferred shares under the deferred share salary
equal to the number of shares received in 2016 under this
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TBC Bank Annual Report and Accounts 2017
component. In terms of deferred share bonus, payouts amounted
to 88% and 84% of the maximum opportunity in 2017 for CEO and
CFO respectively.
New remuneration policy for 2019
Taking into consideration that our existing executive remuneration
policy is expiring at the end of 2018, we have engaged with
shareholders and external, independent consultants to enhance our
remuneration structure in order to ensure that it is more closely
aligned with all stakeholders’ expectations and at the same time
allows us to attract and retain the best talent. The new strategy,
subject to shareholder approval at the 2018 AGM, will come into
force from 1 January 2019. The total expected compensation will not
exceed 2017 levels. However, there will be improvements in the
structure of the compensation to strengthen the alignment of pay
with long-term performance and ensure that it better conforms with
market practice. The key changes are:
Rebalancing the variable remuneration component and moving
certain part of the annual bonus to a long-term incentive plan
(LTIP). As a result, the maximum opportunity under the new
policy will not exceed 2017 levels;
Introducing an LTIP in the form of a performance share plan with
a 3 year vesting period subject to meeting performance
conditions over this period plus setting a two year post
performance holding and continued employment requirement;
The amount of deferred shares under the base salary and the
annual bonus will be calculated by reference to a cash amount
rather than a fixed number of shares; and
The maximum amount of salary and annual bonus will be also
fixed by reference to a cash amount rather than number of
shares.
We believe, the new policy meets the best and regional practices, is
competitive and aligns executives' long-term interests with those of
the Group and its shareholders. The full details are outlined in
section 10.
Looking ahead
The Remuneration Committee will continue to review the Policy on a
regular basis to ensure that it is in compliance with all regulatory
changes that might arise, is in line with evolving market practises
and continues to promote the long-term success of the Group.
Stefano Marsaglia
Chairman of the Remuneration Committee
28 March 2018
1. Remuneration Committee
The Company’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 page 106.
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 2017, KPMG was
selected by the Remuneration Committee to provide advice to the Remuneration Committee on the remuneration policy for the executive
members of the board. The new Remuneration policy that is described in section 10 of the report is based on recommendations provided by
KPMG and will be presented for the shareholders’ approval at the 2018 AGM.
KPMG was selected as a result of a tender among the potential candidates. The amount of fees for the advice provided to the Remuneration
Committee for the year 2017 by KPMG was US$ 29,500, net of taxes. The Fees were charged on a time and materials basis, which was capped at
the amount mentioned above.
The Remuneration Committee is satisfied that KPMG’s advice was objective and independent and that KPMG team which provides the
Remuneration Committee with advice does not have any connections with the Group that may impair its independence. The Remuneration
Committee reviewed the potential for conflicts of interest and decided that KPMG had appropriate safeguards in place.
1.2 Statement of voting at Annual General Meeting
Last year remuneration policy was presented to the AGM. The results were as follows:
No
Resolution
% of votes
Votes For
cast Votes Against
% of votes
cast
Total votes
% of issued
share capital
voted
Votes
Withheld
1
2
To approve the directors' remuneration report.
37,705,979
99.39%
232,087
0.61% 37,938,066
72.01% 1,541,174
To approve the directors' remuneration policy.
31,505,105
99.72%
87,954
0.28% 31,593,059
59.97% 7,886,181
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”
or "TBCG PLC")), 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 2017 and 31 December 2016.
2.1 Single total figure for executive directors (audited)
Salary including:
Cash salary1
Deferred share salary2, 8
Taxable benefits3, 6
Pension4
Deferred share bonus award5, 7, 8
Total remuneration
Vakhtang Butskhrikidze
Giorgi Shagidze
20179
US$’000
1,027
454
573
19
–
3,038
4,084
20169
US$’000
20179
US$’000
20169
US$’000
872
452
420
17
–
512
227
285
1
–
435
226
209
1
–
2,128
3,017
1,441
1,954
1,078
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2. Single total figure of remuneration continued
Notes to table:
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 2016 were awarded on 28 March 2017 and deferred shares in relation to 2017 were awarded on 9 March 2018. 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 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 directors' income tax on share awards paid by the Company. The
2017 award has been valued using the closing market value of the shares on 9 March 2018 (GBP18.4 converted into US$ using the cross rate of the official exchange rates
published by the NBG of 2.4462 for GEL/US$ and 3.397 for GEL/GBP on the same date) and grossed up for 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 Group 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 2016
were awarded on 28 March 2017 and deferred shares in relation to 2017 were awarded on 9 March 2018. For the purposes of this table, 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 directors' income tax on share awards paid by the Company. The 2017 award has been valued using the
closing market value of the shares on 9 March 2018 (GBP18.4 converted into US$ using the cross rate of the official exchange rates published by the NBG of 2.4462 for GEL/
US$ and 3.397 for GEL/GBP on the same date) and grossed up for 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 2016 or 2017 (as applicable)
8. The increase of deferred share salary and deferred share bonus in 2017 as compared to 2016, is largely due to the increase in share price. The number of shares awarded to
executive directors in the same period in aggregate increased by 2%. A full explanation of the basis of the 2017 deferred share bonus awards is given at section 2.2 which
highlights the link between strong company and executive performance for 2017
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 2017 and the whole of 2016.
2.2 Basis for determining executive directors’ deferred share bonus awards (audited)
The 2017 deferred share bonus awards made to executive directors reflect the Remuneration Committee’s assessment of the extent to which
corporate financial and non-financial, and personal KPIs 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 2017, as well as his performance against them:
Performance Measure
Financial measures
Underling ROE2
Underlying Cost to income ratio3
Non-interest income annual growth4
Cost of Risk
Non-financial measures
HR5
Employee Engagement Index
Employee Net Promoters Score
Customer Experience6
NPS in Mass Retail (gap with peer bank)
CSAT in Mass Retail (gap with peer Bank)
Weighting
%
60%
Minimum
(60%)
Target
(100%)
Maximum
(140%)
Performance
KPI
Evaluation1
15% 18.2 – 20.2% 20.2 – 21.1%
> 21.1%
15% 43.7 – 42.4%
42.4– 41.1%
< 41.1%
15% 20.3 – 24.8% 24.8 – 27.3%
> 27.3%
1.8 – 1.5%
1.5 – 1.4%
< 1.4%
15%
30%
8%
4%
4%
8%
3%
5%
70–79%
44–49
7–11%
9–12%
80–89%
50–55
11–17%
12–17%
>89%
>55
>17%
>17%
>+5%
21.4%
40.5%
24.8%
1.2%
91%
55
16.7%
16.6%
–4.1%
140%
140%
100%
140%
120%
140%
100%
100%
100%
100%
100%
140%
124%
TBCG PLC share price performance against peer bank7
14% –30%– –15%
–15% –+5%
Personal KPIs
Leadership8
Total
10%
10%
100%
A–
A
A+
A+
Notes to table:
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. Underlying ROE excludes one-off costs related to Bank Republic acquisition and integration.
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3. Underlying cost to income ratio excludes one-off costs related to the Bank Republic acquisition and integration.
4. For the purpose of this KPI, non-interest income annual growth is calculated as follows: 2016 figure is the sum of TBC Bank’s consolidated non-interest income, without Bank
Republic effect, and Bank Republic’s non-interest income for the full year, while 2017 figures is TBC Bank’s consolidated non-interest income.
5. Employee Engagement Index and Employee Net Promoters Score were measured by an independent consultant.
6. Two indexes were evaluated: the index of “CSAT in Mass Retail” is based on surveys conducted by independent research companies: ACT and IPM, and the index “NPS in Mass
Retail” is based on survey conducted by independent research companies ACT.
7. 2017 average share price multiple of TBCG PLC compared with that of the peer bank (in case of similar KPIs under the new policy described in section 10, the Group will not
use targets which are discounted compared to the peer group).
8. Leadership skills are assessed by remuneration committee and were regarded as excellent.
The below table illustrates the performance measures set for Mr. Shagidze in respect of 2017, as well as his performance against them:
Performance Measure
Financial measures
Underling ROE2
Underlying Cost to income ratio3
Non-interest income annual growth4
Cost of Risk
Non-financial measures
HR5
Employee Engagement Index
Employee Net Promoters Score
Customer Experience6
NPS in Mass Retail (gap with peer bank)
CSAT in Mass Retail (gap with peer Bank)
TBCG PLC share price performance against peer
bank7
Personal KPIs
Leadership8
Treasury9
IR10
Improving analytical tools and capabilities11
Total
Weighting
%
Minimum
(60%)
Target
(100%)
Maximum
(140%)
Performance
KPI Evaluation1
36%
10%
10%
8%
8%
26%
8%
4%
4%
8%
3%
5%
10%
38%
8%
10%
10%
10%
100%
18.2 – 20.2%
20.2 – 21.1%
43.7 – 42.4%
42.4- 41.1%
20.3 – 24.8%
24.8 – 27.3%
1.8 – 1.5%
1.5 - 1.4%
> 21.1%
< 41.1%
> 27.3%
< 1.4%
70-79%
44-49
7-11%
9-12%
80-89%
50-55
11-17%
12-17%
>89%
>55
>17%
>17%
21.4%
40.5%
24.8%
1.2%
91%
55
16.7%
16.6%
140%
140%
100%
140%
120%
140%
100%
100%
100%
100%
-30%- -15%
-15% -+5%
>+5%
-4.1%
100%
A-
A
A+
A+
90-98% of the
budget
98-103% of the
budget
>103% of the
budget
109.7%
A-
A
A+
A
140%
140%
80%
100%
118%
Notes to table:
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. Underlying ROE excludes one-off costs related to Bank Republic acquisition and integration
3. Underlying cost to income ratio excludes one-off costs related to the Bank Republic acquisition and integration
4. For the purpose of this KPI, non-interest income annual growth is calculated as follows: 2016 figure is the sum of TBC Bank’s consolidated non-interest income, without Bank
Republic effect, and Bank Republic’s non-interest income for the full year, while 2017 figures is TBC Bank’s consolidated non-interest income.
5. Employee Engagement Index and Employee Net Promoters Score were measured by an independent consultant.
6. Two indexes were evaluated: the index of “CSAT in Mass Retail” is based on surveys conducted by independent research companies: ACT and IPM, and the index “NPS in Mass
Retail” is based on survey conducted by independent research companies ACT
7. 2017 average share price multiple of TBCG PLC compared with that of the peer bank (in case of similar KPIs under the new policy described in section 10, the Group will not
use targets which are discounted compared to the peer group).
8. Leadership skills are assessed by remuneration committee and were regarded as excellent.
9. The figures are based on the bank’s IFRS standalone numbers and envisages meeting certain level of income from foreign exchange operations and liquidly management
10. IR KPI was divided into two parts:
the first was to increase the number of analyst reports based on the following evaluation criteria: +1- below target, +2 on target and +3 above target and
the second was TBC PLC share price performance as described in non-financial KPIs (see note 7 above).
•
•
During 2017 one new analyst initiated the coverage. The report for the second analyst was released in January 2018. As a result, the overall IR KPI was assessed at 80%.
11. Launching the advanced profitability and budgeting system. The system was launched in 2017 and Management board assessed the KPI at 100%.
As a result, during 2017, the Remuneration Committee therefore considered Mr Butskhrikidze’s performance as excellent and determined the
overall value of the deferred share bonus award of US$ 3,037,701 (being the net value awarded of US$ 2,385,209 grossed up for directors' income
tax on deferred bonus share awards).
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2. Single total figure of remuneration continued
The Remuneration Committee also considered Mr Shagidze’s performance as excellent and determined the overall value of the deferred share
bonus award of US 1,441,412 (being the net value awarded of US$ 1,138,562 grossed up for directors' income tax on deferred bonus share awards).
According to Georgian tax code, a company is responsible for paying income tax for its employees. As about 95% of the remuneration of CEO and
CFO is subject to Georgian tax regulations, the Group pays income taxes for the CEO and CFO total remuneration.
2.3 Further details of fixed and discretionary deferred share compensation granted during 2017 (audited)
The following table sets out further details of the share awards granted to Mr Butskhrikidze and Mr. Shagidze in 2017 in respect of the year ended
31 December 2016.
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 2.2
above.
Deferred share salary
Deferred share bonus
Face value1 of awards made to Mr.
US$ 419,635
Butskhrikidze
Face value1 of awards made to Mr. Shagidze
US$ 208,958
US$ 2,127,955
US$ 1,077,532
Percentage of award receivable if minimum
performance achieved
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.
Deferred shares will vest 10%/10%/80%
over the period of three years respectively.
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. Deferred
shares will vest 10%/10%/80% over the period of
three years respectively. The performance period
is one calendar year.
Vesting period
Three years, with full vesting on 28 March
2020 subject to continuous employment
and malus and clawback requirement.
Three years, with full vesting on 28 March 2020
subject to continuous employment and malus and
clawback requirement.
Performance measures
None
See section 2.2 above
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
2016 and 2017:
Salary1
Cash bonus
Taxable benefits
Pension-related benefits
Deferred share bonus award4
Total remuneration
Chief
Executive All employees
17.8%2
0%
8.2%
0%
42.8%
35.4%
11.2%3
24.4%3
30.2%
26.1%
70.3%
27.7%
Notes to table:
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 2016 and 2017
3. For all employees’ cash salary and cash bonus calculations, the actual increase of the salaries and bonuses of the employees employed at the end of 2017, who were also
employed at the end of 2016, was used. The total IFRS consolidated staff cost has increased by 17.9% in 2017 YoY. However, this does reflect the fact that the Bank Republic
was only included for 2 months in the P&L statement in 2016 and in 2017 the bank was successful in extracting synergies from the acquisition.
4. The actual number of shares awarded to CEO as part of deferred shares bonus was increased from 89,361 shares in 2016 to 93,348 shares in 2017. The increase shown in the
table reflects the increase in the share price.
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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 2016 and 31 December
2017. The independent non-executive Directors are remunerated based on the number of committees they serve on and chair. Differences in fees
paid to independent non-executive Directors also reflect any differences in tax treatment between jurisdictions, as TBC Bank wishes non-
executive Directors to receive similar net pay regardless of the tax system applicable to them.
Director
Mamuka Khazaradze
Badri Japaridze
Nikoloz Enukidze
Nicholas Haag
Eric Rajendra
Stefano Marsaglia
Stephan Wilcke
Irina Schmidt2
Year3
Fees US$’000
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
1,187
1,152
1,149
1,119
160
140
135
125
154
133
135
109
118
62
–
82
Taxable
benefits1
US$’000
Total
remuneration
US$’000
29
34
23
15
–
–
–
–
–
–
1,216
1,186
1,172
1,134
160
140
135
125
154
133
135
109
118
62
–
82
Notes to table:
1. Taxable benefits comprise medical insurance, car, and security allowance
2.
3. The Company was incorporated under the Companies Act 2006 in February 2016 and was listed on the London Stock Exchange in August 2016. To provide a comparison for
Irina Schmidt resigned from the Board in June 2016 after the expiration of her appointment and was replaced by Stephan Wilcke
investors, the figures included in this table include remuneration received or receivable from both TBC PLC and TBC JSC for the whole of 2016 and 2017.
The table below shows the detailed breakdown of annual fees paid to non-executive director in 2017 and 2016 in relation to different roles:
Non-executive director (other than Chairman and Deputy Chairman)
Senior Independent Director
Committee chairmanship
Committee membership
Fees paid in 2017
US$’0001
2016 annualised
fees established
since premium
listing US$’0001
84
14
28
11
84
14
28
11
1 All board members receive the same remuneration for the roles listed above except for Eric Rajendra who receives the following fees: board membership- USD$ 94,533,
committee chairmanship-US$ 27,206, committee membership-US$ 10,882. This is caused by differences in tax treatment between jurisdictions, as TBC Bank wishes
non-executive Directors to receive similar net pay regardless of the tax system applicable to them as mentioned above.
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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
2017 and 31 December 2016, except for the CEO and CFO (as their remuneration information is disclosed in section 2 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
US$’000
Deferred
share salary2
US$’000
Taxable
benefits3
US$’000
Deferred
share bonus
award4
US$’000
Total
remuneration
US$’000
1,377
1,385
229
231
2,004
1,278
334
213
5
7
1
1
8,147
4,523
1,358
754
11,533
7,193
1,922
1,199
Year5
2017
2016
2017
2016
Notes to table:
1. Base salary paid in year for executive directors. No fees were paid to executive directors
2. Deferred share salary comprises of TBCG shares granted in respect of service in the relevant year. The number of shares awarded as deferred share salary is linked to the Base salary.
Deferred shares in relation to 2016 were awarded on 28 March 2017 and deferred shares in relation to 2017 were awarded on 9 March 2018. Deferred share salaries are subject to a
condition of continuous employment and malus and clawback provisions. Subject to these conditions, 10% of the award vests on the first anniversary from the award date, a further 10%
vests on the second anniversary from award date and the final 80% of the award vests on the third anniversary from the award date. For the purposes of this table, the 2016 award has
been valued using the closing market value of the shares on 28 March 2017 (GBP15 converted into US$ 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 directors' income tax on share awards paid by the Company. The 2017 award has been valued using the
closing market value of the shares on 9 March 2018 (GBP18.4 converted into US$ using the cross rate of the official exchange rates published by the NBG of 2.4462 for GEL/US$ and
3.397 for GEL/GBP on the same date) and grossed up for 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 2016
were awarded on 28 March 2017 and deferred shares in relation to 2017 were awarded on 9 March 2018. For the purposes of this table, the 2016 award has been valued using
the market value of the shares on 28 March 2017 (GBP 15 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 directors' income tax on share awards paid by the Company. The 2017 award has been valued using the market
value of the shares on 9 March 2018 (GBP18.4 converted into US$ using the cross rate of the official exchange rates published by the NBG of 2.4462 for GEL/US$ and 3.397 for
GEL/GBP on the same date) and grossed up for 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 2017.
4. Payments to past directors (audited)
There were no payments made to past directors relating to 2017.
5. Payments for loss of office (audited)
There were no payments made in relation to loss of office in 2017.
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.
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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(5)
Giorgi Shagidze(5)
Nikoloz Enukidze
Stephan Wilcke
Number of
Vested Shares
held(1)
Number of
unvested
shares held(2)
Entity
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
–
–
–
–
–
–
Total interests
in shares(3)
7,343,936
–
7,343,936
3,669,878
–
3,669,878
TBC Bank Group PLC
586,016
106,983
692,999
JSC TBC Bank(4)
26,441
160,416
186,857
Total
612,457
267,399
879,856
TBC Bank Group PLC
JSC TBC Bank(4)
27,540
11,792
54,247
74,639
81,787
86,431
Total
39,332
128,886
168,218
TBC Bank Group PLC
10,000
JSC TBC Bank
Total
TBC Bank Group PLC
JSC TBC Bank
–
10,000
51,075
–
Total
51,075
–
–
–
–
–
–
10,000
–
10,000
51,075
–
51,075
1. This figure includes all shares held which are no longer subject to any vesting conditions or transfer restrictions 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 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 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 sections 2.1 and 2.2
3. Total interests in shares includes vested and unvested interests held directly and indirectly
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 9 March 2018, 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 2017. Mr Butskhrikidze has been granted 110,970 shares and Mr. Shagidze has been granted 53,370 shares. These shares have a three year vesting period, with full
vesting on 9 March 2021 subject to continuous employment and malus and clawback requirement. These have not been included in the above table. All figures in the table
reflect the position as at 31 December 2017. As at 28 March 2018, Mr Butskhrikidze held 294,702 unvested shares and Mr. Shagidze held 146,145 unvested shares.
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REMUNERATION REPORT CONTINUED
7. Performance: total shareholder return
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 2017, 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 included in the FTSE All-Share Index and FTSE 250 Index.
TBCG
FTSE 250
FTSE All-Share
19.0
18.1
17.2
16.3
15.4
14.5
13.6
12.7
11.8
10.9
10.0
10 Aug 16
10 Sep16
10 Oct16
10 Nov 16
10 Dec16
10 Jan 17
10 Feb17
10 Mar 17
10 Apr17
10 May 17
10 Jun 17
10 Jul 17
10 Sep17
10 Oct17
10 Nov 17
29 Dec17
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
2017
2016
2015
Deferred
share bonus
as a
percentage of
maximum
opportunity
(%)2
88%
85%
87%
Single total
figure of
remuneration
(US$’000)1
4,084
3,017
1,809
Notes to table:
1. Total remuneration includes base salary, deferred share salary, deferred share bonus award and taxable benefits as described in the single total figure table and notes at
section 2.1 above.
2. For further details of the deferred share bonus please refer to section 2.2 above.
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TBC Bank Annual Report and Accounts 2017
8. Relative importance of spend on pay
The following table illustrates the difference in spend on pay for all employees of the Group and the difference in dividends paid to the shareholders
between 2017 and 2016. Dividends paid to shareholders for the year ended 31 December 2016 increased by 26% as compared to 2015.
Total spend on pay1 (US$’000)
Dividends paid to shareholders2 (US$’000)
Year ended
31 December
20173
Year ended
31 December
20163
80,861
31,110
72,768
24,659
% change
11%
26%
Notes:
1. Total spend on pay includes total staff costs and is converted into US$ using average US$/GEL exchange rate for 2017 and 2016 respectively
2. Dividend paid to shareholders are gross amounts converted into US$ using official exchange rate prevailing at the date of payment of the dividends, GEL 2.4047 and GEL 2.2126
for 2017 and 2016 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 2017.
9. Policy Implementation in 2018
Remuneration policy 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 policy for executive
directors. The existing remuneration policy will expire at the end of 2018.
The Group has developed a new remuneration policy, which is presented in this document and if approved by shareholders on 2018 AGM, will
become applicable starting from 1 January 2019.
Non-executive director compensation
As advised by the external consultants and approved by the shareholders on 2017 AGM, the compensation of the Chairman and Deputy Chairman
will be decreased by about 20% and 30% respectively starting from 1 January 2018.
Their new fees reflect the complexity of tasks and high intensity of the work carried out by the Chairman and Deputy Chairman to support the
growth of the business, taking into account their deep understanding of the market and their roles as the founders of the bank. The Chairman’s
and deputy Chairman’s input add significant value and are key and instrumental for the other members of the Board of Directors and for the
Executive Committee members, especially on all strategic matters and relationship with large corporate or individual customers as well as with
policy makers.
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 2018 Annual General Meeting (with the new Policy coming into effect for Companies Act
2006 purposes from 1 January 2019).
Statement of implementation
In 2018, the Remuneration Committee intends to continue to provide remuneration in accordance with the policy tables set forth below as
approved by shareholders at the 2017 AGM. Fees and salaries may be adjusted but in all cases will not exceed the maximums stated in the
appropriate policy table as approved by shareholders at the 2017 AGM. 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
appropriate policy table as approved by shareholders at the 2017 AGM.
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REMUNERATION REPORT CONTINUED
From January 2018 the following will apply:
Executive directors
Base salary (cash and deferred shares) The cash and deferred share salaries are set out in the executive directors' service contracts. The
Deferred share bonus
Remuneration Committee reserves the right to agree changes to the base salary with the executive
directors but no change will exceed the maximum stated in the policy approved by shareholders at the
2017 AGM. 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:
Performance measures for 2018 are summarized below:
Corporate financial KPIs that are comprised of return on equity, cost to income, cost of risk and net
interest margin
Corporate non-financial KPIs that are comprised of employee satisfaction and engagement measures,
customer satisfaction measures, and TBC PLCs share price performance against peer bank
Personal KPIs that include leadership skills in the case of the CEO and in the case of the CFO, include
leadership skills, IR function specific KPIs, treasury operations targets and cost of funding targets.
The corresponding weightings for 2018 are set as follows:
Financial measures
Non-financial measures
Personal KPIs
Total
CEO
56%
34%
10%
CFO
36%
26%
38%
100%
100%
Non-Executive Directors
Fees
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 disclosed in the Group’s 2018 annual report.
The fees paid to the non-executive directors will be within the policy approved by shareholders at the
2017 AGM. 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.
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TBC Bank Annual Report and Accounts 2017
10. Directors’ Remuneration Policy
This section describes the proposed new remuneration policy for executive directors, which is expected to come into force starting from 1 January
2019 and is intended apply for 3 years until the end of 2021, subject to shareholders approval at the AGM meeting to be held on 21st May 2018.
The new policy aims to enhance our existing remuneration structure and ensure that it is more closely aligned with all stakeholders expectations,
as well as to offer competitive compensation to the executive directors. Total expected compensation will not exceed 2017 levels.
The following table compares the executives’ maximum and actual compensation paid in 2017 to their maximum and expected compensation
under the new remuneration policy in 2019 respectively.
Director
Year
2017 Paid1
CEO
CFO
2019 excepted at target performance
2017 maximum opportunity2
2019 maximum opportunity
2017 Paid1
2019 excepted at target performance
2017 maximum opportunity2
2019 maximum opportunity
Base salary
US$’000
Deferred
share salary
US$’000
Annual bonus
US$’000
LTIP US$’000
Total
remuneration
US$’000
454
454
454
454
227
227
227
227
573
510
573
510
285
255
285
255
3,038
965
3,441
1,302
1,441
474
1,710
651
–
1,141
–
1,554
–
569
–
777
4,065
3,071
4,468
3,820
1,953
1,525
2,222
1,910
Notes:
1. As described in section 2.1
2. The 2017 maximum opportunity has been valued using the closing market value of the shares on 9 March 2018 (GBP18.4 converted into US$ using the cross rate of the official
exchange rates published by the NBG of 2.4462 for GEL/US$ and 3.397 for GEL/GBP on the same date) and grossed up for directors’ income tax on share awards paid by the
Company.
The key changes are:
Introducing a long-term incentive plan (LTIP) in the form of a performance share plan with a 3 year vesting period subject to meeting
performance conditions over this period. Awards are initially intended to be in the form of conditional share awards, which are conditional
rights to receive shares in the Company, but the plan also permits the grant of options and restricted share awards. The performance will be
measured over three years and shares will be delivered during the first quarter of the fourth year from the start of the performance period,
subject to the achievement of appropriate performance measures. However after delivery, the shares will be subject to an additional two year
holding period during which time they will be subject to continued employment. The maximum amounts of the LTIP are as follows: CEO-US$
1,554,240, CFO- US$ 777,120
The amount of deferred shares under the base salary and the annual bonus will be calculated by reference to a cash amount rather than a
fixed number of shares. The shares granted will be subject to continued employment for a 2 year period as follows: 50% of the award for 1
year from the award date and the other 50% for 2 years from the award date.
The maximum amount of deferred share salary and the annual bonus will be also fixed by reference to a cash amount rather than number of
shares. The maximum amounts of the deferred share salary are as follows: CEO- US$ 510,000, CFO- US$ 255,000. The maximum amount of
annual bonuses are determined as follows: CEO- US$ 1,301,760, CFO- US$ 650,880. The shares granted will be subject to continued
employment for a 2 year period as follows: 50% of the award for 1 year from the award date and the other 50% for 2 years from the award
date.
The maximum amounts of annual cash salaries to be paid to CEO and CFO are determined to be US$ 453,994 and US$ 227,004 respectively.
It is the Remuneration Committee’s intention that the Policy remains unchanged for three years until the end of 2021.
For the avoidance of doubt, it is intended that the new remuneration scheme to be approved at the 2018 AGM allows the existing remuneration
scheme for the executive directors to continue until 1 January 2019 with the new remuneration scheme to take effect from 1 January 2019.
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REMUNERATION REPORT CONTINUED
10. Directors’ Remuneration Policy continued
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.
We believe, the new policy meets the best and regional practices, is competitive and aligns executives' long-term interests with those of the
Group and its shareholders. The full details are outlined below.
10.1
Remuneration policy for Chief Executive Director and Chief Financial Director:
Component
Purpose and Link to Strategy of the Group Operation
Maximum Opportunity
Performance Measures
Not performance
based.
Fixed Pay
Base Salary
– in the form
of cash and
deferred
shares
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.
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.
Deferred compensation is subject to the
Group’s malus and clawback policies
until the shares are vested and during the
holding period. If at any time after
making the deferred compensation there
is a material misstatement in the
financial results for the year in respect of
which the compensation was formally
granted, the Remuneration Committee
has the right to cause some or all of the
deferred compensation for that year or
any subsequent financial year that is
unvested (or unpaid) to lapse (or not be
paid).
Cash salary
The maximum annual cash salary
for Chief Executive Director is
US$ 453,994.
The maximum annual cash salary
for Chief Financial Director is
US$ 227,004.
Deferred Share Salary
The maximum annual value for the
deferred share salary for the Chief
Executive Director is US$ 510,000.
The number of shares is calculated
based on the average share price of
the last 10 days preceding the
committee decision date. However,
the maximum is fixed by reference
to a cash amount.
The maximum annual value for the
deferred share salary for the Chief
Financial Director is US$ 255,000.
The number of shares is calculated
based on the average share price of
the last 10 days preceding the
committee decision date.. However,
the maximum is fixed by reference
to a cash amount.
The bank pays income tax1 and
other employee-related taxes
related to base salary, however,
taxes are included in the maximum
amounts.
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.
Salaries are determined based
on market practice and 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 provide fixed cash
remuneration to reflect the
complexity of the Group.
Deferred share salary
Part of the salary is given in the
form of shares and despite
being salary is still intended to
promote the long-term success
of the Group by closely aligning
executive directors' and
shareholders' interests.
Shares are usually delivered
during the first quarter of the
second year (i.e. the year after
the work is performed) and the
exact date is determined by the
remuneration committee.
Once shares are delivered, they
remain subject to continued
employment; 50% of the shares
for 1 year and the other 50% for
2 years from the delivery date.
Upon the delivery, whilst the
shares remain subject to the
continued employment
condition, the shares are
registered in the trustees name
as nominee for the participants
and the participants are entitled
to receive dividends.
1 The proposed structure of paying income tax for the executives is due to the Georgian tax code, which requires a company to pay income tax on any benefit paid to the
executives ( and does not allow for alternative arrangements). However, the numbers disclosed include such income tax estimates.
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10. Directors’ Remuneration Policy continued
Component
Purpose and Link to Strategy of the Group Operation
Maximum Opportunity
Performance Measures
Variable pay
Annual bonus
in the form of
deferred
shares
To provide a strong motivational
tool to achieve the annual KPIs
and to provide rewards to the
extent those KPIs are achieved.
The annual KPIs are chosen to
align our executive directors'
interests with the short terms
strategic objectives of the
Group
The annual bonus is
determined as to the extent
that the annual KPIs have been
met.
Shares are usually delivered
during the first quarter of the
second year (i.e. the year after
the work is performed) and the
exact date is determined by the
remuneration committee.
Once shares are delivered, they
remain subject to continued
employment; 50% of the shares
for 1 year and the other 50% for
2 years from the delivery date.
Upon the delivery, whilst the
shares remain subject to the
continued employment
condition the shares are
registered in the trustees name
as the nominee for the
participants and the
participants are entitled to
receive dividends.
KPIs are set by the Remuneration
Committee at the beginning of each year
in relation to that year (see more detail
below at 10.3(b)). To the extent that the
KPIs are achieved, the Remuneration
Committee may decide whether an award
may be made and the amount of such
award.
The Group does not pay guaranteed
bonuses to executive directors.
The nature of the KPIs (but not
necessarily their specific weightings) will
be disclosed in the annual report
published in the performance year.
However, the precise targets are
commercially sensitive and will be
disclosed retrospectively.
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.
Awards are subject to the Group’s malus
and clawback policies until the shares
are vested and during the holding period.
If at any time after making the 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).
Salaries are reviewed and may be
adjusted 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.
The maximum value of the annual
bonus for the Chief Executive
Director, under the annual
short-term incentive arrangements,
is US$ 1,301,760 (135% of fixed
salary). The number of shares is
calculated based on the average
share price of the last 10 days
preceding the committee decision
date. However, the maximum is
fixed by reference to a cash amount.
The maximum value of the annual
bonus for the Chief Financial
Officer, under the annual short-
term incentive arrangements, is
US$ 650,880 (135% of fixed salary).
The number of shares is calculated
based on the average share price of
the last 10 days preceding the
committee decision date. However,
the maximum is fixed by reference
to a cash amount.
The bank pays income tax1 and
other employee-related taxes
related to the award, however, taxes
are included in the maximum
amounts.
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The KPIs consist
of corporate and
individual
performance
measures.
Corporate KPIs
include financial
measures, and
non-financial
measures with
long term focus.
Individual
performance
measures may
include individual
strategic
objectives which
vary per person.
The performance
period is one
year.
The
Remuneration
Committee may
decide to make
no awards where
KPIs have not
been met.
TBC Bank Annual Report and Accounts 2017
139
Strategic Report OverviewStrategic Report Strategy & Performance
Performance Measures
The performance
conditions for the
award are set by
the Committee
each year. The
Remuneration
Committee’s
current view is
that performance
conditions will
include:
• a measure of
efficiency (e.g.
ROE)
• a measure of
share price
performance
(e.g. EPS/TSR)
• a measure of
customer
experience
Weightings of
these measures
may vary
year-on-year.
The performance
period is
three year.
REMUNERATION REPORT CONTINUED
10. Directors’ Remuneration Policy continued
Component
Purpose and Link to Strategy of the Group Operation
Maximum Opportunity
Long Term
Incentive
Plan (LTIP)
To provide a strong motivational
tool to achieve long-term
performance conditions and to
provide rewards to the extent
those performance conditions
are achieved1.
Performance conditions are
chosen to align our executive
directors' interests with
strategic objectives of the
Group over multi-year periods
and encourage a long-term
view.
In order for the shares to be
delivered, the executive
directors need to meet
performance conditions over
the 3 year performance period.
Share are usually delivered
during the first quarter of the
fourth year (i.e. the year after
the performance period ends)
and the exact date is
determined by the
remuneration committee.
Once shares are delivered,
they remain subject to 2 year
holding period and continued
employment requirements.
Awards may benefit from
dividend equivalents. No
dividend equivalents will be
paid on any awards (or part
thereof) that lapse on or
before vesting.
The awards may be granted in the form
of conditional share awards, options or
restricted share awards.
Performance Conditions are set by the
Remuneration Committee for a period
of 3 years. (see more detail below at
10.3(c)). The Remuneration Committee
determines the level of award at the end
of the performance period, based on the
extent to which the performance
conditions have been met.
The maximum value of the award
for the Chief Executive Director in
any given year, under the long-
term incentive arrangements, to
be awarded is US$ 1,554,240
(161% of fixed salary). The number
of shares is calculated based on
the average share price during the
10 days after the preliminary
annual results of the year
preceding the year of each grant is
announced.
The maximum value of the award
for the Chief Financial Officer in
any given year, under the long-
term incentive arrangements, to
be awarded is US$ 777,120 (161%
of fixed salary). The number of
shares is calculated based on the
average share price during the 10
days after the preliminary annual
results of the year preceding the
year of each grant is announced.
The bank pays income tax2 and
other employee-related taxes
related to the award, however,
taxes are included in the maximum
amounts.
The performance conditions and
respective targets will be disclosed in
the annual report published in the year
of the award.
The Remuneration Committee may also
adjust performance conditions during
the performance period to take account
of material events, such as (without
limitation): material corporate events,
changes in responsibilities of an
individual and/or currency exchange
rates.
Awards are subject to the Group’s malus
and clawback policies until three years
after the shares are delivered. If at any
time after making the award the award
holder deliberately mislead the Company
or the Bank in relation to the financial
performance, there is a material
misstatement (or material error) in the
financial statements of the Company or
the Bank, the award holder’s unit has
suffered a material downturn in its
financial performance caused by the
award holder, there is misconduct on the
part of the award holder that caused
material harm to the Company’s or the
Bank’s reputation or there is misconduct
on the part of the award holder that
caused failure of the risk management
resulting in a material loss to the
Company or the Bank, 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) and to clawback any amount that
has already been paid.
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10. Directors’ Remuneration Policy continued
Component
Purpose and Link to Strategy of the Group Operation
Maximum Opportunity
Performance Measures
For newly issued and treasury shares, the
LTIP is limited to using 10% in 10 years
for employee plans and 5% in 10 years for
discretionary plans.
These limits will exclude shares under
awards that have been renounced,
forfeited, released, lapsed or cancelled or
awards that were granted prior to the
Company’s IPO or awards that the
Remuneration Committee decide will be
satisfied by existing shares.
The plan will be administered by the
Remuneration Committee.
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 ups3, directors'
and officers' liability insurance, a car
service, personal security arrangements
and assistance with filling out tax returns,
where required.
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.
Pension
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.
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.
Shareholders should note that the
cost of providing comparable
benefits in different jurisdictions
may vary widely.
A tax equalisation payment may be paid
to an executive director if any part of his
remuneration becomes subject to double
taxation.
Disclosure of amounts paid will be
provided in the implementation
report and will be explained where
the cost of benefits is significant.
1 This element has been added to the remuneration policy to extend the long term outlook of the policy beyond, but in addition to, the annual bonus plan
2 The proposed structure of paying income tax for the executives is due to the Georgian tax code, which requires a company to pay income tax on any benefit paid to the
executives ( and does not allow for alternative arrangements). However, the numbers disclosed include such income tax estimates.
3 According to Georgian tax code, the company is responsible for paying income tax for the participants. As about 95% of the remuneration of CEO and CFO is subject to Georgian
tax regulations, the Company pays respective taxes on the relevant portion.
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10. Directors’ Remuneration Policy continued
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
the Group’s 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.
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.
(b) Annual Share Bonus
Annual deferred share bonuses are awarded to reward past performance over the year. At the end of the performance year, the shares will be
delivered to the extent that annual KPIs have been met (as determined by the Remuneration Committee). Once shares are delivered, the shares
will be subject to a 2 year post performance vesting period (with 50% vesting each year) subject to continued employment.
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.
Remuneration committee intention is to retain the current KPIs for the Annual Share Bonus, which consist of corporate, financial (such as ROE,
cost to income ratio, CoR) and non-financial KPIs (share price performance, employments and customer satisfaction levels) and individual KPIs
(such as leadership and/or performance of specific function) and which reflect the executive directors' required contribution to the Group's
overall key strategic and financial objectives for that financial year.
However, given the fact that the first year under assessment for the Annual Share Bonus is 2019, the respective KPIs will be set at the start of the
each performance period: 2019, 2020 and 2021. The nature (but not necessarily the weightings) of the KPIs will be disclosed in the annual report
published in the performance year. However, specific targets for each KPI will be disclosed only retrospectively given the sensitivity of the
measure to the Group’s business.
Each KPI will have a threshold, target and maximum level and conditions to meet these levels. Targets for each corporate KPI will be determined
by the Remuneration Committee and will be approved by the Board. Individual KPIs will be approved by the Remuneration Committee based on
the recommendations of the CEO.
(c) LTIP
The Awards, will be granted subject to performance conditions over a 3 year period. After three years, the shares will be delivered to the extent
the performance conditions have been met (as determined by the Remuneration Committee). Once shares are delivered, the shares will be
subject to a 2 year post performance holding period subject to continued employment.
This approach will be used for 3 years starting from 2019. Thus, 2019-2021 performance will be measured in 2022, 2020-2022 performance will
be measured in 2023 and 2021-2023 performance will be measured in 2024.
Given the fact that the first performance period under the LTIP will start only in 2019, the exact performance conditions will be defined closer to
this date.
The Remuneration Committee’s goal for each performance condition 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. Remuneration Committee’s current view is that
performance condition will include a measure of efficiency (e.g. ROE), a measure of share price performance (e.g. absolute EPS/TSR) and a
measure of long term differentiator such as customer experience. However, in the case of relative KPIs, the Remuneration Committee retains the
right to apply downward adjustment considering factors such as absolute share price/TSR in determining the final payouts. Any measure
selected, will be closely aligned with the group strategy.
The performance conditions for each three year performance period will be set at the start of the each performance period: 2019, 2020 and 2021.
The performance conditions and respective targets will be disclosed in the annual report published in the year of the award.
The Remuneration Committee has discretion to amend the agreed performance conditions in exceptional circumstances if, in the opinion of the
Remuneration Committee, the original performance conditions are no longer appropriate.
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Each performance condition will have a threshold, target and maximum level and conditions to meet these levels. Targets for each corporate
performance condition are determined by the Remuneration Committee and are approved by the Board.
(d) Shareholder guidelines
Executive directors should naturally build up a significant holding of shares in the Company. In order to encourage this and set a standard
position, the Company is introducing a minimum shareholding requirement of 200% base salary. There is no set time during which this
requirement must be met, but until it is met, executive directors are expected to hold shares (net of tax) acquired under this policy. Shares
counted for this purpose include deferred shares paid in relation to salary and annual bonus and any vested awards from the LTIP. Unvested
awards from the LTIP will not be counted.
11. 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.
12. 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 as well as some other key employees receive their entire salary in cash and are also eligible to cash
and share bonus compensation. 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.
13. 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. Starting from 1 January 2018 until the end
of 2021, the compensation for the non-executive directors is as follows:
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13. Policy table: non-executive directors
Component
Purpose and Link to Strategy
Operation
Maximum Opportunity
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 the
current level of fees 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 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 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.
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 and adjusted 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.
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, other subsistence expenses and
personal security arrangements), Board/committee
dinners and functions, Board training sessions, director’s
and officers’ liability insurance, 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, and a security
service for the Chairman only which is a legacy
arrangement and widely establish practice in
Georgian market.
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.
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.
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13.1 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. 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.
14. Illustration of application of the Remuneration Policy
The following graphs illustrate the levels of remuneration that each executive director could earn in 2019 under the new Policy.
Chief Executive Officer
Chief Financial Officer
$963,994
$2,227,899
$3,070,502
$3,819,994
$482,004
$1,107,633
$1,524,720
$1,910,004
53%
47%
31%
26%
23%
20%
37%
31%
17%
15%
41%
34%
13%
12%
53%
47%
31%
26%
23%
20%
37%
31%
17%
15%
41%
34%
13%
12%
Below
award
threshold
Minimum
award
Target
award
Maximum
award
Below
award
threshold
Minimum
award
Target
award
Maximum
award
Cash Salary Deferred Shares Salary Deferred Shares Bonus LTIP
Notes:
1. Directors’ compensation consists of cash salary, deferred share salary, annual bonus and LTIP. Cash salary and deferred share salary are the same in each performance
scenario. No pension contributions have been included in the performance scenarios as we assume no pension contributions will be paid.
2. The "below bonus threshold" chart reflects a scenario where KPI achievement falls below 60% and so no bonuses would be awarded.
3.
If KPIs are fulfilled at minimum, on target or maximum ranges the evaluation and subsequent bonus award will be 60%, 100% and 135-137% respectively.
15. 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.
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 pro-rated for the time served in the new role may be made to the individual within the maximums set out in the policy tables above.
Where necessary, the Remuneration Committee can make a recruitment-related award to an external candidate. However, the Group will not pay
more than the Remuneration Committee considers necessary and will endeavour to deliver any such awards in line with the existing Group policies.
The Remuneration Committee has a preference not to provide a “buy out” arrangement and/or to establish additional or particular arrangements
specifically to facilitate the recruitment of the individual. However, where an individual would be forfeiting remuneration or employment terms in
order to join the Group, the Remuneration Committee may award appropriate compensation. The Remuneration Committee would require
reasonable evidence of the nature and value of any forfeited arrangements and would, to the extent practicable, ensure any compensation was of
comparable commercial value and capped as appropriate, taking into account the terms of the previous arrangement being forfeited (for example
the form and structure of award, timeframe, performance criteria and likelihood of vesting). Where appropriate, the Remuneration Committee
would have a preference for buy-outs to be delivered in the form of shares in the Company. All such awards will be appropriately discounted to
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REMUNERATION REPORT CONTINUED
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. 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. In
any case, total value of a recruitment and “buy out” award, should
not exceed 100% of the salary (including cash and share salary) paid
for the comparable executive position the year immediately
preceding to the recruitment.
16.2 Service contracts
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 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.
The service contracts are kept at TBC Bank head office a the following
address: 7 Marjanishvili street, Tbilisi, 0102, Georgia
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.
16. Policy on payments for loss of office
The following paragraphs describe the Group's general policy on
payments for loss of office. Section 16.2 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, bonus shares, awards under the LTIP and
this Policy. Please see section 16.2 further for a summary of the
treatment of such awards where an executive directors is a good or
bad leaver.
The Remuneration Committee will take all relevant factors into
account when considering whether the director is a good leaver (as
set out in their service contract or other applicable plan document).
The Remuneration Committee will exercise its absolute discretion to
determine whether such terms should be included in any new
service contract.
In addition to any payment referred to above, 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.
16.1 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 more than one year
and 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.
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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
692,999
186,857
879,856
267,399
612,457
Giorgi Shagidze
81,787
86,431
168,218
128,886
39,332
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 and any unvested awards under the LTIP 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 and/or LTIP awards.
If the executive director is determined by the Remuneration
Committee to be a good leaver, the executive director is entitled to
receive an award of deferred salary and deferred bonus shares pro
rated for both time and performance during the performance year.
All outstanding awards of deferred salary and deferred bonus will
continue to vest on their initial terms. Subject to the achievement of
the relevant performance criteria, a portion of any outstanding
awards under the LTIP may vest, subject to a reduction pro rata to
reflect shortened period of employment between grant and the end
of the holding period. In general, the original performance period
will continue to apply. However, where in the opinion of the
remuneration committee, early vesting is appropriate, or where it is
otherwise necessary, awards will vest by reference to performance
criteria achieved over the period of employment.
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.
17. 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 15 above.
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.
1 The executive directors’ service contracts and non-executive directors’ letters of
appointment are also available for inspection at TBC PLC’s registered office.
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AUDIT COMMITTEE REPORT
Chairman’s Letter
Dear shareholders,
I am pleased to present the Audit Committee report for the Group.
I invite you to read the results of these and other main activities of
the Audit Committee in the report below.
Nicholas Dominic Haag
Chairman of the Audit Committee
28 March 2018
Committee Structure and Role
Since the Company’s incorporation in 2016, there have been two
separate but inter-connected audit committees in the Group for
each of the Company and the Bank, which have common
membership and perform a joint function within the Group. In
practice, we consider both audit committees as complementary and
somewhat fungible with both of them being focused on optimising
governance of the Group as a whole, especially because the Bank
represents 98% of the Group’s total assets. Nevertheless, we
continue to ensure that particular resolutions are passed by the
appropriate audit committee with as little duplication as possible,
while making sure that there is seamless co-operation between the
two committees to avoid any gaps in overall scrutiny. For the
purpose of this report, we refer to the two committees collectively as
“the Audit Committee”.
The Audit Committee’s primary responsibilities include overseeing
the Group’s financial reporting process, supervising the process of
appointment of external auditors, reviewing the implementation of
the Group’s accounting and reporting policies and practices,
ensuring the integrity, accuracy and full disclosure of the Group’s
financial condition (including the Group’s taxes) and assisting in the
assessment of the ‘going concern’ status of the Group. The Audit
Committee is also responsible for reviewing relevant content of the
Group’s annual reports and interim statements, and supervising the
Bank’s systems of internal control in relation to financial reporting
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TBC Bank Annual Report and Accounts 2017
and certain operational risks including internal investigations into
control weaknesses. Moreover, the Audit Committee evaluates the
management’s competence in all the above areas and ensures that
they take necessary corrective actions in a timely manner to address
any vulnerabilities.
In relation to the risk assessment function, the Group has a separate
Board-level committee responsible for risk, ethics and compliance,
the RECC, which is chaired by Nikoloz Enukidze, who is also a
member of the Audit Committee. Nicholas Haag, the Chairman of
the Audit Committee, is, in turn, a member of the RECC. Please see
pages 60 to 69 for a description of the Group’s risk management
framework and pages 123 to 125 for the RECC’s report.
Whilst there are synergies between the work of the Audit Committee
and the RECC, and they share many of the same complex issues of
judgement and policy, we continue to believe that there is a clear
benefit in preserving a separate independent Audit Committee as
well as a strong RECC. We recognise that there is, in any case, no
clear dividing line between financial risk and other risks, but we
acknowledge that the Audit Committee is more attuned to risks in
financial reporting, whereas the RECC is responsible for monitoring
on-going credit and other market risks.
In addition to close cooperation with the RECC, several of the Audit
Committee’s members, including the Chairman, also sit on the
Remuneration Committee, which allows the Audit Committee to
track remuneration policies and ensure that there are no incentives
which could weaken controls or introduce Management bias in
connection with loan provisioning and valuations.
The Audit Committee has adequate administrative resources from
the Group’s and Board Secretariat and receives sufficient and timely
materials from the Management both proactively and when we make
additional information requests. The lines of communication with
the Management are open with constructive, candid and continual
dialogue taking place throughout the year.
Committee Composition, Expertise and Independence
At the end of 2017, the audit committee of the Company comprised
five non-executive Directors: Nicholas Haag (Chairman), Eric J.
Rajendra, Stephan Wilcke, Nikoloz Enukidze and Stefano Marsaglia.
All members of the audit committee of the Company have been
deemed as independent under the Code, which is applicable to
companies listed on the premium segment of the LSE. We believe
that the audit committee of the Company and all of its members
continue to exercise fully independent judgement in all matters
related to their functions. In addition, members of the audit
committee continue to satisfy the director independence criteria as
defined by the Georgian Law of Banks.
Committee Meetings
In 2017 the attendance level of members at meetings of the audit
committee of the Company was 98%. The majority of meetings took
place in London and were attended by members either physically in
person or via teleconference. In case of the latter, relevant attendees
participated from locations within the UK. The attendance of
members at the Audit Committee meetings during the year 2017
are set out in the Directors’ Governance statement on page 106.
The meetings of the Bank’s audit committee took place in both the
UK and Georgia with the majority of meetings taking place in
Georgia. The reason for this is that the Audit Committee is keen to
maintain a high degree of interaction with a range of local staff
employed by the Bank in operational, financial and control roles.
This allows us to gather deeper insights into the Bank’s processes,
culture and morale of staff, who have functions related to our audit
work. This type of review cannot be so easily performed in the UK
due to logistical reasons and the extra expense of having to bring a
large number of the Bank’s employees to London on a regular basis.
Attendance of meetings of the Bank’s Audit Committee in 2017 is set
out in the Directors’ Governance statement on page 106.
All current members of the Audit Committee(see biographies on
pages 114 to 117 of the Annual Report) are financially literate and
possess a detailed understanding of the financial services sector,
with backgrounds primarily in the banking industry in both the EU
and emerging markets, as well as consultancy, risk management
and IT. Most have served on (or chaired) other banks’ audit and risk
committees, which provides them with the necessary expertise to
guide and challenge the Board, the Management and external
auditors. 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. Moreover, the Chairman of
the Audit Committee has the recent and relevant financial
experience required by the Code to fulfil his responsibilities as a
designated financial expert on the Audit Committee.
Although one member of the Audit Committee has a substantially
full-time executive role on the management board of another
non-conflicting bank and all other members spend much of their
time on various supervisory-type boards, the Board believes that
members of the Audit Committee have sufficient time to devote to
their responsibilities towards the Group. Appropriate training is
available to members of the Audit Committee and has recently
included professional updates by external specialists on new
accounting regulations, which are currently being implemented,
and relevant developments in corporate governance and best
practice, which training was attended by most members of the
Audit Committee. We continue to review, in collaboration with the
Corporate Governance and Nominations Committee, suitable
medium-term succession plans for the Audit Committee, similar to
the same process for all other committees of the Board. Our priority
would be to select future members of the Audit Committee with a
background in the audit industry or one with a relevant specialist
background and knowledge, such as in cybersecurity.
The Committee is also 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.
We will continue to work to ensure these standards are fully met
and maintained.
Over the course of 2017 there were 8 formal meetings of the audit
committee of the Company and the same number for the Bank’s
audit committee, all of which were minuted. In addition, there were
regular interim meetings via teleconference facilities, where
members discussed a narrower agenda, mostly around planned
releases of financial data. Members are also in regular e-mail
correspondence with each other on various matters relating to the
Audit Committee’s work.
During each formal meeting, the Audit Committee met in executive
session without Management present. In addition, we typically also
met with at least one member of the Management Board of the Bank
responsible for a particular divisional line of business to seek
feedback on issues that may have been highlighted in Internal Audit
reports. This allows us to impress upon senior members of the
Management the importance of minimising deficiencies and
remedying any that do occur. We also typically met with other senior
members of the Management, notably the CEO, CFO, COO, CIO and
CRO. The Head of Internal Audit was present throughout every
meeting. We have adopted a policy of inviting PwC to attend the
entirety of our Audit Committee meetings (except for meetings that
address topics sensitive to PwC, such as auditor appointments and
fees) because we felt that this would assist with their understanding
of the Company and the Group. This also allowed us to benefit from
PwC’s wide-ranging expertise.
The audit committee of the Company met twice in or around each
quarter of 2017, broadly in synch with the Bank’s quarterly financial
reporting cycle. At least one such quarterly meeting coincided with
the timing of our Board meetings and the Audit Committee was
scheduled a day in advance of these meetings to ensure that we
could formally present our summary findings to the Board. The
Audit Committee used such reports for highlighting the scope for
process improvement and inviting responses from the CEO or his
senior team, which led to follow-up actions that were formally
minuted by the Board.
The number of meetings of the audit committee of the Company
doubled from that held in 2016, which reflects additional supervisory
responsibilities arising from the Company’s listing on the premium
segment of the LSE, its status as a “Public Interest Entity” under the
Statutory Audit Directive (2006/43/EC) of the European Parliament
and of the Council and its commitment to enhanced supervision. The
Company became a “Public Interest Entity” for the first time in 2017.
In 2017, there were no significant or enduring points of difference of
opinion between the Audit Committee and PwC or between the Audit
Committee and the Board or Management.
Audit Committee Effectiveness
The Terms of Reference for the audit committee of the Company
were approved by the Board on May 2016. The document is available
on TBC’s website at www.tbcbankgroup.com The audit committee
Policy of the Bank was revised and approved in March 2017 and
approved by the Supervisory Board of the Bank in the same month.
In March 2018, the Audit Committee conducted an annual
Effectiveness Self-Review using an extensive and customised
questionnaire. In addition, the whole Board included in its wider
Self-Assessment certain questions relating to the efficacy of the
Audit Committee amongst other committees of the Board. Both the
Audit Committee and the Board concluded that the former is
constituted properly, operates effectively and carries out all its
responsibilities as laid out in its Terms of Reference and Policy.
Integrity of Financial Statements
We have reviewed, with input from the External Auditor and in-house
Finance, Risk and Internal Audit teams, all data and narrative
comment and concluded that the Annual Report and full year
financial statements give a complete, true, fair, balanced and
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understandable view of the Group’s financial position and are
consistent with the Committee’s understanding of the facts, and
provide the information necessary for the Company’s shareholders
and other stakeholders to assess the financial condition of the Group.
seek to maximise the value of the external audit relationship. We
assess and approve audit scope and frequency, make
recommendations to auditors on areas for particular focus and
receive and review key external audit reports.
The Committee is conscious that the Group consists of the Company,
which is listed on the premium segment of the LSE , and the Bank,
which is the largest financial services company in the Georgian
market, and it has legal and social responsibilities to the Company’s
shareholders and other stakeholders of the Group. Our business is
overwhelmingly tied to the performance of the Georgian economy. In
2017 Georgia delivered a strong real GDP growth of 5.0%, an
improvement on 2.8% growth in 2016. The Georgian government and
third party forecasts for 2018 suggest growth of a similar magnitude
may be achievable. At the timing of writing, the macro-economic
outlook for Georgia looks more positive than it has been for several
years with significant improvements in foreign trade and tourism, as
well as development of important, and often multi-national,
infrastructure projects, which indicate the potential for Georgia to
become more of an international hub economy. Nevertheless, there
is always a risk of a sudden downturn due to a changing local,
regional or global environment and the Committee, like the RECC,
tracks closely (on a weekly basis) relevant economic data for
‘warning signs’.
We are equally vigilant in seeking any evidence of complacency
which might lead to a risk of deterioration in internal standards. The
Audit Committee will seek to ensure that any unexpected
deterioration in the Georgian economy will trigger extra vigilance on
our part in relation to financial controls and reporting risk since any
challenging economic context potentially raises both credit and
operational risks within the Bank. The recent adoption of IFRS9 in
our view further supports the early revelation of any such potential
deterioration in loan quality and it is being swiftly reflected in our
models, with any necessary extra provisioning accounted for
accordingly. The Group has always operated a conservative
provisioning policy but the Audit Committee welcomes the extra
discipline imposed by IFRS9 and the additional disclosures to the
Group’s stakeholders.
The Audit Committee remains as focused as ever on ensuring the
integrity of our financial releases and internal records. The Audit
Committee pre-vets all audited and auditor-reviewed financial
releases, as well as all other financial releases, before making
recommendations to the Board to approve these. The Audit
Committee holds formal discussions with the Management, in
particular the CFO (and his finance team), about each of these
releases, typically with a multi-stage drafting, review and approval
process. We are also in regular communication with the External
Auditor via both teleconference facilities and correspondence before
approving any releases. We have extended the remit of Internal Audit
which now undertakes its own assessment of financial and regulatory
reporting to give the Audit Committee further assurance on the
integrity of our reported numbers and, above all, the governance
process involved in assembling and releasing our financial statements
in the public domain. We also monitor the financial data published on
the TBC Bank’s website to ensure its accuracy.
External Audit Team and Planning
The Audit Committee makes recommendations on the appointment
(or potentially removal) and compensation of external auditors and
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The audit committee of the Company held multiple audit planning
meetings with PwC in 2017, commencing this process in the middle
of the year. The Audit Committee had the opportunity (without
involvement of the Management) to highlight areas it wished the
External Auditor to focus on, flagging relevant concerns and trends,
and discussing the appropriate audit response.
The Audit Committee has a policy of regular quarterly face to face
discussions with PwC as part of our formal meeting agendas,
proactively and mutually addressing any material audit or control
issues. In addition, the Chairman and often other members of the
Audit Committee, had a similar number of more informal (i.e. not
minuted) meetings with PwC at occasional but frequent intervals,
which combined mutual audit planning/execution updates with some
element of briefing or training to the Audit Committee’s members
on the latest developments in accounting regulations and corporate
governance, which included, in particular, PwC sharing with us
experiences of best practice across their full international audit
spectrum. This provided both parties with the opportunity for open
dialogue.
Given the holding company structure of the Group, both the London
and Tbilisi practices of PwC are fully involved in the audit process for
the Group. PwC Georgia and PwC in Azerbaijan, which audits our
small Azeri subsidiary, are both part of PwC’s Central and Eastern
Europe network firm. In the opinion of the Audit Committee, this
‘double coverage’ works well and provides some extra reassurance
to us in terms of scrutiny of the Group’s financial and risk-
management processes. We also enjoy ready access to our audit
engagement partner (Jeremy Foster) for the entire Group, who is
aware of his overall responsibility and ultimate sign-off duties, and
the cooperation and communication between the two audit practices
is well coordinated with a common audit methodology. The London
audit team coordinates the entire audit for the Group and the
balance of PwC’s audit responsibilities is shifting somewhat from
Tbilisi to London. We expect this trend to continue going forward.
The Chairman and majority of the Audit Committee’s members are
based in the UK and enjoy ready access to the audit team there.
In our view, Jeremy Foster has exhibited not only strong technical
skills but also a good understanding of the Group’s business, the
country and sector. He has also exhibited suitably robust challenge
and professional scepticism in relation to the audit. The Audit
Committee has shared its views on audit and partner quality with
PwC’s own independent senior partner, who collects client feedback
and seeks to maximise standards of service by PwC.
In 2017 we welcomed Agnieszka Accordi as the new PwC audit
partner for the Bank’s audit. We are satisfied with the smooth
transition from the previous longstanding PwC audit partner for the
Bank and she has made a strong hands-on start to understanding
the Bank’s business and audit issues and is also a subject-expert in
areas of importance to us, in particular IFRS9. Agnieszka is based in
Warsaw but, similar to Jeremy Foster, has already travelled to
Georgia on a number of occasions.
Areas of Focus for External Audit and Audit Committee
The audit coverage and the judgements about underlying audit
materiality have been explained to us satisfactorily. We agreed with
PwC an overall consolidated audit materiality sum of GEL19.7m for
the Group compared to GEL15.8m in 2016. The increase is related to
the further expansion in the Group’s size and profitability. We
continue to believe that pre-tax profitability of 5% is a suitable and
meaningful materiality basis for the Company, especially given the
relatively stable performance of the Group’s profitability metric over
the years.
In accordance with our normal practice, we have assessed the
reasonableness and appropriateness of all critical accounting
estimates and judgements in applying accounting policies. In the
frequent planning meetings held between the Audit Committee and
PwC, there were a number of areas of focus identified. The key
accounting judgements and significant estimates were identified and
have been addressed with appropriate resources, including the
necessary involvement of specialists in these areas.
In particular, we agreed with PwC that the two most significant
audit-related risks were the Management’s ability to override
controls and the provisions for impairment of loans and guarantees.
We also agreed with PwC an additional elevated risk in relation to
the disclosure of the potential impact of IFRS9 given the complexity
of determining such estimates and the requirement to guide the
market as soon as valid estimates became available. Other risks in
terms of areas of judgement that we asked PwC to focus on included
accruals for litigation and claims, collateral values supporting the
Group’s loan book, net realisable value of repossessed collateral,
fair value of securities and derivatives, share based payments and
impairment of goodwill.
Provisions and impairments
In terms of loan provisions, we have worked with PwC in verifying
the current provisioning methodology used by the Bank, challenging
these assumptions and examining individual (mostly corporate loan)
exposures on the non-performing and ‘watch list’. We have
confirmed the completeness of this ‘watch list’, which we note 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 reasonably conservative compared to observed reality, partly
because the Georgian economic climate has proven to be more
resilient than the Bank’s earlier assumptions. We note that in 2017
we made significant recoveries from corporate loans that we had
provisioned or written off.
The Audit Committee, benefiting from work streams led by the
RECC, 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 continued challenging
macro economic situation in Azerbaijan, the Audit Committee has
paid close attention to the portfolio quality of TBC Kredit, our Azeri
subsidiary. We note that there has been some stabilisation in the
quality of this portfolio since 2016.
Clearly, one of the biggest factors impacting and also reflecting the
Georgian economy is the stability of the local Lari currency. The Lari
has been prone to periods of volatility, particularly in early and late
2017, which was, to some extent, affected by the seasonality of FX
inflow and outflow among other things related to the tourism
industry and energy imports. The exchange rate appears to have
now stabilised and the Lari is currently trading at a higher level
against the US$ than at the start of 2017, partly reflecting the
apparent weak dollar policy of the US government.
Given the still highly dollarised nature of the Georgian economy and
the Bank’s loan book, we invited PwC to scrutinise the
Management’s judgements as to the continuing creditworthiness of
those of the Group’s clients (including both retail and corporate)
without matching dollar sources of income. In reviewing provisioning
levels the Audit Committee has sought and received detailed data on
such currency mismatches and the RECC has performed a
deep-dive into this risk issue. We note that, in previous periods of
national currency volatility, our assumptions regarding the impact of
this on the quality of the loan book have proven reassuringly
cautious on a back-tested basis and the periods of Lari weakness
over 2017 were, in our view, not sustained enough per se to be
reflected in changes to the quality of our portfolio. In addition, we
note that the welcome “larisation” policy of the Georgian
government has and will continue to diminish the credit and
financial reporting risk.
Implementation of IFRS9
Whilst the new standard was not formally adopted until 1 January 2018,
IFRS9 was clearly an audit priority for the Audit Committee in 2017.
As noted above, this was almost by definition an area of “elevated
risk” in the audit since the implications for the Group are significant
(in the same way as for most European banks), with necessary
anticipatory disclosure about the likely transitional impact and the
inherent risk of misstatement.
In 2017, the Audit Committee, together with the RECC, oversaw the
Group’s preparations for the implementation of IFRS9 which has been a
complex project launched by the Group in the middle of 2016. Both the
Audit Committee and the RECC at regular intervals invited the CFO,
CRO and the internal dedicated Credit Risk and Finance team to provide
them with updates and supporting materials. The Group worked with
Deloitte, our project consultant and product vendor, throughout the year
and the main inputs and outputs were shared with PwC.
We obtained confirmation that PwC, employing their accounting,
modelling and IT specialists, have adequately identified the key
sources of complexity, judgement and uncertainty in the Group’s
estimates of expected credit losses under IFRS9. They have
undertaken substantive testing of key model methodologies for
completeness, availability and accuracy of the data flows and for key
judgements and assumptions, as well as the governance and
internal controls involved. We note, however, that there is limited
historical loss data in the Georgian market. The Bank has
undertaken ‘parallel runs’ (i.e. IFRS9 vs IAS39). We have also
maintained a close dialogue on the subject with the NBG.
We anticipate that the Bank’s provisioning policies described above
will enhance the Bank’s already robust approach to financial reporting
on credit risk. There has been a lot written about the potential impact
of IFRS9 being likely to result in higher provisioning and profit and
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loss volatility, particularly amongst smaller banks. However, the Bank
has a record of steady growth in earnings and we anticipate that the
impact on our results may be somewhat less material. We recognise
that the impact of IFRS9 will take time to calibrate across all across
financial institutions and that there will be an element of “informed
guesswork” (as it has been widely described) in financial reporting
until the new standard is definitively established.
Readiness for other accounting standards
The Audit Committee has also looked at other accounting standards
recently adopted or in the pipeline, most notably IFRS15 (which has
applied since January 2018) on revenue recognition and IFRS16
(which is expected to come into force from January 2019) on leases.
IFRS 15 potentially changes the profile of revenue and in some cases
cost recognition. However, we anticipate no material impact because
most of the Group’s revenue will be outside the scope of the new
standard (as the proportion of contractually “uncertain” revenue
streams is small and, equally, the cost differential is also small) and
this is reflected in the impact disclosure in our published 2017
financial statements.
IFRS 16 sets out the principles for the recognition, measurement,
presentation and disclosure of leases, which will become effective
starting from January 2019. It will change the reporting standard of
leasing transactions for the lessees. Given the low volume of transactions
where the Group is the lessee, we do not anticipate any material
impact on the financial statements of the Group. Under IFRS 16, the
lessor accounting remains largely unchanged from IAS 17 and,
hence, the change will have no impact on transactions where the Group
is a lessor.
Management’s ability to override controls
In terms of the significant risk of Management’s overriding of controls,
we note that this is a priority risk factor on all audit engagements,
especially in a banking context because the Management is responsible
for the design and operation of systems to prevent and detect fraud
and, thus, it is in a unique position to manipulate accounting records. In
response to this risk PwC conducted review of organisation-wide
governance systems and overall control environment. We asked
Internal Audit to pay special attention to the bedding down of controls in
relation to the Group’s acquisition of Bank Republic. The operational
merger was completed in May 2017 and this has several implications
for audit in terms of process flow and the integration of differing bank
systems. We invited PwC to analyse the integration and alignment of
policies and procedures. The Audit Committee was satisfied that this
integration has been essentially completed.
Deferred tax
Another particular focus area of the Audit Committee has been the
de-recognition of deferred tax balances under changes in Georgian
tax regulation. In May 2016, the government enacted changes to
incentivise the reinvestment of corporate profits. The new code
impacts the recognition and measurement principles of the Group’s
income tax and also affects the Group’s deferred income tax assets/
liabilities. Whist this law will not come into effect for the banking
sector until January 2019, it has a more immediate impact on
deferred tax calculations. In 2016, the Group had a one-off income
charge of GEL 17.9m related to this change and in 2017 the change
decreased the effective tax rate from a potential 12% to 9% through
reducing deferred tax liabilities relating to the period from 1 January
2019. However, the potentially tax-free reinvestment of future profits
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will have a positive effect on lowering the Group’s future effective tax
rate by several percentage points further, starting from 2019.
Reporting on the alternate performance measures
The Audit Committee is conscious of the recommendations of
European authorities and the UK’s Financial Reporting Council (the
“FRC") in connection with improving the reporting of alternate
performance measures (“APMs”). We carefully track what APMs the
Group uses in its financial reporting. The Group discloses a limited
number of APMs, such as adjusted cost to income ratio, various
return metrics and adjustments for the Bank Republic acquisition. We
consider that most of these (for example, the return metrics pre- as
well as post-provision) are in common usage and meaningful
additions to our reporting designed to clarify rather than obfuscate
our financial position and do not detract in any way from our core
IFRS numbers. Some of them, such as for Bank Republic, are
inherently time-limited in terms of usage.
Revised segment accounting methodology
One other area that the Audit Committee intends to focus on in 2018,
and has already discussed with the CFO, is the revised segment
accounting methodology that the Group is changing from 1 January
2018 because this has implications around divisional profitability and
strategy, as well as touching on remuneration incentives.
External Audit Quality, Tender Assessment and
Reappointment
The Audit Committee is responsible for the assessment of the
performance, objectivity and independence of the External Auditor
and the delivery of a good 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 have undertaken a
comprehensive assessment of their independence, in accordance
with the requirements of standards and relevant legislation.
PwC has been the Group’s External Auditor since 2008. 2017 marks
the 10th year in which PwC has audited the Group. Consequently, the
Audit Committee had extensive discussions in 2016 and 2017
regarding the merits of conducting an external audit tender under the
UK implementation of the EU Audit Regulations for Public Interest
Entities (the “EU Regulations”). Given the Group’s recent
incorporation of the Company and its listing on the premium segment
of the LSE, the audit rotation rules permitted the 10-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 existence of the
Bank prior to the incorporation of the Company and the duration of
our relationship with PwC, the Audit Committee evaluated, with input
from the CFO, whether there would be a case nonetheless to initiate
an audit tender. The Audit Committee concluded that it would be
distracting to change auditor shortly after the Company’s listing on
the premium segment of the LSE and given other important work
streams for the Group’s finance team, such as the adoption of IFRS9.
Accordingly, the Company has complied with the requirements of The
Statutory Audit Services for Large Companies Market Investigation
(Mandatory Use of Competitive Tender Processes and Audit
Committee Responsibilities) Order 2014, which relates to the
frequency of external auditor tenders for the financial year
under review.
We are also mindful that the availability of leading audit suppliers in
the Georgian market is somewhat limited and further restricted by
potential conflicts in respect of the provision of such services to
other large Georgian banks, which makes a change of auditor more
difficult but not impossible. In addition, we have taken into account
the extra ‘safeguards’ of a relatively recently appointed lead
engagement partner since 2016 ie Jeremy Foster), the shift of the
centre of gravity for the audit to London from its historical base in
Tbilisi and a new engagement partner for the Bank’s audit (ie
Agnieszka Accordi) appointed in 2017. Consequently, last year we
resolved to defer any decision whether to hold an audit tender and
we expect that, subject to the finalisation of suitable contract terms
and the Board approval, PwC will remain the Group’s External
Auditor for 2018.
There is clearly an interesting ongoing global debate about the
so-called “audit gap”, which is the occasional difference between
expectations of users and auditors as to the responsibilities of the
latter and the nature of the audit engagement. Leaving this aside, the
Audit Committee has concluded that PwC have delivered a high
quality audit. In 2017, PwC made reliable and effective judgements at
all stages, identified and focused on areas of greatest risk and
convincingly articulated their testing strategy. We welcomed the
candour of the audit partners for both the Company and the Bank and
the clarity of their observations in private and informal sessions. As
noted above, we are confident in the technical and personal qualities
displayed by Jeremy Foster and Agnieszka Accordi, and that they have
deployed sufficient PwC human and automated (i.e. data analytics)
resources and were well supported by experienced audit managers in
both London and Tbilisi. We also note PwC’s proven continuing ability
to meet our tight reporting deadlines in the context of a larger Group,
the Company’s listing on the premium segment of the LSE and our
acquiring the status of a FTSE 250 company. Feedback from our CFO
and finance team has been positive expressing the view to the Audit
Committee that PwC have demonstrated a good understanding of the
Group’s business and the current economic environment in Georgia
and have provided useful insight into corporate governance and good
advice on the enhancement of disclosures in this Report. Equally, PwC
have shared with us supportive insights into the Management as part
of their audit findings.
In the meantime, both the Audit Committee and the Management
consciously cultivate relationships with other prominent audit firms
and some of their individual partners in London and Tbilisi and use
the allocation of non-audit services as an opportunity to engage with
and to ‘try out’ different firms and to familiarise some of them with
the Company and our business. Audit quality will always be
paramount in our selection of auditor.
External Audit Quality Validation
As noted in last year’s Report, FRC undertook a routine formal Audit
Quality Review (“AQR”) of PwC’s audit of the Bank for the year
ending December 2015. It is reassuring to us that the AQR confirmed
that the audit was properly “compliant” and was awarded one of the
FRC’s highest compliance categories. The AQR did not highlight any
significant areas for improvement and nothing that brought into
question the reappointment of PwC. Over the course of 2017, we
have tracked progress in the minor follow up recommendations
noted by the FRC in their AQR and implemented with PwC small
changes in audit procedure (for example, acceleration of
communication with this Committee).
External Audit Independence and Provision of
Non-Audit Services
The Audit Committee is rigorous in ensuring that all non-audit
assignments to our External Auditor do not jeopardise the latter’s
proper independence of judgement. 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 Group’s policy as
to the provision of non-audit services was updated in 2016 and is
regularly reviewed to ensure that it continues to be appropriate.
Essentially, all such engagements, without exception or derogation,
are first recommended by the CFO and must be approved in advance
by the Audit Committee. We will then use our External Auditor for
non-audit services only where there is either a clear synergy with
their audit role or where they offer superior competence or
materially better commercial terms. No non-audit services were
provided by PwC that are or will be “prohibited” in the foreseeable
future by the UK’s implementation of relevant EU Regulations. We
have a system in place for precisely tracking procurement and
tendering for all non-audit fees irrespective of their size and scope.
PwC provide the financial audit both for the Company and the Bank. In
2017 fees to PwC for total contracted audit-related work totalled
US$877,000 (net of taxes), of which the fees attributed to the Group’s
financial audit was US$645,000 with three-quarters for the Company’s
audit and a quarter for the Bank’s audit. The balance of PwC’s fees
related to additional financial reviews for both entities, audit of other
subsidiaries and other miscellaneous audit-related work (such as
provision of comfort on financial covenants). We also used PwC for tax
audit work in our Azeri subsidiary after a full tender process.
Only 2% of the Group’s total spend with PwC in 2017 related to
non-audit work. In addition, only 3% of the Group’s total non-audit
services spend was awarded to PwC compared to 70% in 2016, which
was then due to the exceptional work related to the Company’s listing
on the premium segment of the LSE and a number of acquisition-
related transactions. The rest of the total non-audit services spend
was shared between three other large firms. As stated above, we
work with other firms not only to preserve auditor independence but
also to build relations and user experience that will be useful when
the Group decides to tender its audit contract in due course.
In terms of non-audit related services, the biggest consulting spend
of 2017 (US$180,000) related to designing a methodology around
IFSR9 with Deloitte being chosen following a tender of 5 firms and
an open tender for fair valuation services was awarded to KPMG. In
summary, total spend with the so-called ‘Big Four’ firms on
contracts in 2017 amounted to c. US$1.2M. Nearly three-quarters of
this was for audit-related work, all of which went to PwC. As regards
the non-audit consulting spend, only US$20,000 of approximately
US$300,000 was awarded to PwC (excluding c. US$8,000 paid for tax
audit in our Azeri subsidiary), which was in respect of providing
consulting services for implementing accounting rules in our leasing
subsidiary with PwC winning on price and relevant experience.
The Audit Committee will remain mindful of the relatively new EU
Regulations on capping the quantum of non-audit fees that can be
billed in any one year to an external auditor (70% of the average
audit fees billed in the last three consecutive years). We do not
believe that the Company will have cause to breach these rules even
in the event that PwC remains our External Auditor after 2018.
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We note that there is a commercial banking relationship between
PwC Georgia and the Bank but this is not material in size and it is
conducted in the ordinary course of business and pre-dates the
appointment of PwC as the Group’s auditors.
PwC have confirmed in writing their independence and that no
“prohibited” non-audit services were provided. There were no
independence issues raised by the FRC when they completed their
AQR on the Company’s audit in 2016. We remain satisfied, taking
account also of the views of Internal Audit and the Management, that
PwC have a robust process for maintaining independence and
monitoring such compliance in accordance with the FRC’s 2017
Ethical Standards. In our view, PwC 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
lead 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 the Management
and absence of any material prior year financial restatements.
Internal Audit
The Audit Committee has continued its regular dialogue with
Internal Audit during 2017. The Audit Committee relies heavily on
Internal Audit to provide an objective and professionally sceptical view
of how the Bank is handling a number of key financial and non-
financial reporting and record-keeping tasks. Whilst primary
responsibility to manage risk always resides with the Management,
Internal Audit’s role, acting in its capacity as the “third line of
defence”, is to identify potential problems and recommend ways of
improving risk management and internal control. The Audit
Committee meets regularly with the Head of Internal Audit (i.e. the
Chief Audit Executive (“CAE”)) with no members of the Management
present during such meetings. The CAE always attends the entirety of
our Audit Committee meetings. As Chairman of the Audit Committee,
Nicholas Haag is in at least monthly (and often weekly) contact with
the CAE, who functionally reports unambiguously to him.
Internal Audit’s Charter has been reviewed and approved in March
2017. The Audit Committee routinely reviews Internal Audit’s remit
and annual and rolling 3-year plans, on which it provides feedback
and authorises any changes to their scope. We provide targets for
and formal assessment of Internal Audit and ensure that it is
effective, suitably embedded in the organisation and used and
respected by the Management. The CAE routinely attends monthly
Management Board meetings as an observer, makes a formal
quarterly submission to the Audit Committee and delivers a formal
status report on its work at every Board meeting as well as providing
an annual summary Internal Audit report which presents an overall
assessment of the effectiveness of the governance, risk and control
framework within the Group and an analysis of themes and trends
emerging from its work.
The Audit Committee solely determines Internal Audit’s budget and
compensation including variable bonus payments to the CAE and her
staff. The Audit Committee is also responsible for supervising the
annual personal performance assessment of the CAE, drawing on
input from peers, direct reports and senior members of the
Management, including the CEO and the CFO.
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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 necessary to function effectively. The Audit
Committee requires all Internal Audit executives to attend training
and to take relevant international (Certified Internal Auditor) exams.
Recently, the senior team of Internal Audit attended training in
London at the Chartered Institute of Internal Auditors.
In February 2018, the Committee conducted an assessment of the
Internal Audit function and concluded that the department is
suitably structured and proactively meets its assurance objectives.
The quality of the Internal Audit function continues to improve. Our
internal assessment of Internal Audit suggests that it is already in
compliance with over 90% of best practice targets established by the
Chartered Institute of Internal Auditors in its September 2017
guidance on effective internal audit in the financial services sector
and we expect to be 100% compliant by the end of 2018. We had
planned to conduct an External Quality Assessment (“EQA”) of
Internal Audit in 2017 but decided to delay this until 2018 in order to
allow time for the merger of Bank Republic to be completed and
integrated into the Group’s business and to ensure that a valid
assessment of the combined departments could then be
meaningfully undertaken. The merger of the two Internal Audit units
has now been completed satisfactorily and the deputy head of
internal audit at Bank Republic has joined the Bank as deputy CAE.
We therefore intend to conduct an EQA of Internal Audit during the
course of 2018.
We believe that Internal Audit has not only established its
independence from the Management but feels properly empowered
and motivated to perform its functions and carry out its duties.
Internal Audit’s value is recognised by the Management, who have
proactively requested (with sign off from the Audit Committee) their
involvement in various projects and investigations.
At the behest of the Audit Committee, we are in the process of
establishing a new Bank-wide rating system for Internal Audit’s
audits, whereby we will fine-tune the scoring methodology that the
latter uses to evaluate the quantum/severity of sampled anomalies
found in branches and service centres in respect of various
transactional and lending processes. We will then establish new
thresholds to rank each of the Bank’s units into categories ranging
from “good” to “unsatisfactory”. The intention is to establish clearer
and fairer benchmarks for acceptable levels of identified (and often
very minor) deficiencies. Internal Audit are also working with the
Operational Audit department to establish a criticality-based
hierarchy of processes, which will again determine the scoring
outcome for different units within the Bank. There will be zero
tolerance for any unmitigated critical process failures.
In addition to its regular workload, there were a number of one-off
projects commissioned by the Audit Committee from Internal Audit
in 2017. For example, we asked Internal Audit to re-validate
processes around capturing and disclosing related party lending
within the Group. In 2018, the Audit Committee has requested
Internal Audit to confirm the adherence of the Bank to its approved
risk tolerances. We have also asked Internal Audit to work jointly
with the Risk department to create a more comprehensive Bank-
wide register of risks to ensure we have sufficiently captured and
recorded all types risks, to which the Bank is exposed. In addition,
we have asked Internal Audit in 2018 to undertake a ‘cultural audit’
of the Bank. As non-executive directors of a company, it is often hard
to understand the prevailing culture at lower levels of an
organisation yet this often determines the opportunity, incentives
and pressures for staff, which may lead them to commit dishonest
acts or to by-pass critical procedures and even to rationalise this
behaviour. Therefore, the Audit Committee considers that such a
cultural audit is essential to monitoring behavioural risks presented
by the Bank’s most valuable asset, its human capital, and confirming
that employees ‘live’ the ethical values espoused by the Company
and the wider Group.
The Audit Committee has increasingly organised Internal Audit’s
plan to be risk-weighted (i.e. investigate the higher risk priorities
more frequently and in greater depth) and also more flexible,
allowing it to conduct one-off projects where the Board or the
Management wish it to undertake special investigations arising from
situations where the Bank may have heightened vulnerability or has
been the victim of fraud. While we are still some way from
automated internal auditing, Internal Audit has invested in specialist
software, which will enable it to speed up some of its more routine
tasks, allowing it to concentrate on its most added-value functions.
Internal Audit must always try to stay ahead of business
developments in the same way as all other assurance functions and
it must use the ‘power of data’ to deliver ‘intelligent audit’.
Control Environment
A sound system of internal control contributes to safeguarding the
best interests of all stakeholders and the Group’s assets and
liabilities. The Management is responsible for establishing and
maintaining adequate internal controls over the capturing, processing
and reporting of financial information but the Audit Committee has
responsibility for ensuring the effectiveness of these controls and for
confirming that they are sufficiently robust to cope with changing
economic conditions and continued strong growth in the Bank, with
approximately 7 million branch transactions executed in 2017. We
evaluate the Management’s identification of fraud risk and
implementation of anti-fraud measures and supervise investigation of
any alleged or suspected frauds brought to our attention. We seek to
establish the right ‘tone at the top’ and to assess whether the Group is
a high integrity organisation from top to bottom.
The Audit Committee regularly reviews progress in this vital
discipline and alerts the CEO, CFO, divisional heads and, if
necessary, the entire Board where it occasionally sees intractable
problems and insufficient commitment to continuous process
improvement. The Audit Committee was pleased to note that in 2017
there was a further improvement in the rate and speed of
remediation of identified Internal Audit deficiencies, especially in the
Group’s Retail segment.
In accordance with our mandate, we have reviewed the robustness
of the Bank’s controls, working with our External Auditors, our
Operational Risk department and Internal Audit. 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 and there have been no significant failings or weaknesses
during 2017. We have also considered the risk of Management
override of controls and discussed with PwC their assessment of
this mandatory significant audit risk. We ensure that the
remuneration of senior and middle members of the Management is
calibrated to ensure that they 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 Auditor and has reviewed
the 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 CEO and CFO. Together
with the RECC, 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.
Internal Audit seeks to complete audits of all the Bank’s key
operating risks on a regular basis and this activity has continued in
2017. In particular, we tracked very closely all deficiencies, both in
terms of severity and trend, and scrutinised remediation follow-up
with historic analyses being carefully maintained. The Bank’s units,
which showed weaknesses are routinely re-inspected to confirm if
improvements have been made and the Audit Committee is regularly
updated on the results of these repeat audits.
The Audit Committee is increasingly holding not only senior
members of the Management but also middle management
executives of the Bank accountable for any recurring failures within
their control. This active enforcement has been endorsed by the
Board. The Key Performance Indicators (“KPIs”) in respect of meeting
control targets and reducing identified audit deficiencies continue to
be cascaded down to the local level and also included as KPIs for
members of the Management 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 and the Group as a
whole. We agreed in 2017 to roll out governance-type KPIs in 2018
across branch directors and managers, with a significant double digit
percentage of their personal variable compensation being dependent
on the scores their units achieve. By driving this cultural change, we
believe this will help to diminish operational risk and improve
behavioural norms. In addition, as noted above, we are in the process
of establishing a new Internal Audit scoring system that sets clear
thresholds on what level of ‘failure’ is unacceptable and which
processes demand zero failure rates.
In 2017, the Audit Committee liaised closely with the RECC to undertake
a deep-dive into the Operational Risk structures within the Bank,
working with the new head of this department. One of the conclusions
of this work was the need for a more streamlined approach to
managing, investigating and reporting fraud risk events, especially
given the historic dispersion of responsibilities in this regard.
As a matter of policy, the Audit Committee have sought this year to
elevate the oversight of all the Bank’s geographic (e.g. TBC Kredit in
Azerbaijan) and product (e.g. TBC Insurance, TBC Leasing, TBC Pay)
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 universally and ‘policed’ by Internal Audit accordingly.
In 2016 the Bank’s ‘whistleblowing’ or anonymous hotline for staff
and external entities went live, alerting the Bank to any potentially
unsatisfactory practices. Arrangements are in place for
proportionate and independent investigation of all such cases and
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AUDIT COMMITTEE REPORT CONTINUED
appropriate follow up actions. The Audit Committee reviews each
reported case on an at least quarterly basis. Our experience over
2017 has been that many of these cases have been small in scale
and typically related to breaches of the Group’s behavioural code of
conduct or have involved low-level disclosure of confidential
customer information; few have been vexatious and all have been
worthwhile ‘alarms’. Most importantly, we believe that our
employees and customers have come to realise that ‘speaking up’ is
valued and taken seriously.
IT, Cyber-security and Data Protection
In 2017, the Audit Committee maintained its focus on IT issues,
especially following the NBG’s request in 2016 that the Bank, as a
systemic player in the local market, undertake an external IT
resilience audit which it has passed. Against a backdrop of
increasingly sophisticated global cyber-attacks, cybersecurity has
risen towards the top of the Audit Committee’s and the Board’s
agenda in 2017, not only to protect against risk of immediate losses
but also to protect against business disruption and reputation risk.
The Audit Committee has supervised an internal cyber ‘health
check’ and gap analysis, and concluded that whilst there are areas
for improvement, the risk environment is satisfactory and that we
have sufficient prevention, detection and containment practices in
place. Nevertheless, the Bank has initiated a plan to address certain
areas for improvement and it is in the process of evaluating the
availability and cost/benefit of taking out some form of cyber-risk
insurance policy even though such policies have historically not
been available for the Georgian market.
Internal Audit has an experienced IT auditor on its staff who has a
particular specialisation in IT security and we believe that this helps
to monitor and maintain IT security standards. The Management
continuously seeks to raise risk standards within the organisation
requiring almost all employees to pass an IT security awareness test
covering vital vulnerabilities such as access control. In 2017, the
Audit Committee also sponsored a review of IT governance within
the Group, which has being undertaken by a specialist third party
consultant and seeks primarily to validate the depth of alignment
between the Group’s business and IT strategies.
The digitisation and collection and use of data is proceeding
everywhere at an unprecedented rate and organisations face
significant uncertainty over the extent and pace of regulatory change
and genuine public integrity and privacy concerns. We are conscious
that Georgia has just appointed a new data regulator, the office of
the Personal Data Protection Inspector (“PDP”), who we understand
are currently working on amendments to the local law in order to
align it with the EU’s General Data Protection Regulation (“GDPR”).
It is also possible that the Bank may have to comply to some extent
with the EU’s GDPR regulations and we are seeking legal advice on
this but our expectation is, given that the Bank has only limited
exports of data outside its non-EU operational markets, that the
GDPR is unlikely to be triggered by the day-to-day operations of the
Bank and it will be able to ring-fence itself against any breaches of
these provisions.
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TBC Bank Annual Report and Accounts 2017
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS
OF TBC BANK GROUP PLC
Report on the audit of the financial statements
Opinion
In our opinion, TBC Bank Group PLC’s consolidated financial statements and parent company financial statements (the “financial statements”):
• give a true and fair view of the state of the consolidated and of the parent company’s affairs as at 31 December 2017 and of the consolidated
and the parent company’s cash flows for the year then ended;
• have been properly prepared in accordance with IFRSs as adopted by the European Union; and
• have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the consolidated financial statements,
Article 4 of the IAS Regulation.
We have audited the financial statements, included within the Annual Report and Accounts (“Annual Report”), which comprise: the consolidated
and separate statements of financial position as at 31 December 2017; the consolidated statement of profit or loss and comprehensive income,
the consolidated and separate statements of cash flows, and the consolidated and separate statements of changes in equity for the year then
ended; and the notes to the consolidated financial statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for these opinions
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under
ISAs (UK) are further described in the auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We confirm that PricewaterhouseCoopers LLP remained independent of the Group in accordance with the ethical requirements that are relevant
to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and
we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to the
Group or the parent company.
Our audit approach
Overview
Materiality
Audit scope
Key audit
matters
• Overall consolidated materiality: GEL19.7m (2016: GEL 15.8m) based on 5% of profit before tax.
• Overall parent company materiality: GEL 14.7m (2016: GEL 15.8m) based on 1% of total assets.
• Our scoping was driven by legal entity contribution to profit before tax 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. Our primary location for scoping purposes is Tbilisi, Georgia.
• The area of focus which was of most significance in the audit of the consolidated financial
statements was:
- Impairment of loans and advances to customers.
There were no key audit matters to report on the audit of the parent company financial statements.
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The scope of our audit
As part of designing our audit, we determined materiality and assessed 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.
We gained an understanding of the legal and regulatory framework applicable to the Group and the industry in which it operates, and considered
the risk of acts by the Group which were contrary to applicable laws and regulations, including fraud. We designed audit procedures at Group and
significant component level to respond to the risk, recognising that the risk of not detecting a material misstatement due to fraud is higher than
the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional
misrepresentations, or through collusion.
TBC Bank Annual Report and Accounts 2017
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INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS
OF TBC BANK GROUP PLC CONTINUED
We focused on laws and regulations that could give rise to a material misstatement in the Group and parent company financial statements,
including, but not limited to, the Companies Act 2006, the Listing Rules, UK tax legislation and the requirements of key regulators such as the
Financial Conduct Authority in the UK and the National Bank of Georgia for the operations in Georgia. Our tests included, but were not limited to,
review of the financial statement disclosures to underlying supporting documentation, review of correspondence with the regulators, review of
correspondence with legal advisors, enquiries of management, and review of internal audit reports in so far as they related to the financial
statements. There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and
regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it.
As in all of our audits we also addressed the risk of management override of internal controls, including testing journals and evaluating whether
there was evidence of bias by the directors that represented a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditor’s professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit;
and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were
addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate
opinion on these matters. This is not a complete list of all risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Impairment of loans and advances to customers
Refer to page 175 (Summary of Significant Accounting Policies),
page 181 (Critical Accounting Estimates and Judgements in Applying
Accounting Policies), pages 182 -184 (note 5: New Accounting
pronouncements), and pages 186 to 192 (note 9: Loans and advances
to customers).
Impairment provisions are a key judgement 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 judgement
at a loan level to determine the present value of expected future cash
flows and any resulting shortfall.
We have focused our work on 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 reported; 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.
We understood and evaluated the design of the key controls over
the impairment processes and tested their operating effectiveness.
These controls included:
• the governance over the impairment provisioning processes which
includes review and approval and the review of key assumptions;
and
identification by management of impairment events and relevant
loans showing indicators of impairment including other indicators
such as forbearance.
•
We noted no significant exceptions in the design, implementation or
operating effectiveness of these controls. Accordingly, we relied on
them for the purposes of our audit.
We assessed whether the impairment methodology was in line with
IAS 39 requirements. In addition, we performed the following
substantive procedures in response to the areas of focus.
We tested a sample of performing loans (including loans on
management’s watch list) to evaluate whether impairment indicators
existed as at the balance sheet date. This included evaluating the
specific circumstances of the borrower, including the latest
developments, the basis for measuring the impairment provision, and
whether key judgements were appropriate. We did not identify any
further impairment events not previously identified by management.
We tested individually significant exposures on a risk basis to assess the
appropriateness of recorded impairment provisions for the Corporate
and Micro Small and Medium Enterprises (‘MSME’) portfolios. We
re-performed management’s impairment calculations, testing key inputs
such as expected future cash flows and discount rates.
With respect to modelled provisions, we tested key assumptions
including the PDs and LGDs used in the model calculations. We
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.
Based on the procedures performed and the evidence obtained, we
found management’s methodology, assumptions and judgements to
be reasonable.
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TBC Bank Annual Report and Accounts 2017
On 1 January 2018, the Group transitioned to the new financial
instruments accounting standard IFRS 9, which replaced IAS 39.
The most significant change for the Group under IFRS 9 relates to the
provisions for impairment which is now on an expected loss basis,
replacing the incurred loss provisioning under IAS 39.
In order to meet the requirements of the new standard, significant
changes have also been made to processes, models and related
controls with effect from 1 January 2018. The estimated transition
impact is disclosed in note 5 to the financial statements in accordance
with IAS 8. The most significant change relates to the provisions for
impairment, including changes to related systems, processes and
controls.
IFRS 9 transition impact disclosure
In respect of the estimated impact of the adoption of IFRS 9, we
understood and critically assessed classification and measurement
decisions and the impairment models developed by the Group. This
included using our credit modelling experts in our assessment of
judgements and assumptions supporting the expected credit loss
requirements of the new standard.
We re-performed selected model calculations to confirm the model
outputs, tested key data inputs and assessed the reasonableness of
forward looking information incorporated into the impairment
calculations, in particular, where proxies were adopted due to limited
data in the market.
Based on the evidence obtained, we found that the methodologies and
key data inputs used within the models were appropriate, and that the
model assumptions and related model outputs were reasonable. We
also assessed the disclosure of the transition impact and consider
this reasonable and in accordance with the requirements of IAS 8.
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 structure of the Group, the accounting processes and controls, and the industries in which the Group operates.
TBC Bank Group’s banking and insurance activities are primarily carried out in Georgia, with small subsidiary operations in four other countries.
The Group’s business activities comprise of 4 segments for which it manages and reports its operating results and financial position, namely
Retail Banking, Corporate Banking, Micro Small and Medium Enterprises (‘MSME’), 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, with all significant operations based in Georgia. Accounting functions and management of the Group are
primarily based in Georgia, which represents 98% of the Group assets and 96% of profit before tax. We performed audit procedures over this
component which is considered financially significant in the context of the Group, using a materiality of GEL 18.7m. We also performed other
audit procedures including testing information technology general controls and other relevant controls related to financial reporting, to mitigate
the risk of material misstatement.
Our audit approach and team was also designed to reflect the structure of the Group, and we therefore used component auditors in PwC Georgia,
all of whom are familiar with the relevant businesses in their geographical locations, to audit the relevant component that was in scope for the
Group audit. As part of the planning and execution of the audit, the UK audit team visited the significant component in Georgia on several
occasions, in order 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 96% of revenue and 98% of total 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 in aggregate on the
financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Consolidated financial statements
Parent company financial statements
Overall materiality
GEL 19.7m (2016: GEL 15.8m)
GEL 14.7m (2016: GEL 15.8m)
How we determined it
5% of profit before tax.
1% of total assets
Rationale for
benchmark applied
We believe that profit before tax is the primary measure
used by the shareholders in assessing the performance
of the consolidated Group, and is a generally accepted
auditing benchmark.
The parent company is a holding company with
investments in the trading companies within the Group.
The parent company’s performance is measured based
on the valuation of these investments, and therefore total
assets is considered an appropriate materiality
benchmark.
TBC Bank Annual Report and Accounts 2017
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Strategic Report OverviewStrategic Report Strategy & Performance
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS
OF TBC BANK GROUP PLC CONTINUED
For the component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The materiality
allocated was GEL18.7m (2016: GEL 15.5m).
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above 940,000 GEL (Group audit)
(2016: 790,000 GEL) and 740,000 GEL (Parent company audit) (2016: 790,000 GEL) as well as misstatements below those amounts that, in our
view, warranted reporting for qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
We are required to report if we have anything material to add or draw attention to in respect of
the directors’ statement in the financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting in preparing the financial
statements and the directors’ identification of any material uncertainties to the Group’s and the
parent company’s ability to continue as a going concern over a period of at least twelve months
from the date of approval of the financial statements.
Outcome
We have nothing material to add or to draw
attention to. However, because not all future
events or conditions can be predicted, this
statement is not a guarantee as to the
Group’s and parent company’s ability to
continue as a going concern.
We are required to report if the directors’ statement relating to Going Concern in accordance
with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.
We have nothing to report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon.
The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be
materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to
conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on
the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report based on these responsibilities.
With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006
have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006, (CA06), ISAs (UK) and
the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as described below (required by
ISAs (UK) unless otherwise stated).
160
TBC Bank Annual Report and Accounts 2017
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report
for the year ended 31 December 2017 is consistent with the financial statements and has been prepared in accordance with applicable legal
requirements. (CA06)
In light of the knowledge and understanding of the Group and parent company and their environment obtained in the course of the audit,
we did not identify any material misstatements in the Strategic Report and Directors’ Report. (CA06)
The directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or
liquidity of the Group
We have nothing material to add or draw attention to regarding:
• The directors’ confirmation on page 111 of the Annual Report 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.
• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
• The directors’ explanation on pages 111 - 112 of the Annual Report 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 to report having performed a review of the directors’ statement that they have carried out a robust assessment of the
principal risks facing the Group and 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 UK Corporate Governance Code (the “Code”); and considering
whether the statements are consistent with the knowledge and understanding of the Group and parent company and their environment
obtained in the course of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
• The statement given by the directors, on page 113, that they consider the Annual Report taken as a whole to be fair, balanced and
understandable, and provides the information necessary for the 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 obtained in
the course of performing our audit.
• The section of the Annual Report on page 151 describing the work of the Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
• The directors’ statement relating to the parent company’s compliance with the Code does not properly disclose a departure from a
relevant provision of the Code specified, under the Listing Rules, for review by the auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies
Act 2006. (CA06)
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Directors’ Responsibilities Statement set out on pages 112 - 113, the directors are responsible for the preparation
of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors
are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the parent company’s ability to continue as a
going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the Group or the parent company or to cease operations, or have no realistic alternative but to do so.
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161
Strategic Report OverviewStrategic Report Strategy & Performance
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS
OF TBC BANK GROUP PLC CONTINUED
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
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.
Other required reporting
Companies Act 2006 exception reporting
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
• certain disclosures of directors’ remuneration specified by law are not made; 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.
Appointment
We were appointed by the Audit Committee on 11 August 2016 to audit the financial statements for the year ended 31 December 2016. We were
reappointed by the members at the Annual General Meeting on 5 June 2017 following the recommendation by the Audit Committee to audit the
year ended 31 December 2017. The period of total uninterrupted engagement is 2 years, covering the years ended 31 December 2016 to 31
December 2017.
Jeremy Foster
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
28 March 2018
162
TBC Bank Annual Report and Accounts 2017
SEPARATE STATEMENT OF FINANCIAL POSITION
In thousands of GEL
ASSETS
Cash and cash equivalents
Due from other banks
Loans and advances to customers
Other financial assets
Investments in Subsidiaries
Other assets
TOTAL ASSETS
LIABILITIES
Other financial liabilities
TOTAL LIABILITIES
EQUITY
Share capital
Share premium
Retained earnings
Profit/(Loss) for the year
Other reserves
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
31 December
2017
31 December
2016
Note
210
11,564
24,000
219
1,429,485
8
399
2,320
2,000
303
1,424,066
4
1,465,486
1,429,092
825
825
165
165
25
25
26
1,605
714,651
670,444
86,789
(8,828)
1,581
677,211
745,638
(385)
4,882
1,464,661
1,428,927
1,465,486
1,429,092
The financial statements on pages 163 to 254 were approved by the Board of Directors on 28 March 2018 and signed on its behalf by:
Vakhtang Butskhrikidze
Chief Executive Officer
Giorgi Shagidze
Chief Financial Officer
Registered No. 10029943
The notes set out on pages 170 to 254 form an integral part of these financial statements.
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Strategic Report OverviewStrategic Report Strategy & Performance
SEPARATE STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2017
In thousands of GEL
Balance as of 26 February 2016
Loss for the period
Total comprehensive expense for 2016
Merger relief and capital reduction
Share issue
Share based payment accrual
Balance as of 31 December 2016
Profit for the year
Total comprehensive income for 2017
Share issue
Dividends declared
Share based payment accrual
Balance as of 31 December 2017
Note
Share
capital
Share
pre mium
Other
reserves
Retained
earnings
Total equity
–
–
–
–
–
–
–
–
–
–
(385)
(385)
–
(385)
(385)
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
–
–
24
–
–
–
–
–
–
37,440
–
–
(24,253)
–
10,543
86,789
86,789
–
(74,809)
–
86,789
86,789
13,211
(74,809)
10,543
1,605
714,651
(8,828)
757,233 1,464,661
25
25
26
25
25
26
The notes set out on pages 170 to 254 form an integral part of these financial statements.
164
TBC Bank Annual Report and Accounts 2017
SEPARATE STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2017
In thousands of GEL
Cash flows from (used in) operating activities
Interest received
Interest paid
Fees and commissions paid
Salaries and other employee benefits paid
Administrative and other operating expenses paid
Other operating income received
Cash flows used in 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 flows used in operating activities
Cash flows from (used in) investing activities
Acquisition of subsidiaries
Proceeds from disposal of associate*
Dividend received
Income from recharge agreement
Dividend pay out
Capital contributions to subsidiaries other than through issuance of shares
Placement of deposit
Issuance of Debt
Net cash flows from investing activities
Cash flows from (used in) financing activities
Net cash flows from (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
* The amount of proceeds from disposal of associate in 2016 is attributable to sale of minority share of JSC Bank Republic by TBCG to JSC TBC Bank.
The notes set out on pages 170 to 254 form an integral part of these financial statements.
2017
2016
1,348
–
(12)
(3,469)
(1,423)
11
(3,545)
137
–
(3)
(3,411)
–
–
77,090
23,745
(66,733)
–
(8,830)
(22,000)
1,149
(32)
(1)
(631)
(890)
–
(405)
(167)
(4)
165
(411)
(3,423)
112,269
–
–
–
(103,600)
(2,320)
(2,000)
3,272
926
–
–
(50)
(189)
399
210
–
–
(116)
399
–
399
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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 amortised cost
Investments in finance leases
Investment properties
Current income tax prepayment
Deferred income tax asset
Other financial assets
Other assets
Premises and equipment
Intangible assets
Goodwill
Investments in Associates
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
31 December
2017
31 December
2016
31 December
2015
Note
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
1,431,477
39,643
1,033,818
8,325,353
657,938
449,538
143,836
79,232
19,084
2,855
146,144
156,651
366,913
83,492
28,658
1,278
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
–
12,965,910 10,769,032
6,934,995
2,620,714
7,816,817
91,753
447
20,695
602
13,200
84,440
426,788
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
11,075,456
9,186,401
5,716,546
1,605
714,651
1,232,865
(162,166)
9,828
70,045
1,730
(7,359)
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)
1,861,199
29,255
1,554,367
28,264
1,211,260
7,189
39
1,890,454
1,582,631
1,218,449
12,965,910 10,769,032
6,934,995
The financial statements on pages 163 to 254 were approved by the Board of Directors on 28 March 2018 and signed on its behalf by:
Vakhtang Butskhrikidze
Chief Executive Officer
Registered No. 10029943.
Giorgi Shagidze
Chief Financial Officer
The notes set out on pages 170 to 254 form an integral part of these financial statements.
166
TBC Bank Annual Report and Accounts 2017
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2017
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 gains/(losses) from foreign exchange translation
Net losses from derivative financial instruments
Net gains from disposal of available for sale investment securities
Other operating income
Share of profit of associates
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)/recovery of 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 170 to 254 form an integral part of these financial statements.
Note
29
29
30
30
2017
2016
2015
1,033,939
(429,924)
766,426
(275,973)
649,059
(236,885)
604,015
490,453
412,174
193,944
(67,983)
142,800
(52,532)
113,837
(41,546)
125,961
90,268
72,291
12,633
(5,860)
6,773
87,099
4,374
(36)
93
31,797
909
1,222
(966)
256
70,269
(2,507)
(206)
9,293
23,236
–
124,236
100,085
(93,823)
(492)
(153)
(12,439)
–
(49,202)
(558)
(771)
(2,853)
(11)
–
–
–
64,642
2,579
(575)
–
25,883
–
92,529
(72,791)
(967)
1,117
(3,351)
–
31
9
13
21
12
754,078
627,667
501,002
32
15,16
21
33
(203,100)
(37,265)
2,495
(121,530)
(172,221)
(28,082)
(2,210)
(109,475)
(142,777)
(26,286)
(1,102)
(82,964)
(359,400)
(311,988)
(253,129)
394,678
315,679
247,873
34
(34,750)
(17,421)
(29,176)
359,928
298,258
218,697
10
34
34
5,489
–
181
–
–
(422)
5,248
522
(11,611)
(948)
1,649
–
10,928
540
(2,436)
–
(12,075)
(479)
28,755
(4,319)
9,446
365,176
298,798
228,143
354,410
5,518
299,145
(887)
218,879
(182)
359,928
298,258
218,697
359,585
5,591
299,685
(887)
228,325
(182)
365,176
298,798
228,143
27
27
6.7
6.6
6.0
5.9
4.4
4.4
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167
Strategic Report OverviewStrategic Report Strategy & Performance
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2017
In thousands of GEL
Note
Share
capital
Share
pre mium
Group
reorganisation
reserve
Share based
payments
reserve
Revaluation
reserve for
Premises
Revaluation
reserve for
Available for
sale
securities
Cumulative
currency
translation
reserve
Retained
earnings
Total
Non-control-
ling interest
Total
equity
Net assets Attributable to owners
Balance as of 1 January
2015
Profit (loss) for the year
Other comprehensive
income
Total comprehensive
income (expense) for
2015
Share based payment
accrual
Transaction costs
recognised directly
in equity
Increase in share capital
arising from share based
payment
Dividends declared
Treasury shares returned
Balance as of
31 December 2015
Profit (loss) for the year
Other comprehensive
income
Total comprehensive
income (expense) 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
Profit for the year
Other comprehensive
income
Total comprehensive
income (expense) for
2017
Share issue
Share based payment
accrual
Conversion of shares
Dividends declared
Balance as of
31 December 2017
26
26
25
26
26
19,576
405,658
–
–
–
–
–
12
–
(1)
–
–
–
–
1,419
416
–
(19)
19,587
407,474
–
–
–
–
–
–
87
112,182
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,624
35,096
8,675
5,484
532,992
1,012,105
7,371
1,019,476
–
–
–
–
–
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
–
(428)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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)
(18,129)
156,380
(162,166)
–
36
–
–
1,175
–
–
–
–
–
(1,211)
–
–
1,581
677,211
(162,166)
23,327
70,460
(3,681)
(7,538)
955,173
1,554,367
28,264
1,582,631
–
–
–
21
–
3
–
–
–
–
32,308
–
5,132
–
–
–
–
–
–
–
–
–
–
–
–
–
–
354,410
354,410
5,518
359,928
(415)
5,411
179
–
5,175
73
5,248
(415)
5,411
179
354,410
359,585
5,591
365,176
(24,253)
10,754
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
8,076
–
8,076
–
(1,909)
(74,809)
10,754
3,226
(74,809)
(211)
(3,197)
(1,192)
10,543
29
(76,001)
1,605
714,651
(162,166)
9,828
70,045
1,730
(7,359) 1,232,865
1,861,199
29,255
1,890,454
The notes set out on pages 170 to 254 form an integral part of these financial statements.
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CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2017
In thousands of GEL
Note
2017
2016
2015
Cash flows from (used in) 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
1,000,571
(424,105)
195,285
(68,036)
23,518
(9,127)
87,099
8,992
(187,520)
(112,270)
(53,916)
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)
Cash flows from operating activities before changes in operating assets and liabilities
460,491
346,701
289,236
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
(98,586)
(448,582)
(1,330,105) (1,219,501)
(11,687)
(22,965)
(843)
(49,297)
(38,064)
73,814
(228,486)
1,329,071
18,263
3,487
265,679
1,150,146
5,724
332
(72,453)
(364,896)
(12,994)
(13,198)
7,159
(17,351)
249,598
(415)
1,341
Net cash flows from operating activities
140,588
65,004
66,027
Cash flows from (used in) 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
Proceeds from disposal of premises, equipment and intangible assets
Proceeds from disposal of investment property
Net cash flows used in investing activities
Cash flows (from) used in 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
Net cash flows 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 170 to 254 form an integral part of these financial statements.
10
10
10
15
(560,226)
–
345,748
(273)
(307,248)
242,380
(114,383)
1,932
19,082
(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
(372,988)
(88,117)
(224,321)
1,461,191
(800,333)
119,859
(59,671)
–
(2,123)
(67,927)
–
29
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)
–
–
651,025
225,410
276,550
67,672
22,536
69,973
486,297
224,833
188,229
6
6
945,180
1,431,477
720,347
945,180
532,118
720,347
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
31 DECEMBER 2017
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 154 (2016: 120; 2015: 128) branches within Georgia. During 2016 the Bank acquired JSC Bank Republic, which had 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 2017 TBCG holds 98.67% 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 6 St. Andrew Street, London, United Kingdom EC4A3AE. Registered number of TBC Group PLC
is 10029943.
As of 31 December 2017, 31 December 2016 and 31 December 2015, 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 2017,
31 December 2016 and 31 December 2015 the Group had no ultimate controlling party.
% of ownership interest held as of
31 December
Shareholders
Note
2017
2016
2015
TBC Holdings LTD
Schroder Investment Management
JPMorgan Asset Management
European Bank for Reconstruction and Development
Mamuka Khazaradze*
Badri Japaridze*
Liquid Crystal International N.V. LLC
Societe Generale SA
Bank of New York (Nominees), Limited**
Other***
Total
–
9.53%
9.21%
8.38%
6.35%
6.23%
5.78%
-
-
54.52%
15.19%
7.98%
7.07%
12.15%
–
–
5.19%
5.38%
-
47.04%
15.99%
–
–
–
–
–
5.46%
-
70.62%
7.93%
100.00% 100.00% 100.00%
25
* Represents direct ownership of the shares for Mamuka Khazaradze and Badri Japaridze. Mamuka Khazaradze has beneficial ownership of 13.87% and Badri Japaridze has
beneficial ownership of 6.93%, the some of which were held through TBC holding LTD in prior years.
** In 2015 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 2017.
Presentation currency. These consolidated financial statements are presented in thousands of Georgian Lari (“GEL thousands”), except
per-share amounts and unless otherwise indicated.
2 Summary of Significant Accounting Policies
Basis of preparation. For the year ended 31 December 2017, the separate financial statements have been prepared of TBC Bank Group PLC.
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 are those of the
group of companies consolidated, with the Bank as its ultimate parent.
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2 Summary of Significant Accounting Policies continued
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. 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.
Subsidiaries and associates. The TBC Bank Group PCL holds 98.67% of the Bank as of 31 December 2017. The consolidated financial statements
include the following principal subsidiaries:
Company Name
Proportion of voting rights and ordinary share
capital held as of 31 December
2017
2016
2015
Principal place of
business or
incorporation
Year of
incorpo ration
Ltd Merckhali Pirevli
98.67%
–
–
98.67%
JSC TBC Bank
Bank Republic Group
Tbilisi, Georgia
–
98.48%
Tbilisi, Georgia
–
100.00%
Tbilisi, Georgia
–
100.00%
Tbilisi, Georgia
98.67%
98.67%
United Financial Corporation JSC
Tbilisi, Georgia
100.00% 100.00% 100.00%
TBC Capital LLC
99.57%
99.61%
Tbilisi, Georgia
TBC Leasing JSC
75.00% Baku, Azerbaijan
75.00%
TBC Kredit LLC
Tbilisi, Georgia
Banking System Service Company LLC 100.00% 100.00% 100.00%
Tbilisi, Georgia
100.00% 100.00% 100.00%
TBC Pay LLC
100.00% 100.00% 100.00%
Real Estate Management Fund JSC
Tbilisi, Georgia
100.00% 100.00% 100.00% Ramat Gan, Israel
TBC Invest LLC
Tbilisi, Georgia
100.00% 100.00% 100.00%
Mali LLC
Tbilisi, Georgia
–
100.00% 100.00%
JSC TBC Insurance
99.61%
75.00%
1992
1992
2009
1997
1999
2003
1999
2009
2009
2010
2011
2011
2014
Industry
Banking
Banking
Operating leasing
Card processing
Brokerage
Leasing
Non-banking credit institution
Information services
Processing
Real estate management
PR and marketing
Real estate management
Insurance
The consolidated financial statements include the following associates:
Company Name
JSC CreditInfo Georgia
LLC Online Tickets
Proportion of voting rights and ordinary share
capital held as of 31 December
2017
2016
2015
Principal place of
business or
incorporation
Year of
incorpo ration
21.08%
26.00%
–
–
–
–
Tbilisi, Georgia
Tbilisi, Georgia
2005
2015
Industry
Financial intermediation
Computer and Software Services
The country of registration or incorporation is also the principal area of operation of each of the above subsidiaries.
On 6 May 2017 the Group has completed the legal and operational process of merging JSC Bank Republic with TBC Bank.
TBC Bank Annual Report and Accounts 2017
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
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 or equity accounted due to immateriality. A full list of these undertakings, the country of incorporation and the ownership of each
share class is set out below.1
Company Name
2017
2016
2015
Proportion of voting rights and ordinary share
capital held as of 31 December
Principal place of business or
incorporation
Year of
incorpo ration
UFC International Ltd
TBC Capital B.V.
TBC Invest International Ltd
University Development Fund
Ltd Georgian Mill Company
80.00%
90.00%
80.00%
90.00%
100.00% 100.00%
33.33%
100.00% 100.00%
33.33%
80.00%
90.00%
–
33.33%
–
British Virgin Islands
Amsterdam, Netherlands
Tbilisi, Georgia
Tbilisi, Georgia
Tbilisi, Georgia
2001
2007
2016
2007
2010
Industry
Investment Vehicle
Investment Vehicle
Investment Vehicle
Education
Manufacturing
Business Combinations and Goodwill. 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 interest.
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.
Associates. Associates are entities over which the Group has significant influence (directly or indirectly), but not control, generally accompanying
a shareholding of between 20 and 50 percent of the voting rights. Investments in associates are accounted for using the equity method of
accounting, and are initially recognised at cost. The carrying amount of associates includes goodwill identified on acquisition less accumulated
impairment losses, if any. Dividends received from associates reduce the carrying value of the investments in associates. Other post-acquisition
changes in Group’s share of net assets of an associate are recognised as follows: (i) the Group’s share of profits or losses of associates is
recorded in the consolidated profit or loss for the year as share of result of associates, (ii) the Group’s share of other comprehensive income is
recognised in other comprehensive income and presented separately, (iii); all other changes in the Group’s share of the carrying value of net
assets of associates are recognised in profit or loss within the share of result of associates. However, when the Group’s share of losses in an
associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses,
unless it has incurred obligations or made payments on behalf of the associate.
Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates;
unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
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Disposals of subsidiaries, associates or joint ventures. When the Group ceases to have control or significant influence, any retained interest
in the entity is remeasured 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.
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 42.
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).
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
2 Summary of Significant Accounting Policies continued
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.
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 National Bank of Georgia (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 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 recognised in Other Comprehensive Income (“OCI”) until the investment is derecognised or impaired,
at which time the cumulative gain or loss is reclassified from OCI to profit or loss. Impairment losses are recognised in profit or loss when
incurred as a result of one or more events (“loss events”) 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 amortised cost reclassified to repurchase receivables continue to be carried
at fair value or amortised 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.
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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.
Bonds carried at amortised 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 given 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.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
2 Summary of Significant Accounting Policies continued
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 remeasured 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.
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 recognised as earned over the
lifetime of a respective contract. At the end of each reporting period, the provision for performance guarantee contracts are measured at the best
estimate of expenditure required to settle the contract at the end of each reporting period, discounted to present value if the discounting effect
is material.
The Bank has the contractual right to revert to its customer for recovering amounts paid to settle the performance guarantee contracts. Such
amounts are recognised as loans and receivables.
Goodwill. Goodwill is carried at cost less accumulated impairment losses, if any. The Group tests goodwill for impairment at least annually and
whenever there are indications that goodwill may be impaired. Goodwill is allocated to the cash-generating units, or groups of cash-generating
units, that are expected to benefit from the synergies of the business combination. Such units or group of units represent the lowest level at
which the Group monitors goodwill, and are not larger than an operating segment. Gains or losses on disposal of an operation within a cash
generating unit to which goodwill has been allocated include the carrying amount of goodwill associated with the disposed operation. 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 recognised in profit or loss to the
extent of the decrease previously charged. A revaluation deficit is recognised in profit or loss, except that a deficit directly offsetting a previous
surplus on the same asset is recognised in other comprehensive income and reduces revaluation reserve for premises and equipment
accumulated 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.
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Depreciation. Land and construction in progress are not depreciated. Depreciation on other items of premises and equipment is calculated using
the straight-line method to allocate their cost or revalued amounts to their residual values over their estimated useful lives as follows:
Premises
Furniture and fixtures
Computers and office equipment
Motor vehicles
Other equipment
Leasehold improvements
30 – 100 years;
5 – 8 years;
3 – 8 years;
4 – 5 years;
2 – 10 years; and
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, eg 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 recognises receivables from terminated contracts at the moment of lease contract
termination. These receivables are recognised at amount comprising difference between fair value of repossessed assets and outstanding
balance of net investment in finance lease. Receivables are accounted for at amortised cost less impairment.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
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 amortised 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.
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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.
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.
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179
Strategic Report OverviewStrategic Report Strategy & Performance
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
2 Summary of Significant Accounting Policies continued
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 2017 the closing rate of exchange used for translating foreign currency balances was GBP 1 =
3.5005 (2016: GBP 1 = GEL 3.2579; 2015: GBP 1 = GEL 3.5492); USD 1 = 2.5922 (2016: USD 1 = GEL 2.6468; 2015: USD 1 = GEL 2.3949); EUR 1 =
3.1044 (2016: EUR 1 = GEL 2.7940; 2015: EUR 1 = GEL 2.6169).
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.
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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 concludes 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 11,393 thousand (2016: GEL 11,251 thousand; 2015: GEL 9,707 thousand) and
additional charge for impairment of finance lease receivables of GEL 63 thousand (2016: GEL 57 thousand; 2015: GEL 37 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 1,454 thousand (2016: GEL 2,701 thousand;
2015: GEL 3,677 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 14 thousand (2016: GEL 9 thousand; 2015: 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.
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. The new disclosures are included in Note 35 in accordance with Disclosure
Initiative – Amendments to IAS 7 (issued on 29 January 2016 and effective for annual periods beginning on or after 1 January 2017).
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181
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
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 2017 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.
Major new IFRSs
The IASB has published IFRS 9 “Financial Instruments”, IFRS 15 “Revenue from Contracts with Customers” and IFRS 16 “Leases”, which have
been endorsed for use in the EU.
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.
Based on an analysis of the Group’s financial assets and financial liabilities as at 31 December 2017 and on the basis of the facts and
circumstances that exist at that date, the Management of the Group estimated the impact of GEL 63,734 thousand on its consolidated financial
statements from the adoption of the new standard on 1 January 2018. The Group plans to use modified retrospective approach and anticipated
impact of adoption will result in the decrease to shareholders’ equity.
IFRS 9 does not have any impact on Bank’s regulatory capital and capital adequacy ratios, which are calculated using local regulatory
accounting standards.
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5 New Accounting Pronouncements continued
The following table reconciles the carrying amounts of financial assets, from their previous measurement categories in accordance with IAS 39
into their new measurement categories upon transition to IFRS 9 on 1 January 2018:
Measurement category
In thousands of GEL
IAS 39
IFRS 9
Carrying
value per IAS
39 (closing
balance at 31
December
2017)
Cash and cash equivalents
Mandatory cash balances with the National
Bank of Georgia
Investments in debt securities
Investments in debt securities
Total investments in debt securities
Total investments in equity securities
Due from other banks
Loans and advances to customers
Total loans and advances to customers
L&R
L&R
AFS
L&R
AC 1,431,477
AC 1,033,818
FVOCI
AC
656,234
449,538
1,105,772
1,704
1,704
L&R
L&R
AC
39,643
AC 8,325,353
8,325,353
Investments in equity securities
AFS
FVOCI
Investment in Finance Lease
FLR
AC
143,836
Total Investment in Finance Lease
143,836
Other financial assets
Total other financial assets
Total financial assets
L&R
AC
146,144
146,144
12,227,747
67,695
Effect
Remeasurement
Reclassification
Carrying
value per
IFRS 9
(opening
balance at
1 January
2018)
Other
Mandatory
Voluntary
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 1,430,986
– 1,033,818
–
–
655,183
448,910
– 1,104,093
–
–
–
1,704
1,704
39,607
– 8,261,622
– 8,261,622
–
–
–
–
143,097
143,097
145,125
145,125
– 12,160,052
ECL*
491
–
1,051
628
1,679
–
–
36
63,731
63,731
739
739
1,019
1,019
* Positive figures mean increase in the estimated credit loss, whilst the negative figures stand for decrease in ECL.
The GEL 67.7 million increase was offset by GEL 4.0 million release of provision level for Credit related commitments and performance
guarantees resulting in 63.7 million increase in total provision level.
No significant changes are expected for financial liabilities.
Impairment of financial assets
Per IFRS 9 impairment methodology, the Bank classifies its portfolio into three stages:
• Stage I – assets for which no significant increase of credit risk since initial recognition is identified;
• Stage II – assets for which significant increase in credit risk since initial recognition is identified;
• Stage III – credit-impaired exposures.
For stage I exposures the Bank creates 12 months expected credit losses, whereas for stage II and stage III lifetime expected credit losses are created.
The key impact of IFRS 9 comes from Stage II classification and incorporation of forward looking information in allowance calculation.
For the Stage II classification purposes the Bank applies both quantitative and the qualitative criteria including, but not limited to:
• 30 DPD overdue;
• downgrade of the risk category of the borrower since initial recognition;
• deterioration of the probability of default parameter above the predefined threshold.
Under IFRS 9 methodology the Bank updated its default definition criteria as well in order to make it consistent with the Bank’s internal
guidelines. Updated default definition includes criteria such as: (i) 90 DPD overdue, and (ii) other criteria indicating the borrower’s unlikeness to
repay the liabilities. For Corporate and SME business borrowers the Bank applies borrower based default definition. As for the retail and macro
segments facility level default definition is utilised with additional pulling effect criteria being applied.
TBC Bank Annual Report and Accounts 2017
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
5 New Accounting Pronouncements continued
Another significant driver of IFRS 9 impact on allowance level is incorporation of the forward looking information (FLI). The Bank incorporates
forward looking information for both individual and collective assessment. For FLI purposes the Bank defines three scenarios, which are:
• baseline (most likely);
• upside (better than most likely);
• downside (worse than most likely).
The Bank derives the baseline macro scenario and takes into account projections from various external sources – the National Bank of Georgia,
Ministry of Finance, IMF as well as other IFIs, to ensure the alignment to the consensus market expectations. Upside and downside scenarios are
defined based on the framework developed by the Bank’s macroeconomic unit.
The Bank calculates expected impairment losses for each scenario. In order to come up with the final expected credit loss figures the bank
applies probability weighted average approach where probabilities of each scenario are used as weights.
The new standard also introduces expanded disclosure requirements and changes in presentation. These are expected to change the nature and
extent of the Group’s disclosures about its financial instruments particularly in the year of the adoption of the new standard.
IFRS 15, Revenue from Contracts with Customers (issued on 28 May 2014 and effective for the periods beginning on or after 1 January 2018).
The new standard introduces the core principle that revenue must be recognised when the goods or services are transferred to the customer, at the
transaction price. Any bundled goods or services that are distinct must be separately recognised, and any discounts or rebates on the contract price must
generally be allocated to the separate elements. When the consideration varies for any reason, minimum amounts must be recognised if they are not at
significant risk of reversal. Costs incurred to secure contracts with customers have to be capitalised and amortised over the period when the benefits of
the contract are consumed. No material effect is expected on the Group due to introduction of the new standard.
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 recognise: (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.
IFRS 17 “Insurance Contracts” (issued on 18 May 2017 and effective for annual periods beginning on or after 1 January 2021). IFRS 17
replaces IFRS 4, which has given companies dispensation to carry on accounting for insurance contracts using existing practices. As a
consequence, it was difficult for investors to compare and contrast the financial performance of otherwise similar insurance companies. IFRS 17
is a single principle-based standard to account for all types of insurance contracts, including reinsurance contracts that an insurer holds. The
standard requires recognition and measurement of groups of insurance contracts at: (i) a risk-adjusted present value of the future cash flows (the
fulfilment cash flows) that incorporates all of the available information about the fulfilment cash flows in a way that is consistent with observable
market information; plus (if this value is a liability) or minus (if this value is an asset); (ii) an amount representing the unearned profit in the group
of contracts (the contractual service margin). Insurers will be recognising the profit from a group of insurance contracts over the period they
provide insurance coverage, and as they are released from risk. If a group of contracts is or becomes loss-making, an entity will be recognising
the loss immediately The Group is currently assessing the impact of the interpretation on its financial statements.
IFRIC 22 “Foreign currency transactions and advance consideration” (issued on 8 December 2016 and effective for annual periods beginning
on or after 1 January 2018). This interpretation considers how to determine the date of the transaction when applying the standard on foreign
currency transactions, IAS 21. The interpretation applies where an entity either pays or received consideration in advance for foreign
currency-denominated contracts. The interpretation specifies that the date of transaction is the date on which the entity initially recognises the
non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration. If there are multiple payments or
receipts in advance, the Interpretation requires an entity to determine the date of transaction for each payment or receipt of advance
consideration. No material effect is expected on the Group due to introduction of the new standard.
IFRIC 23 “Uncertainty over Income Tax Treatments” (issued on 7 June 2017 and effective for annual periods beginning on or after 1 January
2019). IAS 12 specifies how to account for current and deferred tax, but not how to reflect the effects of uncertainty. The interpretation clarifies
how to apply the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments. An entity should
determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments based on
which approach better predicts the resolution of the uncertainty. An entity should assume that a taxation authority will examine amounts it has a
right to examine and have full knowledge of all related information when making those examinations. If an entity concludes it is not probable that
the taxation authority will accept an uncertain tax treatment, the effect of uncertainty will be reflected in determining the related taxable profit or
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5 New Accounting Pronouncements continued
loss, tax bases, unused tax losses, unused tax credits or tax rates, by using either the most likely amount or the expected value, depending on
which method the entity expects to better predict the resolution of the uncertainty. An entity will reflect the effect of a change in facts and
circumstances or of new information that affects the judgments or estimates required by the interpretation as a change in accounting estimate.
Examples of changes in facts and circumstances or new information that can result in the reassessment of a judgment or estimate include, but
are not limited to, examinations or actions by a taxation authority, changes in rules established by a taxation authority or the expiry of a taxation
authority’s right to examine or reexamine a tax treatment. The absence of agreement or disagreement by a taxation authority with a tax
treatment, in isolation, is unlikely to constitute a change in facts and circumstances or new information that affects the judgments and estimates
required by the Interpretation. The Group is currently assessing the impact of the interpretation on its financial statements.
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
2017
2016
2015
419,605
371,342
571,078
69,452
402,532
135,557
406,319
772
320,363
121,494
219,275
59,215
1,431,477
945,180
720,347
97% of the correspondent accounts and overnight placements with other banks are placed with OECD banking institutions (31 December 2016:
96%; 31 December 2015: 91%).
As of 31 December 2017 GEL 12,421 thousand was placed on interbank term deposits with one non-OECD bank and GEL 57,031 thousand with
one OECD bank (31 December 2016: GEL 772 thousand with four non-OECD banks; 31 December 2015: GEL 59,215 thousand with eight
non-OECD banks).
Interest rate analysis of cash and cash equivalents is disclosed in Note 36.
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
BB-
B+
B
Not rated
Total
2017
2016
2015
271,366
62,434
213,247
3,235
383
45
300
224
15,919
442
185
3,298
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
571,078
406,319
219,275
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
BBB+
B
Not rated
Total
2017
–
57,031
–
12,421
69,452
2016
772
–
–
–
772
2015
–
–
23,769
35,446
59,215
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 2017 there were no investment securities held as collateral
against placements with other banks under the reverse repo agreements (31 December 2016: nil, 2015: GEL 50,200 thousand).
TBC Bank Annual Report and Accounts 2017
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
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 2017, 2016 and 2015.
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-
B+
B
Not rated
Total
2017
2016
2015
8,632
78
–
4,041
661
1,520
24,711
39,643
13,210
79
5,541
801
–
5,073
21
24,725
7,975
72
–
1,507
–
1,268
220
11,042
As of 31 December 2017 the Group had one placement with one bank, with original maturities of more than three months and with aggregated
amounts above GEL 5,000 thousand (2016: nil; 2015: nil). The total aggregated amount of these placement was GEL 23,147 thousand (2016: nil;
2015: nil) or 58% of the total amount due to other 2016: nil; 2015: nil).
As of 31 December 2017 GEL 13,121 thousand, (2016: GEL 19,511 thousand; 2015: GEL 8,711 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 42 for the estimated fair value
of amounts due from other banks. Interest rate analysis of due from other banks is disclosed in Note 36.
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 5.0%, 0.6% and (0.4%) annual interest in GEL, USD and EUR respectively on mandatory reserve with
NBG in 2017 (2016: 5.0%, 0.0% and (0.4%) in GEL, USD and EUR respectively). The Group did not earn annual interest on the mandatory reserve
with the NBG for year ended 31 December 2015.
In September 2017 Fitch Ratings reaffirmed 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".
9 Loans and Advances to Customers
In thousands of GEL
Corporate loans
Consumer loans
Mortgage loans
Loans to micro, small and medium enterprises
Total loans and advances to customers (before impairment)
Less: Provision for loan impairment
Total loans and advances to customers
2017
2016
2015
2,475,392
2,163,425
2,069,728
1,844,672
8,553,217
(227,864)
2,062,229
1,872,142
1,808,434
1,615,920
7,358,725
(225,023)
1,500,104
1,170,100
905,274
1,063,551
4,639,029
(194,143)
8,325,353
7,133,702
4,444,886
As of 31 December 2017 loans and advances to customers carried at GEL 246,267 thousand have been pledged to local banks or other financial
institutions as collateral with respect to other borrowed funds (2016: GEL 120,093 thousand; 2015: GEL 34,012 thousand).
Following the merger of Bank Republic with TBC Bank, the Group has reassessed its definition of segments as disclosed in Note 28. Some of the
clients were reallocated to different segments. Relevant changes are applied to all periods presented in this report, except for the profit and loss
items for the year ended 31 December 2015, as recalculation was impracticable. Therefore provision movement for the year ended 31 December
2015 is per old segmentation and contains re-segmentation effect line to adjust opening provision levels for 1 January 2016. Balance sheet
amounts as at 31 December 2017, 2016 and 2015 are comparable. As per current report, micro and SME loans are combined in one MSME
category. Consumer loans include all retail loans, except mortgage loans.
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9 Loans and Advances to Customers continued
Movements in the provision for loan impairment during 2017 are as follows:
In thousands of GEL
Provision for loan impairment as of 1 January 2017
Total provision for impairment during the year:
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
Corporate
loans
Consumer
loans
Mortgage
loans
90,100
(11,088)
(27,031)
15,943
(29,386)
–
73,730
130,333
111,922
18,411
(82,601)
76
23,602
384
(5,343)
5,727
(6,507)
98
Loans to
micro, small
and medium
enterprises
37,591
21,521
14,275
7,246
(20,265)
276
Total
225,023
141,150
93,823
47,327
(138,759)
450
Provision for loan impairment as of 31 December 2017
49,626
121,538
17,577
39,123
227,864
Loans and advances to customers written off in 2017 included loans to customers in the gross amount of GEL 21,056 thousand issued in 2017, a
previously issued performance guarantee of GEL 6 thousand which was transformed into loan in 2017 and GEL 117,697 thousand issued in
previous years.
Movements in the provision for loan impairment during 2016 were as follows:
In thousands of GEL
Provision for loan impairment as of 1 January 2016
Resegmentation 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
108,050
–
(11,841)
(48,948)
37,107
(6,109)
–
42,433
10,092
71,369
60,438
10,931
(50,121)
(43)
13,135
–
15,108
12,572
2,536
(4,580)
(61)
Loans to
micro, small
and medium
enterprises
30,525
(10,092)
31,136
25,140
5,996
(13,755)
(223)
Total
194,143
–
105,772
49,202
56,570
(74,565)
(327)
Provision for loan impairment as of 31 December 2016
90,100
73,730
23,602
37,591
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.
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 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 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”.
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Strategic Report OverviewStrategic Report Strategy & Performance
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
9 Loans and Advances to Customers continued
Movements in the provision for loan impairment during 2015 are as follows:
In thousands of GEL
Provision for loan impairment 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
Corpo rate
loans
Consumer
loans
Mortgage
loans
91,226
–
22,890
15,396
7,494
(6,066)
–
36,753
(2,373)
31,246
24,311
6,935
(22,937)
(256)
8,889
(245)
7,481
4,693
2,788
(2,714)
(276)
Loans to
micro, small
and medium
enterprises
12,896
2,618
34,003
28,391
5,612
(17,734)
(1,258)
Total
149,764
–
95,620
72,791
22,829
(49,451)
(1,790)
Provision for loan impairment as of 31 December 2015
108,050
42,433
13,135
30,525
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.
Economic sector risk concentrations within the customer loan portfolio are as follows:
In thousands of GEL
Individual
Energy & Utilities
Food Industry
Real Estate
Hospitality & Leisure
Trade
Pawn Shops
Agriculture
Construction
Healthcare
Automotive
Communication
Services
Transportation
Financial Services
Metals and Mining
Other
31 December 2017
31 December 2016
31 December 2015
Amount
%
Amount
%
Amount
4,198,386
719,854
524,286
453,415
450,741
394,495
279,410
269,844
233,771
172,255
160,795
114,032
108,186
96,427
87,501
84,419
205,400
49% 3,721,450
540,116
301,290
252,112
319,497
447,541
305,031
212,148
210,888
182,131
144,157
45,864
109,187
89,467
188,646
62,464
226,736
9%
7%
5%
5%
5%
3%
3%
3%
2%
2%
1%
1%
1%
1%
1%
2%
51% 2,039,612
333,172
255,795
222,235
266,917
232,599
260,373
157,193
100,680
131,276
109,556
114,401
60,340
61,432
85,926
75,785
131,737
7%
4%
3%
4%
6%
4%
3%
3%
3%
2%
1%
1%
1%
3%
1%
3%
%
44%
7%
6%
5%
6%
5%
6%
3%
2%
3%
2%
2%
1%
1%
2%
2%
3%
Total loans and advances to customers (before impairment)
8,553,217
100% 7,358,725
100% 4,639,029
100%
In 2016, the Group reassessed the allocation of loans into the economic sectors. The Group has revised the sector split for 2015 in order to make
it consistent with 2016 and 2017.
As of 31 December 2017 the Group had 142 borrowers (2016: 112 borrowers; 2015: 84 borrowers) with aggregated gross loan amounts above GEL
5,000 thousand. The total aggregated amount of these loans was GEL 2,437,750 thousand (2016: GEL 1,900,916 thousand; 2015: GEL 1,378,892
thousand) or 28.5% of the gross loan portfolio (2016: 25.8%; 2015: 29.7%).
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Analysis by credit quality of loans outstanding as of 31 December 2017 is as follows:
In thousands of GEL
Neither past due nor impaired
– Borrowers with credit history over two years
– New borrowers
Total neither past due nor impaired
Past due but not impaired
– 1 to 30 days overdue
– 31 to 90 days overdue
– 91 to 180 days overdue
– 181 to 360 days overdue
– More than 360 days overdue
Total past due but not impaired
Individually assessed impaired loans
– 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
Corpo rate
loans
Consumer
loans
Mortgage
loans
Loans to
micro, small
and medium
enterprises
Total
1,679,029
708,038
1,556,495
479,433
1,679,495
338,456
1,134,503 6,049,522
619,528 2,145,455
2,387,067 2,035,928 2,017,951 1,754,031 8,194,977
–
–
23,029
–
–
41,088
26,433
165
116
48
15,089
10,620
–
–
–
31,598
13,395
–
–
–
87,775
50,448
23,194
116
22
23,029
67,850
25,709
44,993
161,581
39,443
10,351
4,455
48
–
8,740
63,037
1,266
668
–
–
–
325
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,420
–
–
–
–
–
41,863
10,351
4,455
48
–
8,740
2,420
65,457
6,669
2,605
4,078
28,609
10,246
7,440
5,912
5,097
5,595
2,561
4,335
2,568
6,744
2,897
3,542
10,009
8,969
11,067
20,591
11,267
13,215
41,179
23,550
21,400
Total collectively assessed impaired loans
2,259
59,647
26,068
43,228
131,202
Total loans and advances to customers (before impairment)
Total provision
2,475,392 2,163,425 2,069,728 1,844,672 8,553,217
(227,864)
(121,538)
(17,577)
(49,626)
(39,123)
Total loans and advances to customers
2,425,766 2,041,887 2,052,151 1,805,549 8,325,353
TBC Bank Annual Report and Accounts 2017
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
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
Total neither past due nor impaired
Past due but not impaired
– 1 to 30 days overdue
– 31 to 90 days overdue
– 91 to 180 days overdue
– 181 to 360 days overdue
– More than 360 days overdue
Total past due but not impaired
Individually assessed impaired loans
– 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
Corpo rate
loans
Consumer
loans
Mortgage
loans
Loans to
micro, small
and medium
enterprises
Total
1,279,999
647,613
1,030,204
738,255
1,203,461
557,777
836,773 4,350,437
689,106 2,632,751
1,927,612 1,768,459 1,761,238 1,525,879 6,983,188
10,369
1,714
–
–
2,864
38,214
21,205
146
91
28
7,565
8,241
–
–
–
31,904
14,269
227
–
–
88,052
45,429
373
91
2,892
14,947
59,684
15,806
46,400
136,837
101,273
1,059
7,966
–
2,455
4,000
116,753
776
–
908
–
1,233
–
–
–
–
–
–
–
–
5,493
1,488
2,622
21,779
7,660
4,957
195
–
–
–
34
167
396
7,129
2,316
2,443
6,569
8,371
4,166
2,832
–
–
88
436
–
104,300
1,059
7,966
88
2,925
4,167
3,356
120,505
5,301
1,316
5,223
10,074
11,291
7,080
18,699
5,120
11,196
38,422
28,555
16,203
Total collectively assessed impaired loans
2,917
43,999
30,994
40,285
118,195
Total loans and advances to customers (before impairment)
Total provision
2,062,229 1,872,142 1,808,434 1,615,920 7,358,725
(225,023)
(73,730)
(90,100)
(23,602)
(37,591)
Total loans and advances to customers
1,972,129 1,798,412 1,784,832 1,578,329 7,133,702
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TBC Bank Annual Report and Accounts 2017
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
Total neither past due nor impaired
Past due but not impaired
– 1 to 30 days overdue
– 31 to 90 days overdue
– 91 to 180 days overdue
– 181 to 360 days overdue
– More than 360 days overdue
Total past due but not impaired
Individually assessed impaired loans
– 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
Corpo rate
loans
Consumer
loans
Mortgage
loans
Loans to
micro, small
and medium
enterprises
Total
888,642
399,615
632,618
468,811
626,293
246,968
576,079 2,723,632
412,391 1,527,785
1,288,257 1,101,429
873,261
988,470 4,251,417
66
3,718
2,829
–
–
23,207
15,285
85
53
22
5,077
9,803
–
–
–
28,391
13,272
–
–
–
56,741
42,078
2,914
53
22
6,613
38,652
14,880
41,663
101,808
187,802
10,491
5,109
940
214
350
204,906
–
–
–
–
–
–
–
–
–
–
–
–
–
–
228
100
–
–
–
–
5,933
793
1,983
13,881
5,967
1,462
9,524
858
1,078
2,901
2,692
80
2,747
5,203
–
–
–
–
190,549
15,694
5,109
940
214
350
7,950
212,856
4,053
3,582
1,980
7,424
7,980
449
19,738
5,333
5,041
24,206
16,639
1,991
Total collectively assessed impaired loans
328
30,019
17,133
25,468
72,948
Total loans and advances to customers (before impairment)
Total provision
Total loans and advances to customers
1,500,104 1,170,100
(52,526)
(108,050)
905,274 1,063,551 4,639,029
(194,143)
(20,432)
(13,135)
1,392,054 1,117,574
892,139 1,043,119 4,444,886
The retail segment in Note 28 includes the following classes from the above tables: consumer and mortgage.
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.
TBC Bank Annual Report and Accounts 2017
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Strategic Report OverviewStrategic Report Strategy & Performance
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
9 Loans and Advances to Customers continued
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.
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 2017:
In thousands of GEL
Corporate loans
Consumer loans
Mortgage loans
Loans to micro, small and medium enterprises
Total
The effect of collateral as of 31 December 2016:
In thousands of GEL
Corporate loans
Consumer loans
Mortgage loans
Loans to micro, small and medium enterprises
Total
The effect of collateral as of 31 December 2015:
In thousands of GEL
Corporate loans
Consumer loans
Mortgage loans
Loans to micro, small and medium enterprises
Total
Over-collateralised
assets
Under-collateralised
assets
Carrying value of
the assets
Value of
collateral
Carrying value of
the assets
2,129,927
908,387
2,042,001
1,688,438
5,194,598
2,132,566
4,429,201
3,970,931
345,465
1,255,038
27,727
156,234
Value of
collateral
97,386
25,781
17,189
146,949
6,768,753
15,727,296
1,784,464
287,305
Over-collateralised
assets
Under-collateralised
assets
Carrying value of
the assets
Value of
collateral
Carrying value of
the assets
1,849,202
1,040,644
1,780,553
1,479,200
5,683,279
2,761,580
4,694,003
4,959,947
213,027
831,498
27,881
136,720
Value of
collateral
109,076
28,102
16,360
131,967
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
808,304
891,639
980,133
2,810,880
1,795,061
2,241,109
2,445,336
187,543
361,796
13,635
83,418
Value of
collateral
64,905
33,532
3,935
79,653
3,992,637
9,292,386
646,392
182,025
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 reevaluated 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.
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 527,498 thousand, GEL 608,058 thousand and GEL 358,907 thousand as of
31 December 2017, 2016 and 2015 respectively. These third-party guarantees are not taken into consideration when assessing the impairment
allowance. Refer to Note 42 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 36. Information on related party balances is disclosed in Note 44.
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TBC Bank Annual Report and Accounts 2017
10 Investment Securities Available for Sale
In thousands of GEL
Corporate bonds
Ministry of Finance of Georgia Treasury Bills
Certificates of Deposit of the National Bank of Georgia
Georgian Government notes
Total debt securities
Corporate shares – quoted (VISA Inc)
Corporate shares – unquoted
Total investment securities available for sale
2017
2016
2015
328,761
319,745
7,728
–
150,073
241,810
36,002
1,016
174,916
33,445
84,849
998
656,234
428,901
294,208
–
1,704
–
1,802
9,335
3,767
657,938
430,703
307,310
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 2017). 67.6% of corporate bonds are issued by triple A
rated international financial institutions, 14.8% of corporate bonds are issued by A- rated international financial institutions, 15.5% and 0.9% of
corporate bonds are issued by B+ and B rated corporations respectively, whereas 1.3% is issued by two non-rated corporations. 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 1,704 thousand (2016: GEL 1,802 thousand; 2015: GEL 3,767 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 2017 investment securities available for sale carried at GEL 424,892 thousand have been pledged to local banks or financial
institutions as collateral with respect to other borrowed funds (2016: GEL 205,216 thousand; 2015: GEL 208,467 thousand). Refer to Note 18.
None of the debt securities available for sale are overdue or impaired.
As of 31 December 2017 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
2017
2016
Card Processing
Telecommunication
Property development
Stock exchange
USA
Georgia
Netherlands Antilles
Georgia
–
–
365
1,004
335
1,704
–
–
365
1,004
433
1,802
2015
9,335
3,014
365
–
388
13,102
Carrying value as of 31 December
The movements in investment securities available for sale are as follows:
In thousands of GEL
Note
2017
2016
2015
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
Transfer to investments in associate
Carrying amount as of 31 December
430,703
–
560,226
–
–
(345,748)
5,489
43,735
(36,214)
–
(158)
(95)
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)
–
–
–
657,938
430,703
307,310
29
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
11 Bonds Carried at Amortised Cost
In thousands of GEL
Ministry of Finance Treasury Bills
Certificates of Deposit of the National Bank of Georgia
Georgian Government notes
Total Bonds carried at amortised cost
2017
2016
2015
424,876
24,662
–
323,478
43,408
6,070
316,822
39,870
15,400
449,538
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 2017).
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
2017
2016
2015
10
372,956
–
307,248
(242,380)
32,328
(20,601)
(13)
372,092
–
304,109
(314,231)
30,714
(19,740)
12
–
372,063
183,084
(193,416)
22,950
(12,589)
–
449,538
372,956
372,092
For the disclosure of bonds’ fair value carried at amortised cost refer to Note 42. An analysis on interest rate for bonds carried at amortised cost
is disclosed in Note 36.
As of 31 December 2017 bonds carried at amortised cost of GEL 223,860 thousand have been pledged to local banks or financial institutions as
collateral with respect to other borrowed funds (2016: GEL 273,311 thousand; 2015: GEL 136,472 thousand). Refer to Note 18.
None of the bonds carried at amortised cost as of 31 December 2017, 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 2017
31 December 2016
31 December 2015
Carrying
value
Fair
value
Carrying
value
Fair
value
Carrying
value
Fair
value
–
101,876
–
–
106,837
–
–
160,619
6,070
–
164,313
6,094
–
219,271
12,330
–
203,087
12,050
101,876
106,837
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
2017
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
12,668
–
–
–
641
797
142
–
–
–
194
TBC Bank Annual Report and Accounts 2017
11 Bonds Carried at Amortised Cost continued
In addition, for assets reclassified from available for sale category, income or loss recognised in other comprehensive income would have been as follows:
In thousands of GEL
Year
2015
2016
2017
12 Other Financial Assets
In thousands of GEL
Receivables on credit card services and money transfers
Prepayments for purchase of leasing assets
Receivables on guarantees/letters of credit
Bank assurance income receivable
Insurance and reinsurance receivables
Trade receivable
Receivable on terminated leases
Receivables on repossessed assets disposed
Factored receivables
Rental income receivables
Other
Less: Provision for impairment
Total other financial assets
Movements in the provision for impairment of other financial assets during 2017 were as follows:
In thousands of GEL
Provision for impairment as of 1 January 2017
Provision for impairment during the year
Amounts written off during the year as uncollectible
Recovery of amounts previously written off
Foreign exchange translation gains less losses
Provision for impairment as of 31 December 2017
Certificates
of Deposit
of National
Bank of
Georgia
Ministry of
Finance
Treasury Bills
Government
notes
–
–
–
(16,185)
3,694
4,961
(280)
24
–
2017
2016
2015
26,703
25,478
20,983
15,923
15,742
13,862
8,961
6,619
6,182
4,414
19,297
(18,020)
24,801
10,628
18,215
4,549
2,249
2,232
7,832
10,603
900
3,816
15,462
(6,660)
15,072
9,390
16,435
4,450
–
1,202
4,404
672
2,859
4,309
11,416
(5,892)
146,144
94,627
64,317
Receivables
on terminated
leases
4,666
1,568
–
–
–
6,234
Other
Total
1,994
10,645
(1,011)
189
(31)
6,660
12,213
(1,011)
189
(31)
11,786
18,020
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Additions less releases recorded in profit or loss for provision for impairment of other financial assets include write-off of insurance debtors in
the amount of GEL 226 thousand that are included in insurance and reinsurance receivables.
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
Receivables
on terminated
leases
3,561
–
1,105
–
–
4,666
Other
Total
2,331
72
1,748
(2,370)
213
1,994
5,892
72
2,853
(2,370)
213
6,660
TBC Bank Annual Report and Accounts 2017
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
12 Other Financial Assets continued
Movements in the provision for impairment of other financial assets during 2015 are 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
Receivables
on terminated
leases
2,573
988
–
–
3,561
Other
Total
1,657
2,363
(1,721)
32
2,331
4,230
3,351
(1,721)
32
5,892
The table below illustrates the credit quality of other financial receivables:
In thousands of GEL
2017
2016
2015
Neither past due nor impairment
– Receivables on credit card services and money transfers
– Prepayments for purchase of leasing assets
– Bank assurance income receivable
– Insurance and reinsurance receivables
– Trade receivable
– Receivables on repossessed assets disposed
– Factored receivables
– Rental income receivables
– Receivables on guarantees/letters of credit
– 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 guarantees and letters of credit
– 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
196
TBC Bank Annual Report and Accounts 2017
26,703
25,478
15,923
15,742
13,862
6,481
6,182
4,414
2,990
14,120
131,895
24,801
10,628
4,549
2,249
2,232
5,700
900
3,816
1,089
9,496
65,460
15,072
9,390
4,450
–
1,202
534
2,859
4,309
939
9,087
47,842
16,773
16,773
17,126
17,126
15,496
15,496
8,961
–
8,961
1,220
–
1,220
138
–
138
5,177
–
5,177
7,832
–
7,832
–
–
–
4,903
–
4,903
5,966
–
5,966
15,496
18,701
4,404
–
4,404
–
–
–
138
–
138
2,329
–
2,329
6,871
(18,020)
(6,660)
(5,892)
146,144
94,627
64,317
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+
BB
BB-
B+
B
Not rated
Total
2017
2016
2015
13,003
4,116
6,265
217
7
4,332
726
103,229
131,895
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
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 1,206 thousand (2016: GEL 2,039
thousand; 2015: GEL 1,253 thousand). The remaining assets are not collateralised.
13 Investments in Finance Lease
As of 31 December 2017 investments in finance lease of GEL 143,836 thousand (2016: GEL 95,031 thousand; 2015: GEL 75,760 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 2017
Unearned finance income
Impairment loss provision
Present value of lease payments receivable as of 31 December 2017
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 at 31 December 2015
For fair values refer to Note 42.
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
Due in 1 year
Due between
1 and 5 years
86,186
(23,720)
(765)
105,595
(22,727)
(733)
Total
191,781
(46,447)
(1,498)
61,701
82,135
143,836
65,265
(15,302)
(678)
56,672
(10,462)
(464)
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
31 December
2017
31 December
2016
31 December
2015
1,142
492
(136)
1,498
738
558
(154)
1,142
195
967
(424)
738
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
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
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
2017
31 December
2016
31 December
2015
22,705
90,668
113,373
19,047
9,310
28,357
–
–
343
2,204
339
718
3,604
28,084
45,404
73,488
15,357
5,101
20,458
–
–
–
1,079
966
182
2,227
20,612
46,431
67,043
4,285
1,694
5,979
1,639
332
33
950
522
–
3,476
145,334
96,173
76,498
(1,498)
(1,142)
(738)
143,836
95,031
75,760
* 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”).
The effect of collateral as of 31 December 2017:
In thousands of GEL
Investment in leases
Total
198
TBC Bank Annual Report and Accounts 2017
Over-collateralised
assets
Under-collateralised
assets
Carrying
value of the
assets
Fair value of
collateral
Carrying
value of the
assets
Fair value of
collateral
96,015
153,813
49,319
96,015
153,813
49,319
9,710
9,710
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
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
16,817
75,364
112,917
20,809
16,817
Over-collateralised
assets
Under-collateralised
assets
Carrying
value of the
assets
Fair value of
collateral
69,048
103,416
69,048
103,416
Carrying
value of the
assets
7,450
7,450
Fair value of
collateral
5,532
5,532
2017
2016
2015
116,809
4,194
9,721
5,788
–
136,512
3,210
2,745
2,733
1,884
9,567
20,139
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
156,651
171,263
103,912
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 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 2017, collateral
repossessed for settlement of impaired loans amounted to GEL 53 million (2016: GEL 39 million; 2015: GEL 34 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 2017, the carrying value of the inventories of repossessed collateral subjected to the repurchase agreement was GEL 11,170
thousand (2016: GEL 20,342 thousand; 2015: GEL 23,639 thousand).
TBC Bank Annual Report and Accounts 2017
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Strategic Report OverviewStrategic Report Strategy & Performance
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
15 Premises, Equipment and Intangible Assets
In thousands of GEL
Cost or valuation as of 1 January 2015
Accumulated depreciation/amortisation Including
accumulated impairment loss
Land,
Premises and
leasehold
improvements
Note
Office and
Other
equipment*
Construction
in
progress
Total
premises and
equipment
Intangible
Assets
Total
142,724
130,543
35,267
308,534
55,231
363,765
(26,622)
(73,220)
–
(99,842)
(17,475)
(117,317)
Carrying amount as of 1 January 2015
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 depreciation
16
2,470
1,717
646
(324)
15,249
(374)
18
(3,502)
217
362
24,167
(0)
–
(1,201)
–
(536)
(311)
(15,632)
952
391
3,841
(1,717)
–
(864)
13,506
–
–
–
–
–
30,478
(0)
646
(2,389)
28,755
(910)
(293)
(19,134)
1,169
753
17,337
–
–
(199)
–
(43)
(4,982)
(5,758)
197
36
47,815
(0)
646
(2,588)
28,755
(953)
(5,275)
(24,892)
1,366
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 impairment loss
162,126
152,662
50,033
364,821
67,344
432,165
(29,545)
(87,509)
–
(117,054)
(23,000)
(140,054)
Carrying amount 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 depreciation
5,555
50,049
3,042
(298)
(2,571)
(31)
(574)
(3,269)
19,369
8,260
–
–
(3,836)
(45)
(675)
(16,895)
2,439
2,555
27
32
6,206
36
(3,042)
–
(69)
–
–
–
–
–
31,130
58,345
–
(298)
(6,476)
(76)
(1,249)
(20,164)
18,904
6,761
–
–
(4)
(12)
(2,043)
(6,981)
50,034
65,106
–
(298)
(6,480)
(88)
(3,292)
(27,145)
4,994
–
4,994
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 impairment loss
217,299
175,636
53,164
446,099
90,950
537,049
(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
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TBC Bank Annual Report and Accounts 2017
15 Premises, Equipment and Intangible Assets continued
In thousands of GEL
Additions
Transfers within premises and equipment
Transfer from investment property
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 depreciation
Land,
Premises and
leasehold
improvements
Note
Office and
Other
equipment*
Construction
in
progress
Total
premises and
equipment
5,684
11,326
1,114
(2,324)
–
25
(6)
(5,567)
26,179
–
–
(9,638)
261
54
(730)
(20,096)
48,663
(11,326)
–
–
–
–
(46)
–
747
8,636
(25)
(50)
–
–
80,526
–
1,114
(11,962)
261
79
(782)
(25,663)
9,383
(75)
Intangible
Assets
34,877
–
–
(88)
–
11
(1,916)
(10,436)
30
57
Total
115,403
–
1,114
(12,050)
261
90
(2,698)
(36,099)
9,413
(18)
Carrying amount as of 31 December 2017
197,924
78,534
90,455
366,913
83,492
450,405
Cost or valuation as of 31 December 2017
Accumulated depreciation/amortisation
including accumulated impairment loss
233,118
191,762
90,455
515,335
123,834
639,169
(35,194)
(113,228)
–
(148,422)
(40,342)
(188,764)
Carrying amount as of 31 December 2017
197,924
78,534
90,455
366,913
83,492
450,405
* Office and other equipment include furniture and fixtures, computer and office equipment, motor vehicles as well as other equipment.
In year 2017, in additions of construction in progress is included property repossessed from debtor in the amount of GEL 39 million.
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 disclosure is below.
The management considers that the fair value has not changed significantly between 30 September 2015 and 31 December 2017.
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
Office buildings
30,753
51,115
Branches
18,645
124,069
Sales comparison
approach
Sales comparison
approach
Land
Buildings
Land
Buildings
Price per
square metre
Price per
square metre
Range of unobser vable inputs
(weighted average)
472 – 3,432 (797)
601 – 6,598 (1,781)
2 – 3,427 (280)
452 – 11,514 (2,360)
As of 31 December 2017 the carrying amount of premises would have been GEL 144,778 thousand (2016: GEL 134,352 thousand; 2015: GEL
79,952 thousand) had the assets been carried at cost less depreciation and impairment losses. At 31 December 2017 the carrying amount of
construction in progress would have been GEL 67,033 thousand (2016: GEL 30,394 thousand; 2015: GEL 27,284 thousand) had the assets been
carried at cost less impairment losses.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
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 to premises and equipment
Transfer from inventories of repossessed collateral
Transfer to 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
2017
2016
2015
15
99,347
(3,732)
95,615
(1,143)
752
(590)
943
(15,438)
259
(1,166)
–
–
83,871
(4,639)
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)
79,232
95,615
57,600
As of 31 December 2017, investment properties comprised of 102 lots (2016: 62 lots; 2015: 8 lots) of land and 144 buildings (2016: 141 buildings;
2015: 59 buildings) located in Tbilisi and other regions of Georgia with the fair value amounting to GEL 85,012 thousand (2016: GEL 123,852
thousand; 2015: GEL 105,972 thousand).
For disclosure purposes a fair valuation exercise was carried out for Investment Properties as of 31 December 2017. The valuation was carried
out by internal valuators 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 with 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)
Land
Buildings
Fair value as of
20 October 2016
(acquisition date)
3,398
19,438
Fair value as of
31 December 2017
(valuation date) Valuation technique
Unobservable inputs
Range of unobser vable
inputs (weighted average)
29,611 Sales comparison approach
Price per square metre
0.05 – 1,512 (97)
55,401 Sales comparison approach
Price per square metre
11 – 2,446 (798)
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
2017
177
–
177
2016
463
805
1,268
2015
186
–
186
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TBC Bank Annual Report and Accounts 2017
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
2017
2016
28,658
–
28,658
2,726
25,932
28,658
2015
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*
Bank Republic Retail
Bank Republic Corporate
Bank Republic MSME
Bank Republic Other
CGU Micro
JSC United Financial Corporation
LLC TBC Kredit
JSC TBC Insurance
Total carrying amount of goodwill
2017
2016
24,166
11,088
7,491
4,791
796
769
695
1,262
1,766
28,658
24,166
–
–
–
–
769
695
1,262
1,766
28,658
2015
–
–
–
–
–
769
695
1,262
–
2,726
* Due to Bank Republic merger in 2017, carrying amount of goodwill was allocated across multiple CGUs of the Bank, that is also equal to the operating and reporting segments.
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.
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
** Assumptions related to JSC Bank Republic are similar for all related CGUs.
2017
2016
2015
4.17% p.a.
18.71% p.a.
4.00% p.a.
21.72% p.a.
–
–
4.17% p.a.
12.01% p.a.
4.00% p.a.
14.39% p.a.
5.00% p.a.
24.74% p.a.
4.17% p.a.
18.16% p.a.
4.00% p.a.
19.18% p.a.
5.00% p.a.
29.73% p.a.
1.3% p.a.
31.35% p.a.
4.00% p.a.
28.10% p.a.
5.00% p.a.
27.05% p.a.
4.17% p.a.
18.15% p.a.
4.00% p.a.
19.50% 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 CGU Bank Republic Retail 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. Recoverable amount of Bank Republic Retail CGU exceeds its carrying amount by GEL 781,330 thousand. The CGU's carrying amount
would equal its value in use at a discount rate of 29.92% p.a.
TBC Bank Annual Report and Accounts 2017
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
17 Goodwill continued
If the revised estimated pre-tax discount rate applied to the discounted cash flows of CGU Bank Republic Corporate 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. Recoverable amount of Bank Republic Retail CGU exceeds its carrying amount by GEL 402,679 thousand. The CGU's carrying
amount would equal its value in use at a discount rate of 27.97% p.a.
If the revised estimated pre-tax discount rate applied to the discounted cash flows of CGU Bank Republic MSME 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. Recoverable amount of Bank Republic Retail CGU exceeds its carrying amount by GEL 246,759 thousand. The CGU's carrying amount
would equal its value in use at a discount rate of 27.11% p.a.
If the revised estimated pre-tax discount rate applied to the discounted cash flows of JSC Bank Republic as of 31 December 2016 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). Recoverable amount of JSC Bank Republic CGU exceeds its carrying amount by GEL 1,295,196,
thousand (2015: nil). The CGU's carrying amount would equal its value in use at a discount rate of 71.58% p.a. (2015: 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 (2016: nil; 2015: nil). Recoverable amount of CGU Micro/JSC Bank Constanta CGU exceeds its carrying amount by GEL 440,075
thousand (2016: GEL 284,402 thousand; 2015: GEL 156,283 thousand). The CGU's carrying amount would equal its value in use at a discount rate
of 34.60% p.a. (2016: 30.74% p.a.; 2015: 49.35% 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 (2016: nil and nil; 2015: nil and nil). Recoverable amount of JSC United Financial Corporation CGU exceeds its carrying amount
by GEL 17,866 thousand (2016: GEL 13,073 thousand; 2015: GEL 6,856 thousand). The CGUs' carrying amount would equal its value in use at a
discount rate of 39.27% p.a. (2016: 46.36% p.a.; 2015: 119.58% 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 (2016:nil; 2015: nil). Recoverable amount of LLC
TBC Kredit CGU exceeds its carrying amount by GEL 36,420 thousand (2016: GEL 20,505 thousand; 2015: GEL 61,268 thousand). The CGUs'
carrying amount would equal its value in use at a discount rate 119.51% of p.a.(2016: 68.64% p.a.; 2015: 165.08% 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 (2016: nil; 2015: nil). Recoverable amount of JSC TBC Insurance CGU exceeds its carrying amount by GEL 51,549 thousand (2016: GEL 58,588
thousand; 2015: nil). The CGU's carrying amount would equal its value in use at a discount rate of 63.63% p.a. (2016: 62.29%; 2015: nil).
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
2017
2016
2015
21,777
64,441
–
86,218
22,872
176,443
117,592
316,907
47,342
25,936
–
73,278
1,591,778
908,271
2,914
31,533
2,534,496
1,412,095
439,234
4,203
25,138
1,880,670
678,946
355,664
5,686
–
1,040,296
2,620,714
2,197,577
1,113,574
As of 31 December 2017 for the purposes of maturity analysis of financial liabilities (Note 36) the above-mentioned loans are included within the
amounts for which repayment is expected within 3 months.
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TBC Bank Annual Report and Accounts 2017
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:
2017
2016
2015
810,783
209,641
240,743
78,990
152,438
86,828
2,207,630 2,143,483
243,582
210,498
1,276,141
126,042
1,618,434
1,973,685
2,404,580 2,129,717
944,215
1,592,267
7,816,817
6,454,949 4,177,931
In thousands of GEL
Individual
Energy & Utilities
Financial Services
Construction
Transportation
Government sector
Services
Trade
Food Industry
Hotels and Leisure
Real Estate
Healthcare
Automotive
Communication
Agriculture
Metals and Mining
Other
31 December 2017
31 December 2016
31 December 2015
Amount
%
Amount
%
Amount
4,378,265
429,722
379,772
377,944
376,333
330,356
236,128
209,339
175,676
174,777
119,507
106,439
71,628
50,059
29,199
16,976
354,697
56% 3,748,151
5% 283,497
5% 501,591
5% 222,372
5% 188,388
4% 140,852
3% 269,824
3% 305,022
82,984
2%
2% 104,066
82,893
2%
64,493
1%
53,865
1%
56,787
1%
37,850
0%
22,817
0%
5% 289,497
58% 2,536,482
152,636
219,888
118,035
135,356
172,185
115,563
161,417
52,363
73,071
66,773
95,280
40,058
48,669
10,906
16,537
162,712
4%
8%
4%
3%
2%
4%
5%
1%
2%
1%
1%
1%
1%
1%
0%
4%
%
61%
4%
5%
3%
3%
4%
3%
4%
1%
2%
2%
2%
1%
1%
0%
0%
4%
Total customer accounts
7,816,817
100% 6,454,949
100% 4,177,931
100%
In 2016, the Group reassessed the allocation of customer accounts per economic sectors; the classification for 2015 was revised to make it
consistent with 2016 and 2017.
As of 31 December 2017 the Group had 261 customers (2016: 222 customers; 2015: 140 customers) with balances above GEL 3,000 thousand.
Their aggregate balance was GEL 3,439,673 thousand (2016: GEL 2,539,513 thousand; 2015: GEL 1,432,724 thousand) or 44% of total customer
accounts (2016: 39%; 2015: 34%).
As of 31 December 2017 included in customer accounts are deposits of GEL 11,040 thousand and GEL 120,406 thousand (2016: GEL 13,355
thousand and GEL 119,146 thousand; 2015: GEL 999 thousand and GEL 77,304 thousand) held as collateral for irrevocable commitments under
letters of credit and guarantees issued, respectively. Refer to Note 38. As of 31 December 2017, deposits held as collateral for loans to customers
amounted to GEL 224,899 thousand (2016: GEL 342,365 thousand; 2015: 241,782 thousand).
Refer to Note 42 for the disclosure of the fair value of each class of customer accounts. Information on related party balances is disclosed in
Note 44.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
20 Debt Securities in Issue
In thousands of GEL
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 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
Currency
USD
USD
USD
Currency
USD
USD
USD
USD
Currency
USD
USD
AZN
Carrying amount
in GEL as of
31 December 2017
7,637
5,224
7,834
20,695
Carrying amount in
GEL as of
31 December 2016
5,312
5,237
5,198
7,761
23,508
Carrying amount in
GEL as of 31
December 2015
12,220
4,798
4,696
21,714
Maturity Date
Coupon rate
22-Jul-19
16-May-19
15-Aug-18
7.3%
8.0%
7.8%
Effective
interest rate
8.1%
8.7%
8.6%
Maturity Date
Coupon rate
Effective
interest rate
3-Sep-17
15-Aug-18
16-May-19
22-Jul-19
8.4%
7.8%
8.0%
7.3%
9.2%
8.6%
8.7%
8.1%
Maturity Date
Coupon rate
21-Jul-16
3-Sep-17
16-Apr-16
9.0%
8.4%
9.0%
Effective
interest rate
9.7%
9.2%
9.7%
Refer to Note 42 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 2015
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
Charges less releases recorded in profit or loss
Utilisation of provision
Effect of translation to presentation currency
Carrying amount as of 31 December 2017
Perfor mance
guarantees
Credit related
commitments
4,912
(3,440)
–
1,472
(452)
909
706
2,635
(579)
–
11
3,266
2,323
–
5,589
1,223
–
1,237
8,049
190
–
–
Other
3,720
1,102
(2,422)
2,400
2,528
–
414
5,342
(332)
(2,116)
–
Total
11,898
(15)
(2,422)
9,461
3,299
909
2,357
16,026
(721)
(2,116)
11
2,067
8,239
2,894
13,200
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.
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21 Provisions for Performance Guarantees, Credit Related Commitments and Liabilities and Charges continued
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 or loss for “Other” provisions does not include gross change in total reserves for insurance claims in
amount of GEL 1,621 thousands (2016: GEL 318 thousand) that are included in net claims incurred. Additions less releases recorded in profit or
loss for provision for impairment of credit related commitments include provision for insurance receivables in the amount of GEL 542 thousand
that are included in charges less releases recorded in profit or loss for “Other” provision.
22 Other Financial Liabilities
Other financial liabilities comprise the following:
In thousands of GEL
Trade payables
Security deposits for finance lease
Insurance Contracts Liabilities
Debit or credit card payables
Derivative financial liabilities
Other accrued liabilities
Total other financial liabilities
Refer to Note 42 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
2017
2016
2015
31,497
20,647
10,992
10,567
575
17,475
91,753
16,612
8,241
486
12,066
1,298
12,295
50,998
10,264
6,022
–
12,478
2,411
8,260
39,435
41
2017
2016
2015
42,497
14,180
10,350
17,413
84,440
38,317
16,723
6,284
5,415
66,739
22,385
11,584
4,764
1,894
40,627
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Strategic Report OverviewStrategic Report Strategy & Performance
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
24 Subordinated Debt
As of 31 December 2017, subordinated debt comprised of:
In thousands of GEL
Grant Date Maturity Date
Currency
Outstanding
amount in
original
currency
Outstanding
amount in
GEL
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)
Private lenders
THALES
Total subordinated debt
As of 31 December 2016, subordinated debt comprised of:
19-Feb-08 15-Jul-18
26-Jun-13 15-Jun-20
19-Dec-13 15-Apr-23
10-Jun-14 8-May-21
4-May-15 8-May-21
18-Dec-15 18-Dec-25
18-Dec-15 18-Dec-25
15-Mar-16 15-Mar-26
18-Oct-16 18-Oct-26
30-Jun-17 30-Jun-23
5-Dec-18
5-Nov-14
USD
USD
USD
GEL
GEL
USD
USD
USD
USD
USD
USD
10,467
7,496
35,577
6,161
6,737
15,259
7,640
7,639
50,467
24,114
1,008
27,134
19,430
92,222
6,161
6,737
39,554
19,805
19,802
130,822
62,508
2,613
426,788
In thousands of GEL
Grant Date Maturity Date
Currency
Outstanding
amount in
original
currency
Outstanding
amount in
GEL
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 Developement Bank (ADB)
Total subordinated debt
19-Feb-08 15-Jul-18
26-Jun-13 15-Jun-20
19-Dec-13 15-Apr-23
8-May-21
10-Jun-14
8-May-21
4-May-15
18-Dec-15 18-Dec-25
18-Dec-15 18-Dec-25
15-Mar-16 15-Mar-26
18-Oct-16 18-Oct-26
USD
USD
USD
GEL
GEL
USD
USD
USD
USD
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
As of 31 December 2015, subordinated debt comprised of:
In thousands of GEL
Grant Date Maturity Date
Currency
Outstanding
amount in
original
currency
Outstanding
amount in
GEL
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
Total subordinated debt
19-Feb-08 15-Jul-18
23-Apr-09 12-Nov-18
23-Apr-09 12-Nov-18
26-Jun-13 15-Jun-20
19-Dec-13 15-Apr-23
8-May-21
10-Jun-14
4-May-15
8-May-21
18-Dec-15 18-Dec-25
18-Dec-15 18-Dec-25
USD
USD
USD
USD
USD
GEL
GEL
USD
USD
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
The debt ranks after all other creditors in case of liquidation.
Refer to Note 42 for the disclosure of the fair value of subordinated debt. Information on related party balances is disclosed in Note 44.
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TBC Bank Annual Report and Accounts 2017
25 Share Capital
In thousands of GEL except for number of shares
As of 1 January 2015
Share split
Shares issued
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
Shares issued
Scrip dividend issued
Share exchange
As of 31 December 2017
Number of
ordinary shares
49,246,308
284,560
(1,405)
49,529,463
525,456
(895,039)
–
3,006,823
52,166,703
516,140
146,903
102,121
52,931,867
Share capital
19,699
113
(1)
19,811
210
(358)
(18,169)
87
1,581
16
5
3
1,605
* 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 2017 the total authorised number of ordinary shares was 52,931,867 shares (31 December 2016: 52,166,703 shares;
31 December 2015: 49,529,463 shares). Each share has a nominal value of one British Penny (31 December 2015: 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 5 June 2017, at the annual general meeting TBC Bank Group PLC's shareholders agreed on a dividend of GEL 1.42 per share, based on the
2016 audited financial statements. The dividend was recorded on 9 June 2017 and on 14 July 2017 shareholders received the payment of the total
GEL 74,809 dividends.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
25 Share Capital continued
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 thousand 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 thousand dividends.
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 authorised 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 were 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 recognised 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 capitalisation to book value of equity multiple and deal price to book value of
equity multiple for comparable banks. When selecting comparable banks, the appraiser chose 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 (ie gross loans and deposits);
• Year-on-year 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. Year-on-year 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 2017
26 Share Based Payments continued
June 2015 arrangement:
In June 2015, the Bank’s Supervisory Board approved a 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
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
2017
31 December
2016
31 December
2015
2,622,707
–
(13,100)
–
(324,834)
2,756,605
–
(11,904)
(35,146)
(86,848)
2,284,773 2,622,707
13.93
24.64
13.93
24.64
803,336
1,908,963
75,016
–
(30,710)
2,756,605
13.93
24.64
10,543
–
5,119
15,662
12,599
(817)
10,271
8,559
–
5,967
22,053
14,526
Liability in respect of the cash-settled part of the award amounted to GEL 12,675 thousand as of 31 December 2017 (2016: GEL 13,725 thousand;
2015: GEL 6,560 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 2017 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 13,100 (31
December 2016: 11,904 shares; 31 December 2015: 75,016 shares).
TBC Bank Annual Report and Accounts 2017
211
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
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
2017
2016
2015
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)
354,410
298,130
216,400
Weighted average number of ordinary shares in issue
52,685,702
49,592,658
48,962,112
Basic earnings per ordinary share attributable to the owners of the Bank (expressed in
GEL per share)
6.7
6.0
4.4
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
2017
2016
2015
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)
354,410
299,037
218,227
Weighted average number of ordinary shares in issue adjusted for the effects of all dilutive
potential ordinary shares during the period
53,480,632
50,946,636
49,607,204
Diluted earnings per ordinary share attributable to the owners of the Bank (expressed in
GEL per share)
28 Segment Analysis
6.6
5.9
4.4
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. Following the merger of Bank Republic with TBC Bank, the Group has reassessed its definition of
segments as disclosed in this note. Some of the clients were reallocated to different segments. As per current report, micro and SME loans are
combined in one MSME category. Consumer loans include all retail loans, except mortgage loans. Comparative information as of 31 December
2016 has been updated respectively. Comparative information as of 31 December 2015 has not been updated due to impracticability.
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 USD 1.5 million or more. Some other business customers may also be assigned to the Corporate segment on a
discretionary basis;
• Micro, small and medium enterprises – all business customers who are not included in Corporate segment. Some other customers may also
be assigned to the MSME 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.
For the profit and loss items for the year ended 31 December 2015 the recalculation was impracticable. The operating segments for the year
ended 31 December 2015 are 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 USD 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;
• Micro, small and medium enterprises – all business customers who are not included in Corporate segment. Some other customers may also
be assigned to the MSME segment on a discretionary basis;
• 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.
Statement of financial position amounts as at 31 December 2017, 2016 and 2015 are comparable.
The Board of Directors assesses the performance of the operating segments based on a measure of adjusted profit before income tax.
212
TBC Bank Annual Report and Accounts 2017
28 Segment Analysis continued
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 2017, 2016
or 2015.
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 36.
A summary of the Group’s reportable segments for the years ended 31 December 2017, 2016 and 2015 is provided below:
In thousands of GEL
31 December 2017
– 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
– 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
– Share of profit of associates
– 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
Corpo rate
Retail
Micro, small
and medium
enterprises
Corpo rate
centre and
other
operations
Total
203,082
(103,707)
22,489
535,851
(118,516)
(73,141)
184,008
(11,661)
(51,488)
110,998 1,033,939
(429,924)
(196,040)
–
102,140
121,864
344,194
120,859
17,098
604,015
30,037
(6,942)
140,582
(51,199)
20,335
(8,949)
2,990
(893)
193,944
(67,983)
23,095
–
38,885
–
–
–
13,465
–
52,350
89,383
–
22,597
–
–
–
12,670
–
35,267
11,386
–
26,885
–
–
–
1,726
–
2,097
125,961
6,773
(1,268)
4,374
(36)
93
3,936
909
6,773
87,099
4,374
(36)
93
31,797
909
28,611
14,781
131,009
27,031
183
–
(7,666)
(106,579)
(261)
–
(17)
(14,275)
467
–
(64)
–
(542)
(492)
(4,692)
(93,823)
(153)
(492)
(12,439)
– Profit before administrative and other expenses and income taxes
216,857
361,987
146,984
28,250
754,078
– Staff costs
– Depreciation and amortisation
– Provision for liabilities and charges
– Administrative and other operating expenses
– Operating expenses
– Profit/(loss) before tax
– Income tax expense
– Profit for the year
Total gross loans and advances to customers reported
Total customer accounts reported
Total credit related commitments and performance guarantees
(25,989)
(1,438)
–
(7,457)
(34,884)
181,973
(27,738)
154,235
(128,331)
(29,813)
–
(81,356)
(239,500)
122,487
(15,527)
106,960
(31,225)
(4,972)
–
(15,118)
(51,315)
95,669
(13,820)
81,849
(17,555)
(1,042)
2,495
(17,599)
(33,701)
(5,451)
22,335
16,884
(203,100)
(37,265)
2,495
(121,530)
(359,400)
394,678
(34,750)
359,928
2,475,392 4,233,153 1,844,672
2,410,862 4,378,265 1,027,690
199,662
229,178
1,160,517
– 8,553,217
– 7,816,817
– 1,589,357
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
28 Segment Analysis continued
In thousands of GEL
31 December 2016
– 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
– 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
– 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
Corpo rate
Retail
Micro, small
and medium
enterprises
Corpo rate
centre and
other
operations
Total
160,998
(45,206)
(22,186)
386,193
(101,520)
(34,056)
141,533
(8,114)
(36,752)
77,702
(121,133)
92,994
766,426
(275,973)
–
93,606
250,617
96,667
49,563
490,453
21,884
(3,977)
100,637
(42,905)
16,331
(4,689)
3,948
(961)
142,800
(52,532)
17,907
57,732
11,642
2,987
90,268
–
23,945
–
–
–
9,837
–
17,817
–
–
–
5,772
–
26,271
–
–
–
1,076
256
2,236
(2,507)
(206)
9,293
6,551
256
70,269
(2,507)
(206)
9,293
23,236
33,782
23,589
27,347
15,623
100,341
48,948
(388)
–
(863)
–
(73,010)
(902)
–
(207)
–
(25,140)
519
–
(38)
–
–
–
(558)
(1,745)
(11)
(49,202)
(771)
(558)
(2,853)
(11)
– Profit before administrative and other expenses and income taxes
192,992
257,819
110,997
65,859
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
Total gross loans and advances to customers reported
Total customer accounts reported
Total credit related commitments and performance guarantees
(23,068)
(1,062)
–
(5,944)
(30,074)
162,918
(24,513)
138,405
(100,888)
(21,560)
–
(59,365)
(181,813)
76,006
(7,407)
68,599
(28,188)
(3,507)
–
(12,793)
(44,488)
66,509
(10,325)
56,184
(20,077)
(1,953)
(2,210)
(31,373)
(55,613)
10,246
24,824
35,070
(172,221)
(28,082)
(2,210)
(109,475)
(311,988)
315,679
(17,421)
298,258
2,062,229
1,875,576
802,971
3,680,576
3,747,775
188,574
1,615,920
831,598
155,275
–
–
–
7,358,725
6,454,949
1,146,820
214
TBC Bank Annual Report and Accounts 2017
28 Segment Analysis continued
In thousands of GEL
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
Corpo rate
Retail
Micro, small
and medium
enterprises
Corpo rate
centre and
other
operations
Total
135,615
(31,189)
(34,855)
271,083
(94,656)
12,828
175,629
(11,644)
(29,243)
66,732
(99,396)
51,270
649,059
(236,885)
–
69,571
189,255
134,742
18,606
412,174
18,397
(3,864)
72,242
(31,698)
18,619
(5,159)
14,533
23,647
–
–
13,808
37,455
(15,396)
4,581
–
(561)
40,544
15,038
–
–
2,299
17,337
(29,004)
(4,113)
–
(735)
13,460
23,275
–
–
1,184
24,459
(28,391)
649
–
(705)
4,579
(825)
3,754
2,682
2,579
(575)
8,592
113,837
(41,546)
72,291
64,642
2,579
(575)
25,883
13,278
92,529
–
–
(967)
(1,350)
(72,791)
1,117
(967)
(3,351)
– Profit before administrative and other expenses and income taxes
110,183
213,284
144,214
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
Total gross loans and advances to customers reported
Total customer accounts reported
Total credit related commitments and performance guarantees
(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
(46,909)
(8,574)
–
(22,243)
(77,726)
66,488
(10,297)
56,191
(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
1,500,104
1,001,341
446,380
2,075,374
2,536,482
132,670
1,063,551
640,108
79,925
–
–
–
4,639,029
4,177,931
658,975
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
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 amortised cost
Current income tax prepayment
Deferred income tax asset
Other financial assets
Investments in finance leases
Other assets
Premises and equipment
Intangible assets
Investment properties
Goodwill
Investments in Subsidiaries and Associates
Total assets per statement of financial position
Reportable segments’ liabilities are reconciled to total liabilities as follows:
In thousands of GEL
Total segment liabilities (customer accounts)
Due to Credit institutions
Debt securities in issue
Current income tax liability
Deferred income tax liability
Provisions for liabilities and charges
Other financial liabilities
Other liabilities
Subordinated debt
Total liabilities per statement of financial position
31 December
2017
31 December
2016
31 December
2015
8,553,217
(227,864)
1,431,477
1,033,818
39,643
657,938
449,538
19,084
2,855
146,144
143,836
156,651
366,913
83,492
79,232
28,658
1,278
7,358,725
(225,023)
945,180
990,642
24,725
430,703
372,956
7,430
3,511
94,627
95,031
171,263
314,032
60,957
95,615
28,658
–
4,639,029
(194,143)
720,347
471,490
11,042
307,310
372,092
9,856
1,546
64,317
75,760
103,912
247,767
44,344
57,600
2,726
–
12,965,910 10,769,032 6,934,995
31 December
2017
31 December
2016
31 December
2015
7,816,817
2,620,714
20,695
447
602
13,200
91,753
84,440
426,788
6,454,949
2,197,577
23,508
2,577
5,646
16,026
50,998
66,739
368,381
4,177,931
1,113,574
21,714
912
29,244
9,461
39,435
40,627
283,648
11,075,456 9,186,401
5,716,546
216
TBC Bank Annual Report and Accounts 2017
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 (Note 10)
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
2017
2016
2015
919,796
32,328
43,735
23,273
14,807
–
688,724
30,714
25,707
16,566
4,550
165
582,327
22,950
20,927
15,217
7,638
–
1,033,939
766,426
649,059
233,884
157,122
36,975
1,943
–
154,840
85,030
34,325
1,778
–
137,489
70,834
26,363
2,105
94
429,924
275,973
236,885
604,015
490,453
412,174
In the year ended 31 December 2017 the interest accrued on impaired loans amounted to GEL 16,332 thousand (2016: 23,825 thousand; 2015:
25,756 thousand).
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
2017
2016
2015
82,525
59,739
17,424
15,121
5,735
1,339
12,061
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
193,944
142,800
113,837
46,360
7,421
2,873
4,393
6,436
500
67,983
125,961
34,906
5,795
2,420
2,633
4,692
2,086
52,532
90,268
27,169
3,904
3,165
2,707
3,556
1,045
41,546
72,291
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
31 Other Operating Income
In thousands of GEL
Revenues from operational leasing
Gain from sale of investment properties
Gain from sale of receivables
Reimbursement of taxes
Gain from sale of inventories of repossessed collateral
Gain from marketing promotional services
Revenues from non-credit related fines
Revenues from sale of cash-in terminals
Gain on disposal of premises and equipment
Recovery from repayment of purchased impaired loans
Administrative fee income from international financial institutions
Gain on sale of financial asset
Other
Total other operating income
2017
2016
2015
6,544
4,353
4,090
2,486
2,383
2,077
1,408
1,093
1,017
-
-
-
5,772
2,623
58
349
8,539
4,896
-
-
2,382
1,836
-
658
1,100
208
4,995
644
-
-
286
777
118
-
708
4,692
4,031
6,346
4,447
31,797
23,236
25,883
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 2017 was GEL 24,284 thousand (2016: GEL 26,972 thousand; 2015: GEL 9,777 thousand).
32 Staff Costs
In thousands of GEL
Salaries and bonuses
Share based compensation
Other compensation cost
Salaries and other employee benefits
2017
2016
2015
182,784
15,662
4,654
146,840
22,053
3,328
124,676
14,526
3,575
203,100
172,221
142,777
In 2017 the monthly average number of persons employed by the Group was 6,993 people (2016: 5,537; 2015: 5,241). Breakdown of monthly
average number of employees by categories is as follows:
Headquarters*
Branches*
Other administrative staff **
2017
2,788
3,773
432
2016
2,243
2,902
392
2015
2,084
2,827
330
* Under monthly 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.
Monthly average number of employees in TBC PLC was 10 individuals (2016: 9).
218
TBC Bank Annual Report and Accounts 2017
33 Administrative and Other Operating Expenses
In thousands of GEL
2017
2016
2015
Rent
Advertising and marketing services
Professional services
Intangible asset enhancement
Utility services
Taxes other than on income
Premises and equipment maintenance
Stationery and other office expenses
Communications and supply
Insurance
Business trip expenses
Security services
Impairment of intangible assets
Transportation and vehicle maintenance
Personnel training and recruitment
Loss on disposal of inventories
Charity
Loss on disposal of premises and equipment
Reversal of previously written-down current assets to fair value less costs to sell
Other
23,132
18,430
14,332
10,304
6,067
5,670
5,413
4,936
4,063
2,461
2,021
1,965
1,916
1,637
1,444
1,239
1,045
492
(538)
15,501
18,294
13,796
29,926
7,446
5,108
4,699
3,889
3,448
4,183
2,687
1,880
1,883
2,043
1,386
1,272
1,690
884
423
(4,424)
8,962
16,468
11,451
8,418
6,062
4,501
4,598
2,959
3,471
3,433
2,301
1,589
1,622
4,982
1,328
1,230
86
928
34
(178)
7,678
Total administrative and other operating expenses
121,530
109,475
82,964
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
2017
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
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
Audit Audit Related
Other
Services
1,700
–
–
1,700
1,588
–
–
1,588
1,104
–
–
1,104
–
251
–
251
–
360
5
365
–
163
102
265
–
–
231
231
–
–
5,432
5,432
–
–
231
231
Total
1,700
251
231
2,182
1,588
360
5,437
7,385
1,104
163
333
1,600
Included in Other assurance services as of 31 December 2016, GEL 3,797 thousands is attributable to reporting accountant fees related to listing
of TBCG shared on LSE.
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219
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
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
2017
2016
2015
39,313
(4,563)
36,601
(19,180)
29,697
(521)
34,750
17,421
29,176
The income tax rate applicable to the majority of the Group’s income was 15% (2016: 15%; 2015: 15%). The income tax rate applicable to the
majority of subsidiaries income ranged from 15% to 20% (2016: 15%–20%; 2015: 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 (2017:15%-20%; 2016:15%-20%; 2015:15%-20%)
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
– Other differences
Income tax expense for the year
2017
2016
2015
394,678
315,679
247,873
59,119
46,703
37,181
(12,958)
(117)
(11,794)
500
(9,638)
3,706
(24,204)
854
(7,281)
(724)
–
–
34,750
17,421
29,176
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% (2016: 15%; 2015: 15%) for Georgia and 20% for Azerbaijan and
United Kingdom (2016: 20%; 2015: 20%).
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 organisations, microfinance organisations 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 organisations, microfinance organisations 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 2017, deferred tax assets/liabilities are remeasured to the amounts that are estimated to be utilised in the period from 1
January 2018 to 31 December 2018.
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34 Income Taxes continued
In thousands of GEL
Tax effect of deductible/(taxable) temporary differences and tax loss carry
1 January 2017
(Charged)/credited
to profit or loss
Charged directly
to other
comprehensive
income
31 December
2017
forward
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)
(5,323)
(92)
165
2,368
39
–
(982)
(1,295)
(85)
197
2,226
676
(29)
(2,135)
3,511
(5,646)
(2,135)
648
2,400
483
(104)
(10)
–
640
479
62
(269)
(575)
810
–
4,563
(753)
5,316
4,563
377
–
(648)
–
–
–
–
–
–
–
–
–
–
(271)
–
(271)
(271)
(4,298)
2,401
–
2,266
29
–
(342)
(816)
(23)
(72)
1,651
1,486
(29)
2,253
2,855
(602)
2,253
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)
1 January 2016
(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
–
(27,698)
1,546
(29,244)
(27,698)
11,112
11,729
461
(3,830)
(5,734)
556
4,275
(820)
242
137
1,146
(65)
(29)
19,180
1,719
17,461
19,180
11,011
–
1,565
–
–
–
–
–
–
–
–
–
–
12,576
12,576
12,576
(1,644)
(2,574)
(267)
246
(634)
–
(1,010)
–
–
–
(232)
–
–
(6,115)
246
(6,361)
(6,115)
(5,323)
(92)
165
2,368
39
–
(982)
(1,295)
(85)
197
2,226
676
(29)
(2,135)
3,511
(5,646)
(2,135)
As of 31 December 2017, deferred tax assets/liabilities are remeasured to the amounts that are estimated to be utilised in the period from
1 January 2018 to 31 December 2018.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
34 Income Taxes continued
In thousands of GEL
Tax effect of deductible/(taxable) temporary differences and tax loss carry forward
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)
1 January
2015
(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)
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 Net Debt Reconciliation
The table below sets out an analysis of our debt and the movements in our debt for each of the periods presented. The debt items are those that
are reported as financing in the statement of cash flows.
In thousands of GEL
Net debt at 1 January 2017
Cash flows
Foreign exchange adjustments
Other non-cash movements
Net debt at 31 December 2017
Liabilities from financing activities
Other
borrowed
funds
Debt
Securities in
Issue
Subordinated
debt
Total
1,880,670
519,289
(13,266)
147,803
23,508
(3,251)
(1,505)
1,943
368,381 2,272,559
538,875
22,837
(15,536)
(765)
186,081
36,335
2,534,496
20,695
426,788
2,981,979
Due to the amendments being issued one year before the effective date, the Group need not provide comparative information as it applied the
amendment for the first time.
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TBC Bank Annual Report and Accounts 2017
36 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 organisation structure: enterprise risk management; credit, financial and non-financial risks management;
risk reporting & supporting IT infrastructure; cross-risk analytical tools and techniques such as capital adequacy management and stress-
testing. Comprehensive, transparent and prudent risk governance facilitates understanding and trust from multiple stakeholders, ensures
sustainability and resiliency of the business model and positioning of risk management as Group’s competitive advantage and strategic enabler.
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, the Management Board governs and directs Groups’ daily activities.
Both the Supervisory Board and the Management Board have established dedicated risk committees. The Risk, Ethics and Compliance
Committee of Supervisory Board approves Bank’s Risk Appetite, supervises risk profile and risk governance practice within the Bank while the
Audit Committee is responsible for implementation of key accounting policies and facilitation of activities of internal and external auditors. The
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. The Operational Risk Committee makes decisions related to operational
risk governance while the 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 components 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 analysed 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 Organisation 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.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
36 Financial and Other Risk Management continued
The strong and independent structure enables fulfillment 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 the 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, the 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.
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 38.
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 the 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.
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36 Financial and Other Risk Management continued
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 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 Committees 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.
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 mitigation
factors 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.
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 the 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 maximising
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.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
36 Financial and Other Risk Management continued
The geographical concentration of the Group’s assets and liabilities as of 31 December 2017 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
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
820,647
27,183
1,033,818
7,960,107
657,068
449,538
143,836
145,798
11,237,995
733,417
608,728
8,733
–
67,805
–
–
–
141
685,407
2,102
3,727
–
297,441
870
–
–
205
1,431,477
39,643
1,033,818
8,325,353
657,938
449,538
143,836
146,144
304,345
12,227,747
55
4,691
738,163
11,971,412
685,462
309,036
12,965,910
1,069,211
6,499,134
7,821
90,649
62,508
1,535,644
694,821
–
474
232,263
15,859
622,862
12,874
630
132,017
2,620,714
7,816,817
20,695
91,753
426,788
7,729,323
2,463,202
784,242
10,976,767
96,759
1,084
846
98,689
7,826,082
2,464,286
785,088
11,075,456
4,145,330
(1,778,824)
(476,052)
1,890,454
387,890
968,019
151,502
2,996
72,905
6,045
612,297
977,060
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TBC Bank Annual Report and Accounts 2017
36 Financial and Other Risk Management continued
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
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
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
–
–
122,049
718
–
–
–
945,180
24,725
990,642
7,133,702
430,703
372,956
95,031
94,627
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
5,421,782
13,261
49,092
–
1,408,693
530,370
–
1,286
233,657
70,185
502,797
10,247
620
134,724
2,197,577
6,454,949
23,508
50,998
368,381
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
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
36 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
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
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
–
–
129,088
–
–
–
–
720,347
11,042
471,490
4,444,886
307,310
372,092
75,760
64,317
5,985,750
340,442
141,052
6,467,244
465,094
39
2,618
467,751
6,450,844
340,481
143,670
6,934,995
408,475
3,378,566
4,798
36,772
–
637,367
462,400
–
2,591
283,648
67,732
336,965
16,916
72
–
1,113,574
4,177,931
21,714
39,435
283,648
3,828,611
1,386,006
421,685
5,636,302
78,624
834
786
80,244
3,907,235
1,386,840
422,471
5,716,546
2,543,609 (1,046,359)
(278,801) 1,218,449
234,695
401,590
1,786
13,199
6,702
1,003
243,183
415,792
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 latter within 20% of the Bank’s regulatory capital. As of 31 December 2017, the Bank maintained an aggregate open currency position of 1.5%
of regulatory capital (2016: 3.2%; 2015: 1.6%). 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.
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36 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. Under 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 Laris
US Dollars
Euros
Other
Total
In thousands of GEL
Georgian Laris
US Dollars
Euros
Other
Total
As of 31 December 2017
Monetary
financial
assets
Monetary
financial
liabilities
Net balance
sheet
position
Derivatives
4,814,429 3,767,858
6,475,155 6,299,024
805,153
104,732
816,565
121,579
164,521 1,211,092
22,682
(153,449)
2,097
(9,315)
15,948
(899)
12,227,728 10,976,767
858 1,251,819
As of 31 December 2016
As of 31 December 2015
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
Monetary
financial
assets
Monetary
financial
liabilities
9,394
(8,905)
(13)
(288)
1,015,519
2,442,850
(35,437) 3,507,494
466,450
50,436
(6,853)
19,112
1,646,864
3,428,146
499,702
61,531
Derivatives
Net balance
sheet position
3,430
(71,933)
32,715
36,285
799,416
7,415
(537)
25,190
10,087,566 9,095,413
188
992,341
6,467,230
5,636,243
497
831,484
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 a 3-year look-back period. During the years ended 31 December 2017, 2016 and 2015, 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
2017
As of
31 December
2016
As of
31 December
2015
(2,206)
(1,462)
(1,184)
(868)
(449)
(285)
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 repricing
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.
TBC Bank Annual Report and Accounts 2017
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
36 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 repricing or maturity dates.
Currency and interest rate swaps are not netted when assessing the Group’s exposure to interest rate risks. Therefore, total financial assets and
liabilities below are not traceable with either balance sheet or other financial risk management tables. The tables consider both reserves placed
with NBG and Interest bearing Nostro accounts. Income on NBG reserves and Nostros are calculated as benchmark minus margin whereby for
benchmark Federal funds rate and ECB rates are considered in case of USD and EUR respectively. Therefore, they have impact on the TBC’s Net
interest income in case of both upward and downward shift of interest rates.
In thousands of GEL
31 December 2017
Total financial assets
Total financial liabilities
Less than 1
month
From 1 to
6 months
From 6 to
12 months
More than
1 year
Total
3,427,631
4,094,978
2,449,029
2,634,518
1,069,488
1,038,842
5,302,335 12,248,483
3,229,143 10,997,481
Net interest sensitivity gap as of 31 December 2017
(667,347)
(185,489)
30,646
2,073,192
1,251,002
31 December 2016
Total financial assets
Total financial liabilities
2,708,398
3,601,798
1,798,079
2,009,575
1,013,269
1,021,631
4,606,991 10,126,737
9,134,584
2,501,580
Net interest sensitivity gap as of 31 December 2016
(893,400)
(211,496)
(8,362)
2,105,411
992,153
31 December 2015
Total financial assets
Total financial liabilities
1,582,056
1,758,301
1,366,740
1,310,725
686,171
678,569
2,847,165
1,903,627
6,482,132
5,651,222
Net interest sensitivity gap as of 31 December 2015
(176,245)
56,015
7,602
943,538
830,910
As of 31 December 2017, if interest rates had been 100 basis points lower with all other variables held constant, profit for the year would have
been GEL 7.4 million higher (2016: GEL 9.5 million; 2015 GEL 6,748 thousand;), mainly as a result of lower interest expense on variable interest
liabilities. Other comprehensive income would have been GEL 6,131 thousand higher (2016: GEL 1,516 thousand; 2015: GEL 927 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 7.4 million lower (2016:
GEL 9.5 million; 2015: GEL 777 thousand), mainly as a result of higher interest expense on variable interest liabilities. Other comprehensive
income would have been GEL 5,861 thousand lower (2016: GEL 2,118 thousand; 2015: GEL 911 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.
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Funding liquidity risk is the risk that TBC will not be able to efficiently meet both expected and unexpected current and future cash flow and
collateral needs without affecting either its daily operations or its financial condition. To manage funding liquidity risk TBC Bank internally
developed Liquidity Coverage ratio and a Net Stable Funding ratio models, both under Basel III guidelines. In addition the Bank performs stress
tests and “what-if” scenario analysis and minimum liquidity ratio defined by the NBG. In 2017, for liquidity risk management purposes National
Bank of Georgia introduced Liquidity Coverage Ratio (“NBG LCR”), where in addition to Basel III guidelines conservative approaches were applied
to Mandatory Reserves’ weighting and to the deposits’ withdrawal rates depending on the clients group’s concentration. From September 2017
the Bank also monitors compliance with NBG LCR limits.
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 buckets and ensure that NBG
LCR limits, are met on a daily basis. TBC Bank also stress tests the results of liquidity through large shock scenarios provided by the NBG.
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 106.5%, 110.5% and 106.4%, at
31 December 2017, 2016 and 2015 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 ratios on a daily basis in accordance with the NBG’s requirements.
The Liquidity Ratio: 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.
NBG LCR is calculated by reference to the qualified liquid assets divided by 30-day cash net outflows defined as per NBG guidelines. The limit is
set by the NBG as per total LCR also by currency (GEL, FX). To promote larisation in the country of Georgia, NBG defines a lower limit for GEL
LCR than that for FX LCR. In addition, NBG mandatory Regulatory reserves in FX currency is only considered at 75% per LCR calculation
purposes. NBG guidelines apply higher withdrawal rates to the deposits and off-balance instruments depending on the clients group’s
concentration than those rates defined per Basel III requirements.
As of 31 December the ratios were well above the prudential limit set by the NBG as follows:
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Total Liquidity Coverage Ratio
GEL Liquidity Coverage Ratio
FX Liquidity Coverage Ratio
2017
2016
2015
32.5%
112,72%
95.62%
122.88%
30.8%
–
–
–
34.4%
–
–
–
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 interbank facilities, to ensure that sufficient liquidity is
maintained within the Group as a whole.
TBC Bank Annual Report and Accounts 2017
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
36 Financial and Other Risk Management continued
Maturity analysis: The table below summarises the maturity analysis of the Group’s financial liabilities, based on remaining undiscounted
contractual obligations as of 31 December 2017. 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.
The maturity analysis of financial liabilities as of 31 December 2017 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
1,142,865
2,532,039
3,068,027
82,685
5,060
504
176,822
55,914
52,256
728,178
418,613
1,378,835
192,852
8,808
74,191
8,814
5,509
241,460
122,014
–
From
12 months to
5 years
1,167,970
522,104
133,236
260
198,042
13,687
–
306,788
74,457
–
Over 5 years
Total
151,417
40,727
80,976
–
346,703
–
–
8,135
155
–
2,880,865
4,473,705
3,475,091
91,753
623,996
23,005
182,331
612,297
248,882
728,178
Total potential future payments for financial obligations
7,844,350
2,451,096 2,416,544
628,113 13,340,103
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
From
12 months to
5 years
Over 5 years
Total
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
–
1,103,959
360,609
134,293
1,144
238,224
22,745
369
210,595
50,657
–
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
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36 Financial and Other Risk Management continued
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.
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 2017 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 2017
Cumulative gap as of 31 December 2017
Less than
3 months
From 3 to
12 months
From 1 to 5
Years
Over 5 years
Total
1,431,477
32,845
1,033,818
1,031,608
657,938
81,859
22,896
110,604
–
3,071
–
1,767,797
–
105,956
38,526
22,207
–
3,727
–
3,438,180
–
216,177
82,414
13,333
–
–
–
2,087,768
–
45,546
–
–
1,431,477
39,643
1,033,818
8,325,353
657,938
449,538
143,836
146,144
4,403,045
1,937,557
3,753,831
2,133,314 12,227,747
1,137,076
844,123
47
82,685
3,471
351,381
136,821
7,778
8,808
49,694
990,480
–
12,870
260
97,372
141,777
6,835,873
–
–
276,251
2,620,714
7,816,817
20,695
91,753
426,788
2,067,402
554,482
1,100,982
7,253,901 10,976,767
2,067
8,239
105,268
115,574
–
–
–
–
–
–
–
–
–
–
–
–
2,067
8,239
105,268
115,574
2,220,069
1,383,075
2,652,849 (5,120,587) 1,135,406
2,220,069
3,603,144
6,255,993
1,135,406
The management believes that the Group has sufficient liquidity to meet its current on- and off-balance sheet obligations.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
36 Financial and Other Risk Management continued
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
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36 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
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
–
889,658
–
26,767
–
–
720,347
11,042
471,490
4,444,886
307,310
372,092
75,760
64,317
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
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 on 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 2018” by the World Bank (WB) and International Financing Corporation (IFC), ranking as the 9th 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 a 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 domestic economic environment remains stable and the banking sector continues to grow, supported by broader macroeconomic stability
and attractive business climate.
GDP growth stood at 5.0% YoY growth in 2017. Growth was broad based across different sectors of the economy and was mostly driven by
construction, trade and repairs, real estate, transport and communications sectors.
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36 Financial and Other Risk Management continued
Economic recovery in almost all trading partner countries of Georgia continues to underpin growth in export, tourism and remittances inflows.
Exports of goods went up by 29.1% YoY in 2017, growth was diversified across different regions. Exports increased most to CIS countries
(+60.0% YoY), exports continued to grow to EU (+13.0% YoY) as well as to other countries (+12.2% YoY). Imports of goods also went up by 9.4%,
making the balance of trade in goods worsen slightly by 1.4% YoY in 2017.
Tourism inflows went up by an estimated 28.0% YoY with the total number of visitors exceeding 7.5 million. Sharp growth in tourism revenues
have a sizeable positive impact on Georgia’s Current Account balance.
Remittance inflows increased by 19.8% YoY in 2017, with remittances up by 15.1% YoY from EU and 15.6% YoY from CIS countries. Growth of
remittances from other countries stood at 31.3% YoY. In the latter group of countries Israel and Turkey had the highest contribution to growth as
remittances from these countries went up by 96.1% YoY and 25.6% YoY, respectively.
Given the positive trend in external inflows, CA balance improved markedly, in the first 9 months of 2017 CA deficit as a % of GDP stood at 7.1%
compared to the 11.2% over the same period last year.
Annual CPI inflation peaked in June, 2017 at 7.1% and declined slightly to 6.7% by the end of 2017. Increased excise taxes in the beginning of
2017, higher oil prices and depreciation of the nominal effective exchange rate of GEL were among the factors that kept inflation close to 7% by
the end of the year. To address above target inflation, NBG increased policy rate by 0.25 PP from 7% to 7.25% in December, 2017. Overall, in 2017
NBG raised policy rate by 0.75 PP, from 6.5% in the beginning of 2017 to 7.25% by the end of 2017.
Fiscal deficit narrowed from 3.9% in 2016 to an estimated 3.8% in 2017, in line with the government’s strategy to gradually bring down the budget
deficit below 3% over the medium term. Reduction in budget deficit mostly reflected better than expected growth of tax revenues as well as more
prudent approach towards current spending. Budget project for 2018 envisages further reduction of budget deficit to c. 3% of GDP, which should
further strengthen the fiscal position of the country.
37 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 2015, 2016 and 2017.
In December 2017, the NBG has introduced updated capital framework that is more compliant with Basel III guidelines. Under updated capital
framework capital requirements are divided into Pillar 1 and Pillar 2 buffers. Details regarding the capital buffers are outlined below:
• The capital conservation buffer (which was incorporated in minimum capital requirements) is separated and set at 2.5%;
• A systemic risk buffer will be introduced for systematically important banks over the 4 years period;
• A countercyclical capital buffer is currently set at 0%;
• A currency induced credit risk (CICR) buffer replaced conservative weighting for un-hedged FX loans denominated in foreign currencies;
• Concentration buffer for sectoral and single borrower exposure will be introduced;
• A net stress buffer will be introduced based on stress testing results provided by the Group;
• A General Risk-assessment Programme (GRAPE) buffer defined by the regulator, will be applied based on the Bank’s specific risks.
In addition, based on the updated methodology, specific PTI (payment to income) and LTV (loan to value) thresholds were introduced. For the
exposures which do not fall into pre-defined limits for PTI and LTV ratios, higher risk weights were applied.
NBG Basel I Capital adequacy ratio
Under the NBG Basel I capital requirements set by the NBG in 2017 banks have to maintain a ratio of regulatory capital to risk weighted assets
(“statutory capital ratio”) above the minimum level of 9.6% and a ratio of Tier 1 capital to risk weighted assets above the minimum level of 6.4%.
No additional add-ons are in place. In mid-2015, the NBG removed previously established 3% capital add-on. 2017 is the last phase for Basel I
and will be ruled out fully from January 2018.
The regulatory capital is based on the Bank’s standalone reports prepared in accordance with the NBG accounting rules:
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37 Management of Capital continued
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
2017
575,140
937,041
171,791
(103,072)
(55,138)
–
375,813
1,901,575
10,191,259
3,638,814
(217,643)
13,612,430
8.2%
14.0%
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 2017 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
2017
Carrying Value
RW amount
3,547,937
8,609,951
58,530
486,160
271,091
12,973,669
1,820,064
(217,643)
259,870
11,979,513
58,530
383,087
251,573
12,932,573
897,500
(217,643)
14,576,090
13,612,430
Under the previous capital requirements set by the NBG banks had 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
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
1,329,677
1,181,360
6,750,917
2,855,296
(205,968)
9,400,245
10.9%
14.1%
5,304,184
2,056,062
(205,131)
7,155,115
11.0%
16.5%
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
37 Management of Capital continued
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 and 2015 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
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
NBG Basel II Capital adequacy ratio
By the end of 2017 both, Tier 1 and Total capital adequacy ratios are calculated based on the Basel III methodology introduced by NBG. The details
are described on page 236.
The table below presents the capital adequacy ratios as well as minimum requirements set by the NBG.
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
238
TBC Bank Annual Report and Accounts 2017
2017
1,437,218
448,069
1,885,287
9,754,146
28,802
970,241
10,753,189
10.3%
13.4%
12.9%
17.5%
37 Management of Capital continued
The breakdown of the Bank’s assets into the carrying amounts based on NBG accounting rules and relevant risk-weighted exposures as of
31 December 2017 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
2017
Carrying Value
RW amount
3,510,760
8,233,132
58,530
437,878
553,176
(30,862)
12,762,614
1,919,565
28,802
517,462
1,275,017
6,798,464
58,530
264,768
713,096
(30,862)
9,079,013
675,133
28,802
970,241
15,228,443 10,753,189
For years ended 31 December 2016 and 31 December 2015 under the NBG Basel II/III requirements, the Bank calculated its capital requirements
and risk weighted assets separately for Pillar 1. The NBG provided 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
1,041,270
380,751
953,403
245,705
1,422,021
1,199,108
9,399,140
45,689
576,628
7,005,711
18,651
452,089
10,021,457
7,476,451
8.5%
10.4%
10.5%
14.2%
8.5%
12.8%
10.5%
16.0%
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 and 2015 are given in the tables below:
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
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
TBC Bank Annual Report and Accounts 2017
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
37 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
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
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
2017
2016
2015
524,807
1,254,331
(26,892)
4,735
1,756,981
524,778
983,387
(26,892)
4,383
1,485,656
427,061
725,498
(2,726)
7,189
1,157,022
64,489
109,372
355,944
529,805
59,240
88,300
323,087
470,627
58,701
59,770
173,652
292,123
2,286,786
1,956,283
1,449,145
8,749,752
(118,492)
40,803
8,672,063
7,064,035
(136,721)
46,484
6,973,798
4,781,605
(134,373)
32,605
4,679,837
4.0%
20.3%
8.0%
26.4%
4.0%
21.3%
8.0%
28.1%
4.0%
24.7%
8.0%
31.0%
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).
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37 Management of Capital continued
The breakdown of the Group’s assets into the carrying amounts and relevant risk-weighted exposures as of the end of 2017, 2016, 2015 are
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
38 Contingencies and Commitments
2017
Carrying Value
RW amount
3,609,132
8,553,217
116,809
476,027
409,876
13,165,061
1,907,457
(118,492)
40,803
214,353
6,885,960
116,809
449,136
409,876
8,076,134
673,618
(118,492)
40,803
14,994,829
8,672,063
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
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Legal proceedings. When determining the level of provision to be set up with regards to such claims, or the amount (not subject to provisioning)
to be disclosed in the financial statements, the management seeks both internal and external professional advice. The management believes that
the provision recorded in these financial statements is adequate and the amount (not subject to provisioning) need not be disclosed as it will not
have a material adverse effect on the financial condition or the results of future operations of the Group.
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 2017, 2016 and 2015 no provision for potential tax liabilities has been recorded.
TBC Bank Annual Report and Accounts 2017
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
38 Contingencies and Commitments continued
Operating lease commitments: Where the Group is the lessee, as of 31 December 2017, the future minimum lease payments under non-
cancellable operating leases over the next year amounted to GEL 6,479 thousand (31 December 2016: 5,016 thousand; 31 December 2015:
4,891 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. In April 2017, the group
had breached one of the covenants with a foreign financial institution lender. The group has obtained the waiver from the financial institution in June
2017, whereby the breach was retrospectively waived. 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 the drastic devaluation of Azerbaijani Manat in February and December
2015. The Group was in compliance with all other covenants as of 31 December 2017 and 31 December 2016. The Group was in compliance with all
covenants as of 31 December 2015.
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 failing 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 (ie: 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
2017
2016
2015
612,297
141,963
728,178
106,919
1,589,357
(2,067)
(8,239)
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)
1,579,051
1,136,136
651,914
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
2017 were GEL 389,148 thousand (2016: GEL 169,831 thousand; 2015: GEL 136,867 thousand).
Fair value of credit related commitments and financial guarantees were GEL 8,239 thousand as of 31 December 2017 (2016: GEL 8,049 thousand;
2015: GEL 5,589 thousand). Total credit related commitments and performance guarantees are denominated in currencies as follows:
In thousands of GEL
Georgian Laris
US Dollars
Euros
Other
Total
2017
2016
2015
618,544
734,970
166,304
69,539
409,498
545,621
101,892
89,809
259,749
319,941
44,874
34,411
1,589,357
1,146,820
658,975
Capital expenditure commitments. As of 31 December 2017, the Group has contractual capital expenditure commitments amounting to
GEL 7,816 thousand (2016: GEL 5,665 thousand; 2015: GEL 6,771 thousand).
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39 Non-Controlling Interest
The following table provides information about each subsidiary with a non-controlling interest as of 31 December 2017:
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
1.33%
0.39%
25%
1.33%
Profit
attributable to
non-
controlling
interest
Accumulated
non-
controlling
interest in the
subsidiary
Dividends paid
to
non-
controlling
interest during
the year
5,518
14
275
63
29,255
70
4,165
500
–
–
–
–
The summarised financial information of these subsidiaries was as follows as of 31 December 2017:
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
6,490,075 6,447,122 8,830,604 2,258,231
85,262
20,636
45
111,169
19,771
6,353
87,928
20,319
5,136
95,988
11,858
1,255
850,450
15,236
5,172
12,708
362,429
3,436
1,098
4,733
367,678
3,436
1,098
4,733
The following table provides information about each subsidiary with a 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
1.52%
0.39%
25%
1.34%
Profit /(loss)
attributable to
non-
controlling
interest
Accumulated
non-
controlling
interest in the
subsidiary
(887)
9
(2,865)
50
28,264
56
3,890
436
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/(loss)
Total
comprehensive
income
(expense)
5,492,825
71,484
20,649
9,271
5,268,934
49,140
19,458
5,800
7,105,314
54,930
16,034
9,114
2,084,656
51,283
17,867
45
679,912
11,566
8,367
11,979
302,491
2,316
(11,461)
3,737
303,031
2,316
(11,461)
3,737
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Cash
flows
466,249
2,450
(3,631)
40
Dividends
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during the
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–
–
–
–
Cash
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224,421
(5,425)
(4,291)
(1,243)
TBC Bank Annual Report and Accounts 2017
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
39 Non-Controlling Interest continued
The following table provides information about each subsidiary with 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
0.43%
25%
1.33%
Profit/(loss)
attributable to
non-
controlling
interest
Accumulated
non-
controlling
interest in the
subsidiary
8
(250)
60
47
6,756
386
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
Revenue
Profit/(loss)
Total
comprehensive
income/
(expense)
69,642
41,703
5,453
36,323
36,053
6,470
29,607
57,773
675
65,378
1,509
73
9,511
15,319
12,512
1,960
(1,002)
4,476
1,960
(1,002)
4,476
Dividends
paid to
non-
controlling
interest
during the
year
–
–
–
Cash
flows
8,769
7,290
1,908
40 Offsetting Financial Assets and Financial Liabilities
As of 31 December 2017, 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)
–
–
–
–
–
–
–
–
26,703
26,703
10,359
10,359
In thousands of GEL
ASSETS
Other financial assets:
– Receivables on credit card services and money transfers
29,308
2,605
26,703
TOTAL ASSETS SUBJECT TO OFFSETTING, MASTER NETTING AND
SIMILAR ARRANGEMENT
29,308
2,605
26,703
LIABILITIES
Other financial liabilities:
– Payables on credit card services and money transfers
12,964
2,605
10,359
TOTAL LIABILITIES SUBJECT TO OFFSETTING, MASTER NETTING AND
SIMILAR ARRANGEMENT
12,964
2,605
10,359
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40 Offsetting Financial Assets and Financial Liabilities continued
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)
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
–
–
–
–
–
–
–
–
24,801
24,801
12,405
12,405
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
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.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
41 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
2017
1,767
(909)
(267)
591
2016
508
(320)
(1,055)
(867)
2015
605
(108)
(2,303)
(1,806)
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 (+)
2017
2016
2015
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
–
12,877
–
165,881
–
–
–
1,348
(166,326)
–
(1,360)
–
(9,315)
–
(2,247)
–
–
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)
–
Fair value of foreign exchange forwards and gross settled currency
swaps
180,106
(179,248)
20,281
(20,093)
99,950
(99,453)
Net fair value of foreign exchange forwards and gross settled currency
swaps
858
188
497
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 267 thousand (2016: negative GEL
1,055 thousand; 2015: negative GEL 2,303 thousand).
Information on related party balances is disclosed in Note 44.
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42 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 2017
31 December 2016
31 December 2015
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
–
–
–
–
–
1,016
–
1,016
–
998
–
998
–
7,728
– 328,761
– 319,745
–
–
–
7,728
– 328,761
– 319,745
–
–
–
36,002
– 150,073
– 241,810
–
–
–
36,002
– 150,073
–
84,849
– 174,916
– 241,810
–
–
–
9,335
33,445
–
–
84,849
– 174,916
–
–
33,445
9,335
improvements
–
– 283,905 283,905
–
1,767
–
1,767
–
–
508
–
508
– 229,549 229,549
–
–
604
–
604
– 175,184 175,184
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
– 658,001 283,905 941,906
– 429,409 229,549 658,958
9,335 294,812 175,184 479,331
–
267
–
267
–
1,055
–
1,055
–
2,303
–
2,303
–
909
–
909
–
320
–
320
–
108
–
108
–
1,176
–
1,176
–
1,375
–
1,375
–
2,411
–
2,411
There were no transfers between levels 1 and 2 during the year ended 31 December 2017 (2016: none, 2015: none).
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
42 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
2017
2016
2015
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
656,234
428,901
294,208
Discounted cash flows
(“DCF”)
Forward pricing using
present value calculations
Government bonds yield
curve
Official exchange rate,
risk-free rate
1,767
508
604
658,001
429,409
294,812
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
– Interest rate swaps included in other financial
liabilities
– Foreign exchange forwards included in other
financial liabilities
267
909
1,055
2,303
320
108
Swap model using present
value calculations
Forward pricing using
present value calculations
Observable yield curves
Official exchange rate,
risk-free rate
TOTAL RECURRING FAIR VALUE MEASUREMENTS
AT LEVEL 2
1,176
1,375
2,411
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 2017 (2016: none; 2015: none).
For details of the techniques and inputs used for Level 3 recurring fair value measurement of (as well as reconciliation of movements in)
premises refer to Note 15. The unobservable input to which the fair value estimate for premises is most sensitive is price per square metre: the
higher the price per square metre, the higher the fair value.
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42 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 2017
31 December 2016
31 December 2015
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
– Loans to micro,
small and medium
enterprises
Bonds carried at
amortised cost
Investments in leases
Other financial assets
NON-FINANCIAL
ASSETS
Investment properties,
at cost
1,431,477
–
–
39,643
– 1,431,477
39,643
–
945,180
–
–
24,725
–
–
945,180
24,725
720,347
11,042
–
–
–
–
720,347
11,042
– 1,033,818
– 1,033,818
–
990,642
–
990,642
–
–
–
–
–
–
–
–
– 3,292,352 2,425,766
– 2,125,733 2,041,887
– 2,058,468 2,052,151
– 1,891,528 1,805,549
458,950
–
–
–
145,877
144,377
449,538
143,836
144,377
–
85,012
79,232
–
–
–
–
–
–
–
–
–
–
–
2,085,249
1,877,490
1,840,981
1,972,129
1,798,412
1,784,832
–
1,606,448
1,578,329
377,749
–
–
–
95,907
94,119
372,956
95,031
94,119
–
123,852
95,615
–
–
–
–
–
–
–
–
–
–
471,490
–
471,490
–
–
–
1,504,360 1,392,054
1,117,574
1,167,551
892,139
906,240
–
1,054,395
1,043,119
350,167
–
–
–
80,018
63,713
372,092
75,760
63,713
–
105,972
57,600
TOTAL ASSETS
1,431,477 1,532,411 9,743,347 11,647,274
945,180
1,393,116
7,724,046
9,751,970
731,389
821,657
4,882,249
6,216,930
FINANCIAL
LIABILITIES
Due to credit
institutions
Customer accounts
Debt securities in
issue
Other financial
liabilities
Subordinated debt
– 2,626,155
– 2,620,714
– 4,992,099 2,937,349 7,816,817
–
–
–
20,695
90,577
425,809
–
–
–
20,695
90,577
426,788
TOTAL LIABILITIES
– 8,155,335 2,937,349 10,975,591
–
–
–
–
–
–
2,197,016
4,002,659
–
2,463,392
2,197,577
6,454,949
23,508
49,623
369,320
–
–
–
23,508
49,623
368,381
6,642,126
2,463,392
9,094,038
–
–
–
–
–
–
1,113,666
2,372,794
–
1,812,575
1,113,574
4,177,931
21,714
37,024
284,985
–
–
–
21,714
37,024
283,648
3,830,183
1,812,575
5,633,891
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 2017 (2016: none; 2015: none).
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
43 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 2017:
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
1,431,477
39,643
1,033,818
8,325,353
–
449,538
–
–
–
–
–
657,938
–
–
–
–
–
–
–
–
143,836
– 1,431,477
–
39,643
– 1,033,818
– 8,325,353
657,938
–
449,538
–
143,836
–
144,377
–
–
1,767
146,144
11,424,206
657,938
143,836
1,767 12,227,747
–
–
–
–
–
–
–
738,163
– 12,965,910
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
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43 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 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
As of 31 December 2017, 2016 and 2015, 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.
44 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 2017, the Group’s outstanding balances with related parties were as follows:
In thousands of GEL
Gross amount of loans and advances to customers (contractual interest rate: 0.4–36%)
Impairment provisions for loans and advances to customers
Customer accounts (contractual interest rate: 0–11.8 %)
Guarantees
Provision on guarantees
Significant
shareholders
Key
management
personnel
154
–
40,100
9,901
30
7,112
11
11,190
512
2
The Group’s income and expense items with related parties except from key management compensation for the year 2017 were as follows:
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Interest income – loans and advances to customers
Interest income – available securities for sale
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
Key
management
personnel
20
747
928
108
(46)
122
104
58
46
444
–
449
56
(36)
94
–
239
–
TBC Bank Annual Report and Accounts 2017
251
Strategic Report OverviewStrategic Report Strategy & Performance
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
44 Related Party Transactions continued
The aggregate loan amounts advanced to, and repaid by related parties during 2017 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
Key
management
personnel
573
(1,293)
3,012
(3,920)
During the year 2017, 13 related parties were removed from the insider list. If they had remained in the list, guarantees with related parties as of
31 December 2017 would have been GEL 1,139 thousand higher, net assets with related parties as of 31 December 2017 would have been
GEL 214,767 thousand lower.
As of 31 December 2017, transactions and balances of TBC Bank Group PLC with JSC TBC Bank 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
Balance as of
31 December
2017
24,000
11,564
57
1,422,462
Included in Investments in subsidiary in Separate Statement of Financial Position GEL 7,023 thousand relates to investment in JSC TBC Insurance.
The income and expense items for TBC Bank Group PLC with JSC TBC Bank except from key management compensation for the year 2017 were
as follows:
In thousands of GEL
Interest income
Fee and commission expense
Dividend income
As of 31 December 2016, the Group’s 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
2017
1,807
9
90,552
Significant
shareholders
Note
Key
management
personnel
41
900
2
1,055
257,403
38,982
28,509
192
7,612
26
–
–
14,548
–
–
The Group’s 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
252
TBC Bank Annual Report and Accounts 2017
Significant
shareholders
Note
Key
management
personnel
161
17,435
115
170
69
580
1
206
41
399
503
18
465
13
–
155
–
44 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 JSC TBC Bank 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
Included in Investments in subsidiary in Separate Statement of Financial Position GEL 7,023 thousand relates to investment in JSC
TBC Insurance.
The income and expense items for TBC Bank Group PLC with JSC TBC Bank except from key management compensation for the year 2016 were
as follows:
In thousands of GEL
Interest income
Interest expense
Fee and commission expense
As of 31 December 2015, the Group’s 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%)
2016
1,149
32
1
Significant
shareholders
Note
Key
management
personnel
41
3,179
45
2,303
63,810
8,924
132,530
1,963
7
–
–
10,253
–
The Group’s income and expense items with related parties except from key management compensation for the year 2015 were as follows:
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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
41
139
537
40
28
16
–
288
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TBC Bank Annual Report and Accounts 2017
253
Strategic Report OverviewStrategic Report Strategy & Performance
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
31 DECEMBER 2017
44 Related Party Transactions continued
As of 31 December 2015, 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
Key
management
personnel
1,684
(5,486)
2,972
(2,492)
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
2017
2016
2015
Expense
13,339
3,905
8,469
25,713
Accrued
liability
–
9,772
–
9,772
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
Included in salaries and bonuses for 2017, GEL 2,326 thousand (2016: GEL 619 thousand) relates to compensation for directors of TBCG paid by
TBC Bank Group PLC.
(Endnotes)
1 A full list of related undertakings and the country of incorporation is set out below.
Company Name
Country of incorporation
JSC TBC Bank
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
Mali LLC
JSC TBC Insurance
UFC International Ltd
TBC Capital B.V
TBC Invest International Ltd
University Development Fund
Ltd Georgian Mill Company
JSC CreditInfo Georgia
LLC Online Tickets
7 Marjanishvili Street, 0102, 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
7 Marjanishvili Street, 0102, Tbilisi, Georgia
7 Marjanishvili Street, 0102, Tbilisi, Georgia
7 Marjanishvili Street, 0102, Tbilisi, Georgia
7 Jabonitsky street, , 52520, Tel Aviv, Israel
23 Chkheidze Street, 0102, Tbilisi, Georgia
24B, Al. Kazbegi Avenue, 0160, Tbilisi, Georgia
HARNEYS FIDUCIARY, Craigmuir Chambers,PO Box 71, Road Town,Tortola VG1110, British Virgin Islands
202 Oudegracht, 1811, CR Alkmaar Netherlands
7 Marjanishvili Street, 0102, Tbilisi, Georgia
1 Chavchavadze Avenue, 0128 , Tbilisi, Georgia
2 Abashidze street, 0179, Tbilisi Georgia
2 Tarkhnishvili street, 0179, Tbilisi, Georgia
3 Irakli Abashidze street, 0179, Tbilisi, Georgia
254
TBC Bank Annual Report and Accounts 2017
SHAREHOLDER INFORMATION
Annual general meeting
The Company’s next Annual General Meeting is scheduled for 21 May 2018 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 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.
Reports and communications
We issue regulatory announcements through the Regulatory News Service (“RNS”). Our regulatory announcements are also available at our
website www.tbcbankgroup.com in the “regulatory news” section.
Dividends
The Board intends to recommend 25% of the Company’s profit for the financial year to be distributed to the Company’s shareholders as a
dividend, (which represents GEL 1.64 per share), payable in British Pounds Sterling at an official exchange rate of the National Bank of Georgia
for 24 May 2018. If approved, the final dividend will be paid on 22 June 2018 to shareholders on the Register of Members at the close of business
in the UK (ie 6pm London time) on 18 May 2018.
Ex-dividend date: 17 May 2018
Record date: 18 May 2018
Currency conversion date: 24 May 2018
Payment date: 22 June 2018
Share price information
Our latest and historical share prices are available through our website www.tbcbankgroup.com.
Shareholder inquires
TBC Bank Group’s share register is maintained by Equiniti.
If you have any questions about your TBC Bank Group’s shares, please contact Equiniti.
Shareholder helpline
UK callers: 0371 384 2030
International callers: +44 121 415 7047
Aspect House
Spencer Road
Lancing
West Sussex
BN99 6DA
United Kingdom
Our registered address
TBC Bank Group PLC
6 St. Andrews Street
London EC4A 3AE
United Kingdom
Website
Our annual report, financial results and investor presentations, as well as other significant information are available through our website:
www.tbcbankgroup.com.
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TBC Bank Annual Report and Accounts 2017
255
Strategic Report OverviewStrategic Report Strategy & Performance
MSME (Micro, Small
and Medium)
segment
Product per
customer ratio
Retail segment
All business customers who are not included
in either Corporate and Retail segments; or
legal entities who have been granted a pawn
shop loan. Business customers are legal
entities, who have been granted a loan for a
business purpose
Number of active products divided by number
of active customers
All non-business individual customers or
individual business customers who have been
granted a loan in an amount equivalent below
US$ 8.0 thousand. All individual customers
are included in retail deposits. Business
customers are individuals, who have been
granted a loan for a business purpose
Supervisory Board
Supervisory Board of Joint Stock Company
TBC Bank
TBC Status clients
The UK-incorporated parent company of Joint
Stock Company TBC Bank (the Bank) and its
subsidiaries
Clients with minimum monthly income of GEL
3,000 or a loan of GEL 30,000 or more, or
deposit of GEL 30,000 or more
TBC Bank Group PLC The UK-incorporated parent company of Joint
Stock Company TBC Bank (the Bank)
TBCG
TBC Insurance
TBC JSC
TBC PLC
VIP
TBC Bank Group PLC (except for
Remuneration Report, where it means TBC
Bank Group PLC and JSC TBC Bank together)
Joint Stock Company TBC Insurance, formerly
Joint Stock Company Insurance Company
Kopenbur
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
Wealth management
for non-resident
clients
Non-resident clients with a minimum deposit
of US$ 100,000 as well as on a discretionary
basis
GLOSSARY
Bank
Joint Stock Company TBC Bank
Bankassurance
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
Bank Constanta
Joint Stock Company Bank Constanta
Bank Republic
Joint Stock Company Bank Republic
Board
Chairman
Chief Executive
Officer (or CEO)
Chief Financial
Officer (or CFO)
Code
Company
Corporate segment
Corporate Centre
Board of Directors of TBC Bank Group PLC
Chairman of Board of Directors of the
Company
Chief Executive Officer of TBC Bank Group
PLC
Chief Financial Officer of TBC Bank Group PLC
The UK Corporate Governance Code
TBC Bank Group PLC
TBC Bank
Legal entities 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 this
segment or transferred to the MSME segment
on a discretionary basis. Business customers
are legal entities, who have been granted a
loan for a business purpose
Comprise the treasury, other support and
back office functions, and non-banking
subsidiaries of the Group
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
Management Board
Management Board of Joint Stock Company
TBC Bank
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
256
TBC Bank Annual Report and Accounts 2017
ABBREVIATIONS
ACCA Association of Chartered Certified
FDI
Foreign direct investment
NIM
Net interest margin
Accountants
AFS
Available for sale
FTSE
Financial Times Stock Exchange
NPL
Non-performing loans
ALCO Asset-liability management committee
FVOCI Fair value through other comprehensive
NPS
Net promoter score
income
ATM Automated teller machine
FVPL
Fair value through profit or loss
OCI
Other comprehensive income
BNY
Bank of New York
GBP
Great British pound, national currency of
the UK
OECD Organisation for Economic
Cooperation and Development
CAGR Compounded annual growth rate
GDP
Gross domestic product
PLC
Public limited company
CAR
Capital adequacy ratio
GDR
Global depositary receipt
POS
Point of sale
СEE
Central and Eastern Europe
GEL
Georgian lari, national currency of Georgia PPP
Purchasing power parity
CEO
Chief executive officer
GHG
Greenhouse gas
PWC
PricewaterhouseCoopers
CIS
The Commonwealth of Independent
States
HR
Human resources
ROA
Return on average assets
CFA
Chartered Financial Analyst
HNWI High-net-worth individuals
ROE
Return on average equity
CFO
Chief financial officer
IAS
International Accounting Standards
SME
CGU
Cash generating unit
IASB
International Accounting Standards Board
SPPI
Small and medium-sized
enterprises
Solely payments of principal and
interest
СSAT Customer satisfaction
IDR
Issuer default rating
STEM Science, technology, engineering
CIB
Corporate investment banking
IFI
International financial institution
CoR
Cost of risk
IFRIC International Financial Reporting
Interpretations Committee
CRM Customer relationship management
IFRS
International Financial Reporting
Standards
and mathematics
UK
USD
United Kingdom of Great Britain
and Northern Ireland
The US dollar, national currency
of the United States
VIP
Very important person
CRO
Chief risk officer
IMF
International Monetary Fund
VAR
Value-at-risk
CSR
Corporate social responsibility
IPCC
Intergovernmental Panel on Climate
Change
WB
World Bank
CVP
Cost volume profit
IPO
Initial public offering
WRI
World Resources Institute
DCF
Discounted cash flows
ECL
Expected credit losses
EECG Energy Efficiency Centre Georgia
IT
JSC
KPI
Information technology
Joint stock company
Key performance indicators
EMEA Europe, Middle East and Africa
LED
Light-emitting diode
ENPS Employee Net Promoter Score
LSE
London Stock Exchange
EPS
Earnings per share
MBA Master of Business Administration
ERM Enterprise risk management
MBO Management-by-objectives
ESRM Environmental and social risk
MSME Micro, small and medium-sized
management
enterprises
EU
European Union
NBG
National Bank of Georgia
EUR
Euro
NCI
Non-controlling interest
TBC Bank Annual Report and Accounts 2017
257
TBC Bank Group PLC
6 St. Andrews Street
London EC4A 3AE
United Kingdom