TBC Bank invests in smart, digital
solutions offering customers the
most innovative services.
ANNUAL REPORT
TBC BANK
TBC Bank1 is the largest banking group in Georgia - serving around
83% of the country’s adult population. TBC Bank is listed on the
premium segment of London Stock Exchange and is a FTSE 250
constituent.
CONTENTS
STRATEGIC REPORT
FINANCIAL STATEMENTS
Independent auditors’ report
Separate statement of financial position
Separate statement of changes in equity
Separate statement of cash flows
Consolidated statement of financial position
Consolidated statement of profit or loss and
other comprehensive income
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated financial statements
ADDITIONAL INFORMATION
Shareholder information
Glossary
Abbreviations
167
175
176
177
178
179
180
181
182
298
299
300
Overview
Group highlights 2018
At a glance
Chairman’s statement
CEO letter
Strategy and performance
Georgia
Business model and strategy
Divisional review
Principal risks and uncertainties
Risk management
Doing business responsibly
Financial review
GOVERNANCE
Directors’ governance statement
Directors’ report
Board biographies
The Bank’s Management Board biographies
Corporate governance and
nomination committee report
Risk, ethics and compliance committee report
Remuneration comittee report
Audit committee report
2
4
6
8
12
14
26
50
57
70
90
108
115
120
126
129
133
136
156
For more information visit our
website www.tbcbankgroup.com
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)
TBC BANK annual report and accounts 2018
1
GROUP HIGHLIGHTS 2018
ROBUST PROFITABILITY AND STRONG EFFICIENCY LEVELS
454.9 mln
+ 23.2% YoY
UNDERLYING NET PROFIT1(APM)
437.4 mln
+ 21.5% YoY
REPORTED NET PROFIT
22.8%
+ 1.4pp YoY
UNDERLYING RETURN
ON AVERAGE EQUITY1 (APM)
22.0%
+ 1.1pp YoY
REPORTED RETURN
ON AVERAGE EQUITY
3.3%
+ 0.1pp YoY
UNDERLYING RETURN
ON AVERAGE ASSETS1 (APM)
3.2%
+ 0.1pp YoY
REPORTED RETURN
ON AVERAGE ASSETS
37.8%
- 3.9pp YoY
COST TO INCOME RATIO
8.1
+ 20.9% YoY
EARNINGS PER SHARE
STRONG GROWTH AND SOUND ASSET QUALITY
10,372.6 mln
9,352.1 mln
+ 21.3% YoY
TOTAL LOANS
+ 19.6% YoY
TOTAL DEPOSITS
3.1%
- 0.2pp YoY
NON-PERFORMING LOANS
SOLID CAPITAL AND LIQUIDITY LEVELS
12.8%
- 0.6pp YoY
TIER I CAPITAL
17.9%
+ 0.4pp YoY
TOTAL CAPITAL
BEST-IN-CLASS DIGITAL CHANNELS
90.6%
+ 2.3pp YoY
OFFLOADING RATIO
37.0%
+ 5.6pp YoY
MOBILE BANKING PENETRATION
89.9%
- 2.6pp YoY
NET LOANS TO DEPOSITS
PLUS IFI FUNDING
43.7%
+ 3.3pp YoY
MOBILE AND INTERNET
BANKING PENETRATION
HIGH EMPLOYEE SATISFACTION LEVEL
66%
+ 11pp YoY
ENPS
87%
- 4pp YoY
ENGAGEMENT INDEX
2
TBC BANK annual report and accounts 2018
THE BEST
SERVICE
PROVIDER
IN GEORGIA2
SUPERIOR CUSTOMER EXPERIENCE
89.9%
- 2.6pp YoY
NET LOANS TO DEPOSITS
PLUS IFI FUNDING
1 More information about underlying figures (APMs) is given in Annex 1 on page 106
2 Based on survey conducted by independent research company IPM among retail segment in December 2018
TBC BANK annual report and accounts 2018
3
AT A GLANCE
TBC Bank is the established leader in the Georgian banking sector. We
are known for our strong financial performance, commitment to
excellence and constant pursuit of innovation. We pride ourselves on
having the best digital capabilities, unrivalled customer experience
and the country’s most recognised brand.
WHO WE ARE
We are the largest banking group in Georgia by all key
metrics, leading the market in terms of total assets, total
loans and total deposits. We also hold a dominant position
in all of our key segments - retail banking, micro, small
and medium enterprises (MSME) and corporate banking.
In addition, we provide a wide range of other financial
services including insurance, leasing, investment banking
and brokerage services through our subsidiaries.
Through our advanced omni–channel distribution
platform, which encompasses the best-in-class digital
channels and a vast network of branches, we are able to
serve a customer base comprising of approximately 83%
of Georgia’s adult population.
KEY OPERATING DATA
Number of customers: c.2,400,000
Retail : c.2,300,000
MSME: c.130,000
Corporate: c.2,800
Number of branches: 149
Number of employees: c.7,300
4
TBC BANK annual report and accounts 2018
NUMBER ONE MARKET
POSITION BY ALL KEY METRICS1
Total
loans
38.8%
Total
deposits
41.2%
Loans to
individuals
40.0%
Loans to
legal entities
37.4%
Deposits to
individuals
Deposits to
legal entities
41.2%
41.2%
OUR CORE VALUES
> Build a happy and success-oriented team
> Create a client-centric culture
> Build a straightforward business model
and honest relationships
> Pursue innovative approaches
> Deliver strong, sustainable financial results
> Make a positive impact in the
community
1 Based on data published by National Bank of Georgia as of 31
December 2018
HOW WE ARE DIFFERENT
Best-in-class digital channels
As we operate in the digital world, we are continuously
investing in technology and upgrading our operations
in order to be able to provide our customers the most
innovative solutions on the market. We are proud to have
world-class Internet and mobile banking applications and
to be the pioneers in the country with the first Georgian-
speaking chat bot and voice biometric recognition system
in call center. Our most significant achievement this year
was the launch of ‘Space’, the first digital only bank in
Georgia.
Focus on financial services
We have a clear business model focused on financial
services. We primarily engage in banking and related
activities as well as other services that enhance, support
and generate synergies with our core business. Such a
dedicated approach helps us to concentrate all our efforts
on what we do best and constantly seek for new ways to
fine-tune our value proposition. As a result, we have built
strong expertise and a significant competitive advantage,
which will help us to bring the company to the next level.
Superior customer experience
Impeccable customer service is part of our DNA and we
are committed to delivering the best customer experience
across all our channels. We invest significant time and effort
to understand the evolving needs of our customers and
fine-tuning our solutions according to their preferences.
We have scored2 the highest customer satisfaction in the
banking sector for many years in a row and hold a leading
position among other service providers across the country.
Our strategy leverages on our key
strengths and aspires to create maximum
value to our customers by developing the
most innovative solutions to satisfy their
daily needs.
Find out more about our strategy on pages 14 to 23.
Strong brand
TBC Bank is a highly admired brand in Georgia. It is
renowned for its credibility, excellence, innovation and
community service. We act with integrity and transparency
in all our undertakings and strive to create value for all
our stakeholders
including shareholders, customers,
partners, employees and the community at large. TBC
Bank has also received many country, regional and global
awards, including “Best Bank in Georgia”, by respected
international magazines such as The Banker, EMEA
Finance, Euromoney and Global Finance.
2 According to the surveys conducted by the independent research
companies ACT and IPM
TBC BANK annual report and accounts 2018
5
CHAIRMAN’S STATEMENT
Dear shareholders,
I am pleased to report another
successful year in TBC Bank’s
history, which was marked by
strong financial results and
significant progress towards
our strategic goals.
KEY ACHIEVEMENTS AND STRATEGY
In 2018, we continued to transform our banking business into
more digital, customer focused and agile organization, whilst
generating high returns and outpacing market in terms
of loan book and deposit growth. As a result of our strong
financial performance, I am pleased to announce that the
Board recommended a dividend of 1.98 GEL per share, up by
20.7% compared to the last year.
One of our major achievements this year was launching
the first fully digital bank in Georgia, Space. This is a
unique solution, which challenges traditional approaches
to banking by creating a truly end-to-end digital experience
through intuitive interfaces and simple, real-time processes
6
TBC BANK annual report and accounts 2018
and features. The project proved to be very successful and
exceeded our expectations by attracting around 94,000 users
and 260,000 downloads since its launch in May 2018. We
believe that Space is our big step forward into the future, as it
will change the way people handle their daily financial needs,
creating a new reality in the Georgian banking system.
Our customers lie at the heart of everything we do and our
priorities evolve with our clients’ needs and aspirations. We
recognise that in today’s highly demanding environment, our
customers require ever-more sophisticated products and
services in order to meet the needs of their daily lives. As a
result, we introduced a new strategic priority - development
of customer-focused ecosystems, which are closely linked to
our core financial products and will create additional value for
our customers. The CEO’s letter describes these new projects
in more detail.
A further highlight of 2018 was our increased international
expansion. While Georgia is, and will remain, our main focus,
our strong banking expertise and advanced digital capabilities
give us the confidence to seek new opportunities abroad
and expand our international presence. After thorough
consideration, we decided to strengthen our presence in
Azerbaijan by merging our Azeri subsidiary, TBC Kredit, with
the local Nikoil Bank and to enter the Uzbekistan’s market by
establishing a greenfield bank. In both cases, we are pursuing
an asset-light, gradual capital investment approach and we
are primarily focusing on digital offerings, aimed at retail
and MSME customers. I will personally dedicate more time
to successful implementation of our international strategy in
2019.
OPERATING ENVIRONMENT
Georgia confirmed to be an attractive business environment,
with continuing structural reforms and high GDP growth
potential. In 2018, the country further improved its ranking
in the World Bank’s Doing Business report by three positions
and became the 6th in the world. This remarkable progress
is also recognised through other assessments as Georgia
reached the 7th position in the Economic Freedom Index and
became 5th as safest country1.
The strong economic growth reflected the progress in the
reforms and higher diversification of external inflows with
increasing share taken by new, more stable markets. Despite
the regional economic instability, in 2018 real GDP increased
by a solid 4.8%2. This was achieved despite the unfavorable
cross-border environment as well as the temporary fiscal
surplus throughout the year. Furthermore, the economic
growth has been more inclusive, as unemployment dropped,
and more sustainable, as the current account deficit improved.
Together with strong exports and remittances, the tourism
sector continued to play a key role in Georgia’s economic
development as tourism inflows increased by an estimated
18.4% year-on-year in US$ terms and number of international
visitors exceeding 7.2 million. Also, while the South Caucasus
Pipeline Extension project has been finalised in 2018, the
Anaklia Deep Sea Port was launched with the aim of further
promoting the country’s pivotal role as a regional logistics
and transportation hub, and providing a further upside to
the growth, together with other large scale infrastructure
and energy sector-related projects. As a result of strong
macroeconomic performance and
launched strategic
initiatives, on February 22, 2019 Fitch Ratings upgraded
Georgia’s sovereign credit rating from ‘BB-’ to ‘BB’ with stable
outlook.
While the banking sector has begun to export technologies
to other markets, the local capital market is gradually
developing, with our subsidiary TBC Capital holding around
half of the market share in locally-issued corporate bonds.
The pension system reform, which came into force in January
2019, is expected to contribute to the development of capital
market in the country and further strengthen its economic
growth potential.
As a result of solid fundamentals, in 2018 projections for
Georgia’s high medium-term growth were confirmed above
5.0%3. It is important to highlight that Uzbekistan, where
TBC Bank is developing an expansion plan, also enjoys a
growth potential above 5.0%4 – it is a resilient economy with
an underdeveloped banking system and a story of reform-
driven transition comparable to Georgia’s. Projections for
GDP growth are not as strong in Azerbaijan, however the
country has significantly higher GDP per capita than Georgia
and is making progress with regard to being better prepared
to withstand fluctuations in oil prices.
GOVERNANCE
As the chairman of TBC Bank, I am committed to ensuring
an excellent governance and highest ethical standards within
the Group. I am also committed to maintaining a diverse and
wide-ranging set of skills and experiences within the Board. I
believe such diversity is vital in order to ensure our business
reaches is full potential.
As already announced, we have appointed two women as
Non-Executive Directors as part of our Board: Maria Luisa
Cicognani and Tsira Kemularia. Ms. Cicognani and Ms.
Kemularia have extensive international experience at the
some of the world’s leading financial institutions and will
bring further valuable perspectives and balance to our Board.
I am deeply saddened that Eric Rajendra has resigned from
the Board due to health reasons. I would like to thank him for
his contribution and dedication during the past years and wish
him a speedy recovery.
Further to the Company’s announcement made on 21
February 2019, the Bank will implement a restructuring
of its Supervisory Board whereby Badri Japaridze and I
will continue our roles only as the Deputy Chairman and
Chairman of TBC Bank Group PLC, and be stepping down
from the Supervisory Board of the JSC TBC Bank. This
will enable us to focus more on the Group’s strategic and
international initiatives. The Board of JSC TBC Bank will be
joined by two new members, which are being selected by the
Corporate Governance and Nomination Committee and will
be announced in due course.
I would like thank all Directors for their significant contribution
to the development and oversight of our strategic priorities as
well as close monitoring of risk management. I am confident
we are on the right track and that, with hard work and
persistence, we will achieve our ambitious goals and create
sustainable value for all our stakeholders.
ACTING RESPONSIBLY
Corporate responsibility is deeply embedded in our culture.
We are dedicated to delivering value to our shareholders,
customers and business partners whilst preserving the
environment, and making positive contribution to our
community. Each and every employee of the Group aspires to
do business ethically and act with integrity and respect in all
his/her undertakings.
In recognition of our efforts in this regards, in 2018 our
CEO, Vakhtang Butskhrikidze, won the Special Award for
Responsible Capitalism in Adversity from the prestigious
FIRST organisation - a multidisciplinary international affairs
organization, which aims to enhance dialogue between
leaders in industry, finance and government. This award
comes in recognition of our commitment to adhere to the
highest standards of corporate governance and to run the
business with integrity and responsibility towards all our
stakeholders.
Our main CSR priorities remain supporting businesses,
the young generation, art and culture. We believe these are
aspects of great importance for our country. In 2018, we
implemented a series of projects in this regard including:
financing the publication of the first book about Georgian
history and culture by Oxford University;
supporting Saba, Georgia’s main literary award, to
celebrate its sixteenth award-ceremony at the 70th
International Frankfurt Book Fair;
developing various education projects for students; and
introducing an innovative business support platform.
Additional information is detailed in the chapter “Doing
business responsibly.”
We are also proud contributors to the development of rugby
in the country and we are the title sponsor of the Georgian
Rugby Union for the fourth year in a row. The success in rugby
is important for the country’s image on the international stage
and it helps to promote a healthy lifestyle among the youth.
OUTLOOK
We will continue to leverage on our strong digital capabilities
and superior customer experience in order to better engage
with our customers and improve their lives by developing the
most innovative solutions. I am confident that our advanced
business model and highly professional and engaged
team will enable us to generate strong returns and create
sustainable value for all our stakeholders.
On behalf of the Board, I would like to thank the management
team and all employees for their outstanding efforts,
commitment and diligence. I strongly believe that together
we will be able to overcome any challenges that lie ahead and
achieve our strategic priorities.
Mamuka Khazaradze
Chairman
2 April 2019
1 The Fraser Institute compiles the annual Economic Freedom of the
World report while Numbeo publishes the Crime Index
2 Based on initial estimates by Geostat
3
4
IMF WEO, October 2018
IMF WEO, October 2018
TBC BANK annual report and accounts 2018
7
CEO LETTER
Dear shareholders,
2018 was a remarkable year,
marked by a strong operating
and financial performance. We
have exceeded our medium-term
growth and profitability targets
and have significantly improved
our efficiency levels. We have
also made significant progress in
our digitalization strategy and
identified new growth and
development opportunities.
8
TBC BANK annual report and accounts 2018
FINANCIAL PERFORMANCE
Our underlying consolidated net profit reached GEL 454.9
million, up by 23.2% compared to 2017 (our consolidated
reported net profit reached GEL 437.4 million, up by 21.5%
compared to 2017). Our underlying return on equity was
22.8%, while the underlying return on assets stood at 3.3%
(the reported return on equity stood at 22.0%, while reported
return on assets was 3.2%). Our robust profitability was
driven by strong income generation, improved cost efficiency
and prudent risk management. We also maintained a solid
net interest margin, at 6.9%, up by 0.4 pp year-on-year
and managed to achieve a strong increase in net fee and
commission income, up by 25.1% year-on-year. Over the
same period, our cost to income ratio decreased by 3.9 pp
and stood at 37.8%, while cost of risk stood at 1.6% or 1.5%
without currency effect.
In terms of balance sheet growth, our loan book expanded
by 21.3% year-on-year, supported by increase across all
business segments which resulted in a market share
of 38.8%1, up by 0.6 pp year-on-year. Our asset quality
remained sound with non-performing ratio standing low at
3.1%. Over the same period, deposits increased by 19.6%,
thus bringing our deposit market share to 41.2%1, up by 1.4
pp year-on-year.
Our capital and liquidity ratios continued to remain solid. As
of 31 December 2018, our tier 1 and total capital adequacy
ratios (CAR) per Basel III guidelines were 12.8% and 17.9%
respectively, compared to the corresponding minimum
regulatory requirements of 11.8% and 16.7%. At the same
time, our net loans to deposits + IFI funding ratio stood at
89.9% and the net stable funding ratio (NSFR) was 130.2%.
STRATEGIC PROGRESS AND NEW PRIORITIES
We continue to make strong progress in delivering on our
digital transformation. In the fourth quarter, our offloading
ratio reached 90.6%, up by 2.3 pp year-on-year, mainly driven
by the increased number of transactions in mobile banking.
Over the same period, our mobile banking penetration grew
by 5.6 pp and amounted to 37.0%. Sales conducted through
digital channels also demonstrated a strong growth, and
amounted to 45.3%2 of total sales in December 2018. I am
also extremely proud of Georgia’s first fully-digital bank,
Space, which we launched in May 2018. Space is a cutting-
edge mobile application for managing daily finances offering
a unique customer experience through simple procedures
and products and an intuitive design. Space is becoming
increasingly popular and is helping us to attract new
customers as well as re-activate the existing ones.
In order to further deepen the relationship with our
customers and expand our value proposition, we are
developing customer focused ecosystems, which are closely
linked with our core financial products and services. In 2018
we started to:
develop an e-commerce market place and build an
innovative digital trading platform, Vendoo, through the
acquisition of Swoop, a well-known online discount and
sales company in Georgia;
1 Based on data published by National Bank of Georgia as of 31
December 2018
2 For selected products being offered through remote channels:pre-
approved loans, credit cards, limit increase and opening of accounts
develop a digital ecosystem for real estate in Georgia
through the acquisition of a 90% stake in a real estate
platform, Allproperty.ge. The ecosystem will offer our
customers a wide range of products and services they
typically require when purchasing and moving into a new
home.
We plan to add more ecosystems in 2019.
As we establish ourselves as digital innovators, we need to
react quickly to a fast-changing market environment and
maintain best-in-class operating cost levels. Therefore, in
2018 we launched a company-wide agile transformation
project which aims to create a more flexible and effective
organisational structure. We plan to roll it out across the
entire bank over the course of 2019. We also continue to
improve our front and back office processes though branch
optimisation and automatisation.
In 2018, we also embarked on new challenge - to expand
our operations in Azerbaijan and Uzbekistan. This will
provide access to a potential customer base of 40 million
people, significantly greater than the 3.7 million population
of Georgia. Our strategy is to penetrate the retail and MSME
segments by offering innovative products mainly through
digital channels, including Space. In order to mitigate
the risks inherent to these ventures, we intend to adopt a
phased approach to investment, which will be determined
by the success of our predefined strategic targets.
Azerbaijan: In January 2019, we signed a shareholder
agreement with Nikoil Bank for a merger with our
Azerbaijan subsidiary, TBC Kredit. This entitles us to
8.34% of the merged entity and a call option to increase
our shareholding to 50%+1 shares within four years,
based on a fixed price formula. The transaction is subject
to regulatory approval. We have already strengthened
Nikoil Bank’s management team with new members and
we are actively developing our strategy on the ground. In
parallel, we are working on improving governance and
risk management systems;
Uzbekistan: We aspire to build a next generation, green
field bank in partnership with international financial
institutions and a local partner. We have already applied
for a banking license and expect to obtain it by the end
of 2019. In the meantime, we have launched preparatory
work and are actively deploying the core banking system
and renovating our pilot branch, which is scheduled to
open in March 2019.
MACROECONOMIC OVERVIEW
The economy continued to perform strongly in 2018,
following the sharp recovery of 2017. GDP growth stood at
4.8%3 at year-end and was broad-based across most sectors,
placing Georgia among the fastest-growing economies in
the region. The core strengths of the country: continuing
reforms, diversified trade and investment inflows, as well
as a prudent macroeconomic stance continued to pay off.
Despite a number of unfavorable regional events and the
considerably tighter fiscal policy domestically, the economy
remains on a path of sustainable development, also
reflected in improved credit rating by Fitch Ratings in early
2019.
The increase in inflows of exports, tourism and remittances
remained strong in 1H 2018 (+26.4% YoY in US$ terms).
Following the economic difficulties in Turkey, sanctions on
Iran, and weakness of the Russsian ruble, the growth of
inflows slowed in the second half of the year (+14.1% YoY),
but it still remained solid. As for the full year 2018, total
inflows were 19.4% higher year-on-year.
The current account (CA) balance continues to improve.
Over the last four quarters ending 3Q 2018 the CA deficit
to GDP ratio stood at 8.3% compared to the 8.8% in 2017.
The improvement resulted from several factors, including
the continued positive trend in external inflows, the
normalisation of FDI-related imports as well as low fiscal
spending. As a result of the improving trend and the strong
seasonal effect, in 3Q 2018 the CA even reached a surplus
of 0.3% of GDP.
Foreign Direct Investment (FDI) inflows declined by 34.9%
YoY in 2018 mostly driven by finalization of BP’s South
Caucasus Pipeline Extension project4, as well as by one-offs
related to the change of ownership of some companies from
non-residents to residents and paying down FDI related
debt. FDI inflows to GDP ratio stood at 7.9% - a normalized
level following the above trend inflows over 2014–2017.
Foreign direct investments at this level continue to be the
major source of financing of the CA deficit.
The banking sector loan growth continued to be solid with
the bank loan portfolio expanding by 17.2% in 2018 year-
on-year at a constant exchange rate. Lending was strong
across the business as well as retail segments. At the same
time, a sharp slowdown in non-mortgage retail lending was
notable following the introduction of a new regulation on
retail lending in May 2018.
Overall, Georgia’s economy is growing at a strong rate
and demonstrating high resilience towards shocks. This is
underpinned by the following factors: the diversified sources
of inflows, low inflation, prudent fiscal stance, below
trend and improving CA deficit and still solid FDI inflows,
reasonably balanced exposure to oil prices, exchange rate
being likely undervalued, NBG building up its international
reserves and no signs of bubble in housing market. Overal,
solid macro fundamentals provide an attractive environment
for financial services.
OUTLOOK
I am confident that our long-term strategy will generate high
returns and provide sustainable value for our shareholders.
Thus, I would like to reiterate our mid-term financial targets:
ROE of above 20%, cost to income ratio below 35%, dividend
pay-out ratio of 25-35% and loan book growth at around 10-
15%.
I would like to congratulate the whole TBC team for our
outstanding results and express my deep gratitude and
appreciation for their hard work.
The Strategic Report as detailed on pages 2 to 106 was
approved by the Board, and signed on behalf of the Board by:
Vakhtang Butskhrikidze
CEO
2 April 2019
3 Based on initial estimates by Geostat
4 Additional details about the South Caucasus’ pipeline project can be
found on www.bp.com/en_ge/bp-georgia/about-bp/bp-in-georgia/
south-caucasus-pipeline--scp-.html
TBC BANK annual report and accounts 2018
9
#WRITEINGEORGIAN
#წერექართულად
TBC Bank, has teamed up with Microsoft
as part of a project which aims to
integrate the Georgian language and
alphabet into computer systems and
technology products.
Everyone can contribute to the process by
translating sentences online.
www.kartulad.ge
GEORGIA
ECONOMIC GROWTH
The Georgian economy continued its solid performance and
recorded 4.8%1 real GDP growth in 2018, unchanged from
the 2017 growth rate. Such a development is particularly
remarkable given the unfavourable environment
in
the region and the considerably tighter fiscal policy
domestically. The growth at this level once more
underlines the economy’s core strengths – continuous
reforms, diversified trade and investment inflows, as well
as a prudent macroeconomic stance.
Real GDP Growth
4.6%
3.4%
2.9%
2.8%
4.8%
4.8%
Further improvement of the CA balance has been another
remarkable development in 2018. Over the last four
quarters ending 3Q 2018 the CA deficit to GDP ratio stood
at 8.3%, compared to the 8.8% in 2017. The improvement is
a result of several factors, including the continued positive
trend in external inflows, the normalisation of FDI-related
imports as well as low fiscal spending. As a result of the
improvement trend and strong seasonal effect, in 3Q 2018
the CA turned even to surplus, at 0.3% of GDP.
FDI inflows declined by 27.2% YoY in 9M 2018, mostly
driven by finalization of the BP’s South Caucasus Pipeline
Extension project2 as well as by one-offs related to the
change of ownership of some companies from non-
residents to residents and paying down FDI related debt.
Nevertheless, FDI remains the major source of financing
for the CA deficit.
CA Deficit and Net FDI (% of GDP)
2013
2014
2015
2016
2017
2018*
5.8
6.2
3.9
5.1
8.5
9.6
8.0
10.8
7.3
Source: Geostat
*initial estimates
The growth was broad-based across different sectors of
the economy. Data from 9M shows it was mostly driven
by trade and repairs (+5.7% YoY), real estate (+12.7% YoY),
transport and communications (+6.8% YoY), financial
intermediation (+15.8% YoY) and hotels and restaurants
(+7.3% YoY). Over the same period, the construction sector
declined by 3.8% YoY, reflecting one-off factors related to
several large-scale infrastructure projects as well as a
slowdown in public spending.
EXTERNAL INFLOWS
Despite the weakening backdrop in the region, inflows
remained strong in 2018. In 2018, exports, tourism and
remittances grew by a solid 19.4% YoY in US$ terms, mostly
driven by inflows from the EU, followed by Azerbaijan,
Russia and other CIS economies. Growth of inflows
weakened in the second half of 2018, a consequence of
the slowdown experienced by several economic partners,
as well as the strengthening US$. The Georgian economy
continues to align itself closely to more stable markets,
such as the EU, whilst reducing the inflows from any one
particular country. In that regard the EU became the prime
source of remittance inflows, accounting for 35.0% of the
total, while treditional markets like Russia, which had
always enjoyed the leading position, had a 29.0% share in
the total remittances inflows.
1 Based on initial estimates by Geostat
2 For details see www.bp.com/en_ge/bp-georgia/about-bp/bp-in-
georgia/south-caucasus-pipeline--scp-.html
12
TBC BANK annual report and accounts 2018
-5.8
-10.3
-12.8
-11.7
-10.8
-12.6
-13.1
-8.8
-8.3
2010
2011
2012
2013
2014
2015
2016
2017
Q3 18*
CA Deficit to GDP
Net FDI to GDP
Source: NBG, Geostat.
*As of the last four quarters ending Q3 2018
FISCAL POLICY
The fiscal policy remained contractionary throughout the
year. Although the budget deficit amounted to an estimated
2.6% of the GDP in 2018, the spending was concentrated
mostly at the end of the year and it primarily reflected
the advance payments on infrastructure projects. The full
impact of the spending on growth is likely to be apparent
in the coming months, with the strongest effect likely in
2Q 2019. At the same time, tax refunds doubled, from GEL
232.6 million in 2017 to GEL 466.8 million in 2018, creating
more business friendly tax environment and supporting
the growth.
The public debt profile of Georgia remains sustainable with
low weighted average interest rate at around 2.0% and low
exposure to interest rate risk (c. 65.0% of total external
debt are fixed rate contracts). In 2018 public debt to GDP
ratio stood at an estimated 43.7%, down by 0.5 pp YoY.
External debt to GDP ratio stood at around 34.2% (-0.7 pp
YoY) while the domestic public debt amounted to c. 9.5% of
GDP in 2018 (+0.2 pp YoY).
The dollarisation continues to decline, both on loans and
deposits side, however at a slower pace. As of the end of
2018, loan dollarisation stood at 57.0%, down by 0.1 pp YoY
and 0.9 pp lower excluding the FX effect. In 2018 deposits in
grew by 23.4% YoY, while FX deposits went up by 12.3% YoY
(8.8% YoY excluding FX effect). The deposit dollarisation
declined by 2.2 pp YoY (2.9 pp excluding FX effect) and stood
at 63.1% as of December 2018.
INFLATION AND MONETARY POLICY
Annual CPI inflation was around the targeted level of 3.0%
in 2018 with 4.3% in January and gradually declining to
1.5% by the end of 2018. The NBG decreased the policy rate
by 0.25 pp from 7.25% to 7.00% in July 2018. The central
bank continued the normalisation of the monetary policy in
2019 as well, cutting the policy rate by another 0.25 pp to
6.75% in January.
On the back of higher inflows, lower oil prices and, likely,
weaker domestic demand, the NBG continued to increase
its foreign currency reserves. Overall, in 2018 the NBG
made 17 interventions and purchased US$ 197.5 million –
an estimated 1.2% of the GDP.
As for the exchange rates, as of the end of December 2018
the GEL nominal exchange rate weakened against US$ by
3.3% YoY and appreciated against EUR by 1.1% YoY. Over
the same period, the GEL nominal effective exchange rate
appreciated by 8.0% while the real effective exchange rate
appreciation amounted to 4.6%. The GEL real effective
exchange rate remained below its long-term trend as well
as medium term average.
FINANCIAL SECTOR
The financial sector, dominated by the banks, continues
to grow under a prudent regulatory framework. As of the
end of 2018 total assets of the banking sector increased
by 14.7% YoY and amounted to GEL 39.7 billion, or 96.4%
of GDP 3.
Total loan portfolio increased by 19.3% YoY and reached
GEL 26.6 billion, or 64.5% of GDP3. Excluding the FX effect,
bank loans increased by 17.2%. The growth was almost
equally split between the national currency loans and
foreign currency loans: the former increased by 19.5% YoY,
while the latter stood at 19.2% YoY (+15.4% YoY excluding
FX effect).
The banking sector profitability remained solid with return
on equity at 19.5% in 20184. At the same time, the quality
of the credit portfolio for the financial sector remains
robust. As of Q4 2018 the share of non-performing loans5
in the total portfolio stood at 2.7%, down by 0.1pp YoY and
unchanged compared to the previous quarter.
GOING FORWARD
Georgia continues to position itself as an attractive business
environment with structural reforms and high GDP
growth potential. In addition, 2018 further demonstrated
the economy’s resilience. Indicators including lower CA
deficit, lower public debt and more appropriate levels of
international reserves contribute to further strengthening
the macroeconomic backdrop in the country. The more
resilient risk-profile coupled with continued structural
reforms and business friendly environment should support
investments and growth. According to the IMF projections,
the Georgian economy is expected to remain among the
fastest growing economies in the region with an average
GDP growth estimated at above 5.0% in the medium term.
ABOUT TBC RESEARCH
In 2018 TBC group’s new initiative – TBC Research was
launched. TBC Research represents the joint project
of TBC Bank economic team and TBC Capital created
to provide analysis of developments in the economy of
Georgia and various sectors, as well as the regional
environment. With different skills and experiences brought
together in one team, TBC research covers topics of
interest for investors, corporates, and broader audience.
Publications are available at www.tbcresearch.ge.
Initial estimates for Q4 2018 GDP
3
4 Based on the local regulatory accounting standards
5 NPLs are based on the IMF definition and include loans with
payments of principal or interest past due by 90 days or more
TBC BANK annual report and accounts 2018
13
BUSINESS MODEL AND STRATEGY
OUR KEY STRENGTHS
We have a customer centric business model focused on providing best
customer experience in servicing everyday needs of our clients. Our
strategy is centered on core principles of sustainable development,
innovation and efficiency and is designed to create value for all our
stakeholders.
LEADING POSITION IN
THE MARKET WITH A
CONSISTENT TRACK
RECORD OF GROWTH
AND PROFITABILITY
INTEGRATED BUSINESS
MODEL FOCUSED
ON EVERY SEGMENT
OF THE FINANCIAL
SERVICES MARKET
STRONG BRAND
AND REPUTATION
28.5%1 loan book CAGR for the 2013-2018;
28.6% net profit CAGR for the 2013-2018;
ROE above 20% since 2015.
Single point of contact for all financial needs;
Around 99.7% of group assets are related to banking, leasing,
investment banking, insuarance and brokerage activities.
First bank of choice for customers as well as one of the most
attractive employers;
The country’s leading company in terms of corporate responsibility2;
Recipient of 33 awards for “Best Bank in Georgia” since 2002 from
the world’s leading financial magazines3.
ADVANCED OMNI-
CHANNEL PLATFORM
WITH STRONG FOCUS
ON DIGITAL
Our digital solutions, offering an unrivaled customer experience,
represent the core of our distribution platform accounting for 91%
of all transactions in 2018;
Recipient of multiple digital awards from Global Finance Magazine,
including five global awards and 25 countrywide and regional
(CEE) awards since 2012.
1 on constant curreny basis the growth was 23.0%
14
TBC BANK annual report and accounts 2018
SUPERIOR
CUSTOMER
EXPERIENCE
“The Customer comes first” approach – we place our clients at the center
of all our activities and services;
Striving for continuous improvement through innovation, investment in
digital channels and infrastructure with cutting edge technologies;
Maintain highest satisfaction scores in Georgia’s banking sector for many
years in a row4.
LEADING PARTNER
FOR BUSINESSES
IN GEORGIA
65%5 of all registered companies in Georgia in 2018 chose TBC Bank;
Building strong TBC BUSINESS brand by developing an ecosystem of
banking and supplementary services for businesses.
HIGHLY MOTIVATED
AND ENGAGED TEAM
High employee satisfaction scores6 with ENPS at 66% and Engagement
Index of 87%;
Corporate culture centered on collaboration and commitment;
Continuous investment in our employees, focusing on their professional
development, satisfaction and wellbeing.
EXPERIENCED
MANAGEMENT
TEAM AND HIGH-
QUALITY CORPORATE
GOVERNANCE
Highly qualified and diverse board of directors with strong commitment
to highest standards of corporate governance and business
transparency;
Listing on the premium segment of London Stock Exchange, full
compliance with the UK Corporate Governance Code.
EFFECTIVE RISK
MANAGEMENT
A sophisticated risk management system which ensures the
Group’s sustainability and resilience;
Our prudent approach translates into a low cost of risk, a sound
asset quality and a strong capital and liquidity positions.
2 Based on number of CSR projects financed
3 The Banker, EMEA finance, Euromoney, Global Finance
4 Based on surveys conducted by the independent research companies IPM and ATC
5 Data is for FY 2018, source: www.napr.gov.ge, the National Agency of Public Registry
6 Employee Net Promotor score and Employee Engagement Index were measured by an independent consultant
TBC BANK annual report and accounts 2018
15
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 2018, we have recorded strong underlying net profit, up by
23.2% year-on-year (the reported profit increased by 21.5%
over the same period). Our robust profitability was driven
by strong income generation, improved cost efficiency
and prudent risk management. Our net interest margin
improved by 0.4 pp year-on-year and reached 6.9% in 2018
driven by the increase in loan yields and and decrease in cost
of deposits, while cost to income ratio decreased by 3.9 pp to
37.8%. Over the same period, the increase in cost of risk by
0.4 pp to 1.6% was mainly due to currency depreciation and
remained broadly stable without FX affect. As a result, our
underlying return on equity stood at 22.8% well above our
medium term target of more than 20%, while our underlying
return on assets stood at 3.3%.
In 2018, our loan book grew by 21.3% leading to the market
share of 38.8% up by 0.6 pp year-on year. Our capital
positions remains solid, with total tier 1 and total capital
ratios standing at 12.8% and 17.9% respectively above the
corresponding minimum requirements of 11.8% and 16.7%.
We also achieved strong performance in digitalization: our
offloading ratio increased by 2.3 pp and stood high at 90.6%,
while our mobile banking penetration and mobile&internet
banking penetration ratios grew year-on-year and amounted
to 37.0% and 43.7% respectively. We are also proud to
maintain our leading position as the Best Service Provider in
Georgia. Furthermore, our employee engagement index and
net promotor score remain exceptionally high.
UNDERLYING NET PROFIT
(IN MLN GEL)1 (APM)
REPORTED RETURN
ON AVERAGE EQUITY
NET INTEREST MARGIN
growth 23.2%
growth 1.1pp
growth 0.4pp
2018
2017
2016
454.9
369.2
273.3
2018
2017
2016
22.0%
20.9%
22.4%
2018
2017
2016
6.9%
6.5%
7.8%
REPORTED NET PROFIT
(IN MLN GEL)
growth 21.5%
2018
2017
2016
437.4
359.9
298.3
UNDERLYING RETURN
ON AVERAGE ASSETS1 (APM)
COST TO INCOME
growth 0.1pp
reduction 3.9pp
2018
2017
2016
3.3%
3.2%
3.6%
2018
2017
2016
37.8%
41.7%
45.8%
UNDERLYING RETURN
ON AVERAGE EQUITY1 (APM)
REPORTED RETURN
ON AVERAGE ASSETS
COST OF RISK
growth 1.4pp
growth 0.1pp
2018
2017
2016
22.8%
21.4%
20.6%
2018
2017
2016
3.2%
3.1%
3.9%
growth 0.4pp
2018
2017
2016
1.6%
1.2%
1.0%
16
TBC BANK annual report and accounts 2018
TOTAL CAR (BASEL III)2
EMPLOYEE SATISFACTION4
ENPS
growth 0.4pp
2018
2017
2016
17.9%
17.5%
14.2%
growth 11pp
2018
2017
2016
66%
55%
44%
TIER 1 CAR (BASEL III)2
EMPLOYEE SATISFACTION4
Engagement index
reduction 0.6pp
reduction 4pp
2018
2017
2016
12.8%
13.4%
10.4%
2018
2017
2016
87%
91%
88%
RETAIL TRANSACTIONS
OFFLOADING RATIO
growth 2.3pp
2018
2017
2016
90.6%
88.3%
84.1%
MOBILE BANKING
PENETRATION RATIO
growth 5.6pp
2018
2017
2016
37.0%
31.4%
24.2%
LOAN BOOK MARKET SHARE3
CUSTOMER EXPERIENCE5
The best service provider in Georgia
growth 0.6pp
reduction 3pp
MOBILE AND
INTERNET BANKING
PENETRATION RATIO
growth 3.3pp
2018
2017
2016
38.8%
38.2%
38.9%
Dec 2018
Feb 2018
2016
50%
53%
N/A
2018
2017
2016
43.7%
40.4%
36.6%
1 More information about underlying figures (APMs) is given in Annex 1 on page 106
2 2016 figures are given per old NBG regulation, which was effective till December 2017 and was calculated in accordance with Basel II/III guidelines.
Therefore, they are not comparable with 2017 and 2018 figures
3 Based on data published by National Bank of Georgia as of 31 December 2018
4 Employee Net Promotor score and Employee Engagement Index were measured by an independent consultant
5 Based on survey conducted by independent research company IPM among retail segment in December 2018. The data for 2016 and 2017 is not
available as we started conducting this survey in February 2018
TBC BANK annual report and accounts 2018
17
BUSINESS MODEL AND STRATEGY CONTINUED
OUR CUSTOMERS AND VALUE PROPOSITION
Our retail banking offers a wide and diverse range of products to mass retail clients through our advanced omni-
channel platform, creating an exceptional customer experience. We also provide a highly personalized private
banking and sophisticated investment management products to our affluent and high net-worth individuals
Our corporate and investment banking supports large and mid-sized corporates by providing a full range of
banking products and services, as well as brokerage, financial advisory and investment banking solutions
Our MSME banking serves micro, small and medium-sized businesses, as well as start-ups by offering them
the most comfortable and innovative banking solutions together with extensive non-financial services through
our renowned business support program
HOW WE GENERATE PROFIT
Our omni-channel platform, with strong focus on digital capabilities, drives higher sales of our financial
products as well as greater operational and transaction volumes
Utilising big data analytics to ensure greater cross-selling and client engagement
Core banking products are complimented with fee-based and innovative services
A prudent risk management based on stringent internal controls and an integrated IT infrastructure
An efficient business model across all channels focused on effectiveness and productivity
HOW WE SHARE VALUE WITH OUR STAKEHOLDERS
Generate robust and long-term sustainable returns for our shareholders
Provide well-suited solutions and superior customer experience for our customers
Offer challenging and rewarding careers for our colleagues
Support community through a wide range of CSR activities
Preserve Georgia’s cultural heritage and environment
18
TBC BANK annual report and accounts 2018
OUR STRATEGY
Our strategy is to be the best bank for people and businesses as well as an innovation leader in Georgia, and the
broader region, to create value for all our stakeholders and to develop our business sustainably. Our strategy is
constantly evolving to address new challenges and capture new opportunities in the market as they arise.
We have begun developing digital ecosystems around our customers to ensure that we integrate better in their
everyday lives. In this regard, we have made certain progress to develop a housing and e-commerce ecosystems,
which will be followed by more ecosystems in 2019. We leverage on our superior customer experience and
advanced digital capabilities when pursuing this venture.
Another important initiative is to implement an agile transformation across the bank in order to be able to react
quickly to the fast-changing market environment and build a competitive advantage.
In parallel, we are actively developing our financial services. We are enhancing our core banking products
through expansion of new commission-based businesses, where we see significant growth opportunities, such
as insurance, cards business, brokerage and investment banking as well as trade finance (for more details please
see our divisional reviews section).
We continue to improve our efficiency through various initiatives while maintaining a prudent risk management
system.
TBC BANK annual report and accounts 2018
19
BUSINESS MODEL AND STRATEGY CONTINUED
OUR STRATEGIC PRIORITIES
PROGRESS IN 2018
Maintain our leadership position and deliver
sustainable growth
We aim to retain our leadership position
and grow together with the market, while
maintaining high profitability level.
Total loan book grew by 21.3% YoY increasing our
market share in total loans by 0.6 pp to 38.8%
Underlying Return on Equity 1 (ROE) increased
by 1.4 pp YoY and stood at 22.8%, while reported
Return on Equity increased by 1.1 pp YoY and
stood at 22.0%
Enhance our value proposition by building
customer focused ecosystems
We aspire to create maximum value for our
customers by providing them with a full range
of financial products and services in the most
convenient way, as well as creating additional
services that customers need on a daily basis
and that are linked to our core activities.
Acquired Swoop, a well-known online discount
and sales company in Georgia, to build an
e-commerce market place in the country
through the development of an innovative
digital trading platform, Vendoo.
Acquired 90% stake of the Georgian real estate
digital platform Allproperty.ge. The goal is
to develop a full range of real estate services
required by home buyers, from the point of
selecting the property to moving into it.
Further enhance our digital capabilities
As digital innovators we constantly fine-
tune our digital offerings with an intuitive
design and new features as more and more
customers are moving to our digital channels.
We are also actively engaged with our young
and digitally-savvy customers in order to
develop the most innovative and modern
solutions that meet their needs for high-tech
products and services.
Mobile banking penetration ratio increased by
5.6 pp YoY to 37.0%
Maintain offloading ratio as high as 90.6% up by
2.3 pp YoY
Launched Space, Georgia’s first fully digital
bank (for more details please see page 44)
Maintain robust profitability and margins
We have launched the advanced analytics
program across the Bank to sustain margins
by conducting proper customer segmentation
and pricing, as well as targeting the right
product mix.
20
TBC BANK annual report and accounts 2018
NIM improved by 0.4 pp YoY and stood at 6.9%
Agile transformation and investment in
human capital
We realise the importance of a flexible
organisation structure in today’s fast changing
market environment, where companies need
to be able to quickly adapt and respond to the
evolving business needs.
Therefore, this year we have initiated the
enterprise-wide agile transformation process
and plan to roll it out across the entire bank in
several waves during 2019.
We continue to invest in our employees focusing
on their development, satisfaction and wellbeing.
Improving efficiency and competitiveness
We aspire to achieve the best-in-class
operational cost levels in a sustainable way by
leveraging on our strong digital capabilities
and customer centric approach.
In 2018 we launched several initiatives in
this respect, including a branch optimization
project which envisages moving from a
product-centric service model to a client-
centric service one. We have also developed a
plan for back office processes optimization.
Further improve customer experience
We dedicate significant time and effort to
explore our clients’ banking needs and
preferences and to constantly transform our
products and services in order to deliver
outstanding experience in all our channels.
Our customers’ interest are our top priority
and we are committed to making their lives
easier by acting as their trusted partner, who
is always ready to help.
Designed agile transformation
detailed plan and targets
Created a top-management
transformation team to lead the
change
ENPS and Engagement index
reached 66% and 87%, up by 11pp
and down by 4pp respectively
Cost to income ratio decreased by 3.9 pp
YoY and stood at 37.8%
Cost per asset ratio decreased by 0.1 pp YoY
and stood at 3.0%
Named “The Best Service
Provider in Georgia”2
1. More information about underlying figures (APMs) is given in Annex 1 on page 106
2 Result of a survey conducted by the independent research company IPM among retail segment in December 2018
TBC BANK annual report and accounts 2018
21
BUSINESS MODEL AND STRATEGY CONTINUED
EMBARKING ON NEW CHALLENGES – INTERNATIONAL EXPANSION
In 2018 we added as a new strategic priority - the expansion of our international presence by taking a careful approach to
entering selected new markets. Our extensive banking expertise and advanced digital capabilities put us in a strong position
to capture new growth opportunities and generate high returns. Our strategy is to follow a cautious, asset-light, limited
capital investment approach with a strong focus on digital channels. Furthermore, we aim to invest further capital subject to
achieving milestones in stages to make sure that we are comfortable with the results and the operating environment before
committing additional investment. If and where relevant, we will engage with our partner IFI institutions.
AZERBAIJAN
In January 2019, TBC Bank signed a shareholder agreement with Azerbaijan’s Nikoil Bank aimed at developing the business
in the country and merge TBC Bank’s Azerbaijani subsidiary, TBC Kredit, with Nikoil Bank. The transaction is subject to the
approval of all relevant authorities. After the completion of the transaction, TBC Bank would own 8.34% of the merged entity
with the option to bring its shareholding to 50%+1 shares within 4 years, based on fixed price formula.
TBC Bank would be represented on the board of Nikoil Bank and, together with the Nikoil management, would play a crucial
role in the development and execution of the merged entity’s strategy. TBC Bank intends to use its banking expertise in
Georgia, including its newly-launched fully-digital bank, Space, to support Nikoil Bank’s local growth in its targeted retail and
MSME customer markets.
WHY AZERBAIJAN?
Underpenetrated retail and MSME banking segment and a large, untapped population base of around 10 million
Less developed banking products compared to Georgia and low level of digitalisation of the banking sector
Strong market expertise, since TBC Bank is present on the Azerbaijan market since 2008 via its subsidiary, TBC Kredit
CURRENT PROGRESS
In 2018, Nikoil Bank’s main shareholder recapitalised the bank by investing US$ 75 million
Strengthened management team of Nikoil Bank by appointing several executives including the COO, CFO, CRO and CDO
Started to develop and implement the new strategy of the merged entity
Initiated improvement of governance and risk management system
MID-TERM TARGETS AND INVESTMENT PLAN
Targets for 2021:
Achieve a loan book of around US$ 1,400 million
Achieve equity of around US$ 200 million
Generate ROE of above 20%
4-year investment plan
TBC Bank will be investing, consistent with its 8.34% shareholding, between three and five million US dollars per year,
subject to reaching appropriate KPIs by the merged entity
22
TBC BANK annual report and accounts 2018
UZBEKISTAN
In 2018 we started to explore the Uzbekistan market and develop a strategy for entry into it. The plan is still in its conceptual
phase and subject to approvals, including from the local authorities. Therefore, the project could change as we progress.
We aspire to build a greenfield, next generation bank for retail and MSME customers with a primary focus on digital channels
including our fully-digital bank Space. We also plan to operate smart, asset-light branches with digital offerings.
We would like to establish the bank in partnership with international financial institutions and a local partner. Our plans
foresee a minimum 51% shareholding and an initial investment of US$ 20-30 million. We have already secured interest from
EBRD and IFC and we are in the process of finding a local partner.
WHY UZBEKISTAN?
A very attractive market with a large and growing population of 32 million and with retail and MSME loans to GDP ratio1 of
below 5% as of the end of 2017
Shared history and good cultural links
Right time given the ongoing reforms process with the involvement of former Georgian government officials
Both Uzbekistan and Georgia are included into China’s One Belt One Road initiative
CURRENT PROGRESS
Opening pilot branch in March 2019 for a proof of concept
Implementing core banking with local IT company
Developing multichannel including Space
MEDIUM TO LONG-TERM FINANCIAL TARGETS ONCE THE LICENSE IS GRANTED
Achieve sustainable ROE up to 25%
Cost to income ratio below 35%
OUTLOOK FOR 2019
Going forward, we will continue to concentrate our efforts on implementing our digital strategy and building ecosystems as
well as further enhancing our leadership position in terms of customer experience. At the same time, we will carry on with our
agile transformation, improving data analytics capabilities and further optimising our cost structure. In terms of international
expansion, we will closely monitor the implementation of our strategy in Azerbaijan and aspire to secure banking license
in Uzbekistan by the end of 2019 and launch our operations there. We expect that our Uzbek and Azerbaijan subsidiaries
together will contribute c. 30% to the Group’s loan book in medium to long term.
1 Source: CBU and commercial banks
TBC BANK annual report and accounts 2018
23
TBC BANK’S NEW
HEAD OFFICE
Tbilisi Business Centre is the name of TBC Bank’s new head office,
a unique combination of a cultural hub and an innovation lab. With
its contemporary design, the complex will be energy efficient and
will incorporate innovative technologies. Providing an ecologically
clean environment with greenery and varied recreational zones, the
Tbilisi Business Centre proposes a transition from a traditional closed
and introverted working model, towards a flexible, open and more
comfortable working environment. The design of the new head office
was inspired by the traditional Georgian “Shatili” towers, where the
terraced layout and large balconies of the architectural structures
harmoniously merge with the landscape. The design of the new head
office is by the international architecture firm, UNStudio, founded
by Ben van Berkel. The opening of the complex is scheduled to take
place within three years.
“We are building a completely new type of complex that has no
equivalent in Georgia. While working on the concept for the new
head office we incorporated TBC Bank’s strategy, vision and core
values. The project will also serve as a catalyst for the development
of a new area of the city, promoting socio-economic development
through the creation of a financial knowledge centre and an
innovation platform” – commented Frans van Vuure, Director and
Senior Architect at UNStudio.
DIVISIONAL REVIEW
RETAIL BANKING
2018 HIGHLIGHTS
40.0%
54.6%
RETAIL LOAN MARKET SHARE1
RETAIL DEPOSIT SHARE IN TOTAL PORTFOLIO
41.2%
c. 2.3 million customers
RETAIL DEPOSIT MARKET SHARE1
AROUND 83% OF ADULT POPULATION IN GEORGIA
45.3%
90.6%
RETAIL LOAN SHARE IN TOTAL PORTFOLIO
OFFLOADING RATIO
OVERVIEW
TBC Bank is the leader in Georgia’s retail banking segment, ranking first in terms of both deposits and loans, with market
shares of 41.2%1 and 40.0%1 respectively. We operate a customer-centric service model and offer our clients a full range of
banking products through our advanced omni-channel distribution platform with strong focus on digital channels. As a result
90.6% of our transactions are conducted remotely with Internet and mobile banking applications being our customers’ most
preferred communication channels. As the country’s leading service provider in retail banking, we differentiate ourselves by
our exceptional customer experience, world-class digital channels, most trusted brand and advanced analytical capabilities.
PROGRESS AGAINST STRATEGIC PRIORITIES IN 2018
Further enhance our customer
experience
The best service provider
in Georgia2
Continue to innovate and offer the most
up-to-date digital solutions on the market
Introduced an innovative and safe way of
transferring money via chat extension,Ti-Transfer
Enriched our products offering via Internet and
mobile banking applications
Please see below for more information
Increase the number of customers in
the affluent segment
Number of TBC Status customers increased
by 36.1% YoY and reached up to 41,000
Increase assets under management in
the high-net-worth individuals (HNWI)
segment
Assets under management3 in HNWI segment
increased by 9.8% YoY to GEL 2,151 million
1 Based on data published by the National Bank of Georgia as of 31 December 2018; in this context retail refers to individual customers
2 Based on survey conducted by independent research company IPM among retail segment in December 2018
3 AUM includes deposits, bonds and equity shares
26
TBC BANK annual report and accounts 2018
OMNI-CHANNEL DISTRIBUTION PLATFORM
c.529,000 internet or
mobile banking users
The award-winning Internet and mobile
banking applications
c.17,000 POS terminals and
c.3,300 self-service terminals
The wide network of POS and
self-service terminals
95% of our customers
answered within 15 seconds
The best-in-class call center with first
voice biometric recognition system (c.
231,000 voicprints taken)
149 branches
The wide network of branches
with a customer centric design
c.1,200 ATMs
The largest ATM network in Georgia
together with partner banks
c.241,000 users
The first Georgian-speaking
chat-bot, Ti-Bot, available
through Facebook Messenger
TBC BANK annual report and accounts 2018
27
DIVISIONAL REVIEW CONTINUED
RETAIL SUB-SEGMENTS
We serve more than 2.3 million retail customers,
accounting for about 83% of the total Georgian adult
population. In order to serve our clients more effectively,
we have grouped our retail customers into three sub-
segments: high-net-worth individuals (HNWI), affluent
customers (TBC Status), and mass retail. This allows us
to offer the most comfortable banking experience to each
customer.
Number of clients
Loan book share
Deposit share
Cross-selling ratio
Mass retail
c. 2.3 million
51.1%
38.7%
3.65
TBC
Status HNWIs
c.41,000 c.2,400
46.4%
2.5%
30.6% 30.7%
6.51
8.55
TBC Bank was the first bank to introduce private banking
services in Georgia more than 10 years ago and to
establish high standards of service. We strive to be the first
choice for private banking customers and are committed to
gaining a deep understanding of clients’ needs and goals
in order to provide them with complete and personalised
range of solutions and to build a lifelong partnership. In
recognition of our continuous efforts to deliver exceptional
private banking services, in 2018 TBC Bank was named the
Best Private Bank in Georgia by the Professional Wealth
Management (PWM) and The Banker magazines for the
fourth time.
TBC STATUS
TBC Status serves around 41,000 affluent customers in
Georgia and provides them with special banking experience
tailored to their specific needs. Our value proposition is
comprised of:
individual approach and long-lasting relationship;
exceptional customer experience;
highly professional and experienced personal bankers;
personalised banking products and services;
dedicated multi-channel with extended capabilities and
a strong digital focus;
various lifestyle offerings through TBC Status concierge;
exclusive events and special discounts for the country’s
main cultural events, including TBC Bank’s annual Jazz
Festival.
As our customers’ comfort is of utmost importance for
us, we continually upgrade our digital offerings and allow
them to conduct most of their daily transactions remotely.
As a result, the mobile and Internet banking penetration
level stood at as high as 82.7% among Status clients as of
31 December 2018 up by 3.5 pp compared to a year earlier.
1 Based on management accounts
Should customers need a personal consultation with their
banker, they are attended to in a comfortable service space
designed especially for them. We have around 70 TBC
Status areas in 27 branches.
Highlights1
2,158 mln
up by 38.7% YoY - TBC Status loan book
1,563 mln
up by 23.9% YoY - TBC Status deposit book
HIGH-NET-WORTH INDIVIDUALS (HNWI)
We serve more than 2,400 HNW resident and non-resident
individuals from over 40 countries. We provide our HNW
customers with tailor-made banking products and services,
as well as advise them in relation to various investment
opportunities in Georgia. We also have a representative
office in Israel, TBC Invest, which allows us to attract non-
resident clients from Israel more effectively.
We serve our high-net-worth clients in VIP service areas,
which combine luxury, comfort and privacy. Most experienced
personal bankers act as consultants and wealth planners to
build lifelong relationships with our high-net-worth clients.
We offer our HNWI sophisticated brokerage and investment
banking services through our wholly owned subsidiary, TBC
Capital. In 2018, the majority of bonds issued by TBC Capital
were acquired by our HNW individuals, which allowed them
to diversify their investments. In addition, we have also
developed an exclusive investment product in partnership
with LS Opportunities Fund - Frontier Senior Income (FSI),
a Luxembourg-domiciled investment vehicle managed by
Thales Investments. The fund invests in a well-diversified
portfolio, with strictly controlled credit and operational risks.
MAIN ACHIEVEMENTS IN 2018
In 2018, our retail loan book grew by 18.1%2 to GEL 4,699
million, mainly driven by an increase in mortgages,
which represented 57.7% of the retail book. Slowdown
in consumer lending is attributable to the reduction in
the unsecured loan portfolio related to NBG regulation
adopted in May 2018. Over the same period retail deposits
increased by 16.6% to GEL 5,104 million, supported by the
growth of both term and current and savings accounts.
More information about the financial performance of the
retail segment is provided under the section “Financial
Review” on pages 90 to 106.
28
TBC BANK annual report and accounts 2018
In order to optimise the operational costs we started a
branch optimization project which foresees switching
the service model, from product-centric to customer-
focused. The plan is to replace existing branch positions
with universal sales staff – financial advisors and service
managers – for a more integrated customer relation
system. In 2018 the project was piloted in two branches
and we are planning to roll out this model across all TBC
Bank branches.
In terms of digitalization, we have achieved outstanding
results in 2018:
During the year several new products were added
to the Internet and mobile banking applications
including: renewal and limit change of credit cards,
purchase of payment protection insurance and car
accident risk insurances, purchase of car parking
permit and automatic payment of car fines.
By the end of the year, our mobile banking
penetration increased by 5.6 pp and reached 37.0%,
while our mobile or Internet banking penetration
level grew by 3.3 pp and totaled 43.7%.
We also pride ourselves that in 2018 our Internet
bank has been named the world’s “Best Integrated
Consumer Banking Site” by Global Finance
magazine in addition to multiple digital country and
regional (CEE) awards.
Ti-bot,
the first Georgian-speaking chatbot,
is
increasingly popular among our clients. Since March
2018 Ti-bot has received around 14.4 million messages
and attracted around 241,000 customers. In addition to
the simple transactions that Ti-bot can perform, in 2018
we added an innovative and safe money transfer system
via chat extension, Ti-Transfer. Developed in partnership
with industry leader Pulsar Al, Ti-transfer has already
gained international recognition and it was named “Best
Alternative Payments Project” at the Payments Awards
ceremony organised by FStech and Retail Systems.
We have also achieved strong results in the card business:
After the successful launch of a new loyalty
programme in 2017, Ertguli, our credit card sales
continue to increase and our market share reached
44.9%3 by the end of 2018.
On the debit card side, in August 2018 we launched a
new product-“My Payroll Card”, for payroll and self-
employed customers, who receive their salaries by
cash or in another bank and are not inlcuded in our
standard payroll programme. This card allows such
customers to accumulate their monthly income
and to benefit from simplified procedures in case
they need credit products. The card proved to be
successful and since its introduction we issued more
than 26,000 cards.
We are also increasing our engagement with
younger Georgians by offering them special youth
cards tailored for their needs. We have partnership
agreements with all large universities in Georgia
covering around 48.0% of all students in Georgia.
Additionally, at the end of 2018 we introduced
gift cards in collaboration with Georgia’s largest
shopping centres.
We continue to leverage on our advanced data analytics
capabilities and during 2018 we implemented a thorough
market study across the globe in order to identify best
practices for analytics use cases and assessed their
relevance for TBC Bank. Based on our analysis, we
identified relevant use cases for each division and
developed the roadmap for the next 3 years. The first
project was
in November 2018 and
envisaged optimizing consumer credit pricing and credit
limit management in order to improve profitability in
consumer lending. We plan to launch more projects
during 2019. In parallel, we are building strong in-house
analytical team by recruiting and training the best talents
and we are developing big data infrastructure.
implemented
STRATEGY 2019
Strong focus on customers: develop value added
services around our customer sub-segments in
order to increase their engagement and customer
experience
Continue
to strengthen our
technological
leadership by introducing the most innovation
digital solutions on the market
Transform into data driven company and further
develop our advanced data analytical capabilities
in order to increase our profitability and efficiency
levels, as well as increase customer experience
and engagement
2 Growth without re-segmentation effect - In Q1 2018, GEL 236 mln
was transferred from retail to MSME portfolio
3 Based on NBG data
TBC BANK annual report and accounts 2018
29
“Ti Bot is the perfect partner for the young generation. I have been using it since its launch as it allows
me to perform daily banking transactions, such as mobile top up and P2P transfer in very simple and
interactive way. I especially enjoy communicating with Ti Bot though sending voice messages, as I am
always in a hurry and need to get information quickly,”
Rima Tsagareishvili,
Branch manager at Yves Rocher cosmetic store
“I am very excited about Ti Bot as it is fun and easy to communicate with. Conducting banking operations
through Facebook messenger suits perfectly young people who spend a great deal of time on Messenger
and feel much more comfortable chatting with Ti Bot rather than logging on to a mobile banking
application. My favorite feature is the latest addition, Ti transfer, which allows me to send money to my
friends, while talking with them in messenger without leaving the conversation”.
Zviad Tatunashvil,
Philology student at Tbilisi State University,
30
TBC BANK annual report and accounts 2018
RETAIL CASE STUDY
THE YOUNG
GENERATION
BEFRIENDS TI-BOT
Ti Bot is the first Georgian-speaking chatbot available via Facebook
messenger. It is an innovative and fun channel, which allows our
customers to perform simple banking transactions, as well as provides
useful information about TBC Bank products, entertainment events and
weather forecast. We value our clients’ feedback to add new features
and capabilities in order to constantly improve the customer experience.
For this purpose, we have created a special Facebook group where our
digital savvy customers can send their recommendations and comments
about our Ti Bot.
Rima Tsagareishvili is a branch manager at Yves Rocher cosmetic
store and an active contributor to our Facebook group. She is actively
involved in testing our Ti Bot and provides valuable insights.
Zviad Tatunashvil, a Philology student at Tbilisi State University, helps us
in testing Ti Bot by providing useful suggestions on how to make it better.
TBC BANK annual report and accounts 2018
31
DIVISIONAL REVIEW CONTINUED
CORPORATE INVESTMENT
BANKING (CIB)
2018 HIGHLIGHTS
37.4%
30.6%
CORPORATE LOAN MARKET SHARE1
CORPORATE LOAN SHARE IN TOTAL PORTFOLIO
41.2%
34.5%
CORPORATE DEPOSIT MARKET SHARE1
CORPORATE DEPOSIT SHARE IN TOTAL PORTFOLIO
47.4%
c.2,800
CORPORATE GUARANTEE MARKET SHARE1
NUMBER OF CUSTOMERS
OVERVIEW
TBC Bank is the market leader in the corporate segment in Georgia, leading in all core corporate banking products including
loan, deposit and guarantee portfolios. We serve more than 2,800 corporate clients and have a well-diversified portfolio with
strong presence in all sectors of the Georgian economy. We employ more than 120 highly skilled banking professionals with
deep and extensive sector knowledge. Our bankers offer tailor-made solutions to the businesses and seek to optimise their
financial and capital structure as well as assist them in growing and developing their businesses. To respond to the more
sophisticated product requirements of our clients, we are also actively developing investment banking services through our
wholly owned subsidiary TBC Capital. We differentiate ourselves through an advisory-focused business model, an exceptional
customer experience, an advanced trade finance and strong project finance/syndication capabilities, as well as highly
experienced and professional team.
Corporate loan book breakdown by sectors
1%
1%
3%
4%
1%
3%
5%
5%
7%
3%
1%
24%
14%
14%
14%
32
TBC BANK annual report and accounts 2018
Energy & Utilities
Real Estate
Food Industry
Hospitality & Leasure
Communication
Construction
Trade
Healthcare
Automotive
Metals & Mining
Agriculture
Services
Tranportation
Other
Financial Services
PROGRESS AGAINST STRATEGIC PRIORITIES IN 2018
Further accelerate the development
of the capital markets and investment
banking business in Georgia and increase
our footprint in this area in the region
The bonds issued and listed by TBC Capital
increased by 400% YoY and amounted to
GEL 305 million, which represented 55% of
total bonds issued and listed on Georgian Stock
Exchange in 2018
Further strengthen our coverage in
Georgia’s regions and in
the mid-corporate segment
Credit portfolio and net interest income of
such customers grew by 28.4% and 29.4% YoY
respectively
Increase penetration of corporate
clients through the TBC Bank’s
services and products
The volume and number of POS transactions of
our corporate clients grew by 156%
and 145% YoY respectively
1 Based on data published by the National Bank of Georgia as of 31 December 2018; in this context corporate refers to legal entities
TBC BANK annual report and accounts 2018
33
DIVISIONAL REVIEW CONTINUED
MAIN ACHIEVEMENTS IN 2018
In 2018, we achieved outstanding results in terms of
client acquisition in both the large and mid-corporate
segments. Our corporate loan book grew by 24.6%1 YoY
and reached GEL 3,177 million leading to a market share
of 37.4% up by 1.4pp. Corporate deposits increased by
29.0%2 YoY and reached GEL 3,231 million resulting in
a market share of 41.2% up by 3.3pp. More information
about the financial performance in the corporate
segment is provided under section “financial review” on
pages 90 to106.
In 2018, TBC Bank served as the sole mandated lead
arranger for the largest M&A transaction in Georgia,
which allowed us to position ourselves as a large project
acquisition powerhouse. Silknet, Georgia’s leading
telecommunications operator, acquired Geocell, the
country’s second largest mobile operator for US$ 151.7
million. The transaction was the Georgia’s largest
syndicate consisting of nine participants, including
Georgian and regional banks, as well as the largest debt
facility arranged from local banks amounting to US$
133 million. Out of the total financing, US$ 10 million
was raised in bonds and TBC Capital acted a sole lead
arranger of private bond placement.
In 2018, our guarantee portfolio increased by 51.1%
YoY and reached GEL 1,301 million, leading to a market
share of 47.4%3. The prestigious international awards
have recognized our strong trade finance capabilities:
the Asian Development Bank named TBC Bank “Leading
Partner Bank in Georgia in Trade Finance 2018”, while
Global Finance awarded us “The Best Trade Finance
Provider in Georgia 2019”.
In terms of investment banking activities, in 2018 we
completed several notable transactions. TBC Capital
was the sole lead arranger for Silknet4, Nikora Trade5,
TBC Leasing6, Lisi Lake Development7, Georgian Beer
Company8, BSTDB and FMO bonds via public and private
placements. The bonds issued and listed by TBC Capital
during the year increased by 400% YoY and amounted to
GEL 305 million, which represented 55% of total bonds
issued and listed on Georgian Stock Exchange in 2018.
During the year, TBC Capital also served as advisor to
Georgian Beer Company8 and Lisi Lake Development to
obtain and maintain a global credit rating. Furthermore,
TBC Capital published two comprehensive research
reports: Fixed Income Securities
in Georgia and
Georgian FMCG Sector Analysis. The full reports can
be viewed at www.tbcresearch.ge under TBC Capital
Reports section. In recognition of our efforts, in 2018
EMEA Finance magazine named TBC Bank “Best
Investment Bank in Georgia 2017” and TBC Capital the
“Best Broker in Georgia 2017.”
Our client-centric approach and tailor-made product
offerings were translated into a strong cross-sell
platform for our corporate clients. The number of
corporate clients’ payroll accounts increased by 16%
YoY and reached 148,000, while payroll fund went up by
30% YoY totaling GEL176 million. Over the same period,
the number of POS transactions grew by 145% YoY to 62
million, while the respective volumes went up by 156%
YoY and reached GEL 2,625 million.
STRATEGY 2019
Further increase penetration of corporate clients
by providing them with tailor-made solutions
Further strengthen coverage of Georgian regions
and growing mid-corporate segment
Further enhance the role of TBC Capital in the
development of capital market in Georgia
1 Growth without re-segementation effect - In Q1 2018 GEL 66 was
transferred from MSME to corporate loans
2 Growth without re-segmentation effect - In Q1 2018, GEL 78 mln
was transferred from MSME to corporate deposits portfolio
3 Based on data published by National Bank of Georgia as of 31
December 2018
4 Silknet is a leading telecommunication company in Georgia.
5 Nikora Trade is a leading food producer company in Georgia.
6 TBC Leasing is a leading leasing company in Georgia and a
subsidiary of TBC Bank
7 Lisi Lake Development is a leading developer company in Georgia.
8 Georgian Beer Company is a leading producer of beverages
in Georgia
34
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
35
“Our successful partnership with TBC Bank began in 2017 and since then it has become our house
bank, providing not only core banking products, but also consultations on various financial issues. I
would like to especially thank TBC Bank’s Corporate and Investment Banking team for its outstanding
support and professionalism during the complex process of Geocell’s M&A. Going forward, we are
committed to further developing our business and delivering valuable services to our society with
support of our partner TBC Bank”.
Davit Mamulaishvili,
CEO of Silknet
36
TBC BANK annual report and accounts 2018
CORPORATE CASE STUDY
SILKNET/GEOCELL -
GEORGIA’S LARGEST
M&A TRANSACTION
Silknet is one of the country’s largest provider of telecommunication
services. The company offers a wide range of telecommunication
products including Internet, TV and fixed telephone services to
corporate and individual clients.
In March 2018, Silknet acquired a 100% holding in Georgia’s second
largest mobile operator, Geocell LLC. The acquisition was valued at
US$ 151.7 million, making it the largest M&A transaction ever on the
Georgian market. The transaction creates a major convergent telecom
operator in Georgia with Internet and fixed telephony subscribers’
market shares of 34% and 51% respectively1; it will also provide
Georgian consumers with an enhanced access to voice and data
services as well as exclusive global content.
TBC Bank acted as a sole mandated lead arranger for financing this
transaction through organizing the largest debt facility in Georgia,
amounting to US$ 133 million. It was also Georgia’s largest syndicate
consisting of nine participants including local and regional banks. In
addition, TBC Capital, our wholly-owned subsidiary, acted as a sole
lead arranger for a private bonds placement in the amount of US$ 10
million. Through this transaction TBC Bank positioned itself as a large
acquisition powerhouse.
1 Data as of 31 December 2018, Source: www.gncc.ge
TBC BANK annual report and accounts 2018
37
DIVISIONAL REVIEW CONTINUED
MICRO, SMALL AND MEDIUM
ENTERPRISES SEGMENT
2018 HIGHLIGHTS
65%1
OF NEWLY REGISTERED LEGAL ENTITIES
CHOSE TBC BANK
24.1%
c.130,000
CUTOMERS
92.5%2
MSME SHARE IN TOTAL LOAN BOOK2
OFFLOADING RATIO OF MSME
10.9%
MSME SHARE IN TOTAL DEPOSIT PORTFOLIO
78%3
NPS
OVERVIEW
We are the leading partner bank for micro, small and medium enterprises (MSMEs) in the country. In 2018, 65% of all newly
registered legal entities in Georgia chose TBC Bank. Our key differentiators are an exceptional customer experience, best in
class financial products and services, extensive business support programme, as well as innovative solutions. We are the
only bank in the region4 offering fully digital on-boarding, which enables legal entities to become our customer by registering
online at www.businessregistration.ge. In December 2018, the fully digital on-boarding ratio was 16%. In addition, our strong
digital channels enable our customers to conduct most of their transactions online: as a result, the offloading ratio stood as
high as 92.5% by year-end. We also pride ourselves on our NPS score3 of 78%, significantly higher than our peer bank.
PROGRESS AGAINST STRATEGIC PRIORITIES IN 2018
Continue to improve our superior
customer experience
Our NPS score3 increased by 4pp YoY
Further develop our flagship business
support programme
Launched an innovative B2B platform for
businesses (www.businesstool.ge)
Please see below for more information
Maintain our focus on digitalization by
further enhancing our multichannel
platform
Upgraded our award-winning Internet banking
for legal entities with new features and intuitive
design to make it much easier to use
1 Data is for FY 2018, source: www.napr.gov.ge, the National Agency of Public Registry
2 Excluding cash transactions
3 Based on survey conducted by independent research company IPM among MSME segment in October 2018
4 Region in this context comprises Azerbaijan, Armenia and Georgia
38
TBC BANK annual report and accounts 2018
BUSINESS SUPPORT PROGRAMME
We are the only bank in Georgia offering a full-scale business
support programme, which includes educational resources
and business blog, business support tools, an annual
business award and start-up programme. All these services
are united on a single platform: www.tbcbusiness.ge.
Within our business education programme, we
conduct trainings, run conferences, organise individual
consultations as well as regional agro forums. All these
services are provided free of charge. The aim is to help
entrepreneurs to improve their skills in areas such as
management, marketing, finance and taxation that
will support them in developing their businesses. The
programme was launched in 2013 in partnership with the
Asian Development Bank (ADB). During 2018 up to 7,500
business individuals participated in this programme.
We remain committed to supporting early-stage businesses
and continue to roll our new offerings within our innovative
programme “Startaperi”, which was launched in 2017.
Startaperi aims to create more successful startups in
Georgia by supporting them with easily accessible capital,
a digital platform for advertising campaigns, as well
as various educational programmes and conferences.
Currently, we offer three types of loans for start-ups: a
general loan, a specific one for hotels, and special one for
agro businesses. The programme has gained tremendous
popularity and attracted around 24,000 companies since
launch. Throughout 2018, we have disbursed loans totaling
around GEL 76 million, up by 180% compared to 2017.
TBC BANK annual report and accounts 2018
39
We continue to develop our business support programme
and in 2018 we launched an innovative B2B platform
for businesses (www.businesstool.ge). This platform
creates a marketplace which connects businesses and
IT service providers with each other and encourages
the development of new software relevant for Georgian
businesses. Companies can search, compare and
choose the most suitable software for their needs
including computer programs, mobile applications or
web services. On the one hand, the website supports
developers in raising awareness of their products, and
on the other hand, the platform helps businesses to
automate their processes and increase their efficiency.
STRATEGY 2019
Build an ecosystem for MSMEs which will
encompass a wide range of solutions need by
businesses on every stage of their development
Focus on innovative and digital offerings
Provide outstanding customer experience across
each component of our ecosystem
DIVISIONAL REVIEW CONTINUED
To encourage entrepreneurship in Georgia, since 2016
we have been organising the Annual Business Awards
ceremony, which has become the major business event
of the year in the country, attrackting more than 1,500
community members. This year we added two new
nominations, the “Woman Entrepreneur of the Year”
and the “Social Impact Award” and announced winners
in 6 categories. The event attracted 16 million reach in
press and social media while a survey conducted by the
independent research agency, ACT, showed that top-of-
mind awareness of the project reached 76% in 2018.
MAIN ACHIEVEMENTS IN 2018
We have achieved strong growth: our MSME loan book
increasing by 23.4%1 YoY to GEL 2,497 million, while our
deposit portfolio increased by 8.9%2 YoY, amounting to
GEL 1,018 million. The results were mainly driven by
the increase in loans disbursed to businesses operating
in the following sectors: agriculture, construction, food
industry, hospitality and leisure, as well as services.
More information about financial performance of MSME
segment is provided under section “financial review” on
pages 90 to 106.
We are the leading partner bank for 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 a grace period. Under this programme, in 2018 we
disbursed 64 loans for a total amount of GEL 42 million.
Internet banking remains the most widely used digital
channel, accounting for around 71% of all digital
transactions. In 2018 we upgraded our award-winning
Internet banking for legal entities with new features and
an intuitive design to make it much easier to use. We are
also proud that the Global Finance magazine named our
corporate digital bank “Best in Social Media Marketing
and Services” globally in 2018, a global recognition which
was added to our multiple regional (CEE) and country
awards in a range of digital banking categories.
1 Growth without re-segementation effect - In Q1 2018, GEL 236
mln was transferred from retail to MSME portfolio and GEL 66 was
transferred from MSME to corporate loans
2 Growth without re-segementation effect-in Q1 2018, GEL 78 mln
was transferred from MSME to corporate deposits portfolio
40
TBC BANK annual report and accounts 2018
STARTUP SUPPORT PROGRAM - STARTUPERI
Nino Slepchenko and her husband, Levan Vateishvili run a family start-up business “Saini” and
are active members of our “Startaperi” programme. They offer customers a wide range of interior
and exterior design options with gorgeous alphabetical ornaments, which include vessels, lamps,
decorative mirrors, wall decors, mosaic and ceramic tiles. The source of inspiration for their work
became the Georgian alphabet, “Mkhedruli”.
TBC BANK annual report and accounts 2018
41
“We are very thankful to TBC Bank for organising “Apps Challenge” in Georgia. It is the first IT
competition aiming to promote Georgian software applications and motivate young IT companies to
create innovative solutions. It is a win-win situation for both IT companies and businesses, since IT
systems created by Georgian specialists are tailored on local needs and are cheaper than their foreign
equivalents”.
Levan Meskhishvili,
founder of System Jet
42
TBC BANK annual report and accounts 2018
MSME CASE STUDY
SYSTEM JET -
INTRODUCING TECH
INNOVATIONS FOR
GEORGIAN BUSINESSES
In 2018 TBC Bank organized its first “Apps Challenge” in partnership with EFSE DF.
The aim was to foster the creation of innovative software solutions to simplify and
automatise processes for Georgian businesses. Applicants were required to present
original ideas and products new to the Georgian software development market.
Twenty teams were shortlisted, out of the 78 who participated, and were asked to
present their ideas to the jury. In the final round of the contest, three winners were
selected and awarded with monetary prizes by EFSE DF.
The first prize went to a start-up company, System Jet, which developed a software
enabling beauty salons, aesthetic centers and similar companies to manage their
daily activities entirely online. This is the first application in Georgia allowing such
businesses to manage their front office activities, to control their internal business
processes, as well as to conduct statistical analysis. Some of the features include:
making reservations in multifunctional calendars;
sending SMS to the customers;
tracking client activity in terms of number of visits and amount of
money spent;
controlling flow of money and managing inventory.
System Jet is user-friendly and easy to navigate. The company also offers trainings
and maintenance services to its clients. The software was launched in the test mode
in March 2018 and is already successfully implemented in around 30 companies.
System Jet plans to use the award to enhance its product with an intuitive design and
new capabilities, including financial analysis, CRM features and online training videos.
TBC Bank will also support the company in organising training and introductory
presentations to potential customers in order to to increase awareness about the
application. The company has ambitious plans to scale up its biness to all major cities
in Georgia during 2019.
TBC BANK annual report and accounts 2018
43
DIVISIONAL REVIEW CONTINUED
SPACE
2018 HIGHLIGHTS
c.94,000 customers
c.260,000 downloads
4.8 stars of Apple Store
4.6 stars on Google play
OVERVIEW
In May 2018, we launched Georgia’s first fully-digital bank,
Space. A cutting edge mobile application for managing
daily finances, this application challenges and redefines
the traditional banking experience by offering a unique
customer experience through simple procedures and
products, intuitive design, price transparency and instant
delivery.
We believe that the young, digitally savvy generation
is looking for an alternative to the traditional banking
services – simple, quick to use and free from any kind of
bureaucracy. Space was created with this idea in mind.
In Space, all products and services are distributed just a
few clicks away; everything can be done remotely without
going to a branch. The application is very intuitive and easy
to use. For instance, in order to apply for a loan one just
needs to press “+” button, while in order to transfer money
one clicks “-“ button.
Space was developed over the course of just 15 months by
a dedicated team of 35 professionals, in partnership with
best-in-class players including Amazon Cloud, Pulsar AI,
Mambu, SalesForce and Corezoid.
Since its launch in May 2018 Space has exceed our
expectations, attracting around 94,000 clients and 260,000
downloads by the year-end, while the loans disbursed
amounted to GEL 15 million as of 31 December 2018.
44
TBC BANK annual report and accounts 2018
PRODUCT DESCRIPTION AND
ITS MAJOR BENEFITS
As a fully-digital bank, Space has no branches and offers
all its products through the mobile application. Should
customers have questions, consultations are provided
online either via Facebook messenger, an in-app chat, or by
telephone. The registration is very easy as one can become
a Space client in a few minutes, simply by uploading his/
her ID card or passport and a selfie.
Currently Space is offering the following products and
capabilities:
remote account opening;
consumer loans;
money transfers;
bill payments;
debit cards, it is possible to attach other
bank’s cards as well;
online Installments for e-commerce.
The application is a fully cloud solution and is easy to
integrate with traditional legacy system.
STRATEGY 2019
We aim to continue enhancing Space with new
products and features and actively involving
customers in the development process in order to
get instant feedback. We also plan to deploy Space
in the Azerbaijani and Uzbekistani markets.
TBC BANK annual report and accounts 2018
45
DIVISIONAL REVIEW CONTINUED
SUBSIDIARIES
TBC INSURANCE
TBC Insurance is a rapidly growing, wholly owned subsidiary of TBC Bank and it is the bank’s main bancassurance partner.
The company was acquired by the Group in October 2016 and it has grown significantly since then, becoming the second
largest player on the P&C and life insurance market and the largest player in the retail segment, holding 20.4% and 37.8%
market shares1 without border motor third party liability (MTPL) insurance, respectively.
TBC Insurance serves both individual and legal entities and it provides a broad range of insurance products covering motor,
travel, personal accident, credit life and property, business property, liability, cargo and agro insurance products. The company
differentiates itself by advanced digital channels, which includes TBC Bank’s award winning Internet and mobile banking
applications, a wide network of self-service terminals, a web channel, as well as a Georgian-speaking chat bot-B Bot, which
is available through Facebook messenger.
GWP by products
GWP by segments
5%
19%
32%
25%
26%
44%
Casco
Credit Life
Property
Others
49%
Bancassurance
Retail
SME & Corporate
Business
MARKET OVERVIEW
The insurance business in Georgia is regulated by an
independent body, the Insurance State Supervision Service
of Georgia, which closely monitors insurance companies
and sets the minimum and solvency capital requirements.
There are 17 insurance companies in the Georgian P&C
and life insurance market with Aldagi and TBC insurance
being the two largest players with market shares2 of 29.7%
and 20.4% respectively, as of 31 December 2018, followed
by GPIH with 14.0%.
P&C and life insurance market has a high growth potential
as it is under-penetrated with gross written premium to
GDP standing at around 0.8%2 as of the end of 2018, which
is the second lowest among CEE countries. The density,
which is measured as gross written premium per capita, is
also low compared to peer countries standing at US$ 33.43.
During 2014-2017, the P&C and life insurance market
has grown at a compound annual growth rate of around
11.0%, while the growth rate accelerated in 2018 and
1 Or 19.1% for the total and 31.2% for the retail market shares, with MTPL insurance. Starting from March 1, 2018 border MTPL has been introduced
and GWP was divided evenly between 17 insurance companies, therefore it has decreased our market share. Source: Insurance State Supervision
Service of Georgia
2 Or 28.0% and 19.1% respectively, with MTPL insurance. Starting from March 1, 2018 border MTPL has been introduced and GWP was divided evenly
between 17 insurance companies. Source: Insurance State Supervision Service of Georgia
3 Source: Geostat and Insurance State Supervision Service of Georgia
46
TBC BANK annual report and accounts 2018
reached 34.1%. This was supported by the introduction of a
compulsory motor third party liability insurance (MTPL) for
vehicles crossing Georgian borders. The largest products
on the market are casualty and collision (CASCO) and
property insurance which combined account for 66.0% of
the total market.
Going forward, we expect P&C and life insurance market
to grow by around 15.0% annually excluding compulsory
MTPL insurance, which is expected to be introduced from
the Q3 2019, increasing the market by around GEL 100-
130 million in 2020 leading to an additional growth rate of
around 35.0%.
Market composition by products
20%
14%
39%
27%
Casco
Property
Life & PA
Others
MAIN ACHIEVEMENTS AND STRATEGY
In 2018, TBC Insurance achieved strong growth results and
improved its efficiency. The gross written premium grew by
91.8% and amounted to GEL 60.1 million, leading to a P&C
and life insurance market share1 of 20.4% up by 7.1 pp YoY.
Over the same period, the net combined ratio4 decreased
by 17.9 pp to 79.3%, and loss ratio5 decreased by 7.3 pp to
41.7%. As a result, the net profit for the year stood at GEL
7.3 million almost 8 times higher compared to 2017.
We achieved particularly impressive results in the retail
segment, increasing our market share to 37.8%1 up by 9.3
pp YoY and becoming the largest player in P&C and life
insurance retail market. In terms of legal entities, TBC
Insurance faced fierce competition in the SME & Corporate
market, given that most of the largest client tend to stay
with their insurers for loyalty-related reasons, or due to
long-term binding contracts. Nevertheless, we managed
to increase our P&C and life insurance market share of
legal entities from 4.5% to 10.4% in 2018 and attracted
some leading companies in Georgia. At the end of 2018, we
also launched the SME Bancassurance web portal, which
will help us to increase penetration in the underpenetrated
SME market.
Going forward, TBC Insurance plans to further strengthen
its positions on the market and become the number one
insurance company in Georgia in the medium-term with
the highest net promoter score (NPS) among the industry
players in the country.
Strategic priorities
P&C and life insurance-
Market share1
P&C and life insurance
retail market share1
Offloading ratio6 in
voluntary retail sales
NPS in claims service7
2018
Mid-term target
20.4%
37.8%
29.3%
68.0%
Above 30%
Above 40%
Above 40%
Above 65%
TBC LEASING
TBC Leasing was founded in 2003 by TBC Bank, which
currently holds 99.6% interest. This year, TBC leasing
celebrated its 15th anniversary and during all these years
the company has worked hard to gain its strong expertise
and leading market position. As of 31 December 2018, TBC
Leasing’s market share8 stood at 72.3% and its portfolio
amounted to GEL 206.0 million with approximately 3,600
customers.
TBC Leasing serves both individuals and legal entities and
provides comprehensive leasing solutions and advisory
services including financial leasing, operating leasing,
4 Net insurance claims plus acquisition costs and administrative
expenses divided net earned premium
Incurred losses divided by earned premium
5
6 Number of sales conducted in digital sales divided by total number
of retail voluntary sales
7 Based on the internal survey
8 Based on internal estimates
TBC BANK annual report and accounts 2018
47
DIVISIONAL REVIEW CONTINUED
sales and leasebacks tailored to customers’ needs. Legal
entities account for around 85.0% of our portfolio with
services, construction, health care and production being
the largest sectors. Our retail portfolio is comprised of new
and used cars with respective shares of 33.7% and 67.3%
in total. Our retail customers are served at our service
centers, while we use the bank’s channels to sell our
products to MSME and corporate customers.
In 2018 the company achieved strong growth increasing its
legal entities’ portfolio by 33.5% YoY to GEL 175.0 million,
while its retail portfolio grew by 118.8% YoY to GEL 31.0
million. Overall the leasing portfolio grew by 41.8%.
The company also actively cooperates with governmental
projects, “Produce in Georgia” and “Agriculture Projects’
Management Agency” (APMA), which aims to support the
development of the manufacturing, service and agriculture
industries by subsidizing companies’ interest expenses.
During the year, we have issued GEL 24.5 million leases
within these programmes. We also strive to increase
awareness of leasing solutions to startup companies for
whom leasing is an affordable and particularity convenient
option to obtain the necessary equipment. In addition, we
strive to contribute to preserving the environment through
financing energy efficient equipment and appliances.
In 2019 we plan to develop supplementary services to
our clients, including a new portal which will allow our
customers to control their payment schedule and financial
reports on-line, as well as enhance our management
information and customer relationship management
systems. We also plan to cooperate with TBC insurance to
cross-sell our products.
TBC PAY
TBC Pay is one of Georgia’s leading payment companies. It
was founded in 2008 by TBC Bank and it is its wholly owned
subsidiary. TBC Pay operates a wide network of self-service
terminals all over the country, which allow individuals to
perform payments for various daily services instantly in
the interactive mode on a 24-hour basis. Payments can be
made in cash or using a debit or credit card. The company
also operates an online platform (www.tbcpay.ge), which
has the same functionality as self-service terminals.
1 Wissol Petroleum Georgia is a leading petroleum company in Georgia
2 Socar Georgia Petroleum is a leading petroleum company in Georgia
3 Gepha is the leading pharmacy retailer in Georgia
48
TBC BANK annual report and accounts 2018
To meet the demands of the rapidly expanding payments
business, in 2018 we added 491 self-service terminals, up
by 17.6% compared to the previous year and we currently
have 3,281 terminals in operation. Over the same period,
the number of transactions increased by 9.5% YoY to 43.3
million, while the volume of transactions went up 69.7%
YoY to reach GEL 2,327.2 million.
This year, we achieved strong results in relation to our
cash management business which we launched at the
end of 2017. This service is designed for companies with
a large volume of cash operations, allowing customers to
deposit money directly to their bank account, which will
appear instantly on their electronic statement. During
2018, we attracted several large retailers including Wissol
Petroleum Georgia1, Socar Georgia Petrolium2, and Gepha3.
Currently, we operate around 131 such special terminals,
and the volume of such transactions amounted to GEL
461.8 million in December 2018 up by around 100% year-
on-year. We plan to further expand this business during
2019.
We continue to enhance our online payment platform and
in 2018 we have added several features to it, including
payment template management, SMS reminder for bill
payments and card-to-card instant transfer service, which
allows customers to transfer money between Georgian
bank cards instantly. In 2019 we will introduce an e-wallet,
which will be integrated in our self-service terminals and
online platform and give an opportunity to our clients to
conduct electronic transactions without using their credit
cards. TBC Pay mobile application will follow shortly after,
introducing the easiest instant money transfer service.
During 2019, we will continue to grow our cash and online
payments business in Georgia by continually improving the
customer experience, adding new products and features
to our online platform and self-service terminals and
providing the most comfortable and effective service to
customers in Georgia.
TBC CAPITAL
TBC Capital is TBC Bank’s wholly owned investment
banking subsidiary and a licensed broker-dealer in
Georgia. It is an integral part of TBC Bank’s corporate and
investment banking franchise. Its main lines of business
include corporate advisory services, both debt and equity
capital markets, brokerage services and market research.
TBC Capital is also a shareholder of the Georgian Stock
Exchange and plays an active role in the development of
its infrastructure and the integration of domestic capital
market into international markets.
Whilst the capital market related legislation and regulatory
environment is still evolving in Georgia, the demand for
capital markets products and corporate finance advisory
services continues to grow among the country’s large
corporates. We believe that the anticipated pension
reforms, which came into force on 1st January 2019, will
lead to significant change, boosting the development of the
securities’ market and creating long-term GEL liquidity.
To capture this opportunity, TBC Capital has emerged as a
player with strong suite of investment banking products and
services helping clients to achieve their strategic corporate
goals and growth objectives. In 2018, we widened the team,
positioning TBC Capital to benefit from increased capital
markets activity in Georgia and the region4. Our focus in
2019 remains to further broaden the investment banking
transaction coverage in Georgia and across the region4 as
well as enhance brokerage and research business units.
More information about TBC Capital can be found in the
corporate and investment banking section on pages 32 to 37.
INTERNATIONAL OPERATIONS
Most of TBC Bank’s operations are conducted in Georgia
(99.8% 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. Since 2008
TBC Bank owned 75.0% of TBC Kredit. In August 2018, TBC
Bank has purchased the remaining 25.0% from Enclude
LTD, becoming 100% shareholder of TBC Kredit. In
January 2019, TBC Bank signed a shareholder agreement
with Nikoil Bank to develop its business in Azerbaijan by
merging TBC Kredit with Nikoil Bank (More information is
given on page 22).
TBC Kredit’s total loan portfolio stood at GEL 31.6 million
at 31 December 2018. SME lending accounted for 37.2% of
the total, while consumer and mortgage loans accounted
for a respective 45.3% and 17.5%.
OTHER LOCAL SUBSIDIARIES
The Group also includes the following subsidiaries:
United Financial Corporation is the largest card-processing
centre in Georgia, serving eight banks, seven financial
institutions and two loyalty companies. Its services fully
comply with 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.
BG provides asset management service to TBC Bank.
Breakdown of
total assets
Breakdown of
net income
The Bank
International operations
Other local operations
97.1%
0.2%
2.7%
92.1%
0.4%
7.5%
4 Region in this context comprises Armenia, Azerbaijan and Georgia
TBC BANK annual report and accounts 2018
49
PRINCIPAL RISKS AND UNCERTAINTIES
Risk management is a critical pillar of the Group’s strategy. It is essential to identify emerging risks and uncertainties that
could adversely impact on the Group’s performance, financial condition and prospects. This section analyses the principal
risks and uncertainties the Group faces. However, we cannot exclude the possibility of the Group’s performance being affected
by yet unknown risks and uncertainties other than those listed below. More details regarding risk management practices can
be found on pages 57 to 69.
The Board has undertaken a robust assessment of the principal risks facing the Group and long-term viability of the Group’s
operations, in order to determine whether to adopt the going concern basis of accounting. For more information, please see
the Going Concern and Viability Statements on pages 118 to 119.
1. PRINCIPAL RISK
Credit risk is an integral part of the Group’s business
activities
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.
Risk description
Credit risk is the most material risk faced by the Group
since it is engaged mainly in traditional lending activities.
The Group’s customers include legal entities as well as
individual borrowers.
Due to high level of dollarization of the Georgia’s economy,
currency-induced credit risk is a 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. Loses may be further aggravated by
unfavorable macroeconomic conditions. These risks are
described as a separate principal risks in more details.
Risk mitigation
A comprehensive credit risk assessment framework is
in place with a clear segregation of duties among parties
involved in the credit analysis and approval process. The
credit assessment process is distinct across segments,
and is 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. Individual application underwriting and
automated underwriting rules are performed by units within
the risk function that is independent from origination and
business development units.
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. Additionally, The Group uses
a comprehensive portfolio supervision system to identify
weakened credit exposures and promptly take early
remedial actions when necessary.
The Group’s credit portfolio is structurally highly diversified
industry
across customer types, product types and
segments which minimizes credit risk at Group level. As
of 31 December 2018 retail segment represented 45.3% of
the total portfolio which was split between mortgage and
non-mortgage 57.7% and 42.3%, respectively. In business
banking, no single industry represented more than 7.5% of
the total portfolio at the end of 2018.
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 Group has a largely collateralised portfolio in all its
segments, with real estate representing a major share of
collateral. As of 31 December 2018, 71.6% of the Group’s
portfolio was secured by cash, real estate or gold. Sound
collateral management framework ensures that collateral
serves as an adequate mitigating factor for credit risk
management purposes
2. 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.
The potential material GEL depreciation is one of the most
significant risks that could negatively impact on the portfolio
50
TBC BANK annual report and accounts 2018
quality due to the large presence of foreign currencies on
the Group’s balance sheet. Unhedged borrowers could
suffer from an 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 GEL, particularly in US$. As of
31 December 2018, the NBG reported that 57.1% of the
total banking sector loans were denominated in foreign
currencies. As of the same date, 60.1% of the Group’s total
gross loans and advances to customers (before provision for
loan impairment) were denominated in foreign currencies.
The income of many customers is directly linked to the US$
via remittances, or exports in case of business borrowers.
Nevertheless, customers may not be protected against
significant fluctuations in the GEL exchange rate against the
currency of the loan.
The US$/GEL rate remained volatile throughout the
2018, however YoY basis the US$/GEL appreciated only
by 3.3%. The NBG operates effectively under its inflation-
targeting framework. The GEL remains in free float and is
exposed to many internal and external factors that in some
circumstances could result in depreciation against the US$.
Risk mitigation
Particular 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
the exchange rate depreciation is monitored in order to
promptly implement an action plan, as and when needed.
The ability to withstand certain exchange rate depreciation
is incorporated into the credit underwriting standards,
which also include significant currency devaluation buffers
for unhedged borrowers. In addition, the Group holds
significant capital against currency-induced credit risk,
which was showed by the regulatory stress test as well.
Details of stress test are described on pages 118 to 119.
Given the experience and knowledge built throughout the
recent currency volatility, the Group is in a good position to
promptly mitigate exchange rate depreciation risks.
In January 2019, the Government authorities continued
their efforts to reduce the economy’s dependence on
foreign currency financing by increasing the cap to GEL
200,000 under which loans are required to be disbursed in
local currency. In addition, the NBG, under its responsible
lending initiative, which came into force on 1 January 2019,
introduced significantely more conservative PTI and LTV
thresholds for unhedged retail borrowers further limiting
the exposure to currency induced credit risk.
3. 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 exchange rate depreciation, a spike in
interest rates, rising unemployment, decrease in household
disposable income, falling property values, worsening
loan collateralisation, or falling debt service capabilities of
companies as a result of decreasing sales.
Potential political and economic
the
neighbouring and main trading partner countries could
negatively impact Georgia’s economic outlook through a
worsening current account (e.g. decreased exports, tourism
inflows, remittances and foreign direct investments).
instability
in
Risk description
According to the Geostat’s initial estimates, real GDP
increased by 4.8% in 2018. This indicates a solid growth for
Georgian economy and underlines the economy’s resilience
and strong growth potential, especially taking into account
the contractionary fiscal stance throughout the year and
unfavourable developments in the region. In addition to
Georgia’s fiscal discipline, it is important to note that during
2018:
the inflation was low;
the current account deficit has improved and performed
below its long term trend;
the real effective GEL exchange rate was below its long
term trend and medium term average; and
there was a reduction in the FDI inflows, however,
primarily due to one-offs. Overall, FDI inflows remain
main source of current account deficit.
Moreover, the NBG continued to build up its international
reserves and there were no signs of overheating in Georgia’s
housing market. As for the system wide credit growth, while
the penetration has increased, credit to GDP ratio was still
close to its long term trend, especially measured at constant
exchange rate, and loan dollarization has been decreasing,
though at a much slower pace in 2018.
Overall, from a macro perspective there were no signs of
building up of system wide risks in 2018. At the same time,
Georgia remains vulnerable to external and to some extent
internal shocks, which could have adverse impact on the
TBC BANK annual report and accounts 2018
51
Georgian economy resulting in lower growth or, in some
severe circumstances, a contraction of the economy. These
negative developments could also have a negative impact on
the GEL exchange rate.
Risk mitigation
To decrease its vulnerability to economic cycles, the Group
identifies cyclical industries and proactively manages its
underwriting approach and clients 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 Group performance. 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 its business. The
resilience towards a changing macroeconomic environment
is
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.
incorporated
4. 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
(NBG). The regulations and various terms of its funding and
other arrangements require compliance with certain capital
adequacy and other ratios. 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
In December 2017 the NBG introduced a new capital
adequacy framework. The updated regulation divides
the current capital requirement across Pillar 1 and Pillar
2 buffers that are introduced gradually over a four-year
period. As of year-end 2018, the Bank’s minimum capital
requirement increased by 1.5% for Tier 1 and 3.7% for
Total Capital compared to the end of 2017. The increase in
minimum requirements is driven by introduction of systemic
risk, concentration and GRAPE buffers.
The Bank’s capitalisation as of December 2018 stood at 12.8%
and 17.9% against the regulatory minimum requirement of
11.8% and 16.7% for Tier 1 and Total capital, respectively.
The ratios are well above the respective regulatory
minimums. As of December 2017 the Bank’s capitalisation
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.
From January 2018, the NBG has fully phased out the Basel I
and Basel II/III capital adequacy standards and has replaced
them with the updated capital framework, which is more
compliant with the Basel III guidelines.
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 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.
5. PRINCIPAL RISK
The Group is exposed to regulatory and enforcement
action risk.
The Bank’s activities are highly regulated and thus face
regulatory risk. The local regulator, the NBG, 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 NBG, who sets lending limits
and other economic ratios (including, inter alia, lending,
liquidity and investment ratios) in addition to mandatory
capital adequacy ratios. During 2018, the NBG introduced
several regulatory changes concerning the responsible
lending standards. The details are outlined in the RECC
report on page 133 to 135.
52
TBC BANK annual report and accounts 2018
PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED The NBG is also responsible for conducting investigations
into specific transactions to ensure compliance with
Georgian finance laws and regulations. In that regard, the
Bank was subject to an inspection by the NBG in connection
with certain transactions which took place in 2007 and
2008. The inspection alleged that these transactions
between the Bank and certain entities were not in technical
compliance with the Georgian law regulating conflicts of
interest. In February 2019, the Company, the Bank and the
NBG issued a joint statement confirming the settlement
of this investigation and that the Bank fully complies with
economic normative requirements and limits set by the
NBG. Separately, it is noted that the Georgian Office of
Public Prosecution has also launched an investigation into
the same matter and there have not been any material
developments to date. The respective regulatory disclosures
in this regards can be found at www.tbcbankgroup.com
under regulatory news section.
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.
As part of the Group’s international strategy, the ongoing
merger between Nikoil Bank and TBC Kredit is subject to
regulatory approval and the Group’s intention is to increase
over the four year period its shareholding in the merged
entity to over 50%. This will, in turn, increase the Group’s
exposure to the regulatory environment in Azerbaijan. In
addition, TBC Bank is working on the green field project
in Uzbekistan. This project is currently in the development
phase and is subject to approvals, including from the local
authorities, which further increases regulatory compliance
requirements for the Group.
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 281 in the Group’s Audited
Financial Statements.
Risk mitigation
The Group has established systems and processes to ensure
full regulatory compliance, which are ebedded in all levels of
the Group’s operations.
The dedicated compliance department reports directly to the
Chief Executive Officer and bears the primary responsibility
for regulatory compliance.
The Group’s RECC is responsible for regulatory compliance
at the Board level.
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. There was
also an extensive dialogue with the regulator regarding the
new regulation on responsible lending.
Together with the new regulation on responsible lending,
the government introduced initiatives to ensure continuous
broad access to financing. These include simplification of
the tax code to incentivize income registration rate.
Although decisions made by regulators are beyond the
Group’s control, significant regulatory changes are usually
preceded by a consultation period that allows all lending
institutions to provide feedback and adjust their business
practice.
As regarding the recent investigations by the NBG in
February 2019, the Company, the Bank and the NBG issued
a joint announcement, confirming that the Bank will: (i)
pay approximately GEL 1 million; and (ii) implement a
restructuring of the Bank’s Supervisory Board whereby the
founding shareholders will step down from the Supervisory
Board. In addition, TBC Bank continues to cooperate with the
NBG to further improve the quality of the Bank’s corporate
governance and the Company will arrange an external
review of the Group’s related party transactions, practices
and procedures.
6. 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,
in only a moderate vulnerability to sector
resulting
concentration risks. However, should exposure to common
risk drivers increase, the risks are expected to amplify
correspondingly.
TBC BANK annual report and accounts 2018
53
Risk description
The Group’s loan portfolio is diversified, with maximum
exposure to the single largest industry (energy and utility)
standing at 7.5% of the loan portfolio as of 31 December
2018. This figure is reasonable and it demonstrates an
adequate credit portfolio diversification.
At the end of 2018 the exposure to the 20 largest borrowers
stands at 14.2% of the loan portfolio, which is in line with the
Group’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 it 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
as well as its 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
borrowers with financial difficulties. When it is deemed
necessary, clients are transferred to such teams for a more
efficient handling and, ultimately, to limit resulting credit
risk losses.
The NBG’s new capital
introduced a
concentration buffer under Pillar 2 that helps to ensure
that the Group remains adequately capitalised to mitigate
concentration risks.
framework
7. 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 (e.g. a downgrade
in credit ratings, central bank or state interventions, or debt
restructurings in a relevant industry) could influence the
price or the availability of funding for companies operating
in any of these markets.
Risk description
Throughout 2018, the Group was in compliance with the
risk appetite limits, as well as the minimum liquidity
requirements set by the NBG, 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 2018, the net loan to
deposits plus international financial institution funding ratio
stood at 89.9%, the liquidity coverage ratio at 113.9%, and
the net stable funding ratio at 130.2%. These figures are all
comfortably above the NBG’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, and 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.
Liquidity risk position and compliance with internal limits is
closely monitored by the Assets and Liabilities Management
Committee (ALCO).
8. 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. The new regulation concerning
responsible lending standards as well as high competition
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, NIM’s fluctuations affect
the Group’s results. In 2018, the NIM increased by 0.4 pp
YoY to 6.9%, in line with TBC Bank’s expectations which
were included in the forecast that provides the basis for the
Group’s guidance.
54
TBC BANK annual report and accounts 2018
PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED The increase was driven by the advanced analytics across
the Bank concerning proper customer segmentation and
pricing as well as targeting the right product mix, however
increased competition as well as downward trend of interest
rates creates potential threat for the NIM.
The Group manages its direct exposure to the LIBOR and
local refinancing rates through respective limits and
appropriate pricing. As of 31 December 2018, GEL 4,259
million in assets (27%) and GEL 1,785 million in liabilities
(13%) were floating, related to the LIBOR/FED/ECB (deposit
facility) rates, whereas GEL 3,147 million of assets (20%) and
GEL 2,286 million of liabilities (17%) were floating, related
to the NBG’s refinancing rate. However, the assets are still
longer term than liabilities.
The recent regulation regarding the responsible lending will
decrease the consumer portfolio growth rate in the short
and medium term, thus negatively impact the Group’s NIM
with the estimated range of 30 -50 bp. The government’s
initiative to decrease the cap on interest rates from 100%
to 50% will also have negative impact on the NIM. However,
considering that such portfolio is not material for the Bank,
the respective impact on NIM will be limited.
Risk mitigation
The current high margin levels, the increase in fee and
commission income and continuous cost optimisation
efforts safeguard against margin declines and profitability
concerns for the Group. During 2018, the Group continued
to actively work on the margin management with the help of
a reputable external consultant. The margin management
program, which included an adequate pricing framework
and profitability analysis to further assist in the decision
making process, will remain one of the Group’s key focus
areas in 2019.
To mitigate asset-liability maturity mismatch, in cases where
loans are extended on fixed rather than floating terms,
the interest rate risk is translated into price premiums,
safeguarding against changes in the interest rates.
The Group expects that the margins will stabilise in the
medium term and that the decreasing margins will be
compensated by increased fee and commission income and
decreased unit cost spent per transaction.The new NBG
regulation, limiting consumer finance and shifting retail
lending to mortgages, will positively impact the cost of credit
risk, thus supporting to sustain the risk adjusted NIM.
9. PRINCIPAL RISK
The threat posed by cyber-attacks has increased in recent
years and it continues to grow. The risk of potential cyber-
attacks, which have become more sophisticated, may lead
to significant security breaches. Such risks change rapidly
and require continued focus and investment.
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 monitors the
developments on both the 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. In addition, an Information Security Steering
Committee is actively involved in improving information
security and business continuity management processes to
minimise information security risks.
10. 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 Group and, most frequently, this involved
events related to banking cards and cash. Internal frauds
arise from actions committed by the Group’s employees and
such events happen less frequently.
During the reporting period, the Group faced only a few
instances of fraud events, none of which had a material
impact upon the Group’s profit and loss statement.
Nonetheless, fraudsters are adopting new techniques and
approaches to exploit various possibilities to illegally obtain
TBC BANK annual report and accounts 2018
55
funds. Therefore, unless properly monitored and managed,
the potential impact can become substantial.
Risk mitigation
The Group actively monitors, detects and prevents risks
arising from fraud events and permanent monitoring
processes are in place to timely detect 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 Group ensures
a timely identification and control of fraud-related activities.
11. PRINCIPAL RISK
The Group is exposed to the risks inherent in international
operations.
The Group is expanding its international presence in
Azerbaijan and Uzbekistan. The expansion exposes the
Group to new macro-economic, political and regulatory
environments, including exposure to risks arising from
credit, market, operational and capital adequacy risks in
local jurisdictions.
Currently, the Group’s business activities are mainly
concentrated in Georgia, but international activities are
expected to contribute to around 30% of the Group’s loan
book over the medium to long-term.
Risk description
The risk posed by the external environment in Uzbekistan
and Azerbaijan may change the Group’s risk profile as a
result of international expansion. According to the latest IMF
forecasts, Uzbekistan is a rapidly developing economy with
above 5% real GDP growth projection in the medium term.
The Uzbekistani economy is well diversified with no major
reliance on a particular industry. It has one of the lowest
public debts as a percentage of GDP in the region and high
international reserve implying the macroeconomic stability
as well as room for future high growth. The new government
of Uzbekistan plans to reform the economy and open it up to
foreign investments.
While the operational environment in Uzbekistan can be
assessed as attractive, there are important risks, which can
materially affect the Group’s performance in the country.
These risks include, but are not limited to, the political
instability, low pace of reforms, adverse developments in
inflation and fluctuations in the exchange rate.
Azerbaijan is a small open economy with high reliance on
oil exports. The economy of Azerbaijan started to recover in
2017 after the contraction in 2016 caused by the significant
decline in oil prices in the period of 2014-2016 years. The
IMF projects Azerbaijan’s economic growth rate to improve
to 3.6% in 2019 and to average at 2.7% over the next 5 years.
Along with the stabilisation in oil prices and exchange rate,
annual inflation has also decreased in 2018. Azerbaijan’s
economic recovery has also contributed to the strengthening
of its financial sector and gradual recovery of the lending to
the economy. Despite relatively more stable environment,
Azerbaijan’s growth is still significantly depends on oil
prices and any adverse developments in oil prices could
negatively affect the growth perspectives and exchange rate.
Furthermore, potential political instability and unfavorable
developments in the state regulations can also negatively
affect the Groups business in Azerbaijan.
Risk mitigation
The Group’ strategy is to follow an asset-light, limited capital
investment approach with a strong focus on digital channels
and to invest in stages to make sure that we are comfortable
with the results and the operating environment before
committing additional investment.
The Group plans to serve retail and MSME customers
leading to non-concentrated portfolio, leading to the lower
credit risk.
The Group will maintain close relationship with the IFIs
to ensure business plan funding flexibility across many
different options. In particular, the IFIs will be the Group’s
partners in Uzbekistan.
The Group has been operating in Azerbaijan through a
small microfinance organisation for a number of years,
which provides experience and knowledge of local banking
environment. In addition, in Azerbaijan the exposure is
limited before the option is exercised. The Group will
exercise the option only after it becomes comfortable with
the development, including operating environment.
The management will focus on establishing strong risk
management function to ensure that all risks are managed
and mitigated properly. The Group will leverage on its
strong risk management expertise to establish sound risk
management practices in new jurisdictions.
Overall, from the Group perspective international expansion
will result in diversification of business lines, macroeconomic
cycles and revenue streams balancing overall risk profile of
the Group.
56
TBC BANK annual report and accounts 2018
PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED 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 pri-
orities 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 adequate-
ly pricing risks, as well as taking risk mitigation actions, supports the generation of desired returns and the achievement
of 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 the 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.
TBC BANK annual report and accounts 2018
57
RISK MANAGEMENT CONTINUED
GROUP RISK MANAGEMENT FRAMEWORK
58
TBC BANK annual report and accounts 2018
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 authority and effective communication between
the 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.
1
1
1
The risk governance structure consists of three board levels, including the Board, the Supervisory Board and the Management
Board. All three boards have dedicated risk committees. The Board and the 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, the 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.
1 These terms are defined in the glossary on page 299
TBC BANK annual report and accounts 2018
59
RISK MANAGEMENT CONTINUED
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.
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 the 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
the 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 the 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 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
became even more crucial considering the Group’s
international strategy to ensure that the risks are
managed properly across the Group.
Generating an 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.
60
TBC BANK annual report and accounts 2018
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 activities 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 a clear segregation
of duties among parties involved in the credit analysis and
approval process. The credit assessment process is distinct
across segments, and is 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.
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.
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, exposures to the 20 largest borrowers or for
amounts exceeding 5% of the Bank’s regulatory capital
would require review and approval by 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 regarding the risk level of the
customer.
The 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.
The new regulations on responsible lending added new
requirements to the documented income verification
procedures that the Bank is performing in addition to its
internal processes for underwriting decisions.
TBC BANK annual report and accounts 2018
61
RISK MANAGEMENT CONTINUED
Currency-induced credit risk
The Group faces currency-induced credit risk, given that
a large part of its exposure is denominated in foreign
currency. 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 January 2019, the Government
authorities continued their efforts to reduce the economy’s
dependence on foreign currency financing by increasing
the cap to GEL 200,000 under which loans are required to
be disbursed in local currency. In addition, the NBG, under
its responsible lending initiative, which came into force on
1 January 2019, introduced significantly more conservative
PTI and LTV thresholds for unhedged retail borrowers
further limiting the exposure to currency induced credit
risk. 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. In addition to 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 a 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
the 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, in
particular, 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
borrowers and sectors using the Herfindahl-Hirschman
Index, thus ensuring that sufficient capital is held against
concentration risk.
Collateral management policy
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 valuation process, a haircut
system throughout the underwriting process, collateral
monitoring (including revaluations and statistical analysis),
revaluations and collateral portfolio analysis.
Throughout the underwriting process, the Collateral
Management and Appraisal Department (CMAD) appraises
the provided collateral in accordance with International
Valuation Standards (IVS), acting NBG regulations and
internal policy/procedures. In specific instances, such
as lending to related parties and material transactions,
valuations are implemented by external appraisers.
The collateral management function is fully automated
through web and mobile applications for field and desk
activities. The internal appraisal function as a part of the
CMAD is fully 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 revaluated annually
through an individual approach. While statistical methods
are used to monitor the value of collateral of non-significant
value. The collateral management function uses market
researches implemented under the project’s real estate
market laboratory (REM lab).
62
TBC BANK annual report and accounts 2018
Credit monitoring
The Group’s risk management policies and processes are
designed to identify and analyse risk in a timely manner
and to 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.
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.
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 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.
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. Special software from FICO is used
for early collection management purposes. Collection
strategies are defined based on the size and type of
exposure. Specific strategies are tailored to different sub-
groups of customers, reflecting their 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.
TBC BANK annual report and accounts 2018
63
RISK MANAGEMENT CONTINUED
Provision assessment
From January 2018, the Group moved to a 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. In addition,
the new IT tool for provisioning was implemented along
with methodology development.
The project was undertaken with the support of Deloitte
and the 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 predefined scenarios. The expected credit loss (ECL)
measurement is based on four components used by the
Group: (i) probability of default (“PD”); (ii) exposure at
default (“EAD”); (iii) loss given default (“LGD”); and (iv)
discount rate.
The Group uses a three-stage model for the ECL
measurement and classifies its borrowers across three
stages:
Stage I - the Group classifies its exposures as Stage I if
no significant deterioration in credit quality has occurred
since the initial recognition and the instrument was not
credit-impaired when initially recognised;
Stage II - the exposure is classified as Stage II if any
significant deterioration in credit quality has been
identified since the initial recognition but the financial
instrument is not considered credit-impaired; and
Stage III - the exposures for which the credit-impaired
indicators have been identified are classified as Stage III
instruments.
The ECL amount differs depending on exposure allocation
to one of the three stages:
Stage I instruments - the ECL represents that portion of
the lifetime ECL that can be attributed to default events
occurring within the next 12 months from the reporting
date.
Stage II instruments - the ECL represents the lifetime
i.e. credit losses that can be attributed to
ECL,
possible default events during the whole lifetime of a
financial instrument. Generally, lifetime is set equal
to the remaining contractual maturity of the financial
instrument. Factors such as the existence of contractual
repayment schedules, options for the extension of
repayment maturity and monitoring processes held by
the Group affect the lifetime determination.
Stage III instruments - a default event has already
incurred and the lifetime ECL is estimated based on the
expected recoveries.
FY2018 was the first year after the transition to IFRS 9.
The Group actively reviewed and monitored the results
produced from IFRS 9 models to ensure that respective
results adequately capture expected losses.
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 the funding necessary to make
payments in respect of the Group’s future indebtedness.
Liquidity risk is managed by the financial risk management
and treasury departments and is monitored by the
Management Board’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.
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TBC BANK annual report and accounts 2018
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.
Additionally, the Group applies stress-tests and “what-
if” scenario analyses and monitors the NBG’s minimum
liquidity ratio. In 2017, the NBG 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 NBG’s LCR limits. In addition
to the total LCR limit, the NBG 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 the available stable funding by the
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 any deteriorating liquidity
conditions that could arise outside the ordinary course of
its business.
Funding and maturity analysis
include
The Group’s principal sources of
customer deposits and accounts, borrowings
from
local and international banks and financial institutions,
subordinated loans from international financial institution
liquidity
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
The NBG requires the Bank to monitor both balance-sheet
and total aggregate balance (including off-balance-sheet)
open currency positions and to maintain the latter within
20% of the Bank’s regulatory capital. For the year ended
31 December 2018, the Bank maintained an aggregate
balance open currency position of 7.6%.
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
NBG 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
TBC BANK annual report and accounts 2018
65
RISK MANAGEMENT CONTINUED
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.
Counterparty risk
Through performing banking services, such 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.
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 NBG 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.
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 RECC.
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.
To manage counterparty risk, the Bank defines limits on an
individual basis for each counterparty, while on a portfolio
basis it limits the expected loss from both treasury
and trade finance exposures. As of 31 December 2018,
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 the intention of making the Group’s
services or supporting infrastructure unavailable to its
intended users, which in turn may jeopardise sensitive
information and the financial transactions of the Group, its
clients, counterparties or customers.
Moreover, the Group is subject to risks that cause disruption
to systems performing critical functions or business
disruption arising from events wholly or partially beyond
its control, such as 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
improving
processes, controls, procedures and systems is heightened
to ensure risk prevention and reduce the risk of loss to the
Group.
importance of constantly
66
TBC BANK annual report and accounts 2018
To oversee and mitigate operational risk, the Group has
established an operational risk management framework,
which is an overarching document that outlines the general
principles for effective operational risk management and
defines the roles and responsibilities of the 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
internal fraud events and
in banking operations,
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.
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 the reporting period, one of the key operational risk
management focus areas was the Risk and Control Self-
Assessment (RCSA) exercise, under which the Bank’s top
priority processes were reviewed and areas of improvement
were identified. Additionally, the Bank was actively working
on development of a Bank-wide operational risk registry.
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-Bribery, Anti-Corruption and Anti-Facilitation of
Tax Evasion Policy;
the Related-Party Transaction Policy;
the Share Dealing Policy;
the Code of Ethics; 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
TBC BANK annual report and accounts 2018
67
RISK MANAGEMENT CONTINUED
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.
During 2018, the Bank was subject to an inspection by its
regulator, the NBG in connection with certain transactions
which took place in 2007 and 2008. The inspection alleged
that these transactions between Bank and certain entities
were not in technical compliance with the relevant Georgian
law relating to the regulation of conflicts of interest. In
February 2019, the Company, the Bank and the NBG issued
a joint announcement, confirming that the Bank will:
(i) pay approximately GEL 1 million; and (ii) implement a
restructuring of the Bank’s Supervisory Board whereby the
founding shareholders will step down from the Supervisory
Board. In addition, TBC Bank continues to cooperate with
the NBG to further improve the quality of the Bank’s
corporate governance and the Company will arrange an
external review of the Group’s related party transactions,
practices and procedures. The NBG also confirmed in the
joint statement that the Bank fully complies with economic
normative requirements and limits set by the NBG.
Separately, it is noted that the Georgian Office of Public
Prosecution has also launched an investigation into
the same matter and there have not been any material
developments to date.
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 has adopted the Code of Conduct and the Code of
Ethics, both of which set high ethical standards that each
employee is responsible to uphold.
The Group’s business holds a unique place of trust in
the lives of more than 2.4 million customers throughout
Georgia. Therefore, preserving market confidence through
the protection of our customers’ interests is of the 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 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 Code
of Conduct, the Code of Ethic 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;
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TBC BANK annual report and accounts 2018
timely on-going
3. ensuring that the product information provided
to clients by 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
that contain sensitive and sales-related
emails
information, including information pertaining to the
acquisition of new clients and making complex product
offers to existing and prospective clients;
5. delivering
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.
training
The above approach ensures that the management of
conduct risk is not limited to risk management units,
including the compliance department, but
fully
embraced by front-line departments and that the proper
conduct is fully integrated into required job skills.
is
VIABILITY STATEMENT
The assessment of principal risks underpins the Viability
Statement in the Directors’ Report for 2018 (see pages
118 to 119). The assessment involved consideration of
the Group’s current financial position over three years of
coverage ending 1 January 2022, which is relevant to the
strategic considerations of the Group.
TBC BANK annual report and accounts 2018
69
DOING BUSINESS RESPONSIBLY
We are dedicated to running our business in a
responsible and sustainable manner and creating value
for all our stakeholders.
OUR CUSTOMERS
We are committed to continuously improving our customers’
experience by offering tailored products and services in an accessible
way coupled with superior customer experience, as well as support
the development of the business sector to foster job creation in the
country.
2018 HIGHLIGHTS
During 2018, we continued to innovate and develop new digital solutions to further improve our value proposition
to our retail and business customers.
In May 2018 we launched a new, innovative product, Space, aimed at young and digitally savvy customers. Space
is a fully digital bank developed in partnership with leading industry players including Amazon Cloud, Pulsar
AI, Mambu, SalesForce and Corezoid. The application has very modern and intuitive design and performs all
banking transactions in real time (More information can be found on page 44).
We also started an innovative online platform (www.businesstool.ge) which aims to help businesses to increase
their efficiency by automatising their processes with software solutions created by Georgian IT companies.
The platform is an online marketplace connecting businesses with IT service providers - it assists the former
in finding the right digital solution on the local market and it helps the latter to introduce their products to
the business community, ultimately increasing their sales. In addition, we ran a software competition, in
partnership with EFSE DF to encourage the creation of IT solutions, which would bring maximum value for
businesses. The top three winners were awarded with monetary prizes from EFSE DF to support them in the
development of their products.
We also attracted several special purpose facilities from different international financial institutions to support
young entrepreneurs, women-led MSMEs, businesses operating in rural areas, innovative projects, energy
efficient and renewable energy products, foreign trade support, as well as mortgage loans for first-time home
buyers. The total amount disbursed under these projects amounted to GEL 128 million in 2018. More information
about each facility can be found on our website under the press release section at www.tbcbankgroup.com.
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TBC BANK annual report and accounts 2018
CUSTOMER PRIVACY AND DATA SECURITY
Safeguarding customers’ personal information is one of
our top priorities and we continuously work on upgrading
our control systems in order to ensure high-level customer
privacy and data security. We use advanced information
security technologies to identify and prevent any fraudulent
activities. In order to minimise cyber security risks and
detect cyber threats more effectively we constantly
enhance our defense system with artificial intelligence
measures and techniques.
In 2018, the National Bank of Georgia conducted a
thorough audit of our data security systems and no
significant issues were identified. Periodically, we also hire
external audit companies to examine our data security
and verify its compliance with existing local regulation and
international best practices. The last audit, conducted in
2017 by a Ukrainian leading information systems securities
company, confirmed that our systems ensure reliable
protection against cyber threats.
In order to increase awareness and help our clients to
protect their data security, we send periodic warnings to
them through Internet and mobile banking applications
regarding widespread cyber frauds and tips on how they
should act in such cases.
We also conduct regular mandatory trainings on cyber
security and data privacy for all our employees to ensure that
they are well aware of potential threats and remain alert.
In 2018, we have enhanced our Privacy Policy in line with
the requirements of the new EU General Data Protection
Regulation (GDPR). The full policy can be found on our IR
website at www.tbcbankgroup.com.
DIGITAL ENGAGEMENT AND
FINANCIAL INCLUSION
Our goal is to allow our customers to interact with us in
the most convenient way. For this purpose, we operate an
omni-channel distribution platform with a strong focus on
digital channels, which enables our customers to conduct
most of their daily transactions easily and remotely. Our
award-winning mobile and Internet banking applications
remain the most popular communication channels
accounting for 37.2% of all transactions. The other widely
used channel is self-service terminals as Georgia is still
a largely cash-based society. At the end of 2018, 19.3% of
all transactions were conducted through these terminals.
In order to increase young people’s engagement in
banking, we offer special cards to school and university
students with distinctive benefits tailored to their needs
and interests. The cards are free of any banking charges,
including annual service fee and ATM withdrawal fee
from TBC Bank ATMs. The cards feature unique designs
which can be customised based on owners’ wishes and
interests. For card owners, we organise various campaigns
which
include special promotions and discounts at
popular retailers. Furthermore, we regularly organise
masterclasses for students, which are delivered by leading
professionals.
CUSTOMER SATISFACTION
Our customer satisfaction is of utmost importance to us.
We regularly request feedback from our clients and use this
information to analyse their needs and fine-tune our value
proposition accordingly. We also pay special attention to
our customers’ concerns and have a dedicated department
dealing with clients’ complains. We react promptly to each
case and work closely with a customer to understand his/
her problem.
We regularly measure customer satisfaction levels based
on various surveys conducted by independent third party
companies and maintain the highest scores in the Georgian
banking sector. We also hold the leading position among
the whole retail industry in the country.
TBC BANK annual report and accounts 2018
71
Annual Business Award ceremony has become the major
business event of the year in the country and it counts
more than 1,500 community members in total. Traditional
media as well as social network channels widely covered
the event which attracted 16 million reach in PR and Social
Media and top-of-mind awareness of this project reached
76% according to the survey conducted by the independent
research agency, ACT in the end of 2018.
PRIORITIES FOR 2019
We will continue to roll out innovative products
and services to customers based on their evolving
preferences, as well as maintain our focus on
superior customer experience. We will also
continue supporting businesses by expanding
our business support programme with new
digital tools and solutions. Furthermore, we
are committed to increase our presence in
underpenetrated regions and sub-segments to
contribute to further financial inclusion.
DOING BUSINESS RESPONSIBLY CONTINUED
SUPPORTING BUSINESSES DEVELOPMENT
We are committed to supporting Georgia’s business and
entrepreneurs by providing access to finance as well
as extensive non-financial services under our business
support programme.
As of 31 December 2018, our MSME portfolio stood at GEL
2,497 million. Out of this amount, GEL 859 million has been
used to finance rural areas and thus helped in creating new
job opportunities in different sectors, including hospitality
and leisure, agriculture, food industry and construction.
Since March 2017, we run Startuperi, a start-up oriented
project offering full-scale support to companies in their
early stage of development. The programme aims to foster
entrepreneurship by providing easily accessible funding,
media & PR support, free educational programmes and
conferences, as well as partnerships with large companies
in Georgia. Startuperi proved to be very successful and
since its launch we have attracted 24,000 participants and
have funded 490 startups totaling GEL102.5 million. The
media reach of this programme was more than 36 million
views at the end of 2018.
Within our business support programme, launched in
2013 in partnership with the Asian Development Bank
(ADB), we continue to hold various educational events
for our customers, including training courses, individual
consultations, regional agro forums, networking events
and masterclasses. All events are offered free of charge.
During 2018, up to 7,500 MSMEs participated in this
programme.
Since 2016 we also hold the annual Business Award
ceremony which has become one of the most prominent
business event in Georgia. The initiative aims at supporting
the development of both new and established businesses
and promote entrepreneurship in the country. The slogan
is #sharesuccess as participants have an opportunity to
share their success stories among the whole business
community. Two new categories were added in the 2018
edition: the “Woman Entrepreneur of the Year” and the
“Social Impact Award”. In addition, we have added special
prizes for the winners who can choose one award from
three categories:
digital strategy and new web page development;
brand strategy and image campaign;
business soft/Tool or SAAS.
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TBC BANK annual report and accounts 2018
THE ANNUAL
LITERARY
AWARD SABA
TBC BANK annual report and accounts 2018
73
DOING BUSINESS RESPONSIBLY CONTINUED
OUR COLLEAGUES
Our colleagues are integral part our success and our most valuable
asset. We are committed to creating a collaborative and diverse working
environment where people feel valued and are motivated to realise their
full potential and deliver high performance.
2018 HIGHLIGHTS
TBC Bank is one of Georgia’s top employers and we work closely with the world’s leading HR consulting companies
in order to fine-tune our human resources system in line with the market’s best practice.
In this regard, in 2018 we successfully delivered on a number of initiatives:
we launched a job classification system which classifies head office staff positions according to the
responsibilities and duties associated with the job. This scheme creates parity and consistency in job titles,
sets defined salary ranges and promotes a fair and transparent working environment;
we also implemented a self-service platform, embedded in our internal network, which allows employees
to access information and perform routine tasks independently, without help from the HR team. In its first
implementation stage, the platform allows employees to perform simple operations online, such as filling
applications for annual leave or registering for insurance. Over time, more complex transactions will be added.
The main benefits of such self-service tools include increased efficiency, simplified processes, time saving and
low costs;
in May 2018, we introduced the Human Resource Management System (HRMS), a new software which was
developed in partnership with a leading software company in Central and Eastern Europe. Our new HRMS is the
most up-to-date platform: it is fully automated and it features advanced reporting and data analysis capabilities.
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TBC BANK annual report and accounts 2018
EQUALITY AND DIVERSITY
We believe that workforce diversity and inclusion is key to
creating a sustainable and successful business. Our work
environment is free from any kind of discrimination and
each and every employee is valued, respected and treated
equally regardless of gender, age, marital status, race,
ethnicity, religious and political beliefs or disability.
We recognize the benefits of gender diversity and
actively support women in the workforce. Over 65% of
our employees are women whereas, the share of women
holding senior roles is 36%. We remain committed to
improve the gender balance across managerial positions,
We also appointed two new female non-executive board
directors (detailed information is given in directors’
governance statement on page 112).
We support colleague with disabilities and ensure that
they are treated fairly and have the same access to
learning, development and job opportunities. We give fair
consideration to disabled candidates and are unbiased
when selecting and appointing people. No applicant is
discriminated because of his/her disability. We also strive
to improve our workplace to make it more flexible for
disabled people.
GENDER DIVERSITY STATISTICS
Board of directors
Male
Female
Top management
Male
Female
2018
7
2
2018
7
1
2017
2016
9
0
9
0
2017
2016
7
1
7
1
Middle management
Male
Female
All employees
Male
Female
2018
200
120
2018
2,425
4,827
2017
200
105
2017
2,339
4,745
2016
222
119
2016
2,195
4,097
We have a good mix of people with extensive working
experience, as well as young and bright individuals who
have just graduated from top universities in Georgia and
abroad. Since 2012, we run an internship programme
for the best students from Georgia’s leading universities,
at the end of which we offer permanent jobs to the best
trainees. This programme has proven to be very successful
and helped us identify the brightest and most talented
students who are part of our team today. We believe that
age diversity creates a more dynamic and high-performing
team that leads to better results.
AGE DIVERSITY STATISTICS
<20
20-29
30-39
40-49
>=50
2018
0.3%
56%
32%
9%
3%
TBC BANK annual report and accounts 2018
75
Table 3
Front Office Employees
mean gender pay gap in hourly pay
median gender pay gap in hourly pay
mean bonus gender pay gap
median bonus gender pay gap
Table 4
Back Office Employees
mean gender pay gap in hourly pay
median gender pay gap in hourly pay
mean bonus gender pay gap
median bonus gender pay gap
%
50.8%
54.4%
64.5%
65.5%
%
29.6%
-7.7%
20.2%
-11.3%
DOING BUSINESS RESPONSIBLY CONTINUED
GENDER PAY GAP
We regularly review our pay levels and make sure that men
and women are paid equally for doing the same type of job.
In 2018, for the first time, we have published details of the
average pay gap between male and female colleagues in
the bank.
As shown in the 1st table below, the average gender pay
and bonus gaps are in favour of men. This is mainly due to
higher number of women being employed in junior roles,
including the customer service positions (as shown in table
3), which is related to our business model. However, the
gap is positive for middle management positions, whereas
we employ relatively lower proportion of women at higher
pay quartiles based on their roles (please refer to table 2).
We remain committed to achieving a better gender
balance and increasing the proportion of women working
in senior roles.
Gender pay and bonus gap statistics1
Gender pay gap is based on the data from April 1, 2018 to
April 30, 2018.
Gender bonus gap is based on the data from April 6, 2017
to April 5, 2018.
Table 1
Bank Full
mean gender pay gap in hourly pay
median gender pay gap in hourly pay
mean bonus gender pay gap
median bonus gender pay gap
Table 2
Middle Management
mean gender pay gap in hourly pay
median gender pay gap in hourly pay
mean bonus gender pay gap
median bonus gender pay gap
%
48.9%
43.0%
53.7%
52.4%
%
-21.4%
-13.4%
-33.9%
-104.2%
1 The data on gender pay gap is presented only for the bank, which
accounts for the 89% of the total Group’s employees.
Negative gap indicates a percentage pay gap in favor of women, while
positive gap indicates a percentage pay gap in favor of men
76
TBC BANK annual report and accounts 2018
EMPLOYEE MOTIVATION AND ENGAGEMENT
High levels of employee motivation and engagement is one
of our core priorities and we are constantly seeking new
ways to create the best working environment.
We recognise the benefits of a regular communication with
our colleagues and use different online channels to keep
our employees up-to-date with the Group’s progress and
recent developments. Employees are also encouraged to
share their views and concerns through internal forums.
We support various social activities, including internal
clubs, championships and retreats. TBC clubs unite
employees based on their interests and hobbies and bring
together photographers, sport and art lovers, employees
with three or more children and many other. We also
regularly organise different internal championships and
employee gatherings, including board game competitions,
intellectual game “What? Where? When?” and various
sports events such as football, basketball, bowling and
others. Furthermore, we frequently take part in different
external sport activities. For five years our employees have
been taking part to the Wings for Life World Run, a running
competition which raises funds for the research to cure
spinal cord injuries.
For our middle managers, we organize annual overseas
retreats to boost their team spirit and improve their job
satisfaction. In 2016, the group supported Georgia’s national
rugby team in Scotland, 2017 it traveled to Wales and in
November 2018, the middle managers were in Florence to
support the national rugby team in a test match against
Italy. Such initiatives support our employees’ involvement
in sport events and is in line with our strategy of becoming
the rugby ambassadors in Georgia.
We care about health and wellbeing of our colleagues and
offer free medical check-ups and consultations. In 2009,
we established the TBC Fund, a charity fund which covers
the medical expenses of our employees and their close
relatives in case of severe diseases. Most of our employees
regularly donate up to 2% of their salaries and the fund has
already helped more than 1,170 people.
In addition, we offer a wide range of non-monetary awards
including free tickets for exhibitions, cinema, opera, ballet
and rugby games, as well as special discounts in various
hotels, restaurants, gyms, book fairs and popular cultural
events. For the employees’ young children we provide back-
to-school gift packages which comprise branded bags and
stationary from our brand shop. The online brand shop in
subsidised by TBC Bank and includes various accessories,
clothes and gifts. We collaborate with Georgian designers
and regularly add new collections that are designed
exclusively for TBC Bank.
In order to accurately measure our employee satisfaction
and engagement levels, we annually run a feedback survey
in partnership with leading international universities and
research firms. The results of the survey are analysed
carefully and taken on board for the management’s
future actions. Based on the latest survey, conducted in
December 2018, the engagement index and net promotor
score stood at 87%and 66% respectively compared to 91%
and 55% in 2017. The consistently high scores confirms
that our colleagues believe that the Group is moving into
the right direction and feel part of this success.
LEARNING AND DEVELOPMENT
We strive to attract and retain top talent and therefore
we continuously invest in our colleagues’ learning and
professional development.
In 2011 we established TBC Academy, an in-house
educational platform which provides
training and
workshops in different fields and allows our employees
to learn from TBC Bank’s top and middle management.
Classes comprise technical subjects such as financial
institutions, capital markets, ethics and financial fraud
management, as well as soft skill including leadership,
change management and others. Due to the increasing
demand, in 2018 the number of courses conducted per
year increased from four to seven. In 2018 more than 150
employees attended the training offered.
We also provide specialised training on a regular basis for
front office staff to ensure that they are constantly up-to-
date with new procedures and regulations. In order to allow
more flexibility to our employees, since 2013 we operate
a distance learning system, which give our colleagues an
opportunity to study at a suitable time for them.
In addition to the in-house training opportunities, we provide
our employees with financial support to attend various
external courses and gain international certifications,
such as CFA, FRM, ACCA and others. To further encourage
them, in 2012 we established TBC Scholarship Fund, which
provides co-financing to our top employees to study at the
world’s leading universities. In 2018, 10 managers received
this scholarship.
TBC BANK annual report and accounts 2018
77
DOING BUSINESS RESPONSIBLY CONTINUED
Another initiative in this regard is organising masterclasses
for our employees all over the country where leading
Georgian professionals are invited to share their experience
and knowledge. These masterclasses have proved to be
very successful and have recorded high attendance rate,
for a total of c. 3,500 people since its launch in 2017.
PERFORMANCE ASSESSMENT AND REWARD
Our performance appraisal system is closely linked with
overall objectives of the Group and is based on three
core principles: clarity, fairness and integrity. We make
sure that our colleagues have a clear understanding of
their contribution to the company’s strategic priorities,
are actively engaged in setting their goals and are given
appropriate coaching by their supervisors to help them
achieve these goals. Regular employee feedbacks and
a constructive dialogue are an important part of our
performance appraisal system.
We use different assessment systems for front and back
office staff and it varies depending on the positions held.
We assess our back office staff with the management-
by-objectives (MBO) system, a personnel management
technique where managers and employees work together
to set, record and monitor goals for the financial year. Goals
are written down annually and are continually monitored
by managers to check progress, including semi-annual
direct feedback from supervisors. Rewards are based on
the goal achievement. We have a uniform scoring system
for all employees within the MBO, which ensures fairness
throughout the organisation.
For our middle managers, we also run a 360-degree
feedback that provides each employee with the opportunity
to receive performance feedback from his/her supervisor,
peers and subordinates. The 360-degree feedback allows
our employees to understand how their performance is
viewed by others and it helps them to better identify their
strengths and weaknesses as well as to develop new skills.
assessment
For front-office employees we use a target-based
performance
system, whereby his/
her performance is linked to specific KPIs, including
quantitative and qualitative components. Within the target-
based system, employees are assessed monthly, quarterly
or annually depending on their positions.
We offer a competitive remuneration package, which
includes a monthly salary, a performance-driven bonus
and an attractive benefits’ package. This is comprised
of pension contributions, medical insurance, corporate
mobile numbers, paid annual and sick leaves as well as
fully-paid six months of maternity and paternity leave.
Other benefits include monetary gifts in case of marriage
and childbirth and compensation in case of serious illness
or death. Furthermore, since 2013 we run a special club for
large families. This social programme provides a special
one-time gift of GEL 10,000 to all TBC Bank employees
upon the birth of their fourth and fifth child and GEL
50,000 upon the birth of their sixth child or more. At the
end of 2018, the club counts up to 500 employees and have
granted around GEL 780,000 since its establishment.
We operate a deferred share bonus scheme for our middle
managers whereby 15%-20% of the total annual bonus
is paid in the form TBC PLC shares which are subject to
three year continued employment condition and holding
period: 10% and 10% are awarded on the first and second
anniversaries respectively and the remaining 80% on the
third anniversary. This scheme encourages a long-term
commitment to the company and helps to align the middle
managers’ interest with those of the shareholders. In 2019,
167,361 shares were awarded as bonus shares to middle
managers. (Detailed information regarding to directors’
remuneration system can be found in the remuneration
report on pages 136 to 155.)
ETHICAL STANDARDS AND
RESPONSIBLE CONDUCT
We aspire to run a business that promotes high ethical
standards, values and respects human rights, and
encourages our employees to act with integrity and
responsibility towards each other as well as towards our
customers, business partners, other stakeholders and the
community at large.
For this purpose, we have implemented a set of internal
policies and procedures and we closely monitor their
execution:
Code of Ethics
Code of Conduct
Anti-Bribery, Anti-Corruption and Prevention of the
Facilitation of Tax Evasion Policy
Whistleblowing Policy
These policies apply to all employees of the Group and can
be found on our IR website at www.tbcbankgroup.com.
The Code of Ethics and Code of Conduct outline ethical
principles and standards of professional conduct expected
from all employees of the Group and set appropriate
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TBC BANK annual report and accounts 2018
but is uncomfortable using the normal reporting lines. Our
guidelines seek to ensure that complaints are recorded
and that employees are safeguarded 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
behavior. No such material instances were identified
during 2018.
PRIORITIES FOR 2019
We will continue investing in our colleagues’
development in order to create the best talent
within our company. We are also committed to
creating the best working environment for our
employees to provide them with most rewarding
including financial
careers
benefits, learning and professional development
opportunity, social interaction and safety.
in all aspects
relationship norms with colleagues, customers, partners
and others stakeholders. TBC Bank’s employees are
expected to act with professionalism and integrity at
all times and to comply with both spirit and intent of all
applicable laws and regulations. The employees are
also required to treat all stakeholders with respect and
act fairly and responsibly towards them. In dealing with
customers, we ensure that our products and services are
tailored to their needs, that are straightforward and easy
to understand. We also make sure that clients do not
face unreasonable post-sale barriers to change product,
submit a claim or make a complaint. With regards to
suppliers and other business partners, the Group engages
only in arm’s-length transactions. In relation to our
employees, we are committed to fostering a supportive,
safe and respectful working environment, which is free of
any form of harassment, discrimination (including race,
ancestry, color, religion, national origin, citizenship, marital
status, veteran’s status, gender, gender identity, sexual
orientation, age or disability) or inappropriate behavior.
Environmental and social issues are also on top of our
agenda in all our undertakings.
The compliance with the Group’s Code of Ethics and Code
of Conduct is closely monitored by the HR Department and
Compliance Department on regular basis. The Internal
Audit Department also conducts periodic audits 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
2018.
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.
To ensure employees’ protection and improve working
conditions, we have a whistleblowing policy in place,
available to all, which aims to identify and respond to
potential violations that may jeopardise employees’ work
effectiveness. The policy encourages every staff member
to report on any suspected violations in an open manner,
without fear of retaliation. In addition, TBC Bank provides
channels for anonymous whistleblowing (including hotline,
email or letter) for anyone who believes that a violation of
internal standards or legal requirements has taken place
TBC BANK annual report and accounts 2018
79
DOING BUSINESS RESPONSIBLY CONTINUED
OUR COMMUNITY
As the largest banking group in Georgia, we feel a responsibility towards
our community and strive to give back by supporting those areas that are
key for our country and its future: the young generation, art and culture.
2018 HIGHLIGHTS
During 2018, we implemented a number of remarkable projects:
TBC Bank supported Saba, Georgia’s main literary award, to celebrate its sixteenth award ceremony at 70th
International Frankfurt Book Fair, which is the world’s largest book fair. Georgia was the fair’s guest of honour
which provided the opportunity to introduce the Georgian literature to the prominent audience. In addition,
within the framework of the fair, the renowned Struwwelpeter-Museum hosted an exhibition dedicated to the
Georgian folk tale “Tsikara”. The display consists of three-dimensional objects and patterns decorated with
Georgian traditional visual art ornaments. It is open to the public from October 2018 through January 2019;
To mark the 100th anniversary of Georgia’s independence, TBC Bank supported the publication of the first book
about Georgian history and culture by Oxford University . The book is based on the Wardrop collection which
contains rare, ancient Georgian manuscripts, unique books and documents, including handwritten scripts of
the famous “Knight in Panther’s Skin” dating to the 17th century. The collection, stored at Bodleian Library in
Oxford, was created by former British diplomat Sir Oliver Wardrop and his sister, Marjory, during many years.
The book was presented at Sir Wardrop’s former house, in Seven Oaks, in Great Britain, and is now available on
Amazon;
In October 2018 TBC Bank supported the return of the archives of the Zubalashvili brothers to Georgia. Petre,
Jacob, and Stephan Zubalashvili were well-known industrialists, merchants and philanthropists in the 18th
century. Their unique archives, consisting of historical documents about history, civilization, and archeology as
well as artifacts, were preserved for over 114 years by their descendents who gifted them to Georgia in 2018. They
were transferred to the National Museum of Georgia where an exhibition was held in November 2018.
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TBC BANK annual report and accounts 2018
YOUNG GENERATION
We are committed to supporting talented young people in
their professional development and continue to roll out
new projects and initiatives in this regard.
Since 2016 TBC Bank is the main partner of the Young
Researchers and Innovators Competition Leonardo da
Vinci, an annual event which aims to popularise STEM
(acronym for science, technology, engineering and math)
subjects among young people. The winning team of the
2018 edition received a one-year scholarship from TBC
Status. Furthermore, in 2018 TBC became a partner of
the Millennium Innovations Award which is a nationwide
challenge that aims to promote innovations in STEM fields
among youth throughout Georgia. TBC Bank will provide
financial support to send the winning team at the Space
Center University at the NASA Space Center in Houston,
USA, in May 2019.
In June 2018, TBC Bank and Tbilisi State University (TSU)
signed a memorandum of cooperation which envisages
the development of joint educational projects and ad-hoc
training, employment programmes for students, as well as
creation of a special online brand shop for the university. In
addition, TBC Bank will share its know-how in marketing
and branding with the university and will also develop
banking products tailored specially for the students’ needs.
We are also actively supporting young talents through our
first Georgian online charity platform www.statusdonates.
ge which strives to promote success on behalf of TBC
Status clients and develop a culture of social responsibility
in society. Launched at the beginning of 2017 the platform
has since financed 25 projects for a total of GEL 125,000
and it has improved the life of over 70 people.
CULTURE
TBC Bank has been a fervent supporter of Georgian culture
since its establishment and it has implemented various
projects to promote Georgian heritage.
In 2003 TBC Bank established Saba, the leading literary
award in Georgia. To date, Saba has awarded over 150
prizes in different categories for a total amount of over
GEL 700,000. This year, the Saba award ceremony was a
particularly distinguished event as it was held in Germany
within the framework of the Frankfurt International Book
Fair. Since 2017, Saba also runs www.saba.com.ge, the
largest online platform for Georgian electronic and audio
books. The website allows access up to 300 authors and
publishers and it has attracted around 170,000 readers,
both in Georgia and abroad.
Another remarkable project is Artarea, the country’s first
online channel dedicated specifically to art and culture.
Artarea offers its viewers various cultural programmes,
online lectures, exhibitions, concerts and entertainment
activities. Its popularity is steadily growing and it counts on
over 30,000 daily viewers and over 110,000 daily users on
social media.
To popularise the Georgian language and to integrate
the Georgian alphabet into the digital world, in 2016
we launched #WriteinGeorgian. As part of this project
in 2017 we partnered with Microsoft and created www.
kartulad.ge, the first Georgian-language platform which
aims to integrate the Georgian language into Microsoft’s
programmes and software such as Skype, Office, and
others. The platform encourages the Georgian population
to engage with the website and translate sentences taken
out of Georgian literature. This year, Tbilisi State University
and its center of Lexicography translated around 50,000
sentences. Over 100,000 sentences have been translated
thus far making it possible for Microsoft’s platform to
begin “studying” the Georgian language. During the year,
several other remarkable initiatives were also completed
including:
the digitalisation of the
largest Georgian-English
dictionary;
the organisation of the first fonts competition in Georgia
in order to digitalize new Georgian fonts and promote
fonts engineering in the country;
the transfer of a database with over three million
sentences/phrases to Microsoft from Saba’s electronic
books.
We also continue to actively host various exhibitions
and cultural events at our art galleries in Georgia’s
three main cities. During 2018, we hosted around 140
events. Among them, the most remarkable was “Battle
or Habituation?,” an exhibit dedicated to Georgia’s 100th
anniversary of independence which was held with the
support of the Korneli Kekelidze Georgian National Center
of Manuscripts.
TBC BANK annual report and accounts 2018
81
DOING BUSINESS RESPONSIBLY CONTINUED
RUGBY
TBC Bank is general sponsor of the Georgian Rugby Union
since 2015. Rugby is a sport close to the heart of Georgians,
it is the country’s national game and it promotes the
country’s image on the international stage. We are proud to
contribute to the development of rugby in Georgia and are
committed to supporting our national rugby team in their
quest to be included in the Six Nations’ club.
PRIORITIES FOR 2019
Going forward, we will continue setting leading example
for other business to give back to community by our
active involvement in CSR activities. Our priorities
remain providing new opportunities of education and
development to talented young people, supporting art
and taking care of Georgia’s cultural heritage. We firmly
believe that these are key areas where we can have a
positive impact and we can focus our efforts to build a
prosperous country.
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TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
83
DOING BUSINESS RESPONSIBLY CONTINUED
ENVIRONMENT
We are strongly committed to preserve the environment by conducting
our business in a responsible and sustainable way and we take active
measures to reduce our environmental footprint from our direct and
indirect activities.
per employee by 19% in 2019 from the current level of
13.49 (m3/pp);
We renewed 73% of our auto park at the bank with hybrid
(59%) and electric (14%) cars;
we prioritise the use of green and energy-efficient
products in our everyday activities by incorporating
environmental assessment into procurement process;
we use green construction standards within the bank.
In terms of waste management, TBC Bank operates a waste
management programme since 2016, which ensures that we
closely monitor and effectively manage our non-hazardous
and hazardous waste. Non-hazards waste mainly arise 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
Georgian rural and mountain regions. For hazardous office
waste, such as printer cartridges, we collaborate with a
company specialised in supplying new cartridges and refilling
the used ones. Starting from 2019, we plan to implement
waste separation system that will enable us to reduce the
amount of waste we send to the landfills.
PRIORITIES FOR 2019
We plan to enhance our policies and procedures in
order to further reduce our environmental impact and
to implement various initiatives to raise our colleagues’
awareness to environmental issue and increase their
engagement.
LENDING RESPONSIBLY
As the largest banking group in Georgia, our major
environmental impact stems from the projects we choose
to finance. Therefore, we have adopted the Environmental
and Social Risk Management Policy which is compliant
with the Georgian environmental legislation and follows
international best practice guidelines. The policy also
ensures that we lend responsibly and do not finance
projects that have an adverse environmental or social
impact. The sector-specific environmental and social risk
assessment is integrated into the credit risk management
processes and is applied to all commercial lending
activities. The full policy can be viewed at www.tbcbank.ge/
web/en/web/guest/esms. The compliance with procedures
is closely monitored by the Environmental and Social Risk
Management Team and the Internal Audit Department
conducts periodic audits in order to identify any breaches.
No such material breaches were identified during 2018.
We also operate a dedicated channel where employees,
partners, customers or any other interested person can
raise environmental and social concerns in relation to our
activities. More information can be found on the following
link: www.tbcbank.ge/web/en/web/guest/e-s.
EFFICIENT CONSUMPTION OF NATURAL
RESOURCES AND RESPONSIBLE WASTE
MANAGEMENT
We strive to use natural resources efficiently by reducing
the consumption of fuel, gas, electricity, water and printing
papers. To achieve this we take the following measures:
we use energy-efficient LED lightings in our premises;
we operate an energy-efficient heating and cooling
systems in our offices;
we reduce consumption of paper through high level of
digitalisation of processes, both in our back and front office.
In 2018, we set the target to futher reduce the consumption
of printing paper by 36% in 2019 compared to the current
level of 11.2 printing paper per person in reams;
we also set the target for reducing consumption of water
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TBC BANK annual report and accounts 2018
GREENHOUSE GAS EMISSIONS
As a premium-listed company trading on the LSE, TBC Bank is required to calculate and report upon the greenhouse gas
(GHG) emissions stemming from its direct operations. For this purpose, TBC Bank has established a comprehensive internal
environmental system to manage its GHG emissions within the Group and is committed to reducing its GHG emissions by
closely monitoring consumption of fuel, gas and electricity. TBC Bank also commissioned an independent Health, Safety,
Environment (HSE) consulting company, Gergili LLC to verify the measurements of its GHG emissions.
Data for the FY
Scope 1*
Fuel Combustion
(heating, vehicles, generators)
Scope 2
(Electricity consumption)
Scope 3
(International flights)
Total emissions (tCO2)
Total emission per full time employee (CO2t/pp)
Total CO2 Emissions (tonnes)
2018
2,584
1,391
644
4,619
0.65
2017
2,409
1,375
366
4,150
0.60
2016
1,805
1,147
268
3,219
0.52
KPIs
2019
-8%
-5%
-
-6%
-6%
*Scope 1:
a)1,483 CO2e emissions in tonnes (from combustion of fuel (NG) from owned operation and facilities of TBC Bank) in 2018 compared to 1,538 CO2e in 2017 and
1,209 CO2e in 2016
b)1,013 CO2e emissions in tonnes (from owned vehicles of TBC Bank) in 2018 compared to 763 CO2e in 2017 and 533 CO2e in 2016
c) 88 CO2e emissions in tonnes (from owned generators of TBC Bank) in 2018 compared to 108 CO2e in 2017 and 63 CO2e in 2016
In 2018, total GHG emissions increased by 11% YoY mainly due to increased number of international flights related to our
international expansion strategy, as well as rise in emissions from vehicles as a result of increase in total number of cars
related to the overall growth of business.
CALCULATION METHODOLOGY
For GHG inventory following step has been set: organization boundaries, operational boundaries, gathering data and
calculation of carbon dioxide (CO2) equivalent. This report describes all emission sources required under the Companies
Act 2006 (Strategic Report and Directors’ Reports) Regulations 2013 (Scope 1 and 2) and additionally the emissions under
Scope 3 that are applicable to the business. In preparing the emissions data, the emissions factors from the UK Government’s
Greenhouse Gas Conversion Factors for Company Reporting 2017 and National IPCC emission factors for electricity (tCO2*/
MWhe) was used. The required data was collected and report developed for the boundaries of TBC PLC’s main activities as
follows:
Scope 1 (combustion of fuel and operation of facilities) includes emissions from combustion of natural gas, diesel and/
or petrol in equipments at owned and controlled sites. Combustion of petrol, diesel fuel, natural gas and etc in owned
transportation devices;
TBC BANK annual report and accounts 2018
85
DOING BUSINESS RESPONSIBLY CONTINUED
Scope 2 (purchased electricity for own use (lighting, office appliances, cooling & etc.) includes emissions from: Used electricity
at owned and controlled sites; to calculate the emissions, it has been used the conversion factor for National IPCC emission
factors for electricity (tCO2*/MWhe);
Scope 3 includes emissions from air business travels (a short haul, a medium haul, a long haul and an international haul); it
should be noted that information on the travel class was considered and an “economy class” conversion factor has been used
for the emissions calculation from the following link: www.atmosfair.de/en/offset/flight
NON-FINANCIAL INFORMATION STATEMENT
TBC Bank complies with non-financial reporting requirements contained in sections 414 CA and 414 CB of Companies
Act 2006. The following table summarises the reference to the non-financial matters described in the Strategic Report.
NON-FINANCIAL INFORMATION
PAGES
The entity’s business model
Business model, pages 14 to 25
Environmental matters
Employees
Social matters
Human rights
Anti-corruption and anti-bribery
Environment, pages 84 to 86
Our colleagues, pages 74 to 79
Our community, pages 80 to 83
Ethical standards and responsible conduct,
pages 78 to 79
Ethical standards and responsible conduct,
pages 78 to 79
Non-financial key performance indicators
relevant to the entity's business
Key performance indicators, page 16
Description of principal risks and mitigations
Principal risks and uncertainties, pages 50 to 56
86
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
87
BORJOMI GORGE
FORESTS
TBC Bank was the first Georgian private company to announce
the decision to restore and reforest the Borjomi Gorge where 752
hectares of woods were destroyed during violent wildfires in 2017
and the Russian-Georgian armed conflict in 2008.
In 2018, TBC Bank partnered with the Forestry Agency and fully
restored 10 hectares of damaged land by planting 17,500 Caucasian
pine trees. Employees were actively involved in this initiative and
TBC Bank organized weekend field trips to Borjomi to help out the
Forestry Agency staff with the tree planting process.
Total operating income for the period was up by 26.3%
YoY to GEL 1,087.5 million
Cost to income stood at 37.8% (FY 2017: 41.7%)
Cost of risk on loans stood at 1.6% (FY 2017: 1.2%)
FX adjusted cost of risk stood at 1.5% (FY 2017: 1.4%)
Balance sheet highlights as of 31 December 2018
Total assets amounted to GEL 15,498.0 million as of 31
December 2018, up by 19.5% YoY
Gross loans and advances to customers stood at GEL
10,372.6 million as of 31 December 2018, up by 21.3%
YoY
Net loans to deposits + IFI funding stood at 89.9% and
Net Stable Funding Ratio (NSFR) stood at 130.2%
NPLs were 3.1%, down by 0.2pp YoY
NPLs coverage ratios stood at 102.7%, or 216.4% with
collateral, on 31 December 2018 compared, to 104.7% or
209.4% with collateral, as of 31 December 2017
Total customer deposits amounted to GEL 9,352.1
million as of 31 December 2018, up by 19.6% YoY
As of 31 December 2018, the Bank’s Basel III Tier 1 and
Total Capital Adequacy Ratios per NBG methodology
stood at 12.8% and 17.9% respectively, while minimum
requirements amounted to 11.8% and 16.7%
MARKET SHARES2
Market share by total assets reached 38.2% as of 31
December 2018, up by 1.8pp YoY
Market share by total loans was 38.8% as of 31 December
2018, up by 0.6pp YoY
In terms of individual loans, TBC Bank had a market
share of 40.0% as of 31 December 2018, down by 0.2pp
YoY. The market share for legal entity loans was 37.4%,
up by 1.4pp YoY
Market share of total deposits reached 41.2% as of 31
December 2018, up by 1.4pp YoY
Market share of individual deposits stood at to 41.2%,
down by 0.1pp YoY. In terms of legal entity deposits, TBC
Bank holds a market share of 41.2%, up by 3.3pp YoY
FINANCIAL REVIEW
OVERVIEW
TBC Bank financial results are 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
financial results are adjusted for certain one-off items. The
Group classifies and separately discloses certain incomes
and expenses, which are non-recurring by nature and are
caused by extraordinary events, as one-off items in order
to provide consistent view and enable better analysis of the
financial performance of the Group. Adjusted performance
is alternative performance measure and 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 page 106.
TAX STRATEGY
TBC 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.
FINANCIAL HIGHLIGHTS
FY 2018 P&L highlights
Underlying1 net profit amounted to GEL 454.9 million
(FY 2017: GEL 369.2 million)
Reported net profit amounted to GEL 437.4 million (FY
2017: GEL 359.9 million)
Underlying1 return on equity (ROE) without one-offs of
22.8% (FY 2017: 21.4%)
Reported return on equity (ROE) amounted to of 22.0%
(FY 2017: 20.9%)
Underlying1 return on assets (ROA) was 3.3%
(FY 2017: 3.2%)
Reported return on assets (ROA) was 3.2% (FY 2017:
3.1%)
Net interest margin (NIM) stood at 6.9% (FY 2017: 6.5%)
Risk adjusted net interest margin (NIM) stood at 5.4%
(FY 2017: 5.1%)
1 Excluding one-off items. Detailed information and effects are given in Annex 1 on page 106
2 Market share figures are based on data from the National Bank of Georgia (NBG)
The NBG includes interbank loans for calculating market share in loans
90
TBC BANK annual report and accounts 2018
CONSOLIDATED FINANCIAL RESULTS OVERVIEW FY 2018
Income statement highlights
In thousands of GEL
Net interest income
Net fee and commission income
Other operating non-interest income
Credit loss allowance3
Operating income after credit loss allowance
Operating expenses
Profit before tax
Income tax expense
Profit for the period
Underlying profit for the period
NMF – no meaningful figures
Balance sheet and capital highlights
In thousands of GEL
Total assets
Gross loans
Customer deposits
Total equity
Regulatory tier I capital (Basel III)
Regulatory total capital (Basel III)
Regulatory risk weighted assets (Basel III)
2018
778,022
157,530
151,916
(166,239)
921,229
(411,029)
510,200
(72,765)
437,435
454,861
2017
604,015
125,961
131,009
(106,907)
754,078
(359,400)
394,678
(34,750)
359,928
369,214
Change
28.8%
25.1%
16.0%
55.5%
22.2%
14.4%
29.3%
NMF
21.5%
23.2%
Dec-18
GEL
15,497,993
10,372,582
9,352,142
2,205,968
1,678,716
2,351,269
13,154,871
US$
5,790,179
3,875,283
3,494,038
824,168
627,182
878,454
4,914,769
Dec-17
GEL
12,965,910
8,553,217
7,816,817
1,890,454
1,437,218
1,885,287
10,753,189
US$
5,001,894
3,299,598
3,015,515
729,285
554,440
727,292
4,148,287
Change
19.5%
21.3%
19.6%
16.7%
16.8%
24.7%
22.3%
The 2018 figures are converted into US$ using exchange rate of 2.6766 as of 31 December 2018, while 2017 figures are converted using
exchange rate of 2.5922 as of 31 December 2017
Key ratios4
Underlying ROE
Reported ROE
Underlying ROA
Reported ROA
NIM
Cost to income
Cost of risk3
FX adjusted cost of risk
NPL to gross loans
Regulatory tier 1 CAR (Basel III)
Regulatory total CAR (Basel III)
Leverage (times)
2018
22.8%
22.0%
3.3%
3.2%
6.9%
37.8%
1.6%
1.5%
3.1%
12.8%
17.9%
7.0x
2017
21.4%
20.9%
3.2%
3.1%
6.5%
41.7%
1.2%
1.4%
3.3%
13.4%
17.5%
6.9x
Change
1.4 pp
1.1 pp
0.1 pp
0.1 pp
0.4 pp
-3.9 pp
0.4 pp
0.1 pp
-0.2 pp
-0.6 pp
0.4 pp
0.1x
3 The figures for 2017 are calculated per IAS 39 and therefore are not comparable with 2018 figures, which are based on IFRS 9
4 Please refer to page 105 for key ratio definitions
TBC BANK annual report and accounts 2018
91
FINANCIAL REVIEW CONTINUED
INCOME STATEMENT DISCUSSION
Net interest income
In thousands of GEL
Loans and advances to customers
Investment securities measured at fair value
through other comprehensive income
Investment securities available for sale
Due from other banks
Bonds carried at amortised cost
Investment in leases
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
2018
1,123,972
57,057
-
23,744
40,625
38,837
1,284,235
266,741
196,498
41,571
1,403
506,213
778,022
2017
919,796
-
43,735
14,807
32,328
23,273
1,033,939
233,884
157,122
36,975
1,943
429,924
604,015
6.9%
6.5%
Change
22.2%
NMF
NMF
60.4%
25.7%
66.9%
24.2%
14.0%
25.1%
12.4%
-27.8%
17.7%
28.8%
0.4 pp
In FY 2018, net interest income grew by GEL 174.0 million, or 28.8%, YoY to GEL 778.0 million, resulting from a GEL 250.3
million, or 24.2%, higher interest income and a GEL 76.3 million or 17.7% higher interest expense.
Interest income grew by GEL 250.3 million, or 24.2%, YoY to GEL 1,284.2 million. This was mainly driven by an increase in
interest income from loans and advances to customers of GEL 204.2 million, or 22.2%, which is primarily related to a rise in
the gross loan portfolio by GEL 1,819.4 million, or 21.3%, YoY. This effect was further magnified by a 0.2 pp increase in loan
yields to 12.3%, which was driven by a rise in rates on GEL denominated loans of 0.9 pp. This in turn was partially offset by the
decrease in yields on FC denominated loans by 0.6 pp. Another contributor to the increase in interest income was the interest
income from investment securities (comprising of investment securities measured at fair value through other comprehensive
income, investment securities available for sale and bonds carried at amortised cost), which was up by GEL 21.6 million, or
28.4%. This resulted from an increase in respective portfolio by GEL 552.0 million, or by 49.8%. Yield on investment securities
remained stable on YoY basis. Yields on interest earning assets expanded by 0.3 pp to 11.4%, compared to FY 2017.
The YoY growth in interest expense by GEL 76.3 million, or 17.7% to a GEL 506.2 million in FY 2018 was mainly due to 25.1%
increase in interest expense on amounts due to credit institutions by GEL 39.4 million and a rise in interest expense on
customer accounts by GEL 32.9 million, or 14.0%. The higher interest expense on amounts due to credit institutions was
mainly due to an increase in the respective portfolio by GEL 410.8 million, or 15.7%, and a 0.7pp higher effective rate, which
stood at 7.2%, mainly related to the rise in Libor rate. The higher interest expense on customer accounts was attributable to
a GEL 1,535.3 million, or 19.6%, growth in the respective portfolio, partially offset by a 0.2 pp decline in the cost of deposit,
down to 3.2%, which resulted from a 0.3 pp and a 0.4 pp decrease in cost of deposits of LC and FC denominated deposits,
respectively. As a result, the cost of funding decreased by 0.1 pp on a YoY basis and stood at 4.4%.
Consequently, NIM was 6.9% in FY 2018, compared to 6.5% in FY 2017.
92
TBC BANK annual report and accounts 2018
Fee and commission income
In thousands of GEL
Card operations
Settlement transactions
Guarantees issued
Issuance of letters of credit
Cash transactions
Foreign currency exchange transactions
Other
Fee and commission income
Card operations
Settlement transactions
Guarantees issued
Letters of credit
Cash transactions
Foreign currency exchange transactions
Other
Fee and commission expense
Card operations
Settlement transactions
Guarantees
Letters of credit
Cash transactions
Foreign currency exchange transactions
Other
Net fee and commission income
2018
106,067
70,720
19,815
6,463
17,147
2,183
13,306
235,701
55,893
8,669
1,460
1,403
5,180
3
5,563
78,171
50,174
62,051
18,355
5,060
11,967
2,180
7,743
157,530
2017
82,525
59,739
15,121
5,735
17,424
1,339
12,061
193,944
46,360
7,421
1,801
1,072
4,393
94
6,842
67,983
36,165
52,318
13,320
4,663
13,031
1,245
5,219
125,961
Change
28.5%
18.4%
31.0%
12.7%
-1.6%
63.0%
10.3%
21.5%
20.6%
16.8%
-18.9%
30.9%
17.9%
-96.8%
-18.7%
15.0%
38.7%
18.6%
37.8%
8.5%
-8.2%
75.1%
48.4%
25.1%
In FY 2018, net fee and commission income totalled GEL 157.5 million, up by GEL 31.6 million, or 25.1%, compared to FY 2017.
This mainly resulted from an increase in net fee and commission income from card operations of GEL 14.0 million, or 38.7%
and an increase in net fee and commission income from settlement transactions of GEL 9.7 million, or 18.6%.
The rise in net fee and commission income from card operations is related to the increased number of active cards and POS
terminals by 17.8% and 15.0% respectively. The increase in net fee and commission income from settlement transactions was
mainly related to our subsidiary, TBC Pay, driven by a higher number of transactions, the growth in net fee and commission
income from our affluent retail sub-segment, TBC Status and the increased number and volume of money transfer
transactions.
TBC BANK annual report and accounts 2018
93
FINANCIAL REVIEW CONTINUED
Other operating non-interest income and gross insurance profit
In thousands of GEL
Net gains from trading in foreign currencies
Share of profit of associates
Gains less losses/(losses less gains) from derivative
financial instruments
Gains less losses from disposal of investment securities
measured at fair value through other comprehensive
income
Gains less losses from disposal of investment securities
available for sale
Revenues from sale of cash-in terminals
Revenues from operational leasing
Gain from sale of investment properties
Gain from sale of inventories of repossessed collateral
Revenues from non-credit related fines
Gain on disposal of premises and equipment
Other
Other operating income
Gross insurance profit
Other operating non-interest income and gross
insurance profit
NMF – no meaningful figures
2018
106,874
1,154
2017
91,473
909
173
(36)
2
-
-
1,715
6,544
9,781
2,577
683
352
9,786
31,438
12,275
93
1,093
6,544
4,353
2,383
1,408
1,017
14,999
31,797
6,773
151,916
131,009
Change
16.8%
27.0%
NMF
NMF
NMF
56.9%
0.0%
NMF
8.1%
-51.5%
-65.4%
-34.8%
-1.1%
81.2%
16.0%
Total other operating non-interest income and gross insurance profit increased by GEL 20.9 million, or 16.0%, to GEL 151.9
million in FY 2018. This mainly resulted from the rise in net income from foreign currency operations by GEL 15.4 million, or
16.8%, mainly due to an increased number and volume of FX transactions. Another contributor was gross insurance profit up
by GEL 5.5 million, or 81.2%.
The increase in gross insurance profit was mainly related to increased cross selling of various insurance products and
improved efficiency levels. More information about TBC insurance can be found on pages 46 to 47.
Credit loss allowance1
In thousands of GEL
Credit loss allowance for loan to customers
Credit loss allowance for investments in finance lease
Credit loss allowance for performance guarantees and
credit related commitments
Credit loss allowance for other financial assets
Credit loss allowance for financial assets measured at
fair value through other comprehensive income
Total credit loss allowance
Operating income after credit loss allowance
2018
(143,723)
(1,765)
(4,056)
(16,609)
(86)
(166,239)
921,229
2017
(93,823)
(492)
(153)
(12,439)
-
(106,907)
754,078
Cost of risk
NMF – no meaningful figures
1.6%
1.2%
Change
53.2%
NMF
NMF
33.5%
NMF
55.5%
22.2%
0.4 pp
In FY 2018, total credit loss allowance increased by GEL 59.3 million to GEL 166.2 million, compared to FY 2017. The main
contributor to the growth was credit loss allowance for loans to customers up by GEL 49.9 million. The increase was mainly
attributable to the corporate segment following a high recovery of credit loss in FY 2017.
1 The figures for 2017 are calculated per IAS 39 and therefore are not comparable with 2018 figures, which are based on IFRS 9
94
TBC BANK annual report and accounts 2018
Operating expenses
In thousands of GEL
Staff costs
Provisions for liabilities and charges
Depreciation and amortization
Professional services
Advertising and marketing services
Rent
Utility services
Intangible asset enhancement
Taxes other than on income
Communications and supply
Stationary and other office expenses
Insurance
Security services
Premises and equipment maintenance
Business trip expenses
Transportation and vehicles maintenance
Charity
Personnel training and recruitment
Write-down of current assets to fair value less costs to sell
Loss on disposal of Inventory
Loss on disposal of investment properties
Loss on disposal of premises and equipment
Impairment of intangible assets
Acquisition costs
Other
Administrative & other operating expenses
Operating expenses
Profit before tax
Income tax expense
Profit for the period
Cost to income
ROE
ROA
NMF – no meaningful figures
2018
220,354
4,000
45,740
13,951
29,575
24,389
6,491
11,366
6,757
5,173
4,841
4,589
2,040
6,098
2,273
2,043
1,074
1,880
(1,026)
137
96
860
1
-
18,327
140,935
411,029
510,200
(72,765)
437,435
37.8%
22.0%
3.2%
2017
203,100
(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
121,530
359,400
394,678
(34,750)
359,928
41.7%
20.9%
3.1%
Change
8.5%
NMF
22.7%
-2.7%
60.5%
5.4%
7.0%
10.3%
19.2%
27.3%
-1.9%
86.5%
3.8%
12.7%
12.5%
24.8%
2.8%
30.2%
90.7%
-88.9%
-78.3%
74.8%
-99.9%
-100.0%
45.3%
16.0%
14.4%
29.3%
NMF
21.5%
-3.9 pp
1.1 pp
0.1 pp
In FY 2018, total operating expenses expanded by GEL 51.6 million, or 14.4%, YoY. This mainly resulted from an increase in: staff
costs by GEL 17.3 million, or 8.5%; depreciation and amortisation by GEL 8.5 million, or 22.7% and administrative expenses by
GEL 19.4 million, or 16.0% (mainly related to the growth of advertising and marketing services). The growth across the board
resulted from the overall expansion of the business scale, the higher performance and the costs of the mandatory deposit
insurance, which was introduced at the end of 2017. Without the mandatory deposit insurance expenses, total operating
expenses and administrative & other operating expenses would have increased by 12.9% and 11.6% respectively.
As a result, cost to income ratio was 37.8% in FY 2018, 3.9 pp lower than the 41.7% in FY 2017.
TBC BANK annual report and accounts 2018
95
FINANCIAL REVIEW CONTINUED
Income tax
In FY 2018, TBC Bank reversed the one-off deferred tax gain, which was recognised in 2016 due to the recent amendment to
the Georgian Tax Code in relation to corporate income tax.
The amendment, which came into force on 12 June 2018, postponed the tax relief for re-invested profit from 1 January 2019
to 1 January 2023 for financial institutions. This reversal has resulted in a GEL 17.4 million expense on the profit and loss
statement and a GEL 5.1 million reduction in equity in FY 2018.
Net income
Net income for FY increased by GEL 77.5 million, or 21.5%, YoY and stood at GEL 437.4 million, while underlying net income
(without reversal of one-off deferred tax gain mentioned above) increased by GEL 85.6 million or 23.2% YoY and amounted to
GEL 454.9 million.
As a result, underlying ROE stood at 22.8%, up by 1.4pp YoY, while underlying ROA stood at 3.3%, up by 0.1pp YoY. Reported
ROE stood at 22.0%, up by 1.1pp YoY, and reported ROA remained broadly stable on YoY basis and stood at 3.2%.
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-18
Dec-17
Change
2,637,036
10,038,452
1,659,442
561,020
602,043
15,497,993
3,031,503
9,352,142
13,343
650,919
244,118
13,292,025
2,205,968
2,504,938
8,325,353
1,107,476
529,637
498,506
12,965,910
2,620,714
7,816,817
20,695
426,788
190,442
11,075,456
1,890,454
5.3%
20.6%
49.8%
5.9%
20.8%
19.5%
15.7%
19.6%
-35.5%
52.5%
28.2%
20.0%
16.7%
Assets
As of 31 December 2018, the Group’s total assets amounted to GEL 15,498.0 million, up by GEL 2,532.1 million, or 19.5%, YoY.
The increase was mainly due to a rise in net loans to customers by GEL 1,713.1 million, or 20.6%, YoY. Other contributors to
the increase were a GEL 552.0 million, or 49.8%, rise in financial securities and a GEL 132.1 million, or 5.3%, increase in liquid
assets (comprising cash, due from banks and mandatory cash balances with NBG), compared to 31 December 2017.
As of 31 December 2018, the gross loan portfolio reached GEL 10,372.6 million, up by 21.3% YoY, while the proportion of gross
loans denominated in foreign currency increased by 0.4 pp on a YoY basis and accounted for 60.1% of total loans.
96
TBC BANK annual report and accounts 2018
ASSET QUALITY
PAR 30 by Segments and Currencies
PAR 30
Corporate
Retail
MSME
Total
Loans overdue by more than 30 days to gross loans
GEL
0.7%
4.0%
2.4%
2.8%
Dec-18
FC
0.3%
1.5%
3.2%
1.4%
Total
0.4%
2.6%
2.8%
2.0%
Dec-17
GEL
0.0%
2.9%
1.5%
2.1%
FC
2.0%
2.0%
3.1%
2.2%
Total
1.5%
2.4%
2.5%
2.2%
Total
The total PAR 30 has improved by 0.2 pp YoY driven by improved corporate segment performance.
Retail
The retail segment’s PAR 30 increased by 0.2 pp, amounting to 2.6% on a YoY basis, mainly driven by credit cards,
fast consumer loans and other higher yield products.
Corporate
The corporate segment’s PAR 30 decreased by 1.1 pp YoY, mainly driven by the repayment of one large corporate
client as well as an overall improvement of the corporate loan book.
MSME
The MSME segment’s PAR 30 increased by 0.3 pp YoY, mainly attributable to SME.
NON-PERFORMING LOANs (NPLs)
NPLs
Corporate
Retail
MSME
Total
Dec-18
Dec-17
FC
3.1%
2.3%
5.5%
3.3%
Total
2.7%
2.9%
4.2%
3.1%
GEL
0.0%
2.6%
2.2%
2.1%
FC
4.2%
2.8%
6.0%
4.1%
GEL
1.6%
3.7%
2.6%
2.9%
Total
3.2%
2.7%
4.6%
3.3%
Total
The total NPLs has improved by 0.2 pp YoY driven by improved corporate segment performance.
Retail
The retail segment’s NPLs increase by 0.2 pp to 2.9% on YoY basis, mainly driven by credit cards, fast consumer
loans and other higher yield products.
Corporate
The corporate NPLs stood at 2.7%, down by 0.5 pp on YoY basis, due to the overall improved performance of the
corporate loan book, as well as a high portfolio growth in 2018.
MSME
The MSME NPLs decreased by 0.4 pp on a YoY basis and stood at 4.2%. This was driven by the improved performance
in NPLs in both the micro and SME portfolios.
TBC BANK annual report and accounts 2018
97
FINANCIAL REVIEW CONTINUED
NPLs Coverage
Corporate
Retail
MSME
Total
Dec-18
Dec-17
Exc. Collateral
96.4%
132.4%
68.4%
102.7%
Incl. Collateral
286.9%
204.4%
174.0%
216.4%
Exc. Collateral
86.6%
154.0%
54.6%
104.7%
Incl. Collateral
211.0%
237.3%
170.6%
209.4%
LIABILITIES
As of 31 December 2018, TBC Bank’s total liabilities amounted to GEL 13,292.0 million, up by GEL 2,216.6 million, or 20.0%
YoY. This was primarily due to a GEL 410.8 million, or 15.7%, increase in amounts due to credit institutions and a hike in
customer accounts of GEL 1,535.3 million, or 19.6%. Total liabilities also expanded, due to an increase in subordinated debt
by GEL 224.1 million, or 52.5%.
LIQUIDITY
As of 31 December 2018, the Bank’s liquidity ratio, as defined by the NBG, stood at 33.3%, compared to 32.5% as of 31
December 2017 and above the NBG limit of 30%. As of 31 December 2018, the total liquidity coverage ratio (LCR), as defined
by the NBG, was 113.9%, above the 100.0% limit, while the LCR in GEL and FC stood at 102.5% and 121.1% respectively, above
the respective limits of 75% and 100%.
TOTAL EQUITY
As of 31 December 2018, TBC’s total equity amounted to GEL 2,206.0 million, up by GEL 315.5 million or by 16.7% from GEL
1,890.5 million as of 31 December 2017.
This YoY change in equity was mainly due to net profit contribution of GEL 437.4 million during the last 12 months, which was
mostly offset by dividend distribution of GEL 88.9 million in May 2018 and by IFRS 9 transition effect in the amount of GEL 63.6
million as of 1 January 2018.
REGULATORY CAPITAL
According to the newly introduced methodology, as of 31 December 2018 the Bank’s Basel III Tier 1 and Total Capital Adequacy
Ratios (CAR) stood at 12.8% and 17.9%, respectively, compared to the minimum required levels of 11.8% and 16.7%.
In 31 December 2018, The Bank’s Basel III Tier 1 Capital amounted to GEL 1,678.7 million, up by GEL 241.5 million or 16.8%,
compared to December 2017, due to increase in net income. The Bank’s Basel III Total Capital totalled GEL 2,351.3 million, up
by GEL 466.0 million, or by 24.7%. The increase in total capital was attributable to the increase in net income and the growth in
subordinated loans. At the end of 2018, the bank attracted GEL 230.5 million subordinated loan, out of which GEL 160.6 million
was converted from existing senior loans and the remaining GEL 69.9 million was additionally raised. Risk weighted assets
amounted to GEL 13,154.9 million as of 31 December 2018, up by GEL 2,401.7 million, or by 22.3%, compared to December
2017, mainly related to the rise in loan book.
RESULTS BY SEGMENTS AND SUBSIDIARIES
The segment definitions are as follows(updated in 2018):
Corporate – a legal entity/group of affiliated entities with an annual revenue exceeding GEL 12.0 million, or which have been
granted facilities of more than GEL 5.0 million. Some other business customers may also be assigned to the corporate
segment or transferred to MSME on a discretionary basis;
MSME (Micro, Small and Medium) – business customers who are not included in either the corporate or the retail segments;
or legal entities who have been granted a pawn shop loan; or individual customers of the newly launched, fully digital bank-
Space;
Retail – non-business individual customers or individual business customers who have been granted mortgage loans; all
individual customers are included in retail deposits;
Corporate Centre – comprises the Treasury, other support and back office functions, and the non-banking subsidiaries of
the Group.
Business customers are all legal entities or individuals who have been granted a loan for business purposes.
Summary of key changes:
The limits for corporate customers have been increased from GEL 8.0 million to GEL 12.0 million for annual revenue and
from US$ 1.5 million to GEL 5.0 million for granted facilities. Additionally, as allowed by policy, some customers were moved
to corporate segment on discretionary basis considering practical aspects of client account servicing and administration.
As a result, the increase amounted to GEL 66 million and GEL 78 million for corporate loan portfolio and corporate deposit
portfolio, respectively;
Certain sub-categories for the individual business customers that are granted non mortgage loans have been moved from
retail to MSME segment. Subsequently, GEL 236 million was transferred from retail to MSME loan portfolio.
98
TBC BANK annual report and accounts 2018
Income statement by segments
2018 (In thousands of GEL)
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
Net income from foreign currency operations
Foreign exchange translation gains less losses/
(losses less gains)
Net losses from derivative financial instruments
Gains less losses from disposal of investment
securities measured at fair value through other
comprehensive income
Other operating income
Share of profit of associates
Other operating non-interest income
Credit loss allowance for loan to customers
Credit loss allowance for performance guarantees
and credit related commitments
Credit loss allowance for investments in finance
lease
Credit loss allowance for other financial assets
Credit loss allowance for financial assets measured
at fair value through other comprehensive income
Profit before G&A expenses and income taxes
Staff costs
Depreciation and amortization
Provision for liabilities and charges
Administrative and other operating expenses
Operating expenses
Profit before tax
Income tax expense
Profit for the year
Retail
609,989
(123,729)
(78,453)
407,807
170,082
(64,270)
105,812
MSME
255,833
(9,710)
(83,475)
162,648
22,498
(6,861)
15,637
- -
Corporate
264,559
(133,302)
35,531
166,788
40,667
(6,661)
34,006
-
Corp.Centre
153,854
(239,472)
126,397
40,779
2,454
(379)
2,075
12,275
Total
1,284,235
(506,213)
-
778,022
235,701
(78,171)
157,530
12,275
28,811
22,002
44,629
(3,764)
91,678
- -
(223) -
-
-
15,196
396
15,196
173
8,658
- -
748
- -
22,750
(15,854)
37,246
(118,043)
-
19,691
-
64,320
(9,826)
2
2,341
1,154
27,600
-
2
31,438
1,154
151,916
(143,723)
(412)
(247)
(2,827)
(570)
(4,056)
- -
(2)
(3,959)
-
(8,634)
(1,765)
(4,014)
(1,765)
(16,609)
428,451
(128,957)
(36,745)
- -
184,932
(43,385)
(4,980)
- -
(21,184)
(69,549)
115,383
(17,250)
98,133
(90,329)
(256,031)
172,420
(22,898)
149,522
(95)
243,732
(30,266)
(2,226)
-
(12,616)
(45,108)
198,624
(29,907)
168,717
9
64,114
(17,746)
(1,789)
(4,000)
(16,806)
(40,341)
23,773
(2,710)
21,063
(86)
921,229
(220,354)
(45,740)
(4,000)
(140,935)
(411,029)
510,200
(72,765)
437,435
TBC BANK annual report and accounts 2018
99
FINANCIAL REVIEW CONTINUED
Portfolios by segments
In thousands of GEL
Loans and advances to customers
Non-mortgage
Mortgage
Retail
Corporate
MSME
Total loans and advances to customers (Gross)
Less: credit loss allowance for loans to customers
Total loans and advances to customers (Net)
Customer Accounts
Retail
Corporate
MSME
Total Customer Accounts
31-Dec-2018
31-Dec-2017
1,989,516
2,709,183
4,698,699
3,177,289
2,496,594
10,372,582
(334,130)
10,038,452
5,103,971
3,230,653
1,017,518
9,352,142
2,163,425
2,069,728
4,233,153
2,475,392
1,844,672
8,553,217
(227,864)
8,325,353
4,378,265
2,410,862
1,027,690
7,816,817
Retail banking
As of 31 December 2018, retail loans stood at GEL 4,698.7 million, up by GEL 465.5 million, or 11.0%, YoY and accounted
for 40.0% market share of total individual loans. Without the re-segmentation effect1, the retail loan portfolio would have
increased by 18.1% YoY. As of 31 December 2018, foreign currency loans represented 56.1% of the total retail loan portfolio.
In the reporting period, retail deposits stood at GEL 5,104.0 million, up by GEL 725.7 million, or 16.6%, YoY accounting for
41.2% market share of total individual deposits. As of 31 December 2018, term deposits accounted for 52.5% of the total retail
deposit portfolio, while foreign currency deposits represented 81.7% of the total retail deposit portfolio.
In FY 2018, retail loan yields and deposit rates stood at 14.2% and 2.7%, respectively. The segment’s cost of risk on loans was
2.7%. The segment contributed 34.2%, or GEL 149.5 million, to the total net income in FY 2018.
Corporate banking
As of 31 December 2018, corporate loans amounted to GEL 3,177.3 million, up by GEL 701.9 million, or 28.4%, YoY. Without the
re-segmentation effect1, the corporate loan portfolio would have increased by 24.6% YoY. Foreign currency loans accounted
for 71.5% of the total corporate loan portfolio. The market share of total legal entities loans stood at 37.4%.
As of the same date, corporate deposits totalled GEL 3,230.7 million, up by GEL 819.8 million, or 34.0%, YoY. Without the
re-segmentation effect2, the corporate deposits would have increased by 29.0% YoY. Foreign currency corporate deposits
represented 45.7% of the total corporate deposit portfolio. The market share of total legal entities deposits stood at 41.2%.
In FY 2018, corporate loan yields and deposit rates stood at 9.5% and 4.9%, respectively. In the same period, the cost of risk
on loans was 0.4%. In terms of profitability, the corporate segment’s net profit reached GEL 168.7 million, or 38.6% of the total
net income.
MSME banking
As of 31 December 2018, MSME loans amounted to GEL 2,496.6, up by GEL 651.9 million, or 35.3%, YoY. Without the re-
segmentation effect1, the MSME loan portfolio would have increased by 23.4% YoY. Foreign currency loans accounted for
53.1% of the total MSME portfolio.
As of the same date, MSME deposits stood at GEL 1,017.5 million, down by GEL 10.2 million, or 1.0%, YoY. Without the re-
segmentation effect2, the MSME deposits would have increased by 8.9% YoY. Foreign currency MSME deposits represented
49.3% of the total MSME deposit portfolio.
In FY 2018, MSME loan yields and deposit rates stood at 12.1% and 1.0% respectively, while the cost of risk on loans was 0.7%.
In terms of profitability, net profit for the MSME segment amounted to GEL 98.1 million, or 22.4%, of the total net income.
1
2
In 1Q 2018, GEL 236 million was transferred from retail to MSME portfolio and GEL 66 million was transferred from MSME to corporate loans
In 1Q 2018, GEL 78 million was transferred from MSME to corporate deposits portfolio
100
TBC BANK annual report and accounts 2018
Consolidated balance sheet as at 31 December
In thousands of GEL
Cash and cash equivalents
Due from other banks
Mandatory cash balances with National Bank of Georgia
Loans and advances to customers
Investment securities measured at fair value through
other comprehensive income
Investments 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
Fair value reserve
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
Dec-18
1,166,911
47,316
1,422,809
10,038,452
1,005,239
-
654,203
203,802
84,296
2,116
2,097
167,518
192,792
367,504
109,220
31,286
2,432
15,497,993
3,031,503
9,352,142
98,714
63
13,343
22,237
18,767
104,337
650,919
13,292,025
1,650
796,854
1,523,879
(162,166)
(16,294)
57,240
8,680
-
(6,937)
2,202,906
3,062
2,205,968
15,497,993
Dec-17
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
12,965,910
2,620,714
7,816,817
91,753
447
20,695
602
13,200
84,440
426,788
11,075,456
1,605
714,651
1,232,865
(162,166)
9,828
70,045
-
1,730
(7,359)
1,861,199
29,255
1,890,454
12,965,910
TBC BANK annual report and accounts 2018
101
FINANCIAL REVIEW CONTINUED
Consolidated statement of profit or loss and other comprehensive income for the year ended 31 December
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 and agents’ commissions
Insurance profit
Net gains from trading in foreign currencies
Net gains from foreign exchange translation
Net gains/(losses) from derivative financial instruments
Gains less losses from disposal of investment securities measured at fair value through other
comprehensive income
Gains less losses from disposal of investment securities available for sale
Other operating income
Share of profit of associates
Other operating non-interest income
Credit loss allowance for loan to customers
Credit loss allowance for investments in finance lease
Credit loss allowance for performance guarantees and credit related commitments
Credit loss allowance for other financial assets
Credit loss allowance for financial assets measured at fair value through other comprehensive
income
Operating income after credit loss allowance
Staff costs
Depreciation and amortization
(Provision for)/ recovery of liabilities and charges
Administrative and other operating expenses
Operating expenses
Profit before tax
Income tax expense
Profit for the period
Other Comprehensive income:
Items that may be reclassified subsequently to profit or loss:
Movement in fair value reserve
Revaluation of available-for-sale investments
Exchange differences on translation to presentation currency
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 period
Total comprehensive income for the period
Profit attributable to:
- Shareholders of TBCG
- Non-controlling interest
Profit for the period
Total comprehensive income is attributable to:
- Shareholders of TBCG
- Non-controlling interest
Total comprehensive income for the period
102
TBC BANK annual report and accounts 2018
2018
2017
1,284,235
(506,213)
1,033,939
(429,924)
778,022
604,015
235,701
193,944
(78,171)
(67,983)
157,530
125,961
23,601
12,633
(11,326)
(5,860)
12,275
6,773
91,678
87,099
15,196
173
4,374
(36)
2
-
-
93
31,438
31,797
1,154
909
139,641
124,236
(143,723)
(93,823)
(1,765)
(492)
(4,056)
(153)
(16,609)
(12,439)
(86)
-
921,229
754,078
(220,354)
(203,100)
(45,740)
(37,265)
(4,000)
2,495
(140,935)
(121,530)
(411,029)
(359,400)
510,200
394,678
(72,765)
(34,750)
437,435
359,928
6,949
-
-
5,489
425
181
10,749
-
(2,363)
(422)
15,760
5,248
453,195
365,176
435,080
354,410
2,355
5,518
437,435
359,928
450,903
359,585
2,292
5,591
453,195
365,176
Consolidated statements of cash flows for the year ended 31 December
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
Cash flows from operating activities before changes in operating assets and liabilities
Net change in operating assets
Due from other banks and mandatory cash balances with the National Bank of Georgia
Loans and advances to customers
Investment in finance lease
Other financial assets
Other assets
Net change in operating liabilities
Due to other banks
Customer accounts
Other financial liabilities
Other liabilities and provision for liabilities and charges
Net cash from operating activities
Cash flows from/(used in) investing activities
Acquisition of investment securities measured at fair value through other comprehensive
income
Acquisition of investment securities available for sale
Proceeds from disposal and redemption at maturity of investment securities measured at fair
value through other comprehensive income
Proceeds from redemption at maturity of investment securities available for sale
Acquisition of bonds carried at amortized cost
Proceeds from redemption of bonds carried at amortized cost
Acquisition of premises, equipment and intangible assets
Disposal of premises, equipment and intangible assets
Proceeds from disposal of investment property
Acquisition of subsidiaries, net of cash acquired
Net cash 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
Issue of ordinary shares
Net cash flows from financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease)/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
2018
2017
1,224,606
(501,984)
235,508
(78,140)
54,682
(15,174)
91,678
11,407
(202,897)
(136,670)
(34,918)
648,098
(343,772)
(1,718,446)
(54,784)
(35,570)
(4,486)
69,755
1,371,675
(12,136)
3,618
(76,048)
(717,729)
-
385,352
-
(395,717)
200,658
(89,263)
813
42,515
809
1,000,571
(424,105)
195,285
(68,036)
23,518
(9,127)
87,099
8,992
(187,520)
(112,270)
(53,916)
460,491
(98,586)
(1,330,105)
(49,297)
(38,064)
73,814
(228,486)
1,329,071
18,263
3,487
140,588
-
(560,226)
-
345,748
(307,248)
242,380
(114,383)
1,932
19,082
(273)
(572,562)
(372,988)
1,776,489
(1,515,562)
255,900
(60,910)
(7,596)
-
(85,484)
-
362,837
21,207
(264,566)
1,431,477
1,166,911
1,461,191
(800,333)
119,859
(59,671)
-
(2,123)
(67,927)
29
651,025
67,672
486,297
945,180
1,431,477
TBC BANK annual report and accounts 2018
103
FINANCIAL REVIEW CONTINUED
KEY RATIOS
Average balances
The average balances in this document are calculated as the average of the relevant monthly balances as of each month-
end. Balances have been extracted from TBC’s unaudited and consolidated management accounts prepared from TBC’s
accounting records. These were used by the management for monitoring and control purposes.
2018
22.8%
22.0%
3.3%
3.2%
30.4%
37.8%
1.6%
1.5%
6.9%
5.4%
12.3%
10.8%
3.2%
11.4%
4.4%
7.0%
1.2%
3.1%
102.7%
216.4%
3.2%
0.1%
10.1%
14.2%
89.9%
130.2%
113.9%
7.0x
12.8%
17.9%
25.1%
2017
21.4%
20.9%
3.2%
3.1%
27.2%
41.7%
1.2%
1.4%
6.5%
5.1%
12.1%
10.7%
3.4%
11.1%
4.5%
6.6%
1.4%
3.3%
104.7%
209.4%
3.4%
0.1%
8.2%
12.4%
92.5%
124.4%
112.7%
6.9x
13.4%
17.5%
25.0%
Key ratios
Ratios (based on monthly averages, where applicable)
Underlying ROE1
Reported ROE2
Underlying ROA3
Reported ROA4
ROE before credit loss allowance5
Cost to income6
Cost of risk7
FX adjusted cost of risk8
NIM9
Risk adjusted NIM10
Loan yields11
Risk adjusted loan yields12
Deposit rates13
Yields on interest earning assets14
Cost of funding15
Spread16
PAR 90 to gross loans17
NPLs to gross loans18
NPLs coverage per IFRS 919
NPLs coverage with collateral per IFRS 920
Credit loss level to gross loans per IFRS 921
Related party loans to gross loans22
Top 10 borrowers to total portfolio23
Top 20 borrowers to total portfolio24
Net loans to deposits plus IFI Funding25
Net stable funding ratio26
Liquidity coverage ratio27
Leverage28
Regulatory tier 1 CAR (Basel III)29
Regulatory total 1 CAR (Basel III)30
Dividend pay-out ratio31
104
TBC BANK annual report and accounts 2018
Ratio definitions
1. Underlying return on average total equity (ROE) equals underlying net income attributable to owners divided by the 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 the 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. Return on average total equity (ROE) before credit loss allowance equals net income attributable to owners excluding all credit
loss allowance divided by the monthly average of total shareholders ‘equity attributable to the PLC’s equity holders for the same
period.
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 credit loss allowance for loans to customers divided by monthly average gross loans and advances to
customers; Annualised where applicable.
8. FX adjusted cost of risk is calculated based on currency rates of the respective prior periods.
9. 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, and amounts 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.
10. Risk Adjusted Net interest margin is NIM minus cost of risk without one-offs and currency effect.
11. Loan yields equal interest income on loans and advances to customers divided by monthly average gross loans and advances to
customers; annualised where applicable.
12. Risk Adjusted Loan yield is loan yield minus cost of risk without one-offs and currency effect.
13. Deposit rates equal interest expense on customer accounts divided by monthly average total customer deposits; annualised
where applicable.
14. Yields on interest earning assets equal total interest income divided by monthly average interest earning assets; annualised
where applicable.
15. Cost of funding equals total interest expense divided by monthly average interest-bearing liabilities; annualised where applicable.
Spread equals difference between yields on interest earning assets (including but not limited to yields on loans, securities and
16.
due from banks) and cost of funding (including but not limited to cost of deposits, cost on borrowings and due to banks).
17. 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.
18. 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.
19. NPLs coverage ratio per IFRS 9 equals total credit loss allowance for loans to customers calculated per IFRS 9 divided by the
NPL loans.
20. NPLs coverage with collateral ratio per IFRS 9 equals the credit loss allowance for loans to customers 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.
21. Credit loss level to gross loans per IFRS 9 equals credit loss allowance for loans to customers per IFRS 9 divided by the gross
loan portfolio for the same period.
22. Related party loans to total loans equals related party loans divided by the gross loan portfolio.
23. Top 10 borrowers to total portfolio equals the total loan amount of the top 10 borrowers divided by the gross loan portfolio.
24. Top 20 borrowers to total portfolio equals the total loan amount of the top 20 borrowers divided by the gross loan portfolio.
25. Net loans to deposits plus IFI funding ratio equals net loans divided by total deposits plus borrowings received from international
financial institutions.
26. Net stable funding ratio equals the available amount of stable funding divided by the required amount of stable funding as
defined in Basel III.
27. Liquidity coverage ratio equals high-quality liquid assets divided by the total net cash outflow amount as defined by the NBG.
28. Leverage equals total assets to total equity.
29. Regulatory tier 1 CAR equals tier I capital divided by total risk weighted assets, both calculated in accordance with the Pillar 1
requirements of the NBG Basel III standards. The reporting started from the end of 2017. Calculations are made for TBC Bank
stand-alone, based on local standards.
30. Regulatory total CAR equals total capital divided by total risk weighted assets, both calculated in accordance with the Pillar 1
requirements of the 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. Dividend pay-out ratio for 2018 is based on 2017 performance. Dividend pay-out ratio for 2017 is based on 2016 performance.
Exchange Rates
To calculate the YoY growth of the Balance Sheet items without the currency exchange rate effect, we used the US$/GEL exchange
rate of 2.5922 as of 31 December 2017. As of 31 December 2018, the US$/GEL exchange rate equalled 2.6766. For P&L items growth
calculations without currency effect, we used the average US$/GEL exchange rate for the following periods: FY 2018 of 2.5345, FY
2017 of 2.5117.
TBC BANK annual report and accounts 2018
105
FINANCIAL REVIEW CONTINUED
ANNEX 1
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
Reversal of the one-off deferred tax gain
Effect on tax of one-off items
Underlying income tax
Reported net profit
Underlying net profit (APM)
Reported non-controlling interest (NCI)
Effect on NCI of one-off items
Underlying NCI
Reported net profit less NCI
Underlying net profit less NCI
In thousands of GEL
Average reported equity attributable to the PLC’s equity holders
Adjustment for one-off items on monthly average basis
Average underlying equity attributable to the PLC’s equity holders
Average reported total assets
Adjustment for one-off items on monthly average basis
Average underlying total assets
Reported Return on Equity
Underlying Return on Equity (APM)
Reported Return on Assets
Underlying Return on Assets (APM)
106
TBC BANK annual report and accounts 2018
2018
778,022
157,530
12,275
139,641
1,087,468
(166,239)
921,229
(411,029)
2017
604,015
125,961
6,773
124,236
860,985
(106,907)
754,078
(359,400)
-
(411,029)
510,200
510,200
(72,765)
(17,426)
-
(55,339)
437,435
454,861
(10,925)
(348,475)
394,678
405,603
(34,750)
-
1,639
(36,389)
359,928
369,214
2,355
-
2,355
435,080
452,506
5,518
120
5,638
354,410
363,576
2018
1,977,359
10,088
1,987,447
13,623,594
-
13,623,594
2018
22.0%
22.8%
3.2%
3.3%
2017
1,694,895
5,025
1,699,920
11,481,760
-
11,481,760
2017
20.9%
21.4%
3.1%
3.2%
TBC BANK annual report and accounts 2018
107
DIRECTORS’ GOVERNANCE STATEMENT
CHAIRMAN’S GOVERNANCE OVERVIEW
Dear shareholders,
I am pleased to present our corporate governance report
for 2018. As Chairman, I firmly believe that the highest
standards of governance should prevail throughout
the business and that a sound corporate governance
framework is vital to ensure our business functions
effectively, while at the same time creating long-term,
sustainable value for our shareholders.
We understand that the Board requires the right balance
of skills, country-specific knowledge, and diversity
of experience and perspectives to achieve maximum
effectiveness. For this reason, composition of the Board
and gender diversity remained a key focus for the Board
this year and I am pleased to report that two new female
independent non-executive Directors have joined our
Board. Maria Luisa Cicognani and Tsira Kemularia bring
extensive banking and financial services experience,
helping to ensure that the Board is well placed to
function effectively and take opportunities which present
themselves to us in the year ahead. Board and committee
changes over the past year are set out in further detail in
the Corporate Governance and Nomination Committee
report.
I am deeply saddened that Eric Rajendra has resigned from
the Board due to health reasons. I would like to thank him
for his contribution and dedication during the past years
and wish him a speedy recovery.
Further to the Company’s announcement made on 21
February 2019, the Bank will implement a restructuring
of its Supervisory Board whereby Badri Japaridze and I
will continue in our roles as the Deputy Chairman and
Chairman of TBC Bank Group PLC, and be stepping down
from the Supervisory Board of the JSC TBC Bank. This
will enable us to focus more on the Group’s strategic and
international initiatives. The Board of JSC TBC Bank will
108
TBC BANK annual report and accounts 2018
be joined by two new members, which are being selected
by the Corporate Governance and Nomination Committee
and will be announced in due course.
Another area of focus for the Board this year has been
development of our Strategic Plan. The Board is collectively
responsible for overseeing delivery of the Group’s strategy
and has a significant role to play in determining the purpose
of the Group and ensuring that the Group’s culture, values,
strategy and business model are all aligned in order to
create sustainable value for our shareholders. My role as
Chairman is to lead the Board and ensure that it works
effectively and that in our business the Group applies the
highest principles of corporate governance. A summary of
our strategy is outlined on page 14-23.
In accordance with the UK Corporate Governance Code
(the “Code”), all Directors will be subject to annual re-
election by shareholders at our Annual General Meeting.
Mamuka Khazaradze
Chairman
2 April 2019
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 2018 and the Group’s approach to governance
in practice, the work of the Board and its committees.
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 set out in the
Code issued by the Financial Reporting Council (“FRC”) in
April 2016 in full for the Company’s 2018 financial year. The
Code can be found on the FRC website 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
Chairman, ensures 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.
The Board is comprised of eight members, of which four
(namely, Nikoloz Enukidze (SID), Maria Luisa Cicognani,
Nicholas Haag and Tsira Kemularia) are considered
independent non-executive Directors. The Board views
each of these non-executive Directors as being independent
of management judgment and character, and free from
any business or other relationship that could materially
interfere with their exercise of independent judgment.
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.
During the year ended 31 December 2018, the Board
considered a wide range of matters, including:
the strategic development of the Group;
performance of key business units;
the consolidated budget and the underlying business
unit budgets;
the interim and full year results;
payment of a dividend;
the appropriateness of the going concern basis of
financial reporting;
the assumptions and stress testing applied to preparing
the Company’s viability statements;
investment project proposals and expansions into new
territories;
changes to various board Committees and the
appointment of new directors; and
a review of the findings of the externally facilitated
Board evaluation exercise and the action plans resulting
therefrom.
its committees
is supported by
BOARD COMMITTEES
The Board
(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) Corporate Governance
and Nomination Committee; and (iv) the Risks, Ethics and
Compliance Committee. The chair of each Committee
reports matters of significance to the Board after each
meeting. Each committee is made up of independent non-
executive Directors, with the exception of the Corporate
Governance and Nomination Committee, which comprises
two
independent non-Executive Directors and Badri
Japaridze, a non-executive Director, who is not considered
to be independent under the provisions of the Code.
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.
TBC BANK annual report and accounts 2018
109
Audit Committee
Remuneration
Committee
Corporate Governance
and Nomination Committee
Risks, Ethics
and Compliance Committee
COMMITTEE MEMBERSHIP
Badri Japaridze
Eric Rajendra1
Nikoloz Enukidze
Nicholas Haag
Maria Luisa Cicognani2
Tsira Kemularia3
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, Deputy Chairman, four 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. In 2018,
there were changes in composition of the Board and details of these changes are set out in the Corporate Governance and
Nomination Committee report.
The Board has considered the independence of the Company’s non-executive Directors as against the factors described in
the Code and has determined, as mentioned previously, that all non-executive Directors are independent, except for Mamuka
Khazaradze and Badri Japaridze.
Mamuka Khazaradze is the Company’s Chairman and he is, for the purposes of the Code, not considered to have been
independent on his appointment as the Chairman, due to his role as founder of the Group. 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 120 to 124.
1 Mr Rajendra has stepped down from the Board and Committees on 15 March 2019
2 Mrs Cicognani joined the Board on 10 September 2018. She was appointed as the head of the Remuneration Committee and as a member of the Risks
Ethics and Compliance Committee and the Audit Committee of the Board on 1 October 2018
3 Mrs Kemularia joined the Board on 10 September 2018. She was appointed as a member of the Risks Ethics and Compliance Committee, the Audit
Committee and Corporate Governance and Nomination Committee on 1 October 2018
110
110
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
DIRECTORS’ GOVERNANCE STATEMENT CONTINUED
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.
BOARD AGENDA
The Chairman is responsible for setting the Board agenda. Prior to each Board meeting the Chairman reviews the agenda and
discusses key items of business with the Chief Executive Officer. Board agendas are sent to Board members well in advance of
meetings and are structured in such a way as to allow adequate time for discussion of each item on the agenda.
BOARD AND COMMITTEE MEETING ATTENDANCE
In 2018, the Company held 3 scheduled and 19 additional meetings. Moreover, 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, the Bank, are supervised by a supervisory board (the “Supervisory
Board”). There is also equivalent committee structure of the Supervisory Board as the Board’s committees. There are, therefore,
in practice two equivalent supervisory bodies within the Group represented by the Board and the Supervisory Board, which
are separate but interconnected together with committees. However, the work of the Board, the Supervisory Board and their
respective committees is carefully balanced, dividing functions according to whether they are supervising the topics that impact
the Company or solely the Bank.
Further to the Company’s announcement made on 21 February 2019, the Bank will implement a restructuring of its Supervisory
Board whereby the founding shareholders will not be represented at the supervisory Board of the Bank. The founding
shareholders will maintain their positions as the Chairman and Deputy Chairman of the Board of Directors of the Company.
Attendance of meetings of the Board and its Committees in 2018 are set out below:
Board meetings
eligible to attend/
attended
Audit Committee
meetings eligible to
attend/attended
Remuneration
Committee meetings
eligible to attend/
attended
Corporate Governance and
Nomination Committee
meetings eligible to attend/
attended
Risks, Ethics and Compliance
Committee Risks, Ethics and
Compliance Committee
meetings eligible to attend/
attended
22/22
22/22
22/22
22/22
22/22
22/22
22/22
6/6
6/6
15/11
15/9
0/0
0/0
0/0
0/0
9/9
9/9
9/9
3/3
3/3
6/5
6/6
0/0
0/0
0/0
0/0
7/7
7/7
7/7
2/2
0/0
5/4
0/0
0/0
0/0
0/0
7/7
7/7
7/6
0/0
0/0
2/2
0/0
4/3
0/0
0/0
0/0
0/0
4/4
4/4
4/4
2/2
2/2
2/2
2/2
Board Attendance
Vakhtang Butskhrikidze
(Chief Executive Officer)
Giorgi Shagidze
(Chief Financial Officer)
Non-Executive Directors
Mamuka Khazaradze
(Chairman)
Badri Japaridze
Eric Rajendra 1
Nikoloz Enukidze 2
Nichola Haag
Maria Luisa Cicognani 3
Tsira Kemularia 4
Stefano Marsaglia 5
Stephan Wilcke 6
1 Mr Rajendra stepped down from the Board and Committees on 15 March 2019
2 Mr Enukidze was unable to attend one Corporate Governance and Nomination Committee meeting due to prior business related commitment however
he discussed all matters on the agenda with the Chairman of Corporate Governance and Nomination Committee and provided feedback on materials
in advance of the meeting
3 Mrs Cicognani joined the Board on 10 September 2018. She was appointed as the head of the Remuneration Committee and as a member of the Risks
Ethics and Compliance Committee and the Audit Committee of the Board on 1 October 2018
4 Mrs Kemularia joined the Board on 10 September 2018. She was appointed as a member of the Risks Ethics and Compliance Committee, the Audit
Committee and Corporate Governance and Nomination Committee of the Board on 1 October 2018
5. Stefano Marsaglia stepped down from the Board and Committees on 10 September 2018
6 Stefan Wilcke stepped down from the Board and Committees on 10 September 2018
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
111
111
Attendance of meetings of the Supervisory Board and its committees in 2018 are set out below:
Supervisory Board Attendance
Mamuka Khazaradze
(Chairman)
Vakhtang Butskhrikidze
(Chief Executive Officer)
Giorgi Shagidze
(Chief Financial Officer)
Badri Japaridze
Eric Rajendra 1
Nikoloz Enukidze
Nicholas Haag
Maria Luisa Cicognani 2
Tsira Kemularia 3
Stefano Marsaglia4
Stephan Wilcke5
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 Com-
mittee meetings eligible
to attend/attended
Risks, Ethics and Compli-
ance Committee meetings
eligible to attend/attended
65/65
23/23
24/24
66/66
86/86
86/85
86/86
32/32
32/32
54/50
54/51
0/0
0/0
0/0
0/0
11/11
11/11
11/11
2/2
2/2
8/7
8/8
0/0
0/0
0/0
0/0
10/10
10/10
10/10
3/3
0/0
7/5
0/0
0/0
0/0
0/0
6/6
6/6
6/5
0/0
0/0
1/1
0/0
5/4
0/0
0/0
0/0
0/0
23/23
23/23
23/23
5/5
5/5
18/16
18/17
DIVERSITY POLICY
The Board recognises the importance of ensuring diversity
and sees significant benefit to our business in having a
Board and management team that is drawn from a diverse
range of backgrounds, since this brings the required
expertise, cultural diversity and different perspectives to
the Board discussions and helps to improve the quality of
decision making.
During 2018, there were two appointments to the Board
of female Directors, Maria Luisa Cicognani and Tsira
Kemularia and the Board notes that there are a number
of talented women in key positions, who report directly to
the CEO and other members of the management board
within the Group. Information on the Group’s approach to
diversity, including, gender balance and how it influences
the appointments we make to our Board is set out in the
Corporate Governance and Nomination Committee report
on pages 129 to 132.
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, there were two new
appointments to the Board and its Committees. The
induction process for Maria Luisa Cicognani and Tsira
Kemularia included an on-site business introduction,
followed by meetings with executives and key business unit
managers and an introduction to the operations, risks, and
governance environment of the Group. In addition, the new
Directors received training on their duties as directors of a
listed company, at the offices of Baker McKenzie LLP, the
Company’s external counsel.
Moreover, the Chairman takes responsibility to ensure
that the Board is updated in a timely manner about the
Company’s performance, to enable it to make proper
decisions. The Chairman ensures information 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, where the
members of the Board can identify a relevant development
programme.
ANNUAL BOARD EFFECTIVENESS
EVALUATION
During 2018, an externally-facilitated Board evaluation
was conducted by Independent Audit Limited (IAL), an
independent specialist. The review was carried out at the
initiative of and with the participation of the Corporate
Governance and Nomination Committee, which selected
the evaluator from a shortlist of leading evaluation
1 Mr Rajendra has stepped down from the Board and Committees on 15 March 2019
2 Mrs Cicognani joined the Supervisory Board on 10 September 2018. She was appointed as the head of the Remuneration Committee and as a member
of the Risks Ethics and Compliance Committee and the Audit Committee of the Supervisory Board on 1 October 2018
3 Mrs Kemularia joined the Supervisory Board on 10 September 2018. She was appointed as a member of the Risks Ethics and Compliance Committee,
the Audit Committee and Corporate Governance and Nomination Committee of the Supervisory Board on 1 October 2018
4 Stefano Marsaglia stepped down from the Supervisory Board and its committees on 10 September 2018
5 Stefan Wilcke stepped down from the Supervisory Board its committees on 10 September 2018
112
112
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
DIRECTORS’ GOVERNANCE STATEMENT CONTINUED holding joint committee meetings on topics of interest to
more than one committee.
During 2019, the implementation of the detailed action
plan (as adopted by the Board in February 2019) will be
monitored by the Corporate Governance and Nomination
Committee and progress will be reported in the 2019
Annual Report, alongside the outcome of the annual Board
evaluation for 2019. The Company intends to continue to
undertake regular annual Board reviews in line with the
requirements of the Code.
IAL has confirmed that this report is a fair summary of the
review and its outcomes.
DIRECTORS’ COMMITMENTS
The Directors are required to disclose to the Board their
external appointments or other significant commitments
prior to their appointment.
Each non–executive Director is required to devote such
time as is necessary for the effective discharge of their
duties. Whilst our non-executive Directors hold external
directorships or other external positions, the Board
believes they still have sufficient time to devote to their
duties as a Director of the Company and that the other
external directorships/positions held provide the Directors
with valuable expertise which 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 during the year 2018.
RE-ELECTION OF DIRECTORS
As mentioned above, all Directors are subject to annual re-
election by shareholders at our Annual General Meeting,
in accordance with the Code. Biographical details of the
Directors are included on pages 120 to 124.
REMUNERATION COMMITTEE
Information on the Remuneration Committee is included
in the Directors’ Remuneration report on pages 136 to 155.
companies that submitted proposals in response to an RFP.
The evaluator was selected following detailed interviews
and consideration of relevant sectorial and geographical
experience.
The evaluation process included review of board papers,
interviews and observation of meetings. The evaluators
carried out in-depth individual interviews with all Board
members in Tbilisi and London, as well as follow-up
interviews where necessary. Independent Audit also
interviewed key management personnel and various
functional heads to discuss their views of the Board,
experience of interacting with it and the information
they provided to the Board. Independent Audit attended
meetings of the Board and most Committees to observe
the Board’s processes and the dynamics between the
various Board members and attendees.
A full report of IAL’s findings was discussed with the
Chairman, the Deputy Chairman of the Board and the
Chairman of the Corporate Governance and Nomination
Committee. The report was then circulated to all Directors.
Subsequently, the Committee and the Board discussed the
report, with the evaluator participating by conference call,
and formulated an action plan for 2019.
The report noted that the Company aims to meet the
highest international standards, and highlighted the strong
foundation on which the Company can develop further its
governance structures. The report found that the Board
benefits from a highly experienced Chairman, an open
and constructive management team, and a co-operative
relationship between executives and the non-executive
Directors. Executives value both input and challenges from
the non-executive Directors. According to the evaluation
report, these factors were complemented by a strong
secretarial presence supporting the Board processes.
During the Board meeting in February 2019, the Board
agreed an action plan for 2019. The principal areas to be
addressed are:
Succession planning and Board skills
Continue to develop robust succession plans for both non-
executive and executive board members, based on a clear
view of the full range of skills currently available to it and
potentially required in future.
Information flow to the Board
Work on improving information flows to the Board. In
particular, management to aim to produce more focused
Board papers, and to give the Board more exposure to key
managers.
The Board’s focus
Increase the Board’s focus on the Group’s strategic
development, while continuing to maintain robust oversight
of the underlying culture and risk environment.
Adjustments to the Board and Committee meeting
structure
Implement various organizational changes to maximise
the Board’s allocation of time on key issues, including
adjusting the length and agendas for the meetings, and
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
113
113
ANNUAL GENERAL MEETING
The last Annual General Meeting (“AGM”) of the Company
was held on 21 May 2018 at the offices of Baker McKenzie,
100 New Bridge Street, London. 85.90% of total voting
rights were exercised by shareholders. All resolutions put
to shareholders were passed with votes in favour ranging
from 90% to 100 % of the votes cast.
The 2019 AGM Notice will be circulated to all the
shareholders at least 21 working days before the AGM
and it will also be made available on our investor relations
website: www.tbcbankgroup.com. The voting on the
resolutions will be announced via the Regulatory News
Service and made available on our investor relations
website www.tbcbankgroup.com.
ENGAGEMENT WITH SHAREHOLDERS
Effective communication with shareholders is given high
priority by the Board. The Chief Executive Officer and the
Chief Financial Officer, together with the Deputy Chairman
and/or the Chairman, maintain very close engagement with
the Company’s major shareholders. They have participated
in non-deal roadshows across numerous geographic
locations to promote the awareness and understanding
of the Group’s business. In addition to roadshows, the
Bank’s senior executive team and Directors were involved
in hosting a capital markets day in London. They also
hold regular investor calls and also conduct face-to-face
meetings with investors visiting Georgia and take an active
part in government events abroad aimed at increasing
investor confidence in the economic stability of the country
and its sustainable development.
The Company has a dedicated investor relations section on
its 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.
Moreover, any shareholders of the Company, potential
investors and analysts are able to ask questions about
the Group through Company’s permanent representative
in London, who is always available for investor meetings
and updates relating to investor relations and international
media on behalf of the management team. The Chief
Executive Officer, Chairman and Senior Independent
Director are also available to discuss the concerns of
shareholders at any point during the year.
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TBC BANK annual report and accounts 2018
DIRECTORS’ GOVERNANCE STATEMENT CONTINUED DIRECTORS’ REPORT
DIRECTORS’ REPORT
The Directors present their Annual Report together with
the audited consolidated accounts for the year ended 31
December 2018, which can be found on pages 167-297 .
The Strategic Report on pages 2 to 106 was approved by the
Board on 2 April 2019 and signed on its behalf by Vakhtang
Butskhrikidze, the Company’s Chief Executive Officer.
The Management Report together with the Strategic
Report on pages 2 to 106 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
Information on the Group’s financial
risk management and its exposure to
credit risk, liquidity risk, interest rate
risk and foreign currency risk
Events after reporting period
Page
108
129
133
156
136
118
117
85
57
50
120
74
84
244
151
115
259
297
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 notify the Chairman
and Company Secretary as soon as they become aware of
any potential or actual conflicts.
DIRECTORS’ INDEMNITIES AND INSURANCE
The Group maintains directors’ and officers’ liability
insurance, which gives appropriate cover for legal action
brought against its Directors. The Company has also
granted indemnities to each of its Directors 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 2018 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 2018.
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:
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115
115
DIRECTORS’ REPORT CONTINUED
conduct all transactions and arrangements entered
into between any member of the Group (on the one
hand) and that member of the Presumed Concert Party
Group and/or his associates (on the other) on an arm’s
length basis and on normal commercial terms and in
accordance with the related-party transaction rules set
out in the Listing Rules;
not take any action that would have the effect of
preventing the Company from complying with its
obligations under the Listing Rules; and/or
not propose or procure the proposal of any resolution
of the shareholders which is intended, or appears to be
intended, to circumvent the proper application of the
Listing Rules.
SHARE CAPITAL
As of 2 April 2019, the Company’s issued ordinary share
capital comprised 54,859,504 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 244 of this Annual Report.
PROFIT AND DIVIDENDS
The profit for the financial year ending 31 December
2018 attributable to the Company’s shareholders, after
taxation, amounts to GEL 435,079,671. The Board intends
to recommend GEL 1.98 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 13 June 2019, which is subject to
shareholders’ approval at the 2019 AGM. If approved, the
final dividend will be paid on 12 July 2019 to shareholders
on the Register of Members at the close of business in the
UK (ie 6pm London Time) on 7 June 2019.
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 cash dividend.
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TBC BANK annual report and accounts 2018
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
(as
Compensation System, whereby Participants
defined therein) may be granted restricted share
awards, which vest subject to continuous employment
and malus and clawback provisions over three years
from the award date.
All employees (including Directors) that are deemed
by the Company to be insiders have complied with the
Group’s Share Dealing Code. There are no restrictions
on exercising voting rights save in situations where the
Company is legally entitled to impose such a restriction (for
example, under the Articles of Association where amounts
remain unpaid in the shares after request, or the holder
is otherwise in default of an obligation to the Company).
The Company is not aware of any arrangements between
shareholders that may result in restrictions on the transfer
of securities or voting rights.
MAJOR SHAREHOLDERS
As at 31 December 2018, 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
JPMorgan Asset Management
European Bank for Reconstruction
and Development
Schroder Investment Manage-
ment
Dunross &Co
As of 31 December 2018
# of voting
rights
% of voting
rights
13.54% 7,343,936
6.77% 3,669,878
8.40% 4,556,867
8.18% 4,436,406
7.08% 3,839,205
6.01% 3,262,322
During the period 31 December 2018 to 2 April 2019
the Group did not receive any notifications under
Rule 5 of the DTRs. Any future regulatory filings by
shareholders will be available on the Group’s website at
www.tbcbankgroup.com and
the LSE website at
www.londonstockexchange.com.
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 annual general meeting of the Company, held on 21
May 2018, authorising the Directors to allot ordinary shares
in the capital of the Company up to an aggregate nominal
value of £178,501. The Company did not repurchase any of
its ordinary shares during 2018.
This authority will apply until the conclusion of the 2019
AGM. Shareholders will be requested to renew these
authorities at the 2019 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, Maria
Luisa Cicognani and Tsira Kemularia were appointed to the
Board as non-executive Directors in 2018 and will stand
for election by the shareholders at 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. 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 74 to
79 of this Annual Report.
DISCLOSURE OF 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
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
117
117
DIRECTORS’ REPORT CONTINUED
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 2019. The Directors have
determined the three-year period ending on 1 January
2022 to be appropriate, as it is consistent with the Group’s
planning cycle, covering financial forecasts and strategic
considerations of the Group. While asseseing the viability
of the Group and its operations, the Directors have carried
out a robust and thorough assessment of the Group’s 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. As part of their strategic
planning, the directors look beyond this period and take
into consideration, as far as possible, information from
a variety of sources relating to local, regional and other
wider macro-economic and political factors which may
impact the Group’s business and development. At this
point, the Directors have no reason to believe that the
Group will not stay viable over the longer term period. In
addition, the Directors analysed the Group’s 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 Group’s future performance;
(iii) the regulatory risk, as a result of significant regulatory
changes within the last two years;
(iv) the risk of not meeting regulatory requirements with
key focus on minimum capital adequacy and liquidity
requirements;
(v) operational risks including cyber security risk given
the further digitalization of the Bank’s services;
(vi) the risks associated with the Group’s international
operations.
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TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
A summary of all material risks the Group is exposed to
and the mitigating actions taken by the Group are set out
on pages 50 to 56.
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 and;
(iii) the 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 2022 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 2019 to 1 January 2022.
Regulatory Stress test
In 2018, the Bank performed second round of the
enterprise wide regulatory stress testing exercise, which
assessed the impact of stress on the Bank’s profitability
and the capital adequacy.
The stress test covered adverse macro scenario assesing
significant GEL devaluation, sharp decrease of real estate
prices, decrease in wages and increase in unemployment,
negative GDP growth and increase of interest rates. The
assumptions are mostly comparable to the stress test
experience in 2008.
The results of enterprise wide stress test showed the Bank
has the sufficient capital to withstand the stress scenario
and stay viable.
The Directors consider the stress scenarios and the
associated results to be appropriate to the business, and
will continue to monitor these closely on an ongoing basis.
DIRECTORS’ RESPONSIBILITIES
The following statement, which should be read together
with the Auditor’s report set out on pages 167-297, 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 financial statements are required by the Act and
the IFRS to present fairly the financial position and
performance of the Company and the Group for that period.
The Directors must not approve the financial statements,
unless they are satisfied that they give a true and fair view
of the state of affairs and the profit or loss of the Company
and the Group for that period.
The Directors consider that in preparing the financial
statements they have used appropriate accounting policies,
supported by reasonable judgments and estimates, and
that all accounting standards which they consider to be
applicable have been followed. The Directors also believe
that the financial statements have been prepared on the
going concern basis. Please see further the “Going concern
statement” on page 117 of this Annual Report.
In addition, 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 Directors have a responsibility that the Company and
the Group keep accounting records, which disclose with
reasonable accuracy the financial position of the Company
and the Group and enable the Directors to ensure that the
accounts comply with the Act.
The Directors are also responsible for safeguarding the
assets of the Company and the Group and for taking
reasonable steps for the prevention and detection of fraud
and other irregularities.
In addition, the Directors are responsible for the
maintenance and integrity of the Company’s website.
Legislation in the UK, governing the preparation and
dissemination of financial statements, may differ from
legislation in other jurisdictions.
DIRECTORS’ RESPONSIBILITY STATEMENT
Each of the Directors, whose names and functions are
listed on pages 120 to 124 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 ‘and
provide the information necessary for the shareholders
to assess the Company’s position and performance,
business and strategy.
This responsibility statement was approved by the Board
and is signed on its behalf by:
Mamuka Khazaradze
Chairman
2 April 2019
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
119
119
BOARD BIOGRAPHIES
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 1992 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 the 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, together with Mamuka
Khazaradze, he co-founded TBC Bank and was appointed as head of the Foreign
Relations department at the Bank. From 1993 to 1995 Mr. Japaridze served as a
Vice President of TBC Bank and in 1995, he was elected to the Bank’s Supervisory
Board, where he has served as a Deputy Chairman since 1996. During 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 2004, Mr. Japaridze was elected as a member of the board of
directors of the American Chamber of Commerce in Georgia. In the same year, he was
appointed as a member of the board of the Georgian Reconstruction and Development
Company, of which he is also a co-founder. In 2006, Mr Japaridze was elected to the
supervisory board of the EUGeorgia 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. In 2013, Mr Japaridze became
a member of supervisory board to JSC Chateau Mukhrani of which he is also a
shareholder since 2007. In 2016, he co-founded LTD Georgian Wine Holding. 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 in May 2016.
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TBC BANK annual report and accounts 2018
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.
NICHOLAS HAAG
Independent 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 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 consumer 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.
TBC BANK annual report and accounts 2018
121
BOARD BIOGRAPHIES CONTINUED
ERIC RAJENDRA
Independent Non-Executive Director
Stepped down from the Board and Committees on 15 March 2019.
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 LOCKOBank, 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. As announced on 15 March 2019, Eric Rajendra stepped down from his roles
as a Director of the Company and a member of the Supervisory Board of the Bank.
MARIA LUISA CICOGNANI
Independent Non-Executive Director
Maria Luisa Cicognani graduated from Bocconi University in 1987 with a degree in
Business and Administration. She holds a master degree from the Int’l University of
Japan in Japanese Economy and Business. Ms Cicognani has extensive experience
in the field of banking and corporate governance. She worked at the European Bank
for Reconstruction and Development (London, UK) between 1993 and 2005. Between
2005 and 2006, she was a director of Financial Institutions at Merrill Lynch and a
managing director at Renaissance Capital in London and Moscow during 2006-2008. At
Renaissance Capital she was responsible for managing a team that developed the FIG
practice of the firm both in Africa and CIS. Ms Cicognani was supporting Renaissance
Partners in origination, analysis and processing of new FIG investment opportunities
and monitoring a portfolio of FIG investments in Africa.During 2008-2014, Maria Luisa
was a Managing Director at Mediobanca (London Branch). She was responsible for
origination of M&A advisory and client coverage for emerging markets. She supported
the M&A and Corporate Finance Teams in advising Italian clients that were interested
in expanding outside of Italy or identifying foreign investors. During 2014-2016, she
served as a non-executive member of the board at Azimut Global Counseling Srl (Italy)
and Azimut International Holding SA (Luxemburg). Since 2015, Ms Cicognani serves
as an NED at Arafa Holding (Egypt) and became a board observer at Baird Group
(UK), a subsidiary of Arafa Holding (listed on Cairo Stock Exchange). She is currently
Chairperson of Möbius Investment Trust. Ms Cicognani was appointed to the Board as
an independent non-executive Director of TBC Bank Group PLC and as a member of
the Supervisory Board of JSC TBC Bank in September 2018.
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TSIRA KEMULARIA
Independent Non-Executive Director
Tsira Kemularia graduated from the Louisiana State University with a degree in
International Trade and Finance & Economics in 1999. Ms Kemularia has 20 years
of international experience in financial services and risk management. From 1999
to 2005, she held various market risk management roles both In Dynegy Inc. in USA
and UK and at Shell International Trading & Shipping Ltd (STASCO) in London. From
2005 to 2008, she was Manager, M&A and Commercial Finance, in Group Treasury
and Corporate Finance, at Shell International. From 2008 to 2011, she served as a
Commercial Finance Manager, M&A in Group Treasury & Corporate finance, at Shell
Exploration and Production Services (B.V) in Moscow, RF. Thereafter, she served as
Finance Manager and a Country Controller at Shell Western Supply and Trading LTD
in Barbados, West Indies from 2011 to 2016. Since 2016, Ms Kemularia is the Head of
Group Pensions Strategy and Standards at Shell International Ltd based in London
From 2006 to 2010, Ms Kemularia acted as a board member of the British- Georgian
Society. In 2011, she joined the board of Shell Western Supply and Trading Ltd. From
2016, she also serves as a board member of British Gas General Partner Ltd and
British Gas Trustee Solutions Ltd. Tsira Kemularia is a member of the Institute of
Directors in London, UK, and is currently a pursuing chartered director programme.
Ms Kemularia was appointed to the Board as an independent non-executive Director
of TBC Bank Group PLC and as a member of the Supervisory Board of JSC TBC Bank
in September 2018.
VAKHTANG BUTSKHRIKIDZE
CEO
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. He also served as a member of the Supervisory Board from September 2016
till April 2018. Mr Butskhrikidze is also a member of the supervisory board of the
Association of Banks of Georgia and is chairman of the financial committee of the
Business Association of Georgia. 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.
TBC BANK annual report and accounts 2018
123
BOARD BIOGRAPHIES CONTINUED
GIORGI SHAGIDZE
Deputy CEO, CFO
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. He also served
as a member of the Supervisory Board from September 2016 till April 2018. 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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TBC BANK annual report and accounts 2018
125
THE BANK’S MANAGEMENT BOARD BIOGRAPHIES
(EXCEPT FOR CEO’S AND CFO’S BIOGRAPHIES, WHICH ARE PRESENTED ON PAGES 123 TO 124)
PAATA GADZADZE
First Deputy CEO
Paata Gadzadze stepped down from the Management Board of TBC Bank on January 1, 2019. He will
continue to serve as Chief Executive Officer of TBC Insurance.
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 held the position of the first deputy CEO from 1998 to 2018. Since 2014, he has held
the position of the member of the supervisory board of TBC Leasing. In 2017, he was
appointed as CEO of TBC Insurance. 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. Since 1994 Paata is
an active lecturer and invited professor at Free University, Caucasian Business School and
other Academic Institutions in Georgia. 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. Following
acquisition of Bank Republic and creation of 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 Bank, 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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TBC BANK annual report and accounts 2018
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.
TORNIKE GOGICHAISHVILI
Deputy CEO, Chief Operating Officer
Tornike joined TBC Bank in 2018 as Chief Operating Officer and deputy CEO following 20
years of financial services and operations management experience. Prior to joining TBC,
he has served as a Deputy CEO, Chief Operation Officer at Bank of Georgia since 2016.
Between 2010 and 2016 Tornike served as director of operations’ department at Bank of
Georgia. He also served as head of international banking at Bank of Georgia Group. Between
2008-2010 Tornike held the position of CFO at BG Bank Ukraine (the subsidiary of Bank of
Georgia) and between 2006 and 2008 he held the position of CEO at Insurance Company
Aldagi. He also served as chief financial officer of UEDC PA consulting and held various
managerial positions at BCI Insurance Company from 1998 to 2004. Tornike graduated
from the Faculty of Law at Tbilisi State University and holds an MBA from Caucasus School
of Business and an executive diploma from Said Business School, Oxford.
TBC BANK annual report and accounts 2018
127
THE BANK’S MANAGEMENT BOARD BIOGRAPHIES CONTINUED
(EXCEPT FOR CEO’S AND CFO’S BIOGRAPHIES, WHICH ARE PRESENTED ON PAGES 123 TO 124)
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, MSME 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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TBC BANK annual report and accounts 2018
CORPORATE GOVERNANCE AND NOMINATION COMMITTEE REPORT
CHAIRMAN’S LETTER
Moreover, Tsira Kemularia was appointed as a member of
the Corporate Governance and Nomination Committee,
the Audit Committee and the Risk, Ethics and Compliance
Committee of the Board and equivalent committees of the
Supervisory Board of the Bank.
The Committee will continue to keep under review the
structure, size and composition of the Board and its
committees to make appropriate recommendations to the
Board.
In 2018, the Committee considered a suitable facilitator
to undertake an externally facilitated evaluation of the
Board’s and its committees’ performance. Following the
Committee’s recommendation, the Board commissioned
an externally-facilitated evaluation of the Board’s and its
committees’ effectiveness led by Independent Audit Ltd.
The Committee has also considered the updated UK
Corporate Governance Code published by the FRC in
July 2018 and made appropriate arrangements to take
a number of actions during 2019 to ensure that the
Company’s governance procedures are in compliance
with the updated UK Corporate Governance Code (where
appropriate).
Nikoloz Enukidze
Senior Independent Director
2 April 2019
TBC BANK annual report and accounts 2018
129
Dear shareholders,
As announced on 15 March 2019, Eric Rajendra has
stepped down due to health reasons from his roles as a
Director of the Company and Chairman of the Corporate
Governance and Nomination Committee (the “Committee”)
and equivalent positions on the Supervisory Board of the
Bank. As Senior Independent Director, I would like to thank
him for his contribution to both the Committee and the
Company over the past years, and present the Committee
report to shareholders.
The Committee key focus during 2018 was the composition
and gender diversity of the Board and its committees.
The Committee has led a rigorous process to appoint
successors to two independent non-executive Directors,
who stepped down from the Board in 2018. An overview of
the recruitment process undertaken by the Committee is
provided on pages 130 to 131.
The Committee is pleased to report that as a result of
its recruitment process two female independent non-
executive Directors, Maria Luisa Cicognani and Tsira
Kemularia, were appointed to the Board and equivalent
positions on the Supervisory Board of the Company’s main
subsidiary JSC TBC Bank’ (the Bank).
In support of the Group’s long-term strategy, the Committee
considered and implemented changes to the composition
of the Board and its committees. These changes included
appointment of Maria Luisa Cicognani as the Chair of the
Remuneration Committee of the Board and the Supervisory
Board of the Bank. She was also appointed as a member of
the Risk, Ethics and Compliance Committee and the Audit
Committee of the Board and equivalent committees of the
Bank’s Supervisory Board.
CORPORATE GOVERNANCE AND NOMINATION COMMITTEE REPORT CONTINUED
MEMBERS OF THE COMMITTEE
As at 2 April 2019, the Committee is composed of two
independent non-executive Directors, including Nikoloz
Enukidze and Tsira Kemularia, as well as Badri Japaridze,
who is not considered to be independent for the purposes
of the UK Corporate Governance Code. Eric Rajendra
stepped down due to health reasons from his role as a
Chairman of the Committee on 15 March 2019, and a
replacement Chairman will be announced in due course.
During 2018, there have been changes in the composition
of the Committee with Tsira Kemularia being appointed to
the Board as an independent non-executive Director and
a member of the Committee, thereby replacing Stephan
Wilcke. As such, the Board believes that the Group
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 judgment.
ATTENDANCE AT COMMITTEE MEETINGS
Only members of the Committee have the right to attend its
meetings, but the Committee may invite others, including
the Chief Executive Officer, the Head of Human Resources
and external advisors, to attend all or part of any meeting
if it thinks it is appropriate or necessary. The Committee
members meet on a quarterly basis and schedule
additional meetings when appropriate. The Company
Secretary attends all meetings of the Committee.
The attendance of members at the Committee meetings
during the year is set out on page 111.
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’s terms of reference is
reviewed on an annual basis.
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 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;
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TBC BANK annual report and accounts 2018
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 it can
function independently.
The main responsibilities of the Committee, in relation to
nominations, 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;
overseeing the induction program for new members of
the Board with respect to their Board responsibilities
and roles, including ensuring that the non-executive
directors have full understanding of the Group’s
activities; 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 training.
APPOINTMENT AND RE-ELECTION
OF DIRECTORS
The Committee considers a skills matrix for appointments
to the Board and the Board’s committees, and identifies
the skills, core competencies, diversity and experience that
the Group needs to be able to deliver its strategic aims, to
govern the Group appropriately and align with the Group’s
corporate culture and values. In accordance with the UK
Corporate Governance Code, all the Directors will stand
for re-election at the Company’s Annual General Meeting,
including two newly-appointed independent non-executive
directors, Maria Luisa Cicognani and Tsira Kemularia.
The Committee has carried out externally facilitated
performance evaluations and is of the view that each
Director demonstrated the level of commitment required in
connection with their role on the Board and the needs of the
business. An overview of the evaluation is provided on pages
112 to 113.
BOARD RECRUITMENT AND
APPOINTMENT PROCESS
The composition of the Board and its committees, including
the consideration of potential appointments of non-executive
directors with requisite skills and experience to ensure the
Board continues to operate effectively, is of key importance
for the Group.
The Committee considers a skills matrix to ensure that the
Board has a suitable range of experience and knowledge
to operate effectively. The Board has formal, thorough and
transparent procedures in place for Board recruitment
and appointment. In identifying suitable candidates, the
Committee can seek recommendations from trusted
advisors, but may also use external search consultancies
to facilitate recruitment. During 2018, the Committee
used services of Leathwaite, a UK based executive search
company, to identify suitable candidates. Laethwaite is
entirely independent of TBC and has no other connection
with the Company.
Laethwaite prepared a scope based on the Committee’s
view of the skills needed on the Board, researched possible
candidates and prepared a shortlist of candidates, which
was considered by the Committee.
Suitable candidates were identified and considered prior to
the Committee making a recommendation to appoint Maria
Luisa Cicognani and Tsira Kemularia to the Board, who duly
approved the appointments as independent non-executive
Directors. Biographical details of Maria Luisa Cicognani and
Tsira Kemularia are set out on pages 122 to 123.
The Committee carefully assesses each candidate for
membership of the Board against its 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.
DIVERSITY
The Committee recognises the importance of ensuring that
there is a broad diversity within the Group inclusive of, but
not limited to, gender, ethnicity and business experience,
while continuing to recommend all appointments based on
merit in the context of the skills and experience required.
The Committee notes the recommendations of Hampton-
Alexander review to improve gender diversity on the
boards of directors of companies by setting a target of
33% female representation by 2020 with the same level of
representation at executive committee level.
The Committee is pleased to report that during 2018 there
were two appointments to the Board of female Directors,
Maria Luisa Cicognani and Tsira Kemularia. In addition, the
Committee notes that there is a number of talented women
in key positions, who report directly to the CEO and other
members of the management board within the Group. As at
31 December 2018, some 12% of Group’s top management
and 37% of Group’s middle management roles were
performed by females. Moreover, 67% of employees across
the Group’s entire workforce were female. The Committee
will continue to strive to further improve gender diversity
going forward at both the Board and management levels.
THE COMMITTEE’S WORK
In 2018, the Committee remained focused on succession
planning, diversity matters
assessment of
effectiveness of the Board and its committees.
and
Composition of Board and its committees
The Committee developed a forward looking plan of
expected skills and experience needed on the Board in
the context of the Group’s strategic directions. As part of
the consideration of known and expected changes to the
Board composition, the Committee carefully re-evaluated
the revised skills matrix for the Board.
It conducted a search for non-executive Directors based
on the revised skills matrix and taking into consideration
gender diversity requirement for the Board. Accordingly,
the Committee made a recommendation to appoint Maria
Luisa Cicognani and Tsira Kemularia to the Board. Upon
Committee’s recommendation Maria Luisa Cicognani
and Tsira Kemularia were appointed to the Board and
its committees in order to replace two non-executive
Directors, Stephan Wilcke and Stefano Marsaglia (as
stated on pages 130 and131).
Maria Luisa Cicognani is the Chairperson of Marc Mobius
Investment Trust, which is an investment trust managed
by Mobius Capital Partners and was until recently
Chairwoman of Moneta Money Bank in Prague. She has
held leadership roles at a range of financial institutions,
including Merrill Lynch, Azimut, Mediobanca and the
European Bank for Reconstruction and Development. In
addition, Maria Luisa Cicognani has more than 12 months
experience serving as a remuneration committee member
of Moneta Money Bank in Prague.
Tsira Kemularia is currently Head of Group Pensions
Strategy and Standards, Group Treasury at Shell
International Ltd and a Trustee Director of BG Group
Pensions Trustees Ltd. She has held a number of senior
Finance positions within Shell in the UK, Russia and the
Caribbean.
TBC BANK annual report and accounts 2018
131
CORPORATE GOVERNANCE AND NOMINATION COMMITTEE REPORT CONTINUED
Independent Audit Ltd is entirely independent and has no
other connection with the Company. The Committee, on
behalf of the Board, conducted the initial briefing session
with Independent Audit Ltd and oversaw the evaluation
process. Following conclusion of the 2018 review, the
Committee considered the outcome of the report and
prepared an action plan for the Board to review and agree,
which reflected some minor improvements to processes and
information flow for the Board. The outcome of the review and
the action plan are described on pages 112 to 113.
The Committee will monitor
implementation of the
proposed action plan in 2019. The Company will appoint
an independent evaluator to assist in the performance
evaluation process every three years.
LOOKING FORWARD TO 2019
In the coming year, the Committee’s workload will include
overseeing the
improvements
implementation of the
recommended by the performance evaluation of the
Board and its committees undertaken by Independent
Audit Ltd. The Committee will continue to monitor the
Group’s succession planning process to ensure that the
next generation of executive management is in place.
In addition, the Committee will consider the Group’s overall
governance structure, including appointment of two new
members of the Supervisory Board of TBC Bank and a new
independent non-executive Director of the Company and a
new Chairman of the Committee.
The Committee will monitor and implement any changes
that might be needed to ensure compliance with the updated
UK Corporate Governance Code published in July 2018.
Succession
The Committee recognises that people are the driving
force in sustaining the Group’s business and 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 executives.
During the course of 2018, Eric J. Rajendra, as Chairman
of the Committee, met personally with key members of the
Management Board and middle management to ensure the
Group creates opportunities for current and future leaders.
The Committee also considered individuals identified as
potential successors of the Group’s executives, considered
the succession plans for the key business units as well
as functional roles and discussed how high performing
individuals were identified and developed.
Designated non-executive Director
In advance of the Group’s compliance with the requirements
of the updated UK Corporate Governance published in
July 2018, the Board appointed Tsira Kemularia upon
the Committee’s recommendation as the designated
independent non-executive Director, who is responsible for
workforce engagement and facilitation of communication
between the Board and the Group’s workforce. This role
will involve, among other things, appropriate site visits,
discussions with management and staff and engagement
with other internal stakeholders. In that respect, Tsira
Kemularia produced a workforce engagement plan for
2019 and a separate communication plan to facilitate
communication between the Board and the Group’s
workforce.
Corporate governance and independence
The Committee oversaw the continued developments of the
Group’s corporate governance framework and reviews of
its compliance with the Code requirements, independence
of non-executive Directors and re-election of non-executive
Directors as well as their suitability to continue in office.
The Committee is satisfied with Company’s compliance
with the Code on these matters. The independence review
was also satisfactory because all Independent Non-
Executive Directors remained independent throughout
2018 year as to both character and judgment.
Board performance evaluation
As required by the UK Corporate Governance Code, the
Company undertook a performance evaluation of the
Board and its committees in 2018 using an external
facilitator, Independent Audit Ltd.
The evaluator was selected following a detailed review of
the market, and the formation of a short list. The Committee
conducted detailed discussions with the Chairman prior
to mandating Independent Audit Ltd with the task of the
Board and Committees performance evaluation.
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TBC BANK annual report and accounts 2018
RISK, ETHICS AND COMPLIANCE COMMITTEE REPORT
CHAIRMAN’S LETTER
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.
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 RECC supports
fostering an ethical culture within the Group based on the
principles of honesty, integrity, fairness and transparency.
Dear shareholders,
I am pleased to present the Risk, Ethics and Compliance
Committee (the “RECC”) report for the Group.
The RECC’s terms of reference are available on the Group’s
website: www.tbcbankgroup.com.
Throughout 2018, the RECC continued to take a proactive
approach to risk management by closely monitoring
and discussing the internal and external challenges the
Group faces. 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:
Important new regulation, including introduction of the
net GRAPE (General Risk Assessment Program) buffer
and regulatory changes concerning the responsible
lending standards, the details of which are given below
under section “Regulatory update”;
Enhancing TBC Banks operational risk management;
and
The review and monitoring of the results produced by
IFRS 9 models following TBC Bank’s successful transi-
tion to IFRS 9 on 1st January 2018.
In addition, the RECC proactively led the review and response
to the recent inspection by the NBG, as well as related actions
by the Georgian Office of Public Prosecution, of certain
transactions including TBC Bank’s founders, which took
place in 2007 and 2008. Further details on these inspections
are outlined on page 68.
The report below summarises the RECC’s activities for the
year.
Nikoloz Enukidze
Chairman of the Risk, Ethics and Compliance Committee
2 April 2019
COMMITTEE MEMBERS AND MEETINGS
As of 2 April 2019, the RECC consists of four independent,
non-executive Directors: Nikoloz Enukidze (Chairman),
Nicholas Haag, Maria Luisa Cicognani and Tsira Kemularia.
Biographies of the RECC members can be found on pages
120 to124. Eric Rajendra served as a member thoroughout
2018 until stepped down on 15 March 2019.
Ms Cicognani and Ms Kemularia were appointed to the
Commitee in Q4 2018 after Stefano Marsaglia and Stephan
Wilcke stepped down.
The RECC meets in person on a quarterly basis. At each
meeting members review a thorough report on the quarter’s
risk management results 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 sessions are held remotely, if needed.
Members’ attendance 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 111.
RECC ACTIVITIES DURING 2018
In 2018, the NBG introduced a number of important
regulatory amendments, including net GRAPE buffer and
regulations concerning responsible lending framework.
The RECC closely monitored these regulatory changes,
reviewing the periodical regulatory updates and discussing
these changes, to assess the potential implications for the
Group’s performance and processes, and to outline ways to
manage these processes more effectively.
TBC BANK annual report and accounts 2018
133
RISK, ETHICS AND COMPLIANCE COMMITTEE REPORT CONTINUED
Additionally, throughout the year the RECC was actively
involved in the further enhancement of the Bank’s operational
risk management.
segments, products and economic sectors. Additionally, the
portfolio FX share and concentration levels were actively
monitored.
The RECC's monitoring of the IFRS 9 post implementation
process was also one of the key focus areas to ensure that
TBC Bank complied with all aspects of the new standard,
particularly that the provisioning methodology adequately
captures the expected credit losses.
Throughout the year, the NBG introduced several initiatives
concerning responsible lending, the details of which are
outlined under the section "Regulatory update" below. The
RECC extensively revised each change as well as its impact
on TBC Bank’s portfolio growth and quality trends.
Moreover, the RECC led the internal review and response to
the recent inspection by the NBG and related actions by the
Georgian Office of Public Prosecution of certain transactions
which took place in 2007 and 2008. Further details on these
inspections are outlined on page 68.
Apart from the aforementioned activities, the RECC continued
to concentrate 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’s members discussed the Group’s risk profile and
respective outlook with the management.
During the course of 2018, the RECC carried out a further
review of the updates in risk appetite metrics and limits
proposed by the CRO. Key updates made were in relation
to the capital adequacy metrics and they were driven by the
changes in regulatory capital framework.
Macroeconomic environment in Georgia
The RECC continued to work closely with the Group's
economic team with regards to the international, regional
and domestic macroeconomic developments. The RECC
received a number of comprehensive reports and periodic
updates on macroeconomic developments. It also analysed
the Group's sensitivity to various scenarios,
including
adverse developments in the economy and exchange rates,
as well as the mitigation actions that could be undertaken
to minimize the impact of such developments. Throughout
the year, the RECC paid more attention to the sectorial risk
assessment and the Group’s exposure to specific sectors
of Georgian economy. For example, the RECC assessed the
health of Georgia’s housing market and analysed the overall
sustainability of the credit growth within this market from
macroeconomic perspective. In addition, new macro-financial
initiatives introduced by the government and the central bank
were thoroughly reviewed.
Credit risk
The RECC reviewed the performance of the Group’s credit
portfolio at each meeting during 2018. The RECC was
presented with a comprehensive report covering the structure
and performance of the Group’s portfolio across business
Operational risk
Throughout the year, one of the key operational risk
management focus areas was the Risk and Control Self-
Assessment ("RCSA") exercise. Under the RCSA exercise,
TBC Bank’s top priority processes were reviewed and areas
of improvement were identified.
The RECC was actively involved in reviewing the RSCA
exercise including risk and control assessment methodology,
selection of the processes for RSCA scope, discussion of
findings as well as recommendations and the action plan
proposed by the operational risk team.
Financial risks
The RECC closely re-examined the Group’s financial risk
positions on a regular basis, and produced a report that
included an assessment of TBC Bank’s risks associated with
liquidity, FX, banking book interest rates and counterparties.
As part of assessing the compliance with the approved risk
appetite limits, the Committee monitored TBC Bank’s liquidity
and funding ratios and the NBG's updated regulations
regarding the reduction of interest rates on FX mandatory
reserves and the increase of FX mandatory reserves
requirement. The RECC reviewed a comprehensive report on
the interbank portfolio’s performance within the counterparty
risk management framework and, in particular, the trade
finance-related transactions.
Capital management
The RECC continued to revise the internal capital adequacy
assessment process and it monitored closely the compliance
with all regulatory ratios under different macroeconomic
scenarios. During the meetings, RECC also examined the
new initiatives introduced by the NBG during the reporting
period and their impact, as well as the expected changes in
the minimum capital requirements.
Throughout the year, the Bank actively worked on the capital
optimisation exercise which led to significant capital savings.
The results of the process were presented and discussed
during the RECC's quarterly meetings.
In 2018, the Bank performed the second round of a regulatory
stress-testing exercise. The RECC members extensively
discussed the NBG stress test methodology and its impact on
the Bank’s capital adequacy and non-performing loans ratios.
Additionally, the most vulnerable sectors were identified
134
TBC BANK annual report and accounts 2018
and analysed in details. The main purpose of the regulatory
stress-testing exercise is to define the net stress test capital
buffer under the Pillar II framework.
Compliance
Throughout the year, the RECC approved the updates of several
policies for the Group, and closely scrutinised the Group’s
related parties list and transaction tracker for the purposes of
the UK Listing Rules. Given the significant regulatory changes
during 2018 (as described in “Regulatory update” section),
the RECC’s main attention was paid to the implementation
status of regulatory requirements throughout the Group.
Additionally, the RECC discussed compliance and anti money
laundering topics in details on each quarterly meeting.
NBG inspection related to past transactions
As reported in strategic report, the Bank was subject to an
inspection by the NBG during late 2018 and into 2019, in
relation to certain transactions that the founders of the Bank
undertook in 2007 and 2008 (see also pages 53 and 68). The
RECC was actively involved in the oversight of the inspection,
and led the response of the directors to the NBG report, both
currently and in relation to future actions which might be
required to prevent any recurrence. RECC also advised the
Board on remedial actions to be taken in connection with
the NBG report. In particular, RECC oversaw the directors’
actions taken in relation to the situation, including reviewing
documentation, challenging the founders, and coordinating
plans and remedial actions
in relation to corporate
governance, current and future related party controls, and
controls over identifying and managing any potential conflicts
of interest with regard to the Bank’s lending practices. This
is complementary to the Bank’s agreed remedial actions
agreed with the NBG (page 68).
Regulatory update
During the reporting period, the NBG introduced numerous
initiatives, which the RECC examined to assess their impact
on the Group’s performance. These initiatives include the
following:
net GRAPE buffer - in the beginning of 2018 the NBG de-
fined the net GRAPE buffer for the Bank. The net GRAPE
buffer is a pillar II capital add-on determined through the
supervisory process for any material risks not covered by
Pillar I and other Pillar II capital buffers defined under
NBG capital adequacy framework. The key findings of the
NBG that were used to determine the appropriate level of
buffer specifically for the Bank were extensively discussed
by the RECC during it’s meeting;
the interim regulation on responsible lending standards,
introduced in May 2018. According to this regulation, the
limits were set for the banks on loan portfolios with no in-
come verification at 25% and 15% of the regulatory capital
for unsecured and collateralised loans respectively;
the full version of the regulation about responsible lending
was introduced on 1 January 2019 (thereby replacing the
May regulation) and it defined income verification tech-
niques, introduced caps on payment-to-income (PTI) and
loan-to-value (LTV) ratios and the maximum maturity of
retail loans; Stricter thresholds are applied to loans de-
nominated in foreign currency. The banks will no longer be
allowed to disburse loans without income verification and
the income verification techniques are currently being dis-
cussed between the banks and the regulator to determine
appropriate income verification techniques, including an-
alytical approaches;
the effective interest cap on loans was lowered on 1 Sep-
tember 2018 from 100% to 50% .
Additionally, the NBG introduced a new initiative to facilitate
further de-dollarisation of portfolio. The new regulation, in
force from January 23rd 2019, increases the limit below which
loans cannot be issued in foreign currency from GEL 100,000
to GEL 200,000.
IFRS 9
2018 marked the first year since the Group's transition to
IFRS 9. The RECC actively reviewed and monitored the results
produced by the IFRS 9 models to ensure that respective
outcomes adequately capture expected losses.
THE COMMITTEE’S EFFECTIVENESS REVIEW
The Board and the RECC members conduct a review of
the Committee’s effectiveness every year. The aim is to
assess the RECC’s performance as per the international
standards of best practice in corporate governance. In
2018, the RECC was found to be effective in overseeing
the Group’s risk management, compliance activities and
ethical standards.
LOOKING AHEAD TO 2019
Going forward, the RECC will continue to focus on its key
responsibilities: assessing the quarterly risk results and
compliance with TBC Bank’s risk appetite, providing the
sign-off on transactions with the largest exposures, and
facilitating the 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,
close attention will be paid in overseeing TBC Bank’s
international expansion activities to ensure that the risks
are managed properly across the Group. Moreover, the
RECC will continue to focus on the proper management
of risks that may arise from further digitalisation of TBC
Bank’s services.
TBC BANK annual report and accounts 2018
135
REMUNERATION COMMITTEE REPORT
CHAIRMAN’S STATEMENT
Dear shareholders,
As Chairman of the Board Remuneration Committee (the
“Remuneration Committee”), I am pleased to present the
Directors’ Remuneration Report for the year ending 31
December 2018.
This is my first year report as Remuneration Committee
Chairman as I was appointed on 1st October 2018 and I
would like to thank my predecessor, Stefano Marsaglia for
his significant contribution during the past years.
I would also like to thank shareholders for their active
engagement and strong support for the executive directors’
Remuneration Policy, which was approved at the 2018 AGM
on 21 May 2018 and which has applied since 1 January
2019 (the full policy is given in 2017 Annual Report, which
is available at our website at www.tbcbankgroup.com). We
firmly believe, that the new Remuneration Policy is closely
aligned with Group’s strategic priorities, provides fair
reward and meets appropriate regulatory requirements and
best practice standards as well as taking into consideration
the views of all stakeholders. As we are committed to best
corporate governance, the Remuneration Committee
will review annually both executive and non-executive
directors’ compensation and benchmarks to ensure that
these are aligned with best market practice. If any material
change is required, the Remuneration Committee intends
to consult with shareholders before any new proposal is
presented for approval at the annual general meeting.
I am looking forward to working with the Remuneration
Committee to further develop and improve remuneration
practices of the executive directors and principals at TBC
Bank.
136
TBC BANK annual report and accounts 2018
Principles of Remuneration
The Remuneration Committee continues to ensure that the
executive directors’ remuneration motivates performance
and fosters the Group’s strategic goals. The following
principles have been considered when determining
executive director’s remuneration:
clarity and simplicity- the Remuneration Committee
strives to ensure that performance measures are clear
and straight-forward;
risk - the Remuneration Committee has the discretion
to reduce an executive director’s variable remuneration
if specific KPIs have not been met and any element of
executive directors’ variable compensation is subject to
the relevant malus and clawback provisions;
predictability - the maximum possible value of the ex-
ecutive directors’ remuneration has been detailed in the
Remuneration Report at section 2.2 below and in the
Remuneration Policy;
proportionality/alignment with culture: the Remuner-
ation Committee strives to ensure that performance
measures are aligned with the corporate culture of
the Group to foster the right behavior and deliver re-
muneration packages that are proportionate in the cir-
cumstances, by measuring executive directors’ remu-
neration against a mix of financial, non-financial and
personal KPIs.
Form of Remuneration
The executive directors’ remuneration
comprised of:
for 2018
is
fixed compensation consisting of both cash-based and
share-based payments;
annual bonus based on the level of achievement of one-
year key performance indicators (KPIs) and consisting
of share-based payments only.
The share-based payments in relation to the fixed
compensation and the annual bonuses are subject to year
continued employment condition and holding period. The
employment and holding conditions are lifted for 10%
of the total number of shares awarded by the end of the
first year, a further 10% by the end of the second year
and the remaining 80% by the end of the third year. This
approach ensures that the executive directors’ interests
are closely aligned with the Group’s long-term strategy
and shareholders’ interests.
The non-executive directors’ remuneration is in the form of
monthly fixed cash payments and is based on best practice
and specifically FTSE 250 financial companies board
membership fees.
Looking ahead
Given the changes to the board structure at TBC Bank
Group PLC and JSC TBC Bank level, the compensation to
non-executive directors, particularly the Chairman and
Deputy Chairman, will be changing from 4 April 2019. For
further details, please see page 147.
The Remuneration Committee will continue to review
the Remuneration Policy for both executive and non-
executive directors on a regular basis to ensure that it is in
compliance with regulatory changes and evolving market
practices. We will also actively engage with shareholders
and other stakeholders to make sure that we take into
account their views. Our ultimate goal is to ensure that
our Remuneration Policy strongly supports the Group in
achieving its strategic objectives and continues to reward
and attract the best talent.
Maria Luisa Cicognani
Chairman of the Remuneration Committee
2 April 2019
2018 Executive Directors’ KPI and Performance
The Group recorded strong financial and operating results
in 2018 and successfully achieved its strategic objectives,
which once again demonstrates the strong dedication and
commitment of the management team led by CEO.
The Remuneration Committee has thoroughly assessed
the executive directors’ performance against targets
set at the beginning of the year and concluded that their
performance was above expectations. The Remuneration
Committee has also assessed the executive directors’
performance against their non-financial and personal KPIs
(which take into account specific duties of each executive
director). The detailed disclosure of KPIs and performance
assessment is given in section 2 of the Remuneration
Report.
As a result, the annual bonus awarded to the CEO and CFO
represented 85% and 88% of the maximum opportunity
in 2018 respectively. The Remuneration Committee has
determined that the level of remuneration awarded to the
executive directors was appropriate in the circumstances
for the reasons stated above.
Changes to the Policy
In the light of new regulatory requirements we have made
the following changes to our Remuneration Policy:
Awards granted to executive directors under the
Group’s long-term incentive plan ( “LTIP” approved by
shareholders at the AGM of 21 May 2018 and effective
from 1 January 2019) will be subject to a 5 year vesting
and holding period (3 year vesting period and an addi-
tional 2 year holding and continued employment period
after vesting), subject to malus and claw back;
We have introduced post employment shareholding
requirements for executive directors, which will re-
quire executive directors to continue to comply with the
Shareholding Guidelines (the full document is available
at www.tbcbankgroup.com) for a period of two 2 years
after they have left the Company;
We have given the Remuneration Committee the dis-
cretion to override the formulaic outcomes of the per-
formance assessment in relation to annual bonus and
LTIP. It should be noted that the Remuneration Com-
mittee has never used upward discretion and intends to
exercise this discretion only in exceptional cases where
the Remuneration Committee considers that the execu-
tive directors’ remuneration has become excessive due
to external factors. Thus, it will be solely used for the
benefit of shareholders.
TBC BANK annual report and accounts 2018
137
REMUNERATION COMMITTEE REPORT CONTINUED
1. REMUNERATION COMMITTEE
The Company’s Remuneration Committee is responsible for establishing and overseeing the Group’s Remuneration Policy
principles and considering and approving remuneration arrangements of executive directors. Full details of the Remuneration
Committee’s responsibilities are set out in the Remuneration 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 membership of the Remuneration Committee changed during 2018
following changes in the composition of the Board. From October 2018 and for the remaining period of the year the members
of the Remuneration Committee were: Maria Luisa Cicognani (chairman), Nikoloz Enukidze, Eric Rajendra and Nicholas Haag.
The attendance of members at the Remuneration Committee meetings during the year at the Company and the Bank levels
are set out in the Directors’ Governance Statement on page 111.
1.1 Statement of voting at Annual General Meeting
The currently followed Remuneration Policy was presented and approved at the AGM on 21 May 2018 The results were as follows:
No Resolution
1
To approve the directors'
remuneration report
To approve the directors'
remuneration policy
2
3
Votes For
% of votes
cast
Votes
Against
% of votes
cast
% of issued
share capital
voted
Total
votes
Votes
Withheld
40,247,177
99.20
325,903
0.80 40,573,080
74.88% 5,974,890
44,987,517
99.95
21,969
0.05 45,009,486
83.07% 1,538,484
To approve the Company's Long
Term Inventive Plan
44,947,517
99.86
61,969
0.14 45,009,486
83.07% 1,538,484
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 2018 and 31 December 2017.
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
Notes to table:
Vakhtang Butskhrikidze
2017
US$’000
2018
US$’000
Giorgi Shagidze
2017
US$’000
2018
US$’000
929
454
475
18
-
1,027
454
573
19
–
464
227
237
2
-
512
227
285
1
–
2,409
3,356
3,038
4,084
1,250
1,716
1,441
1,954
1. Base salary paid in year to executive directors. No additional fees were paid to executive directors.
2. Deferred share salary comprises of TBCG shares granted in respect of service in the relevant year. The number of shares awarded as deferred share
salary is linked to the base salary and its current level is fixed at an annual grant of 17,622 TBCG shares for Mr. Vakhtang Butskhrikidze and 8,811 TBCG
shares for Mr. Giorgi Shagidze. Deferred shares in relation to 2017 were awarded on 9 March 2018 and deferred shares in relation to 2018 were awarded
on 21 March 2019. Deferred share salaries are subject to a condition of continuous employment for 3 years and malus and clawback provisions. These
conditions are lifted as follows: 10% of the award on the first anniversary from the award date, a further 10%, on the second anniversary from award
138
TBC BANK annual report and accounts 2018
date and the final 80% of the on the third anniversary from the award date. For the purposes of this table, the 2017 award has been valued using the
closing market value of the shares on 9 March 2018 (GBP18.4 converted into US$ 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 2018 award has been valued using the closing market value of the shares on 21 March 2019 (GBP16.0 converted into US$ using the cross rate of the
official exchange rates published by the NBG of 2.6816 for GEL/US$ and 3.5499 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. These conditions are lifted as follows: 10% of the award on the
first anniversary from the award date, a further 10% on the second anniversary from the award date and the final 80% of the on the third anniversary
from the award date. Deferred shares in relation to 2017 were awarded on 9 March 2018 and deferred shares in relation to 2018 were awarded on 21
March 2019. For the purposes of this table, 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 2018 award has been valued using the closing market value
of the shares on 21 March 2019 (GBP16.0 converted into US$ using the cross rate of the official exchange rates published by the NBG of 2.6816 for
GEL/ US$ and 3.5499 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 2018 or 2017 (as applicable).
8. The decrease of deferred share salary and deferred share bonus in 2018 as compared to 2017, is largely due to the decrease in share price. A full
explanation of the basis of the 2018 deferred share bonus awards is given at section 2.2 which highlights the link between strong company and
executive performance for 2018.
2.2 Basis for determining executive directors’ deferred share bonus awards (audited)
The 2018 deferred share bonus awards made to executive directors reflect the Remuneration Committee’s assessment
of the extent to which corporate financial, non-financial and personal KPIs were achieved. Such objectives were set by
the Remuneration Committee and agreed by the Board at the beginning of the year.
The compensation is structured by reference to a set of stretch targets for each of the KPIs that is reviewed by the
Remuneration Committee. Each KPI has three thresholds: minimum, on target and maximum and is evaluated as
follows:
if the achievement is below minimum level, the evaluation is 0;
if the achievement is at minimum level, the evaluation is 60%;
if the achievement is on target, evaluation is 100%;
the achievement at maximum means evaluation at 140%.
The final evaluation score for the Executive Director is made up of the weighted sum of the scores of all KPIs. As a result,
the evaluation of the Executive Director is capped at 140%. If all KPIs are achieved on target, then the Executive Director
will receive 100% of the target bonus. The maximum bonus will be 140% of his targeted bonus.
While one KPI can be achieved at maximum level, achieving maximum level across all KPIs is extremely difficult and
to date has never been achieved by the Executive Director. Therefore, the maximum bonus has never been paid. The
Remuneration Committee will continue to monitor and implement challenging stretch goals for its executives on an
annual basis.
The below table illustrates the performance measures set for Mr. Butskhrikidze in respect of 2018, as well as his
performance against them. The selected financial performance measures are vital for the long-term financial health of
the Group and are also closely monitored by investors. Non-financial measures including HR and customer experience
are closely linked to our strategic priorities as described in our business model and strategy section, while TBC PLC
share price performance against peer bank measures our relative performance against the closest competitor.
TBC BANK annual report and accounts 2018
139
REMUNERATION COMMITTEE REPORT CONTINUED
2. SINGLE TOTAL FIGURE OF REMUNERATION CONTINUED
Performance Measure
Financial measures
Underling ROE2
Cost to income ratio
NIM
Cost of risk3
Non-financial measures
HR4
Engagement index for middle
management
Employee net promoters score
Customer Experience5
“The Best Service Company in Georgia” in
Retail (gap with number 2 company)
NPS in affluent segment (negative gap with
peer bank)
TBCG PLC share price performance against
peer bank6
Personal KPIs
Leadership7
Total
Notes to table:
Maximum
Target
(100%)
Minimum
(60%)
Weighting8
%
56%
15% 18.0 – 20.0% 20.0 – 21.1% > 21.1%
15% 40.0 – 38.7% 38.7– 37.4% < 37.4%
> 6.7%
15%
< 1.6%
11%
34%
10%
6.0 – 6.3%
2.0 – 1.8%
6.3 – 6.7%
1.8 – 1.6%
(140%) Performance
KPI
Evaluation1
22.8%
37.8%
6.9%
1.58%
140%
100%
140%
140%
5%
5%
10%
5%
75–81%
45–49%
82–89%
50–55%
>89%
>56%
95%
66%
140%
140%
-5–0%
0–10%
>10%
2.3%
100%
5% 25.4 – 22.9% 22.9 – 17.9% < 17.9%
23.7%
60%
14%
10%
10%
100%
<–10%
-10 – +10% > +10%
-7.2%
100%
A–
A
A+
A
100%
118%
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. The underlying ROE excludes the one-off costs in the amount of GEL 17.4 million, related to the reversal of deferred tax gain in Q2 due to change in
legislation.
3. The cost of risk targets were increased in 2018 due to increased focus on higher yield, higher risk products during the year.
4. Engagement index for middle management and employee net promoters score were measured by an independent consultant.
5. Two indexes were evaluated:
• “Best Service Company in Georgia in Retail” in the following industries: banking, telecom, insurance and pharmacy, based on surveys conducted by
independent research company IPM in December 2018
• “NPS in affluent segment”, based on survey conducted by independent research company IPM in December 2018
6. 2018 Q4 average share price multiple of TBCG PLC compared with that of the peer bank (according to the new policy, which came into force on 1st
January 2019, the relative measures will not be used as part of the non-financial measures).
7. Leadership skills are assessed by remuneration committee and were regarded as good.
8.
In line with our refreshed strategy and dedicated focus on customer service and HR, the weightings of financial and non-financial KPIs have been
slightly changed compared to the previous year as follows: the weighting of cost of risk KPI was reduced by 4%, while HR and customer experience
KPIs were increased by 2% each (as they were deemed to be more important in 2018).
As a result, during 2018, the Remuneration Committee therefore considered Mr Butskhrikidze’s performance excellent
and determined the overall value of the deferred share bonus award of US$ 2,408,813 (being the net value awarded of US$
1,894,007 grossed up for directors’ income tax on deferred bonus share awards). The actual deferred share bonus represented
85% of the maximum annual bonus, which could have been achieved if all the performance measures have been met.
The below table illustrates the performance measures set for Mr. Shagidze in respect of 2018, as well as his performance
against them. The selected financial performance measures are vital for the long-term financial health of the Group
and are also closely monitored by investors. Non-financial measures including HR and customer experience are closely
linked to our strategic priorities as described in our business model and strategy section, while TBC PLC share price
performance against peer bank measures our relative performance against the closest competitor. The personal KPIs
represent the areas of the major focus for CFO due to its significant impact on the overall performance of the business.
140
TBC BANK annual report and accounts 2018
Performance Measure
Financial measures
Underling ROE2
Cost to income ratio
NIM
Cost of Risk3
Non-financial measures
HR4
Employee Engagement Index
Employee Net Promoters Score
Customer Experience5
“The Best Service Company in
Georgia” in Retail (gap with
number 2 company)
NPS in affluent segment (negative
gap with peer bank)
TBCG PLC share price performance
against peer bank6
Personal KPIs
Leadership7
Treasury8
IR6
Cost of IFI borrowed funds9
Total
Notes to table:
Weighting
%
36%
10%
9%
9%
8%
26%
8%
4%
4%
8%
4%
4%
10%
38%
8%
12%
10%
8%
100%
Minimum
(60%)
Target
(100%)
Maximum
(140%) Performance
KPI
Evaluation1
18.0 – 20.0%
40.0 – 38.7%
6.0 – 6.3%
2.0 – 1.8%
20.0 – 21.1%
38.7– 37.4%
6.3 – 6.7%
1.8 – 1.6%
> 21.1%
< 37.4%
> 6.7%
< 1.6%
22.8%
37.8%
6.9%
1.58%
140%
100%
140%
140%
75–81%
45–49%
82–89%
50–55%
>89%
>56%
95%
66%
140%
140%
-5–0%
0–10%
>10%
2.3%
100%
25.4 – 22.9%
22.9 – 17.9%
< 17.9%
23.7%
60%
< -10%
-10 – +10%
> +10%
-7.2%
100%
A-
95-98% of the
budget
< -10%
8.15 -7.91%
A
98-103% of the
budget
-10 – +10%
7.91 – 7.53%
A+
>103% of the
budget
> +10%
< 7.53%
A+
133%
-7.2%
7.42%
140%
140%
100%
140%
124%
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. The underlying ROE excludes the one-off costs in the amount of GEL 17.4 million, related to the reversal of deferred tax gain in Q2 due to change in
legislation.
3. The cost of risk targets were increased in 2018 due to increased focus on higher yield, higher risk products during the year.
4. Engagement for Middle Management and Employee Net Promoters Score were measured by an independent consultant.
5. Two indexes were evaluated:
• “Best Service Company in Georgia in Retail” in the following industries: banking, telecom, insurance and pharmacy, based on surveys conducted by
independent research company IPM in December 2018
• “NPS in affluent segment”, based on survey conducted by independent research company IPM in December 2018
6. 2018 Q4 average share price multiple of TBCG PLC compared with that of the peer bank (according to the new policy, which came into force on 1st
January 2019, the relative discounted measures will not be used as part of the non-financial measures and personal KPIs).
7. Leadership skills are assessed by remuneration committee and were regarded as excellent.
8. 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.
9. Cost of IFI borrowed funds adjusted with currency, fund seniority, interest rate nature and Libor and Refinance rate change for the respective floating
loans on daily basis.
The Remuneration Committee also considered Mr Shagidze’s performance as excellent and determined the overall
value of the deferred share bonus award of US$ 1,250,408 (being the net value awarded of US$ 988,595 grossed up
for directors’ income tax on deferred bonus share awards). The actual deferred share bonus represented 88% of the
maximum annual bonus, which could have been achieved if all the performance measures have been met.
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 2018 (audited)
The following table sets out further details of the share awards granted to Mr Butskhrikidze and Mr. Shagidze in 2018 in
respect of the year ended 31 December 2017.
TBC BANK annual report and accounts 2018
141
REMUNERATION COMMITTEE REPORT CONTINUED
2. SINGLE TOTAL FIGURE OF REMUNERATION CONTINUED
Type of interest
Basis on which award was made
Face value1 of awards made to Mr.
Butskhrikidze
Deferred share salary
Direct share award subject to
restrictions.
As described in note 2 to the table at
2.1 above.
US$ 573,449
Deferred share bonus
Direct share award subject to
restrictions.
As described in the table and notes at
section 2.2 above.
US$ 3,037,701
Face value1 of awards made to Mr.
US$ 285,022
US$ 1,441,412
Shagidze
Percentage of award receivable if
minimum performance achieved
Continued employment condition
Performance measures
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
continued employment conditions. The
condition on the deferred shares are
lifted 10%/10%/80% over the period of
three years respectively. The award is
part of the executive director's salary
set out in his service contract and is
not subject to performance measures
or conditions.
The continued employment condition
over three years until 9 March 2021
subject to malus and clawback
requirement.
None
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 continued
employment condition. The condition
on the deferred shares are lifted
10%/10%/80% over the period of three
years respectively. The performance
period is one calendar year.
The continued employment condition
over three years until 9 March 2021
subject to malus and clawback
requirement.
See section 2.2 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 2017 and 2018 :
Salary1
Cash bonus
Taxable benefits
Pension-related benefits3
Deferred share bonus award4
Total remuneration
Chief
Executive
All
employees
-9.6%2
0%
-3.6%
0%
18.9%
-3.5%
38.3%
-100%
-20.7% -16.9%
-17.8%
-5.4%
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 decrease in deferred share salary reflects the decrease in the share price. The number of deferred shares awarded as salary has not changed
between 2017 and 2018
3. Due to the government's initiative to introduce the accumulated pension scheme, TBC Bank’s pension scheme was discontinued on 1st January 2018 and
the employees were reimbursed. As the government's scheme did not come into force until 1st January 2019, there were no pension costs during 2018.
4. The actual number of shares awarded to CEO as part of deferred shares bonus decreased from 93,348 shares in 2017 to 89,421 in 2018. The decrease
shown in the table also reflects the decrease in the share price as well as number of shares
1 Figures calculated as described in Notes 2 and 5 to the single total figure table at 2.1 above
142
TBC BANK annual report and accounts 2018
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
2018 and 31 December 2017. The independent non-executive directors are remunerated based on the number of
committees they serve on and chair.
Director
Mamuka Khazaradze
Badri Japaridze
Nikoloz Enukidze
Nicholas Haag
Eric Rajendra
Stefano Marsaglia2
Stephan Wilcke2
Maria Luisa Cicognani2
Tsira Kemularia2
Fees
US$’000
Taxable
benefits1
US$’000
Total
remuneration
US$’000
950
1,187
800
1,149
166
160
135
135
154
154
95
135
83
118
38
0
33
0
37
29
33
23
0
0
0
0
0
0
0
0
0
0
0
0
0
0
987
1,216
833
1,172
166
160
135
135
154
154
95
135
83
118
38
0
33
0
Year
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
Notes to table:
1. Taxable benefits comprise medical insurance, car, and security allowance.
2. Stefano Marsaglia and Stephan Wilcke resigned from the Board in September 2018 and were replaced by Maria Luisa Cicognani and Tsira Kemularia
respectively.
The table below shows the detailed breakdown of annual fees paid to non-executive director in 2018 and 2017 in relation
to different roles paid from both TBC Bank Group PLC and JSC TBC Bank:
Non-executive director (other than Chairman and Deputy Chairman)
Senior Independent Director
Committee chairmanship
Committee membership
Fees paid in 2018
US$’000
84
20
28
11
Fees paid in 2017
US$’000
84
14
28
11
3. REMUNERATION OF THE TOP MANAGEMENT OF JSC TBC BANK
The table below summarizes the total remuneration earned by the top managers of the JSC TBC Bank for the financial
years ended 31 December 2018 and 31 December 2017, except for the CEO and CFO (as their remuneration information
is disclosed in section 2 of this Report).
Director
Total for the top managers excluding
CEO and CFO
Per Top manager excluding
CEO and CFO (average per 6 members)
Base salary1
US$’000
1,490
1,377
248
229
Deferred
share salary2
US$’000
1,666
2,004
278
334
Taxable
benefits3
US$’000
15
5
2
1
Deferred share
bonus award4
US$’000
5,887
8,147
981
1,358
Total
remuneration
US$’000
9,058
11,533
1,510
1,922
Year5
2018
2017
2018
2017
TBC BANK annual report and accounts 2018
143
REMUNERATION COMMITTEE REPORT CONTINUED
3. REMUNERATION OF THE TOP MANAGEMENT OF JSC TBC BANK CONTINUED
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 2017 were awarded on 9 March 2018 and deferred shares in relation to 2018 were
awarded on 21 March 2019. Deferred share salaries are subject to a condition of continuous employment and malus and clawback provisions. These
conditions are lifted 10% of the award on the first anniversary from the award date, a further 10% on the second anniversary from award date and the
final 80% of the award on the third anniversary from the award date. For the purposes of this table, 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 2018
award has been valued using the closing market value of the shares on 21 March 2019 (GBP16.0 converted into US$ using the cross rate of the official
exchange rates published by the NBG of 2.6816 for GEL/US$ and 3.5499 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. These conditions are lifted as follows: 10% of the award on
the first anniversary from the award date, a further 10% on the second anniversary from the award date and the final 80% of the award on the third
anniversary from the award date. Deferred shares in relation to 2017 were awarded on 9 March 2018 and deferred shares in relation to 2018 were
awarded on 21 March 2019. For the purposes of this table, 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. The 2018 award has been valued using the market
value of the shares on 21 March 2019 (GBP16.0 converted into US$ using the cross rate of the official exchange rates published by the NBG of 2.6816
for GEL/US$ and 3.5499 for GEL/GBP on the same date) and grossed up for directors’ income tax on share awards paid by the Company.
4. PAYMENTS TO PAST DIRECTORS (AUDITED)
There were no payments made to past directors relating to 2018.
5. PAYMENTS FOR LOSS OF OFFICE (AUDITED)
There were no payments made in relation to loss of office in 2018.
6. STATEMENT OF DIRECTORS’ SHAREHOLDINGS AND SHARE INTERESTS (AUDITED)
The application of our remuneration structures naturally results in our executive directors holding a significant number
of shares that are subject to continued employment conditions. In addition, as described in section 10 below, the
Company has implemented a new Minimum Shareholding Requirement for executive directors. Deferred shares paid in
relation to salary and annual bonus are subject to continuous employment and malus and clawback requirements but
are not subject to specific performance conditions.
The following table sets out a summary of each director’s shareholdings and share interests in the Company as at
31 December 2018. Although not a Company requirement, some non-executive directors have chosen to become
shareholders.
Mamuka Khazaradze
Badri Japaridze
Vakhtang Butskhrikidze4
Giorgi Shagidze4
Nikoloz Enukidze
Stephan Wilcke
Notes to table:
Number of shares held not
subject to the continued
employment requirements1
7,343,936
3,669,878
696,124
70,443
10,000
51,075
Number of shares held subject
to the continued employment
requirements2
0
0
294,702
146,145
0
0
Total interests in shares3
7,343,936
3,669,878
990,826
216,588
10,000
51,075
1. This figure includes all shares held which are no longer subject to any conditions or transfer restrictions.
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 interests held directly and indirectly.
144
TBC BANK annual report and accounts 2018
4. 21 March 2019, 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 2018. Mr Butskhrikidze has been granted 107,043 shares and Mr. Shagidze has been granted 55,485 shares. These
shares are subject to three years continued employment and malus and clawback provisions, and fully meet the conditions 21 March 2022 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 2018. As at 2 April 2019, Mr Butskhrikidze held 292,502 shares and Mr. Shagidze held 146,916 shares that were subject to
continued employment conditions.
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 2018, 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.
TBC Bank Total Shareholder Return
FTSE All-Share Total Return Index
FTSE 250 Total Return Index
190%
180%
170%
160%
150%
140%
130%
120%
110%
100%
90%
Aug - 16
Oct - 16
Dec - 16
Feb - 17 Apr - 17
Jun - 17
Aug - 17
Oct - 17
Dec - 17
Feb - 18
Apr - 18
Jun - 18
Aug - 18
Oct - 18
Dec - 18
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
2018
2017
2016
Notes to table:
Single total figure
of remuneration (US$’000)1
Deferred share bonus as a percentage
of maximum opportunity (%)2
3,356
4,084
3,017
85%
88%
85%
1. Total remuneration includes base salary, deferred share salary, deferred share bonus award and taxable benefits as described in the single total figure
table and notes at section 2.1 above.
2. For further details of the deferred share bonus please refer to section 2.2 above.
TBC BANK annual report and accounts 2018
145
REMUNERATION COMMITTEE REPORT CONTINUED
8. RELATIVE IMPORTANCE OF SPEND ON PAY
The following table illustrates the difference in spend on pay for all employees of the Group and the difference in dividend
paid to the shareholders between 2018 and 2017. Dividends paid to shareholders in 2018 for the year ended 31 December
2017 increased by 16% as compared to dividends paid to shareholders in 2017 for the year ended 31 December 2016.
Total spend on pay1 (US$’000)
Dividends paid to shareholders2 (US$’000)
Notes to table:
Year ended
31 December
2018
86,942
36,156
Year ended
31 December
2017 % change
80,861
31,110
8%
16%
1. Total spend on pay includes total staff costs per Group’s IFRS consolidated financial statements and is converted into US$ using average US$/GEL
exchange rate for 2018 and 2017 respectively.
2. Dividend paid to shareholders are gross amounts converted into US$ using official exchange rate prevailing at the date of payment of the dividends,
GEL 2.4579 and GEL 2.4047 for 2018 and 2017 respectively. The dividend amount includes both cash and scrip dividend.
9. POLICY IMPLEMENTATION IN 2019
Remuneration policy for executive directors
The new Remuneration Policy was developed with support of external consultants and KPMG and was approved by
the shareholders on 21 May 2018 at the 2018 Annual General Meeting (AGM). The Policy is applicable starting from 1
January 2019 until the end of 2021
Non-executive director compensation
See further details below on changes to the non-executive directors’ compensation. These are in line with the policy
approved by shareholders at the 2017 AGM.
Statement of implementation
In 2019, the Remuneration Committee intends to continue to provide remuneration in accordance with the policy tables
set forth below as approved by shareholders at the 2018 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 2018 AGM. New
targets will be set for the deferred share bonuses. The appropriate level of awards to be granted in 2019 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 2018 AGM.
146
TBC BANK annual report and accounts 2018
From January 2019 the following will apply:
Executive directors
Base salary
(cash and deferred shares)
Annual bonus
The cash and deferred share salaries are set out in the executive directors’ service
contracts. The Remuneration Committee reserves the right to agree changes to the base
salary with the executive directors but no change will exceed the maximum stated in
the policy approved by shareholders at the 2018 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 2019 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 relate to strategic HR, agile transformation, customer
experience and international expansion
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 targets related to international expansion in Uzbekistan
The corresponding weightings1 for 2019 are set as follows:
Financial measures
Non-financial measures
Personal KPIs
Total
CEO
50%
40%
10%
CFO
37%
33%
30%
100%
100%
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 2019 annual report.
Long term incentive plan
(LTIP)
Performance conditions and corresponding weightings for CEO and CFO for 2019
will include:
Non-Executive Directors
Fees
Total shareholder return (TSR) for a period of 3 years (2019-2021)
Average ROE for 3 years (2019-2021)
Loan market share at the end of 2021
KPI weight
40%
40%
20%
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 2019 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 has decided to revise the
compensation for the non-executive directors starting from 4 April 2019. Full details of
the changes will be included in next year’s annual report, but these include:
The Chairman’s compensation will decrease from US$ 950,000 to 450,000
Deputy Chairman’s compensation will decrease from US$ 800,000 to 400,000
This change is to reflect the recent restructuring of the board as the Chairman and
Deputy Chairman have left the Board of JSC TBC Bank but continue as the Chairman
and Deputy Chairman of TBC Bank Group PLC (please see further information on page
68). The compensation of Nikoloz Enukidze, Nicholas Haag, Maria Luisa Cicognani and
Tsira Kemularia is increasing by US$ 8,750, US$ 19,000, US$ 19,000 and US$ 32,875
respectively, to reflect their increased duties.
1 The weightings of financial and non-financial KPIs have been changed slightly compared to 2018 in order to better align them with the refreshed strategy
TBC BANK annual report and accounts 2018
147
REMUNERATION COMMITTEE REPORT CONTINUED
10. DIRECTORS’ REMUNERATION POLICY
This section describes the new Remuneration Policy for executive directors, which came into force on 1 January 2019
and will apply for 3 years until the end of 2021. This Policy was approved on 21 May 2018 at the 2018 AGM meeting.
The full Policy is given in 2017 Annual Report, which is available at our website at www.tbcbankgroup.com.
The summary of the Policy is given in section 10.1.
This year we have made the following amendments to the Policy in relation to shareholding requirements:
Shareholder guidelines
As reported in the 2017 Remuneration Report, the Remuneration Committee has introduced a minimum shareholding
requirement. Executive directors 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
(the “Minimum Shareholding Requirement”). There is no set time during which the Minimum Shareholding Requirement
must be met, but until it is met, executive directors are expected to hold shares acquired under this Policy. Any deferred
shares will count towards the Minimum Shareholding Requirement on a net of tax basis.
Once the Minimum Shareholding Requirement has been met, the executive directors must maintain the Minimum
Shareholding Requirement for the duration of their employment with the Group. Unless otherwise agreed by the
Remuneration Committee, the Minimum Shareholding Requirement will also apply for two years post employment at a
level equal to the lower of:
50% of the Minimum Shareholding Requirement immediately prior to departure; or
the Executive Director’s actual shareholding on departure.
Deferred shares paid in relation to salary and annual bonus and any vested awards from the LTIP shall count towards
the Minimum Shareholding Requirement. Unvested awards from the LTIP will not be counted.
Both of the Executive Directors have met the Minimum Shareholding Requirement.
Committee discretion
The Policy gives discretion to the Remuneration Committee to override the formulaic outcomes of the performance
assessment in relation to annual bonus and LTIP.
10.1 Summary of Remuneration policy for Chief Executive Director and Chief Financial Director
Approved by the shareholders on 21 May 2018 at the 2018 Annual General Meeting (AGM). The Policy is applicable
starting from 1 January 2019 until the end of 2021.
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TBC BANK annual report and accounts 2018
Performance
Measures
Not
performance
based.
Component
Fixed Pay
Base Salary
– in the
form of
cash and
deferred
shares
Purpose and Link to
Strategy of the Group
Operation
Maximum Opportunity
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.
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 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.
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
TBC BANK annual report and accounts 2018
149
REMUNERATION COMMITTEE REPORT CONTINUED
10. DIRECTORS’ REMUNERATION POLICY CONTINUED
Component
Variable pay
Annual
bonus in
the form
of deferred
shares
Purpose and Link to
Strategy of the Group
Operation
Maximum Opportunity
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.
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.
KPIs are set by the Remuneration
Committee at the beginning of
each year in relation to that year
(see more detail at 10.3(b) of the
full Remuneration Policy). 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).
Performance
Measures
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.
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
2 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
150
TBC BANK annual report and accounts 2018
Component
Long Term
Incentive Plan
(LTIP)
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.
Maximum Opportunity
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 tax1 and other
employee-related
taxes related to the
award, however, taxes
are included in the
maximum amounts.
Purpose and Link to
Strategy of the Group
To provide a strong
motivational tool
to achieve long-
term performance
conditions and to
provide rewards to
the extent those
performance
conditions are
achieved2.
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.
Operation
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 at 10.3(c) of the full
Remuneration Policy). 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 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.
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.
TBC BANK annual report and accounts 2018
151
REMUNERATION COMMITTEE REPORT CONTINUED
10. DIRECTORS’ REMUNERATION POLICY CONTINUED
Component
Pension
Benefits
Purpose and Link to
Strategy of the Group
To assist our
employees in
providing for their
retirement and to
maintain a market
competitive benefits
package to attract
and retain executive
directors
Benefits are in
line with Georgian
market practice and
are designed to be
sufficient to attract
and retain high
calibre talent.
Operation
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 ups1, directors’
and officers’ liability insurance, a car
service, personal security arrangements
and assistance with filling out tax returns,
where required.
Executive directors are reimbursed for
reasonable business expenses incurred
in the course of carrying out duties under
their service contracts, on provision of valid
receipts.
A tax equalisation payment may be paid
to an executive director if any part of his
remuneration becomes subject to double
taxation.
Maximum Opportunity
The maximum
employer contribution
will not exceed 3% of
annual salary.
Performance
Measures
Not performance
based.
Not performance
based.
The policy is framed
by the nature of
the benefits that
the Remuneration
Committee is willing
to provide to executive
directors. The
maximum amount
payable depends on
the cost of providing
such benefits to
an employee in the
location at which the
executive director is
based.
Shareholders should
note that the cost of
providing comparable
benefits in different
jurisdictions may vary
widely.
Disclosure of
amounts paid will
be provided in the
implementation
report and will be
explained where the
cost of benefits is
significant.
1 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
152
TBC BANK annual report and accounts 2018
11. REMUNERATION THROUGHOUT THE GROUP
Remuneration of other top management members of JSC TBC Bank is similar to that of the executive members of the
Company. Other senior and middle management across the Group including material risk takers as well as some other
key employees receive their entire salary in cash and are also eligible to cash and share bonus compensation. The share
bonuses granted are subject to 2-3 years of continued employment condition and holding period gradually lifting the
conditions.
All other employees within the Group receive cash salaries and may be eligible to receive cash bonuses. Executive
director and employee pay is studied and determined through the use of appropriate market data usually with input from
a compensation consultant.
All employees receive a competitive benefit package in line with Georgian market practice and are entitled to participate
in the pension scheme on a voluntary basis.
12. POLICY TABLE: NON-EXECUTIVE DIRECTORS
In the same way as the executives, the non-executive directors receive their compensation both from the Company
and the main subsidiary, JSC TBC Bank, proportionate to the time spent working on the respective entity’s Boards and
committees. Starting from 1 January 2018 until the end of 2021, the compensation for the non-executive directors is as
follows:
Component
Fees
Purpose and
Link to Strategy
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.
Maximum Opportunity
The maximum annual
fees that may be paid
to the chairman and
deputy chairman
are US$950,000
and US$800,000
respectively.
The maximum annual
fee paid to the Senior
Independent Director
is US$175,000.
The maximum annual
fee paid for acting
as a non-executive
director (other than
for chairman, deputy
chairman and Senior
Independent Director)
is US$165,000.
Operation
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 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.
TBC BANK annual report and accounts 2018
153
REMUNERATION COMMITTEE REPORT CONTINUED
12. POLICY TABLE: NON-EXECUTIVE DIRECTORS CONTINUED
Component
Expenses
Purpose and
Link to Strategy
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.
Operation
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.
Maximum Opportunity
The policy is framed
by the nature of
the expenses that
the Remuneration
Committee is willing
to provide to non-
executive directors.
The maximum
amount payable
depends on the cost
of providing such
expenses in the
location at which
the non-executive
director is based.
Shareholders should
note that the cost of
providing comparable
expenses in different
jurisdictions may vary
widely.
12.1 Non-executive directors
Since non-executive directors are not employees, they do not receive compensation or benefits reserved only for
employees such as company paid/subsidised insurance or paid holiday. The non-executive directors are not eligible
for performance-based share awards. They do not currently receive pension or other equivalent benefits except for
the chairman and deputy chairman who are compensated for and provided with car service expenses. Awards with
performance conditions are not part of the non-executive remuneration package as we do not wish the non-executive
directors to be driven by short-term Group performance so as to maintain their independence as advisors to the Group.
The non-executive directors are entitled to broad indemnification by the Group pursuant to a deed of indemnity entered
into with each director and are covered by the Group’s Directors & Officers’ Liability Insurance Policy.
13. ILLUSTRATION OF APPLICATION OF THE REMUNERATION POLICY
The following graphs illustrate the levels of remuneration that each executive director could earn in 2019 under the new Policy.
Chief Executive Officer
Chief Financial Officer
$963,994
$2,227,899
$3,070,899
$3,819,994
$482,004
$1,107,633
$1,524,720
$1,910,004
53%
47%
31%
26%
23%
20%
37%
41%
31%
17%
15%
34%
13%
12%
53%
47%
31%
26%
23%
20%
37%
41%
31%
17%
15%
34%
13%
12%
Below
award
threshold
Minimum
award
Target
award
Maximum
award
Below
award
threshold
Minimum
award
Target
award
Maximum
award
Cash Salary
Deferred Shares Salary
Deferred Shares Bonus
LTIP
154
TBC BANK annual report and accounts 2018
Notes to table:
1. Directors’ compensation consists of cash salary, deferred share salary, annual bonus and LTIP. Cash salary and deferred share salary are the same in
each performance scenario. No pension contributions have been included in the performance scenarios as we assume no pension contributions will
be paid.
2. The “below bonus threshold” chart reflects a scenario where KPI achievement falls below 60% and so no bonuses would be awarded.
3.
If KPIs are fulfilled at minimum, on target or maximum ranges the evaluation and subsequent bonus award will be 60%, 100% and 135-137%
respectively.
The maximum remuneration receivable for CEO and CFO in case of share price appreciation of 50% during the relevant
performance period under LTIP would be US$ 2,331,360 and US$ 1,165,680 respectively. The calculation is based on the
number of share granted to CEO and CFO under LTIP of 104,172 and 52,086 respectively using the average share price
(GBP 14.92) during the 10-day period after the preliminary annual results of 2018 were issued on 21 February 2019.
14. SERVICE CONTRACTS
The service contracts of Vakhtang Butskhrikidze and Giorgi Shagidze who serve as CEO and CFO respectively and
the letters of appointment of each non-executive director are kept at TBC Bank head office a the following address: 7
Marjanishvili street, Tbilisi, 0102, Georgia.
15. 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.
16. MINOR CHANGES
The Remuneration Committee may make, without the need for shareholder approval, minor amendments to the Policy
for regulatory, exchange control, tax or administrative purposes or to take account of changes in legislation.
TBC BANK annual report and accounts 2018
155
AUDIT COMMITTEE REPORT
CHAIRMAN’S LETTER
Dear shareholders,
I am pleased to present the Audit Committee report
for the Group.
Nicholas Haag
Chairman of the Audit Committee
2 April 2019
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 97%
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”.
156
TBC BANK annual report and accounts 2018
COORDINATION OF THE AUDIT COMMITTEE
The Audit Committee remains primarily responsible for
overseeing the financial reporting process, including the
appointment of external auditors and the implementation
of accounting policies and practices. This serves to
ensure the integrity, accuracy and full disclosure of the
Group’s financial condition and assists the Board with its
assessment of the ‘going concern’ status of the Company
and the provision of its Viability Statement. The Audit
Committee has given the Board of the Company our view
that it is appropriate to adopt the going concern basis of
accounting in the preparation of our financial statements.
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 50 to 69 for
a description of the Group’s risk management framework
and pages 133 to 135 for the RECC’s report.
The Audit Committee reviews relevant content in the Annual
Report, interim statements and other finance-related
information and press releases. The Audit Committee
also supervises the Bank’s systems of internal control with
regard to its financial reporting and certain operational
risks, such as supporting internal investigations into any
identified control weaknesses or fraud-related events. The
Audit Committee evaluates Management’s competence in
all these areas, in order to ensure that Management takes
any necessary corrective steps in a timely manner, so that
any vulnerabilities are addressed.
During the course of 2018, the Committee continued to
coordinate closely with other board committees. With
regard to the Risk Committee, we jointly reviewed the
areas of overlap between the two committees (particularly
in areas such as operational risk, credit risk modelling and
assessment of the Bank’s culture in relation to risk and
ethics) in order to avoid any duplication of functions and
to ensure the seamless and comprehensive oversight of
these vital areas. In a similar manner, the Audit Committee
worked closely with the Remuneration Committee to
confirm that there are no improper incentives which
could weaken controls or may lead to management bias,
for example in areas such as the provision of loans and
valuations.
The lines of communication with Management remain
open with constructive, candid and continual dialogue
taking place throughout the year. The Audit Committee
draws on sufficient administrative resources, benefiting
in particular in 2018 from the strengthening of the Board
Secretariat and Company Secretary functions. The Audit
Committee is satisfied that it receives sufficient, reliable
and timely information from Management and from both
our internal and external Auditors.
COMMITTEE COMPOSITION,
COMPETENCE AND INDEPENDENCE
As of 2 April 2019, the Audit Committee of the Company
comprises four non-executive directors. In September
2018 we welcomed two new Board members onto the Audit
Committee, Maria Luisa Cicognani and Tsira Kemularia
who now join Nikoloz Enukidze and Nicholas Haag. Maria
and Tsira bring extensive prior experience and knowledge,
obtained at major international institutions, to the Audit
Committee. Tsira has particular expertise in the fields of
treasury and internal control. Maria Luisa brings with her
extensive senior listed company experience at chairperson
level both from within EU and emerging market banks. I
wish to express my thanks to retiring Committee members,
Stephan Wilcke, Stefano Marsaglia and Eric Rajendra for
their past contribution to our team.
All non-executive directors have been deemed as
independent under the Code, which applies to companies
listed on the premium segment of the London Stock
Exchange. In addition, members of the Audit Committee
continue to satisfy the director independence criteria, as
defined by the Georgian Corporate Governance Code for
Commercial Banks. We are confident that all members
continue to exercise fully independent judgement in all
matters related to the Audit Committee’s functions.
All members of the Audit Committee (see biographies
on pages 120-124) are financially literate and possess a
detailed understanding of the financial services sector, with
backgrounds primarily in the fields of banking (both EU and
emerging and frontier markets) across several continents.
With the addition of Tsira Kemularia, the Audit Committee
will also now benefit from the presence of a member who
possesses experience with a major global oil corporation.
This will serve to broaden the range of perspectives the
Audit Committee has to draw upon. The majority of our
members have served on, or acted as chair of, the audit
and risk committees of other comparable institutions. This
has given them the commercial and financial experience
required to guide and challenge management and both our
internal and external auditors.
The Board has confirmed its belief that the Audit Committee
has the recent and relevant expertise to operate effectively
and recognises that it draws upon expert external
resources, as and when required. Only one member of
the Committee has a substantially full time executive role
in another organisation. All other members devote their
time to other boards of a supervisory nature and ensure
that they have sufficient time to dedicate themselves to
their responsibilities with the Company. Appropriate
training is available to members of the Audit Committee.
Recent examples of such training have included updates
by external specialists on pending new accounting
interpretation of recently-
regulations, the evolving
introduced accounting standards (IFRS9, for example) and
relevant developments in corporate governance (the 2018
updates to UK Corporate Governance Code, for example).
We continue to review, in conjunction with our Corporate
Governance and Nominations Committee, suitable
medium-term succession plans for Audit Committee
membership. Our priority, as ever, is to select prospective
members with sufficient technical experience, for example
in the audit industry.
ATTENDANCE AT COMMITTEE
The attendance level at Audit Committee meetings for
the Company during 2018 was 98%. The majority of the
meetings took place in London and were either physical or
telephonic meetings. With regard to telephonic meetings,
the majority of the attendees participated from locations
within the UK, where 4 of the 5 members were resident.
Attendance at the Bank’s Audit Committee meetings
was also 98%. A higher proportion of these meetings
were held in Georgia, as the Committee remains keen
to maintain a suitable level of interaction with a range
of on-the-ground staff, particularly those operating in
finance and control roles. Therefore, we believe that this
is most practically undertaken by hosting meetings in the
Bank’s home country. The attendances of members at the
Audit Committee meetings during 2018 are set out in the
Directors’ Governance statement on page 111.
COMMITTEE MEETING FORMAT
AND FREQUENCY OF MEETINGS
In the course of 2018 there were 9 formal meetings of the
Audit Committee of the Company and 11 for the Bank’s
Audit Committee. The minutes of each of these meetings
were recorded. In addition, committee members remain
in communication with one another by telephone or email
regarding various matters relating to Audit Committee
work, on an almost weekly basis.
At each formal meeting, the Audit Committee met with
senior members of Management, and Internal and External
Audit. We have in place a standing invitation for the CEO,
CFO and CRO to attend our Audit Committee meetings.
Our External Auditors, PwC, are invited to participate in
and contribute to meetings on all topics where there is
no direct conflict of interest (for example when discussing
their performance,
the auditors,
reappointment of
independence or fees).
TBC BANK annual report and accounts 2018
157
AUDIT COMMITTEE REPORT CONTINUED
The Audit Committee of the Company met at least twice
either during or around each quarter of 2018, broadly in
accordance with our quarterly financial reporting cycle. At
least one such quarterly meeting coincided with the timing of
Board meetings of the Company, with the Audit Committee
meeting taking place prior to that of the Board. This format
enabled us to formally present our summary findings to
the Board. These reports, in certain instances, highlighted
scope for process improvement and invited responses from
Management. This led to the implementation of follow-up
actions, which were formally minuted by the Board.
AUDIT COMMITTEE EFFECTIVENESS
The Company’s Audit Committee’s Terms of Reference were
reviewed and approved with no changes by the Committee
on 28 December 2018. The document is available on TBC’s
website at www.tbcbankgroup.com. The Audit Committee
Charter of the Bank was reviewed and approved by the
Audit Committee of the Bank in the same month.
In March, the Company’s Audit Committee conducted an
annual Effectiveness Self-Review using an extensive and
customised questionnaire, drawing on an international
best practice questionnaire devised by an external firm.
In addition, the entire Board included in its wider Self-
Assessment certain questions relating to the efficacy of
the Audit Committee, amongst other committees. 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
the Charter. Furthermore, a wider external review of Board
effectiveness was conducted by a London-based specialist
firm during the year and made certain recommendations
in relation to possible incremental improvements (mostly
concerning the style and structure of meetings) for the Audit
Committee which are being progressively implemented.
QUALITY OF FINANCIAL STATEMENTS
The Audit Committee is conscious that the Group is a
premium listed company on the London Stock Exchange
and the largest financial services company in the Georgian
market, which entails both legal and social responsibilities
to shareholders and, importantly, other stakeholders also.
Our business is overwhelmingly tied to the performance
of the Georgian economy. In 2018, Georgia delivered a
strong real GDP growth of 4.8%1, an improvement on
the prior year’s already very healthy growth trajectory,
with some modest slowing in the second half of the year.
Momentum in the Georgian economy is expected to be
restored in 2019, with the National Bank of Georgia and
international organisations estimating GDP growth in the
range of 4.5-5.0%. Nevertheless, the regional picture with
which the economy of Georgia is interconnected and on
which it is partially dependent remains somewhat volatile,
1 Based on initial estimates by Geostat
158
TBC BANK annual report and accounts 2018
with certain regional economies making progress, whilst
others remain distressed. The risk of a sudden downturn
will always be present, due to changing local, regional or
global dynamics. As a result the Audit Committee, in a
similar vein as the RECC, closely tracks relevant economic
data for ‘warning signs’.
We are equally vigilant in respect of any evidence of
complacency, which could in turn lead to a risk of slippage
in the high standards we both require and expect of
ourselves. The 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.
The Committee remains as focused as ever on ensuring the
integrity of our financial releases and internal records. The
Committee pre-vets all audited and non-audited financial
releases, before making recommendations to the Board
that they approve these. The Committee holds formal
discussions with 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 communicate with the External Auditor telephonically
and in writing before approving releases prepared on an
annual or semiannual basis. We also monitor the financial
data published on the Company’s website to ensure its
accuracy and clarity.
We have noted the FRC’s comments regarding the wider
trend for lower level errors that may be creeping into
companies’ financial statements and detracting from the
integrity of their report and accounts. We observe that this
has not been the experience for either the Company or the
Bank.
The Committee is conscious of the recommendations of
European authorities and the FRC as regards improving
the reporting of alternate performance measures
(“APMs”). We track carefully what APMs the Company uses
in its financial reporting and apply guidelines in this regard
from the European Securities and Markets Authority
(ESMA). The Company discloses a limited number of
APMs, such as adjusted cost to income ratio, risk-adjusted
net interest margins and various other return metrics. We
consider that most of these (for example return metrics
pre- as well as post-provision) are in common usage, are
consistently used in context and are 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. Several APMs that were previously
used in relation to various acquisitions (notably Bank
Republic) were inherently time-limited and have been
discontinued.
EXTERNAL AUDIT TEAM,
COORDINATION AND PLANNING
The Audit Committee collectively believes that PwC made
reliable and effective judgements at all stages, identified
and focused on areas of greatest risk and convincingly
articulated their testing strategy in 2018. We are satisfied
that the markets and models to which valuations are
marked have liquidity and transaction profiles that are
adequate and sufficiently robust. We believe that all
off balance sheet and contingent liabilities have been
sufficiently identified and disclosed in sufficient detail.
The Committee makes recommendations on
the
appointment (or potentially removal) and compensation of
External Auditors and seeks 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 planning and progress reports.
The Audit Committee of the Company held multiple audit
planning meetings with PwC in 2018 both in London and
in Tbilisi, commencing this process in the middle of the
year. The Audit Committee had the opportunity (without
involvement of Management) to highlight areas it wished
the External Auditor to focus on, flagging relevant concerns
and trends and discussing the appropriate audit response.
As noted, the 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 Committee, had a number
of more informal (i.e. not minuted) meetings with PwC at
frequent intervals throughout the year. These meetings
combined mutual audit planning/execution updates with
some element of briefing or training to Audit Committee
members on the latest developments in accounting
regulations and corporate governance. PwC often shared
with us experiences of best practice across their full
international audit spectrum and this provided both parties
with the opportunity for open dialogue. The Chairman and
majority of Committee members are based in the UK and
enjoy ready access to the audit team there.
Given the holding company structure of the Group, both the
London and Tbilisi practices of PwC are fully involved in the
external audit process for the Group. In the opinion of the
Audit Committee, this ‘double coverage’ works well and
provides some extra reassurance to us in terms of scrutiny.
The group engagement partner, Jeremy Foster is fully
aware of his overall responsibility and ultimate sign-off
duties, and the cooperation and communication between
the two practices seems to be well coordinated with a
common audit methodology and drawing as required on
wider international subject matter experts of the firm. The
London team coordinates the entire audit for the Company
with audit instructions issued by London and systems in
place for the monitoring of PwC’s Tbilisi’s work by PwC
London, both by way of in-person visits and remotely. Both
Jeremy and Agnieszka Accordi (see below) have made
multiple trips to Tbilisi over the course of 2018.
In our view, Jeremy has exhibited not only strong technical
skills but also a good understanding of our business,
the country and sector and a willingness to challenge
the Audit Committee and Management. In 2017 we
welcomed Agnieszka as the new PwC audit partner for
the Bank’s audit and she has continued to develop a deep
understanding of the Bank and its audit issues, as well
as bringing to us the benefit of experience from other
geographic markets. Other members of the audit team in
both London and Tbilisi remain very largely unchanged, to
ensure good audit team continuity knowledge.
Jeremy Foster (appointed as lead engagement partner
since 2016), is planning to retire from PwC during 2019 and
we have agreed with PwC that his role from 5 April 2019
will be taken by another UK-based senior audit partner,
Allan McGrath. Allan has deep experience in auditing UK-
registered financial services companies at FTSE350 level.
PwC are taking steps to manage a seamless transition
and as a Committee we look forward to working with Allan
with whom we have already held a number of introductory
meetings. The Committee wishes to thank Jeremy for his
work with the Company since it created its PLC holding
company structure and the locus of Group accounting
engagement shifted more to the UK.
The audit coverage and the judgements about underlying
audit materiality have been explained to us satisfactorily.
We agreed with PwC an overall consolidated Group
audit materiality sum of GEL 25.5m and a slightly lower
number GEL 24.2m for the Bank, a marginal increase on
2017 reflecting the further expansion in Group size and
profitability. We continue to believe that pre-tax profitability
5% is a suitable and meaningful materiality basis for the
Company given the relatively stable performance of our
profitability metric over the years and have agreed that
materiality for the Bank should be 95% of that for the
Group, the Bank representing around 97% in total assets
and around 96% in profitability.
EXTERNAL AUDIT AND AUDIT COMMITTEE
AREAS OF FOCUS
We have reviewed, in conjunction with in-house Finance,
Risk and Internal Audit teams, all the data and narrative
comment and concluded that the Annual Report and
full year financial statements taken as a whole give a
complete, true, fair, balanced and understandable view of
the Company’s financial position and are consistent with
the Committee’s understanding of the facts and provide
the information necessary for shareholders and other
stakeholders to assess the financial condition of the
Group. There have been no significant or enduring points
of difference of opinion between the Committee and PwC
or between the Committee and the Board or Management.
TBC BANK annual report and accounts 2018
159
AUDIT COMMITTEE REPORT CONTINUED
Provisions and impairments
We have, as always, assessed the reasonableness and
appropriateness of all critical accounting estimates and
judgements in applying accounting policies and have been
clear with regard to the differences between what constitutes
such estimates and judgements. In the numerous planning
meetings held between the Audit Committee and PwC,
there were a number of areas of focus. Key accounting
judgements and significant estimates were identified and
have been addressed with appropriate resources, including
the necessary specialist involvement. The Company has
enhanced its financial reporting to comply with new corporate
reporting requirements. We agreed with PwC that the two
most significant audit-related risks were management
overriding of controls and the provisions for impairment
of loans and guarantees. Other risks in terms of areas of
judgement that we asked PwC to focus on included accruals
for litigation and claims, collateral values supporting our
loan book, net realisable value of repossessed collateral, fair
value of securities and derivatives, share based payments
and impairment of goodwill.
In terms of loan provisions, PwC has worked independently,
reporting to the Audit Committee, 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’ lists and confirming 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 generally conservative compared to observed reality.
FY 2018 as the first full year adopting IFRS 9
Following the formal adoption of the standard from the
beginning of 2018, IFRS 9 was clearly an audit priority for
the Audit Committee this year. As noted, this was almost
by definition an area of “elevated risk” in the audit given
that the implications for the Bank are significant, as is
the case for most European banks, due to the increased
number of management financial reporting judgments
and surrounding disclosure obligations. We asked PwC
to conduct a substantive test of our IFRS 9 methodologies
including a critical assessment of management experts’
backtesting and model effectiveness in predicting expected
credit losses and challenging overlays and post-model
adjustments. Assumptions for determining values have
been scrutinised and challenged by us. It was a reassurance
that PwC concluded that the Bank’s IFRS 9 models are
not significantly sensitive to probability-weighted forward
looking information. Clearly there are areas of IFRS 9,
including forward-looking economic assumptions, which
still remain unobservable or judgemental and cannot be
conclusively proven by back-testing but we believe that PwC
have adequately responded to this risk in terms of assessing
their reliance on our controls and calibrating their audit
accordingly.
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
ninety days past due (and not yet classified as impaired)
to calibrate any deterioration of credit quality that may
feed through into impairments. We have not observed
any trend deterioration other than in the higher-yielding
non-mortgage consumer loan portfolio which was fully
anticipated as part of the lending business model.
Evidently, 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 again in 2018, even though it was to a lesser
extent than during previous years, partly due to seasonal
factors. However depreciation against the US dollar over
the course of the year was just 3.3%. The Committee in
reviewing provisioning levels 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 our loan book have proven reassuringly cautious on a
back-tested basis. We note that the welcome “larization”
policy of the Georgian government has and will continue
to diminish the credit and financial reporting risk arising.
FY 2018 as the first year fully adopting IFRS 15
In addition to IFRS 9, the Audit Committee has been focused
on the correct adoption of and transition towards certain
new accounting standards. The new IFRS 15 standard
(effective from January 2018) has replaced existing IFRS
revenue recognition guidance. This change resulted in no
material impact, since there were no material changes
to the revenue recognition process of applicable revenue
streams, as the Group had already been recognizing
revenue over period of time, in line with the fulfilment of
the respective performance obligation.
Implementation of IFRS 16 as of 1/1/2019
IFRS 16 sets out the principles for the recognition,
measurement, presentation and disclosure of leases and
became effective as of January 2019. IFRS 16 will change
the reporting standard of leasing transactions for lessees,
eliminating the classification of leases as either operating
or finance leases as required by IAS17 and introducing
a single accounting model. We have finalised an impact
assessment and the Group will recognise a ‘right of use’
asset against a corresponding lease liability on 1 January
2019. The Committee discussed this matter with the
CFO and with PwC and is satisfied that this represents a
suitable implementation of the new standard.
Management’s ability to override controls
In terms of the significant risk of management override
of controls, we note that this is a priority risk factor on all
audit engagements, especially in a banking context, since
management is responsible for the design and operation
160
TBC BANK annual report and accounts 2018
of systems to prevent and detect fraud and thus in a unique
position to manipulate accounting records. In response
PwC conducted required testing of controls backed up by
substantive testing of specific items.
In 2018, the Bank conducted external tax audits of various
subsidiaries in respect of the 2017 tax year. The Audit
Committee also supervised an internal review of the
organisation of tax workstreams in the Bank, including tax
strategy, tax risk and transfer pricing policy.
to
incentivise
in tax regulation.
Deferred tax
Another focus area of the Audit Committee has been
the treatment of deferred tax balances under Georgian
In 2016, the Georgian
changes
government enacted changes
the
reinvestment of corporate profits. The new code will
impact the recognition and measurement principles of the
Group’s income tax and also affects the Group’s deferred
income tax assets/liabilities. This law was due to come into
effect for the banking sector from January 2019 but a later
amendment postponed tax relief for reinvested profit from
January 2019 to January 2023 for financial institutions.
This amendment has resulted in a GEL17.4M expense on
the profit and loss statement and a GEL 5.1M reduction in
equity in 2018. However, when enacted this potentially tax-
free reinvestment of future profits, assuming the same or
similar dividend payout, will nonetheless have a positive
effect on lowering the Group’s future effective tax rate by
several percentage points, beginning in 2023.
National Bank of Georgia Investigation
The Audit Committee was actively involved in the review and
response to the recent inspection by the NBG and related
actions by the Georgian Office of Public Prosecution of
certain transactions which took place in 2007 and 2008.
As independent directors, we have taken all appropriate
legal advice with regard to our responsibilities and actions
in this scenario. The Audit Committee has worked closely
with advisors, directors and the governance authorities in
the Bank in order to reach informed conclusions. Further
details of the inspection are outlined on page 68.
EXTERNAL AUDIT QUALITY, TENDER
ASSESSMENT AND REAPPOINTMENT
As noted earlier, the Audit Committee is responsible
for the assessment of the performance, objectivity and
independence of the External Auditor and the delivery of a
quality audit. Each year the Audit Committee is required to
consider the 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. This consideration has gained our
focus since UK implementation of the EU Audit Regulations
for Public Interest Entities. Given the incorporation of the
Company and associated premium listing on the London
Stock Exchange in 2016, 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 that year, obviating
any requirement for a mandatory audit tender in the
foreseeable future.
Nevertheless, PwC has been the Group’s and the
Company’s external auditor since 2008 and 2016
respectively. Therefore, the Committee held extensive
discussions during the year on the merits and demerits of
putting the Company’s audit out for tender. Consequently
the Audit Committee, reporting to the Board, embarked
on a series of discussions during the year with three other
major international accounting firms and conducted a
benchmarking exercise in respect of the potential appetite,
skillset and likely fees proposed by other firms were
they to take over our audit. We concluded that a superior
offering at more competitive rates was not yet on offer. In
particular, we regret that more ‘Big Four’ audit firms are not
yet adequately resourced in the Georgian market, although
we do observe an encouraging trend in this direction. The
Audit Committee carried out a formal External Auditor
Assessment Review in late-2018, which confirmed our
view that PwC continue to perform satisfactorily.
In addition we held a series of relationship meetings
with PwC in both London and Tbilisi to discuss potential
improvements in terms of their commitment to the Group
especially of resources from their wide international
network of subject matter experts as well as their fee
charging metrics. The Audit Committee collectively
concluded, with the concurrence of the Board, that we
had reached a satisfactory understanding with PwC. We
also discussed and agreed that the combination of a new
lead engagement partner in London for the Company’s
audit and a relatively new lead partner for the Bank’s audit
would give us sufficient assurance over ‘fresh pairs of
eyes’ and reduce any risk of over-familiarity. We will review
again the case for and against a formal audit tender during
2019/2020 and will make a decision at that time based on
the Board’s continuing satisfaction with the service and
value offered by our incumbent auditor. In the meantime,
we will take an even more sceptical view of allowing PwC
to undertake any non-audit work that is not inherently tied
to its role as our external auditor.
We have discussed with PwC the investigation by the
National Bank of Georgia into events of 2007/8, and agreed
certain follow up actions. PwC confirm to us that they have
undertaken additional audit procedures, which confirm
their original audit risk assessment related to internal
controls and related party transactions. On this basis, the
Committee and PwC are both satisfied that there is no
further evidence to suggest similar transactions that would
affect the audit opinion. Given the above considerations, it is
our belief that the Company has complied for the financial
year under review 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.
TBC BANK annual report and accounts 2018
161
AUDIT COMMITTEE REPORT CONTINUED
EXTERNAL AUDITOR FEES, INDEPENDENCE
AND PROVISION OF NON-AUDIT SERVICES
PwC provide the financial audit both for the Company and
the Bank. In 2018 fees to PwC for total contracted audit-
related work for the Group totalled approximately (using
year end exchange rates) US$771,200 net of taxes of which
nearly 28% was for the Company’s audit and the rest for
the Bank’s. For our 2019 audit, subject to confirmation
and shareholders’ approval of their reappointment, we
continue to discuss with PwC the audit fees and additional
resource commitment from them.
As a committee, we are following closely the extensive
debate and multiple commissioned official reports
concerning UK audit quality, competition and regulations.
We await the outcome of these studies and also any
regulatory impact of Brexit given potential changes to EU
rules in relation to audit. In the meantime all four major UK
audit firms have announced that they broadly support a ban
(most likely from 2020) on UK auditors selling consultancy
services to their audit clients.
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 an
immediate ‘by product’ of the audit process. Essentially,
all such engagements, without exception or derogation,
are first recommended by the CFO and must be approved
in advance by the Audit Committee and we will only use
PwC for non-audit (and of course non-prohibited) services
where there is either a clear synergy with their audit role or
where they offer superior competence or materially better
commercial terms. We have a system in place for precisely
tracking procurement and tendering for all non-audit
fees however small. As noted, we have already agreed to
minimise all non-audit work contracted with our External
Auditor.
In terms of non-audit services (NAS), in 2018 PwC were
engaged only for the certification of financial covenants
and the fees for NAS amounted to a negligible sum, less
than $10,000 and less than 1% of audit services in 2017 and
2018 . Total spend with all non-PwC audit firms amounted
to approximately $0.5M (excluding taxes) of which part
related to audit of various small entities within TBC Group
and most was for consultancy-type projects. The Company
made an effort to broaden its relevant service providers
beyond the ‘Big Four’ and we paid some $0.1M to smaller
international accountancy firms. The largest single non-
audit spend item was paid for due diligence in relation
to Nikoil Bank, the Azeri firm with which TBC Kredit is
merging in that country, and other significant items related
to tax audits and backtesting of our IFRS9 models, other
IFRS automation projects, budgeting and profitability
automation process as well as valuation of real estate as
162
TBC BANK annual report and accounts 2018
collateral for our loans. Contracts were shared between 5
different firms beyond PwC. We will continue to work with
other firms not only to preserve auditor independence but
to build relations and user experience with these firms that
may be useful when we come to tender our audit contract
in due course.
(in
in writing
PwC have confirmed
their annual
‘independence letter’) both their independence and that no
‘blacklisted’ prohibited non-audit services were provided
during the course of 2018. Reviewing and ensuring the
continuation of the independence and objectivity of PwC
as our external statutory auditors is an important factor
in fulfilling our governance procedures as an Audit
Committee and is equally monitored by PwC, who have
their own processes for pre-approving any non-audit
services that they may be invited to provide.
We remain satisfied, taking account also of the views of
Internal Audit and Management, that PwC have a robust
process for maintaining independence and monitoring such
compliance in accordance with the FRC Revised Ethical
Standard 2016. In our view, as formally confirmed in a
Committee meeting resolution in December, PwC continue
to offer an independent, professional and cost-effective
service that is capable of detecting irregularities leading
to material misstatements in the financial statements and
have brought to bear an appropriate degree of professional
scepticism. Any potential threats to auditor objectivity,
such as overfamiliarity or self-review are constrained 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 conclusion on
the basis of PwC’s openness to challenge, our perception
of their proper independence from Management and
absence of any material prior year financial restatements.
We are satisfied that the markets and models to which
valuations are marked have liquidity and transaction
profiles that are adequate and sufficiently robust. We
believe that all off balance sheet and contingent liabilities
have been sufficiently identified and disclosed in sufficient
detail.
INTERNAL AUDIT GOVERNANCE
The Committee has continued
its detailed dialogue
with Internal Audit (“IA”) during the year. The Audit
Committee relies heavily on IA 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 Management, IA’s role, as
the “third line of defence”, is to identify potential problems
and recommend ways of improving risk management and
internal controls. The Audit Committee meets regularly
with the Head of IA (Chief Audit Executive (“CAE”)) with
no management present. The CAE always attends the
entirety of our Audit Committee meetings. The Chairman
of the Audit Committee is in at least monthly (and often
weekly) contact with the CAE, who functionally reports
unambiguously to him. Given the overlap of particularly
operational risk issues, the CAE is now invited to attend
also meetings of the Bank’s Risk Committee.
We are satisfied that IA 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 (e.g. specialist software)
necessary for them to function effectively. Recently we
hired a new internal auditor for IT risk who has a strong
background in information security. The Audit Committee
requires all IA executives to attend training including for
relevant international (Certified Internal Auditor) exams.
Recently, the senior team attended training in London at
the Chartered Institute of Internal Auditors. Experienced
internal audit resources are a finite skill pool in Georgia but
we are lucky to have a competent team.
in
IA’s Audit’s Charter was reviewed and approved
December 2018, largely unchanged from the previous
Charter. The Audit Committee routinely reviews IA’s remit,
annual and rolling five year plans, provides feedback on
it and authorises any changes to its scope. We provide
targets for and formal assessment of IA and ensure that it
is effective and suitably embedded in the organisation. The
CAE routinely attends (as observer) monthly Management
Board meetings, makes an extensive quarterly submission
to the Audit Committee and delivers a formal status
report on its work at every Board meeting. 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 management including the
CEO and CFO. The Audit Committee has conducted an
assessment confirming the objectivity and independence
of the CAE and has also concluded that the activities of IA
are undertaken with sufficient arms-length independence
from Management and are free from any interference
in determining the scope of
internal auditing, the
performance of IA’s work and communication of its results.
We believe that IA has not only established its independence
from Management but feels properly empowered and
motivated to do its job. It is respected by Management and
of use to them, its value reflected in the latter’s proactive
requests (with sign off from the Audit Committee) for their
involvement in various projects and investigations.
the Audit Committee conducted an
During 2018
assessment of
the
department is suitably structured and proactively meets
its assurance objectives. We are in compliance with the
vast majority of the best practice targets established by the
function concluding
that
IA’s
Chartered Institute of Internal Auditors in its September
2017 guidance on effective internal audit in the financial
services sector. We supervised the Bank’s first ever
External Quality Assessment of our IA function which was
recently completed by a ‘Big Four’ consultant (following a
tender to multiple candidate firms both within and beyond
the Big Four). We were reassured by the results in terms
of conformity with the Code of Ethics and International
Standards for the Professional Practice of Internal
Auditing. Various recommendation were made and will be
implemented, in particular we noted the recommendation
for more regular high-level alignment between IA and
other assurance providers, notably the chief risk and chief
compliance officers.
IA have delivered their annual assurance statement which
sets out the CAE’s opinion together with the summarised
reports of the internal audit work performed during the
year and a summary of audit performance in comparison
to the plan and an assessment of compliance with auditing
standards.
INTERNAL AUDIT PROJECTS
AND EVOLUTION
IA seeks to complete audits of all the Bank’s key operating
units on a regular recurring basis structured through
a rolling audit plan agreed in advance with the Audit
Committee. Such planned audits continued throughout the
year and 99% of all pre-agreed internal audit assignments
were completed in 2018. We track very closely all
deficiencies both in terms of severity and trend and
scrutinise remediation follow-up with historic analyses
being carefully maintained. Units of the Bank which
showed weaknesses are routinely re-inspected to confirm
if improvements have been made and the Committee
updated on the results of these repeat audits; the re-audit
of TBC Pay in 2018 is a good example of this practice. The
Committee was pleased to note that in 2018 there was a
further improvement in the rate and speed of remediation
of identified IA deficiencies.
The Audit Committee is overseeing a project to move the
Internal Audit function towards a more ‘agile’ approach.
We are seeking to use root cause analysis to develop
more themed reports, prioritising the higher risk areas of
the Bank and responding even more rapidly to emerging
issues, undertaking special deep-dive
investigations
(particularly arising from situations where the Bank may
have heightened vulnerability or has been the victim of
fraud) and ensuring that IA is able to identify systemic
control vulnerabilities and to add more strategic value.
Capitalising on new software tools, we will be shifting the
emphasis from heavily-documented audits in search of
findings to a more outcome-driven approach delivering
‘right-sized’ audits, balancing
value preservation
(assurance) with value creation (advisory). We hope to
apply the power of data to deliver ‘intelligent audit’.
TBC BANK annual report and accounts 2018
163
AUDIT COMMITTEE REPORT CONTINUED
In addition to its regular workload, there were a number
of one-off projects commissioned by the Audit Committee
from IA in 2018. For example, we asked them to re-validate
identification/reporting processes around capturing and
disclosing related party lending and anti-money laundering
procedures within the Group, including the ultimate
destination of approved loans. We also requested IA to
confirm the adherence of the Bank to its approved Risk
tolerances. In addition to these assignments, IA conducted
special audits into a number of important areas some of
them for the first time, notably TBC Insurance (the newly
acquired and fast-expanding subsidiary of the Company
where some process were inherited from the previously-
acquired Kopenbur company) and TBC Leasing and also,
as noted, a follow-up review of TBC Pay to confirm process
improvements had been completed after some frauds
were previously uncovered in this subsidiary. Reviews
were also undertaken into the Bank’s Procurement, HR,
E-Commerce, SWIFT security compliance and Treasury
functions.
Towards the end of the year, we asked IA to undertake its
first formal review of culture and behaviour within the Bank.
As non-executive directors of a company, it can at times be
a challenge to remain cognisant of the prevailing culture at
lower levels of an organisation. It is at these levels of the
organisation that the opportunity, incentives and pressures
for staff to commit dishonest acts or to by-pass critical
procedures and even to rationalise such behaviour, can
arise. Therefore, the Audit Committee considers that such
a cultural audit is essential to monitoring behavioural and
operational risks presented by the Bank’s most valuable
asset, its human capital, and to ensuring that employees
‘live’ the ethical values espoused by the Company. As of
January 2019, the IA includes ethics-related evaluation
within every audit engagement. The Board and Audit
Committee of the Company have agreed that the RECC will
supervise the ongoing monitoring of behavioural standards
as part of its formal ethics remit.
We discussed the international expansion plans of the
Bank (notably in Azerbaijan and Uzbekistan) and, whilst
these remain in formative stages, we are taking steps to
ensure that the high standards within the Bank in Georgia
are replicated across these countries some of which we
are aware have a country-wide raised level of operational
risk. Our CAE is already spending some time overseas
and will act as an observer on the Audit Committee of the
bank that we are in the process, subject to licensing, of
establishing in Uzbekistan. On a wider issue, we are aware
of the strains that international expansion can potentially
place on the controls and finance team of the Group and
are taking steps to ensure that competent resources are in
place to cope with the extra workload involved.
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TBC BANK annual report and accounts 2018
CONTROL ENVIRONMENT
A sound system of
internal control contributes to
safeguarding the best interests of all stakeholders and
the Company’s assets and liabilities. 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. We evaluate Management’s
identification of fraud risk and implementation of anti-
fraud measures and also 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 Company is a high integrity organisation from
top to bottom. The Board as a whole continuously monitors
the Bank’s internal control systems with Audit Committee
and RECC sharing a coordinated focus on controls relating
to financial, compliance, operational resilience, cyber
security and data integrity risks.
The Committee regularly reviews progress in this vital
discipline and alerts the CEO, CFO, divisional heads and
if necessary the full Board where it occasionally sees
intractable problems and insufficient commitment to
continuous process improvement. The Audit Committee
was pleased to note that in 2018 there was a further
improvement (varying somewhat by division) in the rate
and speed of remediation of identified IA deficiencies, and
the Bank is implementing more methods for automating
procedures which reduce the risks of human error or
malpractice and also deliver cost-saving benefits.
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 Committee, there is a
proper system and allocation of responsibilities for day to
day monitoring of financial controls within the Group and no
significant systemic failings or weaknesses. We have also
considered the risk of executive override of controls, and
discussed with PwC their assessment of this mandatory
significant audit risk. We ensure that the remuneration of
senior and middle management is calibrated so that they
are not incentivised to take unhealthy short-term risks to
generate personal rewards.
We note that the only non-standard representations
requested from or provided to PwC in respect of the
“management representation letter” signed by the Group’s
CEO, CFO, CRO and Head of Corporate and Investment
Banking, relate to the NBG inspection. Also additional
representations have been requested by PWC from the
Chairman and deputy Chariman of the board. Together
with the RECC, we have also received regular updates from
the Chief Compliance Officer on the implementation of the
Bank’s compliance programme which we consider to be
sufficiently robust.
We are in the process of instituting a new Internal Audit
scoring system that sets clear thresholds on what level of
‘failure’ is unacceptable and which processes demand zero
failure rates. The CEO’s variable compensation is partly
determined by his score for meeting agreed leadership
metrics which include support for resolution of negative
Internal Audit findings.
Notwithstanding improved controls, the Audit Committee
last year was made aware of and supervised investigations
into a number of fraud cases which in aggregate amounted
to approximately US$850,000 with net losses amounting to
a smaller amount after insurance and recoveries. Most
of these losses related to fraudulent disbursements by
loan officers based on false documentation and controls
have been further tightened in this area. A quarter of
losses arose in TBC Pay. After every noted fraud event
larger than US$20,000, Management conducts a full post-
mortem which is shared with the Audit Committee and
often the full Board (as well as the CEO and divisional head
responsible) in order that, where necessary, any lessons
are learnt, so as to avoid any future repeat events. The
Audit Committee has directly discussed all larger frauds
with senior management and is confident that the CEO and
his deputies have taken full ownership of the issues and
rectified any vulnerabilities arising. Our experience over
the course of 2018 suggested that typically our processes
were watertight but had not been fully followed due to
human error or deliberate malfeasance. On each occasion,
the Audit Committee was promptly notified in accordance
with escalation procedures.
In 2018 the Committee liaised closely with the RECC to
undertake a deep-dive into 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 given some
historic dispersion of responsibilities in this regard.
As a matter of policy, the Audit Committee has sought this
year to prioritise oversight of all the Bank’s subsidiaries
with additional reporting to central functions, whilst not
diminishing the authority of subsidiary executives. We are
rolling out best practice policies universally across the
Group and these are ‘policed’ accordingly by Internal Audit.
In 2016 the Bank’s ‘whistleblowing’ or anonymous hotline
for staff and external entities went live, alerting the Bank
to any potentially unsatisfactory practices relating to
customers, other third party entities and our employees.
Arrangements are
for proportionate and
independent investigation of all such cases and appropriate
follow up actions. The Audit Committee as well as RECC
reviews each reported case on an at least quarterly basis.
Our experience over 2018 has been that many of these
cases have been minor in scale and nature, and typically
related to regular customer complaints (profiled as
in place
whistleblowing events to raise the level of attention) and
breaches of the Group’s behavioural code of conduct or
have involved low-level disclosure of confidential customer
information; few have been vexatious and almost 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.
The Audit Committee works closely with the Remuneration
Committee, where we have a majority of overlapping
members. We are comfortable that the compensation
policies and practices for top executives are appropriate for
maintaining a robust control environment and consistent
with good stewardship. As stated, the CEO’s compensation
is partly linked to a Leadership KPI which includes as one
of its key elements an “Internal Audit Engagement” factor
and since May 2018 the Bank’s branch directors have also
had an operational risk mitigation KRI attached to their
remuneration.
IT, CYBER-SECURITY AND DATA PROTECTION
The Audit Committee has supervised an internal cyber
‘health check’ and ‘gap analysis’ and concluded that, whist
there are areas for improvement (with a plan to address
these), the risk environment is satisfactory and that we
have sufficient prevention, detection and containment
practices in place. In line with the adoption of General
Data Protection Regulation (GDPR) from May 2018, the
Committee working with its Risk Committee counterpart
has taken measures, particularly in relation to its overseas
customers and employees, to ensure that the Bank
complies in full with GDPR. We note that even historically
there was very limited export of the Bank’s data outside its
non-EU operational markets.
The Bank has established some cyber-risk insurance
cover but is fully conscious that this area of insurance is
evolving, only partial in protection and no substitute for
having rigorous data policies in place. We are anticipating
GDPR equivalent laws coming into force in Georgia and are
taking steps to be fully prepared for this. 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 GDPR. Safeguarding of customer
data remains a paramount concern for all of us.
The Group’s Management continuously seeks to raise
cyber-security risk standards within the organisation
requiring almost all employees to pass an IT security
awareness test covering vital vulnerabilities such as
access control.
TBC BANK annual report and accounts 2018
165
AUDIT COMMITTEE REPORT CONTINUED
Following the IT governance review in 2017 at the behest
of the NBG, in 2018 we commissioned a major American
IT consulting company to undertake an IT governance
maturity audit, in order to understand better the current
level of alignment between ‘business’ and IT and to identify
any potential gaps and related improvement actions. This
looked, inter alia, into whether IT was managing risks
correctly. The conclusion of this study was encouraging.
A high level of awareness of the execution challenges in
the IT change environment and confirmation that the
Bank is receiving value from IT was found. However, there
remains scope for further IT governance improvement in
achieving IT transformation goals, particularly in relation
to leveraging big data and advanced analytics. These
improvements are being implemented.
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TBC BANK annual report and accounts 2018
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 group financial statements and parent company financial statements (the “financial
statements”):
give a true and fair view of the state of the group’s and the parent company’s affairs as at 31 December 2018 and of the
group’s profit and the group’s and the parent company’s cash flows for the year then ended;
have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the
European Union and, as regards the parent company’s financial statements, as applied in accordance with the provisions of
the Companies Act 2006; and
have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial
statements, Article 4 of the IAS Regulation.
We have audited the financial statements, included within the Annual Report, which comprise the:
Consolidated and Separate Statements of Financial Position as at 31 December 2018;
Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year then ended;
Consolidated and Separate Statements of Cash Flows for the year then ended;
Consolidated and Separate Statements of Changes in Equity for the year then ended; and
Notes to the financial statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
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 Auditors’ 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 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.
Other than those disclosed in note 33 to the financial statements, we have provided no non-audit services to the group or the
parent company in the period from 1 January 2018 to 31 December 2018.
Our audit approach
Overview
Overall group materiality: GEL 25.5 million (2017: GEL 19.7 million), based on 5% of profit before tax.
Overall parent company materiality: GEL 15.5 million (2017: GEL 14.7 million), 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 key audit matters which were of most significance in the audit of the consolidated financial statements were credit
losses of loans and advances to customers, and matters related to the National Bank of Georgia investigation.
There were no key audit matters to report on the audit of the parent company financial statements.
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.
TBC BANK annual report and accounts 2018
167
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF TBC BANK GROUP PLC CONTINUED
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the group and the legal, regulatory and banking industry in which it operates, we identified
that the principal risks of non-compliance with laws and regulations related to breaches of the rules of the National Bank
of Georgia, and we considered the extent to which non-compliance might have a material effect on the group and parent
company financial statements. We address this as a Key Audit Matter below. We also considered those laws and regulations
that have a direct impact on the financial statements such as the Companies Act 2006, the Listing Rules and UK and local tax
legislation.
We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including
the risk of override of controls), and determined that the principal risks were related to management bias in accounting
estimates. The group engagement team shared this risk assessment with the component auditors referred to in the scoping
section of our report below, so that they could include appropriate audit procedures in response to such risks in their work.
Audit procedures performed by the group engagement team and/or component auditors included:
Enquiries of management, including the group’s Chief Legal Counsel, and Internal Audit, in relation to known or suspected
instances of non-compliance with laws and regulations and fraud;
Evaluation and testing of the operating effectiveness of management’s controls designed to prevent and detect fraud and
errors in financial reporting;
Assessment of matters reported on the group’s whistleblowing helpline and the results of management’s investigation of
such matters;
Observing the effectiveness of key governance committees and reviewing management information presented at these
meetings;
Reading key correspondence with regulatory authorities and legal advisors;
Challenging assumptions and judgements made by management in their significant accounting estimates, in particular in
relation to the impairment of loans and advances; and
Identifying and testing journal entries.
There are inherent limitations in the audit procedures described above, and the further removed that 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. Also, 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.
We did not identify any key audit matters relating to irregularities, including fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ 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.
The key audit matters below relate to the group. There are no matters that impact the parent company only.
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TBC BANK annual report and accounts 2018
Key audit matter
How our audit addressed the key audit matter
Credit losses of loans and advances to customers
Refer to pages 156 to 166 (Audit Committee Chair’s report),
pages 183 to 204 (Summary of Significant Accounting
Policies), page 204 to 205 Critical Accounting Estimates),
and pages 212 to 223 (note 9: Loans and Advances to
customers).
We focused on this area as the management estimates
regarding impairment of loans are complex and require
a significant degree of judgement, which increased with
implementation of expected credit loss (‘ECL’) approach
effective from 1 January 2018 as required by IFRS 9
Financial Instruments.
Credit loss allowances represent management’s best
estimate of expected credit losses (‘ECL’) within each
portfolio at the balance sheet date.
Under IFRS 9 management is required to determine
ECLs that may occur over either a 12 month period or the
remaining life of an asset, depending on the categorisation
of the individual asset. This categorisation is determined
by an assessment of whether or not there has been a
significant increase in credit risk (‘SICR’) of the borrower
since loan origination. It is also necessary to consider the
impact of different future macroeconomic conditions in the
determination of ECLs.
Management has designed and implemented a number
of models to achieve compliance with the requirements
of IFRS 9. Among others, management has applied
judgement in situations where past experience was not
considered to be reflective of future outcomes due to
limited or incomplete data. As a result, we consider that
this represents a key audit matter.
We consider the appropriateness of the model
methodologies and the following judgements used in the
determination of the modelled ECL to be significant:
Setting of appropriate criteria for what represents an SICR;
Judgements and assumptions applied in the
determination of loss given default (‘LGD’) and
probability of default (‘PD’); and
Assessment of model limitations and use of post model
adjustments (‘PMAs’) if required to address such risks.
We understood and evaluated the design of the key
controls over the determination of ECLs and tested their
operating effectiveness. These controls included among
others:
Model performance monitoring controls, including
testing model estimates against actual outcomes;
Review and approval of the key judgements and
assumptions used for determining an SICR, LGDs and PDs;
Controls over the completeness and accuracy of data
flow between systems;
Manual controls over parameters calculation by the
calculation engine;
Manual controls over designation of exposures as
restructured.
We noted no exceptions in the design or operating
effectiveness of the above controls.
We assessed whether the IFRS 9 ECL model
methodologies developed by management are appropriate,
making use of our credit risk modelling experts and our
industry knowledge. This included an evaluation of the
criteria set by management for determining whether
there had been a significant increase in credit risk
(‘SICR’), and the judgements and assumptions applied
in determination of LGDs and PDs. We also critically
evaluated management’s assumptions in response to data
limitations, focusing on long-term PDs. We concluded that
management’s judgements in deriving LGDs and PDs were
reasonable.
We independently verified the calculation of ECL, and
assessed whether the ECL calculations were consistent
with the approved model methodologies.
We critically evaluated key aspects of model monitoring
and validation (“backtesting” of projected ECL) performed
by management relating to model performance and
stability and critically assessed the monitoring results. We
found no exceptions in this work.
We considered whether PMAs were required to address
relevant risks that were not captured in the modelled
provisions. We were satisfied that no PMAs are required.
Based on the procedures performed and the evidence
obtained, we concluded that management’s judgements
used in the determination of the ECLs were reasonable.
TBC BANK annual report and accounts 2018
169
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF TBC BANK GROUP PLC CONTINUED
Matters related to National Bank of Georgia investigation
On 19 November 2018, the National Bank of Georgia
(‘NBG’) issued a report concerning JSC TBC Bank, the
main subsidiary of TBC Bank Group plc. The NBG’s report
relates to its inspection of loans issued to the Bank’s
clients in 2008. These loans were immediately paid to the
two founders of the Bank. The clients’ loans were fully
provided for by the Bank at the end of the same year.
NBG concluded that, in relation to these transactions,
the Bank had failed to fully comply with NBG Decree 116
on “Regulation of Conflicts of Interests and Transactions
between Bank Administrators and related Parties”.
The NBG conclusion resulted in a GEL 1.1m fine,
and required the two founders to step down from the
Supervisory Board of JSC TBC Bank. The Bank is also
required to appoint 2 new board members within a period
of 3 months.
We focused on the implications of this matter for our audit
approach and risk assessment, and the appropriateness of
audit procedures performed with respect to management
override of controls, related party lending, any material
unrecorded regulatory fines, and the reliability of
management representations.
We read the NBG report and other related correspondence
between NBG and the Bank, in order to understand
the nature and extent of the NBG conclusions, and we
considered the impact of these on our audit.
We made inquiries of the founders of the Bank, and other
Board executives, including Legal Counsel and Head of
Compliance, to more fully understand the NBG findings
in detail, including requesting and reviewing additional
documentation from the Bank’s records.
We discussed our work with TBC Bank Group plc’s Audit
Committee, and understood the approach taken by the
independent directors to fulfil their obligations.
We carried out the following additional audit procedures
and looked back over the period from 2008:
We re-confirmed our understanding of the oversight
in
and monitoring controls that management has
place regarding related party transactions. We tested
these controls to assess whether they were operating
effectively.
We examined the loan book data to identify any unusual
items, including any loans with terms which appeared
unusual with respect to commercial terms, for example,
maturity, interest rate.
We analysed reported related party credit exposures for
any unusual terms.
We examined the list of loans which had been written off,
and obtained explanations for any unusual items.
We tested a sample of loans to assess whether funds
issued to borrowers had been used according to the
approved lending purposes.
We checked the Bank’s correspondence with NBG.
We reviewed the work of Compliance and Internal Audit
in the area of related party procedures, and evaluated
any remediation undertaken by management of findings
in this regard.
We verified that the fine had been correctly accounted for
in the Bank, and agreed it to the payment made on 12
March 2019.
Based on the audit procedures performed, no material
issues were identified.
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TBC BANK annual report and accounts 2018
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 and the parent company, the accounting processes and
controls, and the industry in which they operate.
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 four segments for which it manages and reports its
operating results and financial position, namely Retail Banking, Corporate and Investment Banking and Micro Small and
Medium Enterprises (‘MSME’) and Corporate Centre.
JSC TBC Bank is the largest subsidiary of the London listed group. Its main operations are Retail and Commercial banking,
with all significant operations based in Georgia. Accounting functions and management of JSC TBC Bank are primarily based
in Georgia, and represents 97% 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 24.2 million (2017:
GEL 18.7 million). 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 from PwC in each of the relevant territories, 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 regulations specific to the UK. Based on the procedures we performed over the
reporting units our audit scoping/coverage accounted for 92% 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:
Group financial statements
Parent company financial statements
Overall materiality
GEL 25.5 million (2017: GEL 19.7 million).
GEL 15.5 million (2017: GEL 14.7 million).
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 subsidiaries
within the Group. The parent company’s
performance is measured based on the
value of these investments, and therefore
total assets is considered an appropriate
materiality benchmark.
TBC BANK annual report and accounts 2018
171
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF TBC BANK GROUP PLC CONTINUED
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality.
The range of materiality allocated across components was between GEL 24.2 million and GEL 25.5 million. Certain components
were audited to a local statutory audit materiality that was less than our overall group materiality allocation.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above GEL1.3
million (group audit) (2017: GEL 0.9 million) and GEL 0.8 million (parent only) (2017: GEL 0.7 million) 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
Outcome
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.
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 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 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).
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TBC BANK annual report and accounts 2018
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 2018 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 118 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 118-119 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 119, 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 159 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)
TBC BANK annual report and accounts 2018
173
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF TBC BANK GROUP PLC CONTINUED
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 page 119, 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.
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
Following the recommendation of the Audit Committee, we were appointed by the directors on 11 August 2016 to audit the
financial statements for the year ended 31 December 2016 and subsequent financial periods. The period of total uninterrupted
engagement is 3 years, covering the years ended 31 December 2016 to 31 December 2018.
Jeremy Foster
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
2 April 2019
174
TBC BANK annual report and accounts 2018
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
Note
31 December
2018
31 December
2017
31 December
2016
2,204
79,135
-
170
1,473,168
3
1,554,680
2,334
2,334
1,650
796,854
668,364
121,306
(35,828)
1,552,346
1,554,680
210
11,564
24,000
219
1,429,485
8
1,465,486
825
825
1,605
714,651
670,444
86,789
(8,828)
1,464,661
1,465,486
399
2,320
2,000
303
1,424,066
4
1,429,092
165
165
1,581
677,211
745,638
(385)
4,882
1,428,927
1,429,092
25
25
26
The financial statements on pages 175 to 297 were approved by the Board of Directors on 2 April 2019 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 182 to 297 form an integral part of these financial statements.
TBC BANK annual report and accounts 2018
175
SEPARATE STATEMENT OF CHANGES IN EQUITY
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
Profit for the year
Total comprehensive income for 2018
Share issue
Dividends declared
Share based payment accrual
Balance as of 31 December 2018
Note
25
25
26
25
25
26
25
25
26
Share
capital
–
–
–
1,494
87
–
1,581
–
–
24
–
–
1,605
–
–
45
-
-
1,650
Share
pre mium
–
–
–
565,030
112,181
–
677,211
–
–
37,440
–
–
714,651
–
–
82,203
-
-
796,854
Other re-
serves
–
–
–
–
–
4,882
4,882
–
–
(24,253)
–
10,543
(8,828)
–
–
(38,668)
-
11,668
(35,828)
Retained
earnings
–
(385)
(385)
745,638
–
–
745,253
86,789
86,789
–
(74,809)
–
757,233
121,306
121,306
-
(88,869)
-
789,670
Total
equity
–
(385)
(385)
1,312,162
112,268
4,882
1,428,927
86,789
86,789
13,211
(74,809)
10,543
1,464,661
121,306
121,306
43,580
(88,869)
11,668
1,552,346
The notes set out on pages 182 to 297 form an integral part of these financial statements.
176
TBC BANK annual report and accounts 2018
SEPARATE STATEMENT OF CASH FLOWS
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
Cash contribution to 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
2018
2017
2016
1,908
-
(12)
(3,797)
(3,569)
16
1,348
–
(12)
(3,469)
(1,423)
11
1,149
(32)
(1)
(631)
(890)
–
(5,454)
(3,545)
(405)
5
3
(161)
(5,607)
-
(800)
-
124,561
8,955
(85,484)
-
(39,555)
-
7,677
–
–
(76)
1,994
210
2,204
137
–
(3)
(3,411)
–
–
–
77,090
23,745
(66,733)
–
(8,830)
(22,000)
3,272
–
–
(50)
(189)
399
210
(167)
(4)
165
(411)
(3,423)
–
112,269
–
–
–
(103,600)
(2,320)
(2,000)
926
–
–
(116)
399
–
399
*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 182 to 297 form an integral part of these financial statements.
TBC BANK annual report and accounts 2018
177
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 measured at fair value through other
comprehensive income
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
Fair value reserve
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
Note
31 December
2018
31 December
2017
31 December
2016
6
7
8
9
10
10
11
13
16
34
12
14
15
15
17
18
19
22
20
34
21
23
24
25
25
25
26
39
1,166,911
47,316
1,422,809
10,038,452
1,005,239
-
654,203
203,802
84,296
2,116
2,097
167,518
192,792
367,504
109,220
31,286
2,432
15,497,993
3,031,503
9,352,142
98,714
63
13,343
22,237
18,767
104,337
650,919
13,292,025
1,650
796,854
1,523,879
(162,166)
(16,294)
57,240
8,680
-
(6,937)
2,202,906
3,062
2,205,968
15,497,993
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
12,965,910
2,620,714
7,816,817
91,753
447
20,695
602
13,200
84,440
426,788
11,075,456
1,605
714,651
1,232,865
(162,166)
9,828
70,045
-
1,730
(7,359)
1,861,199
29,255
1,890,454
12,965,910
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
-
10,769,032
2,197,577
6,454,949
50,998
2,577
23,508
5,646
16,026
66,739
368,381
9,186,401
1,581
677,211
955,173
(162,166)
23,327
70,460
-
(3,681)
(7,538)
1,554,367
28,264
1,582,631
10,769,032
The financial statements on pages 175 to 297 were approved by the Board of Directors on 2 April 2019 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 182 to 297 form an integral part of these financial statements.
178
TBC BANK annual report and accounts 2018
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
In thousands of GEL
Interest income
Interest expense
Net interest income
Fee and commission income
Fee and commission expense
Net fee and commission income
Net insurance premiums earned
Net insurance claims incurred and agents’ commissions
Insurance Profit
Net gains from trading in foreign currencies
Net gains/(losses) from foreign exchange translation
Net gains/(losses) from derivative financial instruments
Net gains from disposal of Investment Securities measured at fair value through
other comprehensive income
Net gains from disposal of available for sale investment securities
Other operating income
Share of profit of associates
Other operating non-interest income
Credit loss allowance for loan to customers
Credit loss allowance for investments in finance lease
Credit loss allowance for performance guaranties and credit related commitments
Credit loss allowance for other financial assets
Credit loss allowance for financial assets measured at fair value through other
comprehensive income
Impairment of investment securities available for sale
Operating income after credit impairment losses
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 (OCI):
Items that may be reclassified subsequently to profit or loss:
Movement in fair value reserve
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:
- Shareholders of TBCG
– Non-controlling interest
Profit for the year
Total comprehensive income is attributable to:
- Shareholders of TBCG
– Non-controlling interest
Total comprehensive income for the year
Earnings per share for profit attributable to the owners of the Group:
– Basic earnings per share
– Diluted earnings per share
Note
29
29
30
30
31
9
13
21
12
32
15,16
21
33
34
10
10
34
34
2018
1,284,235
(506,213)
778,022
235,701
(78,171)
157,530
23,601
(11,326)
12,275
91,678
15,196
173
2
-
31,438
1,154
139,641
(143,723)
(1,765)
(4,056)
(16,609)
(86)
-
921,229
(220,354)
(45,740)
(4,000)
(140,935)
(411,029)
510,200
(72,765)
437,435
6,949
-
-
425
-
10,749
(2,363)
15,760
453,195
435,080
2,355
437,435
450,903
2,292
453,195
27
27
8.1
8.0
2017
1,033,939
(429,924)
604,015
193,944
(67,983)
125,961
12,633
(5,860)
6,773
87,099
4,374
(36)
-
93
31,797
909
124,236
(93,823)
(492)
(153)
(12,439)
-
-
754,078
(203,100)
(37,265)
2,495
(121,530)
(359,400)
394,678
(34,750)
359,928
-
5,489
-
181
-
-
(422)
5,248
365,176
354,410
5,518
359,928
359,585
5,591
365,176
6.7
6.6
2016
766,426
(275,973)
490,453
142,800
(52,532)
90,268
1,222
(966)
256
70,269
(2,507)
(206)
-
9,293
23,236
-
100,085
(49,202)
(558)
(771)
(2,853)
-
(11)
627,667
(172,221)
(28,082)
(2,210)
(109,475)
(311,988)
315,679
(17,421)
298,258
-
522
(11,611)
(948)
1,649
-
10,928
540
298,798
299,145
(887)
298,258
299,685
(887)
298,798
6.0
5.9
The notes set out on pages 182 to 297 form an integral part of these financial statements.
TBC BANK annual report and accounts 2018
179
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share
capital
Share
pre mium
Group
reorganisation
reserve
Share based
payments
reserve
Net assets Attributable to owners
Revaluation
reserve for
available
for sale
securities
Revaluation
reserve for
premises
Cumulative
currency
translation
reserve
Fair value
reserve1
Retained
earnings
Non-
control ling
interest
Total
Total
equity
In thousands of GEL
Note
Balance as of 1 January
2016
Profit (loss) for the year
Other comprehensive
income
Total comprehensive
income/(expense) for
2016
Share issue
Share based payment
accrual
26
Change of parent company
19,587
-
407,474
-
-
-
87
-
-
-
112,182
-
-
-
-
-
-
-
12,755
-
59,532
-
5,759
-
-
10,928 (9,440)
-
-
10,928 (9,440)
-
-
11,783
to TBCG
25
(18,129)
156,380 (162,166)
-
-
-
-
-
-
-
-
-
-
-
36
-
-
1,175
-
-
-
-
-
(1,211)
-
-
1,581
-
677,211 (162,166)
-
-
23,327
-
70,460 (3,681)
-
-
-
-
21
-
3
-
26
25
-
-
-
(415)
5,411
-
32,308
-
5,132
-
-
-
- (24,253)
(415)
-
5,411
-
-
-
-
10,754
-
-
-
-
-
-
-
-
1,605
714,651 (162,166)
9,828
70,045
1,730
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(6,590)
-
712,743 1,211,260
299,145
299,145
7,189 1,218,449
298,258
(887)
(948)
-
540
-
540
(948)
-
299,145
-
299,685
112,269
(887)
-
298,798
112,269
-
-
-
-
-
-
-
11,783
-
11,783
(23,915)
23,915
-
-
(55,162)
-
(55,162)
-
-
-
(55,162)
(1,553)
(1,553)
(1,953)
(3,506)
(7,538)
-
955,173 1,554,367
354,410
354,410
28,264 1,582,631
359,928
5,518
179
-
5,175
73
5,248
179
-
354,410
-
359,585
8,076
5,591
-
365,176
8,076
-
-
-
(1,909)
(74,809)
10,754
3,226
(74,809)
(211)
(3,197)
(1,192)
10,543
29
(76,001)
(7,359) 1,232,865 1,861,199
29,255 1,890,454
4
-
-
-
-
- (1,730) 1,730
-
(62,928)
(62,928)
(719)
(63,647)
1,605
-
714,651 (162,166)
-
-
9,828
-
70,045
-
- 1,730 (7,359) 1,169,937 1,798,271
435,080
-
435,080
-
-
28,536 1,826,807
437,435
2,355
-
-
-
-
8,466
- 6,950
422
-
15,838
(63)
15,775
-
23
-
42,031
-
-
- (38,669)
8,466
-
- 6,950
-
-
422
-
435,080
-
450,918
3,385
2,292
-
453,210
3,385
26
26
-
22
-
40,172
-
-
-
-
-
-
-
-
12,547
-
-
-
- (21,271)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(17,838)
(88,950)
12,547
(879)
22,356 (22,356)
(116)
(88,950)
11,668
-
(89,066)
21,271
-
-
-
4,379
4,379 (4,415)
(36)
1,650
796,854 (162,166) (16,294)
57,240
- 8,680 (6,937) 1,523,879 2,202,906
3,062 2,205,968
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
Impact of adopting IFRS 9
as at 1 January 2018
Balance as at
1 January 2018
Profit for the year
Other comprehensive
income
Total comprehensive
income/(expense) for
2018
Share issue
Share based payment
accrual
Conversion of shares
Dividends declared
Transfer of revaluation
surplus of derecognised
assets to retained
earnings
Purchase of additional
interest from NCI
Balance as of
31 December 2018
The notes set out on pages 182 to 297 form an integral part of these financial statements.
1 On 1 January 2018 the Group adopted IFRS 9 which replaced IAS 39. Upon adoption of IFRS 9 the balance of available for sale reserve was replaced by the
fair value reserve in accordance with the new requirements.
180
TBC BANK annual report and accounts 2018
CONSOLIDATED STATEMENT 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
Cash flows from operating activities before changes in operating assets and liabilities
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 (used in) operating activities
Cash flows from (used in) investing activities
Acquisition of investment securities measured at fair value through other comprehensive
income
Acquisition of investment securities available for sale
Proceeds from disposal of investment securities measured at fair value through other
comprehensive income
Proceeds from disposal of investment securities available for sale
Proceeds from redemption at maturity of investment securities measured at fair value
through other comprehensive income
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 (decrease)/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
Note
2018
2017
2016
1,224,606
(501,984)
235,508
(78,140)
54,682
(15,174)
91,678
11,407
(202,897)
(136,670)
(34,918)
648,098
1,000,571
(424,105)
195,285
(68,036)
23,518
(9,127)
87,099
8,992
(187,520)
(112,270)
(53,916)
460,491
735,705
(273,795)
144,247
(52,154)
1,591
(703)
70,411
8,411
(148,656)
(104,077)
(34,279)
346,701
(98,586)
(343,772)
(448,582)
(1,718,446) (1,330,105) (1,219,501)
(11,687)
(22,965)
(843)
(54,784)
(35,570)
(4,486)
(49,297)
(38,064)
73,814
69,755
1,371,675
(12,136)
3,618
(76,048)
(228,486)
1,329,071
18,263
3,487
140,588
265,679
1,150,146
5,724
332
65,004
(717,729)
-
-
(560,226)
-
(143,980)
10
10
10
10
10
10
11
11
15
14,781
-
370,571
-
809
(395,717)
200,658
(89,263)
813
42,515
(572,562)
1,776,489
(1,515,562)
255,900
(60,910)
(7,596)
-
(85,484)
-
-
362,837
21,207
(264,566)
6 1,431,477
6 1,166,911
-
-
-
11,868
-
345,748
(273)
(307,248)
242,380
(114,383)
1,932
19,082
(372,988)
1,461,191
(800,333)
119,859
(59,671)
-
(2,123)
(67,927)
-
29
651,025
67,672
486,297
945,180
1,431,477
-
166,871
(91,404)
(304,109)
314,231
(50,689)
1,273
7,822
(88,117)
903,502
(666,156)
136,817
(90,416)
4,354
(4,636)
(54,560)
(3,495)
-
225,410
22,536
224,833
720,347
945,180
The notes set out on pages 182 to 297 form an integral part of these financial statements.
TBC BANK annual report and accounts 2018
181
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. INTRODUCTION
Principal activity. TBC Bank Group PLC (“TBCG” or “Group”) is a public limited liability company, incorporated in England
and Wales. TBCG held 99.88% of the share capital of JSC TBC Bank (hereafter the “Bank”) as at 31 December 2018 (2017:
98.67%, 2016: 98.48%), thus representing the Bank’s ultimate parent company. 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). TBC Bank Group PLC’s registered legal address is Elder House St Georges Business
Park, 207 Brooklands Road, Weybridge, Surrey, KT13 0TS. Registered number of TBC Bank Group PLC is 10029943. The Bank
is the Group’s main operating unit and it accounts for most of the Group’s activities.
JSC TBC 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 registered address and place of business is 7
Marjanishvili Street, 0102 Tbilisi, Georgia.
The Bank’s principal business activity is universal banking operations that include corporate, small and medium enterprises,
retail and micro operations within Georgia. In 2018, the Bank launched fully-digital bank, Space. 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 has 146 (2017:154; 2016:120) branches within Georgia.
As of 31 December 2018, 31 December 2017 and 31 December 2016, 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 2018, 31 December 2017 and 31 December 2016 the Group had no ultimate controlling party.
Shareholders
JPMorgan Asset Management
European Bank for Reconstruction and Development
Schroder Investment Management
Mamuka Khazaradze*
Badri Japaridze*
Liquid Crystal International N.V. LLC
Dunross & Co.
TBC Holdings LTD
Societe Generale SA
Other**
Total
% of ownership interest held as of
31 December
2018
8.40%
8.18%
7.08%
6.19%
6.08%
5.64%
5.51%
-
2017
9.21%
8.38%
9.53%
6.35%
6.23%
5.78%
-
-
-
52.92%
-
54.52%
2016
7.07%
12.15%
7.98%
-
-
5.19%
-
15.19%
5.38%
47.04%
100.00%
100.00%
100.00%
* Represents direct ownership of the shares for Mamuka Khazaradze and Badri Japaridze. Mamuka Khazaradze has beneficial ownership
of 13.54% (2017: 13.87%) and Badri Japaride has beneficial ownership of 6.77% (2017: 6.93%).
** Other includes individual as well as corporate shareholders.
182
TBC BANK annual report and accounts 2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of preparation. 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. TBCG’s income for the
year is disclosed within the separate statement of financial position and the separate statement of changes in equity.
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”) and interpretations issued by the
IFRS Interpretations Committee (IFRS IC) 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 certain financial assets and liabilities (including derivative instruments) and
certain class of premises and equipment which are measured at fair value. 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).
New and amended standards and interpretations. In these financial statements, the Group has applied IFRS 9 and IFRS 15,
effective for annual periods beginning on or after 1 January 2018, for the first time. The Bank has not adopted early any other
standard, interpretation or amendment that has been issued but is not yet effective.
IFRS 9 Financial Instruments. IFRS 9 replaced IAS 39 for annual periods on or after 1 January 2018. The Group applied
IFRS 9 using modified retrospective approach that means it has not restated comparative information for 2017 for financial
instruments in the scope of IFRS 9. Therefore, the comparative information for 2017 is reported under IAS 39 and is not
comparable to the information presented for 2018. Differences arising from the adoption of IFRS 9 have been recognised
directly in retained earnings as of 1 January 2018 and are disclosed in Note 4, transition table.
Changes to classification and measurement. To determine their classification and measurement category, IFRS 9 requires
all financial assets, except for equity instruments and derivatives, to be assessed based on a combination of the entity’s
business model for managing the assets and the instruments’ contractual cash flow characteristics.
The IAS 39 measurement categories of financial assets (fair value through profit or loss (FVTPL), available for sale (AFS), held-
to-maturity and amortised cost) have been replaced by:
Debt instruments at amortised cost;
Debt instruments at fair value through other comprehensive income (FVOCI), with gains or losses recycled to profit or loss
on derecognition;
Equity instruments at FVOCI, with no recycling of gains or losses to profit or loss on derecognition;
Financial assets at FVTPL.
The accounting for financial liabilities remains largely the same as it was under IAS 39, except for the treatment of gains or
losses arising from an entity’s own credit risk relating to liabilities designated at FVTPL. Such movements are presented in
OCI with no subsequent reclassification to the income statement.
The Group’s classification of its financial assets and liabilities is explained in Note 4. The quantitative impact of applying IFRS
9 as at 1 January 2018 is disclosed in Note 4.
TBC BANK annual report and accounts 2018
183
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
IFRS 9 Financial Instruments (continued)
Changes to the impairment calculation. The adoption of IFRS 9 has fundamentally changed the Group’s accounting for loan
loss impairments by replacing IAS 39’s incurred loss approach with a forward-looking expected credit loss (ECL) approach.
IFRS 9 requires the Group to record an allowance for ECLs for all loans and other debt financial assets not held at FVTPL,
together with loan commitments and financial guarantee contracts. The allowance is based on the ECLs associated with the
probability of default in the next twelve months unless there has been a significant increase in credit risk since origination.
If the financial asset meets the definition of purchased or originated credit impaired (POCI), the allowance is based on the
change in the ECLs over the life of the asset.
Details of the Bank’s impairment method are disclosed in Note 4. The quantitative impact of applying IFRS 9 as at 1 January
2018 is disclosed in Note 4.
IFRS 7. To reflect the differences between IFRS 9 and IAS 39, IFRS 7 Financial Instruments: Disclosures were updated and the
Group has adopted it, together with IFRS 9, for the year beginning 1 January 2018. Changes include transition disclosures as
shown in Note 4, detailed qualitative and quantitative information about the ECL calculations such as the assumptions and
inputs used are set out in Note 36.
Reconciliations from opening to closing ECL allowances are presented in Note 9.
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.
Presentation currency. These consolidated financial statements are presented in thousands of Georgian Lari (“GEL
thousands”), except per-share amounts and unless otherwise indicated.
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.
184
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TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Subsidiaries and associates. The TBC Bank Group PCL holds 99.88%of the Bank as of 31 December 2018. The consolidated
financial statements include the following principal subsidiaries:
Company Name
JSC TBC Bank
Bank Republic Group
Ltd Merckhali Pirevli
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
Index LLC
BG LLC2
JSC TBC Insurance
GE Commerce LTD
Swoop JSC
Proportion of voting rights and ordinary
share capital held as of 31 December
2018
99.88%
0.00%
0.00%
98.67%
100.00%
99.61%
2017
98.67%
0.00%
0.00%
98.67%
100.00%
99.61%
2016
98.48%
100.00%
100.00%
98.67%
100.00%
99.61%
Principal place of
business or
incorporation
Tbilisi, Georgia
Tbilisi, Georgia
Tbilisi, Georgia
Tbilisi, Georgia
Tbilisi, Georgia
Tbilisi, Georgia
100%
75.00%
75.00%
Baku, Azerbaijan
Yearof
incorporation
1992
1992
2009
Industry
Banking
Banking
Operating leasing
1997
1999
2003
1999
Card processing
Brokerage
Leasing
Non-banking credit
institution
100.00%
100.00%
0.00%
100.00%
100.00%
0.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
0.00%
100.00%
0.00%
0.00%
100.00%
100.00%
100.00%
100.00%
100.00%
0.00%
100.00%
0.00%
0.00%
Tbilisi, Georgia
Tbilisi, Georgia
2009 Information services
Processing
2009
Tbilisi, Georgia
Ramat Gan,Israel
Tbilisi, Georgia
Tbilisi, Georgia
Tbilisi, Georgia
Tbilisi, Georgia
Tbilisi, Georgia
2010
2011
2011
2018
2014
2018
2010
Real estate
management
PR and marketing
Real estate
management
Real Estate
Insurance
Retail Trade
Retail Trade
The Group has investments in the following associates:
Proportion of voting rights and ordinary
share capital held as of 31 December
Company Name
2018
2017
JSC CreditInfo Georgia
21.08%
21.08%
LLC Online Tickets
26.00%
26.00%
Principal place of
business or
incorporation
Year of
incorporation
Tbilisi, Georgia
Tbilisi, Georgia
2005
2015
Industry
Financial
intermediation
Computer and
Software Services
2016
0.00%
0.00%
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 completed the legal and operational process of merging JSC Bank Republic with TBC Bank.
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.i
Proportion of voting rights and ordinary
share capital held as of 31 December
2018
2017
2016
Principal place of
business or
incorporation
Year of
incorporation
Industry
100.00%
100.00%
100.00%
Tbilisi, Georgia
2016
Investment Vehicle
Company Name
TBC Invest3
International Ltd
University
Development Fund4
UFC International Ltd5
TBC Capital B.V.6
0.00%
0.00%
33.33%
0.00%
33.33%
80.00%
33.33%
Tbilisi, Georgia
80.00% British Virgin Islands
Amsterdam,
Netherlands
90.00%
2007
2001
Education
Investment Vehicle
2007
Investment Vehicle
2 The Group has de-facto control over the subsidiary (control without legal form of ownership)
3 Dormant
4 Non-entrepreneurial (non-commercial) legal entity
5 Liquidated in 2018
6 Liquidated in 2017
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
185
185
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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 per cent 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.
Purchases and sales of non-controlling interests. The Group applies the economic entity model to account for transactions
with owners of non-controlling interest. Any difference between the purchase consideration and the carrying amount of
non-controlling interest acquired is recorded as a capital transaction directly in equity. The Group recognises the difference
between sales consideration and carrying amount of non-controlling interest sold as a capital transaction in the statement
of changes in equity.
186
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TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Disposals of subsidiaries, associates or joint ventures. When the Group ceases to have control or significant influence,
any retained interest in the entity is re-measured to its fair value, with the change in carrying amount recognised in profit or
loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an
associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in
respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean
that amounts previously recognised in other comprehensive income are recycled to profit or loss.
If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the
amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate.
Financial instruments – key measurement terms. 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 (i.e. a liability) for a particular
risk exposure in an orderly transaction between market participants at the measurement date.
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.
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
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.
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
187
187
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Financial instruments – key measurement terms (continued). Amortised cost (“AC”) 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 expected credit 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). For assets that are purchased or originated credit
impaired (“POCI”) at initial recognition, the effective interest rate is adjusted for credit risk, i.e. it is calculated based on the
expected cash flows on initial recognition instead of contractual payments.
Initial recognition of financial instruments. Financial instruments at FVTPL are initially recorded at fair value. All other
financial instruments are initially recorded at fair value adjusted for transaction costs. Fair value at initial recognition is best
evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference between fair
value and transaction price which can be evidenced by other observable current market transactions in the same instrument
or by a valuation technique whose inputs include only data from observable markets. After the initial recognition, an ECL
allowance is recognised for financial assets measured at AC and investments in debt instruments measured at FVOCI,
resulting in an immediate accounting loss.
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.
Financial assets – classification and subsequent measurement – measurement categories. The Group classifies financial
assets in the following measurement categories: FVTPL, FVOCI and AC. The classification and subsequent measurement of
debt financial assets depends on: (i) the Group’s business model for managing the related assets portfolio and (ii) the cash
flow characteristics of the asset.
Financial assets – classification and subsequent measurement – business model. The business model drives classification
of financial assets. Management applied judgement in determining the level of aggregation and portfolios of financial
instruments when performing the business model assessment. When assessing sales transactions, the Group considers their
historical frequency, timing and value, reasons for the sales and expectations about future sales activity. Sales transactions
aimed at minimising potential losses due to credit deterioration are considered consistent with the “hold to collect” business
model. Other sales before maturity, not related to credit risk management activities, are also consistent with the “hold to
collect” business model, provided that they are infrequent or insignificant in value, both individually and in aggregate. The
Group assesses significance of sales transactions by comparing the value of the sales to the value of the portfolio subject
to the business model assessment over the average life of the portfolio. In addition, sales of financial asset expected only in
stress case scenario, or in response to an isolated event that is beyond the Group’s control, is not recurring and could not have
been anticipated by the Group, are regarded as incidental to the business model objective and do not impact the classification
of the respective financial assets.
The “hold to collect and sell” business model means that assets are held to collect the cash flows, but selling is also integral
to achieving the business model’s objective, such as, managing liquidity needs, achieving a particular yield, or matching the
duration of the financial assets to the duration of the liabilities that fund those assets.
Financial assets – classification and subsequent measurement – business model (continued). The residual category
includes those portfolios of financial assets, which are managed with the objective of realising cash flows primarily through
sale, such as where a pattern of trading exists. Collecting contractual cash flow is often incidental for this business model.
188
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TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Financial assets – classification and subsequent measurement – cash flow characteristics. Where the business model
is to hold assets to collect contractual cash flows or to hold contractual cash flows and sell, the Group assesses whether
the cash flows represent solely payments of principal and interest (“SPPI”). Financial assets with embedded derivatives are
considered in their entirety when determining whether their cash flows are consistent with the SPPI feature. In making this
assessment, the Group considers whether the contractual cash flows are consistent with a basic lending arrangement, i.e.
interest includes only consideration for credit risk, time value of money, other basic lending risks and profit margin.
Where the contractual terms introduce exposure to risk or volatility that is inconsistent with a basic lending arrangement, the
financial asset is classified and measured at FVTPL. The SPPI assessment is performed on initial recognition of an asset and
it is not subsequently reassessed. The judgements applied by the Group in performing the SPPI test for its financial assets is
as follows:
The time value of money element may be modified, for example, if a contractual interest rate is periodically reset but the
frequency of that reset does not match the tenor of the debt instrument’s underlying base interest rate, for example a loan
pays three months interbank rate but the rate is reset every month. The effect of the modified time value of money was
assessed by comparing relevant instrument’s cash flows against a benchmark debt instrument with SPPI cash flows, in
each period and cumulatively over the life of the instrument. The Group applied a threshold of 10% to determine whether
differences against a benchmark instruments are significantly different. In case of a scenario with cash flows that significantly
differ from the benchmark, the assessed instrument’s cash flows are not SPPI and the instrument is then carried at FVTPL.
The Group identified and considered contractual terms that change the timing or amount of contractual cash flows. The SPPI
criterion is met if a loan allows early settlement and the prepayment amount substantially represents principal and accrued
interest, plus a reasonable additional compensation for the early termination of the contract. The asset’s principal is the
fair value at initial recognition less subsequent principal repayments, ie instalments net of interest determined using the
effective interest method. As an exception to this principle, the standard also allows instruments with prepayment features
that meet the following condition to meet SPPI: (i) the asset is originated at a premium or discount, (ii) the prepayment amount
represents contractual amount and accrued interest and a reasonable additional compensation for the early termination of
the contract, and (ii) the fair value of the prepayment feature is immaterial at initial recognition.
The instruments that failed the SPPI test are generally measured at FVTPL. The Bank did not have such category of Loans to
customers during 2018.
Financial assets – reclassification. Financial instruments are reclassified only when the business model for managing the
portfolio as a whole changes. The reclassification has a prospective effect and takes place from the beginning of the first
reporting period that follows after the change in the business model. The Group did not change its business model during the
current and comparative period and did not make any reclassifications.
Financial assets impairment – credit loss allowance for ECL. The Group assesses, on a forward-looking basis, the ECL for
debt instruments measured at AC and FVOCI and for the exposures arising from loan commitments and financial guarantee
contracts. The Group measures ECL and recognises credit loss allowance at each reporting date. The measurement of ECL
reflects: (i) an unbiased and probability weighted amount that is determined by evaluating a range of possible outcomes, (ii)
time value of money and (iii) all reasonable and supportable information that is available without undue cost and effort at the
end of each reporting period about past events, current conditions and forecasts of future conditions.
The Group applies a three stage model for impairment, based on changes in credit quality since initial recognition:
Stage 1: A financial instrument that is not credit-impaired on initial recognition is classified in Stage 1. Financial assets in
Stage 1 have their ECL measured at an amount equal to the portion of lifetime ECL that results from default events possible
within the next 12 months or until contractual maturity, if shorter (“12 Months ECL”);
Stage 2: If the Group identifies a significant increase in credit risk (“SICR”) since initial recognition, the asset is transferred
to Stage 2 and its ECL is measured based on ECL on a lifetime basis (“Lifetime ECL”). If a SICR is no longer observed,
instrument will move back to Stage 1. Refer to Note 36 for a description of how the Group determines, on a forward-looking
basis, when a SICR has occurred;
Stage 3: Credit impaired assets are transferred to Stage 3 and allowance for Lifetime ECL is recognized. The Group’s
definition of credit impaired assets and definition of default is based on the occurrence of one or more loss events, described
further in Note 36.
Change in ECL is recognized in statement of profit or loss with a corresponding allowance reported as a decrease in carrying
value of the financial asset on the statement of financial position. For financial guarantees and credit commitments, provision
for ECL is reported as a liability in Provisions for Liabilities and Charges.
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Gross carrying amount and write offs. Gross carrying amount of a financial asset is the amortised cost of a financial asset,
before adjusting for any loss allowance. The Group directly reduces the gross carrying amount of a financial asset when the
entity has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. The latter includes
penalties under the local regulation requirements. The loans are collectively assessed for write off based on overdue days
criteria or are individually evaluated, depending on the loan segment and product type. The contractual amounts outstanding
on loans to customers that have been written off partially or fully during 2018, but are still subject to enforcement activity was
principal amount GEL 96 million, accrued interest GEL 18 million and accrued off balance penalty GEL 92 million.
Financial assets – derecognition and modification. 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 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 restrictions on the sale.
The Group sometimes renegotiates or otherwise modifies the contractual terms of the financial assets. The Group assesses
whether the modification of contractual cash flows is substantial considering, among other, the following factors: change in
interest rate due to market environment changes, change in the currency denomination; consolidation of two or more loans
into one new loan; change in counterparty; loan with no schedule is replaced with loan with schedule or vice versa;
Based on below shown internally developed methodology there are certain qualitative triggers which lead to asset derecognition
with no further quantitative testing required. These qualitative criteria are included in the list below:
Change in contract currency;
Consolidation of two or more loans into one new loan;
Change in counterparty;
Loan with no schedule is replaced with loan with schedule or vice versa;
Change in contractual interest rate due to market environment changes.
The Group compares the original and revised expected cash flows to assets whether the risks and rewards of the asset are
substantially different as a result of the contractual modification. It should be assessed whether change in contractual cash
flow is significant (significance defined as 10% change). If the test result is above 10% threshold, loan should be derecognized,
whereas if the test is passed and result is below or equal to 10%, financial asset can be assessed as modified.
If the risks and rewards do not change, the modified asset is not substantially (10% test) different from the original asset
and the modification does not result in derecognition. The Group recalculates the gross carrying amount by discounting
the modified contractual cash flows by the original effective interest rate or, when applicable, the revised effective interest
rate and recognises a modification gain or loss in profit or loss. Any costs or fees incurred adjust the carrying amount of the
modified financial asset and are amortised over the remaining term of the modified financial asset.
Financial liabilities – measurement categories. Financial liabilities are classified as subsequently measured at AC, except
for (i) financial liabilities at FVTPL: this classification is applied to derivatives, financial liabilities held for trading (e.g. short
positions in securities), contingent consideration recognised by an acquirer in a business combination and other financial
liabilities designated as such at initial recognition and (ii) financial guarantee contracts and loan commitments.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Cash and cash equivalents. Cash and cash equivalents are items which are readily convertible to known amounts of cash and
are subject to an insignificant risk of changes in value. Cash and cash equivalents include cash on hand, amounts due from
the 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 AC because: (i) they are held for collection
of contractual cash flows and those cash flows represent SPPI, and (ii) they are not designated at FVTPL. Features mandated
solely by legislation, such as the bail-in legislation in certain countries, do not have an impact on the SPPI test, unless they are
included in contractual terms such that the feature would apply even if the legislation is subsequently changed.
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 AC 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.
Due from other banks. Amounts due from other banks are recorded when the Group advances money to counterparty banks.
Amounts due from other banks are carried at AC when: (i) they are held for the purposes of collecting contractual cash flows
and those cash flows represent SPPI, and (ii) they are not designated at FVTPL. Otherwise they are carried at FV.
Investments in debt securities. Based on the business model and the cash flow characteristics, the Group classifies
investments in debt securities as carried at AC, FVOCI or FVTPL. Debt securities are carried at AC if they are held for collection
of contractual cash flows and where those cash flows represent SPPI, and if they are not voluntarily designated at FVTPL in
order to significantly reduce an accounting mismatch.
Debt securities are carried at FVOCI if they are held for collection of contractual cash flows and for selling, where those
cash flows represent SPPI, and if they are not designated at FVTPL. Interest income from these assets is calculated using
the effective interest method and recognised in profit or loss. An impairment allowance estimated using the expected credit
loss model is recognised in profit or loss for the year. All other changes in the carrying value are recognised in OCI. When the
debt security is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from OCI to profit or
loss. Investments in debt securities are carried at FVTPL if they do not meet the criteria for AC or FVOCI. The Group may also
irrevocably designate investments in debt securities at FVTPL on initial recognition if applying this option significantly reduces
an accounting mismatch between financial assets and liabilities being recognised or measured on different accounting bases.
Investments in equity securities. Financial assets that meet the definition of equity from the issuer’s perspective, i.e.
instruments that do not contain a contractual obligation to pay cash and that evidence a residual interest in the issuer’s
net assets, are considered as investments in equity securities by the Group. Investments in equity securities are measured
at FVTPL, except where the Group elects at initial recognition to irrevocably designate an equity investments at FVOCI. The
Group’s policy is to designate equity investments as FVOCI when those investments are held for strategic purposes other than
solely to generate investment returns. When the FVOCI election is used, fair value gains and losses are recognised in OCI and
are not subsequently reclassified to profit or loss, including on disposal. Impairment losses and their reversals, if any, are not
measured separately from other changes in fair value. Dividends continue to be recognised in profit or loss when the Group’s
right to receive payments is established except when they represent a recovery of an investment rather than a return on such
investment.
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Loans and advances to customers. Loans and advances to customers are recorded when the Group advances money to
purchase or originate a loan due from a customer. Based on the business model and the cash flow characteristics, the Group
classifies loans and advances to customers into one of the following measurement categories: (i) AC: loans that are held for
collection of contractual cash flows and those cash flows represent SPPI and loans that are not voluntarily designated at
FVTPL, and (ii) FVTPL: loans that do not meet the SPPI test or other criteria for AC or FVOCI are measured at FVTPL.
Impairment allowances are determined based on the forward-looking ECL models. Note 36 provides information about inputs,
assumptions and estimation techniques used in measuring ECL, including an explanation of how the Group incorporates
forward-looking information in the ECL models.
Repossessed collateral. Repossessed collateral represents non-financial assets acquired by the Group to settle overdue
loans. The assets are initially recognised at fair value when acquired and included in premises and equipment, investment
property or inventories within other assets depending on their nature and the Group’s intention in respect of recovery of these
assets and are subsequently re-measured and accounted for in accordance with the accounting policies for these categories
of assets. Inventories of repossessed assets are recorded at the lower of cost or net realisable value.
Loan commitments. The Group issues commitments to provide loans. These commitments are irrevocable or revocable only
in response to a material adverse change. Such commitments are initially recognised at their fair value, which is normally
evidenced by the amount of fees received. This amount is amortised on a straight line basis over the life of the commitment,
except for commitments to originate loans if it is probable that the Group will enter into a specific lending arrangement and
does not expect to sell the resulting loan shortly after origination; such loan commitment fees are deferred and included in
the carrying value of the loan on initial recognition. At the end of each reporting period, the commitments are measured at (i)
the remaining unamortised balance of the amount at initial recognition, plus (ii) the amount of the loss allowance determined
based on the expected credit loss model, unless the commitment is to provide a loan at a below market interest rate, in which
case the measurement is at the higher of these two amounts. The carrying amount of the loan commitments represents a
liability.
Financial guarantees. Financial guarantees require the Group to make specified payments to reimburse the holder of the
guarantee for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original
or modified terms of a debt instrument. Financial guarantees 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 guarantee.
At the end of each reporting period, the guarantees are measured at the higher of (i) the amount of the loss allowance for
the guaranteed exposure determined based on the expected loss model and (ii) the remaining unamortised balance of the
amount at initial recognition. In addition, an ECL loss allowance is recognised for fees receivable that are recognised in the
statement of financial position as an asset.
Performance guarantees. Performance guarantees are contracts that provide compensation if another party fails to perform
a contractual obligation. Such contracts transfer non-financial performance risk in addition to credit risk. Performance
guarantees 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 contract. At the end of each reporting period, the performance
guarantee contracts 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 contract at the end of each reporting period, discounted to present value.
Where the Group has the contractual right to revert to its customer for recovering amounts paid to settle the performance
guarantee contracts, such amounts will be recognised as an asset upon transfer of the loss compensation to the guarantee’s
beneficiary. These fees are recognised within fee and commission income in profit or loss.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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 derecognized. 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 method.
Securities lent to counterparties for a fixed fee are retained in the consolidated financial statements in their original category
in the statement of financial position unless the counterparty has the right by contract or custom to sell or repledge the
securities, in which case they are reclassified and presented separately. Securities borrowed for a fixed fee are not recorded in
the consolidated financial statements, unless these are sold to third parties, in which case the purchase and sale are recorded
in profit or loss for the year within gains less losses arising from trading securities. The obligation to return the securities is
recorded at fair value in other borrowed funds.
Based on classification of securities sold under the sale and repurchase agreements, the Group classifies repurchase
receivables into one of the following measurement categories: AC, FVOCI, and FVTPL.
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.
The ECL is determined in the same way as for loans and advances measured at AC and recognised through an allowance
account to write down the receivables’ net carrying amount to the present value of expected cash flows discounted at the
interest rates implicit in the finance leases. There is a ‘three stage’ approach which is based on the change in credit quality
of financial lease receivables since initial recognition. Immediate loss that is equal to the 12-month ECL is recorded on initial
recognition of financial leases that are not credit impaired. In case of a significant increase in credit risk, impairment is
measured using lifetime ECL rather than 12-month ECL. The estimated future cash flows reflect the cash flows that may
result from obtaining and selling the assets subject to the lease.
Receivables from terminated leases. The company recognizes receivables from terminated contracts at the moment of lease
contract termination. These receivables are recognized at amount comprising difference between fair value of repossessed
assets and outstanding balance of net investment in finance lease. Receivables are accounted for at AC less ECL.
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 at AC less ECL. On
commencement of the leases, advances towards lease contracts are transferred into net investment in finance lease.
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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 AC. 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 AC.
Subordinated debt. Subordinated debt can only be paid in the event of a liquidation after the claims of other higher priority
creditors have been met and is included in the Bank’s “tier 2” capital. Subordinated debt is carried at AC.
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 AC. 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.
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.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Premises and equipment. Premises and equipment, except for land, buildings and construction in progress, are stated
at cost, less accumulated depreciation and provision for impairment, where required. Cost of premises and equipment of
acquired subsidiaries is the estimated fair value at the date of acquisition.
Following initial recognition, land, buildings and construction in progress are carried at a revalued amount, being the fair
value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment
losses. Revaluations are performed frequently enough to ensure that the carrying amount does not differ materially from that
which would be determined using fair values at the end of reporting period.
Any revaluation surplus is credited to the revaluation reserve for premises and equipment included in equity, except to the
extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss. In this case the increase
is recognized in profit or loss to the extent of the decrease previously charged. A revaluation deficit is recognized in profit or
loss, except that a deficit directly offsetting a previous surplus on the same asset is recognized in other comprehensive
income and reduces revaluation reserve for premises and equipment 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.
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.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Investment property (continued). Land included in investment property is not depreciated. Depreciation on other items of
investment properties is calculated using the straight-line method to allocate their cost to their residual values over their
estimated useful lives of 30 to 50 years. Residual values of investment properties are estimated to be nil.
Earned rental income is recorded in profit or loss for the year within other operating income.
Subsequent expenditure is capitalised to the asset’s carrying amount only when it is probable that future economic benefits
associated with the expenditure will flow to the Group and the cost can be measured reliably. All other repairs and maintenance
costs are expensed when incurred.
Intangible assets. All of the Group’s intangible assets have definite useful life and primarily include capitalised computer
software and licenses.
Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific
software. All other costs associated with computer software, e.g. its maintenance, are expensed when incurred. Intangible
assets are amortised on a straight line basis over expected useful lives of 2 to 15 years.
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.
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.
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.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Income taxes (continued). 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, other than those at
FVTPL, 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. The group does not have Interest income on debt instruments at FVTPL during
2018.
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 FVTPL.
Interest income is calculated by applying the effective interest rate to the gross carrying amount of financial assets, except for
(i) financial assets that have become credit impaired (Stage 3), for which interest income is calculated by applying the effective
interest rate to their AC, net of the ECL provision, and (ii) financial assets that are purchased or originated credit impaired, for
which the original credit-adjusted effective interest rate is applied to the AC.
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.
Fee and commission income. Fee and commission income is recognised over time on a straight line basis as the services
are rendered, when the customer simultaneously receives and consumes the benefits provided by the Group’s performance.
Variable fees are recognised only to the extent that management determines that it is highly probable that a significant
reversal will not occur.
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Foreign currency translation. The Group’s presentation currency is the Georgian Lari. TBCG’s and the Bank’s functional
currency is the Georgian Lari. The functional currency of each of the Group’s consolidated entities is the currency of the
primary economic environment in which the entity operates. Transactions in foreign currencies are initially recorded in the
functional currency, converted at the rate of exchange ruling at the date of the transaction.
Monetary assets and liabilities are translated into each entity’s functional currency at the official exchange rate of the
territories where the Bank and its subsidiaries operate, at the respective reporting period. Foreign exchange gains and losses
resulting from the settlement of transactions and from the translation of monetary assets and liabilities into each entity’s
functional currency at year-end official exchange rates are recognised in profit or loss. Translation at year-end rates does not
apply to non-monetary items, including equity investments. The effects of exchange rate changes on the fair value of equity
securities are recorded as part of the fair value gain or loss.
The results and financial position of each group entity (the functional currency of none of which is a currency of a
hyperinflationary economy) are translated into the presentation currency as follows:
(i) Assets and liabilities for each statement of financial position presented are translated at the closing rate at the end
of the respective reporting period;
(ii) Income and expenses are translated at average exchange rates (unless this average is not a reasonable approximation of
the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated
at the dates of the transactions);
(iii) Components of equity are translated at the historic rate; and
(iv) All resulting exchange differences are recognised in other comprehensive income.
After losing control over a foreign operation, the exchange differences previously recognised in other comprehensive income
are reclassified to profit or loss for the year as part of the gain or loss on disposal. On partial disposal of a subsidiary without
loss of control, the related portion of accumulated currency translation differences is reclassified to non-controlling interest
within equity.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the
foreign entity and translated at the closing rate. At 31 December 2018 the closing rate of exchange used for translating foreign
currency balances was GBP 1 = 3.3955 (2017: GBP 1 = GEL 3.5005; 2016: GBP 1 = GEL 3.2579); USD 1 = 2.6766 (2017: USD 1 =
GEL 2.5922; 2016: USD 1 = GEL 2.6468); EUR 1 = 3.0701 (2017: EUR 1 = GEL 3.1044; 2016: EUR 1 = GEL 2.7940).
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
Group by the weighted average number of participating shares outstanding during the reporting year.
Diluted earnings per share. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary
shares outstanding to assume conversion of all dilutive potential ordinary shares. In calculating diluted EPS, non-vested
ordinary shares are treated as outstanding on the grant date.
Segment reporting. Operating segments are reported in a manner consistent with the internal reporting provided to the
Group’s chief operating decision maker. Segments whose revenue, result or assets are ten percent or more of all the segments
are reported separately.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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 award of shares
to the scheme participants, respective share based payment reserve 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.
Principles applied before 1 January 2018 (comparatives only)
Financial instruments – key measurement terms (comparatives only). 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 (i.e. a liability) for a particular
risk exposure in an orderly transaction between market participants at the measurement date. This is applicable for assets
carried at fair value on a recurring basis 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.
TBC BANK annual report and accounts 2018
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Financial instruments – key measurement terms (continued) (comparatives only). 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 41.
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. Repayments for Loans
are accounted for penalties in the first place, then accrued interest and after that principal amount.
The effective interest method is a method of allocating interest income or interest expense over the relevant period so as to
achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the
rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected
life of the financial instrument or a shorter period, if appropriate, to the net carrying amount of the financial instrument. The
effective interest rate discounts cash flows of variable interest instruments to the next interest repricing date, except for the
premium or discount which reflects the credit spread over the floating rate specified in the instrument, or other variables that
are not reset to market rates. Such premiums or discounts are amortised over the whole expected life of the instrument. The
present value calculation includes all fees paid or received between parties to the contract that are an integral part of the
effective interest rate (refer to income and expense recognition policy).
Initial recognition of financial instruments (comparatives only). 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.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Derecognition of financial assets (comparatives only). 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 (comparatives only). 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.
Investment securities available for sale (comparatives only). This classification includes investment securities which the
Group intends to hold for an indefinite period of time and which may be sold in response to needs for liquidity or changes in
interest rates, exchange rates or equity prices. The Group classifies investments as available for sale at the time of purchase.
Investment securities available for sale are carried at fair value. Interest income on available for sale debt securities is
calculated using the effective interest method and recognised in profit or loss for the year. Dividends on available-for-sale
equity instruments are recognised in profit or loss for the year when the Group’s right to receive payment is established
and it is probable that the dividends will be collected. All other elements of changes in the fair value are recognized in Other
Comprehensive Income (“OCI”) until the investment is derecognised or impaired, at which time the cumulative gain or loss is
reclassified from OCI to profit or loss. Impairment losses are recognised in profit or loss when incurred as a result of one or
more events (“loss events”) arising after the initial recognition of investment securities available for sale.
A significant or prolonged decline in the fair value of an equity security below its cost is an indicator that it is impaired. The
cumulative impairment loss – measured as the difference between the acquisition cost and the current fair value, less any
impairment loss on that asset previously recognised in profit or loss – is removed from equity and reclassified from OCI.
Impairment losses on equity instruments are not reversed through profit or loss. If, in a subsequent period, the fair value of
a debt instrument classified as available for sale increases and the increase can be objectively related to an event occurring
after the impairment loss was recognised in profit or loss, the impairment loss is reversed through the current period’s profit
or loss for the year.
Sale and repurchase agreements (comparatives only). 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
derecognized. 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.
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Loans and advances to customers (comparatives only). 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 derecognized and the new asset is initially recognised at its fair value.
Bonds carried at amortised cost (comparatives only). 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 (comparatives only). Impairment losses are recognised in profit or
loss when incurred as a result of one or more events (“loss events”) that happened after the initial recognition of the financial
asset and which have an impact on the amount or timing of the estimated future cash flows of the financial asset or group of
financial assets that can be reliably estimated. The Group classifies its borrowers as significant and non-significant ones for
impairment allowance estimation purposes and assesses for impairment individually or collectively.
Specific qualitative and quantitative events are outlined for evidence of impairment of individually and collectively assessed
borrowers in order to ensure that loss event is identified as early as possible.
If there is evidence that an impairment loss event on significant credit exposures has been incurred, the Bank assesses the
borrowers on an individual basis and measures the amount of the loss as the difference between the asset’s carrying amount
and the present value of estimated future cash flows discounted by the exposure’s original effective interest rate for fixed rate
loans or current effective interest rate for variable rate loans. The Bank considers two types of sources for recoveries: cash
recoveries and/or collateral recovery. For cash recoveries the estimated recoverable amount is equal to the present value
of the estimated future cash flows. Collateral recoveries reflect the cash flows that may result from collateral foreclosure.
The Bank uses its best estimates to assess future recoveries, applying scenario analysis and taking into account all relevant
information available at the reporting date including adverse changes in general macroeconomic environment or the industry
the borrower operates in.
If the Group determines that there is no objective evidence that an individually assessed financial asset incurred in impairment
whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and
collectively assesses them for impairment. For collective assessment purposes exposures are grouped into a homogenous
risk pools based on similar credit risk characteristics. Common credit risk characteristics of the group include but are not
limited to: type of counterparty (individual vs. business), type of product, past-due status of the exposure, restructuring status
and type of collateral.
In order to calculate impairment allowance for collectively assessed loans pools, the Bank estimates the following risk
parameters: probability of default, cure rate, recovery rate, survival rate and loss give default, based on historical experience.
In case of a change in either the internal or external environment and historical data no longer reflect the current situation,
the Bank adjusts risk parameters on the basis of current observable data to reflect the effects of present conditions that did
not affect past periods, and to remove the effects of past conditions that do no longer exist.
If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modified because of financial
difficulties of the borrower or issuer, impairment is measured using the original effective interest rate before the modification
of terms.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Impairment of financial assets carried at amortised cost (comparatives only) (continued). 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.
Impairment losses on loans and advances and finance lease receivables (comparatives only). The Group regularly reviews
its loan portfolio and finance lease receivables to assess impairment. In determining whether an impairment loss should
be recorded in the statement of profit or loss and other comprehensive income, the Group conclude whether there is, or
not, any observable data indicating a measurable decrease in the estimated future cash flows from a portfolio of loans or
finance lease receivables before the decrease can be identified with an individual loan in that portfolio. This evidence may
include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or
national or local economic conditions that correlate with defaults on assets in the group. When scheduling future cash flows
the management uses estimates based on historical loss experience for assets with similar credit risk characteristics. The
methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly
to reduce any differences between loss estimates and actual loss experience. A 5% increase or decrease between actual loss
experience and the loss estimates used will result in an additional or lower charge for loan loss impairment of GEL 11,393 as
at 31 December 2017 (2016: GEL 11,251 thousand) and additional charge for impairment of finance lease receivables of GEL
63 thousand as at 31 December 2017 (2016: GEL 57 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 as at 31 December 2017 (2016: GEL 2,701 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 as at 31 December 2017 (2016: GEL 9 thousand), respectively.
Credit related commitments (comparatives only). 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 (comparatives only). are contracts that provide compensation if another party fails to perform a
contractual obligation. Such contracts do not transfer credit risk. Performance guarantees are recorded off-balance sheet at
initiation. Fee income is recognized as earned over the lifetime of a respective contract. . At the end of each reporting period,
the provision for performance guarantee contracts are measured at the best estimate of expenditure required to settle the
contract at the end of each reporting period, discounted to present value if the discounting effect is material.
The Bank has the contractual right to revert to its customer for recovering amounts paid to settle the performance guarantee
contracts. Such amounts are recognised as loans and receivables.
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Finance lease receivables (Investment in finance lease) (comparatives only). 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.
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:
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES
CONTINUED
ECL measurement. Measurement of ECLs is a significant estimate that involves forecasting future economic conditions,
longer the term of forecasts more management judgment is applied and those judgements may be the source of uncertainty.
Details of ECL measurement methodology are disclosed in Note 36. The following components have a major impact on
credit loss allowance: definition of default, definition of significant increase in credit risk (SICR), probability of default (“PD”),
exposure at default (“EAD”), and loss given default (“LGD”), as well as models of macro-economic scenarios. The Group
regularly reviews and validates the models and inputs to the models to reduce any differences between expected credit loss
estimates and actual credit loss experience.
Significant increase in credit risk (“SICR”). The Bank applies both qualitative and quantitative indicators to determination of
SICR considering all reasonable and supportable information available without undue cost and effort, on past events, current
conditions and future behavioural aspects of particular portfolios. The Bank tries to identify indicators of increase in credit
risk of individual instruments prior to delinquency and incorporates significant assumptions in the model in doing so. One of
such judgement is determination of thresholds of significant increase in credit risk. 20% decrease in SICR thresholds would
increase impairment allowance on loans and advances by GEL 2,056 thousand and would result in a change of the Bank’s cost
of credit risk ratio by 2 basis points. 10% increase in Stage 2 exposures would increase impairment allowance on loans and
advances by GEL 2,723 thousand and would result in a change of the Bank’s cost of credit risk ratio by 3 basis points.
Risk parameters: Probability of default (PD) and Loss given default (LGD) parameters are one of the key drivers of expected
credit losses. A 10% increase (decrease) in PD estimates at 31 December 2018 would increase (decrease) impairment
allowance on loans and advances by GEL 18,876 thousand (GEL 18,942 thousand) and would result in a change of the Bank’s
cost of credit risk ratio by 21 (21) basis points. As for the LGD ratio, a 10% increase (decrease) in LGD estimates at 31 December
2018 would increase (decrease) impairment allowance on loans and advances by GEL 28,185 thousand (GEL 28,012 thousand)
and would result in a change of the Bank’s cost of credit risk ratio by 31 (31) basis points.
Macro-economic scenarios: The Bank incorporates forward-looking information with three macro-economic scenarios to
calculate unbiased and probability weighted ECL. They represent the Baseline scenario (most likely outcome) and two less
likely scenarios, referred as the Upside (better than Baseline) and Downside (worse than Baseline). Weight for the baseline
scenario is set to 50% and 25% weight is applied for each less likely scenarios.
To set the weight assigned to upside forward looking macro-economic set of assumptions to 15% and respectively increase
the weight of the downside level assumptions from current 25% to 35% would increase impairment allowance on loans and
advances by GEL 4,860 thousand and would result in a change of the Bank’s cost of credit risk ratio by 5 basis points as at
December 2018.
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
205
205
4. ADOPTION OF NEW OR REVISED STANDARDS AND INTERPRETATIONS
Adoption of IFRS 9 “Financial Instruments”. The Group adopted IFRS 9, Financial Instruments, from 1 January 2018. The
Group elected not to restate comparative figures and recognised any adjustments to the carrying amounts of financial
assets and liabilities in the opening retained earnings as of the date of initial application of the standard, 1 January 2018.
Consequently, the revised requirements of the IFRS 7, Financial Instruments: Disclosures, have only been applied to the
current period. The comparative period disclosures repeat those disclosures made in the prior year.
The significant new accounting policies applied in the current period are described in Note 2. Accounting policies applied prior
to 1 January 2018 and applicable to the comparative information are disclosed in Note 2.
206
206
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 4. ADOPTION OF NEW OR REVISED STANDARDS AND INTERPRETATIONS CONTINUED
The following table reconciles the carrying amounts of each class of financial assets as previously measured in accordance
with IAS 39 and the new amounts determined upon adoption of 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)
Remeasurement
ECL Effect
Carrying value
per IFRS 9
(opening
balance at
1 January 2018)
Cash and cash equivalents
Loans and
receivables
Mandatory cash balances with
the National Bank of Georgia
Loans and
receivables
Investments in debt securities
Investments in debt securities
Total investments in debt
securities
Available-for-sale
Loans and
receivables
Investments in equity securities
Total investments in equity
securities
Due from other banks
Loans and advances to customers
Total loans and advances to
customers
Available-for-sale
Loans and
receivables
Loans and
receivables
Investment in finance lease
Total Investment in Finance
Lease
Other financial assets
Total other financial assets
Total financial assets
Amortised cost
1,431,477
491
1,430,986
Amortised cost
Fair value
through other
comprehensive
income
1,033,818
-
1,033,818
656,234
1,051
655,183
Amortised cost
449,538
628
448,910
1,105,772
1,679
1,104,093
Fair value
through other
comprehensive
income
Amortised cost
1,704
1,704
39,643
-
-
36
1,704
1,704
39,607
Amortised cost
8,325,353
63,731
8,261,622
Finance lease
receivables
Finance lease
receivables
8,325,353
63,731
8,261,622
143,836
143,836
739
739
143,097
143,097
Loans and
receivables
Amortised cost
146,144
1,019
145,125
146,144
12,227,747
1,019
67,695
145,125
12,160,052
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
207
207
4. ADOPTION OF NEW OR REVISED STANDARDS AND INTERPRETATIONS CONTINUED
In addition to the GEL 67,700 thousands increase in total provision level for financial assets as at 1 January 2018, there has
been a release of provision level for credit related commitments and performance guarantee contracts upon transition to
the IFRS 9 on 1 January 2018 in amount of GEL 4,100 thousands. As a result, total provision at the Group level increased by
GEL 63,600 thousands as at 1 January 2018. There were no material changes in amounts of financial liabilities. The impact
GEL 63,600 thousands was recognized as a reduction of retained earnings in the consolidated financial statements from the
adoption of the new standard on 1 January 2018. Related tax amount has been recognised according to local tax legislation
and was considered during reassessment during deferred tax amount as of the reporting date.
Cash and cash equivalents. All classes of cash and cash equivalents as disclosed in Note 6 were reclassified from loans and
receivables (“L&R”) measurement category under IAS 39 to AC measurement category under IFRS 9 at the adoption date of
the standard. The Group recognised credit loss allowance as disclosed above.
(a) Due from other banks. All classes of due from other banks balances were reclassified from L&R measurement category
under IAS 39 to AC measurement category under IFRS 9.
(b) Investments in debt securities. The following debt instruments have been reclassified to new categories under IFRS 9, as
their previous categories under IAS 39 were retired, with no changes to their measurement basis:
- those previously classified as AFS and now classified as measured at FVOCI; and
- those previously classified as L&R measurement category now classified as measured at AC.
Investments in equity securities. The Group has elected to irrevocably designate strategic investments in a portfolio of non-
trading equity securities as at FVOCI as permitted under IFRS 9. These securities were previously classified as AFS. The
changes in fair value of such securities will no longer be reclassified to profit or loss when they are impaired or disposed of.
All other equity investments were classified at FVTPL as required by IFRS 9.
Loans and advances to customers. All classes of Loans and advances to customers’ balances were reclassified from L&R
measurement category under IAS 39 to AC measurement category under IFRS 9. The Group does not hold such kind of
portfolio of loans and advances to customers that failed to meet the SPPI requirement.
Reconciliation of provision for impairment at 31 December 2017 and credit loss allowance at 1 January 2018.
The following table reconciles the prior period’s closing provision for impairment measured in accordance with incurred loss
model under IAS 39 to the new credit loss allowance measured in accordance with expected loss model under IFRS 9 at 1
January 2018:
In thousands of GEL
Loans and receivables measurment category
- Cash and cash equivalents
- Investment in debt securities
- Due from other Banks
- Loans and advances to customers
- Investment in finance lease
- Other financial assets
Credit related commitments and
performance guarantees
Provision under IAS 39 or
IAS 37 at 31 Dec 2017
Effect
Remeasu-rement from
incurred to expected
loss
Credit loss allowance
under IFRS 9 at 1
January
2018
-
-
-
227,864
1,498
18,020
491
1,679
36
63,731
739
1,019
491
1,679
36
291,595
2,237
19,039
13,200
(4,100)
9,100
At 31 December 2017, all of the Group’s financial liabilities except for derivatives were carried at AC. The derivatives belonged
to the FVTPL measurement category under IAS 39. There were no changes to the classification and measurement of financial
liabilities
208
208
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 4. ADOPTION OF NEW OR REVISED STANDARDS AND INTERPRETATIONS CONTINUED
Adoption of IFRS 15 “Revenue from Contracts with Customers” (issued on 28 May 2014 and effective for the periods
beginning on or after 1 January 2018) and Amendments to IFRS 15 “Revenue from Contracts with Customers” (issued
on 12 April 2016 and effective for annual periods beginning on or after 1 January 2018). The Group has adopted IFRS 15,
Revenue from Contracts with Customers, with the date of initial application of 1 January 2018. The new standard was applied
using the modified retrospective method, with the cumulative effect recognised in retained earnings on 1 January 2018. The
standard introduced the core principle that revenue must be recognised when the goods or services are transferred to the
customer, at the transaction price. Any bundled goods or services that are distinct must be separately recognised, and any
discounts or rebates on the contract price must generally be allocated to the separate elements. When the consideration
varies for any reason, minimum amounts must be recognised if they are not at significant risk of reversal. Costs incurred to
secure contracts with customers have to be capitalised and amortised over the period when the benefits of the contract are
consumed. The standard did not have a material impact on the Group.
The Group analysed its main revenue streams under the scope of IFRS 15 which are fee and commission income from card
operations, cash and settlement transactions, other operating income generated from sales of inventory, investment property,
and equipment. Those revenue streams were not affected by transition to IFRS 15 as there were no material changes to the
revenue recognition process of applicable revenue streams, the Group had already been recognizing revenue over period of
time, in line with the fulfilment of the respective performance obligations. The Group will continue to accrue over period of
time those incomes that are earned from services that are provided over a period of time.
The following amended standards became effective for the Group from 1 January 2018, but did not have any material impact
on the Group:
Amendments to IFRS 2 “Share-based Payment” (issued on 20 June 2016 and effective for annual periods beginning on or
after 1 January 2018);
Amendments to IFRS 4 - “Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts” (issued on 12 September
2016 and effective, depending on the approach, for annual periods beginning on or after 1 January 2018 for entities that
choose to apply temporary exemption option, or when the entity first applies IFRS 9 for entities that choose to apply the
overlay approach);
Annual Improvements to IFRSs 2014-2016 cycle – Amendments to IFRS 1 an IAS 28 (issued on 8 December 2016 and
effective for annual periods beginning on or after 1 January 2018);
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);
Amendments to IAS 40 – “Transfers of Investment Property” (issued on 8 December 2016 and effective for annual periods
beginning on or after 1 January 2018).
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 2018 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. 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 obtaining 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.
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
209
209
5. NEW ACCOUNTING PRONOUNCEMENTS CONTINUED
IFRS 16 “Leases” (issued on 13 January 2016 and effective for annual periods beginning on or after 1 January 2019)
(continued). 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
decided that it will apply the standard using the modified retrospective method, without restatement of comparatives. The
Group recognised a right of use asset of GEL 61,043 thousand against a corresponding lease liability on 1 January 2019. A
reconciliation of the operating lease commitments disclosed in Note 38 to this liability is as follows:
In thousands of GEL
Total future minimum lease payments for non-cancellable operating leases (Note 38)
- Future lease payments that are due in periods subject to lease extension options that are reasonably
certain to be exercised
- Effect of discounting to present value
Total effect on the Right of the use asset and Lease Liability
31 December 2018 /
1 January 2019
11,022
58,573
(8,552)
61,043
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 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 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 re-examine 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.
210
210
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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 gross amount of cash and equivalents
Less: Credit loss allowance
Total cash and cash equivalents
2018
491,928
118,749
371,902
2017
419,605
371,342
571,078
184,429
1,167,008
(97)
1,166,911
69,452
1,431,477
-
1,431,477
2016
402,532
135,557
406,319
772
945,180
-
945,180
95% of the correspondent accounts and overnight placements with other banks are placed with OECD banking institutions (31
December 2017: 97%; 31 December 2016: 96%).
As of 31 December 2018 GEL 13,383 thousand was placed on interbank term deposits with one non-OECD bank and GEL
171,046 thousand with two OECD bank (31 December 2017: GEL 12,421 thousand 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 ).
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
AA
A+
A
A-
BBB+
BBB
BBB-
BB+
BB
BB-
B+
B
Not rated
Total
2018
5,883
249,802
4,628
-
93,450
-
873
241
208
16,394
381
42
-
371,902
2017
-
271,366
62,434
213,247
3,235
383
45
300
224
15,919
442
185
3,298
571,078
2016
-
78,324
258,025
27,997
-
23,174
464
1,147
-
3,039
-
2,288
11,861
406,319
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
AAA
A
A-
BBB+
B+
Not rated
Total
2018
10,021
-
161,025
-
13,383
-
184,429
2017
-
-
-
57,031
-
12,421
69,452
2016
-
772
-
-
-
-
772
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, after introduction of IFRS 9, as of January
2018, for those financial institutions which are not assigned credit ratings country ratings are used. As of 31 December
2018 there were no investment securities held as collateral against placements with other banks under the reverse repo
agreements (31 December 2017: nil; 2016: nil). For the purpose of ECL measurement cash and cash equivalents balances are
included in Stage 1. As the ECL for year 2018 is measured per IFRS 9, it is not comparable to the prior periods. The material
Investing transaction that did not require the use of cash and cash equivalents, and were excluded from the statement of cash
flows represents the conversion of JSC TBC Bank's shares. For more details regarding the transaction please refer to note 25.
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
211
211
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 2018, 2017 and 2016. Credit ratings of
placements with other banks with original maturities of more than three months were as follows:
In thousands of GEL
AA
A
BBB+
BBB
BB+
BB-
B+
B
Not rated
Total
2018
8,913
-
80
3,838
4,388
26,238
3,194
665
-
47,316
2017
-
8,632
78
-
-
4,041
661
1,520
24,711
39,643
2016
-
13,210
79
5,541
-
801
-
5,073
21
24,725
As of 31 December 2018 the TBC Bank had one placement with one bank, with original maturities of more than three months
and with aggregated amounts above GEL 5,000 thousand (2017: one placement with one bank; 2016: nil). The total aggregated
amount of these placement was GEL 19,311 thousand (2017: GEL 23,147 thousand; 2016: nil) or 40.8% of the total amount due
from other (2017: 58%; 2016: nil).
As of 31 December 2018 GEL 15,725 thousand, (2017: GEL 13,121 thousand; 2016: GEL 19,511 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. The ECL for year 2018 is measured per IFRS 9 and it is not comparable to the prior periods.
For the purpose of ECL measurement due from other banks balances are included in Stage 1. The ECL for these balances as
at 31 December 2018 is GEL 39 thousand.
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 6.0%, 0.8% and (0.6%) annual
interest in GEL, USD and EUR respectively on mandatory reserve with NBG in 2018 (2017: 5.0%, 0.6% and (0.4%) in GEL, USD
and EUR respectively; 2016: 5.0%, 0.0% and (0.4%) in GEL, USD and EUR respectively).
In August 2018 Fitch Ratings has affirmed Georgia's Long-Term Foreign and Local-Currency Issuer Default Ratings (IDRs) at
'BB-' with a positive outlook. The issue ratings on Georgia's long-term senior unsecured foreign and local-currency bonds
are also affirmed at 'BB-'. The Country Ceiling is affirmed at 'BB ' and the Short-term Foreign and Local-Currency IDRs 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 gross loans and advances to customers at AC
Less: credit loss allowance
Total carrying amount of loans and advances to customers at AC
2018
3,177,289
1,989,516
2,709,183
2,496,594
10,372,582
(334,130)
10,038,452
2017
2,475,392
2,163,425
2,069,728
1,844,672
8,553,217
(227,864)
8,325,353
2016
2,062,229
1,872,142
1,808,434
1,615,920
7,358,725
(225,023)
7,133,702
The credit loss allowance as at 31 December 2018 is reported under IFRS 9 and is not comparable to the information
presented for 2017 and 2016.
212
212
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 9. LOANS AND ADVANCES TO CUSTOMERS CONTINUED
As of 31 December 2018 loans and advances to customers carried at GEL 228,454 thousand have been pledged to local banks
or other financial institutions as collateral with respect to other borrowed funds (2017: GEL 246,267 thousand; 2016: GEL
120,093 thousand).
In 2018, the Group has reassessed its definition of segments as disclosed in Note 28. Some of the clients were reallocated to
different segments. Comparative information as of 31 December 2017 has not been updated due to impracticability.
The following table discloses the changes in the credit loss allowance and gross carrying amount for loans and advances to
customers carried at amortised cost between the beginning and the end of the reporting period
Corporate loans
Gross carrying amount
Credit loss allowance
In thousands of GEL
Stage 1
(12-months
ECL)
Stage 2
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit im-
paired)
Stage 1
(12-months
ECL)
Total
Stage 2
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit im-
paired)
Total
At 1 January 2018
2,041,538
325,919
107,935
2,475,392
21,208
15,036
31,719
67,963
Transfers:
- to lifetime (from Stage
1 and stage 3 to Stage 2)
- to credit-impaired
(from Stage 1 and Stage
2 to Stage 3)
- to 12-months ECL
(from Stage 2 and Stage
3 to Stage 1)
New originated or
purchased
Derecognised during the
period
(93,957)
100,702
(6,745)
(3,395)
(85,409)
88,804
129,019
(126,886)
(2,133)
-
-
-
(1,811)
2,185
(374)
(32)
(8,341)
8,373
3,908
(3,908)
-
-
-
22,031
-
-
1,787,999
-
-
1,787,999
22,031
-
(873,776)
(53,958)
(14,720)
(942,454)
(9,217)
(3,140)
(21,293)
(33,650)
Net repayments
(145,691)
(25,028)
(39,857)
(210,576)
-
488
-
-
-
(321)
2
37,187
(321)
-
-
283
-
-
-
-
-
-
-
-
3,269
-
-
283
3,269
Other movements
Resegmentation
Net Write-offs
Net remeasurement
due to stage transfers
and risk parameters
changes
2
36,699
-
-
-
-
-
(3,430)
3,162
21,877
21,609
FX movements
24,875
2,887
2,298
30,060
-
-
-
-
At 31 December 2018
2,903,313
138,715
135,261
3,177,289
32,940
4,994
43,571
81,505
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
213
213
9. LOANS AND ADVANCES TO CUSTOMERS CONTINUED
Loans to micro, small and
medium enterprises
In thousands of GEL
Gross carrying amount
Credit loss allowance
Stage 2
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit im-
paired)
Stage 1
(12-months
ECL)
Total
Stage 2
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit im-
paired)
Stage 1
(12-months
ECL)
Total
At 1 January 2018
1,630,103
149,799
64,770
1,844,672
9,894
11,890
24,468
46,252
Transfers:
- to lifetime (from Stage
1 and stage 3 to Stage 2)
- to credit-impaired
(from Stage 1 and Stage
2 to Stage 3)
- to 12-months ECL
(from Stage 2 and Stage
3 to Stage 1)
New originated or
purchased
Derecognised during the
period
(142,901)
152,463
(9,562)
(83,887)
(21,578)
105,465
31,601
(30,683)
(918)
-
-
-
(13,479)
15,630
(2,151)
(6,489)
(2,130)
8,619
2,973
(2,552)
(421)
-
-
-
1,360,236
-
-
1,360,236
21,595
-
-
21,595
(528,289)
(61,702)
(49,272)
(639,263)
(4,388)
(2,679)
(3,210)
(10,277)
Net repayments
(146,754)
(20,622)
(21)
6
788
349
(166,588)
334
-
-
-
-
-
-
-
-
75,069
23,747
1,725
100,541
4,377
8,457
1,611
14,445
-
(22,004)
(22,004)
-
-
(5,664)
(5,664)
Other movements
Resegmentation
Net Write-offs
Net remeasurement
due to stage transfers
and risk parameters
changes
-
-
-
-
-
4,781
(6,245)
5,997
4,533
130
FX movements
15,460
1,727
1,479
18,666
9
8
113
At 31 December 2018
2,210,617
193,157
92,820
2,496,594
19,273
22,379
29,362
71,014
214
214
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 9. LOANS AND ADVANCES TO CUSTOMERS CONTINUED
Consumer loans
Gross carrying amount
Credit loss allowance
In thousands of GEL
Stage 1
(12-months
ECL)
Stage 2
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit im-
paired)
Stage 1
(12-months
ECL)
Total
Stage 2
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit im-
paired)
Total
At 1 January 2018
1,788,523
301,923
72,981
2,163,427
42,066
64,309
48,195
154,570
Transfers:
- to lifetime (from Stage
1 and stage 3 to Stage 2)
- to credit-impaired
(from Stage 1 and Stage
2 to Stage 3)
- to 12-months ECL
(from Stage 2 and Stage
3 to Stage 1)
New originated or
purchased
Derecognised during the
period
(244,838)
253,057
(8,219)
-
(34,737)
38,429
(3,692)
(97,030)
(64,020)
161,050
-
(28,073)
(16,142)
44,215
73,142
(71,235)
(1,907)
-
10,012
(9,115)
(897)
-
-
-
1,359,515
109
20
1,359,644
65,303
-
-
65,303
(794,286)
(96,300)
(52,401)
(942,987)
(23,551)
(13,147)
(23,220)
(59,918)
Net repayments
(339,487)
(34,337)
32,155
(341,669)
Other movements
1,033
(77)
1,636
2,592
-
-
-
-
-
-
-
-
Resegmentation
(109,359)
(24,193)
(1,725)
(135,277)
(4,886)
(8,391)
(1,611)
(14,888)
Net Write-offs
Net remeasurement
due to stage transfers
and risk parameters
changes
-
-
FX movements
4,765
-
(122,095)
(122,095)
-
- (100,885)
(100,885)
-
760
-
356
-
16,760
3,298
92,489
112,547
5,881
9
4
(19)
(6)
At 31 December 2018
1,641,978
265,687
81,851
1,989,516
42,903
59,245
54,575
156,723
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
215
215
9. LOANS AND ADVANCES TO CUSTOMERS CONTINUED
Mortgage loans
Gross carrying amount
Credit loss allowance
In thousands of GEL
Stage 1
(12-months
ECL)
Stage 2
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit im-
paired)
Stage 1
(12-months
ECL)
Total
Stage 2
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit im-
paired)
Total
At 1 January 2018
1,839,707
189,887
40,136
2,069,730
1,371
9,336
12,102
22,809
Transfers:
- to lifetime (from Stage
1 and stage 3 to Stage 2)
- to credit-impaired
(from Stage 1 and Stage
2 to Stage 3)
- to 12-months ECL
(from Stage 2 and Stage
3 to Stage 1)
New originated or
purchased
Derecognised during the
period
(144,596)
156,655
(12,059)
(14,734)
(20,146)
34,880
50,917
(50,040)
(877)
-
-
-
(2,118)
5,254
(3,136)
(1,700)
(1,248)
2,948
1,717
(1,466)
(251)
-
-
-
1,367,848
-
-
1,367,848
3,035
-
-
3,035
(480,297)
(67,350)
(8,657)
(556,304)
(801)
(2,083)
(1,575)
(4,459)
Net repayments
(174,623)
(18,409)
(8,435)
(201,467)
211
(2,385)
71
(61)
1,807
2,089
-
(3,576)
-
(2,446)
(3,576)
-
-
-
-
(13)
(8)
-
-
-
-
-
(21)
-
-
1,963
1,963
Other movements
Resegmentation
Net Write-offs
Net remeasurement
due to stage transfers
and risk parameters
changes
-
-
FX movements
28,556
3,803
-
-
950
-
195
(632)
1,969
1,532
33,309
9
13
6
28
At 31 December 2018
2,470,604
194,410
44,169
2,709,183
1,696
9,166
14,026
24,888
216
216
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 9. LOANS AND ADVANCES TO CUSTOMERS CONTINUED
Movements in the provision for loan impairment during 2018 are as follows:
Corporate loans
Consumer loans
Mortgage loans
In thousands of GEL
Provision for loan impairment
as of 31 December 2017
IFRS 9 effect
Credit Loss allowance as of 1
January 2018
Resegmentation effect
Credit loss allowance during
the year
Amounts written off during
the period as uncollectible
Effect of translation to
presentation currency
Credit Loss allowance as of
31 December 2018
49,626
18,337
67,963
446
13,416
(320)
-
121,538
33,032
154,570
(14,889)
139,143
17,577
5,232
22,809
(21)
5,648
Loans to micro,
small and medium
enterprises
39,123
7,129
46,252
14,464
32,194
Total
227,864
63,730
291,594
-
190,401
(122,095)
(3,576)
(22,004)
(147,995)
(6)
28
108
130
81,505
156,723
24,888
71,014
334,130
Loans and advances to customers written off in 2018 included loans to customers in the gross amount of GEL 43,422 thousand
issued in 2018, out of which, none was previously issued performance guarantee transformed into loan in 2018 and GEL
104,573 thousand issued in previous years.
Movements in the provision for loan impairment during 2017 were as follows:
In thousands of GEL
Provision for loan impairment as
of 1 January 2017
(Recovery of)/provision for
impairment during the year
Amounts written off during the
year as uncollectible
Effect of translation to
presentation currency
Provision for loan impairment as
of 31 December 2017
Corporate loans
Consumer loans
Mortgage loans
Loans to micro,
small and medium
enterprises
Total
90,100
73,730
23,602
37,591
225,023
(11,088)
(29,386)
-
130,333
384
21,521
141,150
(82,601)
(6,507)
(20,265)
(138,759)
76
98
276
450
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
Provision for loan impairment as of 31
December 2016
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
Total
194,143
-
105,772
25,140
5,996
49,202
56,570
(13,755)
(223)
(74,565)
(327)
90,100
73,730
23,602
37,591
225,023
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
217
217
9. LOANS AND ADVANCES TO CUSTOMERS CONTINUED
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.
The credit loss allowance for loans and advances to customers recognised in the period is impacted by a variety of factors,
details of ECL measurement are provided in Note 36.
In 2018 the Group applied the portfolio provisioning methodology prescribed by IFRS 9. For details please refer to Note 2. For
the periods before 1 January 2018, 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 table below contains an analysis of the credit risk exposure of loans and advances to customers measured at AC and for
which an ECL allowance is recognised. The carrying amount of loans and advances to customers below also represents the
Group's maximum exposure to credit risk on these loans. For details please refer to Note 2.
For the periods before 1 January 2018, the Group’s policy for credit risk management purposes was 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’ included exposures that were not overdue and were not
classified as impaired. ‘Past due but not impaired’ loans included overdue performing loans but with no objective evidence of
impairment identified. The classification included as well triggered loans that were not impaired because the current value of
the expected cash and collateral recoveries were sufficient for full repayment. ‘Individually assessed impaired loans’ included
exposures which were assessed for impairment on an individual basis, and an ad-hoc impairment allowance was created.
‘Collectively assessed impaired loans’ included 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.
Individually assessed impaired loans’ include exposures which are impaired and individual impairment is applied based on
individual assessment. ‘Collectively assessed impaired loans’ include exposures for which default triggers were identified and
the respective collective impairment allowance was created. Both individually and collectively impaired loans are classified
as stage 3 exposures. The Group conducts collective assessment of the borrowers on a monthly basis. As for the individual
assessment, it is performed quarterly.
218
218
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 9. LOANS AND ADVANCES TO CUSTOMERS CONTINUED
The credit quality of loans to customers carried at amortised cost is as follows at 31 December 2018:
In thousands of GEL
Corporate loans risk category
- Very low
- Low
- Moderate
- High
- Default
Gross carrying amount
Credit loss allowance
Carrying amount
Consumer loans risk category
- Very low
- Low
- Moderate
- High
- Default
Gross carrying amount
Credit loss allowance
Carrying amount
Mortgage loans risk category
- Very low
- Low
- Moderate
- High
- Default
Gross carrying amount
Credit loss allowance
Carrying amount
In thousands of GEL
Loans to MSME risk category
- Very low
- Low
- Moderate
- High
- Default
Gross carrying amount
Credit loss allowance
Carrying amount
Stage 1
(12-months ECL)
Stage 2
(lifetime ECL for SICR)
Stage 3
(lifetime ECL for credit
impaired)
2,712,885
189,086
1,344
-
-
2,903,315
(32,940)
2,870,375
1,118,057
349,406
174,530
-
-
1,641,993
(42,903)
1,599,090
2,268,634
177,274
24,695
-
-
2,470,603
(1,697)
2,468,906
6,417
130,798
1,238
260
-
138,713
(4,994)
133,719
3,373
19,874
212,707
29,719
-
265,673
(59,245)
206,428
20,051
62,060
104,550
7,749
-
194,410
(9,165)
185,245
-
-
-
-
135,261
135,261
(43,571)
91,690
-
-
-
-
81,850
81,850
(54,575)
27,275
-
-
-
-
44,170
44,170
(14,026)
30,144
Stage 1
(12-months ECL)
Stage 2
(lifetime ECL for SICR)
Stage 3
(lifetime ECL for credit impaired)
1,865,077
324,306
21,342
-
-
2,210,725
(19,301)
2,191,424
16,285
72,742
84,520
19,502
-
193,049
(22,379)
170,670
-
-
-
-
92,820
92,820
(29,334)
63,486
For description of the credit risk grading used in the tables above refer to Note 36.
Total
2,719,302
319,884
2,582
260
135,261
3,177,289
(81,505)
3,095,784
1,121,430
369,280
387,237
29,719
81,850
1,989,516
(156,723)
1,832,793
2,288,685
239,334
129,245
7,749
44,170
2,709,183
(24,888)
2,684,295
Total
1,881,362
397,048
105,862
19,502
92,820
2,496,594
(71,014)
2,425,580
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
219
219
9. LOANS AND ADVANCES TO CUSTOMERS CONTINUED
Analysis by credit quality of loans outstanding as of 31 December 2017 is as follows:
In thousands of GEL
Corporate loans
Consumer loans
Mortgage loans
Loans to micro, small and
medium enterprises
Total
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
Total collectively assessed
impaired loans
Total loans and advances to
customers (before impairment)
Total provision
Total loans and advances to
customers
1,679,029
708,038
1,556,495
1,679,495
479,433
338,456
1,134,503
619,528
6,049,522
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
48
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
-
-
-
-
-
-
-
6,669
2,605
4,078
28,609
10,246
7,440
-
-
-
-
-
-
-
5,912
5,097
5,595
2,561
4,335
2,568
2,420
-
-
-
-
-
41,863
10,351
4,455
48
-
8,740
2,420
65,457
6,744
2,897
3,542
10,009
8,969
11,067
20,591
11,267
13,215
41,179
23,550
21,400
2,259
59,647
26,068
43,228
131,202
2,475,392
(49,626)
2,163,425
(121,538)
2,069,728
(17,577)
1,844,672
(39,123)
8,553,217
(227,864)
2,425,766
2,041,887
2,052,151
1,805,549
8,325,353
220
220
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 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
Corporate loans
Consumer loans
Mortgage loans
Loans to micro, small and
medium enterprises
Total
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
Total collectively assessed
impaired loans
Total loans and advances to
customers (before impairment)
Total provision
Total loans and advances to
customers
1,279,999
647,613
1,030,204
738,255
1,203,461
557,777
836,773
689,106
4,350,437
2,632,751
1,927,612
1,768,459
1,761,238
1,525,879
6,983,188
10,369
1,714
-
-
2,864
14,947
101,273
1,059
7,966
-
2,455
4,000
116,753
776
-
908
-
1,233
-
2,917
38,214
21,205
146
91
28
7,565
8,241
-
-
-
31,904
14,269
227
-
-
88,052
45,429
373
91
2,892
59,684
15,806
46,400
136,837
-
-
-
-
-
-
-
5,493
1,488
2,622
21,779
7,660
4,957
43,999
195
-
-
-
34
167
396
7,129
2,316
2,443
6,569
8,371
4,166
30,994
1,808,434
(23,602)
2,832
104,300
-
-
88
436
-
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
40,285
1,615,920
(37,591)
18,699
5,120
11,196
38,422
28,555
16,203
118,195
7,358,725
(225,023)
2,062,229
(90,100)
1,872,142
(73,730)
1,972,129
1,798,412
1,784,832
1,578,329
7,133,702
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
221
221
9. LOANS AND ADVANCES TO CUSTOMERS CONTINUED
Economic sector risk concentrations within the customer loan portfolio are as follows:
In thousands of GEL
Individual
Energy & Utilities
Hospitality & Leisure
Food Industry
Real Estate
Trade
Agriculture
Construction
Pawn Shops
Communication
Healthcare
Services
Automotive
Metals and Mining
Transportation
Financial Services
Other
Total loans and advances to
customers (before impairment)
31 December 2018
31 December 2017
Amount
4,677,328
%
45%
Amount
4,198,386
%
49%
776,204
759,605
570,810
564,197
445,290
418,432
359,549
278,384
229,522
220,756
180,045
156,241
100,855
80,075
71,617
483,672
7%
7%
6%
5%
4%
4%
3%
3%
2%
2%
2%
2%
1%
1%
1%
5%
719,854
450,741
524,286
453,415
394,495
269,844
233,771
279,410
114,032
172,255
108,186
160,795
84,419
96,427
87,501
205,400
9%
5%
7%
5%
5%
3%
3%
3%
1%
2%
1%
2%
1%
1%
1%
2%
3,721,450
Amount
31 December 2016
%
51%
7%
4%
4%
3%
6%
3%
3%
4%
1%
3%
1%
2%
1%
1%
3%
3%
540,116
319,497
301,290
252,112
447,541
212,148
210,888
305,031
45,864
182,131
109,187
144,157
62,464
89,467
188,646
226,736
10,372,582
100%
8,553,217
100%
7,358,725
100%
As of 31 December 2018 the Group had 170 borrowers (2017: 142 borrowers; 2016: 112 borrowers) with aggregated gross loan
amounts above GEL 5,000 thousand. The total aggregated amount of these loans was GEL 3,054,314 thousand (2017: GEL
2,437,750 thousand; 2016: GEL 1,900,916 thousand) or 29.4% of the gross loan portfolio (2017: 28.5%; 2016: 25.8%).
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 2018:
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
2,857,207
1,213,594
2,663,362
Fair value of collateral
6,516,492
2,543,720
5,404,518
Carrying value of the assets Fair value of collateral
47,249
34,242
28,934
320,082
775,922
45,821
2,340,847
9,075,010
5,324,290
19,789,020
155,747
1,297,572
68,110
178,535
222
222
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 9. LOANS AND ADVANCES TO CUSTOMERS CONTINUED
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
Over-collateralised Assets
Under-collateralised assets
Carrying value of the assets
2,129,927
908,387
2,042,001
Fair value of collateral
5,194,598
2,132,566
4,429,201
Carrying value of the assets Fair value of collateral
97,386
25,781
17,189
345,465
1,255,038
27,727
1,688,438
6,768,753
3,970,931
15,727,296
156,234
1,784,464
146,949
287,305
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
Over-collateralised Assets
Under-collateralised assets
Carrying value of the assets
1,849,202
1,040,644
1,780,553
Fair value of collateral
5,683,279
2,761,580
4,694,003
Carrying value of the assets Fair value of collateral
109,076
28,102
16,360
213,027
831,498
27,881
1,479,200
6,149,599
4,959,947
18,098,809
136,720
1,209,126
131,967
285,505
The financial effect of collateral is determined by comparing the fair value of collateral to outstanding gross loans and
advances in the reporting date.
At the central level a specific unit manages collateral to ensure that they serve as an adequate mitigation for credit risk
management purposes. In line with the Group's internal policies, collateral provided to loans are evaluated by the Internal
Appraisal Group (external reviewers are used in case of loans to related parties or specific cases when complex objects are
appraised). The Internal Appraisal Group is part of the collateral management unit and, in order to ensure adequate and
objective appraisal procedures, it is independent from the loan granting process. Real estate collateral of significant value is
re-evaluated annually by internal appraisers. Statistical methods are used to monitor the value of real estate collateral that
are of non-significant value and other types of collaterals such as movable assets and precious metals.
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 GEL625,719 thousand, GEL 527,498
thousand and GEL 608,058 thousand as of 31 December 2018, 2017 and 2016 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.
Gains less losses recognised in profit or loss on modifications of loans with lifetime ECL that did not lead to derecognition was
GEL 196 thousand.
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
223
223
10. INVESTMENT SECURITIES MEASURED AT FAIR VALUE
THROUGH OTHER COMPREHENSIVE INCOME
Figures below represent Investment securities measured at FVOCI under IFRS 9 since 1 January 2018, previously classified
under available-for-sale category under IAS 39. The credit loss allowance as at 31 December 2018 is reported under IFRS 9
and is not comparable to the information presented for 2017 and 2016.
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
Netherlands Government Bonds
Less: Credit loss allowance
Total debt securities
Corporate shares – unquoted
Total investment securities measured at fair value
through other comprehensive income
2018
549,477
373,447
14,985
-
66,760
(1,136)
1,003,533
1,706
1,005,239
2017
328,761
319,745
7,728
-
-
-
656,234
1,704
657,938
2016
150,073
241,810
36,002
1,016
-
-
428,901
1,802
430,703
All debt securities except for corporate bonds and Netherlands Government 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 August 2018). 63.0% of corporate bonds are issued by triple A rated international financial institutions,
21.9% of corporate bonds are issued by A- rated international financial institutions and 4.8% corporate bonds are issued at
BB- rating, whereas 9.8% and 0.5% of corporate bonds are issued by B+ and B rated corporations respectively. The investees
have not published recent financial information about their operations, their shares are not quoted and recent trade prices
are not publicly accessible. At 1 January 2018, the Group designated investments in corporate shares disclosed in the above
table as equity securities at FVOCI. In 2017, these investments were classified as AFS. Refer to Note 4 for details. The FVOCI
designation was made because the investments are expected to be held for strategic purposes rather than with a view to
profit on a subsequent sale, and there are no plans to dispose of these investments in the short or medium term.
As of 31 December 2018 investment securities measured at fair value through other comprehensive income carried at GEL
613,466 thousand have been pledged to local banks or financial institutions as collateral with respect to other borrowed funds
(2017: GEL 424,892 thousand; 2016: GEL 205,216 thousand). Refer to Note 18. None of the debt securities measured at fair
value through other comprehensive income are overdue or impaired. As of 31 December 2018 the principal equity investment
securities measured at fair value through other comprehensive income are as follows:
Nature of business
Country of registration
Carrying value as of 31 December
In thousands of GEL
JSC GRDC
Georgian Stock Exchange
Other
Total
Property development
Stock exchange
Netherlands Antilles
Georgia
2018
365
1,004
337
1,706
2017
365
1,004
335
1,704
2016
365
1,004
433
1,802
The movements in investment securities measured at fair value through other comprehensive income are as follows:
In thousands of GEL
Carrying amount as of 1 January
Business Combination
Purchases
Disposals
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
Credit loss allowance*
Carrying amount as of 31 December
Note
29
2018
657,938
-
717,630
(14,781)
(370,571)
6,949
57,057
(48,442)
-
595
-
(1,136)
1,005,239
2017
430,703
-
560,226
-
(345,748)
5,489
43,735
(36,214)
-
(158)
(95)
-
657,938
2016
307,310
153,004
143,783
(14,679)
(167,115)
522
25,707
(17,900)
(11)
82
-
-
430,703
*For the purpose of ECL measurement, securities balances are included in Stage 1. Refer to Note 36 for the ECL measurement
224
224
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 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
Corporate bonds
Less: Credit loss allowance
Total bonds carried at amortised cost
2018
654,618
-
-
500
(915)
654,203
2017
424,876
24,662
-
-
-
449,538
2016
323,478
43,408
6,070
-
-
372,956
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 August 2018).
The movements in bonds carried at amortised cost are as follows:
In thousands of GEL
Carrying amount as of 1 January
Purchases
Redemption at maturity
Interest income accrual
Interest income received
Effect of translation to presentation currency
Credit loss allowance
Carrying amount as of 31 December
2018
449,538
396,217
(200,658)
40,625
(30,611)
7
(915)
654,203
2017
372,956
307,248
(242,380)
32,328
(20,601)
(13)
-
449,538
2016
372,092
304,109
(314,231)
30,714
(19,740)
12
-
372,956
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 2018 bonds carried at amortised cost of GEL 212,337 thousand have been pledged to local banks or
financial institutions as collateral with respect to other borrowed funds (2017: GEL 223,860 thousand; 2016: GEL 273,311
thousand). Refer to Note 18.
None of the bonds carried at amortised cost as of 31 December 2018, 31 December 2017 and 31 December 2016 were either
overdue or impaired.
For the purpose of ECL measurement securities balances are included in Stage 1. Refer to Note 36 for the ECL measurement
approach. The ECL for year 2018 is measured per IFRS 9 and it is not comparable to the prior periods.
12. OTHER FINANCIAL ASSETS
In thousands of GEL
Receivables from sales of repossessed assets
Receivables on guarantees / letters of credit
Prepayments for purchase of leasing assets
Insurance and reinsurance receivables
Receivables on credit card services and money transfers
Receivable on terminated leases
Trade receivable
Rental income receivables
Bank assurance income receivable
Factored receivables
Other
Total gross amount of other financial assets
Less: Credit loss allowance
Total carrying amount of other financial assets
2018
43,671
36,869
32,293
21,451
14,390
12,651
8,292
3,492
2,527
-
19,976
195,612
(28,094)
167,518
2017
6,619
20,983
25,478
15,742
26,703
8,961
13,862
4,414
15,923
6,182
19,297
164,164
(18,020)
146,144
2016
10,603
18,215
10,628
2,249
24,801
7,832
2,232
3,816
4,549
900
15,462
101,287
(6,660)
94,627
The credit loss allowance as at 31 December 2018 is reported under IFRS 9 and is not comparable to the information presented
for 2017 and 2016.
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
225
225
12. OTHER FINANCIAL ASSETS CONTINUED
Movements in the credit loss allowance of other financial assets during 2018 were as follows:
In thousands of GEL
Provision for impairment as of 31 December 2017
IFRS 9 effect
Credit loss allowance as of 1 January 2018
Credit loss allowance during the year
Amounts written off during the year as uncollectible
Foreign exchange translation gains less losses
Credit loss allowance as of 31 December 2018
Receivables on
terminated leases
6,234
-
6,234
3,143
-
-
9,377
Other
11,786
1,019
12,805
12,097
(6,404)
219
18,717
Total
18,020
1,019
19,039
15,240
(6,404)
219
28,094
Additions less releases recorded in profit or loss for credit loss allowance of other financial assets include write-off of
insurance debtors in the amount of GEL 163 thousand that are included in insurance and reinsurance receivables.
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
Receivables on
terminated leases
4,666
1,568
-
-
-
6,234
Other
1,994
10,645
(1,011)
189
(31)
11,786
Total
6,660
12,213
(1,011)
189
(31)
18,020
Additions less releases recorded in profit or loss for provision for 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 are 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
2,331
72
1,748
(2,370)
213
1,994
Total
5,892
72
2,853
(2,370)
213
6,660
226
226
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 12. OTHER FINANCIAL ASSETS CONTINUED
As at 31 December 2018, presentation of other financial assets gross carrying amount and credit loss allowance by IFRS 9
stages are as follows:
In thousands of GEL
At 31 December 2017
IFRS 9 effect
At 1 January 2018
Transfers:
- to lifetime (from
Stage 1 and Stage 3 to Stage 2)
- to credit-impaired (from
Stage 1 and Stage 2 to Stage 3)
- to 12-months ECL (from
Stage 2 and Stage 3 to Stage 1)
New originated or purchased
Changes to ECL measurement
model assumptions
Derecognised during the period
Net repayments
Net Write-offs
FX movements
At 31 December 2018
Credit loss allowance
Gross carrying amount
Stage 1
(12-months
ECL)
115,149
-
115,149
Stage 2
(lifetime CL
for SICR)
174
-
174
Stage 3
(lifetime ECL
for credit
impaired)
33,099
-
33,099
Stage 1
(12-months
ECL)
9,099
796
9,895
Total
148,422
-
148,422
Stage 2
(lifetime
ECL for
SICR)
1
31
32
Stage 3
(lifetime ECL
for credit
impaired)
8,920
192
9,112
Total
18,020
1,019
19,039
(48)
(5,013)
210
50,343
-
(26,787)
(6,070)
-
(999)
126,785
48
(17)
(86)
13
-
(44)
(14)
-
-
74
-
5,030
-
-
(3)
(81)
3
(4)
-
85
-
-
(124)
35,855
-
86,211
57
4,439
(20)
1
(37)
5,596
-
10,036
-
(1,243)
(130)
(16,772)
(8,413)
47,302
-
(28,074)
(6,214)
(16,772)
(9,412)
174,161
(653)
(510)
-
-
-
13,144
8
(6)
-
-
-
14
7,707
(1,342)
-
(6,404)
219
14,936
7,062
(1,858)
-
(6,404)
219
28,094
The table below illustrates the credit quality of other financial receivables:
In thousands of GEL
Neither past due nor impairment
- Prepayments for purchase of leasing assets
- Insurance and Reinsurance Receivables
- Receivables on credit card services and money transfers
- Trade receivable
- Receivables from sales of repossessed assets
- Rental income receivables
- Bank assurance income receivable
- Receivables on guarantees / letters of credit
- Factored receivables
- Other
Total neither past due nor impaired
Past due but not impaired
- Receivables on guarantees
- More than 90 days overdue
Total past due but not impaired
Receivables individually determined to be impaired (gross)
- Receivables on terminated leases
- Less than 90 days overdue
- More than 90 days overdue
- Receivables on 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 credit loss allowance
Total other financial assets
2018
32,293
21,451
14,390
8,292
43,671
3,492
2,527
1,496
-
17,848
145,460
-
-
12,651
-
12,651
35,373
35,373
-
-
-
-
2,128
-
2,128
50,152
(28,094)
167,518
2017
25,478
15,742
26,703
13,862
6,481
4,414
15,923
2,990
6,182
14,120
131,895
16,773
16,773
8,961
-
8,961
1,220
-
1,220
138
-
138
5,177
-
5,177
15,496
(18,020)
146,144
2016
10,628
2,249
24,801
2,232
5,700
3,816
4,549
1,089
900
9,496
65,460
17,126
17,126
7,832
-
7,832
-
-
-
4,903
-
4,903
5,966
-
5,966
18,701
(6,660)
94,627
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
227
227
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+
BBB
BB
BB-
B+
B
Not rated
Total
2018
1,917
4,949
6,263
35,663
7
94,479
2,182
-
-
145,460
2017
13,003
4,116
6,265
-
217
7
4,332
726
103,229
131,895
2016
2,508
14,086
845
-
-
-
1,007
2,645
44,369
65,460
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 1,484 thousand (2017: GEL 1,206 thousand; 2016: GEL 2,039 thousand). The remaining
assets are not collateralized.
13. INVESTMENTS IN FINANCE LEASE
As of 31 December 2018 investments in finance lease of GEL 203,802 thousand (2017: GEL 143,836 thousand; 2016: GEL
95,031 thousand) are represented by leases of fixed assets excluding land and buildings.
In thousands of GEL
Finance lease payments receivable as of 31 December 2018
Unearned finance income
Credit loss allowance
Present value of lease payments receivable as of 31 December 2018
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
Due in 1 year
122,056
(32,981)
(1,789)
87,286
86,186
(23,720)
(765)
61,701
65,265
(15,302)
(678)
49,285
Due between 1 and 5 years
148,623
(30,294)
(1,813)
116,516
105,595
(22,727)
(733)
82,135
56,672
(10,462)
(464)
45,746
Total
270,679
(63,275)
(3,602)
203,802
191,781
(46,447)
(1,498)
143,836
121,937
(25,764)
(1,142)
95,031
Finance lease payments receivable (gross investment in the leases) and their present values are as follows:
For fair values refer to Note 42.
The credit loss allowance as at 31 December 2018 is reported under IFRS 9 and is not comparable to the information presented
for 2017 and 2016.
The table below illustrates the movements in the credit loss allowance of net investment in finance lease:
In thousands of GEL
Credit loss allowance at the beginning of the year
Credit loss allowance during the year
Amounts written off during the year as uncollectible
Credit loss allowance at the end of the year
31 December
2018
2,237
1,765
(400)
3,602
31 December
2017
1,142
492
(136)
1,498
31 December
2016
738
558
(154)
1,142
228
228
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 13. INVESTMENTS IN FINANCE LEASE CONTINUED
The following table discloses the changes in the credit loss allowance and gross carrying amount for Investments in finance
lease between the beginning and the end of the reporting period:
In thousands of GEL
At 31 December 2017
IFRS 9 effect
At 1 January 2018
Transfers:
- to lifetime (from
Stage 1 and Stage 3
to Stage 2)
- to credit-impaired
(from Stage 1 and
Stage 2 to Stage 3)
- to 12-months ECL
(from Stage 2 and
Stage 3 to Stage 1)
New originated or
purchased
Derecognised during
the period
Partial repayment
Net repayments
Foreign currency
effect
Other movements
Credit loss allowance
Gross carrying amount
Stage 1
(12-months
ECL)
Stage 2
(lifetime ECL
for SICR)
Stage 3
(lifetime ECL for
credit impaired
Stage 1
(12-months
ECL)
Stage 2
(lifetime ECL
for SICR)
Stage 3
(lifetime ECL for
credit impaired)
Total
Total
519
345
864
51
394
445
928
1,498
128,500
11,610
5,224
145,334
-
739
-
-
-
-
928
2,237
128,500
11,610
5,224
145,334
(9)
9
(367)
(20)
357
(357)
1,350
(103)
-
(47)
-
-
108
(81)
-
101
-
-
-
387
-
-
-
-
(3,996)
4,078
(82)
(10,605)
(4,533)
15,138
1,052
(1,033)
(19)
-
-
-
255
1,714
120,992
7,208
5,165
133,365
(717)
(901)
(36,040)
-
-
(24,985)
(498)
552
-
-
-
-
-
1,250
2,003
(5,372)
(1,468)
-
94
277
(3,541)
(44,953)
(4,887)
(31,340)
-
-
289
1,085
1,633
3,365
At 31 December 2018
2,045
205
1,352
3,602
178,171
10,861
18,372
207,404
The Group applied the portfolio provisioning methodology prescribed by IFRS 9 for the periods beginning 1 January 2018
and IAS 39 for the periods before 1 January 2018 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 impact of IFRS 9 was immaterial for terminated leases.
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-collateralized assets”) and (ii) those
assets where collateral and other credit enhancements are less than the assets’ carrying value (“under-collateralized
assets”).
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
229
229
13. INVESTMENTS IN FINANCE LEASE CONTINUED
Per IFRS 9 impairment methodology, the Company classifies its portfolio into three stages:
Stage 1 – assets for which no significant increase of credit risk since initial recognition is identified;
Stage 2 – assets for which significant increase in credit risk since initial recognition is identified;
Stage 3 – credit-impaired exposures.
For stage 1 exposures the Company creates 12 months expected credit losses, whereas for stage 2 and stage 3 lifetime
expected credit losses are created.
The key impact of IFRS 9 comes from Stage 2 classification and incorporation of forward looking information in allowance
calculation. For stage 1 no increase was identified considering that the Company has already been applying 12 months loss
identification period (LIP) under IAS 39 methodology.
For the Stage 2 classification purposes the Company applies both quantitative and the qualitative criteria including, but not
limited to:
30 days past due (DPD) overdue;
Downgrade of the risk category of the borrower since initial recognition.
Under IFRS 9 methodology the Company updated its default definition criteria as well in order to make it consistent with
the Company’s internal guidelines. Updated default definition includes criteria such as: (i) 90 DPD overdue (ii) distressed
restructuring and (iii) other criteria indicating the borrower’s unlikeness to repay the liabilities.
Another significant driver of IFRS 9 impact on allowance level is incorporation of the forward looking information (FLI). The
Company incorporates forward looking information for both individual and collective assessment. For FLI purposes the
Company defines three scenarios, which are:
Baseline (most likely);
Upside (better than most likely);
Downside (worse than most likely).
The Company 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. Refer to note 36 for the description of how the Group incorporates FLI in ECL calculations. Upside and downside
scenarios are defined based on the framework developed by the Bank’s macroeconomic unit.
The Company 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.
As at 31 December 2018, credit quality of net investment in finance lease is analysed below:
In thousands of GEL
Investments in Finance Lease risk category
- Very low
- Low
- Moderate
- High
- Default
Gross carrying amount
Credit loss allowance
Carrying amount
Stage 1
(12-months ECL)
Stage 2
(lifetime ECL for SICR)
Stage 3
(lifetime ECL for credit
impaired)
145,220
32,951
-
-
-
178,171
(2,045)
176,126
-
2,350
6,712
1,799
-
10,861
(205)
10,656
-
-
-
-
18,372
18,372
(1,352)
17,020
Total
145,220
35,301
6,712
1,799
18,372
207,404
(3,602)
203,802
230
230
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 13. INVESTMENTS IN FINANCE LEASE CONTINUED
Credit quality of net investment in finance lease as at 31 December 2017 and 2016 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
Credit loss allowance
Total net investment in finance lease
*Total impaired leases include both collectively and individually impaired leases
31 December 2017
31 December 2016
22,705
90,668
113,373
19,047
9,310
28,357
-
-
343
2,204
339
718
3,604
145,334
(1,498)
143,836
28,084
45,404
73,488
15,357
5,101
20,458
-
-
-
1,079
966
182
2,227
96,173
(1,142)
95,031
The effect of collateral as of 31 December 2018:
In thousands of GEL
Investment in leases
Total
Over-collateralised assets
Under-collateralised assets
Carrying value of
the assets
166,362
166,362
Fair value of
collateral
253,582
253,582
Carrying value of the
assets
41,042
41,042
Fair value of c
ollateral
34,527
34,527
The effect of collateral as of 31 December 2017:
In thousands of GEL
Investment in leases
Total
Over-collateralised assets
Under-collateralised assets
Carrying value of
the assets
96,015
96,015
Fair value of
collateral
153,813
153,813
Carrying value of the
assets
49,319
49,319
Fair value of
collateral
9,710
9,710
The effect of collateral as of 31 December 2016:
In thousands of GEL
Investment in leases
Total
Over-collateralised assets
Under-collateralised assets
Carrying value of
the assets
75,364
75,364
Fair value of
collateral
112,917
112,917
Carrying value of the
assets
20,809
20,809
Fair value of
collateral
16,817
16,817
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
231
231
14. OTHER ASSETS
In thousands of GEL
Current other assets
Inventories of repossessed collateral
Prepayments for other assets
Other inventories
Prepaid taxes other than income tax
Other debtor
Total current other assets
Non-current other assets
Reinsurer's Assets
Assets repossessed from terminated leases
Assets purchased for leasing purposes
Prepayments for construction in progress
Prepaid insurance of leasing assets
Other
Total non-current other assets
Total other assets
2018
120,663
29,027
4,198
856
-
154,744
14,529
10,819
6,985
2,259
2,174
1,282
38,048
192,792
2017
116,809
9,721
4,194
5,788
-
136,512
8,342
3,210
2,733
2,745
1,884
1,225
20,139
156,651
2016
90,873
28,660
3,973
3,326
35,497
162,329
64
2,673
286
2,445
937
2,529
8,934
171,263
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 2018, collateral repossessed for settlement of impaired loans amounted to GEL 30 million
(2017: GEL 53 million; 2016: GEL 39 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 repossessed collateral may not be
disposed to third parties. As of 31 December 2018, the carrying value of the inventories of repossessed collateral subjected to
the repurchase agreement was GEL 44,024 thousand (2017: GEL 11,170 thousand; 2016: GEL 20,342 thousand).
232
232
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 15. PREMISES, EQUIPMENT AND INTANGIBLE ASSETS
In thousands of GEL
Cost or valuation as of 1 January
2016
Accumulated depreciation/
amortisation
Including accumulated
impairment loss
Carrying amount as of 1 January
2016
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
Carrying amount as of 31
December 2016
Cost or valuation as of 31
December 2016
Accumulated depreciation/
amortisation including
accumulated impairment loss
Carrying amount as of 31
December 2016
Additions
Transfers within premises and
equipment
Transfer from investment
property
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
Carrying amount as of 31
December 2017
Land, Premises
and leasehold
improvements
Office and Other
equipment*
Construct-ion in
progress
Total premises and
equipment
Intangible
Assets
Total
162,126
152,662
50,033
364,821
67,344
432,165
(29,545)
(87,509)
-
(117,054)
(23,000)
(140,054)
132,581
5,555
50,049
3,042
(298)
(2,571)
(31)
(574)
(3,269)
65,153
19,369
8,260
-
-
(3,836)
(45)
(675)
(16,895)
2,439
2,555
27
32
50,033
6,206
36
(3,042)
-
(69)
-
-
-
-
-
247,767
31,130
58,345
-
(298)
(6,476)
(76)
(1,249)
(20,164)
44,344
18,904
6,761
-
-
(4)
(12)
(2,043)
(6,981)
292,111
50,034
65,106
-
(298)
(6,480)
(88)
(3,292)
(27,145)
4,994
-
4,994
59
(12)
47
186,950
73,918
217,299
175,636
53,164
53,164
314,032
60,957
374,989
446,099
90,950
537,049
(30,349)
(101,718)
-
(132,067)
(29,993)
(162,060)
186,950
5,684
11,326
1,114
(2,324)
25
(6)
(5,567)
747
(25)
73,918
26,440
53,164
48,663
-
(11,326)
-
(9,638)
54
(730)
(20,096)
8,636
(50)
-
-
-
(46)
-
-
-
314,032
80,787
-
1,114
(11,962)
79
(782)
(25,663)
9,383
(75)
60,957
34,877
-
-
(88)
11
(1,916)
(10,436)
30
57
374,989
115,664
-
1,114
(12,050)
90
(2,698)
(36,099)
9,413
(18)
197,924
78,534
90,455
366,913
83,492
450,405
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
233
233
15. PREMISES, EQUIPMENT AND INTANGIBLE ASSETS CONTINUED
In thousands of GEL
Cost or valuation as of 31
December 2017
Accumulated depreciation/
amortisation including
accumulated impairment loss
Carrying amount as of 31
December 2017
Additions
Business combination
Transfers within premises and
equipment
Transfer from investment
property
Transfer to 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
Carrying amount as of 31
December 2018
Cost or valuation as of 31
December 2018
Accumulated depreciation/
amortisation including
accumulated impairment loss
Carrying amount as of 31
December 2018
Land, Premises
and leasehold
improvements
Office and Other
equipment*
Construct-ion in
progress
Total premises and
equipment
Intangible
Assets
Total
233,118
191,762
90,455
515,335
123,834
639,169
(35,194)
(113,228)
-
(148,422)
(40,342)
(188,764)
197,924
8,804
3,607
2,661
-
-
(4,160)
10,635
78,534
46,619
301
90,455
8,538
-
366,913
63,961
3,908
-
(2,661)
-
-
-
(22,945)
-
1,317
(32,628)
-
114
1,317
(32,628)
(27,105)
10,749
46
83,492
42,525
-
-
-
-
(603)
-
11
450,405
106,486
3,908
-
1,317
(32,628)
(27,708)
10,749
57
23
23
(474)
(5,754)
(21)
(22,548)
348
8,783
(22)
35
-
(4)
-
-
-
(499)
(28,302)
-
(16,257)
(499)
(44,559)
9,131
58
9,189
13
(6)
7
213,592
88,781
65,131
367,504
109,220
476,724
254,214
215,739
65,131
535,084
165,767
700,851
(40,622)
(126,958)
-
(167,580)
(56,547)
(224,127)
213,592
88,781
65,131
367,504
109,220
476,724
*Office and other equipment include furniture and fixtures, computer and office equipment, motor vehicles as well as other equipment.
234
234
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 15. PREMISES, EQUIPMENT AND INTANGIBLE ASSETS CONTINUED
Depreciation and amortisation charge presented on the face of the statement of profit or loss and other comprehensive income
include depreciation and amortisation charge of premises and equipment, investment properties and intangible assets.
Construction in progress consists of construction and refurbishment of branch premises and the Bank’s new headquarters.
Upon completion, assets are to be transferred to premises.
The latest valuation date of premises to market value is 30 November 2018. 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.
The management considers that the fair value has not changed significantly between 30 November 2018 and 31 December
2018. Fair value of respective assets is disclosure below.
In thousands of GEL (except
for range of inputs)
Fair value as of 30
November 2018
(valuation date)
Valuation
technique
Other key
information
Unobservable
inputs
Office buildings
Branches
153,590
Sales comparison
approach
98,737
Sales comparison
approach
Land
Buildings
Land
Buildings
Price per square
meter
Price per square
meter
Range of
unobservable inputs
(weighted average)
287 – 10,274 (577)
670 – 5,257 (2,715)
7 – 4,057 (235)
337 – 12,911 (2,982)
Sensitivity of the input to fair value - increase/(decrease) in the price per square metre would result in increase/(decrease) in
fair value.
As of 31 December 2018 the carrying amount of premises would have been GEL 166,707 thousand (2017: GEL 144,778
thousand; 2016: GEL 134,352 thousand) had the assets been carried at cost less depreciation and impairment losses. At 31
December 2018 the carrying amount of construction in progress would have been GEL 42,243 thousand (2017: GEL 67,033
thousand; 2016: GEL 30,394 thousand) had the assets been carried at cost less impairment losses.
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
235
235
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
Transfer from Premises and equipment
Gross book value as of 31 December
Accumulated depreciation as of 31 December
Carrying amount as of 31 December
Note
2018
15
45
83,871
(4,639)
79,232
(1,317)
4,625
-
-
(36,080)
3,232
(1,181)
3,157
32,628
86,884
(2,588)
84,296
2017
99,347
(3,732)
95,615
(1,143)
752
(590)
943
(15,438)
259
(1,166)
-
-
83,871
(4,639)
79,232
2016
60,648
(3,048)
57,600
-
15,935
-
6,820
(6,892)
253
(937)
22,836
-
99,347
(3,732)
95,615
As of 31 December 2018, investment properties comprised of 73 lots (2017: 102 lots; 2016: 62 lots) of land and 127 buildings
(2017: 144 buildings; 2016: 141 buildings) located in Tbilisi and other regions of Georgia with the fair value amounting to GEL
97,425 thousand (2017: GEL 85,012 thousand; 2016: GEL 123,852 thousand).
For disclosure purposes a fair valuation exercise was carried out for investment properties as of 31 December 2018. The
valuation in 2018 was carried out by external valuators (in 2017 and 2016 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 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 31
December 2018
(valuation date)
44,315
53,110
Valuation technique
Sales comparison
approach
Sales comparison
approach
Unobservable
inputs
Price per
square meter
Price per
square meter
Range of unobser-vable
inputs (weighted average)
0.80 – 974 (88)
3.92 – 4,098 (960)
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
2018
185
-
185
2017
177
-
177
2016
463
805
1,268
236
236
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 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
Goodwill Impairment Test
2018
28,658
2,628
31,286
2017
28,658
-
28,658
2016
2,726
25,932
28,658
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
LLC Bonaco (Note 45)
JSC Swoop
CGU Micro
JSC United Financial Corporation
LLC TBC Kredit
JSC TBC Insurance
Total carrying amount of goodwill
2018
24,166
11,088
7,491
4,791
796
2,567
61
769
695
1,262
1,766
31,286
2017
24,166
11,088
7,491
4,791
796
-
-
769
695
1,262
1,766
28,658
2016
24,166
-
-
-
-
-
-
769
695
1,262
1,766
28,658
*Due to Bank Republic merger in 2017, carrying amount of goodwill was allocated across multiple CGU’s of the Bank, that 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:
In thousands of GEL
2018
2017
2016
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 CGU’s.
5.54% p.a.
20.27% p.a.
4.17% p.a.
18.71% p.a.
4.00% p.a.
21.72% p.a.
5.54% p.a.
13.06% p.a.
5.54% p.a.
18.31% p.a.
1.3% p.a.
24.57% p.a.
5.54% p.a.
18.24% p.a.
4.17% p.a.
12.01% p.a.
4.00% p.a.
14.39% p.a.
4.17% p.a.
18.16% p.a.
4.00% p.a.
19.18% p.a.
1.3% p.a.
31.35% p.a.
4.00% p.a.
28.10% p.a.
4.17% p.a.
18.15% p.a.
4.00% p.a.
19.50% p.a.
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
237
237
17. GOODWILL CONTINUED
Goodwill Impairment Test Continued. 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 84,111 thousand (2017: GEL 781,330 thousand). The CGU’s carrying amount would equal its value in use at a
discount rate of 21.77% p.a. (2017: 29.92% p.a.).
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 850,072 thousand (2017: GEL 402,679 thousand). The CGU’s carrying amount would equal its value in
use at a discount rate of 38.86% p.a. (2017: 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 461,500 thousand (2017: GEL 246,759 thousand). The CGU’s carrying amount would equal its value in use at a
discount rate of 35.83% p.a. (2017: 27.11% p.a.).
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 (2017: nil; 2016: nil). Recoverable amount of CGU Micro/JSC
Bank Constanta CGU exceeds its carrying amount by GEL 913,325thousand (2017: GEL 440,075 thousand; 2016: GEL 284,402
thousand). The CGU’s carrying amount would equal its value in use at a discount rate of 48.53% p.a. (2017: 34.60% p.a.; 2016:
30.74%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 (2017: nil and nil; 2016: nil and nil). Recoverable amount of JSC
United Financial Corporation CGU exceeds its carrying amount by GEL 13,458 thousand (2017: GEL 17,866 thousand; 2016:
GEL 13,073 thousand). The CGUs’ carrying amount would equal its value in use at a discount rate of 29.8% p.a. (2017: 39.27%
p.a.; 2016: 46.36% 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 (2017:nil;
2016: nil). Recoverable amount of LLC TBC Kredit CGU exceeds its carrying amount by GEL 277,830 thousand (2017: GEL
36,420 thousand; 2016: GEL 20,505 thousand). The CGUs’ carrying amount would equal its value in use at a discount rate
132.34% of p.a.(2017: 119.51% p.a.; 2016: 68.64% 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 (2017: nil; 2016: nil). Recoverable amount of JSC TBC Insurance CGU
exceeds its carrying amount by GEL 208,095 thousand (2017: GEL 51,549 thousand; 2016: 58,588 l). The CGU’s carrying
amount would equal its value in use at a discount rate of 111.71% p.a. (2017: 63.63% 2016: 62.29%;).
238
238
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 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
2018
2017
2016
23,273
136,161
-
159,434
2,065,560
769,911
1,520
35,078
2,872,069
3,031,503
21,777
64,441
-
86,218
1,591,778
908,271
2,914
31,533
2,534,496
2,620,714
22,872
176,443
117,592
316,907
1,412,095
439,234
4,203
25,138
1,880,670
2,197,577
As of 31 December 2018 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.
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
2018
2017
2016
667,553
538,311
2,791,092
251,215
2,426,597
2,677,374
9,352,142
810,783
209,641
2,207,630
210,498
1,973,685
2,404,580
7,816,817
240,743
78,990
2,143,483
243,582
1,618,434
2,129,717
6,454,949
State and public organisations include government owned profit orientated businesses.
Economic sector concentrations within customer accounts are as follows:
In thousands of GEL
Individual
Construction
Trade
Government sector
Transportation
Energy & Utilities
Financial Services
Services
Real Estate
Hotels and Leisure
Healthcare
Agriculture
Metals and Mining
Food Industry
Automotive
Communication
Other
Total customer accounts
31 December 2018
31 December 2017
31 December 2016
Amount
5,103,971
613,973
550,527
531,964
422,281
397,653
394,336
360,084
207,227
102,529
76,464
35,884
12,479
-
-
-
542,770
9,352,142
%
55%
7%
6%
6%
5%
4%
4%
4%
2%
1%
1%
0%
0%
0%
0%
0%
5%
100%
Amount
4,378,265
377,944
209,339
330,356
376,333
429,722
379,772
236,128
119,507
174,777
106,439
29,199
16,976
175,676
71,628
50,059
354,697
7,816,817
%
56%
5%
3%
4%
5%
5%
5%
3%
2%
2%
1%
0%
0%
2%
1%
1%
5%
100%
Amount
3,748,151
222,372
305,022
140,852
188,388
283,497
501,591
269,824
82,893
104,066
64,493
37,850
22,817
82,984
53,865
56,787
289,497
6,454,949
%
58%
4%
5%
2%
3%
4%
8%
4%
1%
2%
1%
1%
0%
1%
1%
1%
4%
100%
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
239
239
19. CUSTOMER ACCOUNTS CONTINUED
As of 31 December 2018 the Group had 305 customers (2017: 261 customers; 2016: 222 customers) with balances above GEL
3,000 thousand. Their aggregate balance was GEL 4,117,881 thousand (2017: GEL 3,439,673 thousand; 2016: GEL 2,539,513
thousand) or 44% of total customer accounts (2017: 44%; 2016: 39%).
As of 31 December 2018 included in customer accounts are deposits of GEL 6,766 thousand and GEL 158,306 thousand (2017:
GEL 11,040 thousand and GEL 120,406 thousand; 2016: GEL 13,355 thousand and GEL 119,146 thousand) held as collateral
for irrevocable commitments under letters of credit and guarantees issued, respectively. Refer to Note 38. As of 31 December
2018, deposits held as collateral for loans to customers amounted to GEL 270,787 thousand (2017: GEL 224,899 thousand;
2016: 342,365 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.
20. DEBT SECURITIES IN ISSUE
In thousands of GEL
Bonds issued on Georgian market
Bonds issued on Georgian market
Total debt securities in issue
Currency
USD
USD
Carrying amount in GEL
as of 31 December 2018
7,927
5,416
13,343
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
Currency
USD
USD
USD
Carrying amount in GEL
as of 31 December 2017
7,637
5,224
7,834
20,695
Currency
USD
USD
USD
USD
Carrying amount in GEL
as of 31 December 2016
5,312
5,237
5,198
7,761
23,508
Maturity Date
22-Jul-19
16-May-19
Coupon rate
7.3%
8.0%
Effective interest rate
8.1%
8.7%
Maturity Date
22-Jul-19
16-May-19
15-Aug-18
Coupon rate
7.3%
8.0%
7.8%
Effective interest rate
8.1%
8.7%
8.6%
Maturity Date
3-Sep-17
15-Aug-18
16-May-19
22-Jul-19
Coupon rate
8.4%
7.8%
8.0%
7.3%
Effective interest rate
9.2%
8.6%
8.7%
8.1%
Refer to Note 42 for the disclosure of the fair value of debt securities in issue.
240
240
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 21. PROVISION FOR PERFORMANCE GUARANTEES, CREDIT RELATED COMMITMENTS AND
LIABILITIES AND CHARGES
Movements in credit loss allowance for performance guarantees, credit related commitment and liabilities and charges are
as follows:
In thousands of GEL
Carrying amount as of 1 January 2016
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
Assuming guarantees following asset purchase
Additions through Business Combinations
Carrying amount as of 31 December 2017
IFRS 9 transition effect
Carrying amount as of 1 January 2018
Charges less releases recorded in profit or loss
Effect of translation to presentation currency
Carrying amount as of 31 December 2018
Performance
guarantees
1,472
(452)
909
706
2,635
(579)
-
11
2,067
684
2,751
1,640
2
4,393
Credit related
commitments
5,589
1,223
-
1,237
8,049
190
-
-
8,239
(4,661)
3,578
1,846
-
5,424
Other
2,400
2,528
-
414
5,342
(332)
(2,116)
-
2,894
-
2,894
6,056
-
8,950
Total
9,461
3,299
909
2,357
16,026
(721)
(2,116)
11
13,200
(3,977)
9,223
9,542
2
18,767
Credit related commitments and performance guarantees: Impairment allowance estimation methods differ for (i) letter of
credits and guarantees and (ii) undrawn credit lines.
For letter of credits and guarantees allowance estimation purposes the Bank applies the staged approach and classifies
them in stage 1, stage 2 or stage 3. Significant stage 3 guarantees are assessed individually. Non-significant stage 3 as well
as all stage 1 and stage 2 guarantees and letter of credits are assessed collectively using exposure, marginal probability of
conversion, loss given default and discount factor. Amount of the expected allowance differs based on the classification of the
facility in the respective stage.
For impairment allowance assessment purposes for undrawn exposures the Bank distinguishes between revocable and
irrevocable loan commitments. For revocable commitments the Bank does not create impairment allowance. As for the
irrevocable undisbursed exposures the Bank estimates utilization parameter (which represents expected limit utilization
percentage conditional on the default event) in order to convert off-balance part of the exposure to on-balance.
Once the respective on balance exposure is estimated, the Bank applies the same impairment framework approach as the
one used for the respective type of on balance exposures.
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 29,786 thousand (2017: GEL 1,621 thousand; 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 570 thousand (2017: GEL 542 thousand) that
are included in charges less releases recorded in profit or loss for “Other” provision.
For the purpose of ECL measurement other guarantees balances are included in mainly Stage 1 or Stage 2. Refer to Note 36
for the ECL measurement approach.
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
241
241
22. OTHER FINANCIAL LIABILITIES
Other financial liabilities comprise the following:
In thousands of GEL
Trade payables
Security deposits for finance lease
Debit or credit card payables
Insurance Contracts Liabilities
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
Unearned insurance premium
Other
Total other financial liabilities
Note
2018
2017
2016
41
24,270
22,100
19,146
16,839
2,119
14,240
98,714
2018
48,393
19,477
10,867
17,911
7,689
104,337
31,497
20,647
10,567
10,992
575
17,475
91,753
16,612
8,241
12,066
486
1,298
12,295
50,998
2017
2016
42,497
14,180
10,350
14,221
3,192
84,440
38,317
16,723
6,284
3,859
1,556
66,739
All of the above liabilities are expected to be settled within twelve months after the year-end.
24. SUBORDINATED DEBT
In thousands of GEL
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)
Private lenders
Subordinated Bond
Global climat partnership fund
Responsibility SICAV (Lux) Microfinance Leaders
Responsibility SICAV (Lux) Financial inclusion fund
Responsibility Micro and SME finance fund
BlueOrchard Microfinance Fund
BlueOrchard Microfinance Fund
European Fund for Southeast Europe
Total subordinated debt
Grant Date Maturity Date
15-Jun-20
26-Jun-13
Currency
USD
Outstanding
amount in original
currency
7,509
Outstanding
amount in GEL
20,100
19-Dec-13
10-Jun-14
4-May-15
18-Dec-15
18-Dec-15
15-Mar-16
18-Oct-16
30-Jun-17
17-Aug-18
20-Nov-18
30-Nov-18
30-Nov-18
30-Nov-18
14-Dec-18
14-Dec-18
21-Dec-18
15-Apr-23
8-May-21
8-May-21
18-Dec-25
18-Dec-25
15-Mar-26
18-Oct-26
30-Jun-23
30-Nov-22
20-Nov-28
30-Nov-28
30-Nov-28
30-Nov-28
14-Dec-25
14-Dec-28
21-Dec-28
USD
GEL
GEL
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
29,213
6,161
6,737
15,312
7,666
7,665
50,617
25,218
10,109
25,111
1,007
3,121
5,943
14,916
14,915
20,049
78,191
6,161
6,737
40,983
20,520
20,516
135,482
67,497
27,057
67,211
2,695
8,354
15,906
39,923
39,923
53,663
650,919
As of 31 December 2018, subordinated debt comprised of:
242
242
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
24. SUBORDINATED DEBT CONTINUED
As of 31 December 2017, subordinated debt comprised of:
In thousands of 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)
Private lenders
LC Opportunity fund(Thales)
Total subordinated debt
Grant Date Maturity Date
15-Jul-18
19-Feb-08
15-Jun-20
26-Jun-13
Currency
USD
USD
Outstanding
amount in original
currency
10,467
7,496
Outstanding
amount in GEL
27,134
19,430
19-Dec-13
10-Jun-14
4-May-15
18-Dec-15
18-Dec-15
15-Mar-16
18-Oct-16
30-Jun-17
14-Jul-17
15-Apr-23
8-May-21
8-May-21
18-Dec-25
18-Dec-25
15-Mar-26
18-Oct-26
30-Jun-23
5-Dec-18
USD
GEL
GEL
USD
USD
USD
USD
USD
USD
35,577
6,161
6,737
15,259
7,640
7,639
50,467
24,114
1,008
92,222
6,161
6,737
39,554
19,805
19,802
130,822
62,508
2,613
426,788
As of 31 December 2016, subordinated debt comprised of:
In thousands of 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
Grant Date Maturity Date
15-Jul-18
19-Feb-08
15-Jun-20
26-Jun-13
Currency
USD
USD
19-Dec-13
10-Jun-14
4-May-15
18-Dec-15
18-Dec-15
15-Mar-16
18-Oct-16
15-Apr-23
8-May-21
8-May-21
18-Dec-25
18-Dec-25
15-Mar-26
18-Oct-26
USD
GEL
GEL
USD
USD
USD
USD
The debt ranks after all other creditors in case of liquidation.
Outstanding
amount in original
currency
10,446
7,480
Outstanding
amount in GEL
27,649
19,799
35,474
6,162
6,737
15,239
7,631
7,629
50,407
93,891
6,162
6,737
40,335
20,197
20,194
133,417
368,381
Refer to Note 42 for the disclosure of the fair value of subordinated debt. Information on related party balances is disclosed
in Note 44.
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
243
243
25. SHARE CAPITAL
In thousands of GEL except for number of shares
As of 1 January 2016
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
Shares issued
Scrip dividend issued
Share exchange
As of 31 December 2018
* 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
Number of
ordinary shares
49,529,463
525,456
(895,039)
-
3,006,823
52,166,703
516,140
146,903
102,121
52,931,867
618,640
58,762
635,060
54,244,329
Share capital
19,811
210
(358)
(18,169)
87
1,581
16
5
3
1,605
21
2
22
1,650
As of 31 December 2018 the total authorised number of ordinary shares was 54,244,329 shares (31 December 2017: 52,931,867
shares; 31 December 2016: 52,166,703 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.
On 21 May 2018, at the Annual General Meeting, TBC Bank Group PLC’s shareholders agreed on a dividend of GEL 1.64 per
share, based on the 2017 audited financial statements. The dividend was recorded on 24 May 2018 of amount GEL 88,869
thousand and was paid on 22 June 2018 out of which scrip dividend shares amounted to 58,762 and were issued on 22th of
June.
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 of amount GEL 74,809
thousand and was paid on 14 July 2017 out of which scrip dividend shares amounted to 146,903 and were issued on 14th of
July.
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 24 April 2018 635,060 new ordinary shares of TBC Bank Group PLC were admitted to the premium segment of the London
Stock Exchange. The Offer Shares were issued pursuant to the terms of a private offer to the holders of the ordinary shares of
JSC TBC Bank who have tendered Bank shares pursuant to the Offer. The holders of Bank shares are individuals that did not
participate in the tender offer to holders made in 2016 or 2017 by TBC Bank Group PLC. Holders of Bank shares received one
Offer Share for each Bank Share tendered pursuant to the Offer.
On 23 June 2017 102,121 new ordinary shares of TBC Bank Group PLC were admitted to the premium segment of the London
Stock Exchange. The Offer Shares were issued pursuant to the terms of a private offer to the holders of the ordinary shares of
JSC TBC Bank who have tendered Bank shares pursuant to the Offer. The holders of Bank shares are individuals that did not
participate in the tender offer to holders made in 2016 by TBC Bank Group PLC prior to TBC Bank Group PLC's admission to
the premium segment of the London Stock Exchange. Holders of Bank shares received one Offer Share for each Bank Share
tendered pursuant to the Offer.
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.
244
244
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 25. SHARE CAPITAL CONTINUED
Following the Admissions, 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’’.
26. SHARE BASED PAYMENTS
June 2013 arrangement: In June 2013, the Bank’s Supervisory Board approved a new management compensation scheme
for the years 2013 – 2015 and authorised a maximum of 4,150 new shares to be issued in accordance with the scheme. The
authorized number of new shares has increased to 1,037,500 in order to reflect the share split 250-for-1 approved by the
shareholders on 4 March 2014. According to the scheme, each year, (subject to predefined performance conditions) a certain
number of shares 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 per cent of the shares were vested in the fourth year after being
awarded. Under this compensation system the total vesting period extends to June 2019.
Under the new management compensation scheme, both shareholders and Supervisory Board hold put options on the shares
to be awarded. In addition, they both hold put options on all bonus shares awarded under the previous share-based payment
arrangements. All the put-options became null and void upon the listing on the LSE in June 2014. At no point of the operation
of the share-based payment scheme did the management expect the put-options to be exercised. Consequently, the scheme
was accounted for as equity-settled scheme and no obligation was recognized for the put-options.
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
245
245
26. SHARE BASED PAYMENTS CONTINUED
In 2013 the Group considered 20 June as the grant date. Based on the management’s expectation of performance and service
conditions, 732,000 shares have been granted and will be gradually awarded to the members of the described scheme. An
external evaluator assessed the fair value per share at the grant date at GEL 13.93 adjusted for the effect of 250-for-1 share
split Income and market approaches were applied for the evaluation. The market approach involved an estimate of the market
capitalization to book value of equity multiple and deal price to book value of equity multiple for comparable banks. When
selecting comparable banks, the appraiser chose lenders operating in the Black Sea region and Central and Eastern Europe
with a portfolio mix and growth priorities similar to TBC Bank. The income approach involved discounting free cash flows to
equity estimated over a 10-year horizon. When developing the projections, the following major assumptions were made:
Over the 2013-2023 periods, the compound annual growth rate was assumed at 15.2% for loans and at 15.1% for customer
accounts;
The spread on the Bank’s customer business was assumed to gradually decline from an estimated 10.2% in 2013 to stabilize
at 5.8% by 2021;
Over 2013-2023 period, non-interest income was forecast to average 1.8% of customer volume (i.e. gross loans and
deposits);
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.
June 2015 arrangement: In June 2015, the Bank’s Supervisory Board approved new management compensation scheme for
the top and middle management and it accordingly authorised the issue of a maximum 3,115,890 new shares. The new system
will be enforced from 2015 through 2018, replacing the system introduced in June 2013 -- the performance evaluation as well
as the respective compensation for 2015 year-end results will be paid under the new system. According to the scheme, each
year, subject to predefined performance conditions, a certain number of shares will be awarded to the Group’s top managers
and most of the middle ones. The performance features key performance indicators (KPIs) divided into (i) corporate and (ii)
individual. The corporate KPIs are mainly related to achieving profitability, efficiency, and portfolio quality metrics set by the
Supervisory Board as well as non-financial indicators with regards to customers’ experience and employees’ engagement.
The individual performance indicators are set on an individual basis and are used to calculate the number of shares to be
awarded to each employee. According to the scheme, members of top management will also receive the fixed number of
shares. Once awarded, all shares carry service conditions and, before those conditions are met, are eligible to dividends;
however they do not carry voting rights and cannot be sold or transferred to third parties.
Service conditions foresee continuous employment until the gradual transfer of the full title to the scheme participants is
complete. Shares for each of the 2015, 2016, 2017 and 2018 tranche gradually ran over on the second, third and fourth year
following the performance appraisal. Eighty percent of the shares were vested in the fourth year after being awarded. Under
this compensation system the total vesting period extends to March 2022.
In 2015 the Group considered 17 June as the grant date. Based on the management’s estimate of reached targets, as of 31
December 2015 1,908,960 shares were granted. The shares will be gradually awarded to the members as per the described
scheme. At the grant date the fair value amounted to GEL 24.64 per share, as quoted on the London Stock Exchange.
Following the listing on the Premium segment of the London Stock Exchange, the share-based payment scheme was updated,
and TBC Bank Group PLC distributes its shares to the scheme’s participants. The shares’ value is recharged to the JSC TBC
Bank. As a result, the accounting of the scheme did not change in the consolidated financial statements.
246
246
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 26. SHARE BASED PAYMENTS CONTINUED
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 thousands of GEL except for number of shares
Number of unvested shares at the beginning of the period
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 2018
2,284,773
31 December 2017
2,622,707
31 December 2016
2,756,605
166,377
-
(330,021)
2,121,129
13.93
24.64
11,668
-
8,424
20,092
(13,100)
-
(324,834)
2,284,773
13.93
24.64
10,543
-
5,119
15,662
(11,904)
(35,146)
(86,848)
2,622,707
13.93
24.64
12,599
(817)
10,271
22,053
Liability in respect of the cash-settled part of the award amounted to GEL 11,001 thousand as of 31 December 2018 (2017: GEL
12,675 thousand; 2016: GEL 13,725 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 2018 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 increased estimated
number of shares to vest by 166,377 (31 December 2017: decreased by 13,100 shares; 31 December 2016: decreased by
11,904 shares).
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
Profit for the period attributable to the owners of the Bank
(excluding the profit attributable to the shares encumbered under
the share based payment scheme
Weighted average number of ordinary shares in issue
Basic earnings per ordinary share attributable to the owners of
the Bank (expressed in GEL per share)
2018
2017
2016
435,080
53,906,472
354,410
52,685,702
298,130
49,592,658
8.1
6.7
6.0
Diluted earnings per share are calculated by dividing the profit or loss attributable to owners of the Bank by the weighted
average number of ordinary shares adjusted for the effects of all dilutive potential ordinary shares during the year. Ordinary
shares with dilutive potential represent those shares that were granted to the participants of the share based payments
scheme and are not yet distributed.
In thousands of GEL except for number of shares
Profit for the period attributable to the owners of the Bank
(excluding the profit attributable to the shares encumbered under
the share based payment scheme –
Weighted average number of ordinary shares in issue adjusted
for the effects of all dilutive potential ordinary shares during the
period
Diluted earnings per ordinary share attributable to the owners
of the Bank (expressed in GEL per share)
2018
2017
2016
435,080
354,410
299,037
54,415,642
53,480,632
50,946,636
8.0
6.6
5.9
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
247
247
28. SEGMENT ANALYSIS
The Management Board (the “Board) is the chief operating decision maker and it reviews the Group’s internal reporting in
order to assess the performance and to allocate resources. In 2018 the Group has reassessed its definition of segments as
disclosed in this note. Some of the clients were reallocated to different segments. GEL 236 million was transferred from Retail
to MSME segment and GEL 66 million was transferred from MSME to Corporate segment. Comparative information as of 31
December 2017 and 2016 has not been updated due to impracticability.
The operating segments according to the new definition are now determined as follows:
Corporate – legal entity/group of affiliated entities with an annual revenue exceeding GEL 12.0 million or who have been
granted facilities with more than GEL 5.0 million. Some other business customers may also be assigned to the corporate
segment or transferred to MSME on a discretionary basis;
Retail – non-business individual customers or individual business customers who have been granted mortgage loans; all
individual customers are included in retail deposits;
MSME – Business customers who are not included in either corporate and retail segments; or legal entities who have been
granted a Pawn shop loan; or individual customers of the newly-launched fully-digital bank, Space;
Corporate centre and other operations - comprises of the Treasury, other support and back office functions, and non-
banking subsidiaries of the Group.
The operating segments during the year 2017 and 2016 were 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.
The Board of Directors assesses the performance of the operating segments based on a measure of adjusted profit before
income tax.
The reportable segments are the same as the operating segments.
No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Group’s total
revenue in 2018, 2017 or 2016.
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.
Allocation is performed based on drivers identified for each type of cost if possible. If there is no identifiable driver for any type
of expense/overhead cost, those expenses are allocated between segments based on the same logic as applied for the most
related expenses to it (e.g. other operating expenses would follow the pattern of closest category of operating expenses).
A summary of the Group’s reportable segments for the years ended 31 December 2018, 2017 and 2016 is provided below:
248
248
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 28. SEGMENT ANALYSIS CONTINUED
In thousands of GEL
31 December 2018
- 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
- Gains less losses from disposal of
investment securities measured at fair
value through other comprehensive
income
- Other operating income
- Share of profit of associates
- Other operating non-interest income
- Credit loss allowance for loans to
customers
- Credit loss allowance for performance
guarantees and credit related
commitments
- Credit loss allowance for investments
in finance lease
- Credit loss allowance for other
financial assets
- Credit loss allowance for financial
assets measured at fair value through
OCI
- Profit before administrative and other
expenses and income taxes
- 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
Corporate
Retail
Micro, small and
medium enterprises
Corporate centre and
other operations
Total
264,559
609,989
(133,302)
(123,729)
35,531
166,788
40,667
(6,661)
34,006
-
(78,453)
407,807
170,082
(64,270)
105,812
-
44,629
28,811
-
-
-
(223)
-
19,691
-
64,320
-
8,658
-
37,246
255,833
(9,710)
(83,475)
162,648
22,498
(6,861)
15,637
-
22,002
-
-
-
748
-
22,750
153,854
(239,472)
1,284,235
(506,213)
126,397
40,779
2,454
(379)
2,075
12,275
(3,764)
15,196
396
2
2,341
1,154
27,600
-
778,022
235,701
(78,171)
157,530
12,275
91,678
15,196
173
2
31,438
1,154
151,916
(9,826)
(118,043)
(15,854)
-
(143,723)
(2,827)
(412)
(247)
(570)
(4,056)
-
-
(8,634)
(3,959)
(95)
-
243,732
(30,266)
(2,226)
-
428,451
(128,957)
(36,745)
-
(12,616)
(45,108)
198,624
(29,907)
168,717
(90,329)
(256,031)
172,420
(22,898)
149,522
-
(2)
-
184,932
(43,385)
(4,980)
-
(21,184)
(69,549)
115,383
(17,250)
98,133
3,177,289 4,698,699
3,230,653 5,103,971
2,496,594
1,017,518
1,578,184
246,639
246,824
(1,765)
(1,765)
(4,014)
(16,609)
9
(86)
64,114
(17,746)
(1,789)
(4,000)
(16,806)
(40,341)
23,773
(2,710)
21,063
921,229
(220,354)
(45,740)
(4,000)
(140,935)
(411,029)
510,200
(72,765)
437,435
-
-
-
10,372,582
9,352,142
2,071,647
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
249
249
28. SEGMENT ANALYSIS CONTINUED
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
- Profit before administrative and other
expenses and income taxes
- 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
Corporate
Retail
Micro, small and
medium enterprises
Corporate centre and
other operations
Total
203,082
535,851
(103,707)
(118,516)
22,489
121,864
30,037
(6,942)
23,095
-
(73,141)
344,194
140,582
(51,199)
89,383
-
38,885
22,597
-
-
-
-
-
13,465
-
52,350
27,031
-
12,670
-
35,267
(106,579)
183
(261)
-
-
(7,666)
(17)
216,857
(25,989)
(1,438)
-
(7,457)
(34,884)
181,973
(27,738)
154,235
361,987
(128,331)
(29,813)
-
(81,356)
(239,500)
122,487
(15,527)
106,960
2,475,392
2,410,862
4,233,153
4,378,265
184,008
(11,661)
(51,488)
120,859
20,335
(8,949)
11,386
-
26,885
-
-
-
1,726
-
28,611
(14,275)
467
-
(64)
146,984
(31,225)
(4,972)
-
(15,118)
(51,315)
95,669
(13,820)
81,849
1,844,672
1,027,690
1,160,517
229,178
199,662
110,998
(196,040)
1,033,939
(429,924)
102,140
17,098
2,990
(893)
2,097
6,773
-
604,015
193,944
(67,983)
125,961
6,773
(1,268)
87,099
4,374
(36)
93
3,936
909
14,781
-
(542)
(492)
4,374
(36)
93
31,797
909
131,009
(93,823)
(153)
(492)
(4,692)
(12,439)
28,250
(17,555)
(1,042)
2,495
(17,599)
(33,701)
(5,451)
22,335
16,884
-
-
-
754,078
(203,100)
(37,265)
2,495
(121,530)
(359,400)
394,678
(34,750)
359,928
8,553,217
7,816,817
1,589,357
250
250
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 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
- Profit before administrative and other
expenses and income taxes
- 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
Corporate
Retail
Micro, small and
medium enterprises
Corporate centre and
other operations
Total
160,998
386,193
(45,206)
(101,520)
(22,186)
93,606
21,884
(3,977)
17,907
-
(34,056)
250,617
100,637
(42,905)
57,732
-
23,945
17,817
-
-
-
-
-
9,837
33,782
48,948
-
5,772
23,589
(73,010)
(388)
(902)
-
-
(863)
(207)
-
-
192,992
(23,068)
(1,062)
-
257,819
(100,888)
(21,560)
-
(5,944)
(30,074)
162,918
(24,513)
138,405
(59,365)
(181,813)
76,006
(7,407)
68,599
2,062,229
1,875,576
3,680,576
3,747,775
141,533
(8,114)
(36,752)
96,667
16,331
(4,689)
11,642
-
26,271
-
-
-
1,076
27,347
(25,140)
519
-
(38)
-
110,997
(28,188)
(3,507)
-
(12,793)
(44,488)
66,509
(10,325)
56,184
1,615,920
831,598
802,971
188,574
155,275
77,702
766,426
(121,133)
(275,973)
92,994
49,563
3,948
(961)
2,987
256
-
490,453
142,800
(52,532)
90,268
256
2,236
70,269
(2,507)
(2,507)
(206)
(206)
9,293
6,551
15,623
-
-
(558)
9,293
23,236
100,341
(49,202)
(771)
(558)
(1,745)
(2,853)
(11)
(11)
65,859
(20,077)
(1,953)
(2,210)
(31,373)
(55,613)
10,246
24,824
35,070
-
-
-
627,667
(172,221)
(28,082)
(2,210)
(109,475)
(311,988)
315,679
(17,421)
298,258
7,358,725
6,454,949
1,146,820
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
251
251
28. SEGMENT ANALYSIS CONTINUED
In thousands of GEL
31 December 2018
- Fee and commission income
- Other operating income
Total
Timing of revenue recognition:
- At point in time
- Over time
Corporate
Retail
Micro, small and
medium enterprises
Corporate centre and
other operations
40,667
19,691
60,358
170,082
8,658
178,740
56,397
3,961
160,555
18,185
22,498
748
23,246
22,950
296
2,454
2,341
4,795
4,790
5
Total
235,701
31,438
267,139
244,692
22,447
Reportable segments’ assets were reconciled to total assets as follows:
In thousands of GEL
Total segment assets (gross loans and advances to customers)
Credit loss allowance (provision for loan impairment for
comparatives)
Cash and cash equivalents
Mandatory cash balances with National Bank of Georgia
Due from other banks
Investment securities measured at fair value through other
comprehensive income
Investment securities available for sale (comparatives only
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
31 December 2018
10,372,582
31 December 2017
8,553,217
31 December 2016
7,358,725
(334,130)
1,166,911
1,422,809
47,316
1,005,239
-
654,203
2,116
2,097
167,518
203,802
192,792
367,504
109,220
84,296
31,286
2,432
15,497,993
(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
12,965,910
(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
-
10,769,032
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 2018
9,352,142
3,031,503
13,343
63
22,237
18,767
98,714
104,337
650,919
13,292,025
31 December 2017
7,816,817
2,620,714
20,695
447
602
13,200
91,753
84,440
426,788
11,075,456
31 December 2016
6,454,949
2,197,577
23,508
2,577
5,646
16,026
50,998
66,739
368,381
9,186,401
252
252
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 29. INTEREST INCOME AND EXPENSE
In thousands of GEL
2018
2017
2016
Interest income calculated using effective interest method
Loans and advances to customers
Bonds carried at amortised cost
Investment securities available for sale
Investment securities measured at fair value through OCI
Due from other banks
Other interest income
Investments in leases
Other
Total interest income
Interest expense
Customer accounts
Due to credit institutions
Subordinated debt
Debt securities in issue
Total interest expense
Net interest income
1,123,972
40,625
-
57,057
23,744
38,837
-
1,284,235
266,741
196,498
41,571
1,403
506,213
778,022
919,796
32,328
43,735
-
14,807
23,273
-
1,033,939
233,884
157,122
36,975
1,943
429,924
604,015
688,724
30,714
25,707
-
4,550
16,566
165
766,426
154,840
85,030
34,325
1,778
275,973
490,453
In the year ended 31 December 2018 the interest accrued on impaired loans amounted to GEL 41,373 thousand (2017:
16,332 thousand; 2016: 23,825 thousand).
30. FEE AND COMMISSION INCOME AND EXPENSE
In thousands of GEL
2018
2017
2016
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
- Guarantees issued
- Cash transactions
- 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
- Cash transactions
- Guarantees and LOC received
- Self-service and POS terminal transactions
- Other
Total fee and commission expense
Net fee and commission income
106,067
70,720
19,815
17,147
6,463
2,183
13,306
235,701
55,893
8,669
5,180
2,863
34
5,532
78,171
157,530
82,525
59,739
15,121
17,424
5,735
1,339
12,061
193,944
46,360
7,421
4,393
2,873
6,436
500
67,983
125,961
61,115
43,434
11,699
13,013
6,215
1,277
6,047
142,800
34,906
5,795
2,633
2,420
4,692
2,086
52,532
90,268
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
253
253
31. OTHER OPERATING INCOME
In thousands of GEL
Gain from sale of investment properties
Revenues from operational leasing
Warrant option
Gain from sale of inventories of repossessed collateral
Revenues from sale of cash-in terminals
Revenues from non-credit related fines
Gain on disposal of premises and equipment
Gain from sale of receivables
Reimbursement of taxes
Gain from marketing promotional services
Recovery from repayment of purchased impaired loans
Administrative fee income from international financial institutions
Other
Total other operating income
2018
9,781
6,544
2,677
2,577
1,715
683
352
225
-
-
-
-
6,884
31,438
2017
4,353
6,544
-
2,383
1,093
1,408
1,017
4,090
2,486
2,077
-
-
6,346
31,797
2016
2,623
5,772
-
2,382
1,100
658
208
58
349
-
4,995
644
4,447
23,236
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 2018 was GEL 33,295 thousand (2017: GEL 24,284 thousand;
2016: GEL 26,972 thousand).
32. STAFF COSTS
In thousands of GEL
Salaries and bonuses
Share based compensation
Other compensation cost
Salaries and other employee benefits
2018
190,304
20,092
9,958
220,354
2017
182,784
15,662
4,654
203,100
2016
146,840
22,053
3,328
172,221
In 2018 the monthly average number of persons employed by the Group was 7,170 people (2017: 6,993; 2016: 5,537). Breakdown
of monthly average number of employees by categories is as follows:
Headquarters*
Branches*
Other administrative staff **
* 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.
2018
2,837
3,824
509
2017
2,788
3,773
432
2016
2,243
2,902
392
** Employees from other subsidiaries are considered under other administrative staff.
In 2018 monthly average number of employees in TBC PLC was 10 individuals (2017: 10; 2016: 9).
254
254
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 33. ADMINISTRATIVE AND OTHER OPERATING EXPENSES
In thousands of GEL
Advertising and marketing services
Rent
Professional services
Intangible asset enhancement
Taxes other than on income
Utility services
Premises and equipment maintenance
Communications and supply
Stationery and other office expenses
Insurance
Business trip expenses
Transportation and vehicle maintenance
Security services
Personnel training and recruitment
Charity
Loss on disposal of premises and equipment
Loss on disposal of inventories
Impairment of intangible assets
Reversal of previously written-down current assets to fair value
less costs to sell
Other
Total administrative and other operating expenses
2018
29,575
24,389
13,951
11,366
6,757
6,491
6,098
5,173
4,841
4,589
2,273
2,043
2,040
1,880
1,074
860
137
1
(1,026)
18,423
140,935
2017
18,430
23,132
14,332
10,304
5,670
6,067
5,413
4,063
4,936
2,461
2,021
1,637
1,965
1,444
1,045
492
1,239
1,916
(538)
15,501
121,530
2016
13,796
18,294
29,926
7,446
4,699
5,108
3,889
4,183
3,448
2,687
1,880
1,386
1,883
1,272
884
423
1,690
2,043
(4,424)
8,962
109,475
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
2018
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
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
Audit
Audit Related
Other Services
Total
2,310
-
-
2,310
1,700
-
-
1,700
1,588
-
-
1,588
-
366
-
366
-
251
-
251
-
360
5
365
-
-
114
114
-
-
231
231
-
-
5,432
5,432
2,310
366
114
2,790
1,700
251
231
2,182
1,588
360
5,437
7,385
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.
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
255
255
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
2018
52,914
19,851
72,765
2017
39,313
(4,563)
34,750
2016
36,601
(19,180)
17,421
The income tax rate applicable to the majority of the Group’s income was 15% (2017: 15%; 2016: 15%). The income tax rate
applicable to the majority of subsidiaries income ranged from 15% to 20% (2017: 15% - 20%; 2016: 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 (2018: 15%-20%; 2017:
15%-20%; 2016: 15%-20%)
Tax effect of items which are not deductible or
assessable for taxation purposes:
- Income which is exempt from taxation
- Non-deductible expenses
- Effect of change in tax legislation
- Other differences
Income tax expense for the year
2018
510,200
76,500
(16,869)
(746)
13,833
47
72,765
2017
394,678
59,119
(12,958)
(117)
(11,794)
500
34,750
2016
315,679
46,703
(9,638)
3,706
(24,204)
854
17,421
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%
(2017: 15%; 2016: 15%) for Georgia and 20% for Azerbaijan and United Kingdom (2017: 20%; 2016: 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 organizations, microfinance organizations and pawnshops and from 1 January
2017 for other entities. However, during 2018 Georgian Government changed transition date to 1 January 2023.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 2023 for commercial banks, credit unions, insurance organizations, microfinance organizations and pawnshops)
until that profit is distributed in a form of dividend or other forms of profit distributions. Once dividend is paid, 15% income
tax is payable at the moment of the dividend payment, regardless of whether in monetary or non-monetary form, to the
foreign non-resident legal entities and foreign and domestic individuals. The dividends paid out to the resident legal entities
are tax exempted. Apart from dividends’ distribution, the tax is still payable on expenses or other payments incurred not
related to economic activities, free delivery of goods/services and/or transfer of funds and representation costs that exceed
the maximum amount determined by the Income Tax Code of Georgia, in the same month they are incurred.
256
256
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 34. INCOME TAXES CONTINUED
As of 31 December 2018, deferred tax assets/liabilities are re-measured to the amounts that are estimated to be utilized in
the period from 1 January 2019 to 31 December 2022.
In thousands of GEL
Tax effect of deductible/(taxable) temporary
differences and tax loss carry forwards
Premises and equipment
Loan to customers
Other financial assets
Other assets
Investment property
Due to credit institutions
Subordinated debt
Other financial liabilities
Other liabilities
Share based payment
Tax loss carried forward
Net deferred tax asset/(liability)
Recognised deferred tax asset
Recognised deferred tax liability
Net deferred tax asset/(liability)
In thousands of GEL
Tax effect of deductible/(taxable) temporary
differences and tax loss carry forwards
Premises and equipment
Loan impairment provision
Fair valuation of investment securities available for sale
Other financial assets
Other assets
Investment in leases
Investment property
Due to credit institutions
Subordinated debt
Other financial liabilities
Other liabilities
Share based payment
Tax loss carried forward
Net deferred tax asset/(liability)
Recognised deferred tax asset
Recognised deferred tax liability
Net deferred tax asset/(liability)
1 January
2018
(Charged)/
credited to profit
or loss
Charged directly to
other comprehensive
income
31 December
2018
(4,298)
2,401
2,266
29
(342)
(816)
(23)
(72)
1,651
1,486
(29)
2,253
2,855
(602)
2,253
(16,460)
417
301
(29)
342
(2,825)
(47)
31
(787)
(823)
29
(19,851)
(659)
(19,192)
(19,851)
(2,444)
-
-
-
-
-
-
-
-
-
-
(2,444)
-
(2,444)
(2,444)
(23,202)
2,866
2,421
-
-
(3,641)
(70)
(41)
864
663
-
(20,140)
2,097
(22,237)
(20,140)
1 January
2017
(Charged)/
credited to profit
or loss
Charged directly to
other comprehensive
income
31 December
2017
(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
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
257
257
34. INCOME TAXES CONTINUED
In thousands of GEL
Tax effect of deductible/(taxable) temporary
differences and tax loss carry forwards
Premises and equipment
Loan impairment provision
Fair valuation of investment securities
available for sale
Other financial assets
Other assets
Investment in leases
Investment property
Due to credit institutions
Subordinated debt
Other financial liabilities
Other liabilities
Share based payment
Tax loss carried forward
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
Charged 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)
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
Cash flows
Foreign exchange adjustments
Other non-cash movements
Net debt at 31 December 2018
Liabilities from financing activities
Other borrowed
funds
1,880,670
519,289
(13,266)
147,803
2,534,496
79,390
70,883
187,300
2,872,069
Debt Securities
in Issue
23,508
(3,251)
(1,505)
1,943
20,695
(9,308)
554
1,402
13,343
Subordinated debt
Total
368,381 2,272,559
538,875
22,837
(15,536)
(765)
186,081
36,335
426,788 2,981,979
241,863
171,781
81,395
9,958
231,094
42,392
650,919 3,536,331
258
258
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 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 organization structure: enterprise risk management;
credit, financial and non-financial risks management; risk reporting & supporting IT infrastructure; cross-risk analytical
tools and techniques such as capital adequacy management and stress-testing. Comprehensive, transparent and prudent
risk governance facilitates understanding and trust from multiple stakeholders, ensures sustainability and resiliency of the
business model and positioning of risk management as Group’s competitive advantage and strategic enabler.
The TBC Bank Group’s governance structure ensures adequate oversight and accountabilities as well as clear segregation
of duties. The Risks, Ethics and Compliance Committee is responsible for taking all the day-to-day decisions relating to the
Group apart from those that are reserved for the Board. Namely, the committee carries out following duties: 1) Review and
assessment of the Group’s risk management strategy, risk appetite and tolerance, risk management system and risk policies;
2) Review and monitoring of the processes for compliance with laws, regulations and ethical codes of practice; 3) monitoring
of the remediation of internal control deficiencies identified by internal and external auditors around compliance, ethics and
risk management functions; 4) Annual self-assessment of the committee’s performance and reporting of the results to the
Board; 5) Review of the key risk management framework and other policy documents and make recommendations to the
Board for their approval.
On the Bank level, risk management is the duty of the Supervisory Board, which has the overall responsibility to set the tone
at the top and monitor compliance with established objectives. At the same time, Management Board governs and directs
Groups’ daily activities.
Both the Supervisory Board and the management Board have established dedicated risk committees. Risk, Ethics and
Compliance Committee of Supervisory Board approves Bank’s Risk Appetite, supervises risk profile and risk governance
practice within the Bank while Audit Committee is responsible for implementation of key accounting policies and facilitation
of activities of internal and external auditors. Management Board Risk Committee is established to guide group-wide risk
management activities and monitor major risk trends to make sure risk profile complies with the established Risk Appetite
of the Group. Operational Risk Committee makes decisions related to operational risk governance while Asset-Liability
Management Committee (“ALCO”) is responsible for implementation of ALM policies.
The Board, the Supervisory Board and Senior Management govern risk objectives through Risk Appetite Statement (“RAS”)
which sets desired risk profile and respective risk limits for different economic environments. Risk Appetite (“RA”) establishes
monitoring and reporting responsibilities as well as escalation paths for different trigger events and limit breaches which as
well prompt risk teams to establish and implement agreed mitigation actions. In order to effectively implement Risk Appetite
in the Group’s day-to-day operations, the RA metrics are cascaded into more granular business unit level limits. That way
risk allocation is established across different segments and activities. The Board level oversight coupled with the permanent
involvement of the Senior Management in TBC Group risk management ensures the clarity regarding risk objectives, intense
monitoring of risk profile against risk appetite, prompt escalation of risk-related concerns and establishment of remediation
actions.
The daily management of individual risks is based on the principle of the three lines of defense. While business lines are
primary risk owners, risk teams assume the function of the second line defense. This role is performed through sanctioning
transactions as well as tools and techniques for risk identification, analysis, measurement, monitoring and reporting. The
committees are established at operational levels in charge of making transaction-level decisions that comprise of component
of clear and sophisticated delegations of the authority framework based on “four-eye principle”. All new products/projects go
through the risk teams to assure risks are analyzed comprehensively.
Such control arrangements guarantee that the Bank takes informed risk-taking decisions that are adequately priced, avoiding
taking risks that are beyond the Group’s established threshold. Within the Risk Organization the below teams manage the
credit, liquidity, market, operational and other non-financial risks:
Enterprise Risk Management (ERM);
Credit Risk Management;
Underwriting (Credit sanctioning);
Restructuring and Collections;
Financial Risk Management;
Operational Risk Management.
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
259
259
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 Group that facilitates further improvement of operations and
risk management.
For the management of each significant risk, the Bank puts in place specific policies and procedures, governance tools
and techniques, methodologies for risk identification, assessment and quantification. Sound risk reporting systems and IT
infrastructure are important tools for efficient risk management of TBC Bank. Thus, significant emphasis and investments
are made by the Bank to constantly drive the development of required solutions. Comprehensive reporting framework is in
place for the Management Board, the Supervisory Board and the Board that enables intense oversight over risk developments
and taking early remedial actions upon necessity.
Beyond the described risk governance components, compensation system features one of the most significant tools for
introducing incentives for staff, aligned with the Bank’s long term interests to generate sustainable risk-adjusted returns. The
risk Key Performance Indicators (“KPIs”) are incorporated into both the business line and the risk staff remunerations. The
performance management framework differentiates risk staff incentives to safeguard the independence from business areas
that they supervise and at the same time enable attraction and maintenance of qualified professionals. For that purpose, the
Bank overweighs risk KPIs for risk and control staff and caps the share of variable remuneration.
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 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.
260
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TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 36 FINANCIAL AND OTHER RISK MANAGEMENT CONTINUED
Credit Approval (contiuned): 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, MSME and Retail customers (except those products which are assessed applying scorecards).
The composition of a Loan Approval Committee depends on aggregated liabilities of the borrower and the borrower's risk
profile. Credit risk managers (as members of respective Loan Approval Committees) ensure that the borrower and the
proposed credit exposure risks are thoroughly analysed. A loan to the Bank’s top 20 borrowers or exceeding 5% of the Bank’s
regulatory capital requires the review and the approval of the Supervisory Board’s Risk, Ethics and Compliance Committee.
This committee also approves transactions with related parties resulting in exposures to individuals and legal entities
exceeding GEL 150 and 200 thousand, respectively.
Credit Risk Monitoring: The Group's risk management policies and processes are designed to identify and analyse risk in
a timely manner, and monitor adherence to predefined limits by means of reliable and timely data. The Group dedicates
considerable resources to gain a clear and accurate understanding of the credit risk faced across various business segments.
The Group uses a robust monitoring system to react timely to macro and micro developments, identify weaknesses in the
credit portfolio and outline solutions to make informed risk management decisions. Monitoring processes are tailored to the
specifics of individual segments, as well as they encompass individual credit exposures, overall portfolio performance and
external trends that may impact the portfolios risk profile. Early warning signals serve as an important early alert system for
the detection of credit deteriorations, leading to mitigating actions.
Complex monitoring system is in place for monitoring of individual counterparties with frequency of monitoring depending
on the borrower’s risk profile and exposure. Based on the results of the monitoring borrowers are classified across different
risk categories. In case there are certain weaknesses present, which if materialized may lead to loan repayment problems,
borrowers are classified as “watch” category. Although watch borrowers’ financial standing is sufficient to repay obligations,
these borrowers are closely monitored and specific actions are undertaken to mitigate potential weaknesses. Watch category
is used as one of the qualitative indicators for transferring of exposures to stage 2 for the corporate and SME borrowers.
For retail and micro borrowers along with other portfolio level indicators, portfolio breakdown across risk categories is
monitored on a regular basis. In case there are indicators that portfolio distribution across risk categories deteriorates above
the predefined threshold it might trigger transferring the respective portfolio to stage 2, as long as deterioration signs are in
place.
Reports relating to the credit quality of the credit portfolio are presented to the Board's Risk, Ethics and Compliance
Committees on a quarterly basis. By comparing current data with historical figures and analysing forecasts, the management
believes that it is capable identifying risks and responding to them by amending its policies in a timely manner.
Credit Risk Mitigation: Credit decisions are based primarily on the borrower's repayment capacity and creditworthiness; in
addition, the Group uses credit risk mitigation tools such as collateral and guarantees to reduce the credit risk. The reliance
that can be placed on these 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 Bank differentiates between two types of restructuring considering
the severity of financial weakness of the borrowers. For the measurement of ECL, restructured borrowers may be classified
either in Stage 2 or Stage 3. The primary goal of the restructuring units is to rehabilitate the borrower and return to the
performing category or to Stage 1. The sophistication and complexity of rehabilitation process differs based on the type and
size of exposure.
A centralised monitoring team monitors retail borrowers in delinquency, which coupled with branches’ efforts, are aimed at
maximizing collection. The specialised software is applied for early collection processes management. Specific strategies are
tailored to different sub-groups of customers, reflecting respective risk levels, so that greater effort is dedicated to customers
with a higher risk profile. Correcting the delinquency at early stage limits the amount of exposures becoming past due more
than 30 days (one of the criteria indicating SICR) and transferred to Stage 2.
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
261
261
36 FINANCIAL AND OTHER RISK MANAGEMENT CONTINUED
Credit Risk Restructuring and Collection: 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.
Credit Quality. Depending on the type of financial asset the Group may utilize different sources of asset credit quality information
including credit ratings assigned by the international rating agencies (Standard & Poor’s, Fitch), credit scoring information
from credit bureau and internally developed credit ratings. Financial assets are classified in an internally developed credit
quality grades by taking into account the internal and external credit quality information in combination with other indicators
specific to the particular exposure (e.g. delinquency). The Group defines following credit quality grades:
Very low risk – exposures demonstrate strong ability to meet financial obligations;
Low risk – exposures demonstrate adequate ability to meet financial obligations;
Moderate risk – exposures demonstrate satisfactory ability to meet financial obligations;
High risk – exposures that require closer monitoring;
Default – exposures in default, with observed credit impairment.
The internal credit ratings are estimated by the Group by statistical models with the limited involvement of credit officers.
Statistical models include qualitative and quantitative information that shows the best predictive power based on historical
data on defaults.
The rating models are regularly reviewed and back tested on actual default data. The Group regularly validates the accuracy
of ratings estimates and appraises the predictive power of the models.
Expected credit loss (ECL) measurement: ECL is a probability-weighted estimate of the present value of future cash shortfalls.
An ECL measurement is unbiased and is determined by evaluating a range of possible outcomes. ECL measurement is
based on four components used by the Group: Probability of Default (“PD”), Exposure at Default (“EAD”), Loss Given Default
(“LGD”) and Discount Rate.. The estimates consider forward looking information, that is, ECLs reflect probability weighted
development of key macroeconomic variables that have an impact on credit risk.
The Bank uses is a three-stage model for ECL measurement and classifies its borrowers across three stages: The Bank classifies
its exposures as Stage 1 if no significant deterioration in credit quality occurred since initial recognition and the instrument was
not credit-impaired when initially recognized. The exposure is classified to Stage 2 if the significant deterioration in credit quality
was identified since initial recognition but the financial instrument is not considered credit-impaired. The exposures for which
the credit-impaired indicators have been identified are classified as Stage 3 instruments. The Expected Credit Loss (ECL) amount
differs depending on exposure allocation to one of the Stages. In the case of Stage 1 instruments, the ECL represents that portion
of the lifetime ECL that can be attributed to default events occurring within the next 12 months from the reporting date. In case
of Stage 2 instruments, the ECL represents the lifetime ECL, i.e. credit losses that can be attributed to possible default events
during the whole lifetime of a financial instrument. Generally, lifetime is set equal to the remaining contractual maturity of
the financial instrument. Factors such as existence of contractual repayment schedules, options for extension of repayment
maturity and monitoring processes held by the Bank affect the lifetime determination. In case of Stage 3 instruments, default
event has already incurred and the lifetime ECL is estimated based on the expected recoveries
Definition of default: Financial assets for which the Group observed occurrence of one or more loss events are classified in Stage
3. For purposes of disclosure, the Group fully aligned the definition of default with the definition of credit-impaired assets. The
Group’s definition of default for the purpose of ECL measurement, is in accordance with the Capital Requirements Regulation
(EU).
The Group uses both quantitative and qualitative criteria for the definition of default. The borrower is classified as defaulted if at
least one of the following occurred:
Any amount of contractual repayments is past due more than 90 days;
Factors indicating the borrower’s unlikeliness-to-pay.
In case of individually significant borrowers the Bank additionally applies criteria including but not limited to: bankruptcy
proceedings, significant fraud in the borrower’s business that significantly affected its financial condition, breach of the contract
terms etc. For SME and corporate borrowers default is identified on the counterparty level, meaning that all the claims against
the borrower are treated as defaulted. As for retail and micro exposures, facility level default definition is applied considering
additional pulling effect criteria. If the amount of defaulted exposure exceeds predefined threshold, all the claims against the
borrower are classified as defaulted.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 36 FINANCIAL AND OTHER RISK MANAGEMENT CONTINUED
Definition of default (contiuned): Once financial instrument is classified as defaulted, it remains as such until it no longer
meets any of the default criteria for a consecutive period of six months, in which case exposure is considered to no longer be in
default (i.e. to have cured). Grace period of six months has been determined on analysis of likelihood of a financial instrument
returning to default status after curing. Exposures which are moved to stage 2 from default state are kept there for certain
period before transferring to Stage 1 and classified as fully performing instruments again.
Significant increase in credit risk (“SICR”) Financial assets for which the Group identifies significant increase in credit risk
since its origination are classified in Stage 2. SICR indicators are recognized at financial instrument level even though some of
them refer to the borrower’s characteristics. The Group uses both quantitative and qualitative indicators of SICR.
Quantitative criteria
On a quantitative basis the Bank assess change in probability of default parameter for each particular exposure since initial
recognition and compares it to the predefined threshold. When absolute change in probability of default exceeds the applicable
threshold, SICR is deemed to have occurred and exposure is transferred to Stage 2. Quantitative indicator of SICR is applied
to retail and micro segments, where the Group has sufficient number of observations.
Qualitative criteria
Financial asset is transferred to Stage 2 and lifetime ECLs is measured if at least one of the following SICR qualitative criteria
is observed:
delinquency period of more than 30 days on contractual repayments;
exposure is restructured, but is not credit impaired;
borrower is classified as “watch”.
The Group has not rebutted the presumption that there has been significant increase in credit risk since origination when
financial asset becomes more than 30 days past due. This qualitative indicator of SICR together with debt restructuring
is applied to all segments. Particularly for corporate and SME segment the Group uses downgrade of risk category since
origination of the financial instrument as a qualitative indicator of SICR. Based on the results of the monitoring borrowers
are classified across different risk categories. In case there are certain weaknesses present, which if materialized may lead
to loan repayment problems, borrowers are classified as “watch” category. Although watch borrowers’ financial standing
is sufficient to repay obligations, these borrowers are closely monitored and specific actions are undertaken to mitigate
potential weaknesses. Once the borrower is classified as “watch” category it is transferred to Stage 2. If any of the SICR
indicators described above occur financial instrument is transferred to Stage 2. Financial asset may be moved back to Stage
1, if SICR indicators are no longer observed.
ECL measurement: The Group utilizes two approaches for ECL measurement – individual assessment and collective
assessment. Individual assessment is mainly used for credit impaired individually significant borrowers. Additionally, the Bank
may arbitrarily designate selected exposures to individual measurement of ECL based on the Bank’s credit risk management
or underwriting departments’ decision.
The Bank uses the discounted cash flow (DCF) method for the determination of recovery amount under individual assessment.
In order to ensure the accurate estimation of recoverable amount the Bank may utilize scenario analysis approach. Scenarios
may be defined considering the specifics and future outlook of individual borrower, sector the borrower operates in or changes
in values of collateral. In case of scenario analysis the Bank forecasts recoverable amount for each scenario and estimates
respective losses. Ultimate ECL is calculated as the weighted average of losses expected in each scenario, weighted by the
probability of scenario occurring.
As for the non-significant and non-impaired significant borrowers the Bank estimates expected credit losses collectively.
For the collective assessment and risk parameters estimation purposes the 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: Stage (Stage 1, Stage 2 or Stage 3), type of counterparty (individual vs business), type of product, rating (external or
internal), overdue status, restructuring status, months in default category or any other characteristics that may differentiate
certain sub-segments for risk parameter’s estimation purposes. Number of pools differs for different products/ segments
considering specifics of portfolio and availability of data within each pool. Collective ECL is the sum of the multiplications of
the following credit risk parameters: EAD, PD and LGD, that are defined as explained below, and discounted to present value
using the instrument’s effective interest rate.
The key principles of calculating the credit risk parameters:
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263
Exposure at default (EAD). The EAD represents estimation of exposure to credit risk at the time of default occurring during the life
of financial instrument. The EAD parameter used for the purpose of the ECL calculation is time-dependent, i.e. the Bank allows
for various values of the parameter to be applied to subsequent time periods during the lifetime of an exposure. Such structure
of the EAD is applied to all Stage 1 and Stage 2 financial instruments. In case of Stage 3 financial instruments and defaulted POCI
assets, the EAD vector is one-element with current EAD as the only value. EAD is determined differently for amortising financial
instruments with contractual repayment schedules and for revolving facilities. For amortising products EAD is calculated considering
the contractual repayments of principal and interest over the 12-month period for facilities classified in Stage 1 and over lifetime
period for remaining instruments. It is additionally adjusted to include effect of reduction in exposure due to prepayments. For
revolving products, the Bank estimates the EAD based on the expected limit utilisation percentage conditional on the default event.
Probability of default (PD). Probability of default parameter describes the likelihood of a default of a facility over a particular time
horizon. It provides an estimate of the likelihood that a borrower will be unable to meet its contractual debt obligations. The PD
parameter is time-dependent (i.e. has a specific term structure) and is applied to all non-defaulted contracts. Taking into account
specific nature of different segments of clients for which the PD is estimated as well as unique characteristics that drive their default
propensity, the PD is modelled differently for Retail and Micro segments and Corporate and SME segments.
PD assessment approach is also differentiated for different time horizons and is further adjusted due to expected influence
of macroeconomic variables as forecasted for the period. Two types of PDs are used for calculating ECLs: 12-month and
lifetime PD. Lifetime PDs represent the estimated probability of a default occurring over the remaining life of the financial
instrument and it is a sum of the 12 months marginal PDs over the life of the instrument. The Group uses different statistical
approaches such as the extrapolation of 12-month PDs based on migration matrixes, developing lifetime PD curves based on
the historical default data and gradual convergence of long-term PD with the long-term default rate.
Loss given default (LGD). The LGD parameter represents the share of an exposure that would be irretrievably lost if a borrower
defaults. For Stage 1 and Stage 2 financial instruments, the LGD is estimated for each period in the instrument’s lifetime and
reflects the share of the expected EAD for that period that will not be recovered over the remaining lifetime of the instrument
after the default date. For Stage 3 financial instruments, the LGD represents the share of the EAD as of reporting date that will
not be recovered over the remaining life of that instrument. Assessment of LGD varies by the type of counterparty, segment,
type of product, securitization level and availability of historical observations. The general LGD estimation process employed
by the Bank is based on the assumption that after the default of the exposure, two mutually exclusive scenarios are possible.
The exposure either leaves the default state (cure scenario) or does not leave the default state and will be subject to recovery
process (non-cure scenario). The probability that an exposure defaults again in the cure scenario is involved in the estimation
process. Risk parameters applicable to both scenarios, i.e. cure rates and recovery rates, are estimated by means of migration
matrices approach, where risk groups are defined by consecutive months-in-default. For certain portfolios based on the
limitations of observations alternative versions of the general approach may be applied.
Forward-looking information. The measurement of unbiased, probability weighted ECL requires inclusion of forward looking
information obtainable without undue cost or effort. For forward looking information purposes the Bank defines three macro
scenarios. The scenarios are defined as baseline (most likely), upside (better than most likely) and downside (worse than
most likely) scenarios of the state of the Georgian economy with weights of 50%, 25% and 25% assigned to each scenario
respectively.
To derive the baseline macro-economic scenario, the Group takes into account forecasts from various external sources – the
National Bank of Georgia, Ministry of Finance, International Monetary Fund (“IMF”) as well as other International Financial
Institutions (“IFI”’s) – in order to ensure the to the consensus market expectations. Upside and downside scenarios are
defined based on the framework developed by the Bank’s macroeconomic unit.
The forward looking information is incorporated in both individual and collective assessment of expected credit losses.
Model maintenance and validation. The Group regularly reviews its methodology and assumptions to reduce any difference
between the estimates and the actual credit loss. Such back-testing is performed at least once a year. As part of the
back-testing process, the Group evaluates actual realization of the risk parameters and their consistency with the model
estimates. Additionally staging criteria are also analysed within the back-testing process. The results of back-testing the
ECL measurement methodology are communicated to the Group Management and further actions for tuning the models and
assumptions are defined after discussions between authorised persons.
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 36 FINANCIAL AND OTHER RISK MANAGEMENT CONTINUED
The geographical concentration of the Group’s assets and liabilities as of 31 December 2018 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 measured at fair value through OCI
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
650,575
28,418
1,422,809
9,526,939
1,004,564
654,203
202,850
166,899
515,159
12,852
-
121,713
-
-
-
329
1,177
6,046
-
389,800
675
-
952
290
1,166,911
47,316
1,422,809
10,038,452
1,005,239
654,203
203,802
167,518
13,657,257
650,053
398,940
14,706,250
788,042
55
3,646
791,743
14,445,299
650,108
402,586
15,497,993
1,154,327
7,790,236
7,927
98,379
94,264
1,811,299
697,753
-
296
420,031
65,877
864,153
5,416
39
136,624
3,031,503
9,352,142
13,343
98,714
650,919
9,145,133
2,929,379
1,072,109
13,146,621
144,386
525
493
145,404
9,289,519
2,929,904
1,072,602
13,292,025
5,155,780
(2,279,796)
(670,016)
2,205,968
684,810
870,446
291,795
3,751
219,207
1,638
1,195,812
875,835
TBC BANK annual report and accounts 2018
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265
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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
608,728
8,733
-
67,805
-
-
-
141
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
11,237,995
685,407
304,345 12,227,747
733,417
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 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 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
1,408,693
530,370
70,185
502,797
2,197,577
6,454,949
13,261
49,092
-
-
1,286
233,657
10,247
620
134,724
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
Market risk. The Bank follows the Basel Committee's definition of market risk as the risk of losses in on- and off-balance
sheet positions arising from movements in market prices. This risk is principally made up of (a) risks pertaining to interest
rate instruments and equities in the trading book and (b) foreign exchange rate risk (or currency risk) and commodities
risk throughout the Bank. The Bank's strategy is not to be involved in trading book activity or investments in commodities.
Accordingly, the Bank's exposure to market risk is primarily limited to foreign exchange rate risk in the structural book.
Currency risk. Foreign exchange rate risk arises from the potential change in foreign currency exchange rates, which can
affect the value of a financial instrument. This risk stems from the open currency positions created due to mismatches
in foreign currency assets and liabilities. The NBG requires the Bank to monitor both balance-sheet and total aggregate
(including off-balance sheet) open currency positions and to maintain the later one within 20% of the Bank’s regulatory
capital. As of 31 December 2018, the Bank maintained an aggregate open currency position of 7.6% of regulatory capital
(2017: 1.5%; 2016: 3.2%). 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 addition, the regulatory requirement effect of GEL 77.8 million and
treasury FX short-term operation effect of GEL 37.5 million are excluded from USD OCP calculation purposes:
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 2018
Monetary
financial
assets
Monetary
financial
liabilities Derivatives Net position
5,920,867 4,663,300
7,309,173 7,445,413
1,375,295
100,915
323,306
948,398 (409,565)
(458)
86,122 1,343,689
187,066
17,332
10,959
89,498
14,706,250 13,146,609
(595) 1,559,046
As of 31 December 2017
As of 31 December 2016
Monetary
financial
assets
Monetary
financial
liabilities Derivatives
Net balance
sheet posi-
tion
Monetary
financial
assets
Monetary
financial
liabilities Derivatives
Net balance
sheet posi-
tion
4,814,429
6,475,155
816,565
121,579
3,767,858
6,299,024
805,153
104,732
164,521
(153,449)
(9,315)
(899)
1,211,092
22,682
2,097
15,948
3,484,840
5,821,734
690,728
90,264
2,478,715
5,848,266
697,568
70,864
9,394
(8,905)
(13)
(288)
1,015,519
(35,437)
(6,853)
19,112
12,227,728 10,976,767
858
1,251,819 10,087,566
9,095,413
188
992,341
To assess the currency risk the Bank performs a value-at-risk (“VAR”) sensitivity analysis on a quarterly basis. The analysis
calculates the effect on the Group’s income determined by possible worst movement of currency rates against the Georgian
Lari, with all other variables held constant. To identify the maximum expected losses resulting from currency fluctuations, a
99% confidence level is defined based on the monthly variations in exchange rates over 3 year look-back period. During the
years ended 31 December 2018, 2017 and 2016, 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 2018
As of
31 December 2017
As of
31 December 2016
(8,890)
(6,162)
(2,206)
(1,462)
(1,184)
(868)
Interest rate risk. Interest rate risk arises from potential changes in the market interest rates that can adversely affect
the fair value or future cash flows of the financial instrument. This risk can arise from maturity mismatches of assets and
liabilities, as well as from the re-pricing characteristics of such assets and liabilities.
The Bank’s deposits and the most loans are at fixed interest rates, while a portion of the Bank’s borrowings is at a floating
interest rate. The Bank’s floating rate borrowings are, to a certain extent, hedged by the NBG paying a floating rate on the
minimum reserves that the Bank holds with the NBG. The Bank used to enter has also entered into interest rate swap
agreements or apply for other interest rate risk hedging instruments 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.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 36 FINANCIAL AND OTHER RISK MANAGEMENT CONTINUED
Interest rate risk (continued). The table below summarises the Group’s exposure to interest rate risks. It illustrates the
aggregated amounts of the Group’s financial assets and liabilities at the amounts monitored by the management and
categorised by the earlier of contractual interest re-pricing or maturity dates. Currency and interest rate swaps are not netted
when assessing the Group’s exposure to interest rate risks. Therefore, total financial assets and liabilities below are not
traceable with either balance sheet or other financial risk management tables. The tables consider both reserves placed with
NBG and Interest bearing Nostro accounts. Income on NBG reserves and Nostros are calculated as benchmark minus margin
whereby for benchmark Federal funds rate and ECB rates are considered in case of USD and EUR respectively. Therefore,
they have impact on the TBC’s Net interest income in case of both upward and downward shift of interest rates.
In thousands of GEL
31 December 2018
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
4,782,800
4,563,135
3,610,949
3,337,999
1,017,711
948,719
5,295,712 14,707,172
4,297,701 13,147,554
Net interest sensitivity gap as of 31 December 2018
219,665
272,950
68,992
998,011 1,559,618
31 December 2017
Total financial assets
Total financial liabilities
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
As of 31 December 2018, if interest rates had been 100 basis points lower with all other variables held constant, profit for the
year would have been GEL 4.8 million higher (2017: GEL 7.4 million; 2016 GEL 9,5 million;), mainly as a result of lower interest
income on variable interest assets. Other comprehensive income would have been GEL 8.6 million higher (2017: GEL 6.1
million; 2016: GEL 1.5 million), as a result of an increase in the fair value of fixed rate financial assets measured at fair value
through other comprehensive income and repurchase receivables.
If interest rates had been 100 basis points higher, with all other variables held constant, profit would have been GEL 4.8 million
lower (2017: GEL 7.4 million; 2016: GEL 9.5 million), mainly as a result of higher interest income on variable interest assets.
Other comprehensive income would have been GEL 8.2 million lower (2017: GEL 5.9 million; 2016: GEL 2.1 million), as a result
of decrease in the fair value of fixed rate financial assets measured at fair value through other comprehensive income.
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.
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36 FINANCIAL AND OTHER RISK MANAGEMENT CONTINUED
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 on-going 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.
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 1st of 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 107.3%, 106.5% and
110.5%, at the 31 December 2018, 2017 and 2016 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 larization in the country of
Georgia, NBG defines 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.
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TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 36 FINANCIAL AND OTHER RISK MANAGEMENT CONTINUED
As of 31 December the ratios were well above the prudential limit set by the NBG as follows:
Average Liquidity Ratio
Total Liquidity Coverage Ratio
GEL Liquidity Coverage Ratio
FX Liquidity Coverage Ratio
2018
2017
33.3%
113.9%
102.5%
121.1%
32.5%
112.7%
95.6%
122.9%
2016
30.8%
-
-
-
According to daily cash flow forecasts and the surplus in liquidity standing, the Treasury Department places funds in short-
term liquid assets , largely made up of short-term risk-free securities, interbank deposits and other inter-bank facilities, to
ensure that sufficient liquidity is maintained within the Group as a whole.
Maturity analysis. The table below summarizes the maturity analysis of the Group’s financial liabilities, based on remaining
undiscounted contractual obligations as of 31 December 2018’ 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 2018 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
950,084
3,152,851
3,821,862
77,522
5,267
366
567,259
119,959
9,932
769,863
372,517 1,909,587
628,831
137,275
-
388,594
-
-
671,333
51,337
-
1,408,710
208,250
21,192
71,519
13,847
16,008
349,354
44,703
-
27,397
187,454 3,419,642
5,217,789
195,007 4,362,394
98,714
1,053,577
14,213
583,267
1,195,812
105,972
769,863
-
588,197
-
-
55,166
-
-
Total potential future payments for financial obligations
9,474,965 2,506,100
3,786,957 1,053,221 16,821,243
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
From
12 months to
5 years
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
-
1,167,970
522,104
133,236
260
198,042
13,687
-
306,788
74,457
-
Over
5 years
151,417
40,727
80,976
-
346,703
-
-
8,135
155
-
Total
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
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36 FINANCIAL AND OTHER RISK MANAGEMENT CONTINUED
The maturity analysis of financial liabilities as of 31 December 2016 is as follows:
In thousands of GEL
Liabilities
Due to Credit institutions
Customer accounts – individuals
Customer accounts – other
Other financial liabilities
Subordinated debt
Debt securities in issue
Gross settled forwards
Performance guarantees
Financial guarantees
Other credit related commitments
Less than
3 months
From 3 to
12 months
From
12 months to
5 years
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
-
Over
5 years
168,271
39,578
74,180
-
360,551
-
-
845
140
-
Total
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 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.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 36 FINANCIAL AND OTHER RISK MANAGEMENT CONTINUED
Maturity analysis (continued). As of 31 December 2018 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 measures at fair value through OCI
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
Less than
3 months
From 3 to
12 months
From 1 to 5
Years
Over
5 years
Total
1,166,911
27,153
1,422,809
1,090,521
1,005,239
119,489
31,133
131,586
-
11,075
-
2,056,149
-
92,877
56,432
34,268
-
9,088
-
4,152,436
-
368,843
113,087
1,664
-
-
-
1,166,911
47,316
1,422,809
2,739,346 10,038,452
1,005,239
654,203
203,802
167,518
-
72,994
3,150
-
4,994,841
2,250,801
4,645,118
2,815,490 14,706,250
933,511
997,594
112
77,522
3,048
271,993
128,395
13,231
21,192
23,246
1,653,575
-
-
-
182,986
172,424
8,226,153
-
-
441,639
3,031,503
9,352,142
13,343
98,714
650,919
2,011,787
458,057
1,836,561
8,840,216 13,146,621
4,393
5,424
103,029
112,846
-
-
-
-
-
-
-
-
-
-
-
-
4,393
5,424
103,029
112,846
Net liquidity gap as of 31 December 2018
2,870,208
1,792,744
2,808,557 (6,024,726)
1,446,783
Cumulative gap as of 31 December 2018
2,870,208
4,662,952
7,471,509
1,446,783
The management believes that the Group has sufficient liquidity to meet its current on- and off-balance sheet obligations.
TBC BANK annual report and accounts 2018
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36 FINANCIAL AND OTHER RISK MANAGEMENT CONTINUED
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
Less than
3 months
From 3 to
12 months
From 1 to 5
Years
Over
5 years
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
-
-
Total
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
Net liquidity gap as of 31 December 2017
2,220,069
1,383,075
2,652,849 (5,120,587)
1,135,406
Cumulative gap as of 31 December 2017
2,220,069
3,603,144
6,255,993
1,135,406
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TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 36 FINANCIAL AND OTHER RISK MANAGEMENT CONTINUED
Maturity analysis (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
Less than 3
months
From 3 to
12 months
From 1 to 5
Years
Over
5 years
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
-
-
Total
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
Net liquidity gap as of 31 December 2016
2,070,456
1,194,138
2,017,076 (4,346,055)
935,615
Cumulative gap as of 31 December 2016
2,070,456
3,264,594
5,281,670
935,615
In order to assess the possible outflow of the bank’s customer accounts management applied value-at-risk analysis. VAR as
of December 2018 equaled 10.9% (2017: 12.3%; 2016: 13.6%). 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 2019” by the World Bank (WB) and International Financing Corporation (IFC), ranking as the 6th easiest country in
the world to do business (out of 190), up by 7 steps compared to the previous year rankings. The country improved its ranking
in almost all categories, confirming its position as regional leader and outperforming most of the EU economies. Georgia
also boasts low corruption levels, a low tax burden, and high transparency of its institutions according to the number of
surveys by international institutions. The domestic economic environment remains stable and the banking sector continues
to grow, supported by broader macroeconomic stability and attractive business climate. As a result of strong macroeconomic
performance, diversified sources of inflows and prudent macroeconomic policies, on February 22, 2019 Fitch Ratings
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
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36 FINANCIAL AND OTHER RISK MANAGEMENT CONTINUED
upgraded Georgia’s sovereign credit rating from ‘BB-’ to ‘BB’ with stable outlook.
GDP growth stood at 4.8% YoY in 2018, per initial estimates of Geostat. The growth was broad-based across different sectors
of the economy. Based on 9m quarterly released figures, 4.8% higher value added YoY was mostly driven by trade and repairs
(+5.7% YoY), real estate (+12.7% YoY), transport and communications (+6.8% YoY), financial intermediation (+15.8% YoY) and
hotels and restaurants (+7.3% YoY). The construction sector declined by 3.8% YoY over the same period, reflecting one-off
factors related to the several large-scale infrastructure projects as well as slowdown in public spending.
The growth of inflows of exports, tourism and remittances remained strong in H1 2018 (+26.4% YoY in USD terms). Following
the economic difficulties in Turkey, sanctions on Iran, and RUB weakness, the growth of inflows slowed in the second half of
2018 (+14.6% YoY), but still remained solid. As for the full year of 2018, the growth of total inflows amounted to 19.4 % YoY.
CA balance continues to improve. Over the last four quarters ending Q3 2018 CA deficit to GDP ratio stood at 8.3% compared
to the 8.8% in 2017. Improvement in CA deficit mostly reflects several factors, including continued positive trend in external
inflows, normalization of FDI related imports as well as low fiscal spending. As a result of the improvement trend and strong
seasonal effect, in Q3 2018 CA turned even to surplus at 0.3% of GDP.
FDI inflows declined by 27.2% YoY in 9m 2018 mostly reflecting one-offs related to the finalization of the BP’s South Caucasus
Pipeline Extension project.1 From the sectors perspective, the decline was most pronounced in transport and communications
(-70.6% YoY) and construction sectors, both to be primarily explained by the finalization of BP’s project mentioned above. FDI
inflows also declined in real estate (-47.8% YoY) and hotels and restaurants (-11.1% YoY) sector. At the same time, FDI inflows
went up in manufacturing (+61.2% YoY), mining (+38.1% YoY), financial (+31.1% YoY) and energy (+30.1% YoY) sectors. FDI
inflows remain the major source of financing for the CA deficit.
Fiscal policy remained contractionary throughout the year. Although the budget deficit amounted to an estimated 2.6% of
GDP in 2018, the spending was concentrated mostly by the end of the year and primarily reflected the advance payments
on infrastructure projects. The full impact of the spending on growth will be materialized later in coming months with the
strongest effect likely in Q2 2019.
Loan growth remained solid in 2018 with the total bank loan portfolio expanding by 17.2% YoY at constant exchange rate.
Lending was strong across the business as well as retail segments, albeit, sharp slowdown in non-mortgage retail lending
was notable since the introduction of the regulation on unsecured lending in May 2018.
Annual CPI inflation was around the targeted level of 3% in 2018 with 4.3% in January and gradually declining to 1.5% by the
end of 2018. The NBG decreased policy rate by 0.25 PP from 7.25% to 7.00% in July 2018. The central bank continued the
normalization of the monetary policy in 2019 as well, cutting the policy rate by another 0.25 pp to 6.75% in January 2019.
According to the announcement following the latest monetary policy committee meeting, NBG is expected to continue to
normalize the policy stance at a slow pace, depending on the domestic demand as well as the external sector developments.
On the back of higher inflows, lower oil prices and likely weaker domestic demand, NBG continued to refill international
reserves and purchased 65 mln USD in December, equivalent to an estimated 4.0% of the same month GDP. Overall, in 2018
NBG made 17 interventions and purchased 197.5 mln USD – an estimated 1.2% of GDP.
As for the exchange rates, as of the end of December 2018 GEL nominal exchange rate weakened against USD by 3.3% YoY
and appreciated against EUR by 1.1% YoY. Over the same period, GEL nominal effective exchange rate appreciated by 8.0%
while real effective exchange rate appreciation stood at 4.6%.
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 2016, 2017
and 2018.
1 https://www.bp.com/en_ge/bp-georgia/about-bp/bp-in-georgia/south-caucasus-pipeline--scp-.html
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 37 MANAGEMENT OF CAPITAL CONTINUED
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 systemic risk buffer
as of December 2018 equals to 1%;
A countercyclical capital buffer is 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;
The need for the net stress buffer will be assessed based on stress testing results provided by the Group;
A General Risk-assessment Programme (GRAPE) buffer defined by the regulator, is 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 II Capital adequacy ratio
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 277.
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
2018
2017
1,678,716
672,553
1,437,218
448,069
2,351,269
1,885,287
11,458,497
179,381
1,516,993
9,754,146
28,802
970,241
13,154,871
10,753,189
11.8%
12.8%
16.7%
17.9%
10.3%
13.4%
12.9%
17.5%
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 Deposits 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
2018
Carrying Value
RW amount
4,181,199
9,206,646
46,755
508,582
1,428,945
(37,705)
15,334,422
2,694,174
179,381
809,063
1,625,289
7,203,609
46,755
287,403
1,639,128
(37,705)
10,764,479
694,018
179,381
1,516,993
19,017,040
13,154,871
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37 MANAGEMENT OF CAPITAL CONTINUED
In thousands of GEL
Cash, cash equivalents, Interbank Deposits 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 year ended 31 December 2016 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
1,041,270
380,751
1,422,021
9,399,140
45,689
576,628
10,021,457
8.5%
10.4%
10.5%
14.2%
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 is given in the table below:
In thousands of GEL
Cash, cash equivalents, Interbank Deposits 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
278
278
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
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
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 37 MANAGEMENT OF CAPITAL CONTINUED
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
2018
2017
2016
542,204
1,509,990
(29,459)
527
2,023,262
58,995
129,739
548,508
737,242
524,807
1,254,331
(26,892)
4,735
1,756,981
64,489
109,372
355,944
529,805
524,778
983,387
(26,892)
4,383
1,485,656
59,240
88,300
323,087
470,627
2,760,504
2,286,786
1,956,283
10,379,124
(204,391)
210,916
10,385,649
8,749,752
(118,492)
40,803
8,672,063
7,064,035
(136,721)
46,484
6,973,798
4.0%
19.5%
8.0%
26.6%
4.0%
20.3%
8.0%
26.4%
4.0%
21.3%
8.0%
28.1%
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).
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
279
279
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 2018,
2017, 2016 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 measured at FVOCI
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 measured at FVOCI
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 measured at FVOCI
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
2018
Carrying Value
RW amount
4,285,970
10,372,582
124,643
504,035
499,747
15,786,977
2,674,697
(204,391)
210,916
244,844
8,281,144
124,643
474,576
499,747
9,624,954
754,170
(204,391)
210,916
18,468,199 10,385,649
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
280
280
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 38. CONTINGENCIES AND COMMITMENTS
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 2018, 2017 and 2016 no provision for potential tax liabilities has been recorded.
Operating lease commitments. Where the Group is the lessee, as of 31 December 2018, the future minimum lease payments
under non-cancellable operating leases over the next year amounted to GEL 11,022 thousand (31 December 2017: 6,479
thousand; 31 December 2016: 5,016 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. The Group was in compliance with all covenants as of 31 December 2018. 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 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.
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.
Outstanding credit related commitments are as follows:
In thousands of GEL
Undrawn credit lines
Letters of credit issued
Financial guarantees issued
Total credit related commitments (before credit loss allowance)
Credit loss allowance for credit related commitments
Total credit related commitments
2018
769,863
105,972
-
875,835
(5,424)
870,411
2017
728,178
106,919
141,963
977,060
(8,239)
968,821
2016
449,110
154,842
116,260
720,212
(8,049)
712,163
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 2018 were GEL 344,360 thousand (2017: GEL 389,148 thousand; 2016: GEL
169,831 thousand).
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
281
281
38. CONTINGENCIES AND COMMITMENTS CONTINUED
Performance guarantees. Performance guarantees are contracts that provide compensation in case of another party fails
to perform a contractual obligation. Such contracts do not transfer credit risk. The risk under the performance guarantee
contracts is the possibility that the insured event occurs (i.e.: the failure to perform the contractual obligation by another
party). The key risks the Group faces are significant fluctuations in the frequency and severity of payments incurred on such
contracts, relative to expectations.
Fair value of credit related commitments were GEL 5,424 thousand as of 31 December 2018 (2017: GEL 8,239 thousand;
2016: GEL 8,049 thousand). Total credit related commitments and performance guarantees are denominated in currencies
as follows:
Capital expenditure commitments. As of 31 December 2018, the Group has contractual capital expenditure commitments
amounting to GEL 12,210 thousand (2017: 7,816 thousand; 2016: 5,665 thousand).
In thousands of GEL
Georgian Laris
US Dollars
Euros
Other
Total
2018
853,965
955,829
218,091
43,762
2,071,647
2017
618,544
734,970
166,304
69,539
1,589,357
2016
409,498
545,621
101,892
89,809
1,146,820
282
282
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 39. NON-CONTROLLING INTEREST
The following table provides information about each subsidiary with a non-controlling interest as of 31 December 2018:
In thousands of GEL
TBC Bank JSC including:
TBC Leasing JSC
TBC Kredit LLC*
United Financial Corporation JSC
BG LLC**
Proportion of non-controlling
interest’s voting rights held
0.12%
0.39%
-
1.33%
-
Profit attributable to
non-controlling interest
2,357
26
251
59
(88)
Accumulated non-controlling
interest in the subsidiary
3,062
96
-
517
-
*In 2018 the Group purchased remaining 25% shareholding from TBC Kredit LLC shareholders and became 100% owner of the company.
**In 2018 the Group obtained de-facto control over BG LLC and the total return from the subsidiary have been attributable to the NCI.
The summarised financial information of these subsidiaries was as follows as of 31 December 2018:
In thousands of GEL
TBC Bank JSC
TBC Leasing JSC
TBC Kredit LLC
United Financial
Corporation JSC
BG LLC
Current
assets
Non-current
assets
Current
liabilities
Non-current
liabilities
Total
comprehensive
Revenue
Profit
income Cash flows
7,421,134
160,619
19,639
8,031,716
128,610
14,987
9,955,303
138,582
13,961
3,385,828
126,954
10,813
1,066,089 433,051
6,585
1,836
26,998
3,177
448,749 (264,368)
10,773
(1,622)
6,585
1,836
8,711
8,964
6,646
1
3,284
60
-
8,993
12,401
123
4,427
(88)
4,427
(88)
(438)
63
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/(loss) attributable to
non-controlling interest
5,518
14
275
63
Accumulated non-controlling
interest in the subsidiary
29,255
70
4,165
500
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
283
283
39. NON-CONTROLLING INTEREST CONTINUED
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/
(loss)
Total
comprehensive
income/
(expense)
6,490,075
111,169
19,771
6,447,122
87,928
20,319
8,830,604
95,988
11,858
2,258,231
85,262
20,636
850,450 362,429
3,436
1,098
15,236
5,172
367,678
3,436
1,098
Cash flows
466,249
2,450
(3,631)
6,353
5,136
1,255
45
12,708
4,733
4,733
40
The following table provides information about each subsidiary with non-controlling interest as of 31 December 2016:
In thousands of GEL
TBC Bank JSC including:
TBC Leasing JSC
TBC Kredit LLC
United Financial Corporation JSC
Proportion of non-controlling
interest’s voting rights held
1.52%
0.39%
25%
1.34%
Profit/(loss) attributable to
non-controlling interest
(887)
9
(2,865)
50
Accumulated non-controlling
interest in the subsidiary
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
5,268,934
49,140
19,458
7,105,314
54,930
16,034
2,084,656
51,283
17,867
679,912 302,491
2,316
8,367 (11,461)
11,566
303,031
2,316
(11,461)
Cash flows
224,421
(5,425)
(4,291)
9,271
5,800
9,114
45
11,979
3,737
3,737
(1,243)
284
284
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 40. OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES
As of 31 December 2018, financial instruments subject to offsetting, enforceable master netting and similar arrangements
were as follows:
Gross amounts
before offsetting
in the statement of
financial position
Gross amounts
set off in the
statement
of financial
position
Net amount after
offsetting in the
statement of
financial position
Amounts subject to
master netting and similar
arrangements not set off in the
statement of financial position
Cash collateral
received
Financial
instruments
Net amount of
exposure
(a)
(b)
(c) = (a) - (b)
(d)
(e)
(c) - (d) - (e)
17,544
3,154
14,390
17,544
3,154
14,390
21,426
3,154
18,272
21,426
3,154
18,272
-
-
-
-
-
-
-
-
14,390
14,390
18,272
18,272
In thousands of GEL
ASSETS
Other financial assets:
- Receivables on credit card
services and money transfers
TOTAL ASSETS SUBJECT TO
OFFSETTING, MASTER NETTING
AND SIMILAR ARRANGEMENT
LIABILITIES
Other financial liabilities:
- Payables on credit card
services and money transfers
TOTAL LIABILITIES SUBJECT TO
OFFSETTING, MASTER NETTING
AND SIMILAR ARRANGEMENT
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
Gross amounts
set off in the
statement
of financial
position
Net amount after
offsetting in the
statement of
financial position
Amounts subject to
master netting and similar
arrangements not set off in the
statement of financial position
Cash collateral
received
Financial
instruments
Net amount of
exposure
(a)
(b)
(c) = (a) - (b)
(d)
(e)
(c) - (d) - (e)
29,308
2,605
26,703
29,308
2,605
26,703
12,964
2,605
10,359
12,964
2,605
10,359
-
-
-
-
-
-
-
-
26,703
26,703
10,359
10,359
In thousands of GEL
ASSETS
Other financial assets:
- Receivables on credit card
services and money transfers
TOTAL ASSETS SUBJECT TO
OFFSETTING, MASTER NETTING
AND SIMILAR ARRANGEMENT
LIABILITIES
Other financial liabilities:
- Payables on credit card
services and money transfers
TOTAL LIABILITIES SUBJECT TO
OFFSETTING, MASTER NETTING
AND SIMILAR ARRANGEMENT
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
285
285
40. OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES CONTINUED
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
Gross amounts
set off in the
statement
of financial
position
Net amount after
offsetting in the
statement of
financial position
Amounts subject to
master netting and similar
arrangements not set off in the
statement of financial position
Cash collateral
received
Financial
instruments
Net amount of
exposure
(a)
(b)
(c) = (a) - (b)
(d)
(e)
(c) - (d) - (e)
26,959
2,158
24,801
26,959
2,158
24,801
14,563
2,158
12,405
14,563
2,158
12,405
-
-
-
-
-
-
-
-
24,801
24,801
12,405
12,405
In thousands of GEL
ASSETS
Other financial assets:
- Receivables on credit card
services and money transfers
TOTAL ASSETS SUBJECT TO
OFFSETTING, MASTER NETTING
AND SIMILAR ARRANGEMENT
LIABILITIES
Other financial liabilities:
- Payables on credit card
services and money transfers
TOTAL LIABILITIES SUBJECT TO
OFFSETTING, MASTER NETTING
AND SIMILAR ARRANGEMENT
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.
286
286
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 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
2018
1,490
(2,085)
-
(595)
2017
1,767
(909)
(267)
591
2016
508
(320)
(1,055)
(867)
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 (+)
Fair value of foreign exchange
forwards and gross settled
currency swaps
Net fair value of foreign exchange
forwards and gross settled
currency swaps
2018
2017
2016
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
-
105,753
-
442,831
-
32,052
-
1,158
(19,631)
-
(119,520)
-
(441,617)
-
(1,621)
-
-
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)
-
581,794
(582,389)
180,106
(179,248)
20,281
(20,093)
(595)
858
188
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 expired in November 2018. At the reporting date in 2017 the fair value of interest rate swaps was
negative GEL 267 thousand; 2016: negative GEL 1,055 thousand).
Information on related party balances is disclosed in Note 44.
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
287
287
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:
31 December 2018
31 December 2017
31 December 2016
Level 1
Level 2
Level 3
Total Level 1 Level 2
Level 3
Total Level 1 Level 2
Level 3
Total
-
-
-
-
-
-
In thousands of GEL
ASSETS AT FAIR VALUE
FINANCIAL ASSETS
Investment securities
measured at fair
value through other
comprehensive income
- Government notes
- Certificates of
Deposits of National
Bank of Georgia
- Corporate bonds
Netherlands
Government Bonds
- Ministry of Finance
Treasury Bills
Foreign exchange
forwards and gross
settled currency swaps,
included in other
financial assets or due
from banks
NON-FINANCIAL
ASSETS
- Premises
and leasehold
improvements
TOTAL ASSETS
RECURRING
FAIR VALUE
MEASUREMENTS
LIABILITIES CARRIED
AT FAIR VALUE
FINANCIAL LIABILITIES
- Interest rate swaps
included in other
financial liabilities
Foreign exchange
forwards and gross
settled currency swaps,
included in other
financial liabilities
TOTAL LIABILITIES
RECURRING
FAIR VALUE
MEASUREMENTS
-
-
-
-
-
-
-
-
-
1,016
14,982
548,864
66,760
372,927
-
-
-
-
14,982
548,864
-
7,728
- 328,761
-
7,728
- 328,761
- 36,002
- 150,073
66,760
-
-
-
-
-
-
372,927
- 319,745
- 319,745
- 241,810
-
-
-
-
-
-
1,016
36,002
150,073
241,810
508
1,490
-
1,490
-
1,767
-
1,767
- 277,798
277,798
-
- 283,905 283,905
-
-
508
- 229,549
229,549
- 1,005,023 277,798 1,282,821
- 658,001 283,905 941,906
- 429,409 229,549
658,958
-
-
-
-
2,085
2,085
-
-
-
-
2,085
-
-
267
909
2,085
-
1,176
-
-
-
267
-
1,055
909
-
320
1,176
-
1,375
-
-
-
1,055
320
1,375
288
288
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 42. FAIR VALUE DISCLOSURES CONTINUED
There were no transfers between levels 1 and 2 during the year ended 31 December 2018 (2017: none, 2016: none).
(a) Recurring fair value measurements 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
ASSETS AT FAIR VALUE
FINANCIAL ASSETS
Certificates of Deposits of NBG, Ministry
of Finance Treasury Bills, Government
notes, Corporate bonds
Foreign exchange forwards and gross
settled currency swaps, included in due
from banks
TOTAL ASSETS RECURRING FAIR VALUE
MEASUREMENTS
LIABILITIES CARRIED AT FAIR VALUE
FINANCIAL LIABILITIES
Other financial liabilities
- Interest rate swaps included in other
financial liabilities
- Foreign exchange forwards included in
other financial liabilities
TOTAL RECURRING FAIR VALUE
MEASUREMENTS AT LEVEL 2
Fair value at 31 December
2018
2017
2016
Valuation technique
Inputs used
1,003,533
656,234
428,901
Discounted cash flows
(“DCF”)
Government bonds
yield curve
1,490
1,767
Forward pricing using present
value calculations
Official exchange
rate, risk-free rate
508
1,005,023
658,001
429,409
-
2,085
267
909
Swap model using present
value calculations
Forward pricing using present
value calculations
Observable yield
curves
Official exchange
rate, risk-free rate
1,055
320
2,085
1,176
1,375
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 2018 (2017: none; 2016: none).
Fair value measurement analysis by level in the fair value hierarchy is disclosed in Note 2.
For details the techniques and inputs used for Level 3 recurring fair value measurement of (as well as reconciliation of
movements in) premises refer to Note 15. The unobservable input to which the fair value estimate for premises is most
sensitive is price per square meter: the higher the price per square meter, the higher the fair value.
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
289
289
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:
31 December 2018
31 December 2017
31 December 2016
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
In thousands
of GEL
FINANCIAL
ASSETS
Cash and cash
equivalents
Due from other
banks
Mandatory cash
balances with the
NBG
Loans and
advances to
customers:
- Corporate loans
- Consumer
loans
- Mortgage loans
- 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
TOTAL
ASSETS
FINANCIAL
LIABILITIES
Due to credit
institutions
Customer
accounts
Debt securities in
issue
Other financial
liabilities
Subordinated
debt
TOTAL
LIABILITIES
-
-
-
-
-
-
-
-
-
-
1,166,911
-
-
1,166,911 1,431,477
-
1,431,477
945,180
-
-
47,316
-
47,316
-
39,643
-
1,422,809
-
1,422,809
-
1,033,818
-
-
-
39,643
1,033,818
-
-
-
945,180
24,725
990,642
24,725
990,642
-
-
-
-
- 3,212,490
3,095,784
- 1,970,006
1,832,793
- 2,702,768
2,684,295
- 2,440,078
2,425,580
-
660,916
-
654,203
-
-
-
207,579
203,802
-
166,028
166,028
-
-
97,425
84,296
-
-
-
-
-
-
-
-
- 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
-
449,538
-
-
145,877
143,836
144,377
144,377
-
85,012
79,232
- 2,085,249 1,972,129
- 1,877,490 1,798,412
- 1,840,981 1,784,832
- 1,606,448 1,578,329
377,749
-
372,956
-
-
95,907
95,031
94,119
94,119
-
123,852
95,615
1,166,911 2,131,041 10,796,374 13,783,817 1,431,477
1,532,411 9,743,347 11,647,274 945,180 1,393,116 7,724,046 9,751,970
-
-
-
-
-
-
3,028,180
-
3,031,503
5,885,242
3,482,741
9,352,142
13,343
96,629
648,802
-
-
-
13,343
96,629
650,919
9,672,196 3,482,741 13,144,536
-
-
-
-
-
-
2,626,155
-
2,620,714
- 2,197,016
- 2,197,577
4,992,099 2,937,349
7,816,817
- 4,002,659 2,463,392 6,454,949
20,695
90,577
425,809
-
-
-
20,695
90,577
426,788
-
-
-
23,508
49,623
369,320
-
-
-
23,508
49,623
368,381
8,155,335 2,937,349 10,975,591
- 6,642,126 2,463,392 9,094,038
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 2018 (2017: none; 2016: none).
290
290
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 43. PRESENTATION OF FINANCIAL INSTRUMENTS BY MEASUREMENT CATEGORY
For the measurement purposes, IFRS 9, classifies financial assets into the categories discussed in Note 4. The following table
provides a reconciliation of classes of financial assets with these measurement categories as of 31 December 2018:
In thousands of GEL
Amortised cost
Fair value through other
comprehensive income
Fair value through
profit or loss
Total
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 measured at fair
value through other comprehensive
income
Bonds carried at amortised cost
Other financial assets
TOTAL FINANCIAL ASSETS SUBJECT TO
IFRS 9 MEASUREMENT CATEGORIES
INVESTMENTS IN LEASES
NON-FINANCIAL ASSETS
TOTAL ASSETS
1,166,911
47,316
1,422,809
10,038,452
-
654,203
167,518
13,497,209
-
-
-
-
-
-
-
1,005,239
-
-
1,005,239
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,166,911
47,316
1,422,809
10,038,452
1,005,239
654,203
167,518
14,502,448
203,802
791,743
15,497,993
For the periods before 1 January 2018: 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
Loans and
receivables
Available for
sale assets
Finance lease
receivables
Assets held
for trading
Total
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
1,431,477
39,643
1,033,818
8,325,353
-
449,538
-
144,377
11,424,206
-
-
-
-
-
-
657,938
-
-
-
-
-
-
-
-
143,836
-
657,938
-
-
-
143,836
-
-
-
-
-
-
-
-
-
1,767
1,767
-
-
1,431,477
39,643
1,033,818
8,325,353
657,938
449,538
143,836
146,144
12,227,747
738,163
12,965,910
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
291
291
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 2016:
In thousands of GEL
Loans and
receivables
Available for
sale assets
Finance lease
receivables
Assets held
for trading
Total
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
945,180
24,725
990,642
7,133,702
-
372,956
-
94,119
9,561,324
-
-
-
-
-
-
430,703
-
-
-
430,703
-
-
-
-
-
-
-
-
95,031
-
95,031
-
-
-
-
-
-
-
-
-
508
508
-
-
945,180
24,725
990,642
7,133,702
430,703
372,956
95,031
94,627
10,087,566
681,466
10,769,032
As of 31 December 2018 all of the Group’s financial liabilities except for derivatives are carried at amortised cost. Derivatives
belong to the assets fair value through profit or loss measurement category under IFRS 9.
As of 31 December 2017 and 2016, 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 under IAS 39.
292
292
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 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.
The definition of the related party is different per standards of National Bank of Georgia and is regulated by the published
Decree N 26/04 of the Governor of the National Bank of Georgia (link to the document below in the footnote 7)
As of 31 December 2018, 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% – 48.0%)
Impairment provisions for loans and advances to customers
Customer accounts (contractual interest rate: 0.0% – 10.2 %)
Guarantees
Provision on guarantees
Significant shareholders
Key management personnel
1,614
-
27,095
10,216
36
11,407
9
21,328
-
-
The Group’s income and expense items with related parties except from key management compensation for the year 2018
were as follows:
In thousands of GEL
Interest income - loans and advances to customers
Interest expense
Gains less losses from trading in foreign currencies
Foreign exchange translation gains less losses
Fee and commission income
Administrative and other operating expenses (excluding staff costs)
Significant shareholders
22
411
479
28
87
89
Key management personnel
591
301
65
352
50
297
The aggregate loan amounts advanced to, and repaid, by related parties during 2018 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
2,465
(1,055)
Key management personnel
13,547
(10,195)
7 https://www.nbg.gov.ge/uploads/legalacts/fts/eng/regulation_on_the_management_of_the_conflict_of_interests.pdf
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
293
293
44. RELATED PARTY TRANSACTIONS CONTINUED
During the year 2018, 7 related parties were removed from the insider list. If they had remained in the list, customer accounts
with related parties as of 31 December 2018 would have been GEL 227 thousand higher.
As of 31 December 2018, transactions and balances of TBC Bank Group PLC with JSC TBC Bank were as follows:
In thousands of GEL
Due from other banks (contractual interest rate: 8.05%-9.03%)
Cash and cash equivalents
Investment in subsidiary
Balance as of 31 December 2018
79,135
2,176
1,465,345
Included in Investments in subsidiary in Separate Statement of Financial Position GEL 7,823 thousands 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 2018 were as follows:
In thousands of GEL
Interest income
Fee and commission expense
Dividend income
2018
5,879
3
124,561
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% - 36.0%)
Impairment provisions for loans and advances to customers
Customer accounts (contractual interest rate: 0.0% – 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:
In thousands of GEL
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
20
747
928
108
(46)
122
104
58
46
Key management personnel
444
-
449
56
(36)
94
-
239
-
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
573
(1,293)
Key management personnel
3,012
(3,920)
294
294
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 44. RELATED PARTY TRANSACTIONS CONTINUED
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
Loans and advances to customers
Due from other banks
Cash and cash equivalents
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 thousands 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
Interest expense
Fee and commission expense
2017
1,807
9
90,552
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% - 20.0%)
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: 0.0% – 13.5 %)
Guarantees
Provision on guarantees
Note
Significant shareholders
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
Note
Significant shareholders
161
17,435
Key management personnel
399
503
115
170
69
580
1
206
18
465
13
-
155
-
41
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
295
295
44. RELATED PARTY TRANSACTIONS CONTINUED
As of 31 December 2016, 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
3,713
(5,994)
Key management personnel
10,568
(5,722)
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
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 thousands 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
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
Expense
12,481
6,424
9,369
28,274
2018
Accrued
liability
270
8,395
-
8,665
2017
Accrued
liability
-
9,772
-
9,772
Expense
13,339
3,905
8,469
25,713
Expense
12,323
7,336
10,715
9,923
29,582
-
10,715
Included in salaries and bonuses for 2018, GEL 2,347 thousand (2017: GEL 2,326 thousand; 2016: GEL 619 thousand) relates
to compensation for directors (2018: 8 person, 2017: 8 person, 2016: 8 person) of TBCG paid by TBC Bank Group PLC.
45 BUSINESS COMBINATION
Acquisition of Bonaco. On 31 October 2018, the Bank won the auction held by National Bank of Georgia for the acquisition
of Bonaco LLC, microfinance organization. The business process of merger has been finalized in December 2018. The
transaction is in line with Bank’s strategy to enhance its product offering to its customers. Bonaco LLC was offering gold
pawn and mortgage products to its customers and was added to the respective portfolio for products and services offered to
TBC Bank customers.
The acquisition-date fair value of the total purchase consideration and its components are as follows:
In thousands of GEL
Cash consideration paid
Non-cash consideration
Total purchase consideration
10
14,582
14,592
296
296
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
2016
1,149
32
1
2016
Accrued
liability
-
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 45 BUSINESS COMBINATION CONTINUED
Acquisition of Bonaco (continued). Non-cash consideration includes the fair value as at acquisition date of the loan issued
from the Bank to the Bonaco.
In thousands of GEL
Cash and cash equivalents
Placements with banks
Loans to customers*
Property and equipment
Repossessed assets
Other assets
Amounts due to customers
Other Liabilities
Fair value of acquired interest in net assets of subsidiary
Goodwill arising from the acquisition
Total purchase consideration
Less: Non-cash consideration
Less: cash and cash equivalents of subsidiary acquired
Inflow of cash and cash equivalents on acquisition
Note
17
Provisional Fair Values
819
1,581
20,212
6,922
55
156
(17,691)
(29)
12,025
2,567
14,592
(14,582)
(819)
(809)
*The carrying amount of Loans to customers before fair value adjustments amounted to GEL 19,339 thousand.
Details of the assets and liabilities acquired and goodwill arising is as follows:
The goodwill is primarily attributable to the profitability of the acquired business and the significant synergies expected to arise.
The acquired business combination contributed to Group’s net revenue in the amount of GEL 212 thousand and to Group’s net
profit in the amount of GEL 15 thousand from the date of acquisition to 31 December 2018. If the acquisition had occurred on
1st of January 2018, the contribution to the Group’s net revenues for the year ended 31 December 2018 would have been of
GEL 1,489 thousand and to net profit would have been negative of GEL 11 thousand.
46 EVENTS AFTER REPORTING PERIOD
In February 2019 the Bank completed negotiations with National Bank of Georgia regarding their focused inspection carried out in second
half of 2018. The Bank agreed to pay GEL 1,105 thousand and work on restructuring its supervisory board (whereby chairman and deputy
chairman will need to step down from JSC TBC Bank but will continue to serve as Chairman and Deputy Chairman of TBC Bank Group PLC).
NBG confirmed the joint public statement that the matter has been resolved.
i A full list of related undertakings and the country of incorporation is set out below.
Company Name
Country of incorporation
7 Marjanishvili Street, 0102, Tbilisi, Georgia
154 Agmashenebeli Avenue, 0112, Tbilisi, Georgia
11 Chavchavadze Avenue, 0179, Tbilisi, Georgia
80 Chavchavadze Avenue, 0162,, Tbilisi, Georgia
71-77, 28 May Street, AZ1010, Baku, Azerbaijan
JSC TBC Bank
United Financial Corporation JSC
TBC Capital LLC
TBC Leasing JSC
TBC Kredit LLC
Banking System Service Company LLC 7 Marjanishvili Street, 0102, Tbilisi, Georgia
7 Marjanishvili Street, 0102, Tbilisi, Georgia
TBC Pay LLC
7 Marjanishvili Street, 0102, Tbilisi, Georgia
Real Estate Management Fund JSC
7 Jabonitsky street, , 52520, Tel Aviv, Israel
TBC Invest LLC
8 Tetelashvili,0102,, Tbilisi, Georgia
Index LLC
24B, Al. Kazbegi Avenue, 0160, Tbilisi, Georgia
JSC TBC Insurance
7 Marjanishvili Street, 0102, Tbilisi, Georgia
TBC Invest International Ltd
1 Chavchavadze Avenue, 0128 , Tbilisi, Georgia
University Development Fund
2 Tarkhnishvili street, 0179, Tbilisi, Georgia
JSC CreditInfo Georgia
3 Irakli Abashidze street, 0179, Tbilisi, Georgia
LTD Online Tickets
3 Chavchavadze Avenue, 0128, Tbilisi, Georgia
GE Commerce LTD
74 Chavchavadze Avenue, 0162, Tbilisi, Georgia
Swoop JSC
TBC BANK annual report and accounts 2018
TBC BANK annual report and accounts 2018
297
297
SHAREHOLDERS INFORMATION
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 1.98 per share), payable in British Pounds Sterling at an official exchange rate of the National Bank of
Georgia for 13 June 2019. If approved, the final dividend will be paid on 12 July 2019 to shareholders on the Register of Members at the close
of business in the UK (ie 6pm London time) on 7 June 2019.
Ex-dividend date: 6 June 2019
Record date: 7 June 2019
Currency conversion date: 13 June 2019
Payment date: 12 July 2019
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
Elder House St Georges Business Park
207 Brooklands Road
Weybridge, Surrey
KT13 0TS
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 2018
GLOSSARY
Bank
Bankassurance
Bank Republic
Board
Chairman
Joint Stock Company TBC Bank
An arrangement in which a bank and an insurance company form a partnership,
so that the insurance company can sell its products to the bank’s client base
Joint Stock Company Bank Republic
Board of Directors of TBC Bank Group PLC
Chairman of Board of Directors of the Company
Chief Executive Officer (or CEO)
Chief Executive Officer of TBC Bank Group PLC
Chief Financial Officer (or CFO)
Chief Financial Officer of TBC Bank Group PLC
Code
Company
Corporate segment
Corporate Centre
Deputy Chairman
Director(s)
Engagement index
Fully digital on-boarding
Group
High-net-worth individuals
The UK Corporate Governance Code
TBC Bank Group PLC
A legal entity/group of affiliated entities with an annual revenue exceeding
GEL 12.0 million, or which have been granted facilities of more than GEL 5
million. Some other business customers may also be assigned to the corporate
segment or transferred to MSME on a discretionary basis
Comprises the Treasury, other support and back office functions, and the
non-banking subsidiaries of the Group
Deputy chairman of Board of Directors of the Company
Members of the Board of TBC Bank Group PLC
Employees feel involved and committed to TBC Bank
Share of legal entities registered online out of total number of
newly-registered legal entities
The UK-incorporated parent company of Joint Stock Company TBC Bank
(the Bank) and its subsidiaries
To qualify for high-net-worth individuals sub-segment, one needs to have
a deposit equal to US$ 100,000 or more
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
Mobile and Internet banking penetration ratio
MSME (Micro, Small and Medium) segment
Nikoil Bank
Offloading ratio
Retail segment
Supervisory Board
TBC Bank
TBC Status clients
TBC Bank Group PLC
TBCG
TBC Insurance
TBC JSC
TBC PLC
Number of active mobile and Internet banking users divided by total number
of active retail clients
Business customers who are not included in either the corporate or the retail
segments; or legal entities who have been granted a pawn shop loan;
or individual customers of the newly launched, fully digital bank - Space
Nikoil Open Joint-Stock Company Investment Commercial Bank
Number of transactions conducted in remote channels divided by total number
of transactions, based on JSC TBC Bank standalone data
Non-business individual customers or individual business customers who have
been granted mortgage loans; all individual customers are included
in retail deposits;
Supervisory Board of Joint Stock Company TBC Bank
The UK-incorporated parent company of Joint Stock Company
TBC Bank (the Bank) and its subsidiaries
Clients with minimum monthly income of GEL 3,000 or a loan of GEL 30,000
or more, or deposit of GEL 30,000 or more
The UK-incorporated parent company of Joint Stock Company
TBC Bank (the Bank)
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
TBC BANK annual report and accounts 2018
299
ABBREVIATIONS
ACCA
Asociation of Chartered Certified Accountants
IASB
International Accounting Standards Board
IDR
IFC
IFI
IFRIC
IFRS
IMF
IPCC
IPO
IT
JSC
KPI
LED
LSE
MBA
MBO
Issuer default rating
International Finance Corporation
International financial institution
International Financial Reporting Interpretations
Committee
International Financial Reporting Standards
International Monetary Fund
Intergovernmental Panel on Climate Change
Initial public offering
Information technology
Joint stock company
Key performance indicators
Light-emitting diode
London Stock Exchange
Master of Business Administration
Management-by-objectives
MSME
Micro, small and medium-sized enterprises
NBG
NCI
NIM
NPL
NPS
OCI
OECD
PLC
POS
PPP
PWC
ROA
ROE
SME
SPPI
National Bank of Georgia
Non-controlling interest
Net interest margin
Non-performing loans
Net promoter score
Other comprehensive income
Organisation for Economic Cooperation and
Development
Public limited company
Point of sale
Purchasing power parity
PricewaterhouseCoopers
Return on average assets
Return on average equity
Small and medium-sized enterprises
Solely payments of principal and interest
STEM
Science, technology, engineering and mathematics
UK
US$
VAR
VIP
WB
WRI
United Kingdom of Great Britain and Northern
Ireland
The US dollar, national currency of the United
States
Value-at-risk
Very important person
World Bank
World Resources Institute
AFS
Available for sale
ALCO
Asset-liability management committee
APM
ATM
BNY
Alternative performance measure
Automated teller machine
Bank of New York
CAGR
Compounded annual growth rate
CAR
СEE
CEO
CFA
CFO
CGU
CIB
CIS
COR
CRM
CRO
Capital adequacy ratio
Central and Eastern Europe
Chief executive officer
Chartered Financial Analyst
Chief financial officer
Cash generating unit
Corporate investment banking
The Commonwealth of Independent States
Cost of risk
Customer relationship management
Chief risk officer
СSAT
Customer satisfaction
CSR
CVP
DCF
EBRD
ECL
EECG
Corporate social responsibility
Cost volume profit
Discounted cash flows
European Bank for Reconstruction and
Development
Expected credit losses
Energy Efficiency Centre Georgia
EFSEDF The Development Facility of the European Funds for
Southeast Europe
EMEA
Europe, Middle East and Africa
ENPS
Employee Net Promoter Score
EPS
ERM
Earnings per share
Enterprise risk management
ESRM
Environmental and social risk management
EU
EUR
FDI
European Union
Euro
Foreign direct investment
FTSE
Financial Times Stock Exchange
FVOCI
Fair value through other comprehensive income
FVPL
Fair value through profit or loss
GBP
GDP
GDR
GEL
GHG
GWP
Great British pound, national currency of the UK
Gross domestic product
Global depositary receipt
Georgian lari, national currency of Georgia
Greenhouse gas
Gross written premium
HNWI
High-net-worth individuals
HR
IAS
Human resources
International Accounting Standards
300
TBC BANK annual report and accounts 2018
NOTES
TBC Bank Group PLC
207 Brooklands Road
Weybridge, Surrey
KT13 0TS
United Kingdom