Make Life
Easier
ANNUAL REPORT 2019
20
19
TBC BANK1 is the largest
banking group in Georgia –
serving around 90% of the
country’s adult population.
TBC Bank is listed on the
premium segment of London
Stock Exchange and is a FTSE
250 constituent.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
CONTENTS
STRATEGIC REPORT2
At a glance
2019 highlights
Chairman’s statement
CEO letter
Implications of COVID-19
Georgia
Business model and strategy
Key performance indicators
Divisional overview
Stakeholder engagement
Doing business responsibly
Material existing and emerging risks
Risk management
Financial review
GOVERNANCE2
Directors’ governance statement
Directors’ report
Board biographies
The Bank’s Management Board biographies
Corporate governance and
Nomination committee report
Risk committee report
Remuneration committee report
Audit committee report
2
3
4
6
9
10
12
18
20
52
56
84
93
108
124
131
136
140
143
147
151
180
FINANCIAL STATEMENTS
Independent auditors’ report
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
Separate statement of financial position
Separate statement of changes in equity
Separate statement of cash flows
Notes to the financial statements
ADDITIONAL INFORMATION
Shareholder information
Glossary
Abbreviations
191
198
199
200
201
202
203
204
205
319
320
321
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)
2 The figures in the strategic report and governance sections are
unaudited, except where explicitly indicated as audited
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
1
AT A GLANCE
WHO WE ARE ?
We are the leading universal financial group in Georgia, holding 39.5% and 39.0% market shares1
in total loans and total deposits respectively. We hold a dominant position in all our major business
lines comprised of retail, corporate and micro, small and medium enterprises (MSME). Our fully-
fledged financial services include traditional banking offerings as well as the industry’s cutting-edge
solutions. We are pioneers in the region2 in launching the first fully digital bank, Space and the first
customer focused digital ecosystems, creating a whole new world of opportunities for our customers.
COMPLETE SUIT OF TRADITIONAL FINANCIAL SERVICES
FULLY DIGITAL BANK
CUSTOMER FOCUSED DIGITAL ECOSYSTEMS
For more information
please refer to
20-32, 36-41 pages
For more information
please refer to 34-35 pages
For more information
please refer to 43-51 pages
OUR MISSION > Make Life Easier
OUR VISION
We are TBC, a technology driven company, that
exists for its users, knows them and cares for them.
We have the best team, which is innovative and is
not afraid of mistakes.
TBC is an important part of people’s daily lives and
serves them digitally.
1
2
Based on data published by National Bank of Georgia as of 31 December 2019
Region in this context comprises: Armenia, Azerbaijan and Georgia
TBC CULTURE IS BASED ON
OUR TEAM, WHICH IS
` Winner by nature;
` Happy;
` Curious;
` Goal-oriented;
` Open for new opportunities;
` Honest;
` And always delivers on its promises.
2019 HIGHLIGHTS
STRONG FINANCIAL PERFORMANCE
545.1 mln
+ 19.8% YoY
UNDERLYING NET PROFIT 1(APM)
540.3 mln
+ 23.5% YoY
REPORTED NET PROFIT
22.6%
- 0.2pp YoY
UNDERLYING RETURN
ON AVERAGE EQUITY 1(APM)
22.4%
+ 0.4pp YoY
REPORTED RETURN
ON AVERAGE EQUITY
12,662.0mln
+ 22.1% YoY
TOTAL LOANS
10,049.3 mln
+ 7.5% YoY
TOTAL DEPOSITS
BEST-IN-CLASS DIGITAL CAPABILITIES
` World’s best in mobile banking 20192
` 93% retail offloading ratio
SUPERIOR CUSTOMER EXPERIENCE
` Best service company in Georgia3
HIGH EMPLOYEE SATISFACTION LEVELS
` 1.76 Employee happiness index4
STRONG BRAND
` 100% Aided brand awareness among Georgian population5
` 41% Top of mind in banking sector5
1 More information about underlying figures (APMs) is given in Annex 1 on pages 122-123
2 Named by Global Finance Magazine
3 Based on survey conducted by independent research company IPM among the retail segment in December 2019
4 The index is measured on a scale from -3 to +3 (with +3 meaning very happy) based on internal survey, created in collaboration with the world’s
leading consulting firm, conducted among employees who are part of the agile structure in December 2019
5 Based on survey conducted by the independent research company, TNS in October 2019
CHAIRMAN’S STATEMENT
Dear shareholders,
This is my first letter to you in the capacity of the Chairman
of TBC Bank Group PLC. I was appointed as Chairman of
TBC Bank Group PLC on 25 July 2019 following the
resignation of Mamuka Khazaradze and Badri Japaridze
as Chairman and Deputy Chairman.
Mamuka Khazaradze founded the bank back in 1992 and
together with his friend and business partner Badri
Japaridze led TBC Bank to the position of the leading
financial institution in the region. On behalf of the entire
TBC team I would like to thank Mamuka and Badri for their
vision, leadership and tremendous contribution to the
success of this company and Georgia as a whole.
KEY ACHIEVEMENTS AND STRATEGY
The Group once more delivered strong financial
performance in 2019, however the Board decided not
to recommend dividend at the upcoming AGM due to
uncertainties related to COVID-19 outbreak.
The Group made significant progress towards our mission
of making the lives of our customers easier in today’s
digital world by continuing to transform into a technology-
driven company and expanding our value proposition
beyond traditional banking. Naturally, it is disappointing
to see that our good financial performance and strategic
achievements have not been reflected in our share price
due to external factors. However, the Board is confident
that the Group is on the right track and will continue to
focus on its strategic priorities, which are expected to
generate long-term sustainable value for all stakeholders.
4
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
As part of our digital transformation, we took a big stride
in 2019 in the development of our customer-centric
digital ecosystems, which will allow us to create deeper
and broader relationships with our customers by offering
them innovative services in various areas of their lives
and to generate new revenue streams for the Group. This
year, we launched the first Georgian housing (Livo) and
e-commerce (Vendoo) ecosystems and also acquired
a leading e-commerce player in the Georgian market,
My Group, which operates in three online marketplace
verticals: automotive & automotive spare parts, consumer-
to-consumer goods, and housing. This acquisition has
dramatically increased our digital presence and has given
us access to a large customer base of around 1.7 million
unique monthly visitors. In the coming year, we plan
to significantly enhance our ecosystems and generate
synergies between them as well as the wider Group.
As digital transformation cannot occur without strong
support and commitment from our employees, we
launched a company-wide, agile transformation project
that will help us create a more dynamic and flexible
corporate culture, leading to faster time-to-market,
more creativity and higher employee satisfaction. Over
the course of 2019, this agile structure was successfully
implemented in several departments and has already
demonstrated very promising results. We plan to continue
to roll it out across other departments in the next year.
I am also delighted with our progress in relation to
international expansion. As a result of the diligent work of
our team working on the Uzbekistan project, we received
a banking licence in April 2020, which allows us to launch
our banking operations in the country in the near future.
As announced earlier, our strategy is to build a next
generation bank for retail and MSME customers with a
strong focus on digital offerings in partnership with EBRD,
IFC and a local Uzbek-Oman investment company. In
parallel, we are actively developing our payments business
in Uzbekistan, through our recently acquired subsidiary,
Payme, which is the leading payments company in the
country, already serving around 2 million customers by
March 2020.
The CEO letter describes our strategic initiatives in more detail.
OPERATING ENVIRONMENT
2019 has been a challenging year from the macro
perspective. After the negative spillover from Turkey in
2018, the Russian flight ban came in as an external shock
leading to a slowdown in tourism inflows, exchange rate
depreciation and elevated inflation pressures.
Nevertheless, thanks to the diversification of tourism
inflows and the sector’s abundant untapped potential,
the tourism industry recovered fast on the back of strong
growth from the EU, Georgia’s neighbours, including a
recovery from Turkey, as well as growth from Central
Asia, Israel and Middle Eastern countries. It is important
to highlight, that starting from September 2019, the EU
share of tourism inflows has surpassed the one from
Russia, akin to remittances from the beginning of 2018.
Moreover, the central bank has managed to address the
undervalued GEL by turning more hawkish on the GEL on
the one hand, and more dovish on the US$ and the EUR
on the other, ensuring the continuation of credit flow to
the economy. Besides, GDP growth was also supported
by a solid performance in net exports as well as an
expansionary, though still prudent, fiscal stance.
Following some retreat in the first half of 2019, FDI inflows
recovered strongly in the second half of 2019 and came in
at 7.1% of GDP, almost unchanged from the previous year.
FDIs at around these levels are considered high from the
international perspective.
increased by 5.1%
Overall, GDP
in 2019, which
demonstrates the economy’s solid growth potential and
resilience. Similarly, Uzbekistan, which has even higher
growth potential, stands out in the broader region as being
relatively unaffected by the latest slowing cycle.
While COVID-19 is certainly a challenge for the global as
well as Georgia’s tourism dependent economy, assuming
the shock
is predominantly temporary, rather than
permanent, the economy and most of the sectors should
be back to the normal growth trajectory in a reasonable
time-frame. Meanwhile, it will be a challenging period,
however, the Group’s advanced risk management practices
including stress testing and risk mitigation should pay-off.
GOVERNANCE
The Board is committed to ensuring excellent governance
and the highest ethical standards within the Group.
Therefore, we review the Board’s composition with
regularity and are committed to maintaining a diverse
and wide-ranging set of skills and experience within the
Board. During the year, we announced a number of board
changes, as outlined below.
As mentioned above, on 25 July 2019 Mamuka Khazaradze
and Badri Japaridze stepped down from their respective
positions of Chairman and Deputy Chairman of the
Board. They both arrived at this decision after careful
consideration in order to ensure that the allegations made
against them by the Georgian office of Public Prosecution
do not affect the Group, and to be able to concentrate on
refuting those allegations.
In August 2019, Arne Berggren joined the Board as an
Independent non-executive Director, and in September
2019, Eric Rajendra was re-appointed as an Independent
non-executive Director following the recovery in his health.
In August 2019, the Group reintroduced a “Mirror Boards”
governance structure whereby all non-executive members
of the Board and the supervisory board of the Bank are
the same; the Chairman of TBC Bank Goup PLC (“TBC
PLC”) also serves as the Chairman of the Bank and Senior
Independent Director (“SID”) of TBC PLC also serve as the
SID of the Bank. Board committees of TBC PLC and the
Bank are also “mirrored” and have the same members
and chairmen. In September 2019, we also reviewed
membership of our board committees to make them more
balanced and efficient.
As the result of these changes, the Group has complied
with all relevant provisions set out in the UK Corporate
We are very pleased that our
Governance Code.
ISS corporate governance score1 reflected
these
improvements and increased from “5” in July 2019 to “2”
in October 2019. There have been no changes since then.
Further details can be found in Corporate Governance and
Nomination Committee Report on pages 143-146.
TRANSPARENCY AND DISCLOSURE
This year, we have significantly enhanced our disclosure
in relation to social and environmental matters to enable
our stakeholders to better assess our non-financial
performance. As the largest financial institution in the
country, we take seriously our responsibility towards
our community and environment and are committed to
conducting business with integrity and accountability
towards all our stakeholders, as well as ensuring that our
customers and suppliers also fulfill their environmental
and social responsibilities. For more insight please refer
to pages 72-83.
I am also delighted that JSC TBC Bank received the Best
Annual Report and Transparency Award 2019 from the
National Reforms Support Foundation for Accounting,
Reporting and Auditing under the auspices of a joint
European Union–World Bank project on financial inclusion
and accountability. This award underlines our high
standards of reporting of financial and non-financial
information and sets an example for other Georgian
companies.
OUTLOOK
Looking forward, I feel confident that TBC Bank has
the right people, resources and capabilities to tackle
challenges presented by the COVID-19 pandemic and
establish itself as a leading technology-driven company
not only in Georgia but in the wider region and to create
the best opportunities for future success.
In conclusion, on behalf of the Board, I would like to
express my sincere gratitude to the management team
and all employees for their dedication and hard work in
delivering such impressive results last year and answering
the recent challenges presented to us by COVID-19.
Nikoloz Enukidze
Chairman
28 April 2020
1 The ISS scores indicate decile ranking relative to index or region. A
decile score of 1 indicates low governance risk, while a 10 indicates
higher governance risk
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
5
CEO LETTER
Dear shareholders,
I am delighted to report that we have had another
successful year in 2019. Our disciplined approach and
relentless efforts have translated into strong financial and
operating results.
FINANCIAL PERFORMANCE
Our reported net profit amounted to GEL 540.3 million, up
by 23.5% year-on-year, and our earnings per share stood
at GEL 9.8, which is 21.0% higher than in 2018. Over the
same period, our underlying net profit reached GEL 545.1
million, up by 19.8% compared to 2018, reflecting the
growth in net fee and commission income and interest
income. The growth in net profit was also strongly
supported by a decrease in credit loss allowance, which
was driven by improved performance across all segments
as well as by a change in the product mix. We continue
to maintain a close focus on cost efficiency and strictly
control operating expenses across the Group, including
our new strategic
investments. Consequently, our
reported cost-to-income ratio stood at 39.9%, or at 39.5%
on an underlying basis. Over the same period, the Bank’s
standalone cost-to-income ratio remained broadly stable
year-on-year at 35.9%.1 As a result, our reported return on
equity stood at 22.4% and our reported return on assets
stood at 3.2%, while our underlying return on equity was
22.6% and our underlying return on assets stood at 3.3%.
In terms of balance sheet growth, we maintain a leadership
position in loan and deposit market shares, holding 39.5%
and 39.0% respectively as of 31.12.2019. Our capital
6
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
position and liquidity levels continue to be strong. As of
31 December 2019, our regulatory CET 1, tier 1 and total
capital adequacy ratios per Basel III guidelines stood at
12.0%, 14.6% and 19.1% respectively, while minimum
requirements amounted to 10.4%, 12.5% and 17.5%
respectively. Our regulatory liquidity coverage ratio stood
at 110% compared to the minimum requirement of 100%,
while the regulatory net stable funding ratio (NSFR) per
Basel III guidelines stood at 127%, above the minimum
requirement of 100%.
STRATEGIC PROGRESS
This year was a transformational year for us, as we have
successfully established our presence in the Georgian
digital marketplace by launching the first customer-
centric digital ecosystems in the country, which already
comprise payments, housing, e-commerce and auto.
` Payments: our payments ecosystem includes both
traditional payment channels such as e-commerce,
POS and self-service terminals as well as innovative
payment methods comprising Apple Pay, ATM QR
withdrawal and TBC bracelets. In addition, it includes
a leading Georgian payments platform, TKT.ge,
which allows people to buy tickets for various events
and transportation, as well as a leading payments
platform in Uzbekistan, Payme, which facilitates utility
payments, P2P transfers, loan repayments, mPOS for
QR-based payments and ecommerce purchases. Our
strategy for 2020 is to further diversify our payment
options and grow the number and volume of payments
transactions.
` E-commerce: our e-commerce business is comprised
of two digital platforms: Vendoo and Mymarket.
Vendoo is an online marketplace, while Mymarket is
a classified listing platform each having a respective,
estimated 24% and 80% of total digital traffic in
comparable e-commerce in Georgia. The number
of unique visitors amounted to 337,000 and 900,000
respectively in December 2019. Our strategy for
the coming year is to further increase the product
offerings and enhance our customer experience in
order to increase the gross merchandize value.
` Housing: our housing ecosystems, Livo and Myhome,
together have an estimated 55% of total digital traffic
in housing in Georgia and served around 630,000
unique visitors in December 2019. Livo is a data driven
company mainly focused on generating effective leads
to customers based on accurate analysis of user data,
while Myhome is a classified platform, which primarily
generates revenue from advertisements. In 2020,
we will continue to harness the existing strengths of
these platforms to develop innovative solutions for our
customers.
` Auto: Myauto and Myparts are the leading players in
the automotive and spare parts markets in Georgia,
with the total digital traffic of 80% in each segment.
In December 2019, both platforms attracted around
1,500,000 unique visitors. Our strategy for 2020 is to
add new services as well as to launch new market-
disrupting sub-platforms by leveraging the existing
consumer base and digital traffic.
More information about our ecosystems is given on pages 43-51.
Another significant development was obtaining a banking
licence in Uzbekistan in April 2020. Our strategy is to
develop a greenfield, next-generation banking ecosystem
for retail and MSME customers in Uzbekistan. The primary
focus will be on digital and partnership-driven channels.
Given the current operating environment and impact from
Covid-19, we have further optimised our business model
with the enhanced emphasis on asset-light and cost-
efficient operations.
Last year, we launched several important preparatory
work-streams, including implementation of the core
banking system in co-operation with a local IT company.
We also set up a pilot branch in Tashkent for proof of
concept and built a core team for the bank. Thus, we are
well advanced in the process and expect to start banking
operations in June 2020.
In terms of our product offerings, we plan to start with
сash loans, salary backed loans and car loan as well as
savings and current accounts, cards, mobile application
and transactional capabilities including (but not limited to)
P2P transactions, money transfers and utility payments.
These products will be offered through our digital
platform, Space; however, we also plan to open branches
for advising and consulting purposes.
The bank will be run by an experienced management board
headed by Chief Executive Officer Sandro Rtveladze, who
previously held the role of Group Head of Retail Banking
at Bayport Financial Services and prior to that was Deputy
CEO at Liberty Bank in Georgia.
We has already invested US$ 12.6 million into the charter
capital of the Bank and expects to invest an additional US$
9.4 million by the end of 2020. Additional capital increase
is planned for later this year. Potential new shareholders,
including the European Bank for Reconstruction and
Development, the International Finance Corporation and
the Uzbek-Oman Investment Company, have expressed
their interest to participate subject to their internal
approvals. TBC PLC will remain the majority shareholder
with 51% interest.
I am also pleased with the results of our recently acquired
subsidiary, Payme, which is the leading payments company
in Uzbekistan, serving around 2 million customers by
the end of March 2020. The company is growing rapidly,
and in 2019, its revenue went up by 84% and amounted
to GEL 8.6 million, while its EBITDA reached GEL 4.5
million, up by 77% year-on-year. Payme will continue to
operate separately from the bank but the two entities will
co-operate closely. In addition, the bank will also run the
point-of-sale consumer finance operations.
CHANGES IN THE MANAGEMENT BOARD
In 2019, we had certain changes to the composition of the
Management Board. David Chkonia, our Chief Risk Officer,
left the Bank at the end of his contractual term in order
to pursue other career opportunities. Consequently, Nino
Masurashvili, deputy CEO, who was previously in charge
of retail banking development, has been appointed as the
new Chief Risk Officer and Tornike Gogichaishvili, Deputy
CEO and Chief Operations Officer (COO) of the Bank has
been appointed to lead the retail banking business. The
functions that were previously carried out by the COO have
been re-allocated to be the responsibility of the CFO and
the Deputy CEO, SME & Micro Banking.
I would like to thank David Chkonia for his significant
contribution to enhancing our risk management system
and to wish him success in his future career. Also, I would
like to wish Nino Masurashvili and Tornike Gogichaishvili
success in their new roles.
MACROECONOMIC OVERVIEW
Structural reforms and diversified sources of inflows once
again paid off in 2019. Alongside its high growth potential,
resilience has become another hallmark of the Georgian
economy in recent years, as reflected in continuous
upgrades to the country’s sovereign credit ratings. In 2019,
exports of goods, tourism and remittances inflows in US$
terms increased by 12.4%, 1.4% and 9.7% year-on-year
respectively, while import of goods declined slightly by
0.8% year-on-year. Despite the Russian flight ban imposed
in June and subsequent weak growth of tourism inflows,
the current account deficit improved and stood at 5.1%
of GDP in 2019 compared to 6.8% in 2018 on the back of
stronger balance of trade in goods as well as improved
remittance inflows. CA deficit was fully balanced with FDI
inflows which on a net basis stood at 5.6% of GDP, up by 0.3
pp YoY. The growth was supported by the fiscal stimulus,
taking into account the size of the deficit adjusted for
advance payments and large capital spending with a high
multiplier. This provided balancing for the weakness in the
tourism industry.
Despite a challenging year, banking system credit growth
was solid and increased by 16.1% year-on-year on a
constant currency basis. This growth was mainly driven
by the business segment, while the retail segment slowed
down due to the responsible lending regulation effective
from January 2019. This regulation, however, is seen as a
rating positive and, together with country’s proven track
record of sound macro and micro risk management,
strengthens the financial system’s resilience.
Our initial projection for 2020 growth was around 5.0%.
The economy was expected to expand at this rate without
large scale infrastructure projects entering more active
phase and assuming that the flight ban with Russia is not
lifted. Due to the COVID-19 crises, we expect the economy
to contract in 2020, though the growth should turn positive
in 2021. While the shock is severe and the uncertainties are
high, the support from the international financial institutions
is an important mitigation. Also, there were no signs of
overheating in the economy or housing market before the
distress. Therefore, the impact of the shock on the economy
and financial sector should be rather manageable.
1 For the ratio calculation all relevant group recurring costs are
allocated to the bank
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
7
CEO LETTER CONTINUED
OUR RESPONSE TO COVID-19
We have implemented a number of important actions to protect our customers and staff members and to minimize disruption
to the Group’s operations during the COVID-19 outbreak. In developing our response, we have looked at best practices from
major global companies as well as organizations like the World Health Organization. We are also coordinating closely with
the Government of Georgia, the NBG and the other banks in the country.
Our first priority is the health, safety and well-being of our staff and our customers. We have introduced a number of additional
security and infection prevention measures in our branch network. We have also introduced remote working practices for
most of our head office and back office units. Today, 95% of our head office and back office staff (including those in our call
center) are working from home and our market-leading digital banking platform allows our customers to continue with
almost all of their banking transactions from the safety of their own homes.
In order to support our customers during the coming difficult months, we have introduced a three-month grace period on
principal and interest payments for all our individual and MSME customers as well as those corporate customers whose
business is the most exposed in the current situation.
The NBG has implemented counter-cyclical measures to support the financial stability of the banking system and to ensure
the provision of financial support to sectors of the economy affected by the current turmoil. The measures include a significant
reduction in capital adequacy requirements and standby liquidity support incentives. In addition, the NBG coordinated the
creation of respective loan loss provisions across the system. Further details are given in the risk management section of
the report.
In terms of our financial position, our liquidity and capital positions remains strong. After the impact of the currency
devaluation and additional provisions related to the potential impact of COVID 19, which resulted in about 3.1% of our loan
book per local regulatory standard, our CET1, Tier 1 and Total CAR stood at 9.1%, 12.0% and 16.7% respectively as of 31
March 2020, above the corresponding eased minimum regulatory requirements of 6.9%, 8.8% and 13.3%. At the same time,
our net stable funding (NSFR) and liquidity coverage ratios (LCR) stood at 124.7% and 107.6% respectively.
On the other hand, we are focusing on optimising our cost structure, re-arranging many processes and prioritising expenses.
We are targeting the Bank’s cost to income ratio for the full year ending 31 December 2020 to be broadly the same as it was
in 2019.
OUTLOOK
In 2019, we recorded strong financial results and made significant progress against our strategic priorities, including the
development of customer focused ecosystems and international expansion in Uzbekistan. This lays a solid foundation for the
further development of these initiatives in the coming years. I would like to thank the whole TBC team for their outstanding
effort and commitment and congratulate them on our accomplishments in 2019. I am also thankful to the team for being able
to quickly adapt to the current situation caused by COVID-19 and continue their work with minimal disruption.
Our leading digital capabilities, outstanding customer experience and advanced data analytical capabilities, coupled with
our strong team spirit, make me confident that we are well positioned to achieve sustainable growth and to deliver superior
results to our shareholders in the medium-term and withstand the short-term negative impacts caused by COVID-19.
Therefore, I would like to reiterate our medium-term targets: ROE of above 20%, cost to income ratio below 35%, dividend
pay-out ratio of 25-35% and loan book growth of around 10-15%.
The strategic report, as detailed on pages 2 to 123, was approved by the Board and signed on behalf of the Board by:
Vakhtang Butskhrikidze
CEO
28 April 2020
8
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
IMPLICATIONS OF COVID-19
IMPLICATIONS OF COVID-19
The outbreak of the COVID-19 virus has created serious challenges to economies and businesses throughout the world and
Georgia is no exception. However, so far our country has managed to fight COVID-19 more effectively than other countries,
thanks to the timely, strict measures taken by the government, which have resulted in a relatively low number of cases.
From an economic perspective, the COVID-19 pandemic has resulted in decreased economic growth in Georgia, increased
unemployment, depreciation of the GEL, decreased commodity and real estate prices, and impaired creditworthiness of
the private sector. As the contribution of tourism to the Georgian economy was significant, the impact should be sizable.
Per IMF projections, as of 14th April, the Georgian economy is expected to contract by 4.0% in 2020, while in 2021 growth is
expected to recover to 3.0%. According to the TBC Research projection for the Georgian economy, while the GDP drop in 2020
might be slightly stronger than 4.0%, the recovery in 2021 is expected to be well above 3.0%. While the shock is severe and
uncertainties are high, support from the international financial institutions is an important mitigation factor. Also, there were
no signs of overheating in the economy or housing market before the pandemic. Therefore, the impact of the shock on the
economy and the financial sector should be manageable.
According to the government’s announcement as of 15 March, around US$ 1.7 billion, or 10% of GDP in 2019, will be mobilized
to support the government’s financing needs and partially support the central bank’s international reserves. In addition,
around US$ 1.5 billion will be used to support the private sector.
The NBG is also implementing countercyclical measures to support the financial stability of the banking system and to
ensure the provision of financial support to sectors of the economy affected by the current turmoil.
In relation to capital adequacy requirements, this means:
` Postponing the phasing in of the additional capital requirements planned in March 2020, with a 0.44pp effect on TBC’s CET 1;
` Allowing banks to use the conservation buffer (currently at 2.5pp on CET1) and 2/3 of the CICR buffer resulted in the
release of 1.0-2.0% of capital across our CET1, Tier 1 and Total CAR;
` Leaving open the possibility of releasing all pillar 2 buffers (remaining 1/3 CICR, HHI and Net Grape buffers) in the range
of 1.0-4.0% of capital across our CET1, Tier 1 and Total CAR.
In relation to liquidity requirements, the NBG has introduced a swap program for US$ 200 million, with an annual spread of
9%. If necessary, it will also utilize additional measures:
` Decreasing LCR limits;
` Decreasing FX mandatory reserve requirements;
` Updating criteria for security or repo pledging to support GEL liquidity.
In terms of our actions, we have taken a number of measures that allowed the bank to alter its day-to-day operations in order
to adapt to the current, unprecedented operating environment, while maintaining the health, safety and well-being of our
staff and customers as the number one priority:
` We introduced additional security and infection prevention measures in our branches, including glass barriers and
antiseptic solutions for employees and customers;
` We promptly changed our operational model so that 95% of head and back office employees, over 2,200 people, including
call center staff, are already working from home;
` We provided additional incentives to our customers to use our market-leading digital banking platform. Since our
offloading ratio is as high as 93%, this proved very useful during this difficult time;
` We also work closely with the NBG, government and other businesses;
` We decided to provide a three-month grace period on principal and interest payments for individual and MSME customers
and those corporate customers who are affected by the current situation;
` In addition, as part of the stress testing exercise, we have analysed multiple scenarios to ensure that the Group has
sufficient liquidity and capital to meet updated regulatory capital and liquidity requirements; and
` To optimize costs, top management has decided to forgo their entire annual bonuses for 2020 and LTIP grants for the
2020 cycle;
` The provision charges to be set aside for the first quarter 2020 is expected to be in the range of 1.7%- 2.0% of the average
loan book mainly attributable to Covid-19;
` Finally, the Board decided not to recommend dividends at the upcoming AGM.
In 2020, our priorities will be prudent management of our capital and liquidity positions, leveraging our robust risk management
system to closely monitor and proactively manage asset quality. In parallel, we will be focusing on cost optimization with a
target to keep the Bank’s cost to income flat for 2020 compared to 2019 despite of pressure in revenue, currency depreciation,
and increased number of transactions.
At the same time, the crisis has provided a strong validation of our digital strategy and has also revealed a number of
opportunities that we will be perusing to further enhance our operational model.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
9
GEORGIA
ECONOMIC GROWTH AND THE EXTERNAL SECTOR
GDP growth came in at 5.1% YoY in 2019. The growth was broad-based across different sectors of the economy with trade and
repairs (+8.8% YoY), real estate (+6.1% YoY), information and communication (+15.2% YoY) and transport and logistics (+7.4%
YoY) contributing most to the economic growth.
REAL GDP GROWTH
6.4%
3.6%
4.4%
3.0%
2.9%
4.8%
4.8%
5.1%
2012
2013
2014
2015
2016
2017
2018
2019
Source: GeoStat
Despite the negative impact stemming from Russia’s flight ban, the growth of inflows proved resilient in 2019. Following the
restriction of flights from Russia in July, tourism inflows retreated; however, growth quickly got back on track as solid growth
in the number of visitors from the EU, neighbouring countries, the Middle East including Israel, and Central Asian countries
compensated for the decline in the number of visitors from Russia. For the full year 2019, tourism inflows growth remained
positive and amounted to 1.4% YoY in US$ terms. Over the same period, exports of goods showed solid 12.4% YoY growth,
while remittances increased by 9.7% YoY, again, mostly on the back of remittances from the EU.
Overall, the dynamics of the external balance remained healthy. Following lower growth in tourism inflows, the balance of
trade in services declined slightly from 12.7% of GDP in 2018 to 12.2% of GDP in 2019 which was counteracted by the lower
deficit in trade in goods (down by 2.3% of GDP). As a result, the CA balance to GDP ratio improved to its historic low of 5.1%
in 2019, compared to 6.8% in 2018. The CA deficit continued to be fully financed with FDI inflows, coming in at 5.6% on a net
basis, up by 0.3 pp compared to 2018. Although somewhat below the average amount in the past couple of years, FDI inflows at
current levels are still quite high compared to peer countries in the neighbourhood as well as in Central and Eastern Europe.
CA DEFICIT AND NET FDI (% OF GDP)
YOY GROWTH OF VISITORS BY COUNTRIES/REGIONS (%)
9.5
8.1
8.2
10.4
6.0
6.5
5.3
4.6
5.3
5.6
-5.6
-5.1
-6.8
-8.1
-9.8
-11.4
-12.2
-10.2
-11.8
-12.4
60
40
20
0
-20
-40
-60
-80
2010
2011
2012 2013 2014 2015 2016 2017 2018
2019
2018
2019 Q1
2019 Q2
2019 Q3
2019 Q4
CA Deficit to GDP
Net FDI to GDP
Russia
Turkey
EU
Iran
Other Countries
Total Visitors
Source: NBG, GeoStat
Source: GNTA
EXCHANGE RATE, MONETARY POLICY AND CREDIT
The depreciation in the GEL exchange rate since June 2019 has been the major factor behind the rise in inflation to 7.0% as
of the end of 2019. In response to higher inflation pressures, the NBG tightened the monetary policy rate from 6.5% by the
beginning of September to 9.0% as of the end of 2019. The tighter monetary policy stance in GEL, coupled with a stronger
external sector, contributed to the appreciation in the GEL. At the end of 2019, US$/GEL stood at 2.87, strengthening from
the high of 2.98 at the end of September.
10
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
Despite tighter monetary policy in GEL, lending growth remained solid, mostly on the back of accelerated FX credit by the end
of 2019, supported by the lower reserve requirements and ample bank liquidity in FX. At the end of 2019, the bank loan portfolio
went up by 16.1% YoY, excluding the exchange rate effect, mostly on the back of business lending (+23.3% YoY excluding FX
effect), supporting economic growth. At the same time, retail growth was relatively slow (+6.0% YoY excluding FX effect), owing
to tighter prudential regulations. Despite some acceleration of FX lending, the de-dollarization of the financial sector remains a
priority for the central bank; however, in the future, relatively more attention is expected to be devoted to liabilities.
CPI INFLATION AND MONETARY POLICY RATE (%, YOY)
9
8
7
6
5
4
3
2
1
0
-1
Jan 14
A pr 14
Jul 14
Oct 14
Jan 15
A pr 15
Jul 15
Oct 15
Jan 16
A pr 16
Jul 16
Oct 16
Jan 17
A pr 17
Jul 17
Oct 17
Jan 18
A pr 18
Jul 18
Oct 18
Jan 19
A pr 19
Jul 19
Oct 19
CPI Inflation
Monetary policy rate
Source: GeoStat, NBG
FISCAL SPENDING
Fiscal spending significantly supported growth in 2019, with the budget deficit coming in at an estimated 2.4%1 of GDP in
2019. The actual impact of the fiscal sector on growth was even higher: taking into consideration the advance payments
made at the end of 2018 and high multiplier of capital spending.
Public debt levels remained stable, with the composition of debt switching gradually towards domestic financing. At the end
of 2019, estimated public debt to GDP stood at 41.1% as opposed to 40.4% a year ago, mostly on the back of higher domestic
debt (up from 8.8% of GDP in 2018 to 9.7% of GDP), while the level of external debt went down slightly by 0.1% of GDP to
31.5%, despite the GEL depreciation throughout the year.
GOING FORWARD
Above 5.0% economic growth for the full year 2019 once more underlines the resilience and high growth potential of the
Georgian economy. This growth is particularly encouraging given the challenges that the economy faced in 2019, the most
important being Russia’s flight ban. Per IMF projections, as of 14th April2, Georgian economy is expected to contract by 4.0%
in 2020, while in 2021 the growth is expected to recover to 3.0%. According to the same source, the economy of Azerbaijan
is expected to decline by 2.2% in 2020 with 0.7% recovery a year after. As for the Uzbekistan, the growth is expected to be
positive for both 2020 and 2021 with 1.8% and 7.0% respectively.
According to the TBC Research projection for Georgian economy, while the GDP drop in 2020 might be slightly stronger than
4.0%, the recovery in 2021 is expected to be well above 3.0%.
More information on the Georgian economy and financial sector can be found at www.tbcresearch.ge.
1 Modified deficit based on IMF methodology
IMF World Economic Outlook, April 2020
2
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
11
BUSINESS MODEL AND STRATEGY
OUR BUSINESS MODEL
We have a customer-centric business model focused on providing
the best customer experience in servicing everyday needs of our
clients. Our strategy is centered on the core principles of sustainable
development, innovation and efficiency and is designed to create value
for all our stakeholders.
Our distinctive competitive advantages ...
` Best-in-class digital capabilities
` Advanced data analytical capabilities
` Superior customer experience
` Strong brand and reputation
` First Neobank in Georgia - Space
` First digital ecosystems in the country
` Strong corporate culture
` Experienced management team and high quality of corporate governance
` Effective risk management
... translate into strong financial and operating results ...
` Robust profitability
` High efficiency
` Sustainable business growth
` Sound asset quality
` Strong liquidity level
` Prudent capital position
` High digitalization levels
` High customer satisfaction levels
` Increasing number of active users
` Highly motivated and engaged team
... enabling us to deliver for all 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
` Support economic growth and employment
1 Based on survey conducted by independent research companies IPM and ACT
2 Based on survey conducted by the independent research company, TNS in October 2019
3 The Banker, EMEA finance, Euromoney, Global Finance
4 The ISS scores indicate decile ranking relative to index or region. A decile score of 1 indicates low governance risk, while a 10 indicates higher governance risk
12
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
OUR DISTINCTIVE COMPETITIVE ADVANTAGES
BEST-IN-CLASS DIGITAL CAPABILITIES
` Our digital solutions, offering an unrivaled customer experience, represent the core of our distribution platform
accounting for 93% of all transactions in 2019;
` We have industry-leading internet and mobile bank applications, having won the world’s “Best in Mobile Banking
Award 2019” together with multiple regional and country digital awards from Global Finance Magazine.
ADVANCED DATA ANALYTICAL CAPABILITIES
` 4 data analytical projects implemented and scaled up, 5 underway;
` GEL 8.9 million extra profit generated in 2019;
` Institutionalizing capability building by setting up a data analytics academy called Avalanche.
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;
` Maintaining the highest satisfaction scores1 in Georgia’s banking sector for many years in a row.
STRONG BRAND AND REPUTATION
TBC is a well-established brand in Georgia, known for its credibility, excellence, innovation and community service.
` Our aided brand awareness stands as high as 100%2 among the Georgian population;
` The highest top of mind rating in the banking sector of 41%2;
` Recipient of 38 awards for “Best Bank in Georgia” since 2002 from the world’s leading financial magazines3
FIRST NEOBANK IN GEORGIA, SPACE
` Launched in May 2018, Space is a cutting-edge mobile application for managing daily finances, which challenges
and re-defines the traditional banking experience by offering a unique customer experience through simple
procedures and products, intuitive design and instant delivery.
FIRST DIGITAL ECOSYSTEMS IN THE COUNTRY
` This year, we started to develop the first customer focused digital ecosystems in the country, offering a complete
suite of interconnected services as one integrated experience;
` We have already launched payments, housing, e-commerce ecosystems and are actively developing auto ecosystems.
STRONG CORPORATE CULTURE
` 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 OF CORPORATE GOVERNANCE
` We have a highly qualified and diverse board of directors with a strong commitment to the highest standards of
corporate governance and business transparency;
` Excellent ISS corporate governance score4, which stood at 2.0 as of 31.12.2019;
` Listing on the premium segment of London Stock Exchange, in 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 low cost of risk, sound asset quality and strong capital and liquidity positions.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
13
BUSINESS MODEL AND STRATEGY CONTINUED
OUR STRATEGY
In line with our mission to make the lives of our customers easier, last year we introduced a new strategic initiative to expand
our value proposition beyond financial services and develop customer-centric digital ecosystems. This will enable our clients
to access a variety of related products and services, including banking services, on one of our platforms instead of having to
switch to a third-party provider. By increasing the touchpoints with our customers, we will be able to accumulate knowledge
about customer preferences and behavior, which will provide significant opportunities for relevant cross-selling. At the same
time, it will help us to enhance our customer experience by developing highly personalized solutions. In the medium-to-long
term, these ecosystems will also generate substantial fee and commission income as well as other operating income for
TBC Group.
In parallel, we are actively developing our core financial products and services for our corporate, MSME and retail customers
as well as striving to further strengthen our superior customer experience and leading digital capabilities.
We also continue to roll out an agile transformation project across the organization and invest in our employees by focusing
on their learning and development.
In addition, we are expanding our presence beyond Georgia and aspire to create the next generation banking abroad by
harnessing our extensive banking experience and advanced digital capabilities.
OUR STRATEGIC PRIORITIES
OUR STRATEGIC PRIORITIES
PROGRESS IN 2019
Payments
` Number of transactions up by 36.9% YoY
` Volume of payments up by 34.1% YoY
Housing
Livo
` GEL 2.5 mln revenue1
` 274,000 unique visitors
` 24,000 listings
Myhome
` GEL 1.4 mln revenue
` 360,000 unique visitors
` 140,000 listings
E-commerce
Vendoo
` GEL 2.4 mln revenue
` 337,000 unique visitors
` 27,000 different items (SKU)
Mymarket
` GEL 1.2 mln revenue
` 900,000 unique visitors
` 45,000 sellers
Auto and auto parts
Myauto & Myparts
` GEL 2.5 mln revenue
` 1,550 000 unique visitors
` 400,000 listings
More information can be viewed at pages 43-51
1. BUILDING CUSTOMER FOCUSED
DIGITAL ECOSYSTEMS
As we strive to create maximum value for our customers, we have
decided to better integrate with them by focusing on the major
areas of their lives and creating additional services in those areas
aimed at building strong, long-lasting relationships. This year, we
have made significant progress in this regard and launched the
first payments, housing, e-commerce and actively developing auto
ecosystems in Georgia.
14
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
OUR STRATEGIC PRIORITIES
PROGRESS IN 2019
2. LEVERAGING OUR CORE FINANCIAL
PRODUCTS AND SERVICES
Being the largest bank in the country, we aim to retain our market
leadership position and grow together with the market in all our
core segments and products by constantly fine-tuning our financial
offerings (for more information please refer to the divisional
overview on pages 20-51). Interest income remains our key revenue
generation stream and we will be focusing on maintaining sound
levels of net interest margin (NIM) through proper customer
segmentation and pricing. In parallel, we will be increasing our
commission-based services such as insurance, cards business,
trade finance and brokerage and investment banking.
Strong growth
` Loan book up by 22.1% YoY
` 39.5% market share in loans up by 0.7
pp
Robust profitability
` 22.6% underlying ROE decreased
by 0.2pp YoY (reported ROE stood at
22.4% up by 0.4 pp YoY)
` 3.3% underlying ROA remained stable
YoY (reported ROA stood at 3.2%
stable YoY)
3. FURTHER STRENGTHENING OUR
DIGITAL CAPABILITIES
In line with our aspiration to turn ourselves into a technological
company, we are continuously fine-tuning our advanced digital
capabilities and developing ever more innovative solutions for our
customers by utilizing big data analytics and artificial intelligence.
This year, we launched a number of innovations including voice
payment in mobile banking, Apple Pay and QR payments.
In parallel, we are actively developing our Neobank Space, which
was launched last year in Georgia, offering a completely unique
banking experience for digitally savvy customers and challenging
the Georgian banking sector. With Space, we are creating an
important knowledge bank that will help us easily introduce Space
in other markets and support our international expansion plans.
4. FURTHER IMPROVE SUPERIOR
CUSTOMER EXPERIENCE
Our aspiration is to be the best service provider in Georgia across
all major industries. To achieve this, we dedicate significant time
and effort to explore our customers’ needs and preferences and
constantly transform our products and services in order to deliver
an outstanding customer experience across all our channels. In
doing so, we leverage our advanced digital capabilities, which
creates a huge opportunity for taking our customer experience to
the next level by allowing us not only to meet, but also to anticipate,
our customers’ wishes.
Offloading ratio
` 92.7% up by 2.1 pp YoY
Mobile banking
penetration ratio
` 40.0% up by 3.0 pp YoY
Space
` 508,000 downloads
` 181,000 registered customers
Named the best
service provider in Georgia2
1
2
TBC’s contribution from real estate evaluation is GEL 2.2 mln
Based on survey conducted by independent research company IPM among the retail segment in December 2019
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
15
BUSINESS MODEL AND STRATEGY CONTINUED
OUR STRATEGIC PRIORITIES
PROGRESS IN 2019
5. TRANSFORMING INTO AGILE COMPANY
We realise the importance of a flexible organisational structure in
today’s fast changing market environment, where companies need
to be able to quickly adapt and respond to evolving business needs.
For this purpose, we have decided to start an enterprise-wide
agile transformation process, which will help us to increase cross-
company collaboration, achieve operational excellence and reduce
time-to-market. It will also support the creation of an exceptional
working environment, in which employees feel more empowered
and motivated. During 2019, we successfully implemented agile
transformation in the retail, MSME and IT departments and plan to
roll it out across other departments during 2020.
Time to market
for majority of systems1
` Up by 2.3 times
Employee happiness1
` Up by 16.0%
FTE productivity
` Up by 10.0%
Organizational agility score1
` Up by 4.3%
6. INVESTING IN HUMAN CAPITAL
As we believe that people are our key competitive advantage, we
are increasing our focus on learning and development. This year, in
addition to expanding TBC academy’s capacity, which offers general
courses in different fields, we have set up several new educational
programs to support our new business initiatives:
` Business school – tailored learning program for corporate,
finance and risk professionals which is comprised of 8 models
and lasts for 2 months;
` Agile academy – general training in agile and scrum
methodology;
` Data analytics – a general data management course, as well as
advanced training in data science and engineering;
` IT academy – attracts and trains the most talented young
developers in Front-end and Back-end bootcamp courses.
It also organises meetups and hackathons to promote
information technology.
We plan to further develop these programs and add more online
courses next year.
Business School
` 80 people trained
Agile Academy
` 545 people trained
Data Analytics
` 500 people trained
IT Academy
` 117 new people trained and 25
recruited
16
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
7. INTERNATIONAL EXPANSION
Our strategy in international markets 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 ensure
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.
Our progress in Uzbekistan
In April 2020, our subsidiary, TBC Bank in Uzbekistan has obtained a banking licence and is planning to launch banking
operations in the country in June 2020. Our strategy is to develop a greenfield, next-generation banking ecosystem for
retail and MSME customers in Uzbekistan. The primary focus will be on digital and partnership-driven channels. Given the
current operating environment and impact from Covid-19, we have further optimised our business model with the enhanced
emphasis on asset-light and cost-efficient operations.
While awaiting the license, during 2019, we launched several important preparatory work-streams including implementation
of the core banking system in co-operation with a local IT company. We also set up a pilot branch in Tashkent for proof
of concept and built a core team for the bank. Thus, we are well advanced in the process and are ready to start banking
operations in June 2020.
Our business model envisages serving customers through our digital platform, Space. However, we also plan to open up
smart, self-service branches in order to provide advising and consulting to our customers. The range of products offered
by the Bank at launch will include: сurrent and savings accounts, сash loans, salary backed loans and car loans as well as
cards, mobile application and transactional capabilities including (but not limited to) P2P transactions, money transfers and
utility payments. Our aspiration is to break-even starting from 2022 and achieve ROE in the range of TBC Group’s target in
the medium-term, while loan book mid-term target is to reach up to US$ 700 million.
The bank will be run by an experienced management board headed by Chief Executive Officer Sandro Rtveladze, who
previously held the role of Group Head of Retail Banking at Bayport Financial Services and prior to that was Deputy CEO at
Liberty Bank in Georgia.
We has already invested US$ 12.6 million into the charter capital of the Bank and expects to invest an additional US$ 9.4
million by the end of 2020. Additional capital increase is planned for later this year. Potential new shareholders, including
the European Bank for Reconstruction and Development, the International Finance Corporation and the Uzbek-Oman
Investment Company, have expressed their interest to participate subject to their internal approvals. TBC PLC will remain
the majority shareholder with 51% interest.
In parallel, we have been actively developing our payments business in the country, through our recently acquired subsidiary,
Payme. Payme is a fast growing, profitable payment service provider in Uzbekistan that supplies high-quality payment
solutions. It facilitates utility payments, P2P transfers, loan repayments, mPOS for QR-based payments and e-commerce
purchases. It also provides a marketplace platform for loans from certain Uzbek banks. The company recorded strong
results during 2019: its revenue increased by 84.0% and reached GEL 8.6 million, while the number of registered customers
and the number of transactions grew by 56.4% and 24.5%, respectively and stood at 1,772,000 and 40.1 million accordingly
in December 2019. Payme will continue to operate separately from the bank but the two entities will co-operate closely. In
addition, the bank will also run the point-of-sale consumer finance operations.
Our progress in Azerbaijan
During the year, our partner bank, Yelo Bank2 (previously known under the brand name Nikoil Bank) enhanced its operations,
including core banking and data warehouse as well as improved risk management in terms of operational risk, credit risk
and compliance. Also, a new management team was recruited. In addition, in December 2019 it launched a rebranding
process and introduced a new name, logo and slogan. The new name of Yelo Bank is a stylized spelling of the English word
Yellow, symbolizing a bright, vibrant, new approach to banking services. The transition to a new name and the introduction
of a new corporate identity will occur gradually and expected to be completed in April 2020. This will be followed by the
introduction of a new banking service model in the branches and their transition to a completely new design.
1 Based on the internal survey
2 TBC Bank and Nikoil Bank agreed on shareholders’ agreement in late December 2018 and signed it in early January 2019. According to which our
shareholding in the joint entity will be 8.3%. The transaction is subject to regulatory approval
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
17
BUSINESS MODEL AND STRATEGY CONTINUED
KEY PERFORMANCE INDICATORS
We closely monitor 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 2019, our underlying net profit reached GEL 545.1 million (reported net profit amounted to GEL 540.3 million), up by 19.8%
YoY, while our underlying return on equity was 22.6% and our underlying return on assets stood at 3.3% (the reported return
on equity stood at 22.4% and our reported return on assets stood at 3.2%).
In 2019, our operating income amounted GEL 1,128.2, up by 3.7% year-on-year, which was supported by increase in net fee
and commission income and net interest income. The growth in net interest income was related to re-classification of net
gains on currency swaps in the amount of GEL 28.6 million from other operating income, which offset by the decline in net
interest income related to the introduction of the responsible lending regulation from 1 January 2019, limiting the Bank’s
ability to lend money to higher-yield retail customers and change in product mix. Consequently, the net interest margin
decreased by 1.3 pp year-on-year and stood at 5.6% in 2019 and 5.3% in the fourth quarter of 2019. The growth in net profit
was also strongly supported by a decrease in credit loss allowance, which was driven by improved performance across all
segments. As a result, our cost of risk stood at 0.7% in 2019 compared to 1.6% in 2018. In 2019, our operating expenses
increased by 9.7% year-on-year or 8.3% on an underlying basis, resulting in an underlying cost-to-income ratio of 39.5% (the
reported cost-to-income ratio stood at 39.9%), up by 1.7 pp year-on-year. The increase in the cost-to-income ratio was mainly
related to investments in our new ecosystems. Over the same period, the bank’s standalone cost-to-income ratio remained
strong and stood at 35.9%1.
In terms of balance sheet growth, our loan book expanded by 22.1% year-on-year, or by 17.9% on constant currency basis,
mainly supported by growth in the corporate and MSME segments. As a result, as of 31 December 2019, our loan book market
share stood at 39.5% up by 0.7 pp year-on-year. Our capital positions remain solid. As of 31 December 2019, our regulatory tier
1 and total capital adequacy ratios per Basel III guidelines stood at 14.6% and 19.1% respectively, while minimum requirements
amounted to 12.5% and 17.5% respectively.
We continue to generate strong results in digitalization. Our retail transactions offloading ratio continues to grow mainly
driven by mobile banking transactions. We also remain leaders among the major retail industries in Georgia in terms of
providing the best customer experience. Equally important for us is caring about our colleagues and this year we introduced
an employee happiness index, which will be closely monitored going forward.
FINANCIAL KPIS
REPORTED NET PROFIT
(IN MLN GEL)
growth 23.5%
2019
2018
2017
540.3
437.4
359.9
REPORTED RETURN
ON AVERAGE EQUITY
growth 0.4pp
2019
2018
2017
22.4%
22.0%
20.9%
18
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
UNDERLYING NET PROFIT
(IN MLN GEL)2 (APM)
BASIC EARNING
PER SHARE (IN GEL)
growth 19.8%
growth 21.0%
2019
2018
2017
545.1
454.9
369.2
2019
2018
2017
9.8
8.1
6.7
UNDERLYING RETURN
ON AVERAGE EQUITY2 (APM)
reduction 0.2pp
2019
2018
2017
22.6%
22.8%
21.4%
NET INTEREST MARGIN
reduction 1.3pp
2019
2018
2017
5.6%
6.9%
6.5%
REPORTED COST TO INCOME
growth 2.1pp
STANDALONE COST
TO INCOME1
growth 0.3pp
2019
2018
2017
39.9%
37.8%
41.7%
2019
2018
2017
35.9%
35.6%
39.7%
COST OF RISK
reduction 0.9pp
2019 0.7%
2018
2017
1.6%
1.2%
LOAN BOOK MARKET SHARE3
TIER 1 CAR (BASEL III)
TOTAL CAR (BASEL III)
growth 0.7pp
growth 1.8pp
growth 1.2pp
2019
2018
2017
39.5%
38.8%
38.2%
2019
2018
2017
14.6%
12.8%
13.4%
2019
2018
2017
19.1%
17.9%
17.5%
NON-FINANCIAL KPIS
EMPLOYEE SATISFACTION4
growth 15.8%
CUSTOMER EXPERIENCE
The best service provider in Georgia
(gap with peer bank)5
growth 0.4pp
2019
2018
2017
1.76
1.52
N/A
2019
2018
2017
2.7
2.3
N/A
MOBILE BANKING
PENETRATION RATIO
growth 3.0pp
RETAIL TRANSACTIONS
OFFLOADING RATIO
growth 2.1pp
2019
2018
2017
40.0%
37.0%
24.2%
2019
2018
2017
92.7%
90.6%
88.3%
1 For the ratio calculation all relevant group recurring costs are allocated to the bank
2 More information about underlying figures (APMs) is given in Annex 1 on pages 122-123
3 Based on data published by National Bank of Georgia
4 The index is measured on a scale from -3 to +3 (with +3 meaning very happy) based on internal survey, created in collaboration with the world’s
leading consulting firm, conducted among employees who are part of the agile structure
5 Based on survey conducted by independent research company IPM among retail segment
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
19
DIVISIONAL OVERVIEW
RETAIL BANKING
2019 HIGHLIGHTS
40.0%
Retail loan market share1
37.9%
Retail deposits market share1
39.9%
Retail loan share in total portfolio
56.5%
Retail deposit share in total portfolio
c.2.5 mln
Number of customers
93%
Offloading ratio
OVERVIEW
TBC Bank is a leader in the retail banking segment in Georgia, serving 2.5 million clients, which is 90% of adult population of
the country. We offer our clients a full range of financial products and services tailored to their needs through our advanced
omni-channel, with a strong focus on digital channels. We pride ourselves on having the highest customer satisfaction
scores2 in the Georgian banking industry, and we hold the leading position among all major retail companies.
In 2019, our retail loan book increased by 7.5% YoY to GEL 5,053 million, mainly driven by an increase in mortgages, which
grew by 17.0%. Over the same period, retail deposits increased by 11.2% to GEL 5,674 million. More information about the
financial performance of the retail segment is provided in the financial review section on pages 108 to 123.
158
Branches
3,671
Self service
terminals
22,414
POS terminals
c.1,350
ATMs3
c.560,000
Internet or mobile
banking users
The first voice
biometrics recognition
system in call center
40%
Mobile banking
penetration ratio
The first Georgian
Speaking chat-bot, Ti-
Bot available through
Facebook Messenger
RETAIL SUB-SEGMENTS
Our retail banking is divided into mass retail and private banking business lines. This allows us to better customize our
offerings and provide our products and services in the most convenient way.
Our private banking is comprised of affluent clients-TBC Status and High Net Worth Individuals, providing them with best-
in-class financial and wealth management solutions coupled with sophisticated lifestyle offerings. In recognition of our
distinguished efforts, we have received the country’s Best Private Bank 2019 award from The Banker and Professional Wealth
Management (PWM) magazine and have won Global Finance’s Best Private Bank Award in Georgia 2020. These prestigious
awards acknowledge our leading position in delivering exceptional private banking services and the highest standards of
client satisfaction.
1 Based on data published by the National Bank of Georgia as of 31 December 2019; in this context retail refers to individual customers
2 Based on survey conducted by independent research company IPM among retail segment in December 2019
3 TBC Bank ATMs including partner banks
20
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
Number of clients
Loan book share
Deposit share
Mass Retail Private Banking
c.2.5 mln
37%
32%
c.85,000
63%
68%
TBC Status
TBC Status serves around 82,540 affluent customers,
while our Status deposits and loans stood at GEL 2,086
million and GEL 2,975 million as of 31 December 2019, up
by 31.4% and, 37.3% respectively.
We offer dedicated multichannel services for our affluent
customers with a special focus on digital channels, which
include internet and mobile banking with enhanced
functionality as well as a separate call center with extended
capabilities. This allows our customers to conduct most of
their transactions remotely. As a result, the mobile and
internet banking penetration level stood as high as 87.0%
as of 31 December 2019 versus 45.0% in mass retail.
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 24 branches.
We are constantly fine-tuning our private banking offerings
to stay ahead of the curve and put together innovative
solutions for our clients. In 2019, we unified credit and
operational functions so that our private customers could
be served by a single universal banker, who will be able to
assist him/her with all queries. We also launched the first
digital personal banking services in the region, allowing our
customers to self-manage their daily banking operations
and get financial advice online. This service proved to
be very successful and the number of digital clients has
grown substantially. Overall, the number of Status Clients
doubled YoY and reached 82,540 by the end of 2019.
Furthermore, we have significantly enriched our lifestyle
services, the most popular among which proved to be the
regular special meetings with leading international and
local speakers from different fields such as literature,
psychology management, marketing,
emotional
intelligence and art. We also have a dedicated platform
for this initiative (www.statusevents.ge), where our status
clients can register for the meetings and watch short
videos from previous meetings.
High-Net-Worth Individuals
This segment is comprised of around 2,500 resident and
non-resident HNW individuals, who have close ties with
Georgia. We also have a representative office in Israel,
TBC Invest, which acts as an intermediary with clients
from Israel, offering information regarding TBC Bank’s
products.
We serve our high-net-worth clients in VIP service areas,
which combine luxury, comfort and privacy. Our highly
qualified personal bankers act as consultants and wealth
planners, who provide a wide range of customized services
including traditional banking and lifestyle solutions. We
actively engage with our clients to better understand their
goals and aspirations and assist them in taking full benefit
of our sophisticated offerings. We also provide brokerage
and wealth management services through our wholly-
owned subsidiary, TBC Capital. In 2019, our HNW individuals
acquired around US$ 44 million bonds via TBC Capital.
STATUS EVENTS
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
21
DIVISIONAL OVERVIEW CONTINUED
OUR STRATEGIC DIRECTIONS IN 2019
We aspire to become a truly
customer-centric company and
provide personalized and seamless
customer experience across
our omni-channel platform by
leveraging our advanced digital
capabilities and big data analytics
Becoming a customer centric company
This year, we have completely reshuffled our structure in
the retail business by building teams around customers
versus products. As a result, our focus shifted from selling
products and services towards understanding customer
needs and striving to fulfil their needs by developing
various projects and ecosystems (more details about
customer focused digital ecosystems are provided on
pages 43-51). This will significantly enhance our value
proposition beyond banking and enable our customers to
receive additional products and services.
During 2019, we launched several retail projects, the
most significant of which is the dedicated online platform
“Dgesve”, which means “Today” (www.dgesve.ge). This
user-friendly platform aims to help people fulfil their
wishes instantly and offers not only loans, but also a full
package of complementary services that they might need
for different purposes. For example, if a customer needs
a car loan, he or she will also get a special discount for
car insurance and various automobile related gifts and
offerings from partner companies. This platform offers
nine different types of loans, including travel, auto,
education etc. The initial results were rather promising,
since launch in November, 1,128 loans were disbursed
with outstanding amount of GEL 2.7 million as of 31
December 2019.
The young generation continues to be one of the strategic
directions for the retail business. Our aspiration is to
become the #1 choice and most loved mark brand for
this segment, by focusing on educational and lifestyle
offerings.
22
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
` In 2019, we launched a youth platform for school children
(www.TBCkids.ge), giving an opportunity to parents to
order debit cards for their children remotely. The card is
free of any banking charges, including annual service fees
and ATM withdrawals from TBC Bank ATMs. Parents can
set maximum daily limits for their children’s spending
and withdrawals, while children can collect and spend
loyalty points. In addition, this platform offers various
discounts and activities to the cardholders tailored to
their interests. This year, TBC also acted as a sponsor for
educational events including Kings Olympics, Book Fair
and Tbilisi Kids Fest.
` We also have many interesting offerings to university
students,
including educational and entertainment
programmes. In cooperation with Georgia’s leading
universities, we held a series of lectures on different
subjects based on students’ interests. We also offer
YourCard, a special card with distinctive benefits tailored
to students’ interests. Card holders are able to benefit
from discounts in more than 50 partner companies. In
2020, we plan to launch a platform for students that will
provide an ecosystem for young professionals, uniting
educational, employment and many other offerings.
As a result, the number of youth customers1 increased by
10.0% YoY and reached 144,260 by the end of 2019.
Since 2017, we have operated a wide-scale loyalty
programme, Ertguli, which helps us to strengthen
their
relationships with our clients and
engagement with us. We conduct regular campaigns
and partner with over 270 organizations to develop the
best offers for our customers. As a result, the number of
Ertguli card holders reached 1.5 million by the end of 2019,
while the number of POS transactions reached 85 million
in 2019 compared to 60 million in 2018 and 40 million in
2017.
increase
Transformation into a data driven organization
We aspire to maintain our leading position in the country
and become a customer-centric organization through
enhancing our advanced analytical capabilities. This will
help us to build a non-replicable competitive advantage
in Georgia and the wider region as well as reveal hidden
opportunities.
Last year, with the support of the world’s leading
consultant, we developed a 3-year analytical roadmap,
which is comprised of 23 data analytical projects across
the bank. The target is to generate an extra GEL 100
million annual net profit by 2023.
By the end of 2019, we have launched and scaled the
following data analytical projects, which gained an extra
GEL 8.9 million in profit:
1 Customers between 6-23 years
` Consumer loan pricing optimisation – This project was initiated in 2018 and the target clients were payroll customers.
Based on the detailed analysis of their spending behavior and other characteristics, we determined price sensitivity for each
customer and developed tailored offerings for each individual client.
` Affluent value proposition – In April 2019, we introduced the first digital personal banking service in Georgia, which
allows customers full digital onboarding and self-management of digital banking operations as well as receiving TBC
Status benefits. This project proved to be very successful, and by the end of 2019, the number of Status clients more than
doubled, significantly outperforming our main competitor.
` Subscriptions for business owners – In June 2019, we launched B-COM, an innovative service model for the business
community, which is a subscription based banking solution, offering customers a set of products and services as well as
various trainings for a fixed monthly or annual fee. Since the launch, we have already attracted over 9,000 subscribers.
` Deposit pricing in retail – This project was launched in October 2019 with the aim of effectively managing our retail
deposits via tailored offerings to clients. When opening a term deposit, every single customer receives an alternative offer
which is the best possible proposition for him/her under the given conditions. In December 2019, 50% of all newly opened
or renewed term deposits were placed with alternative terms.
In addition, we have established an analytics academy, called Avalanche School of Analytics, in order to attract, train and
retain the best talent in data science and data engineering, as well as to raise general awareness about the importance of
data analytics across the bank. In 2019, we trained more than 500 people in data analytics principles.
Advanced digital capabilities
We started our digital journey back in 2012 by investing in cutting-edge technology and introducing best-in-class digital
solutions for our customers, including our award winning internet and mobile banking applications. We are also leading the
market in terms of innovations, having pioneered the introduction of the following in Georgia: P2P payments, a Georgian-
speaking chatbot available via Facebook messenger, personal finance manager in internet and mobile banking, and a voice
biometric recognition system in our call center. As a result, 93% of all transactions are conducted digitally, with mobile
banking being the most preferred channel of communication for our customers.
We are extremely proud that, TBC Bank was named the Best in Mobile Banking 2019 globally by Global Finance Magazine
and stands next to the world’s leading banks such as DBS, Citi and Sberbank. The award is a tribute to our advanced digital
capabilities and continual development of cutting-edge technologies. In addition, we have won multiple regional and country
awards from Global Finance Magazine in various digital categories, such as: The Best Consumer Digital Bank in Georgia
2019, The Best in Consumer Mobile Banking and The Best Consumer Mobile Banking App in Central & Eastern Europe 2019.
We do not rest on our laurels and continue to fine-tune our best-in-class internet and mobile banking applications, based
on our customers’ feedback. This year, we added several useful features including voice assistant, which enables our clients
to conduct simple banking transactions. We have also integrated QR payments into our mobile application, which enables
our customers to use various payment options through a single application. In addition, we have enriched our internet and
mobile banking offering with third party data and added information regarding our clients’ state pension fund contributions.
Furthermore, we are using our data analytical capabilities to develop personalized offerings which are offered via our mobile
& internet banking applications.
First Internet and
Mobile Bank verison
First P2P payment
product in Georgia
First Financial
ChatBot in Georgia
Voice and
QR Payments
2012
2014
2015
2016
2017
2018
2019
Renewed version
of Mobile Bank
Renewed version
of Internet Bank
Digital Wallet
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
23
DIVISIONAL OVERVIEW CONTINUED
D G E S V E . G E
PLATFORM DGESVE
It is an innovative online platform,
which allows retail customers to fulfil
their wishes by getting consumer
loans instantly.
24
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
DIVISIONAL OVERVIEW CONTINUED
CORPORATE INVESTMENT BANKING
2019 HIGHLIGHTS
38.9%
Corporate loan market share1
36.8%
Corporate loan share in total gross portfolio
40.6%
Corporate deposits market share1
31.7%
Corporate deposit share in total portfolio
50.2%
Corporate guarantee and
letter of credits market share1
3,232
Number of customers
OVERVIEW
TBC Bank is the leading corporate and investment bank in Georgia, holding the number one position by all key metrics. We
operate an advisory focused business model and strive to become the trusted partner for our clients in all their business
undertakings. Our clients are served by highly experienced corporate bankers, with strong expertise in all major economic
sectors, who help them to optimize their financial structure. We also have strong trade finance capabilities supporting
international trade relationships for Georgian companies. As the demand for sophisticated investment banking solutions is
increasing among large corporations, we are actively developing our corporate advisory, brokerage and research services
through our wholly owned subsidiary TBC Capital.
DIVERSIFIED PORTFOLIO WITH STRONG PRESENCE IN EVERY SECTOR OF GEORGIAN ECONOMY
Energy &Utilities
Real Estate
Food Industry
Oil & Gas
Automotive
Metals & Mining
Hospitality & Leisure
Finantial Services
Construction
Trade
Healthcare
Agriculture
Other
1%
2%
2%
7%
3%
4%
5%
7%
12%
13%
23%
20%
CORPORATE BANKING
We have a well-diversified loan portfolio, serving 3,232 corporate clients across all major sectors of the economy. 2019 was
a strong year in terms of client acquisition and portfolio growth, especially in the mid-corporate sub-segment. As of 31
December 2019, our total corporate loan book amounted to GEL 4,660 million, up by 46.7% YoY driven by acquisitions of both
large and mid-corporate clients as well as re-segmentation of certain clients from the MSME segment in first quarter 2019.
Consequently, the share of our mid-corporate segment increased to 41.0% of the total corporate portfolio as of 31 December
1 Based on data published by the National Bank of Georgia as of 31 December 2019; in this context corporate refers to legal entities
26
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
2019 compared to 27.0% a year ago. More information about
the financial performance of the corporate segment is
provided in the financial review section on pages 108 -123.
We maintain the leading position in Georgia in terms of
trade finance operations by providing diversified product
offerings as well as advisory services. We also have well-
established partnerships with major counterparty banks
and international financial institutions. Our guarantees and
letter of credit portfolio amounted to GEL 1,702 million, up
by 39.0% YoY. In recognition of our outstanding efforts, we
have won several prestigious international awards: “Trade
Finance Award for Excellent Partnership 2019” from
Commerzbank, “Best Trade Finance Provider in Georgia
2020” from Global Finance as well as “The Market Leader
in Georgia 2020” and “The Best Service Provider in Georgia
2020” from Euromoney.
Furthermore, our corporate banking drives strong
cross-selling of various operational products including
payments1 , payroll accounts and FX transactions. In 2019,
the number of corporate clients’ payroll accounts reached
161,953, remained broadly stable on YoY basis, while the
payroll fund grew by 23.0% YoY, amounting to GEL 302.7
million. Corporate banking also had solid results in terms
of number of payments transactions, totaling 94.5 million,
up by 52.4% YoY, and volume of transactions amounting
to GEL 4,058 million, up by 54.6% YoY. The volume of FX
transactions in 2019 amounted to GEL 12,095 million, up
by 38.7% YoY, while the number of FX transactions grew by
51.4%, amounting 130,397.
As a long-standing partner and advisor, we strive to create
additional value for our customers by sharing the world’s
best practices with them. For this purpose, this year, we
provided a unique opportunity for our large corporate
clients to attend a full 2 day customized “TBC Bank
Strategic Leadership Executive Education Programme“ at
INSEAD, one of the leading business schools in the world.
The programme was specially designed for our partners
and covered the following topics: cultural agility, deep
partnering, assessing the long-term profit potential of
market opportunities, competing in markets with platform
and ecosystems dynamics.
INVESTMENT BANKING
This year, TBC Capital acted as the sole lead arranger for
bonds of Tegeta Motors2 and Nikora Trade3 in the amount
of GEL 30 million and GEL 28 million, respectively as well
as for one private placement in the amount of US$ 2.2
million. In addition, TBC Capital, together with a number
of leading international investment banks, acted as joint
lead arranger for the Eurobonds of Silknet4 and TBC Bank
in the amount of US$ 200 million and US$ 425 million
respectively, which were dual-listed on the Georgian Stock
Exchange and the Irish Stock Exchange. Silknet’s Eurobond
was the first issuance from the private sector non-financial
institution in Georgia, while TBC Bank achieved the lowest
ever interest yield on its senior bonds and the lowest
coupon on the additional Tier 1 bonds in Georgia. As a
result, the bonds issued publicly and listed5 by TBC Capital
during this year amounted to GEL 1,805 million, holding
76.0%6 of total bonds issued and listed on Georgian Stock
Exchange in 2019.
TBC Bank continues to provide the most convenient
brokerage solutions to its clients by offering sophisticated
services. This year, we achieved a significant milestone
by starting cooperation with Clearstream, which is one of
the largest Central Securities Depositories in the world,
and we successfully settled the first Georgian corporate
bond of Lisi Lake Development7 through this platform.
This will allow Georgian companies to get access to a
large international investor base and attract capital more
effectively. Furthermore, we continue our partnership
with Interactive Brokers, the largest online broker in the
USA, which enables us to offer advanced online trading
capabilities to our clients through direct access to more
than 120 markets, 30 countries and 22 currencies.
TBC Capital is actively developing its sectoral research arm.
During 2019, we produced a number of comprehensive
reports including Tbilisi and Batumi Residential Markets,
Tourism, Fixed Income Securities, Fast Moving Consumer
Goods (FMCG) and Energy. The reports are available at
www.tbcresearch.ge. This year, TBC Capital also organized
six public events, presenting TBC Capital sectoral insights
to major stakeholders. Our reports were well received by
both the private sector and the state, sparking numerous
discussions in the media and being referred to by industry
professionals. Going forward, our target is to fully cover the
Georgian economy through in-depth sector research and
regular updates.
Nikorassuu pp ee rrmm aarrkkee tt
GEL 30 mln 3-year Bond
Public Placement
NBG + 4.25%
Placement Agent
GEL 28 mln 3-year Bond
Public Placement
TIBR3M + 4.00%
Placement Agent
US$ 200 mln 5-year Eurobond
Public Placement
11%
Co-Lead Manager
1 Payments include e-commerse and POS terminal transactions
2 Tegeta Motors is a leading automotive products and service
provider company in Georgia
3 Nikora Trade is a leading food producer company in Georgia
4 Silknet is a leading telecommunication company in Georgia
5 Excluding IFI bonds
6 Excluding IFI bonds and dual listed bonds and Bank of Georgia AT1
bond, which is not listed on Georgia Stock Exchange
7 Lisi Lake Development is a leading developer company in Georgia
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
27
DIVISIONAL OVERVIEW CONTINUED
SECTORAL RESEARCH
TBC Capital regularly organizes
public discussions on various
sectors including Tbilisi and Batumi
Residential Markets, Tourism, Fixed
Income Securities, Fast Moving
Consumer Goods (FMCG) and Energy.
28
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
DIVISIONAL OVERVIEW CONTINUED
MSME
2019 HIGHLIGHTS
62%1
of newly registered legal entities
chose TBC Bank
c.147,418
customers
11.8%
MSME share in total deposit portfolio
93%2
offloading ratio of MSME
23.3%
MSME share in total loan book
75%3
NPS
OVERVIEW
TBC Bank is the number one partner bank for micro, small and medium enterprises (MSMEs) in the country, with 62%1 of all
newly registered legal entities in Georgia choosing TBC Bank. We differentiate ourselves through an exceptional customer
experience, best-in-class financial products and services, an extensive business support programme and strong digital
capabilities.
This year, we introduced an agile structure in MSME, that is better tailored to business needs and attuned to market demands.
Segment-focused squads (agile teams) have been created that enable us to create added value for our clients and become
ever more customer-centric when developing our products and services. The process-oriented squads help us to streamline
the processes, while digital squads, which are allocated directly to businesses are designed to improve digital channels and
to ensure that all our products are digitally accessible.
In 2019, our MSME loan book increased by 18.1% YoY to GEL 2,948 million, mainly driven by an increase in the hospitality and
leisure, agriculture, construction and trade sectors. Over the same period, MSME deposits increased by 16.8% to GEL 1,188
million. More information about the financial performance of the MSME segment is provided in the financial review section
on pages 108 to 123.
DIVERSIFIED MSME PORTFOLIO WITH STRONG PRESENCE IN AGRICULTURE, HOSPITALITY&LEISURE AND TRADE SECTORS
1%
13%
15%
2%
2%
3%
4%
5%
5%
6%
7%
9%
30
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
14%
12%
Agriculture
Healthcare
Hospitality & Leisure
Transportation
Trade
Construction
Food Industry
Pawn Shops
Services
Real Estate
Automotive
Manufacturing
Individual
Oil and Gas
Finantial Services
Other
OUR STRATEGIC DIRECTIONS IN 2019
We aspire to deliver the best
customer experience to MSME
clients through our best-in-class
distribution channels, innovative
and affordable offerings, efficient
and lean operational processes and
wide-ranging non-financial services.
Best-in-class distribution channels
In an era of constant technological development, it is
crucial for us to provide market leading digital offerings and
engage digitally with our customers. We are proud to have
the best-in-class internet and mobile banking applications,
with around 84% of our active MSME customers using
internet banking and 37% using only the mobile bank
application as of 31 December 2019. As internet banking
is the most popular channel of communication with our
customers, we are constantly fine-tuning it based on our
customer feedback. This year, we have added several new
features and redesigned certain screens to make it more
intuitive and easy to use.
Next year, we also plan to develop a dedicated in-house
mobile banking application for businesses, which will be
tailored for businesses needs and allow our customers to
manage their businesses easily on the go. The in-house
development will enable us to be more agile and prompt
in responding to our customer needs and will make the
interaction with the app engaging.
In addition, we have a dedicated call center for MSMEs
available 24/7, which is a strong channel both for sales and
customer enquiries. Around 53% of all sales are conducted
though our call center.
We are the only bank in the region4 offering fully
digital on-boarding, which enables legal entities to
become our customers by registering online at www.
businessregistration.ge. The registration process only takes
a few minutes, after which the company becomes TBC’s
customer with access to all basic products. In 2019, 22% of
newly registered customers were on-boarded digitally.
Innovative and affordable offerings
In line with our mission of making the lives of our customers
easier, we constantly fine-tune our offerings in order to
create maximum value for our customers. In addition to
the full range of lending and operational products that
we offer to our MSME clients, we also provide innovative
solutions as well as tailor-made offerings for start-ups
and micro and small businesses.
Since 2017, we have run “Startaperi”, an innovative
programme that aims to support early-stage businesses
by providing them with accessible financial resources as
well as extensive non-financial services. Currently, we
offer four types of loans for start-ups: a general loan and
special loans for restaurants, hotels and agro businesses.
The Startaperi programme has gained tremendous
popularity and attracted around 34,800 companies since
its launch. As of 31 December 2019, the total outstanding
portfolio of such loans stood at GEL 120 million, while the
number of loans amounted to 550.
In order to foster business growth in rural areas and help
to create new job opportunities, we are actively supporting
local businesses by providing affordable finance. In
partnership with government programmes: “Produce in
Georgia” and “Agriculture Project”, which aim to support
agriculture, manufacturing and hospitality industries,
we have been providing the necessary financing to local
businesses. Within these programmes, borrowers can
apply for a subsidy from the government to lower their
interest expense. During 2019 we disbursed 46 loans
amounting to GEL 29 million. Overall, as of 31 December
2019, 34% of our total MSME loan book was used to
finance rural areas, the largest sectors being agriculture,
hospitality & leisure and trade with respective shares
of 39%, 10% and 9%. As a result, we have helped more
than 29,000 borrowers in rural areas to develop their
businesses.
In May 2019, we launched B-COM, an
innovative,
subscription based banking service that offers MSME
customers a set of products and services as well as
various trainings for a fixed monthly or annual fee. Since its
launch, we have already attracted over 9,000 subscribers,
with around 34% choosing annual subscription. The new
service packages are well tailored to fit the various needs
of businesses and enable cost optimization on frequent
transactions.
In 2019, we launched TPay application, a universal
payment system that combines point of sale and online
payments with QR technology and also allows innovative
online checkout. This is a faster, cheaper and more secure
payment method, which enables cashless transactions in
micro merchants, mainly in rural areas, where currently
only cash is accepted. Merchants can use a printed QR
stand, a sticker, or choose the TPay application to accept
QR payments, while retail customers can conduct QR
payment via our mobile banking application, as well as the
TPay application for non-TBC customers. Currently there
are about 2,267 online and offline merchants already using
TPay system.
1 Data is for FY 2019, 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 2019
4 The region in this context comprises Azerbaijan, Armenia and Georgia
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
31
DIVISIONAL OVERVIEW CONTINUED
In October 2019, we introduced an innovative new cash
terminal , a combination of a cash register and a POS
terminal, to minimize our MSME customers’ monthly
costs. This terminal enables merchants to offer their
customers the same services in a more convenient and
affordable way. Since its launch, more than 483 merchants
have either replaced their old terminals with a new one, or
started using our cash terminals as their first choice.
Next year, we plan to enhance our online lending platform,
which will significantly simplify and speed up the loan
application process for business customers and
is
expected to decrease the bank’s decision making process
to minimum.
Operational process optimisation
In 2019, we optimized our structure in the MSME business
by eliminating unnecessary processes and enhancing
certain functions
in order to speed up customer
registration, overall service time as well as product
development time-to-market.
The most remarkable initiative this year was the complete
transformation of our registration platform for MSME
clients. The new platform is integrated with the National
Agency of Public Registry (NAPR) and the Public Service
Development Agency, which allows the majority of
information to be filled automatically, thus enabling
our employees to register new customers with all basic
products within 10-15 minutes, with no involvement
needed from the back office in more than 70% of cases.
In the past, it took more than 40 minutes to register a new
customer and 24 hours for a new account to be activated,
with back office involvement needed in almost all cases.
Another important project was the simplification of the
loan approval process, which shortened the time between
application submission and loan approval from 2 days to
30 minutes:
` Starting from March, mini business and mini agro
loans up to GEL 20,000 could be issued using tablets.
Loan officers visit the clients at their locations, approve
loans based on scoring model and register clients on
the spot. As of December 2019, more than 85% of this
type of loans were disbursed using tablets.
` In addition, starting from November 2019, we launched
the automotive loan approval system for business
loans up to GEL 100,000 based on scoring model.
At the end of the year, 40% of all such loans were
approved automatically.
Extensive non-financial services
We are the only bank in Georgia offering a full-scale
business support programme, which includes educational
resources, a business blog, business support tools, an
32
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
annual business award and a start-up programme. All
these services are united on a single platform: www.
tbcbusiness.ge.
In partnership with the Asian Development Bank (ADB)
and the European Fund for Southeast Europe (EFSE), we
conduct trainings, run conferences, and organise individual
consultations as well as agro forums across the country.
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, which will
support them in developing their businesses. In 2019, we
have trained more than 4,000 business representatives in
different fields and organised four business forums with
around 800 participants in different regions of Georgia.
During the year, we have also held a number of six-week
intensive courses for our SME clients, “IFRS for SMEs”,
training around 160 participants in total.
Support of early-stage businesses remains our top priority
and we continue to develop new services within our
innovative programme “Startaperi”. 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. During the year, 700
start-ups were trained in different fields. In 2019, we also
launched “Startup discussions”, a monthly knowledge
sharing platform for startup founders to learn from other
successful startups. This initiative proved to be very
successful, attracting around 100 participants each month.
Since 2016, in partnership with EFSE, we have been
organising an Annual Business Awards ceremony in order
to support entrepreneurship in Georgia. This ceremony
has become the major business event of the year in the
country, attracting more than 2,000 community members.
This year, over 350 business participated in the Business
Award ceremony and five winners were announced in the
following categories:
` Product/service of the year;
` Employer of the year;
` Exceptional corporate social responsibility;
` Innovation of the year; and
` Startup of the year.
The event attracted a reach of 25 million 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 72% in 2019.
Yevgen Lisnyak, Senior Director and Head of Strategic
Partnerships, Fintech & Ventures (Visa, CISSEE),
commented: “At Visa we believe in the power of
partnership to bring our profound experience and
innovative solutions to emerging payment players like
Space. Being in the center of Fintech ecosystem, we aim
to share our knowledge, best practices and network of
technological partners with Space to achieve mutual
goals in expanding the reach of digital financial services.
Today, we are witnessing a rapid transformation of the
financial banking sector, where new players are playing
a significant role. Neobanks are agile, consumer-centric,
flexible and innovative, offering modern consumers
completely new financial solutions and a new digital
banking experience. We are excited to be able to support
fintechs to navigate the payments landscape in the
Caucasus region to achieve their business growth and
international expansion ambitions.”
SPACE
2019 HIGHLIGHTS
508k downloads
2.6 mln transactions during 2019
GEL 27 mln loan portfolio
121k total cards attached
4.9 stars of Apple store with 5.9k reviews
Partnership agreement with Visa
OVERVIEW
Space is the first Georgian neobank, a mobile app without
traditional branches or a physical presence. Structured as
an autonomous business, Space is a trailblazing mobile
application for managing daily finances, which challenges
and redefines the traditional banking experience and strives
to make banking simple, friendly and fun. In all operational
aspects, it is a fintech startup project: from people to
processes to corporate culture.
Space is a fully cloud solution that was built in order to
resolve the complexity of integration with traditional legacy
systems. Its flexible IT architecture makes it possible to
launch new products much faster than in traditional banking.
Space will play an important role in our international
expansion strategy and will allow us to expand our presence
in new markets in the most efficient way, using a capital-
light model.
Space was launched in May 2018 in Georgia and has already
attracted around 181 thousand customers, out of whom 46%
were previously inactive TBC customers. As of 31 December
2019, the Space loan book amounted to GEL 27 million and
the number of borrowers reached 10 thousand. Also, during
2019 the number of transactions stood at 2.6 million, while
the volume of transactions amounted to GEL 154 million.
PRODUCT DESCRIPTION AND
ITS MAJOR BENEFITS
Space differentiates itself through its simple and intuitive
design, unique customer experience, price transparency
and instant service delivery.
Currently Space is offering the following products and
capabilities:
` remote account opening in under 5 minutes;
` instant consumer loans 24/7 up to 50,000 GEL;
` Savings pot;
` instant money transfers to any bank 24/7;
` mobile top and bill payments;
` debit cards,
181k total registered customers
GEL 154 mln transactions volume during 2019
10k borrowers
65k Space cards issued
4.8 stars of Google play with 6.0k reviews
` Wallet with the possibility to attach other bank cards;
` Apple pay;
` QR installments for e-commerce and offline stores.
Saving pots, which was launched in December 2019, is
a modern alternative to traditional saving and deposit
products. It will enable customers to save money more easily
with the help of features such as goal setting, automatic
saving rules and flexible access options. Customers will be
able to choose from three main automatic saving rules that
are attached to everyday transactions. In addition, pots will
allow customers to access their money at any time without
restrictions. Customers will also be able to share their
pots with friends to save money collectively for different
occasions such as birthdays, presents, etc.
In July 2019, Space introduced a unique cash-back program,
offering cash-back in every food chain worldwide. A 5%
cashback is issued to customers who pay with Space cards
in cafes, restaurants, fast food restaurants or when they
order food via delivery applications such as Glovo or Wolt.
During 2019, around 13 thousand customers benefited
from this service.
In addition, in response to our customers’ wishes, in July
2019, we introduced a weekly gamification contest, which is
a different take on a traditional loyalty program. Customers
compete with each other to gain rewards. Points, which
are called “stars”, are given for making transactions with
a Space card, inviting others to join Space, making bill
payments and even by playing Space game that are built
into the app. Each Friday, the top 300 customers receive
cash rewards ranging from GEL 5 to GEL 150. More than
28% of total Space customers are actively involved in this
contest and 2,705 customers received cash rewards by 31
December 2019.
One achievement that particularly stands out in 2019
was the signature of a partnership agreement with Visa
to jointly develop an innovative banking service and to
introduce cutting-edge, user-centric and secure banking
solutions, which will help us in our ambitions to expand
our digital banking footprints beyond Georgia.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
35
DIVISIONAL OVERVIEW CONTINUED
MAJOR SUBSIDIARIES
TBC Insurance is a rapidly growing, wholly owned subsidiary of TBC Bank and is the main bancassurance partner of the
Bank. The company was acquired by the Group in October 2016, and since then it has worked hard to strengthen its position,
becoming the largest retail player in the non-health insurance market in Georgia, with a market share1 of 36.6% and serving
more than 260,000 customers.
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 products. TBC Insurance
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 B Bot, a Georgian-speaking chat bot that is
available through Facebook messenger.
Starting from the second quarter of 2019, TBC Insurance entered the health insurance market with a focus on the premium
segment. Our strategy is to capture the affluent market by leveraging our strong brand name, leading digital capabilities and
cross selling opportunities with payroll customers.
The bancassurance business2 represents 41.2% of the total gross written premium (GWP) as of 31 December 2019, while the
breakdown of total GPW by segments and products is given on the below pie charts.
TOTAL GWP IN 2019 BY SEGMENTS
TOTAL GWP IN 2019 BY PRODUCTS
35%
Retail
Business
4%
7%
16%
65%
43%
30%
Motor
Life & Personal Accident
Property
Health
Other
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 insurance market. The Georgian insurance market has a high growth potential as it is
under-penetrated with gross written premium to GDP standing at around 1.3%3 as of September 2019, which is one of the
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$ 56.4 as of December 2019.
36
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
In 2019, the non-health insurance market grew by 19.9%,
or 12.7% on a constant currency basis and reached GEL
378 million. The compulsory motor third party liability
insurance (MTPL), which is expected to come into force
in 2021, will further increase the market by an estimated
GEL 150 million. The largest products on the market are
motor and property insurance, which combined account
for 66.3% of the total market. Aldagi and TBC insurance
are the two largest players with market shares4 of 29.1%
and 21.5% respectively, as of 31 December 2019, followed
by GPIH with 14.2%.
In 2019, the health insurance market grew by 7.9% on a
constant currency basis and amounted to GEL 224 million.
We expect accelerated market growth in the coming
years driven by the increasing trend in average monthly
premium. The largest players in the health insurance
market are Imedi L and GPIH with market shares of 31.9%
and 24.0% respectively, followed by Ardi insurance with
12.5% as of 31 December 2019.
GWP OF GEORGIAN INSURANCE MARKET
BY PRODUCTS IN 2019
6%
7%
9%
MAIN ACHIEVEMENTS AND STRATEGY
In 2019, our main focus in the retail non-health business
was increasing the sales offloading ratio5 and the motor
claims offloading ratio6. As a result, the number of policies
sold via digital channels increased by 146.0% YoY and
reached 51,160 in 2019, leading to an offloading ratio
of 48.3% compared to 29.3% a year ago. Over the same
period, the number of motor claims handled distantly
also increased sharply, with the motor claims offloading
ratio reaching 51.2% in December 2019, up by 16.1pp
YoY. Furthermore, in July 2019, we introduced a digital
motor policy renewal process, which will result in reduced
acquisition costs and increased operational effectiveness
over the medium-term. By the end of the year, 26.5% of all
renewed motor policies were renewed digitally.
On the MSME side, we have standardized certain insurance
products and processes in order to provide simplified
solutions to our customers. In parallel, we continue to
actively utilize our MSME bancassurance web portal,
which helps us to increase our foothold in the severely
underpenetrated MSME market. In terms of corporate
clients, we continue to leverage the bank’s strong
corporate client base in order to attract new customers.
As a result, our market share of non-health legal entities
reached 11.4% in 2019, compared to 10.4% in 2018.
Regarding the health business, from November 2019 TBC
Insurance offered individuals the opportunity to receive
claim reimbursements via chat bot messenger. This
initiative is unique in the market and will greatly improve
the claim regulation process on the client side.
14%
37%
27%
Health
Motor
Property
Life & Personal Accident
Liability
Other
1 Market share without mandatory border MTPL. With mandatory
border MTPL market share was 30.2%. 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.gov.ge
2 The selling of credit linked and voluntary insurance products and
services by JSC TBC Bank
3 Source: Geostat and insurance.gov.ge
4 Market shares are without mandatory border MTPL. With mandatory
border MTPL market shares of Aldagi, TBC Insurance and GPIH
stood at 27.3%, 20.0% and 13.4% respectively. 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.gov.ge
5 The number of policies sold via digital channels divided by the total
number of voluntary retail policies
6 The number of motor claims regulated distantly (by web & call
center) divided by the total number of motor claims
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
37
DIVISIONAL OVERVIEW CONTINUED
Overall, TBC Insurance recorded strong growth in 2019 with gross written premium increasing by 31.5% to reach GEL 79.0
million, leading to a market share1 of 21.5%, up by 1.1pp YoY. Over the same period, our net earned premium increased by
48.3% and amounted to GEL 52.9 million, while our net combined ratio grew by 3.5pp and stood at 82.8%, driven by increased
operating expenses in health insurance. As a result, our net profit went up by 12.5% and reached GEL 8.5 million. Looking
forward, we will continue to grow and expand our insurance business and become the number one player in Georgia in the
medium-term, with the highest net promoter score (NPS) among the industry players in the country.
Strategic priorities Non-health Insurance
Market Share
Net Combined Ratio
Offloading ratio in voluntary retail sales2
NPS3
Strategic priorities Health Insurance
# of Insured Premium Staff
Net Combined Ratio
Loss Ratio
NPS3
Mid-term target
30% +
< = 85%
70% +
The best in industry
Mid-term target
50,000
< = 95%
< = 85%
The best in industry
Our mid-term target for net combined ratio increased from below 80% in 2018 to below 85% in 2019, due to the strong
competition on the market and reduced margins. We also plan to increase the corporate share in our portfolio, which will in
turn increase the need for reinsurance.
We also raised our offloading ratio target from above 50% in 2018 to above 70% in 2019, as the trend towards digitization is
more positive than expected. Moreover, the digital renewal process also enhanced our capabilities to increase digitalization
at a faster pace.
1 Without mandatory border MTPL. Market share with mandatory border MTPL stood at 20.0%, up by 0.9 pp YoY. 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
Number of sales conducted in digital sales divided by total number of retail voluntary sales
Based on the internal survey
2
3
38
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
DIVISIONAL OVERVIEW CONTINUED
TBC Leasing is a wholly owned subsidiary of TBC Bank
and is the leading leasing company in Georgia, with 68.0%
market share1 as of 31 December 2019. It was founded
in 2003 by TBC Bank and, since then, it has considerably
strengthened its position on Georgian market, serving
around 4,000 customers with a total leasing portfolio of
GEL 258.3 million as of 31 December 2019.
TBC Leasing serves both individuals and legal entities and
provides comprehensive leasing solutions and advisory
services, including financial leasing, operating leasing,
sales and leasebacks tailored to customers’ needs. Legal
entities account for around 84.6% 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 43.8% and
56.2% 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.
The company actively cooperates with two governmental
projects, “Produce in Georgia” and “Agriculture Projects
Management Agency” (APMA), which aim to support the
development of manufacturing, service and agriculture
industries by subsidizing companies’ interest expenses.
During 2019, we issued GEL 34 million leases within these
programs and our portfolio grew by 80.8% YoY to GEL 53
million. 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, TBC Leasing actively cooperates with the
largest vendors of Georgia to facilitate sales and financing
of new vehicles and equipment used in transportation,
construction and manufacturing. During 2019, together
with Tegeta Motors, its long-run strategic partner and a
leader in the automotive products and services industry,
TBC Leasing ran active joint campaigns for the promotion
of sales of new vehicles and equipment.
Furthermore, TBC Leasing is actively engaged in financing
green and energy efficient assets. During 2019, in
cooperation with SOCAR Georgia Petroleum and SCANIA
Georgia, the company provided financing in the amount of
GEL 4.5 million for fuel transporting heavy vehicles, which
are manufactured by SCANIA in accordance with the Euro
6 emission standard and therefore are ecofriendly and
energy efficient. In addition, in 2019, TBC Leasing obtained
a multicurrency credit facility in amount of GEL 30 million
from FMO with 30.0% of the amount to be utilized in energy
efficient projects.
Our focus for 2020 remains to further grow the leasing
business in Georgia, as well as to develop supplementary
services for our clients “to make their lives easier” in line
with the group’s mission.
TBC PAY
TBC Pay is one of Georgia’s leading payment companies.
It was founded in 2008 by TBC Bank and is a wholly owned
subsidiary of the bank. 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 an 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 web-platform
(www.tbcpay.ge), which has the same functionality as self-
service terminals.
TBC Pay also offers cash management services to
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.
In 2019, the company significantly expanded its operations
in the payment business as well as cash management.
The number of transactions in self-service terminals
increased by 7.9% YoY to 46.7 million, while the volume of
these transactions went up 37.3% YoY to reach GEL 3,194.7
million accounting for around 88% of total number and
volume of transactions. This was driven by the increase
in number of self-service terminals, as well as by careful
analysis of suitable locations for the installation of these
terminals. Currently, TBC Pay has 3,671 self-service
terminals in operation compared to 3,281 a year ago.
Over the same period, the volume of cash management
transactions amounted to GEL 990.4 million in 2019,
up by around 114% year on-year, while the number of
such terminals increased from to 454 from 131 a year
ago. Among our large clients are the leading petroleum
companies, pharmacy retailers and food producers in
Georgia. As a result, in 2019, our net revenue reached GEL
35.1 million, up by 14% year-on-year, while our EBITDA
amounted to GEL 18.3 million, up by 14.0% year-on-year.
40
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
We continue to enhance our digital offerings and in 2019,
we enriched our web-platform with new features and
functionalities making bill payments easier and faster.
We also introduced an e-wallet enabling TBC Pay clients
to conduct their electronic transactions without the use
of credit cards. The customer just needs to top-up the
e-wallet balance periodically. Furthermore, we launched
the TBC Pay mobile app for both iOS and Android users,
which is the first mobile payments application, allowing
clients to use its services without any additional mobile
internet charge.
Our main priorities for 2020 remain fine-tuning our digital
offerings, with a special focus on mobile application, as
well as enhancing customer satisfaction in order to provide
the most comfortable and effective payment services to
the Georgian population and businesses.
TBC Capital is TBC Bank’s wholly owned investment
banking subsidiary and is 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, debt and equity capital
markets, brokerage services and investment 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 the domestic capital
market into international markets.
The launch of the Government’s pension fund at the
beginning of the year was an important step forward
in supporting the development of capital markets in
Georgia. The pension fund’s active involvement in capital
markets should especially help new equity issuances,
which are still hard to come by, while bonds issuances
have significantly increased in recent years. As of 31
December of 2019, the pension fund accumulated around
GEL 506.8 million or 1.0% of GDP.
Another important achievement was popularizing the Tbilisi
Inter Bank Rate (TIBR) by placing the first corporate bond2
linked to TIBR, rather than on the National Bank of Georgia’s
(NBG) refinancing rate. This initiative further strengthens
Georgian Capital markets, as a more stable benchmark
gets established as a reference rate, more accurately
depicting current market conditions and providing a fairer
pricing option than the monetary policy rate from NBG.
Furthermore, TBC Capital actively assisted Silknet3
and JSC TBC Bank to dual-list their Eurobonds on the
Georgian Stock Exchange together with the Irish Stock
Exchange. This supports the development of the local
exchange market, as local investors with no direct reach
to international markets can invest in Eurobonds issued
by local companies (more information about Eurobonds is
given in the corporate and investment banking section on
pages 26 to 29).
In 2020, our main focus remains to support the
development of local capital markets, as well as to
enhance our brokerage and research business units. We
also see large potential in M&A transactions on the local
market. There are a number of players in several sectors
actively seeking consolidation opportunities, which we see
as a good base to start educating the market. Apart from
sector champions, we anticipate consolidation moves
to be made by medium sized companies as well, which
increases the player base substantially and gives us an
opportunity to capture the rising market.
More information about TBC Capital can be found in the
corporate and investment banking section on pages 26 to 29.
1 Based on internal estimates
2 This bond was issued by JSC Nikora, a leading meat products
producer and retailer in Georgia
3 Silknet is a leading telecommunication service provider in Georgia
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
41
ECOSYSTEMS
In order to deepen our relationship with our customers and expand our range of digital touchpoints, we added a new strategic
priority in 2019: to develop customer-focused ecosystems that are closely linked to our core financial products and services.
Our ambitions are to:
` Establish new standards of customer experience;
` Facilitate digital sales and engagement;
` Create new revenue streams; and
` Collect valuable customer data.
In this regard, we have already launched payments, housing and e-commerce ecosystems and are also actively developing
an auto ecosystems.
PAYMENTS
1 .
O
T
U
A
.
4
S
T
R
A
P
Y
M
-
O
T
U
A
Y
M
A
L
S
S
•
e
F
L
T
S E
K T - P AYME - POS &
S E R V ICE TERMIN
-
• I B & M B • D igital Wallet • P
l f S e r vice Terminal
R P a y ment • AT
- C o mmerce
sing
• E
nce
ra
u
s
n
I
•
n
a
o
e
c
n
a
n
e
• S
• Q
t
n
O
M
•
i
D
a
e
L
•
t
r
o
p
p
u
S
CUSTOMER
r
s
L
a
M
o
a
t
•
h
u
c
A
r
u
•
P
•
e r
e
p
s
• Home d e v e l
o
• Online Pu r c h a
o lic y
• Installement • R e f u n d P
E
VENDOO - M Y M A R K
MYSHOP - S W O O P
T
•
P
u
r
L
2
M
c
I
.
e
o
h
a
s
i
g
r
t
g
s
r
n
&
R
e
m
o
d
el
a
g
e
I
&
R
e
n
n
t
s
in
u
g S
r
a
n
u
ce
pport
V
O
-
M
Y
H
O
M
E
H
O
U
S
I
N
G
3. E-COMME R C E
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
43
DIVISIONAL OVERVIEW CONTINUED
PAYMENTS ECOSYSTEMS
As our customers conduct a broad range of payment transactions daily, we aspire to provide frictionless payment solutions
for all their existing and anticipated needs. For this purpose, we have created a dedicated payments ecosystem with a holistic
view of all payment solutions. Our payments ecosystem comprises traditional payment channels such as POS terminals,
e-commerce and self-service terminals, as well innovative payment methods. We are number 1 in e-commerce and POS
terminal transactions volume, with a market share of above 53%1 by the end of 2019. We are also among the world’s best
in terms of the number of contactless payments, which stood around 86%2 of total card payments as of 31 December 2019.
Our aspiration is to become a regional payments provider, with annual growth rate in payments commission income of 20%
and also to reduce cash payments in Georgia. This year we launched several innovative payment solutions including Apple
Pay, TPay, which is the first QR Payment and online checkout system in the region3, ATM QR withdrawals and TBC Bracelets:
` In September 2019, we were among the first movers to launch Apple Pay, enabling our customers to conduct payments
through Apple devices not only in Georgia, but also internationally. Apple Pay is easy to set up and users will continue to
receive all the rewards and benefits offered through our credit and debit cards. Furthermore, we have a mobile wallet
application for Android that allows customers to pay directly using near-field communication (NFC) technology.
` TPay was launched in July 2019 and it gives opportunity to our micro clients to offer cashless payments to its customers in
a convenient and cost-efficient way at the counter. TPay has a dedicated application with simple interface, which enables
users to add any bank card. Moreover, TBC customers can conduct QR payments through their mobile bank application.
In addition, while shopping online, customers no longer need to enter card details. Instead, they can check out with
their TBC online banking account or just scan a QR code displayed on the checkout page with their TBC mobile banking
application or TPay application. The new checkout process is twice as fast as the standard one and is also more secure.
` By the end of the year, we also launched ATM withdrawals using QR codes and Apple Pay, enabling our customers to
conduct cardless money withdrawals through their mobile banking application and Apple devices, respectively.
` In December 2019, we launched a new payments solution, TBC Bracelet, which can be added to any TBC debit account
and allows our customers to make payments without cards or eWallets. The bracelet has an appealing visual, is eco-
friendly and water, freeze and heat resistant.
In addition, to enhance our value proposition beyond banking and offer an improved customer experience in lifestyle offerings,
we increased our share in our associated company TKT.ge to 55% from 26% in May 2019. TKT.ge is a leading online platform
in Georgia that allows people to buy tickets for various events such as the cinema, the theatre or concerts as well as airplane
and train tickets.
Our payments ecosystem also includes our Uzbek subsidiary, Payme, which is a leading payments platform in the country
with around 1.8 million users. More information about this business is given on page 17.
We achieved outstanding results in our payments ecosystem over the course of 2019. The number of payments transactions4
went up by 36.9% YoY and reached 236.4 million, while the volume of payment transactions amounted to GEL 11.8 bln, up by
34.1% YoY.
1 Source: NBG
2 Data from Business Insider Intelligence was used for comparison purposes
3 The region in this context comprises Armenia, Azerbaijan and Georgia
4
Includes both retail & business payments
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
45
DIVISIONAL OVERVIEW CONTINUED
HOUSING ECOSYSTEM
LIVO.GE
In January 2019, we acquired a 90% share of the real estate platform Allproperty.ge, a local real estate listing company,
for US$ 225,000. We used this platform to launch Livo.ge, the first housing digital ecosystem in Georgia, which will bring
together various real estate services into one, smooth holistic digital platform that creates value for all stakeholders.
Launched in May 2019, Livo.ge has an asset light business model. It is an open platform that partners with third party
providers for provision of various services. Our main focus is to generate effective leads for our customers based on accurate
analysis of user data.
Livo.ge boasts an enhanced user interface and offers a wide range of traditional and innovative services:
` Traditional services: personal profiles, advertisements and 3D tours & photographers.
` Innovative services: mortgage loans, insurance, lead generation, the first real-estate valuation service in Georgia within
24 hours, premier agent service for brokers and information about air pollution.
We have ambitious plans to introduce new cutting-edges solutions in the coming years including Live auction and Livo
artificial intelligence tools, which will empower our customers to make the most optimal decisions.
TBC Bank invested around US$ 755,000 in the development of the company in 2019 and plans to invest an additional US$
700,000 in 2020.
Our housing ecosystem gained popularity quickly and attracted 274,000 unique visitors by December 2019, while the number
of listings amounted to 24,000. As a result, Livo.ge’s estimated total digital traffic reached around 20% in housing market in
Georgia, based on the number of visitors. In terms of financial results, Livo.ge’s revenue stood at GEL 2.5 million for the full
year 2019 (out of which GEL 2.2 million was TBC’s contribution from real estate valuation)and the company plans to break
even in the third quarter 2020. In terms of operational targets, our main priority for 2020 will be increasing the number of
unique visitors and the number of listings.
MYHOME.GE
In August 2019, for a consideration of GEL 19.45 million, TBC Bank acquired a 65% stake in LLC My.ge, the leading classified
e-commerce player in Georgia, trading under the My.ge Group (“My Group”) name. My Group operates in three online
marketplace verticals: automotive & automotive spare parts, consumer-to-consumer goods and housing.
Myhome.ge, the housing digital platform, is a leading classified digital platform in Georgia for real estate purchase and
renting with an estimated total digital traffic of 35% in housing market in Georgia, based on the number of visitors. In
December 2019, the number of unique visitors reached 360,000, while the number of listings stood at 140,000. In the current
year, the company generated revenues of GEL 1.4 million, while its EBITDA amounted to GEL 0.4 million. Our strategy for
2020 is to diversify service offerings and increase the company’s revenue streams. In addition, we plan to launch new market-
disrupting sub-platforms by leveraging the existing consumer base and digital traffic.
46
46
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
48
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
E-COMMERCE ECOSYSTEMS
VENDOO.GE
In August 2018, we acquired Swoop, a well-known Georgian online discount and sales company, for a consideration of
US$ 70,000, as the first step in developing an e-commerce market place in Georgia, through our innovative digital trading
platform, Vendoo.
We are developing Vendoo into an asset light platform that will be the key intermediary between buyers and sellers, modelled
on industry peers such as Alibaba and Rakuten.
The platform, www.vendoo.ge, was launched in May 2019 and allows customers to purchase various products online, access
consumer finance and benefit from prompt delivery and a flexible refund policy. Local businesses will benefit from Vendoo’s
large customer base and online marketing possibilities.
Vendoo is growing fast: by the end of 2019, it already had a diverse product offering comprised of electronics, personal care
products, gardening & housing, toys, household chemicals, books & stationery and beverages. As of 31 December 2019, the
company partnered with over 230 merchants and had around 27,000 stock keeping units (SKUs), while the number of unique
visitors reached 337,000 in December 2019 and gross merchandise volume (GMV) amounted to GEL 2.9 million for the full
year 2019. As a result, Vendoo’s estimated total digital traffic reached around 24% in comparable e-commerce in Georgia,
based on the number of visitors. Our major priority for 2020 will be increasing the number of SKUs and the number of unique
visitors as well as growing GMV. The introduction of the new merchant portal will also enable faster onboarding of SMEs on
the platform, enabling them to scale up sales across the country.
The e-commerce business has significant potential given that the e-commerce market in Georgia is underpenetrated and
there are no big players on the market. In addition, a lot of Georgians shop online abroad, which also creates additional
growth potential for the local market. The total addressable market was estimated to be around GEL 200 million1 in 2019, and
we expect it to grow by around 30% in 2020.
In addition to the initial investment of US$ 70,000 in 2018, TBC Bank invested around US$ 2.5 million in the development of
the company in 2018-2019.
MYMARKET.GE & MYSHOP.GE2
Mymarket and Myshop are the number one classified players in C2C and B2C e-commerce in Georgia. Myshop is an online
outlet platform offering a wide range of products, while Mymarket offers both new and secondary products as well as
various household services. Together, both business lines have an estimated total digital traffic of around 80% in comparable
e-commerce in Georgia, based on the number of visitors. In 2019, Mymarket completely renovated its platform with a more
user-friendly design and new, personalized features, significantly enhancing the shopping experience.
In December 2019, the number of unique visitors reached 900,000, while the number of sellers stood at 45,000. In 2019, the
company generated revenues of GEL 1.2 million, while its EBITDA amounted to GEL 0.3 million.
Our strategy for 2020 is to integrate delivery and on-line payments services into the platform, which will enable us to provide
end-to-end service to our customers. This will significantly enhance the user experience as it will allow us to act an escrow
agent between sellers and buyers, ensuring timely delivery and product quality checks. This, in turn, will lead to an increase
in on-platform transaction volume and is also expected to increase the overall market size, due to expanding cross-country
delivery capabilities. Furthermore, we plan to add consumer lending capabilities to the platform, which will also support the
growth of gross merchandise volume.
1 Based on internal estimates
2 The platforms of My Group
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
49
49
DIVISIONAL OVERVIEW CONTINUED
AUTOMOTIVE ECOSYSTEM
MYAUTO.GE & MYPARTS.GE1
My Group’s platforms, Myauto and Myparts, are the leading players in the automotive and spare parts markets in Georgia,
with an estimated total digital traffic of 80% in each comparable sector in Georgia.
These platforms offer the purchase and renting of second-hand cars as well as a wide assortment of auto parts. In December
2019, the number of unique visitors to these platforms reached 1,550,000, while the number of listings stood at 400,000. In
2019, the company generated revenues of GEL 2.5 million, while its EBITDA amounted to GEL 0.9 million.
Our strategy for 2020 is to integrate auction, leasing and escrow services into the platform. Moreover, as a part of our revenue
stream diversification strategy, we plan to expand promotion services for new car dealerships as well as start selling leads.
Enriching the platform with various new services would help us to increase the platform’s attractiveness, which will in turn
support the growth of transaction volume. In addition, there are various opportunities for launching new market-disrupting
sub-platforms by leveraging the existing consumer base and digital traffic.
1 The platforms of My Group
50
50
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
LEADING E-COMMERCE
COMPANY IN GEORGIA
www.my.ge
STAKEHOLDER ENGAGEMENT
STAKEHOLDER ENGAGEMENT
As we aim to create value for all our stakeholders, we actively engage with
them in order to incorporate their needs and expectations into our strategy,
purpose and values.
As part of the Directors’ responsibilities to promote the success of the Company
in accordance with section 172 of the Companies Act, the Board ensures that
the Group engages with its stakeholders through many different channels to
understand their needs and concerns, build trusted relationships and make
decisions as a result of this engagement that are fair and balanced for all
stakeholders.
OUR GOALS AND ASPIRATIONS
OUR ENGAGEMENT
Generate long-term sustainable value
STAKEHOLDER
GROUPS
Our
shareholders
and fixed
income
investors
The Group has an active investor relations programme, to enable shareholders to
engage with the Company and the Board, not only on business issues but also to
raise any governance concerns that they might have.
Investor meetings
The Chief Executive Officer, the Chief Financial Officer and Director of International
Media and Investor Relations maintain very close engagement with our major
investors by:
` Communication at quarterly financial results calls;
` Participating in roadshows after every quarterly results announcement;
` Regularly attending investor conferences across numerous geographic
locations to promote the awareness and understanding of the Group’s business.
During the last year, these key executives met with approximately 200 investors in
the UK, Continental Europe, the US, Canada and the United Arab Emirates.
TBC Capital Markets Day
All of the Bank’s senior executives are involved in hosting an annual capital markets
day in London. They are also available for calls with key investors and face-to-face
meetings with investors visiting Georgia.
Investor Relations website
The Group also has a dedicated investor relations website, which contains detailed
information about the company.
AGM
All shareholders are welcomed at the AGM where all directors are available to
discuss any issues that they might raise.
The Group’s business depends on continuously improving the customer experience,
with tailored products and improving services which provide well-suited solutions
and a superior customer experience for customers. Client feedback is regularly
reviewed, and concerns are analysed in detail.
The Group ensures that its financial products are easily accessible to people living
in remote areas through the Bank’s wide-network of self-service terminals and
is also committed to support financial inclusion by developing various affordable
offerings to micro businesses along with the Georgian population who do not have
bank accounts.
To better understand our customers’ requirements and develop well-suited
solutions, we actively interact with them via various channels including:
` Communication via branches, VIP service areas, the call center and digital
channels;
` Regular customer satisfaction surveys by independent research companies;
`
Active interaction via social media.
Our
customers
Make the life of our customers easier
52
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
During 2019, the Board introduced a stakeholder impact analysis for all proposals brought to the Board and will consider an analysis
in the annual strategy plan review. These actions assist the Directors in performing their duties under section 172 of the Companies
Act 2006 and confirms to the Board that the impact of business plans on all stakeholders is being considered by management when
developing initiatives for Board approval.
Throughout the year, senior management attend the Group’s board meetings to present key development and investment projects to
the Board. All presentations made to the Board consider both the benefit to shareholders of the proposal and the impact on other
key stakeholders, including employees.
One non-executive Director has been appointed to be responsible for staff engagement. It is intended that this role will be rotated
periodically.
Our goal is to develop a strategy that is mutually beneficial to all our stakeholders and helps them achieve their aspirations. To
measure our progress in this regard, we use a set of well-balanced performance measures that comprise both financial and non-
financial metrics and are closely linked to our executives’ remuneration. The Remuneration Committee considers remuneration and
incentive plans across the whole business at each level.
The following table describes how our Directors have engaged with our key stakeholders during the year and the impact of this
engagement when making key decisions as a Board.
KEY TOPICS DISCUSSED 2019
OUR RESPONSE AND IMPACT ON BOARD DECISIONS
` Marco-economic developments in the country,
the political situation and the regional
outlook, as well as the banking sector outlook
and regulatory changes;
` New strategic objectives including the
development of ecosystems and international
expansion;
` Business performance and outlook;
`
The existence of a proper ESG system within
the Company;
` Matters related to TBC’s founders, as
described on page 106.
In our quarterly financial results presentation and report, we have substantially increased
disclosure on our ecosystems.
We have also increased the coverage of our macro-economic research, which provides regular
updates on recent macro developments in the country.
In addition, we have significantly enhanced our EMS systems, as described on pages 72-83.
With regards to the matters relating to our founders, we proactively approached key
shareholders, analysts and other market participants to clarify the situation and answer
any related questions. We also focused on better communicating our corporate governance
structure and its development over the last 10 years.
Our dividend policy aims to pay out dividends based on a pay-out ratio of 25-35% of the total
consolidated net profit each year.
Feedback from our customers reflected their
wish to see more personalised, digital and
integrated solutions that are delivered in a fast
and convenient way.
Customers living in remote areas are also
looking for financial products that are easily
accessible.
As a result of the feedback received from our customers, we are:
` Developing customer focused digital ecosystems, which provide a wide range of interrelated
`
`
services and products to customers in the most simple and seamless way possible.
Fine-tuning our internet and mobile banking applications with more intuitive and useful
features.
Actively developing our newly launched fully-digital Bank, Space for our digitally savvy
customers.
` Harnessing our big data analytics to develop ever more customized solutions for our
customers.
Further increasing our wide network of self-service terminals to remote areas.
`
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
53
STAKEHOLDER ENGAGEMENT CONTINUED
STAKEHOLDER
GROUPS
OUR GOALS AND ASPIRATIONS
OUR ENGAGEMENT
Our
colleagues
Create the best working environment
for our colleagues, in which people feel
motivated, valued and safe
In order to better understand our employees’ needs, we use different online
channels including the intranet, a Facebook group and informal meetings with
members of top management to keep our colleagues up-to-date with the Group’s
progress and strategy. Employees are also encouraged to share their views through
internal forums.
We also run an annual employee feedback survey in partnership with the leading
international universities and research firms. The results are carefully analyzed by
the Board and taken into consideration. In case a more detailed survey of employee
opinion is needed, we form focus groups to understand the particular challenges of
the department.
Tsira Kemularia is the non-executive Director who has taken responsibility for
engaging with employees across the Group, by meeting with key senior staff and at
key staff briefing events. She reports back her meetings to the Board.
Our
community
and
environment
Support the community through a wide
range of CSR activities and actively
manage our environmental and social
impact.
As the largest bank in Georgia, we feel a responsibility to our community and
strive to support areas which are key for the country and its future through a wide
range of CSR activities. We also strive to preserve Georgia’s cultural heritage and
environment by conducting business in responsible and sustainable manner.
In order to better understand the social challenges in our community, we conduct
regular surveys among the Georgian population and, based on the results, plan
respective CSR activities.
We also actively cooperate with different educational institutions to support talented
young people in their professional development.
In terms of business development, we actively engage with entrepreneurs and
business owners via our full-scale business support platform (www.tbcbusiness.ge).
54
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
KEY TOPICS DISCUSSED 2019
OUR RESPONSE AND IMPACT ON BOARD DECISIONS
The key topic raised during the year was the
need for better communication about the Group’s
strategic priorities and initiatives, because as our
Group continues to grow, employees can at times
feel less connected to the Company.
Many employees mentioned during informal
meetings with management that, with the high
pace of innovation and digitalization within the
Group, a more informal environment with less
bureaucracy and strict boundaries would be
welcomed.
In order to raise our colleagues’ awareness and understanding of the Group’s key strategic
initiatives, we have developed special introductory programs in relation to two of our important
ongoing initiatives: the company wide agile transformation and the data management
principle.
More information is given in our colleagues section on pages 60-67.
We also increased internal communication by involving the CEO to ensure employees feel as
connected as possible to the Company. Every Friday, he meets with different departments
informally and discusses the Group’s strategy and goals with them. In addition, top
management also holds regular meetings with employees regarding strategic initiatives.
This year, we started an agile transformation project within the Group. This is a huge
transformation in the bank culture, which aims to simplify processes and reduce bureaucracy
as well as boost employee commitment and creativity.
The key issues raised through our various
interactions with our community are the lack
of free educational resources for the young
generation, especially in STEM fields, limited
support for entrepreneurs and the shortage of
jobs in the economy.
In order to address the existing challenges in our community, we run several initiatives,
including partnerships with different educational institutions as well as organizing wide-scale
donation programmes, to support talented young people from vulnerable families.
We also continue to actively enrich our business support platform with more useful business
tools to support businesses to grow and prosper, which in turn will create new job openings.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
55
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 service, as well as support the development of
the business sector to foster job creation in the country.
RESPONSIBLE BANKING, DIGITAL
ENGAGEMENT AND FINANCIAL INCLUSION
We are committed to providing our customers with
responsible banking products and services that are well
suited to their needs, simple to understand and have a
straightforward fee structure. In addition, in January 2019,
The National Bank of Georgia (the NBG) introduced the
responsible lending regulation, which further supports
appropriate access to credit for customers ensuring
their long-term prosperity and growth. Furthermore, we
actively participate in NBG’s larization initiative, which
aims to reduce the FX risk associated with local currency
volatility among the Georgian population by encouraging
lending in the local currency. In 2019, we issued GEL
669 million GEL-denominated mortgages and GEL 1,096
million consumer loans, while the share of Lari loans in
the total retail portfolio increased by 4.8 pp to 47.2%1 from
December 2018, on a constant currency basis.
As we strive to make the lives of our customers easier,
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 42.0% of all
transactions. The other widely used channel is self-service
terminals, which are spread all over the country, including
areas with no easy access to physical branches, making
banking accessible for people living in remote districts. At
the end of 2019, 17.0% of all transactions were conducted
through these terminals.
Furthermore, in order to deepen the relationship with
our customers and expand our value proposition beyond
financial services, in 2019, we started the development of
customer-centric digital ecosystems. In 2019 we launched
payments, housing and e-commerce ecosystems and
are also actively developing an auto ecosystem. These
digital platforms will enable our customers to receive
a wide range of offerings needed on daily basis in the
most convenient way, as well as empowering them to
1 or 48.8% at 31.12.2018 exchange rates
56
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
do business such as renting or selling apartments, cars
and other goods. (Please refer to pages 43-51 for more
information about our ecosystems).
We are also focused on developing innovative solutions
that aim to embrace the unbanked Georgian population
and micro businesses. In this regard, this year, we have
introduced several new products in the MSME segment,
including:
` Approving mini loans using tablets, which enables
micro business owners, who are based in remote
areas, to get loans approved on the spot, without going
to branches; and
` The TPay application, a universal payment system
enabling cashless transactions in micro merchants,
mainly in rural areas, where currently only cash is
accepted.
In addition, we use our advanced data analytics capabilities
in order to develop personalized, affordable offerings to
unbanked individuals considering their spending habits
and disposable income.
CUSTOMER SATISFACTION
One of the most important values for TBC Bank, as
a service company, is customer care, well-being and
satisfaction. 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’ complaints.
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.
In order to reinforce our customer-centric culture, this
year we conducted a bank-wide survey and identified
employees who demonstrated exceptional customer care.
These employees were recognized as service leaders and
were awarded with special gifts.
As the revenue of most MSMEs is generated in Georgian
Lari, we strive to provide them with accessible financial
resources in local currency. This enables our clients to
decrease their exposure to foreign exchange risk and
ensures growth and prosperity in the long term. In 2019,
52% of all disbursements to MSMEs were denominated in
the local currency.
In addition, we attract 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 as well as foreign
trade. The total amount disbursed under these projects
amounted to around GEL 569 million as of 31 December
2019 . More information, about each facility could be found
on our website under the press release section at www.
tbcbankgroup.com.
Furthermore, we provide extensive non-financial support
to MSMEs through our business support programme and
assist business representatives with acquiring necessary
competence, finding investors and partners, developing
their activities and implementing modern technologies.
More information about this programme can be found on
pages 30-33 in the MSME section.
DOING BUSINESS RESPONSIBLY CONTINUED
CUSTOMER PRIVACY AND DATA SECURITY
We are committed to safeguarding our customers’
personal information and are constantly working 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 defence system with artificial
intelligence measures and techniques.
We are conducting external audits and threat intelligence
led cyber-attack readiness exercises on a regular basis,
which provides us with a practical view of our information
and cyber security position. It also gives us a benchmark
against international best practices and helps to define
readiness levels against real-world cyber threats. We are
using it as one of the inputs in our continuous improvement
cycle. The latest review was conducted in 2019 by Deloitte
UK, which confirmed that our critical systems ensure high
reliability against cyber threats.
We also ensure full transparency about what we do with
the personal data of our customers, employees, suppliers
and business partners, and only process it for specific
business purposes. At any time, individuals can request
to change, limit or delete the personal data that we hold
about them by contacting us via email at compliance@
tbcbank.com.ge or by post. For this purpose, we have
developed a Privacy Policy, which is in line with the
requirements of the applicable laws, including Georgian
regulation and certain relevant requirements of EU
General Data Protection Regulation (GDPR), and carefully
monitor compliance with it. The full policy can be found
on our IR website at www.tbcbankgroup.com
In order to increase awareness and help our clients to
protect their data, we send periodic warnings to them
through our 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.
SUPPORTING BUSINESSES DEVELOPMENT
TBC continues to be an important provider of financial
services to MSMEs, which is a key driver of the country’s
economic development. In 2019, we provided around
GEL 2,549 million lending to our MSME clients, up 26.0%
compared to 2018. The main sectors financed were
agriculture and trade.
58
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
DOING BUSINESS RESPONSIBLY CONTINUED
Engaged and happy colleagues are key to our successful and
sustainable development. By fostering a collaborative and
supportive working environment, we strive to create an agile
culture, in which each employee is empowered to take more
responsibilities and develop his/her full potential.
OUR COLLEAGUES
AGILE TRANSFORMATION
2019 was a big organizational transformation year for TBC
as we made a big leap towards becoming an agile and
flexible organization in order to react quickly to the fast-
changing market environment and foster an innovative
mindset among our employees. The agile reorganization
process was successfully implemented in the retail, MSME
and IT departments. The main purpose was to eliminate
unnecessary processes and bureaucracies and build a
more dynamic, adaptive and customer-centric culture.
The new structure stimulates creativity and innovation by
encouraging team members to take more responsibility
and ensuring that everybody is focused on achieving
a shared goal. We started the reorganization process
by announcing job vacancies internally and allowing
our employees to apply for the positions they desire. As
a result, 30% of those employees who participated in
agile transformation process applied and were hired for
different positions, giving them opportunity to develop in a
new field that is of more interest to them.
An agile structure allows us to create an exceptional
working environment for our employees and give them
more autonomy and room for creativity. For this purpose,
we announced Friday as a “working outside the office
day” to allow our employees to work in a more relaxed
and comfortable atmosphere. Also, in an agile culture,
mistakes are welcomed and are treated as part of the
learning curve.
As feedback and coaching is an essential part of agile
transformation, we conducted an intensive agile training
for our employees in order to help them adapt to the
new environment. In addition, we introduced 360-degree
feedback, which provides each employee with the
opportunity to receive balanced feedback from all parties
and improve their professional performance and growth.
The first results of the agile transformation project are
rather impressive. FTE productivity has increased by
10.0% in December 2019 compared to previous year, our
organizational agility score1 has improved by 4.3% and
employee happiness2 increased by 16.0% over the same
period.
We plan to roll-out agile transformation across other
departments during 2020.
ATTRACTING NEW TALENT
As people are our most valuable asset, we strive to attract
the best talent by building and constantly updating the
database of potential candidates. The selection process is
comprised of several steps and is tailored to the specific
needs of each position. Selected candidates are offered
attractive employment conditions, which include a fixed
salary and a performance based bonus a well as a good
benefits package.
Since 2011, we have also run a wide-scale internship
programme for the best students from Georgia’s leading
universities to give them an opportunity to gain experience
and expand their knowledge. This programme has been
very successful, helping us to identify new talents who
are part of our team today. This year, 80 students were
selected for an internship and 47 were employed in
various departments including finance, risks, corporate,
marketing, IT and data analytics. The biggest demand was
for IT and data analytics specialists, given our strategic
focus on digitalization and data analytics.
In 2019, TBC established IT Academy, the learning center
for students with technical backgrounds, which offers
extensive Front-end and Back-end bootcamp courses
and aims to train the young generation in professions
that are in high demand in today’s highly digitalized era.
Bootcamp courses are conducted by foreign trainers who
have worked with Microsoft, Oracle, SAP and other global
technology companies. This programme is free of charge
for students and is fully funded by TBC Bank. Out of the
1,500 applications we received for this course, 117 students
were selected for the course and 25 were employed at
TBC Bank. To promote informational technologies among
young people, we also organize meetups and hackathons
for them.
This year we also introduced TBC Camp, a special learning
programme for university students of finance, which
aims to increase students’ professional knowledge and
awareness. Within this programme, this year we held
a Stock Pitch Competition (SPC) for fourth year finance
students in leading universities in Georgia. The project
1 Based on internal survey, which measures the company’s ability to
respond to the fast changing environment
2 Based on the internal survey
60
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
helps us to identify bright talents and recruit them into
the corporate investment banking department. SPC is a
unique project, which is integrated in the syllabus of the
university curriculum. It is comprised of intensive on-
site training and preparation of real investment cases in
selected companies, which are presented to a panel of
judges. As a result, students gain comprehensive practical
experience in company valuation techniques as well as
improve their presentation skills. In the future, we plan to
continue holding many other projects within TBC Camp.
LEARNING AND DEVELOPMENT
Supporting the learning and development of our employees
was identified as one of our key priorities this year. For
this purpose, we developed several in-house educational
programs to help our employees gain new skills and
perspectives that are closely aligned to our strategic
objectives and are needed for successful performance
of their duties in today’s fast changing technological
era. The courses are conducted by experienced middle
and top management staff members as well as leading
professionals from the respective fields and are offered
free of charge.
` Business School – offers a tailored course for
corporate, finance and risk professionals which
comprises both hard skills such as financial and
risk modelling and soft skills including effective
communication and presentation skills.
` Agile academy – offers a general course in agile and
scrum methodology and aims to explain the benefits of
an agile organizational structure with illustrative best
practice examples.
` Avalanche academy – aims to increase general
awareness within the company about the importance
of big data analytics by presenting implemented case
studies. It also offers advanced training in data science
and engineering for newly recruited individuals to
work in the data analytics department.
In addition, we continue to run TBC Academy, an in-
house educational platform that was established back
in 2011 and offers workshops and trainings in various
fields such as financial institutions, capital markets,
ethics and financial fraud management, as well as soft
skills including leadership, customer service, business
communication, team building and others. In total, during
2019, more than 4,300 employees attended various in-
house trainings mentioned above.
Moreover, we provide financial support for our employees
to attend various external courses and gain international
certifications such as CFA, FRM, ACCA, as well as attend
various professional trainings in leadership, management,
sales, customer service, finance and risks. During 2019,
more than 1,500 employees received financial support
for their professional development. In addition, around
80 mid-level managers received trainings in soft skills
such as leadership, people management and effective
communication during the course of the year.
Since 2012, we have also offered TBC Scholarships to
our middle managers to co-finance their studies abroad
at the world’s leading universities as well as at top
Georgian Universities. In 2019, 10 managers received this
scholarship.
To boost employee interest and motivation regarding
self-development, we have also organized various
masterclasses since 2017 for our colleagues all over the
country, where leading Georgian professionals are invited
to share their experience and knowledge. Since the launch,
7,800 employees have attended these events.
This year, another important initiative was to conduct
an
intensive, custom-designed strategic session for
the top management and selected members of middle
management at Stanford University Graduate School of
Business. The program was specifically designed around
TBC’s long-term priorities with a focus on ecosystems,
agile transformation and managing people and aimed
to help TBC’s management to view the business from a
variety of perspectives and generate new ideas.
internal championships
EMPLOYEE MOTIVATION AND ENGAGEMENT
We maintain our focus on increasing our employees’
motivation by organizing various social activities for them,
including internal clubs, championships and retreats.
TBC club unites employees based on their interests and
hobbies. As of December 2019, we have 10 such clubs,
which bring together more than 2,000 employees. We
organize
in different fields,
including the intellectual game “What? Where? When?”
and various sports events. Since 2014, our employees have
also participated in the Wings for Life World Run, a running
competition that raises funds for research to cure spinal
cord injuries. We also offer a vast range of non-monetary
awards to our employees, including tickets for different
events and special discounts. TBC provides branded
back-to-school gift packages to the young children of our
employees. We have a dedicated online brand shop for
our colleagues, where various accessories and clothes
are available. This year we also held a massive campaign
across the bank related to the rugby world cup, in which
the Georgian rugby team participated. We distributed
rugby t-shirts and held online broadcast of rugby matches
for our employees.
Since our employees’ health is of the utmost importance
to us, we have run TBC Fund since 2009. TBC Fund is a
charity fund that was established to cover the medical
expenses of our employees and their close relatives in
case of severe diseases. 81% of our employees regularly
donate up to 2% of their salaries and the fund has already
helped more than 1,500 people since it was established.
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 presented
to the management board, thoroughly discussed and
relevant actions planned.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
61
STARTUP-LEAVE
As we aim to promote an innovative mindset throughout the company, this year we launched an unparalleled project in
Georgia, Startup-leave. This initiative gives an opportunity to our employees to start their own startup by taking six months
paid leave to develop their business. In June 2019, TBC Bank organized its first Startup leave challenge for its employees.
Applicants were asked to present original business ideas that would support the development of the Georgian market. 24
teams participated in this competition and presented their ideas to the independent jury. In September 2019, three projects
were selected:
` Inventors.ge – is an online platform that receives orders from people to buy new and used auto parts and delivers them
to their home address
` Ge Parts – aspires to create an online platform that will offer auto parts for sale from many small retailers
` Soko – aims to create an online platform for organizing different events.
62
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
SOKO
The founder of “Soko” is Tornike Kachkachishvili, a digital services
expert at the business mobile bank department. The idea is to create a
platform that will help people to organize different events in a simple and
comfortable way by connecting them with relevant service providers. The
platform will be open to all interested parties and will provide information
about the details and availability of different services as well as allow
customer to rate the service providers, thus helping future customers to
make more informed decisions.
“I am very thankful to TBC Bank for providing me with this unique
opportunity. It has been my dream for a long time to try myself as an
entrepreneur and now I have time to fulfil my aspiration.” commented
Tornike Kachkachishvili, a winner.
We operate a deferred share bonus scheme for our
middle managers whereby 15%-25% of the total annual
remuneration is paid in the form TBC PLC shares which are
subject to a three year continued employment condition
and holding period: 33% and 33% are awarded on the first
and second anniversaries respectively, and the remaining
34% on the third anniversary. This scheme encourages a
long-term commitment to the company and helps to align
middle managers’ interests with those of the shareholders.
In 2020, 100,931 shares were awarded as bonus shares
to middle managers. In addition, this year we introduced
deferred share bonus scheme for our employees who
are part of the agile structure, whereby 10% of the total
annual remuneration is paid in the form TBC PLC shares
which are subject to three year continued employment
condition and holding period as mentioned above. In 2020,
42,709 shares were awarded as bonus shares to such
employees. (Detailed information regarding the directors’
remuneration system can be found in the remuneration
report on pages 151 to 179.)
EQUALITY AND DIVERSITY
We have created a sustainable and successful business in
which all employees are treated equally and fairly and are
supported and coached to succeed. We provide a safe work
environment free from any kind of discrimination and
each and every employee is valued, respected and treated
equally regardless of gender, age, marital status, sexual
orientation, race, ethnicity, religious and political beliefs
or disability. We take special care of our colleagues with
disabilities and strive to improve our workplace to make
it more flexible for them. Furthermore, we support them
to have the same access to learning, development and job
opportunities.
We remain committed to having a gender-balanced
workforce through a workplace environment and culture
that supports and empowers women. As a result, 65%
of employees at TBC Bank are women while the share of
women in senior roles is 35%. We plan to further improve
the gender balance across managerial positions.
DOING BUSINESS RESPONSIBLY CONTINUED
PERFORMANCE ASSESSMENT
AND REWARD
Our performance appraisal system is closely linked with
the 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 role in the company and are actively engaged in
setting their personal goals. Employees are also given
appropriate coaching by their supervisors to help them
achieve these goals. Regular employee feedback 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 achievement of goals. We have a uniform
scoring system for all employees within the MBO, which
ensures fairness throughout the organisation.
For our middle managers, as well as employees who
are part of the agile structure, we also run a 360-degree
feedback system 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.
For front-office employees we use a target-based
performance assessment system, wherein 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.
As mentioned above, we offer competitive remuneration
packages to our employees, which are comprised of
fixed salary, performance based bonuses and a benefits
package, which includes medical insurance, pension
contributions, paid annual and sick leave, as well as
six months of fully paid maternity and paternity leave.
Additional benefits include monetary gifts in case of
marriage and childbirth and compensation in the case
of serious illness or death. Since 2013, we have also run
a special club for large families, which aims to provide a
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. Since the
establishment of the club, we have granted more than GEL
1 million to 56 employees.
64
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
Gender diversity statistics
BOARD OF DIRECTORS
SENIOR MANAGEMENT
9
0
7
6
2
2
Female
Male
Female
Male
7
7
6
1
1
1
2017
2018
2019
2017
2018
2019
MIDDLE MANAGEMENT*
ALL EMPLOYEES
200
200
105
120
268
146
4,745
4,827
4,992
Female
Male
Female
Male
2,339
2,425
2,662
2017
2018
2019
2017
2018
2019
We also have a good mix of people comprised of employees with extensive working experience and young and bright talents
with innovative and fresh ideas who have just graduated from top universities in Georgia and abroad. We believe that age
diversity creates a more dynamic and high-performing team that leads to better results.
AGE DIVERSITY STATISTICS OF 2019
3%
9%
54%
under 29 years
30-39 years
40-49 years
over 50
34%
* Direct reports to senior management
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
65
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.
As shown in the table 1 below, the average gender pay
and bonus gaps are in favour of men. This is mainly due
to the higher number of women being employed in junior
roles, including customer service positions at front office,
which is related to our business model (as shown in the
gender distribution chart below). However, the gap is
positive for middle management positions, whereby we
employ relatively lower proportion of women at higher pay
quartiles based on their roles (please refer to table 2).
In 2019, the change in the median gender pay and bonus
gaps of back office employees in favor of men is related
to the high number of employees being recruited at IT
positions, who are predominantly men.
We remain committed to achieving a better gender
balance and increasing the proportion of women working
in senior roles.
GENDER DISTRIBUTION ACROSS DIFFERENT POSITIONS1
71%
79%
65%
35%
29%
21%
56%
44%
Full Bank
Middle
Management
Front Office
Back Office
Female
Male
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
2019
2018
44.4%
46.5%
56.6%
57.8%
48.9%
43.0%
53.7%
52.4%
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
2019
2018
-7.3% -21.4%
-14.9% -13.4%
-40.0% -33.9%
-82.4% -104.2%
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
2019
2018
50.2%
52.5%
66.5%
71.5%
50.8%
54.4%
64.5%
65.5%
GENDER PAY AND BONUS GAP STATISTICS2
Gender pay gap is based on the data from April 1, 2019 to
April 30, 2019.
Gender bonus gap is based on the data from April 6, 2018
to April 5, 2019.
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
2019
2018
29.6%
21.8%
-7.7%
19.7%
30.5%
20.2%
20.5% -11.3%
66
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
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
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. This year we received 41 whistleblowing
reports, which were reported to the Risk Committee,
which in turn reported to the Board.
The Compliance Department regularly conducts employee
training sessions in order to raise awareness and highlight
importance of anti-corruption, anti-bribery and
the
ethical 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 2019.
We are constantly improving the working conditions for
our employees and strive to create a safe and comfortable
environment. In October 2019, TBC Bank hired an
independent consulting company specialized in labour
safety issues. The company will help us to significantly
enhance our health and safety policy across the group
and implement the necessary measures to improve
working conditions. We also started conducting trainings
for employees to raise their awareness about health and
safety issues.
ETHICAL STANDARDS, RESPONSIBLE
CONDUCT AND SAFETY AT WORK
TBC Bank is committed to running a business that
promotes high ethical standards, values and respect
toward human rights, as well as by encouraging our
employees to act with integrity and responsibility towards
each other and other stakeholders.
In 2019, we updated 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 the ethical
principles and standards of professional conduct expected
from all employees of the Group and set appropriate
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 the spirit and intent
of all applicable laws and regulations. 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, straightforward and easy to
understand. We also make sure that clients do not face
unreasonable post-sale barriers to change products,
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, colour, 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.
Compliance with the Group’s Code of Ethics and Code
of Conduct is closely monitored by the HR Department
and Compliance Department on a 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 2019.
1 The data in the given table is presented for the bank only
2 The data on gender pay gap is presented only for the bank, which
accounts for the 82.0% 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
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
67
DOING BUSINESS RESPONSIBLY CONTINUED
OUR COMMUNITY
We acknowledge our role and responsibility to Georgian society and
are actively involved in developing the following areas: the young
generation, arts & culture and sport.
YOUNG GENERATION
We remain committed to supporting young talents in their
professional development and continue launching new
projects and initiatives in this regard.
ARTS & CULTURE
TBC is one of the major supporters of culture and art
in Georgia. In this regard, we continue to promote both
cultural institutions and individual creative projects.
Since 2016, TBC Bank has been the main partner of the
Young Researchers and Innovators Competition Leonardo
da Vinci, an annual event that aims to popularize science,
technology, engineering and math (STEM) among the
young generation. This is a large-scale event which is
held among high-school students all over the country.
Participating teams are requested to present an innovative
scientific idea that is supported by comprehensive research
and experiments. This year was highly competitive as
45 students participated in the competition. The winning
team received a one-year scholarship from TBC Status,
our affluent retail segment, to implement their project.
In 2018, in partnership with the Millennium Innovation
Award, TBC held a nationwide challenge that aimed
to promote innovations in STEM fields among youth
throughout Georgia. In 2019, TBC provided financial
support to send the winning team to the Space Center
University at the NASA Space Center in Houston, USA.
TBC Bank is also supporting children’s festivals that unite
diverse educational and entertainment activities. This
year, we partnered with Tbilisi International Book Festival,
which exhibits and sells a large variety of Georgian and
international literature. This book fair is a large-scale
event and is visited by many people from large cities as
well as Georgian regions.
In addition, since 2017, we have run an online charity
platform, www.statusdonates.ge, that strives to support
young talents and promote success. The platform features
different stories of people in need or specific projects.
Short movies are made on each story and uploaded to the
platform. Since the launch, the programme has financed
45 projects in the amount of GEL 170,000 and has improved
the lives of over 90 people.
At the end of 2018, we also introduced a new project
called “TBC scholarship”, which aims to support young,
talented people from vulnerable families, in different fields
including sport, science and arts. Since the launch, more
than 200 Georgian young, talented people have received
annual scholarships in order to develop their knowledge
and skills and become successful professionals.
Our stellar project this year was the celebration of David
Kakabadze’s 130th anniversary in partnership with the
David Kakabadze Foundation. David Kakabadze was a
prominent Georgian painter, scientist, inventor and one
of the founders of Georgian modernism. The anniversary
was celebrated with a multi-stage project:
` Gallery that united paintings, notes and sketches from
state arts institutions as well as from the artist’s family
and private collections;
` TBC Art Gallery hosted a multimedia project called
GAMMA. As part of the project, three young Georgian
artists created audiovisual spatial
installations
in digital media based on inspirations from David
Kakabadze’s concepts;
` We published the anniversary edition of the David
Kakabadze catalogue, which fully reflects the range
and scale of the artist’s research and methods;
` TBC Bank supported the establishment of David
Kakabadze’s archive, which comprises the artist’s
paintings and historical documents;
` We supported digitalization of the artist’s works in
different museums and theaters all over the country in
order to facilitate open and modern access to Georgian
heritage;
` This year, we also launched BAZA, an interdisciplinary
educational platform that tends to promote knowledge
sharing in the fields of contemporary art, science
and research. BAZA connects young artists and
professionals, as well as people interested in science,
art and culture. The first symposium was dedicated to
David Kakabadze’s 130th anniversary.
In 2019, TBC became a partner of the National Museum
of Georgia and will support the opening of a new modern
museum in Vani, which is an ancient town in Georgia. The
new museum will present various artefacts that were
found at antique archeological sites.
Another
important event was organizing a photo
exhibition of Guram Tsibakhashvili, the famous Georgian
photographer. The exhibition depicted Georgian history
of the 1990s and aimed to raise public awareness of this
post-soviet period.
68
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
In terms of our long-term projects, we continue to support Georgian literature and the Georgian alphabet:
` Saba is the leading literary award in Georgia, which we established back in 2003. Since its inception, Saba has awarded
more than 160 prizes in different categories for a total amount of over GEL 750,000. We also run www.saba.com.ge, the
largest online platform for Georgian electronic and audio books. This website provides access to 6,000 electronic books
and has attracted c. 190,000 readers, both in Georgia and abroad. This year Saba held its seventeenth awards ceremony;
` To popularize the Georgian language and to integrate the Georgian alphabet into the digital world, in 2016 we launched
#WriteinGeorgian. As part of this project, we collaborated with Microsoft in 2017 to create www.kartulad.ge, the first
Georgian-language platform that 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. In 2019, under this project, we held the second competition in
Georgian fonts, which aims to popularize and develop the Georgian alphabet. As many as 200 works by Georgian
calligraphers participated in the competition, out of which the 16 best fonts were selected to be digitalized and will
become available to public.
SPORT
TBC has been the general sponsor of Georgian Rugby Union since 2015. As the country’s national game, rugby is close to the
heart of Georgians and promotes Georgia’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. Within our partnership with Georgian Rugby
Union, we strive to raise public awareness of rugby and conduct various campaigns including issuing special rugby cards for
our customers and sponsoring the “Win a Trip to Japan” campaign. We also support young talents in rugby and in 2019, for
the first time, we organized a rugby camp for 27 young rugby players with outstanding skills.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
69
DAVID KAKABADZE
David Kakabadze’s Project
was awarded the Cross-Sector
Partnership Award from Meliora,
Georgia’s Responsible Business
Awards 2019
70
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
DOING BUSINESS RESPONSIBLY CONTINUED
OUR ENVIRONMENTAL
AND SOCIAL MANAGEMENT
We are strongly committed to conducting our business in a responsible
and sustainable way and take active measures to manage the
environmental and social risks associated with our direct and indirect
activities. This approach enables us to reduce our ecological footprint
by using resources efficiently and promoting environmentally friendly
measures to mitigate climate change.
Our Environmental Policy governs our Environmental
Management System (EMS) within the group and
ensures that we comply with applicable environmental,
health and safety and labour regulations and use sound
environmental, health and safety, and labour practices,
as well as take reasonable steps to make sure that our
customers also fulfill their environmental and social
responsibilities. Our Environmental Policy
fully
compliant with Georgian environmental legislation and
follows international best practices (the full policy is
available at www.tbcbankgroup.com).
is
The Environmental Policy:
` Defines the environmental aspects and impacts of our
business activity;
` Elaborates and develops measures to minimize our
negative impact on the environment;
` Takes
and
efficiency
management into account;
responsible
resource
` Ensures our compliance with
the applicable
environmental, health, safety and labour regulations;
` Raises awareness among our staff;
` Prevents the Bank from financing businesses that
have a negative effect on the environment and society;
` Promotes sustainability finance among our clients
TBC Bank has a dedicated Environmental and Social
Risk Management (ESRM) team, which is comprised of
full-time employees. Our ESRM team is responsible for
overseeing the implementation and operation of our EMS
and for reporting environmental management plans and
results to the Environmental Committee on a quarterly
basis. Our ESRM team is part of SME and Corporate
Business Credit Risk Department, which reports directly
to the Chief Risk Officer.
Our EMS is based on four directions/pillars:
` Internal environmental measures;
` Environmental and social risk management in lending;
` Sustainable finance;
` External communication.
Pillar I - Internal Environmental Measures:
Since banking
is not a high-polluting activity, the
implementation of an internal environmental management
system to address the Group’s resource consumption is not
expected to have a significant impact on the surrounding
environment. However, TBC Bank has reviewed all of the
operational activities, procured items, and outsourced
services that it can control (present and planned), and
has identified all of the material environmental aspects
relevant to the business. These are sub-categorised into
indirect and direct environmental aspects, analyzed based
on a comprehensive scorecard, and managed accordingly.
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 its
consumption of energy, water and paper. A guideline for
the documentation of environmental data was elaborated
and responsible staff members were assigned for data
collection, including defined frequency and indicators.
TBC Bank also commissioned an independent Health,
Safety, Environment (HSE) consulting company, G&L
Management LTD, to verify the measurements of its GHG
emissions.
72
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
Total CO2 Emissions (tonnes)
KPIs
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)
Water consumption per employee (m3/pp)
Printing paper per person in reams
2017
2,409
2018
2019
2,584
3,164
1,375
1,391
1,260
366
4,150
0.60
12.36
23.52
644
697
4,619
0.65
13.49
11.20
5,121
0.69
11.90
11.11
2020
-7%
-4%
-
-5%
-5%
-6%
-3%
*Scope 1:
a) 1,443 CO2e emissions in tonnes (from combustion of fuel (NG) from owned operation and facilities of TBC Bank) in 2019 compared to 1,483 CO2e in 2018 and
1,538 CO2e in 2017.
b) 1,631 CO2e emissions in tonnes (from owned vehicles of TBC Bank) in 2019 compared to 1,013 CO2e in 2018 and 763 CO2e in 2017.
c) 90 CO2e emissions in tonnes (from owned generators of TBC Bank) in 2019 compared to 88 CO2e in 2018 and 108 CO2e in 2017.
In 2019, total GHG emissions increased by 11% mainly due to higher consumption of fuel from TBC owned vehicles. This was
mainly related to our subsidiary, TBC Pay, which added 130 vehicles driven by increased network of self-service terminals.
Total water consumption of TBC PLC was decreased by 12%, mainly due to prevention of leakages which occurred on different
premises.
In 2020, we aim to reduce total emissions by 5% by implementing the following measures: raising staff awareness towards
electricity and gas consumption, closely monitoring central heating systems as well as increasing the share of electric
vehicles in total distance traveled. As for water consumption, we are planning to install more water pressure regulators on
selected premises, which will enable us to prevent water leakages.
Calculation methodology
For GHG inventory the 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;
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
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
73
Pillar II - Environmental and
Social Risk Management in lending
For all commercial transaction, TBC Bank endeavours
to ensure that customers demonstrate an organized
and systematic approach to environmental and social
risk management and comply with local and national
environmental, health and safety, and labour regulations
and standards.
For this purpose, TBC Bank has developed Environmental
and Social Risk Management (ESRM) Procedures to
ensure that appropriate, risk-based, sector specific,
environmental and social risk assessment is applied to
its commercial lending activities. These procedures are
fully integrated into the credit risk management process
in TBC Bank and are applied to all commercial lending.
The procedures incorporate appropriate consideration of
IFC’s Performance Standards (PSs), EBRD’s Performance
Requirements (PRs) and ADB’s Safeguard Requirements
(SRs).
These procedures include:
` transaction qualification and the risk categorization;
` identification and appropriate assessment;
` mitigation and control; and
` monitoring and reporting of environmental and social risks.
By assessing and monitoring the environmental and social
impacts as part of the credit risk analysis of business
clients, incentivizing the use of environmental best
practices in their businesses and engaging in sustainability
financing, TBC Bank strives to mitigate the negative
environmental impact of the financed businesses.
DOING BUSINESS RESPONSIBLY CONTINUED
In order to ensure full compliance with local environmental
regulation, TBC Bank conducts internally environmental
legal check on annual basis. Our environmental legal
register details the specific legal and other requirements
applicable to TBC Bank, and shows how the requirements
apply to TBC Bank’s environmental aspects. The last
updates of the environmental legal check was conducted
in September, 2019.
Additionally, the following documents were enhanced and
approved during the year:
` Green Procurement Recommendations – the document
defines the general procurement recommendations
within the company and also highlights product groups
where environmentally friendly or energy efficient
goods have to be given priority over the normal goods.
Environmental clause was added in the procurement
agreement which defines requirement of the compliance
with local health, safety and environmental standards.
As a part of the supply chain development project, the
check-list of environmental and social risk assessment
for long term suppliers was created and the evaluation
of suppliers against this checklist was conducted on a
regular basis. In 2019, several spot-checks were held
to determine appropriate corrective action plans. This
process will continue during 2020.
` Waste Management Guideline – this document
describes the categories of waste that are separated
and managed by TBC Bank, the guidelines for waste
categorization, as well as frequency and method of
collection. In 2019, as a part of the waste management
pilot project, we equipped our head-office buildings
with waste separation bins. Moreover, a memorandum
was signed with a specialized service provider to
deliver separated waste to recycling companies. The
shredded paper is then delivered to a company that
produces books that are later delivered to libraries in
the mountainous regions of Georgia. Glass/cans are
taken to re-processing plants, while plastic is shredded
for the export abroad for further recycling and the
production of granules. Currently, we are working with a
service provider to add special e-waste bins at our head
office premises. The waste management projects will
be expanded to our branches next year.
The bank also operates a green car fleet. Around 70% of the
bank’s vehicles are hybrid and electronic cars, leading to an
approximately 30% reduction in the monthly use of fuel. Within
the project’s scope, electric chargers have been installed in
14 locations in Tbilisi and the regions, which can be used by
TBC employees and clients as well as the public. In future, it is
planned to increase the number of electronic chargers.
Furthermore,
in order to raise staff awareness of
environmental issues, we conduct annual seminars and
provide regular updates on our environmental activities to
our colleagues. In 2019, all bank employees conducted the
mandatory online EMS e-learning course and successfully
completed the self-evaluation test.
74
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
Business loans
E&S RISK CATEGORIES BY LOAN VOLUME
AS OF 31 DECEMBER 2019
E&S RISK CATEGORIES BY NUMBER OF LOANS
AS OF 31 DECEMBER 2019
7%
10%
1%
16%
58%
60%
25%
Low
High
Medium
A Category
23%
Low Risk - transactions with minimal or no adverse social or environmental
impacts, which are not generally subject to further assessment (beyond
their identification as such) except for the requirement for customer’s
[assent/certification/disclosure] of compliance/non-compliance with
local and national environmental, health and safety and labour laws and
regulations.
Medium Risk – transactions with limited potential for adverse social or
environmental impacts that are few in number, generally site-specific,
largely reversible, clearly evident at the time of the assessment, and readily
addressed through mitigation measures, which typically require a limited
or focused environmental and/or social assessment, or straight-forward
application of environmental sitting, pollution standards, design criteria, or
construction standards.
High Risk – transactions with potential highly significant, negative and/or
long-term environmental and/or social impacts, the magnitude of which
may be difficult to determine at the loan application stage, which typically
require analysis of environmental and social risks and impacts in the
context of the total area of influence of the customer’s operations. As part
of the risk assessment, the client will identify individuals and groups that
may be differentially or disproportionately affected by its operations.
Category A - with potential significant adverse social(2) or environmental
impacts which may be diverse, irreversible or unprecedented. The
assessment of which usually requires the inputs of independent external
experts, and may require the involvement of IFI E&S specialists in the due
diligence assessment process.
To successfully implement ESRM procedures, TBC Bank
conducts regular training of relevant credit officers in
collaboration with International Financial Institutions (IFIs)
and relies on the use of a variety of publically available
environmental and social risk management
tools,
including, but not limited to: local regulations; EBRD’s
Environmental and Social Risk Management Manual
(e-Manual v4.0); a website supported by IFC https://
firstforsustainability.org/; FMO’s sectoral guidelines for
environmental and social risk (further E&S) assessment;
and ADB’s ESMS Template for Banks and Funds, which
are unified in sector specific Environmental Social Due
Diligence (ESDD) forms developed by TBC Bank.
The latest update of ESRM procedures in collaboration
with our partner IFIs was conducted in the first quarter of
2019. The following amendments were implemented:
` business sector categorization
(sector/industry/
sub-industry) was synchronized with IFIs’ E&S risk
categorization list;
` a summary of IFIs’ sector specific guidance notes and
local legal requirements were integrated in the respective
ESDD forms;
` E&S risk categorization and reporting was integrated
in the software, including a random selection function
for the quarterly E&S monitoring of disbursed loans;
` a list of legal requirements (licenses and permits) by
sectors was created.
The automation of the E&S risk assessment process
provides more flexibility for staff and limits their manual
work, which in turn reduces errors and mistakes during
the risk classification and selection process.
to communicate
In order
the above-mentioned
amendments to employees, 12 extensive E&S training
sessions were held and 96 employees were trained,
including SME Credit Officers, Credit Analyst, Credit Risk
Managers and Business SME Lending/Sales Coordinators.
Furthermore, our ESRM team members successfully
passed IFC’s sustainability training and e-learning program
(STEP) online courses and were awarded certificates.
As part of the supply chain development project, TBC Bank
conducted several activities in partnership with its lenders
and IFIs, in order to raise public awareness of ESG issues:
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
75
DOING BUSINESS RESPONSIBLY CONTINUED
` On 27-28 June 2019, TBC and FMO held a two-day International E&S Masterclass in Tbilisi, which was conducted for the
first time in the Caucasus Region. The event was attended by E&S risk staff from local commercial institutions in Georgia
as well as by bank representatives from Azerbaijan, Armenia and Uzbekistan. TBC and FMO presented existing E&S risk
management standards and best practices, conducted interactive discussions on case-studies and held group-work
exercises, including site-visits and field trips;
` “Doing Makes the Difference” – FMO and TBC delivered a public lecture on E&S risk management issues to students at
ISET - International School of Economics;
` TBC and GCPF held a two-day training workshop on financing the Energy Sector (Renewable Energy Project) on 25-26
July, 2019. Christian Erich Grutte, an international energy expert, provided seminars about renewable projects finance
to our clients.
Pillar III - Sustainable finance
TBC Bank is committed to sustainable lending development within the company and is actively involved in developing a
standardized approach to sustainable finance, including energy efficiency, renewable energy and resource efficiency financing
for individuals and business clients. For this purpose, we cooperate with Green for Growth Fund (GGF) to conduct local market
research and set benchmark for green finance to streamline and considerably enhance existing green lending operations
within the company through the establishment of dedicated green lending guidelines. In addition, we are building in-house
expertise, and our head of the ESRM team has successfully completed Renewable Academy online course in Green Finance
Expert certification, which was provided with GGF TA support. In addition, our ESRM and Debt Capital Market team members
participated in IFC’s Green Bonds and Sustainable Finance Executive Program.
THE BANK’S BREAKOWN OF SUSTAINABLE LOAN PORTFOLIO IN MILLON US$
214,5
182,7
130,5
Renewable energy
Youth support
Women in business
Energy efficient mortgages
Energy efficient auto
Energy efficient processing
2017
2018
2019
Note: Our sustainable finance portfolio includes loans financed by special purpose funds received from IFIs except for the renewable energy, which includes all
hydro power plants finance by the bank.
Pillar IV - External Communications
Transparency and open communication are an essential part of our daily activities. The feedback and recommendations
received from our stakeholders and other interested parties enable us to continuously improve our performance. In doing so,
we have developed a grievance mechanism to enable interested parties to provide their complaints in regards to E&S issues.
Records of all communication are stored, including responses according the TBC Bank’s Procedure for addressing external
E&S queries and concerns. Interested parties may submit their query on the webpage: http://www.tbcbank.ge/web/en/web/
guest/e-s or to the following e-mail address: E&Srisk@tbcbank.com.ge. During 2019, no such complaints were received with
regards to environmental and social issues.
TBC Bank also takes active part in supporting the development of environmental and social regulation in the country. Our
ESRM team is a member of the regular environmental committees organized by the American Chamber of Commerce in
Georgia, the Business Association of Georgia (BAG) and the Business and Economic Centre.
In 2019, our ESRM team also took part in a workshop that was jointly organized by the Ministry of Economy and Sustainable
Development of Georgia and the German Society for International Cooperation (Deutsche Gesellschaft für Internationale
Zusammenarbeit (GIZ) GmbH), which aims to support the development of national climate resilient economic strategies and
the introduction of respective macroeconomic modelling tools, to achieve effective adaptation plans in Georgia.
Outlook
In order to ensure the credibility of our Environmental Management System, we have launched a preparatory project to
obtain certification according to ISO14001:2015 standards, which is expected in 2020.
76
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
RATINGS
MSCI ESG RATING
In 2019, TBC Bank Group received a rating of A (on a scale of AAA-CCC) in the
MSCI ESG Rating assessment.
MSCI
ESG RATINGS
A
CCC B BB BBB A AA AAA
DISCLAIMER STATEMENT
The use by TBC of any MSCI ESG research LLC or its affiliates (“MSCI”)
data, and the use of MSCI logos, trademarks, service marks or index
names herein, do not constitute a sponsorship, endorsement,
recommendation, or promotion of TBC BY MSCI. MSCI services and data
are the property of MSCI or its information providers, and are provided
‘as-is’ and without warranty. MSCI names and logos are trademarks or
service marks of MSCI.
SUSTAINALYTICS ESG RATING
TBC Bank Group PLC holds 20.6 ESG rating as of 17 December 2019
20.6 MEDIUM RISK
`
NEGLIGIBLE
0-10
LOW
10-20
MEDIUM
20-30
HIGH
30-40
SEVERE
40+
RELATIVE PERFORMANCE
Banks (Industry Group)
Regional Banks (Subindustry)
Rank
(1st = lowest risk)
83 out of 934
11 out of 386
Percentile
(1st = lowest risk)
10th
4th
ISS ESG SCORE
As of 1st February 2020, TBC Bank Group attained the following scores for
2
Governance
Environment
Social
3
2
Lower Governance Risk = 1 Higher Governance Risk = 10
Higher E&S Disclosure = 1 Lower E&S Disclosure = 10
ENERGY EFFICIENCY AWARD, INVESTMENT IN FOOD PRODUCTION
Liderfood LLC
Liderfood is one of the key players in the Georgian meat production market with about a 25% market share, producing
sausages, ham, semi-finished products such as meat dumplings etc. Since its establishment in 2008, Liderfood was located
in an old building. In 2016, TBC disbursed a loan to the Liderfood to renovate and rebrand the company, as well as invested in
a new energy efficient building for the production line.
Within the project, the company acquired new refrigeration equipment and constructed a completely energy efficient building
with total investment amounting to US$ 0.5 million. As a result, Liderfood saves 657 MW/h energy annually and its CO2
emission is reduced by 335 tons annually.
ENERGY EFFICIENCY AWARD, INVESTMENT IN ENERGY SECTOR
Shilda HPP
In 2012, TBC Bank financed Energy LLC, a leading manufacturing company in Georgia focused on renewable energy projects,
to build Shilda hydro power plant (Shilda HPP). The capacity of Shilda HPP is 5 MW and produces 32 GWh of electricity
annually. Within the project, the company purchased turbines, generators and other electrical equipment.
By producing 32 GWh of electricity, Shilda HPP could reduce more than 10,000 tons of CO2 emissions in Georgia annually.
78
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
EBRD AWARDS
In recognition of our commitment to financing green projects under
EBRD’s Green Economy Financing Facility, this year we received a
distinguished award from EBRD for our brilliant performance in the
corporate banking sector and our contribution in promoting Green
Finance in Georgia.
In addition, our clients Liderfood and Shilda also received energy efficient
awards from EBRD.
MELIORA AWARD
TBC Bank won GREEN
INITIATIVE AWARD for its “Green
Car Fleet” project from Meliora,
Georgia’s Responsible Business
Awards 2019
80
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
81
DOING BUSINESS RESPONSIBLY CONTINUED
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 and strategy, pages 12 to 17
Environmental matters
Employees
Social matters
Human rights
Anti-corruption and anti-bribery
Non-financial key performance indicators
relevant to the entity's business
Our environmental and social management, pages 72 to
83
Our colleagues, pages 60 to 67
Our community, pages 68 to 71
Ethical standards, responsible conduct and safety at
work, page 67
Ethical standards, responsible conduct and safety at
work, page 67
Key performance indicators, pages 18-19
Description of principal risks and mitigations
Material existing and emerging risks, pages 84 to 92
82
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
MATERIAL EXISTING AND EMERGING RISKS
Risk management is a critical pillar of the Group’s
strategy. It is essential to identify emerging risks and
uncertainties that could adversely impact the Group’s
performance, financial condition and prospects. This
section analyses the material principal and emerging risks
and uncertainties the Group faces. However, we cannot
exclude the possibility of the Group’s performance being
affected by risks and uncertainties other than those listed
below. More details regarding risk management practices
can be found on pages 93-107.
The Board has undertaken a robust assessment of both
the principal and emerging risks facing the Group and the
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 134-135.
PRINCIPAL RISK AND UNCERTAINTIES
1. 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 their obligations to settle outstanding
amounts in accordance with agreed terms.
Risk description
Credit risk is the greatest material risk faced by the Group,
given the Group is engaged principally in traditional
lending activities. The Group’s customers include legal
entities as well as individual borrowers.
Due to the high level of dollarization of the Georgia’s
is a
financial sector, currency-induced credit risk
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 as a result of large exposures
to single borrowers or groups of connected borrowers, or
loan concentration in certain economic industries. Losses
may be further aggravated by unfavorable macroeconomic
conditions. These risks are described in more detail as a
separate principal risk.
Risk mitigation
A comprehensive credit risk assessment framework is in
place with a clear segregation of duties among the 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. The rules for manual and automated
underwriting are developed by units within the risk
function, which are independent from the origination and
business development units. In the case of corporate and
SME borrowers, the loan review process is conducted
within specific sectoral cells, which accumulate deep
knowledge of the corresponding sectoral developments.
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 take prompt, early remedial actions, when necessary.
The Group’s credit portfolio is structurally highly diversified
across customer types, product types and industry
segments, which minimizes credit risk at Group level.
As of 31 December 2019, the retail segment represented
39.9% of the total portfolio, which was split between
mortgage and non-mortgage exposures 62.7% and 37.3%,
respectively. No single business sector represented more
than 8.6% of the total portfolio at the end of 2019.
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 2019, 72.5% of the Group’s
portfolio was secured by cash, real estate or gold. A sound
collateral management framework ensures that collateral
serves as an adequate mitigating factor for credit risk
management purposes
2. The Group faces currency-induced credit risk due to the
high share of loans denominated in foreign currencies in
the Group’s portfolio.
A potential material GEL depreciation is one of the most
significant risks that could negatively impact portfolio
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$ and
EUR. As of 31 December 2019, the local regulator, the
National Bank of Georgia (“NBG”) reported that 55.4% of
the total banking sector loans were denominated in foreign
currencies. As of the same date, 58.7% of the Group’s total
gross loans and advances to customers (before provision for
loan impairment) were denominated in foreign currencies.
84
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
The income of many customers is directly linked to the
foreign currencies via remittances, tourism or exports.
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 2019 and GEL weakened 7.1% YoY. The GEL
remains in free float and is exposed to many internal and
external factors that in some circumstances could result in
its depreciation.
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 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,
as also shown by the regulatory stress test. Details of the
stress testing are described on page 135.
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, 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 must 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 their exposure
to currency induced credit risk. The NBG eased the above
mentioned regulation from April 2020. The changes
is more relevant to hedged borrowers. For unhedged
borrowers PTI and LTV thresholds will stay significantly
more conservative.
As a result, FX denominated loans in the retail segment
decreased to 52.8% in 2019 compared to 56.1% in 2018.
3. The Group’s performance may be compromised by
adverse developments in the economic environment.
A slowdown of economic growth in Georgia and political
instability related to the upcoming parliamentary elections
could 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 portfolio growth rates. Negative
macroeconomic developments could compromise the
through various parameters,
Group’s performance
such as exchange rate depreciation, a spike in interest
rates, rising unemployment, a decrease in household
disposable income, falling property prices, worsening
loan collateralisation, or falling debt service capabilities
of companies as a result of decreasing sales. Potential
political and economic instability in the neighbouring
countries and main trading partners could negatively
impact Georgia’s economic outlook through a worsening
current account (e.g. decreased exports, tourism inflows,
remittances and foreign direct investments).
Risk description
According to the Geostat, real GDP increased by 5.1%
in 2019. A slightly more than 5.0% economic growth for
the full year 2019 once more underlines the resilience
and high growth potential of the Georgian economy.
This growth is particularly encouraging on the backdrop
of the challenges that the economy faced in 2019, the
most important being flight ban imposed by the Russian
Federation. The GEL exchange rate depreciation and above
target inflation remained additional challenges in 2019,
however, the response of the macro policymakers have
been appropriate. The NBG tightened the monetary policy
rate from 6.5% at the beginning of September to 9.0% as
of the end of December 2019. This tighter monetary policy
stance in GEL, coupled with the strong external sector,
has contributed to a stronger GEL exchange rate. By the
end of 2019, the US$/GEL exchange rate stood at 2.87,
down by 3.0% from the previous quarter. Also, the monthly
dynamics of prices indicate some moderation of inflation
by the end of 2019.
Fiscal spending significantly supported the growth in 2019,
with the budget deficit coming in at estimated 2.4% of GDP
in 2019. The actual impact of the fiscal sector on growth
was even higher, taking into consideration the advance
payments made by the end of 2018.
As for the system- wide credit growth, while the penetration
has increased, the credit to GDP ratio was still close to its
long- term trend, especially when measured at a constant
exchange rate. Despite some acceleration in FX lending,
the de-dollarization of the financial sector remains a top
priority for the central bank, however, going forward, it is
expected that relatively more attention will be devoted to
the liabilities’ side. Overall, from a macro perspective there
were no signs of a build up of system- wide risks in 2019.
At the same time, Georgia remains vulnerable to external
and to some extent internal shocks, which could have an
adverse impact on the 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
observation of the economic developments in Georgia, as
well as in neighboring 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
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
85
MATERIAL EXISTING AND EMERGING RISKS CONTINUED
for the Group’s 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 incorporated into the
Group’s credit underwriting standards. As such, borrowers
are expected to withstand certain adverse economic
developments through prudent financials, debt-servicing
capabilities and conservative collateral coverage.
4.The Group faces the capital risk of not meeting the
minimum regulatory requirements under the increasing
capital requirement framework, which may compromise
growth and strategic targets. Additionally, adverse
changes in FX rates may impact the capital adequacy
ratios.
Risk description
In December 2017, the NBG introduced a new capital
adequacy framework. Under the updated regulation,
capital requirements consist of a Pillar 1 minimum
requirement, combined buffers (systemic, countercyclical
and conservation buffers) and Pillar 2 buffers, which are
introduced gradually over a four-year period. As of year
end 2019, the Bank’s minimum capital requirements
increased by 0.6%, 0.7% and 0.8% for CET1, Tier 1 and
Total Capital, respectively, compared to the end of 2018.
The increase in minimum requirements is mainly driven
by a planned increase in the systemic risk buffer of 0.5%.
The Bank’s capitalization as of December 2019 stood
at 12.0%, 14.6% and 19.1% compared to the regulatory
minimum requirement of 10.4%, 12.5% and 17.5% for
CET1, Tier 1 and Total capital, respectively. The ratios were
well above the respective regulatory minimums. In 2019,
the Bank further strengthened and optimized its capital
position by issuing an Additional Tier 1 instrument in the
amount of US$ 125 million.
As a result of COVID-19 pandemic, the NBG implemented
certain countercyclical measures in relation to capital
adequacy requirements:
` Postponing the phasing in of concentration risk and
the net GRAPE (General Risk Assessment Program)
buffer capital requirements on CET1 capital, planned
in March 2020;
` Allowing banks to use the conservation buffer and 2/3
of currency induced credit risk (CICR) buffer;
` Leaving possibility of releasing all the remaining pillar
2 buffers (remaining 1/3 CICR, concentration risk and
Net Grape buffers) in case of necessity.
During the time the Bank utilizes conservation and Pillar
2 buffers, it is restricted to make any capital distribution.
If the NBG changes the decision with regards to capital
adequacy limits, the banking sector shall have one year to
comply with the changes.
Besides the expected negative impact of COVID-19
pandemic, GEL volatility still remains one of the significant
risks impacting the Bank’s capital adequacy. A 10% GEL
depreciation would translate into a 0.80pp, 0.69pp and
0.51pp drop in the Bank’s CET 1, Tier 1 and Total regulatory
capital adequacy ratios, respectively.
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 current minimum
regulatory requirements. Capital forecasts, as well as
the results of the stress-testing and what-if scenarios,
are actively monitored with the involvement of the Bank’s
Management Board and Risk Committee to ensure
prudent management and timely actions when needed.
In close co-ordination with the NBG the Bank created
an extra loan loss provision buffer to prepare for the
potential impact of the COVID-19 pandemic on the
Georgian economy. As of 31 March 2020, TBC Bank booked
additional provisions in accordance with local standards in
amount of c.3.1% of the loan book.
5. The Group is exposed to regulatory and enforcement
action risk.
The Bank’s activities are highly regulated and thus
face regulatory risk. The NBG can increase 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.
Risk description
The NBG sets lending limits and other economic ratios
(including, inter alia, lending, liquidity and investment
ratios) in addition to mandatory capital adequacy ratios.
At the beginning of 2019, the NBG introduced the full
version of the responsible lending regulation limiting the
growth of the consumer loans. The regulation defined
income verification techniques and introduced caps on
payment-to-income
(LTV)
(PTI) ratios,
ratios and the maximum maturity of retail loans; stricter
thresholds are applied to loans denominated in foreign
currency.
loan-to-value
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 that took place
in 2007 and 2008. The inspection alleged that these
transactions between the Bank and certain entities were
86
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
not in technical compliance with 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 stating that the Bank
fully complied with the economic normative requirements
and limits set by the NBG.
In parallel, the Georgian Office of Public Prosecution
launched an investigation into the same matter and has
charged the founders of the Bank. The court case with the
founders is ongoing. However, the founders have stood
down from all their positions within the Group and the Bank.
Under the Georgian banking regulations, the Bank is
required, among other things, to comply with minimum
reserve requirements and mandatory financial ratios, and
regularly to file periodic reports. The Bank is also regulated
by the tax code and 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.
TBC Bank’s subsidiary has been granted a banking licence
in Uzbekistan and is planning to launch operations in
the summer 2020. As a result of this project, increased
regulatory compliance requirements for the Group are
anticipated.
Additionally, as part of the Group’s international strategy,
the ongoing merger between Yelo Bank (former Nikoil
Bank) and TBC Kredit is subject to regulatory approval.
Assuming the approval is granted, the Group’s intention is
to increase its shareholding in the merged entity to over
50% over a four year period. This will, in turn, increase
the Group’s exposure to the regulatory environment in
Azerbaijan.
The Group takes operational steps with the intention
of ensuring compliance with relevant legislation and
regulations. The Group is also subject to financial
covenants in its debt agreements. For more information,
see page 301 in the Group’s Audited Financial Statements.
Risk mitigation
The Group has established systems and processes to
ensure full regulatory compliance, which are embedded
in all levels of the Group’s operations. The dedicated
compliance department reports directly to the Chief
Executive Officer and has a primary role in the management
of regulatory compliance risk. The Group’s Risk Committee
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 the 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
practices.
Regarding the investigations by the NBG in February
2019, the Company, the Bank and the NBG issued a
joint announcement confirming the settlement of this
investigation. In response to the regulatory review and
investigations, the founding shareholders have stood
down from their roles within the Group and the Bank.
The Company has implemented a mirror board structure
strengthening the board with the new appointments (for
further information, please see Corporate Governance
and Nomination Committee Report on pages 143-146).
In addition, the Bank, with the assistance of external
advisers, undertook a review of the Bank’s relevant internal
controls systems. Although these reviews did not identify
any material deficiencies in the Bank’s existing internal
controls and compliance systems, they did make certain
technical recommendations for further improvements of
the Bank’s processes and procedures, which are being
implemented.
6. 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 higher impairment
charges. The Group’s portfolio is well diversified across
sectors, resulting in only a moderate vulnerability to
sector concentration risks. However, should exposure to
common risk drivers increase, the risks are expected to
amplify correspondingly.
Risk description
The Group’s loan portfolio is diversified, with maximum
exposure to the single largest industry (energy and utility)
standing at 8.6% of the loan portfolio as of 31 December
2019. This figure
is reasonable and demonstrates
adequate credit portfolio diversification. At the end of
2019, the exposure to the 20 largest borrowers stands at
12.3% of the loan portfolio, which is in line with the Group’s
target of alleviating concentration risk.
Risk mitigation
The Group constantly monitors 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 in neighbouring
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
87
MATERIAL EXISTING AND EMERGING RISKS CONTINUED
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 more
efficient handling and, ultimately, to limit any resulting
credit risk losses. The NBG’s new capital framework
introduced a concentration buffer under Pillar 2 that helps
to ensure that the Group remains adequately capitalised to
mitigate concentration risks.
7. 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
In the first quarter of 2019, the Bank experienced a higher
volatility of deposit flows. The decrease was primarily
driven by retail deposit reductions (mostly in January and
February) prior to the settlement of the NBG investigation,
but it also reflected the effects of seasonality.
Throughout 2019, the Group was in compliance with
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 deposit withdrawal
rates, depending on the concentration of client groups.
From October 2019, the Bank’s foreign currency mandatory
reserve was fully categorized as a high quality liquid asset
(HQLA) for regulatory LCR calculation purposes, which
had a positive effect on the LCR ratio.
In September 2019, the NBG also introduced a Net Stable
Funding Ratio. As of 31 December 2019, the net loan to
deposits plus international financial institution funding
ratio stood at 104.8%, the liquidity coverage ratio at
110.1%, and the net stable funding ratio at 126.7%. These
figures are all comfortably above the NBG’s minimum
requirements or guidance for such ratios.
As a result of COVID-19 pandemic, the NBG will implement
certain countercyclical measures in relation to liquidity
requirements, if necessary:
` Decreasing LCR limits;
` Decreasing mandatory reserve requirements
in
foreign currency;
` Updating criteria for security or repo pledging to
support GEL liquidity.
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
the respective liquidity risks. 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. The liquidity risk position and compliance
with internal limits are closely monitored by the Assets
and Liabilities Management Committee (ALCO).
8. 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 regulations 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 from both national and international markets.
Risk description
The majority of the Group’s total income derives from net
interest income. Consequently, the NIM’s fluctuations
affect the Group’s results. In 2019, the NIM decreased
by 1.3 pp YoY to 5.6%. The decrease was driven by the
introduction of the responsible lending regulation from 1
January 2019, limiting the Bank’s ability to lend money to
higher-yield retail customers.
The Group manages its direct exposure to the LIBOR
and local refinancing rates through respective limits
and appropriate pricing. As of 31 December 2019, GEL
5,788 million in assets (31%) and GEL 3,813 million in
liabilities (24%) were floating, related to the LIBOR/FED/
ECB (deposit facility) rates and as per internal judgment,
whereas GEL 5,320 million of assets (29%) and GEL 3,360
million of liabilities (21%) were floating, related to the
NBG’s refinancing rate. The reprising maturity of floating
liabilities within a one-year horizon exceeds the one of
floating assets.
88
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
Risk mitigation
The strong increase in net fee and commission income
and other operating income safeguards against margin
declines and profitability concerns for the Group. The
decrease in credit loss allowance driven by improved
performance across all segments also supports the
Bank’s profitability.
To mitigate the 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 interest rates.
9. 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 members monitor 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 the 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
in
improving information security and business continuity
management processes to minimise information security
risks.
As a result of COVID-19 pandemic, the Bank activated
secure remote working policies, which ensure that home-
working environments are protected against relevant
cyber-threats and security team provides effective
oversight of teleworking channels.
is actively
involved
10. 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 banking 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, most frequently involving 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, 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 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 detect unusual activities in a
timely manner. The risk and control self-assessment
exercise focuses on identifying residual risks in key
processes, subject to the 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 the timely identification and
control of fraud-related activities.
11. The Group is currently exposed to reputational risk
The media coverage in Georgia surrounding the founders’
of the Bank represents a risk to the reputation of the Group
(more information is given in page 106).
Risk Description
There are principal risks which may arise from negative
publicity surrounding TBC Bank and its public perception,
as well as that of the banking sector in Georgia as a whole.
In particular, the media exposure in relation to TBC Bank
and its founders’ has threatened to have an adverse impact
on the Bank’s operations. An inability to manage such
reputational risks could have an adverse impact upon the
Bank and its stakeholders, including its clients, employees
and shareholders.
Risk Mitigation
To mitigate possibility of reputational risks, the Bank
works continuously to maintain strong brand recognition
within its stakeholders. The Bank actively monitors its
brand value by receiving feedback from stakeholders on
an ongoing basis. The Group tries to identify early warning
signals of potential reputational or brand damage in order
to both mitigate it and elevate it to the attention of the
Board before escalation. Dedicated internal and external
marketing and communications teams are in place which
have the responsibility to monitor risks, develop scenarios
and create respective action plans.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
89
MATERIAL EXISTING AND EMERGING RISKS CONTINUED
12. The Group faces the risk that its strategic initiatives
do not translate into long-term sustainable value for its
stakeholders
The Group’s business strategy may not adapt to the
environment of ever changing customer needs.
Risk Description
The Group may face the risk of developing a business
strategy that does not safeguard long-term value creation
in an environment of changing customer needs, competitive
environment and regulatory restrictions. In addition, the
Group may be exposed to the risk that it will not be able
to effectively deliver on its strategic priorities and thereby
compromise its capacity for long-term value creation.
Risk Mitigation
The Group conducts annual strategic review sessions
involving the Bank’s top and middle management in order
to ensure that it remains on the right track and assess
business performance across different perspectives,
concentrating analysis on key trends and market practices,
both in the regional and global markets. In addition,
the Bank continuously works with the world’s leading
consultants in order to enhance its strategy. Further, the
Group conducts quarterly analysis and monitoring of
metrics used to measure strategy execution, and in case
of any significant deviations, it ensures the development of
corrective or mitigation actions.
13. The Group is exposed to risks related to its ability to
attract and retain highly qualified employees
A strong employee base is vital to the success of the Group
Risk Description
The Group faces the risk of losing of key personnel or the
failure to attract, develop and retain skilled or qualified
employees. In particular, the strategic decision to transform
into a digital company entails increased demands on high
calibre IT professionals across the Group. In addition, in
order to adapt to the fast changing business environment,
the Group needs to foster an “Agile” culture and equip
employees with the necessary skills.
Risk Mitigation
The Group pays significant attention to human capital
management strategies and policies, which
include
approaches to the recruitment, retention and development
of talent, and offers competitive reward packages
to its employees. The Group has also developed and
implemented an “Agile” framework that aims to increase
employee engagement and satisfaction. Moreover, the
Bank set up an IT academy to attract and train young
professionals. The best students are offered employment
at the Bank. In addition, the Bank has an in-house
academy that provides various courses for the employees
in different fields.
EMERGING RISKS
Emerging risks are those that have large unknown
components and may affect the performance of the Group
over a longer time horizon. We believe the following are
risks that have a potential to increase in significance
overtime and could have the same impact on the Group as
the principal risks.
1. The Group is exposed to the risks inherent in
international operations
TBC Bank’s subsidiary, TBC Bank in Uzbekistan, has
obtained a banking licence in April 2020 and is planning to
launch its operations in Uzbekistan in June 2020. The total
amount of investment in 2020 from all shareholders will
amount up to US$ 40 million with TBC Bank accounting
for 51%. This investment exposes to the Group to
Uzbekistan’s macro-economic, political and regulatory
environments, including exposure to risks arising from
credit, market, operational and capital adequacy risks. In
addition, the Group is expanding its international presence
in Azerbaijan.
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 operating environment in Uzbekistan
and Azerbaijan may change the Group’s risk profile as a
result of this international expansion.
According to the latest IMF forecasts, Uzbekistan is a
rapidly developing economy with above 5% real GDP
growth projected 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
reserves, implying 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 investment. While the operational environment
in Uzbekistan can be assessed as attractive, there are
important risks that could materially affect the Group’s
performance in the country. These risks include, but are
not limited to, political instability, the slow pace of reforms,
adverse developments in inflation and fluctuations in the
exchange rate.
Azerbaijan is a small, open economy with a 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. According
to the latest IMF estimates, the economy is expected to
decline by 2.2% in 2020. Along with the relatively stable oil
prices and exchange rate, annual inflation has remained
stable in 2019. Azerbaijan’s economic recovery has also
contributed to the strengthening of its financial sector
and the gradual recovery of credit. Despite a relatively
more stable environment, Azerbaijan’s growth is still
90
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
significantly dependent on oil prices and any adverse
developments in oil prices could negatively affect growth
perspectives and the exchange rate.
Furthermore, potential political instability and unfavorable
developments in state regulations can also negatively
affect the Group’s business in Azerbaijan.
Risk mitigation
The Group’s 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,
which will in turn lead to a non-concentrated portfolio and
subsequently to lower credit risk. The Group will partner
international financial institutions, which intend to take
a shareholding in the Uzbek bank in order, to ensure
the funding of our business plan and sufficient flexibility
across our operations in Uzbekistan.
The Group has been operating in Azerbaijan through a small
microfinance organization for a number of years, which
provides experience and knowledge of the local banking
environment. In addition, our exposure in Azerbaijan is
limited before the option is exercised. The Group will
exercise the option only after it becomes comfortable with
the developments, including the operating environment.
The management will focus on establishing a strong
risk management function to ensure that all risks are
managed and mitigated properly. The Group will leverage
its strong risk management expertise to establish sound
risk management practices in new jurisdictions.
Overall, from the Group’s perspective,
international
expansion will result in diversification of business lines
and revenue streams, balancing the overall risk profile of
the Group.
2. The Group is exposed to the risks arising from
climate change
Risk description
The risks associated with climate change have both
physical impact arising from more frequent and severe
weather changes and transitional impact that may entail
extensive policy, legal and technological changes to reduce
ecological footprint of the households and businesses.
For the Group, both of these risks can materialise
through the impairment of asset values and deteriorating
creditworthiness of our customers, which could result
in reduction of the Group’s profitability. The Group may
also become exposed to reputational risks as a result
of its lending to or other business operations with the
customers deemed to be contributing to climate change.
Risk mitigation
The Group’s objective is to act responsibly and manage
the environmental and social risks associated with its
operations in order to minimise negative impacts on the
environment. This approach enables us to reduce our
ecological footprint by using resources efficiently and
promoting environmentally friendly measures in order to
mitigate climate change.
The Group has in place an Environmental Policy, which
governs its Environmental Management System (the
“EMS”) and promotes adherence of the Group’s operations
to the applicable environmental, health and safety and
labour regulations and practices. We take all reasonable
steps to support our customers
in fulfilling their
environmental and social responsibilities. Management of
environmental and social risks is embedded in the Group’s
lending process through the application of the EMS. The
Group has developed risk management procedures to
identify, assess, manage and monitor environmental
and social risks. These procedures are fully integrated
in the Group’s credit risk management process. Our
Environmental Policy is fully compliant with Georgian
environmental legislation and follows international best
practices (the full policy is available at www.tbcbankgroup.
com).
3. The Group’s performance may be affected by Libor
discontinuation and transition
Risk description
There
is a number of different types of financial
instruments on the Group’s balance sheet, each of
which carries interest rates benchmarked to the London
Interbank Offered Rate (“LIBOR”). LIBOR is also used
by the Group in its risk measurement, accounting and
valuation processes. In 2017, the FCA announced that it
has agreed with LIBOR panel banks to sustain LIBOR until
the end of 2021 and called financial sector participants to
start working towards the transition to other reference
rates. The discontinuation of LIBOR and the process
of transition exposes the Group to execution, conduct,
financial and operational risks, and may result in earnings
volatility, customer complaints and legal proceedings, or
have other adverse impact on the Group’s business and
operations.
Risk mitigation
The Group is in the process of identifying implications of
such transition to other reference rates on its risk profile by
analysing its execution, conduct, financial and operational
risks and how such risks could be addressed. TBC is pro-
actively working with industry participants, such as the
NBG, the Banking Association of Georgia and IFI lenders
to facilitate orderly transition to other reference rates.
The Group is starting its efforts to raise awareness of the
transition, both internally and externally, to ensure that staff
has all the necessary knowledge and tools to facilitate the
transition and that all of the Group’s customers are treated
fairly. We actively monitor the international as well as local
transition-related developments to regulate and align the
Group’s transition process with the market practice.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
91
MATERIAL EXISTING AND EMERGING RISKS CONTINUED
4. Spread of coronavirus (COVID-19) comes with unpredictable economic and social consequences
Risk description
COVID-19 outbreak, declared as a pandemic by the World Health Organisation, started in China and spread rapidly around
the world in early 2020. COVID-19 pandemic has already caused major economic disruptions, halted international travel
and resulted in country lockdowns. COVID-19 pandemic results in a decreased economic growth in Georgia, increased
unemployment, depreciation of the GEL, decreased commodity and real estate prices and impaired creditworthiness of the
private sector, and increases financial and non-financial risks of the Group.
As tourism contribution in Georgian economy was significant, the impact is likely to be sizable. The growth is also expected to
be impacted negatively through lower exports, remittances and FDI inflows, as well as the lockdown to prevent the widespread
of the virus. At the same time, imports should also adjust. Nevertheless, there will be increase in current account balance.
However, Georgia is acting very actively to attract support from the international financial organisations. According to the
government’s announcement as of 15 March, around US$ 1.7 billion, or 10% of 2019 GDP would be mobilized to support
predominantly the government’s financing needs and partially the central bank’s international reserves. In addition, around
US$ 1.5 billion should be used to support the private sector. This injections are expected to materially counteract the negative
impact of the COVID-19 crisis. Per IMF projections, as of 14th April1, Georgian economy is expected to contract by 4.0% in
2020, while in 2021 the growth is expected to recover to 3.0%.
Together with the international support, it is also important to take into account that there we no signs of overheating of
the Georgian economy during the pre-distress period, including the housing market. Therefore, assuming the COVID-19 is
predominantly temporary, rather than permanent shock, most of the industries should recover relatively quickly with the
hospitality sector likely lagging behind for some additional period.
According to the IMF1, the economy of Azerbaijan is expected to decline by 2.2% in 2020 with 0.7% recovery a year after. In
Uzbekistan, the growth is expected to be positive for both 2020 and 2021 with 1.8% and 7.0% respectively.
Risk mitigation
The Group actively analyses various scenarios of economic consequences of COVID-19 pandemic. We introduced three month
grace period on payments of principal and interest for all retail and MSME customers and hardly-hit corporate borrowers.
We have close communications with our business customers discussing their strategies and sharing our outlook on the
economy and its key sectors.
In addition, as part of the stress testing exercise, we have analysed multiple scenarios to ensure that the Group has sufficient
liquidity and capital to meet updated regulatory capital and liquidity requirements. The NBG implemented countercyclical
measures to support financial stability of the banking system by relaxing capital and liquidity requirements if necessary. For
more information, please see the capital risk management section on pages 100-104.
Moreover, the government has come up with a number of initiatives to support businesses and the economy such as (i)
deferral of income taxes for companies operating in tourism industry, (ii) subsidizing interest payments for small and medium
sized hotels (iii) doubling the volume of VAT refunds to companies (iv) increasing capital expenditure and providing additional
economic incentives.
1
IMF World Economic Outlook, April 2020
92
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
RISK MANAGEMENT
OVERVIEW
The Group operates a strong and independent, business-minded risk management system. Its main objective is to contribute
to the sustainability of risk-adjusted returns through the implementation of an efficient risk management system. The Group
has adopted four primary risk management principles to better accomplish its major objectives:
` Govern risks transparently to obtain understanding and trust. Consistency and transparency in risk-related processes
and policies are preconditions for gaining the trust of various stakeholders. Communicating risk goals and strategic
priorities to governing bodies and providing a comprehensive follow-up in an accountable manner are key priorities for
staff responsible for risk management.
` Manage risks prudently to promote sustainable growth and resilience. 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 resilience.
` Ensure that risk management underpins the implementation of strategy. The staff responsible for risk management
provide assurance on the feasibility of achieving objectives through risk identification and management. Identifying and
adequately pricing risks, as well as taking risk mitigation actions, 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:
CAPITAL ADEQUACY MANAGEMENT AND STRESS TESTING
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
93
RISK MANAGEMENT CONTINUED
GOVERNANCE
The Group conducts its risk management activities within the framework of its unified risk management system. The
involvement of all governance levels in risk management, the 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 a 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
RISK COMMITTEE
1
1
RISK COMMITTEE
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 Committee that
supervises the risk profile and risk governance practices 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. The statement also sets monitoring and reporting responsibilities, as well as escalation paths for different
trigger events, and limits breaches, which prompt risk teams to frame and implement established mitigation actions. To
effectively incorporate the Group’s risk appetite into day-to-day operations, Risk Appetite Statement metrics are cascaded
into more granular limits at the business unit level, establishing risk allocation across different segments and activities.
The process of setting and cascading the risk appetite is undertaken in parallel with the business planning process. The
interactive development of business and risk plans aligns the plans by solving risk-return trade-offs in the process and
increases the feasibility of achieving targets. The Board level oversight, coupled with the permanent involvement of senior
management in the Group’s risk management and the exercise of top-down risk allocation by the enterprise risk management
function, ensures clarity regarding risk objectives, intense monitoring of the risk profile against the risk appetite, the prompt
escalation of risk-related concerns and the establishment of remediation actions. 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
1 These terms are defined in the glossary on page 320
94
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
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
A 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.
` 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.
Various scenario analysis and stress testing methods
are conducted by Bank to ensure that the Bank
maintains adequate capital in order to withstand the
given stress scenario and remain in a stable financial
condition.
` Long term capital planning and continuous work on
capital optimisation and analytics is also a key aspect
of the Bank’s risk management procedures.
` Consistency of risk management practices within
TBC Bank is also an important task of the ERM. A
risk management function dedicated to promoting
consistency ensures that risks are identified, measured
and governed in an optimal manner within TBC Bank,
and reported and understood on a consolidated basis.
` 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 TBC Bank takes adequately priced risks.
` Estimating expected losses, monitoring and analytics
across various segments and products are further key
features of our strategy.
` Aggregation and analysis of all risk metrics to assess
the Group’s risk profile on a consolidated basis is also
carried out. Regular reports on TBC Bank’s risk profile
are submitted to the Management Board and to the
Supervisory Board’s Risk Committee.
CREDIT RISK MANAGEMENT
As a provider of banking services, the Group is exposed
to the risk of losses due to the failure of a customer or
counterparty to meet their obligations to settle outstanding
amounts in accordance with agreed terms. Credit risk is
the greatest material risk faced by the Group since it is
engaged mainly in traditional lending activities. Thus, the
Group dedicates significant resources to its management.
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. 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,
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
95
RISK MANAGEMENT CONTINUED
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 Board Risk
Committee. 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. For the underwriting of
unsecured loans, point-of-sale loans and credit cards, the
income verification process is performed according to the
regulations on responsible lending. For decision-making,
internal scorecard models and ratings provided by the
credit bureau are utilized. Different scorecard models are
developed based on the type of product and the borrowers’
segment, taking into consideration various internal and
external data. The performance of scorecard models is
closely monitored to ensure that decisions are in line with
predefined risk limits.
Currency-induced credit risk
The Group faces currency-induced credit risk, given that
a large part of its exposure is denominated in foreign
currency. 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 continued
its efforts to reduce the economy’s dependence on foreign
currency financing by increasing the cap to GEL 200,000,
under which loans must 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
96
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
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 the 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
the most significant credit
Collateral represents
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.
The collateral management framework consists of a
policy-making process, a sound independent valuation
process, a haircut system throughout the underwriting
process, collateral monitoring (including revaluations and
statistical analysis) and collateral portfolio analysis.
The Collateral Management and Appraisal Department
(CMAD) defines Collateral Management Policy &
Collateral Management Procedures (approved by the
Board), purchases an appraisal service that must be in
line with International Valuation Standards (IVS), acting
NBG regulations and internal rules (policy/procedures
and etc.), authorizes appraisal reports, manages
collateral monitoring process (assets with high FV are
revaluated annually, while statistical monitoring is used
for collaterals with low value). The CMAD uses a mixed
quality check scheme for valuation: appraisal reports
are reviewed internally by its staff and separately by an
external company. Almost all activities under the collateral
management are automated through an in-house web
application. The collateral management function uses
market researches conducted under the project: Real
Estate Market laboratory (REM lab).
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.
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. 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 exposure, overall portfolio
performance and external trends that may impact on the
portfolio’s risk profile. The Risk Committee 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 take
prompt, 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
jeopardizing the repayment of the credit. Dedicated
restructuring and recovery units manage weakened
borrowers across all business segments, with collection
and recovery strategies tailored for business segments
and individual exposure categories. The restructuring
unit’s primary goal is to rehabilitate the borrower and
transfer the exposure back to the performing category.
The sophistication and complexity of the rehabilitation
process differs based on the type and size of the exposure.
Corporate and SME borrowers are transferred to the
recovery unit when there is a strong probability that
a material portion of the principal amount will not be
paid, and the main stream of recovery is no longer the
borrower’s cash flow. Loan recovery plans may include
all available sources of loan recovery, such as selling the
borrower’s assets, realising collateral or payments under
guarantees.
The Group’s goal in the recovery process is to negotiate
a loan recovery strategy with the borrower and secure
cash recoveries to the extent possible, or to negotiate
repayment through the sale or repossession of collateral.
Collection strategies are defined based on the size
and type of exposure. Specific strategies are tailored
to different subgroups 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
Measurement of Expected Credit Losses
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,
a new IT tool for provisioning was implemented along with
the 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;
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
97
RISK MANAGEMENT CONTINUED
` 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 subsequent 12 months from the reporting date.
` Stage II 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 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.
The Group actively reviews and monitors the results produced from IFRS 9 models to ensure that respective results
adequately capture the 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:
` 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;
` 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
` monitor liquidity and funding on an ongoing basis to ensure that approved business targets are met without compromising
the Group’s risk profile.
The Management Board reviews the Liquidity Risk Management Policy, which is then presented to the Board and the
Supervisory Board for approval.
Liquidity risk is categorised into two risk types: funding liquidity risk and market liquidity risk.
Funding liquidity risk is the risk that the Group will not be able to efficiently meet both expected and unexpected current
and future cash flows without affecting either its daily operations or its financial condition under both normal conditions
and during a crisis. To manage funding liquidity risk, the Group has an internally developed model using a liquidity coverage
ratio (LCR) and a net stable funding ratio (NSFR), both under Basel III liquidity guidelines. 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 deposit withdrawal rates depending on the client group’s concentration. Since September 2017, the Bank
has also monitored 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. To promote larization in the country of Georgia,
NBG defines lower limit for GEL LCR than that for FX LCR. From October 2019 FC Mandatory Reserves are considered at
100% within HQLA for NBG LCR purposes. In addition, in the same period, NBG lowered FC mandatory reserves requirements
from 30% to 25%.
In September 2019 the NBG introduced a Net Stable Funding Ratio (“NBG NSFR”) for funding liquidity risk management
purposes. 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. On a monthly basis the Bank monitors compliance with
the set limit for NBG NSFR. As of 31 December the ratios were well above the prudential limits set by the NBG as follows:
98
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
Average Liquidity Ratio
Net Stable Funding Ratio
Total Liquidity Coverage Ratio
GEL Liquidity Coverage Ratio
FX Liquidity Coverage Ratio
2019
32.2%
126.7%
110.1%
83.7%
128.4%
2018
33.3%
N/A
113.9%
102.5%
121.1%
2017
32.5%
N/A
112.7%
95.6%
122.9%
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.
As a result COVID-19 pandemic, the NBG will implement certain countercyclical measures in relation to liquidity requirements,
if necessary:
` Decreasing LCR limits;
` Decreasing mandatory reserve requirements in foreign currency;
` Updating criteria for security or repo pledging to support GEL liquidity.
Funding and maturity analysis
The Group’s principal sources of liquidity include customer deposits and accounts, borrowings from local and international banks
and financial institutions, subordinated loans from international financial institution investors, local interbank short-duration
term deposits and loans, proceeds from sales of investment securities, principal repayments on loans, interest income and fee
and commission income. The Board believes that a strong and diversified funding structure is one of the Group’s differentiators.
The Group relies on relatively stable deposits from Georgia as the main source of funding. The Group also monitors deposit
concentration for large deposits and sets limits for deposits of non-Georgian residents in its deposit portfolio
To maintain and further enhance its liability structure, the Group sets targets for deposits and funds received from international
financial institution investors in its risk appetite via the respective ratios. The loan to deposit and IFI funding ratio (defined as
total value of net loans divided by sum of total value of deposits and funds received from International financial institutions)
stood at 104.8%, 89.9% and 92.5%, at the 31 December 2019, 2018 and 2017 respectively.
In order to assess the possible outflow of the bank’s customer accounts management applied value-at-risk analysis. VAR as
of December 2019 equaled 8.4% (2018: 10.9%; 2017: 12.3%). 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.
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
2019, the Bank maintained an aggregate balance open currency position of 0.5%.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
99
RISK MANAGEMENT CONTINUED
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 Management Board and periodically to the Supervisory Board and
its Risk Committee. On a Group-wide level, foreign-exchange risk is monitored and reported monthly.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. During the years ended 31 December 2019, 2018 and 2017, 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 2019
(2,291)
As of 31 December 2018
(8,890)
As of 31 December 2017
(2,206)
(1,584)
(6,162)
(1,462)
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 a part 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 customers contain a clause allowing it to adjust the interest
rate on the loan 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 Bank also applies for interest rate risk hedging instruments in order to mitigate interest rate
risk.
The Group employs an advanced framework for the management of interest rate risk by establishing appropriate limits,
monitoring compliance with them and preparing forecasts. Interest rate risk is managed by the financial risk management
department and is monitored by the ALCO, which decides on actions that are necessary for effective interest rate risk
management and follows up on their implementation. The major aspects of interest rate risk management development
and the respective reporting are periodically provided to the Management Board, the Supervisory Board, the Board and the
Risk Committee.
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.
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.
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 2019, 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.
CAPITAL RISK MANAGEMENT
Capital risk is the risk that the Group may not have sufficient level of capital to maintain its normal business activities , and
to meet its regulatory capital requirements under normal or stressed operating conditions. The management’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. The Group
100
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
undertakes stress-testing and sensitivity analysis to quantify extra capital consumption under different scenarios. 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 capital management and timely actions when needed. In
2019, the Group and the Bank complied with all regulatory capital requirements.
In December 2017, the NBG adopted amendments to the regulations relating to capital adequacy requirements. The changes
include amendments to the regulation on capital adequacy requirements for commercial banks, and the introduction of new
requirements (i) on additional capital buffer requirements for commercial banks within Pillar 2; (ii) on the determination of
the countercyclical buffer rate; and (iii) on the identification of systematically important banks and determining systemic
buffer requirements. The purpose of these amendments is to improve the quality of banks’ regulatory capital and achieve
better compliance with the Basel III framework.
Pillar 1 minimum requirements plus combined buffer requirements. The amendments to the regulation on capital adequacy
requirements for commercial banks have made Pillar 1 minimum requirements in Georgia compatible with the framework
established by the Basel Committee of Banking Supervision. The amendments included:
` the separation of the 2.5% conservation buffer, which was previously merged with minimum capital requirements. The
updated minimum regulatory capital requirements are 4.5%, 6.0% and 8.0% for Common Equity Tier 1 Capital, Tier 1
Capital and Total Regulatory Capital, respectively;
` the introduction of a requirement that banks hold an additional combined buffer through Common Equity Tier 1 Capital,
consisting of conservation, countercyclical and systemic buffers.
The rate for the conservation buffer has been set at 2.5% of RWAs, while a 0% rate has been set for the countercyclical buffer.
The countercyclical buffer can vary within the range of 0% to 2.5% and will be reviewed periodically based on the prevailing
financial and macroeconomic environment. In addition, the NBG designated certain commercial banks in Georgia as DSIBs
for which individual systemic buffers have been introduced, which means that the DSIBs will be required to set aside more
Common Equity Tier 1 Capital relative to RWAs, with the requirements being phased in from the end of 2018 to the end of
2021. In particular, the following systemic buffers and compliance timeframes have been set by the NBG in relation to the
Bank: 1.0% for the period from 31 December 2018 to 31 December 2019, 1.5% for the period from 31 December 2019 to
31 December 2020, 2.0% for the period from 31 December 2020 to 31 December 2021, and 2.5% from 31 December 2021
onwards.
Pillar 2 requirements. In accordance with the Basel III framework, the NBG also introduced additional capital buffer
requirements for commercial banks within Pillar 2 that are based on a supervisory review and assessment process and deal
with bank-specific risks that are not sufficiently covered under Pillar 1, including an unhedged currency induced credit risk
buffer and a net general risk assessment programme buffer. The NBG has also introduced a credit portfolio concentration
buffer and a net stress test buffer. The credit portfolio concentration buffer has become effective from 1 April 2018 and the
need for the net stress buffer will be assessed based on the regulatory stress testing results. Under the NBG regulation, 56%
of the capital required under Pillar 2 should be held through Common Equity Tier 1 Capital, while 75% of the capital should
be held through Tier 1 Capital and 100% of the capital should be held through Total Regulatory Capital. As of December
2019, the Bank’s Pillar 2 requirement is 1.9%, 2.5% and 5.5% for Common Equity Tier 1, Tier 1 and Total Regulatory Capital,
respectively.
Both, Tier 1 and Total Regulatory Capital adequacy ratios are calculated based on the Basel III methodology introduced by
NBG. The following table 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
2019
2,281,706
692,323
2,974,029
13,825,677
15,429
1,749,821
15,590,927
12.5%
14.6%
17.5%
19.1%
2018
1,678,716
672,553
2,351,269
11,458,497
179,381
1,516,993
13,154,871
11.8%
12.8%
16.7%
17.9%
2017
1,437,218
448,069
1,885,287
9,754,146
28,802
970,241
10,753,189
10.3%
13.4%
12.9%
17.5%
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
101
RISK MANAGEMENT CONTINUED
The breakdown of the Bank’s assets into the carrying amounts based on NBG accounting rules and relevant risk-weighted
exposures as of 31 December are given in the tables below:
In thousands of GEL
Cash, cash equivalents, Interbank Exposures and Securities
Gross loans and accrued interests,
Repossessed Assets
Fixed Assets and intangible assets
Other assets
minus general provision, penalty and interest provision
Total
Total Off-balance
Market Risk
Operational Risk
Total Amount
In thousands of GEL
Cash, cash equivalents, Interbank Exposures and Securities
Gross loans and accrued interests,
Repossessed Assets
Fixed Assets and intangible assets
Other assets
minus general provision, penalty and interest provision
Total
Total Off-balance
Market Risk
Operational Risk
Total Amount
In thousands of GEL
Cash, cash equivalents, Interbank Exposures and Securities
Gross loans and accrued interests,
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
2019
Carrying Value
4,432,843
11,582,327
78,384
628,655
1,349,790
(39,886)
18,032,113
5,203,594
15,429
933,238
24,184,374
2018
Carrying Value
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
19,017,040
2017
Carrying Value
3,510,760
8,233,132
58,530
437,878
553,176
(30,862)
12,762,614
1,919,565
28,802
517,462
15,228,443
RW amount
1,733,894
9,037,390
78,384
366,364
1,603,780
(39,886)
12,779,926
1,045,751
15,429
1,749,821
15,590,927
RW amount
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
13,154,871
RW amount
1,275,017
6,798,464
58,530
264,768
713,096
(30,862)
9,079,013
675,133
28,802
970,241
10,753,189
As a result of COVID-19 pandemic, the NBG implemented certain countercyclical measures in relation to capital adequacy
requirements:
` Postponing the phasing in of concentration risk and the net GRAPE (General Risk Assessment Program) buffer capital
requirements on CET1 capital, planned in March 2020.
` Allowing banks to use the conservation buffer and 2/3 of currency induced credit risk (CICR) buffer
` Leaving possibility of releasing all the remaining pillar 2 buffers (remaining 1/3 CICR, concentration risk and Net Grape
buffers) in case of necessity.
102
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
During the time the Bank utilizes conservation and Pillar 2 buffers, it is restricted to make any capital distribution.
If the NBG changes the decision with regards to capital adequacy limits, the banking sector shall have one year to comply
with the changes.
As a result of the provision made1 and also the significant depreciation of the Georgian Lari during the course of March 2020,
TBC Bank’s CET1, Tier 1 and Total CAR as at 31 March 2020 are standing at 9.1%, 12.0% and 16.7%, respectively. These ratios
remain well above the NBG’s revised minimum requirements of 6.9%, 8.8% and 13.3%, respectively, which allow for the
utilization of the conservation buffer and 2/3 of the currency induced credit risk buffer.
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 based on JSC TBC Bank’s consolidated figures 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
AT1
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
2019
2018
2017
542,204
1,945,728
(29,459)
582
358,463
2,817,518
43,195
159,938
529,772
732,905
3,550,423
12,795,066
(152,618)
34,216
12,676,664
4.0%
22.2%
8.0%
28.0%
542,204
1,509,990
(29,459)
527
-
2,023,262
58,995
129,739
548,508
737,242
2,760,504
10,379,124
(204,391)
210,916
10,385,649
4.0%
19.5%
8.0%
26.6%
524,807
1,254,331
(26,892)
4,735
-
1,756,981
64,489
109,372
355,944
529,805
2,286,786
8,749,752
(118,492)
40,803
8,672,063
4.0%
20.3%
8.0%
26.4%
Following the Basel I guidelines the General Reserve is defined by the management as the minimum among the following:
IFRS provisions created on loans without impairment trigger event;
a.
b. 2% of loans without impairment trigger event;
c. 1.25% of total RWA (Risk Weighted Assets).
1
In close co-ordination with the NBG the Bank created an extra loan loss provision buffer to prepare for the potential impact of the COVID-19 pandemic
on the Georgian economy. As of 31 March 2020, TBC Bank decided to book additional provisions in accordance with local standards in amount of c.3.1%
of the loan book
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
103
RISK MANAGEMENT CONTINUED
The breakdown of the Group’s assets into the carrying amounts and relevant risk-weighted exposures as of 31 December
2019, 2018, 2017 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
2019
Carrying Value
RW amount
4,611,420
12,661,955
157,150
626,191
562,456
18,619,172
5,171,419
(152,618)
34,216
23,672,190
203,063
10,069,296
157,150
596,732
562,456
11,588,670
1,206,395
(152,618)
34,216
12,676,663
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
18,468,199
244,844
8,281,144
124,643
474,576
499,747
9,624,954
754,170
(204,391)
210,916
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
14,994,829
214,353
6,885,960
116,809
449,136
409,876
8,076,134
673,618
(118,492)
40,803
8,672,063
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.
104
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
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 importance of constantly improving
processes, controls, procedures and systems is heightened to ensure risk prevention and reduce the risk of loss to the Group.
To oversee and mitigate operational risk, the Group has established an operational risk management framework, 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 Risk Committee oversees compliance with the limits. The Operational Risk Committee discusses the Group’s
operational risk profile and risk minimisation recommendations on a regular basis.
The operational risk management department acts as second line of defence. It is responsible for implementing the framework
and appropriate policies and procedures to enable the Group to manage operational risks, as well as monitoring operational
risk events, risk exposures against risk appetite and material control issues. The department is also responsible for the day-to-
day management of operational risks using various techniques. These include, but are not limited to: running risk and control
self-assessments, which are aimed at detecting possible gaps in operations and processes with the purpose of suggesting
appropriate corrective actions; forming an internal risk event database for further quantitative and qualitative analysis;
performing internal control to detect systematic errors in banking operations, internal fraud events and monitoring key risk
indicators; conducting scenario and root-cause analyses; providing business advisory services regarding nonstandard 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 the development of a Bank-wide operational risk registry.
Compliance
The compliance department is the 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 compliance officers, who
act as compliance advisers and coordinators, addressing compliance issues in structural units or business lines. The Chief
Compliance Officer reports quarterly to the Risk Committee, with a disciplinary reporting line to the CEO. The department
is responsible for the Group’s compliance and reputational risk management. It implements and monitors the fulfilment of
requirements of the following policies: the Anti-Money Laundering and Counter Terrorist Financing Policy; the Sanctions
Policy, 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; the Change Management Policy and the Whistleblowing Policy.
The compliance department manages regulatory risk by ensuring that applicable changes in laws and regulations are
implemented by the process owners in a timely manner. The compliance department participates in new product/process
risk approval process. Additionally the department conducts analysis of customer complaints, the operational risk event
database, internal audit findings and litigation cases to proactively reveal process weaknesses. Based on the outcomes of
this analysis, it then initiates changes to internal instructions or gives recommendations to the Bank’s structural units on
relevant process amendments. The compliance officers have the role of educators and advisers 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.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
105
RISK MANAGEMENT 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 that 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 stating that the Bank fully
complies with the economic normative requirements and limits set by the NBG. In response to the regulatory review and
investigations, the founding shareholders stood down from their roles at both the Group and the Bank. The Company has
implemented a “mirror board” structure strengthening the Board with the new appointments. In addition, the Bank, with the
assistance of external advisers, undertook a review of the Bank’s relevant internal controls systems. Although these reviews
did not identify any material deficiencies in the Bank’s existing internal controls and compliance systems, they did make
certain recommendations for further technical improvements for the Bank, which are being implemented.
In parallel, the Georgian Office of Public Prosecution launched an investigation into the same matter and has charged the
founders. The court case with the founders is ongoing. However, the founders have stood down from their positions at the
Group and the Bank.
Anti-money laundering (AML)
The Group is committed to high standards both of anti-money laundering and counter terrorist financing (AML/CTF) and
requires all Group member companies, management and employees to adhere to these standards in order to prevent the
use of TBC Bank’s products and services for money laundering/terrorist financing purposes. The Group’s AML/CTF program
is based on applicable legal and regulatory requirements, which are in line with FATF recommendations, EU regulations and
best practices.
The Group’s AML/CTF compliance program, as implemented, comprises written policies, procedures, internal controls and
systems including, but not limited to: policies and procedures to ensure compliance with AML laws and regulations; KYC and
customer due diligence procedures; customer screening against a global list of terrorists and specially designated nationalities;
relevant financial and other sanctions lists; regular staff training and awareness raising; and procedures for monitoring and
reporting suspicious activities of the Bank’s customers etc.
As a part of the second line of defence, the AML unit ensures that risks are managed in accordance with the risk appetite
defined by the Group and promotes a strong risk culture throughout the organization.
The Group has in place sophisticated AML solution that enables the AML unit to comply with the Sanctions Policy, to monitor
clients’ transactions and identify suspicious behavior. The AML unit works on the constant improvement of software to
increase operational efficiency and decrease false-positive alerts.
In November 2019, the new Law of Georgia on Facilitating the Suppression of Money Laundering and Terrorism Financing
was introduced. Gap analysis have been conducted, resulting in plans to adjust internal processes and procedures in line with
the new requirements is scheduled to take place in 2020.
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.
Legal
The Bank’s legal department manages all legal and related matters concerning the activities of the Bank and the Group.
In accomplishing its mission to ensure that such activities fully conform with all applicable laws and regulations, legal
team delivers wide array of professional legal services – it (i) interacts with internal and external clients, outside counsel,
government and regulatory entities, (ii) issues memos and opinions, (iii) drafts standardized and individual contracts, (iv)
prepares corporate resolutions, (v) provides regulatory updates, (vi) represents the Bank in courts, other dispute resolution
venues and before other third parties. The legal team, which comprises lawyers with diverse backgrounds and experience,
consists of the following key divisions – regulatory and legal compliance, corporate, dispute resolution and corporate
governance teams. Each division functions within its clear and distinct job descriptions corresponding to relevant knowledge,
skill and capabilities of its members. As part of its agile transformation effort, several individual lawyers are working within
and/or in close cooperation with the teams in charge of specific commercial projects. The department ensures effective
execution of its duties through existing set of different processes and procedures.
106
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
The Bank’s General Counsel manages the legal department. S/he determines key business objectives for all legal teams,
introduces policies and vision, as well as ensures effective performance of their duties. The General Counsel reports directly
to the Management Board and the Supervisory Board and their respective committees on existing legal risks, their mitigation
strategies and vision for their effective management in the future.
Conduct risk
Conduct risk is defined as the risk to the delivery of fair outcomes for customers and other stakeholders. In 2019 the Group
upgraded the Code of Conduct and the Code of Ethics according to the new “Code of Ethics and Standards of Professional
Conduct of Commercial Banks”. Both documents 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 2.6 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 the following:
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 Ethics
and the Group’s internal handbook;
2. maintaining a liaison with the compliance department regarding the administration of policies and procedures and the
investigation of complaints regarding the conduct of the department, its manager and/or its employees;
3. ensuring that 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 emails that contain sensitive and sales-related information, including
information pertaining to the acquisition of new clients and making complex product offers to existing and prospective
clients;
5. delivering timely, on-going training for new employees regarding proper conduct and ensuring that all employees stay
up to date on evolving compliance standards within the Group through periodic training;
6. developing an open culture that encourages employees to speak up without fear of punishment. Specifically, this means
setting up processes for the prevention and detection of conflicts of interest, creating ethical incentives and bonus
formulas, and aligning incentives and disciplinary practices to the Group’s risk appetite; and
7. employing qualified staff and sufficient human and technological resources to investigate, analyse, implement and
monitor sales and after-sales activities. This approach ensures that the management of conduct risk is not limited to
risk management units, including the compliance department, but is fully embraced by front-line departments and that
the proper conduct is fully integrated into required job skills.
In 2019 the Group amended its training materials to cover all requirements regarding ethical conduct and delivered training
to the whole staff.
VIABILITY STATEMENT
The assessment of principal risks underpins the Viability Statement in the Directors’ Report for 2019 (see pages 134 to
135). The assessment involved consideration of the Group’s current financial position over three years of coverage ending 1
January 2023, which is relevant to the strategic considerations of the Group.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
107
FINANCIAL REVIEW
OVERVIEW
TBC Bank Group PLC 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
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 a consistent view and enable better analysis of the financial
performance of the Group. Underlying performance is an alternative performance measure (APM) 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 pages 122-123.
Starting from 1 January 2019, TBC Bank adopted IFRS 16. Therefore, the comparative information for 2018 is not comparable
to the information presented for 2019.
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 the “about us” section
PERFORMANCE HIGHLIGHTS
FY 2019 P&L Highlights
` Underlying profit for the period amounted to GEL 545.1 million (FY 2018: GEL 454.9 million)
` Reported profit for the period amounted to GEL 540.3 million (FY 2018: GEL 437.4 million)
` Underlying return on average equity (ROE) amounted to 22.6% (FY 2018: 22.8%)
` Reported return on average equity (ROE) amounted to 22.4% (FY 2018: 22.0%)
` Underlying return on average assets (ROA) amounted to 3.3% (FY 2018: 3.3%)
` Reported return on average assets (ROA) amounted to 3.2% (FY 2018: 3.2%)
` Cost to income of ТBC Bank standalone1 was 35.9% (FY 2018: 35.6%)
` Underlying cost to income of TBC Bank Group PLC stood at 39.5% (FY 2018: 37.8%)
` Reported Cost to income of TBC Bank Group PLC stood at 39.9% (FY 2018: 37.8%)
` Cost of risk on loans stood at 0.7% (FY 2018: 1.6%)
` Net interest margin (NIM) stood at 5.6% (FY 2018: 6.9%)
` Risk adjusted net interest margin (NIM) stood at 4.8% (FY 2018: 5.4%)
` Basic earnings per share stood at 9.83 (FY 2018: 8.07)
` Diluted earnings per share 9.76 (FY 2018: 8.00)
Balance Sheet Highlights as of 31 December 2019
` Total assets amounted to GEL 18,410.3 million as of 31 December 2019, up by 18.8% YoY
` Gross loans and advances to customers stood at GEL 12,662.0 million as of 31 December 2019, up by 22.1% YoY
` Net loans to deposits + IFI2 funding stood at 104.8%, up by 14.9 pp YoY, and Regulatory Net Stable Funding Ratio (NSFR),
effective from 30 September 2019, stood at 126.7%
` NPLs were 2.7%, down by 0.4 pp YoY
` NPLs coverage ratios stood at 91.1%, or 194.2% with collateral, on 31 December 2019 compared to 102.7% or 216.4%
with collateral, as of 31 December 2018
` Total customer deposits amounted to GEL 10,049.3 million as of 31 December 2019, up by 7.5% YoY
` As of 31 December 2019, the Bank’s Basel III CET 1, Tier 1 and Total Capital Adequacy Ratios per NBG methodology stood
at 12.0%, 14.6% and 19.1% respectively, while minimum requirements amounted to 10.4%, 12.5% and 17.5% respectively
Market Share3
` Market share by total assets reached 38.2% as of 31 December 2019, remaining the same YoY
` Market share by total loans was 39.5% as of 31 December 2019, up by 0.7 pp YoY
` Market share of total deposits reached 39.0% as of 31 December, down by 2.2 pp YoY
1 For the ratio calculation all relevant group recurring costs are allocated to the bank
2
3 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
International Financial Institutions
108
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
CONSOLIDATED FINANCIAL RESULTS OVERVIEW FY 2019
Income statement highlights
in thousands of GEL
Net interest income
Net fee and commission income
Other operating non-interest income4
Credit loss allowance
Operating income after credit loss allowance
Operating expenses
Profit before tax
Income tax expense
Profit for the period
Underlying profit for the period
Balance Sheet and Capital Highlights
FY'19
801,539
187,290
139,414
(91,992)
1,036,251
(450,726)
585,525
(45,184)
540,341
545,105
FY'18
778,022
157,530
151,916
(166,239)
921,229
(411,029)
510,200
(72,765)
437,435
454,861
Change YoY
3.0%
18.9%
-8.2%
-44.7%
12.5%
9.7%
14.8%
-37.9%
23.5%
19.8%
in thousands of GEL
31-Dec-19
31-Dec-18
Change YoY
Total Assets
Gross Loans
Customer Deposits
Total Equity
Regulatory Common Equity Tier I Capital (Basel III)
Regulatory Tier I Capital (Basel III)
Regulatory Total Capital (Basel III)
Regulatory Risk Weighted Assets (Basel III)
18,410,274
12,661,955
10,049,324
2,647,655
1,871,892
2,281,706
2,974,029
15,590,927
15,497,993
10,372,582
9,352,142
2,205,968
1,629,594
1,678,716
2,351,269
13,154,871
18.8%
22.1%
7.5%
20.0%
14.9%
35.9%
26.5%
18.5%
Key Ratios
Underlying ROE
Reported ROE
Underlying ROA
Reported ROA
NIM
Risk adjusted NIM
Cost to income of standalone Bank5
Underlying cost to income
Reported Cost to income
Cost of risk
FX adjusted cost of risk
NPL to gross loans
NPLs coverage ratio exc. collateral
CET 1 CAR (Basel III)
Regulatory Tier 1 CAR (Basel III)
Regulatory Total CAR (Basel III)
Leverage (Times)
FY'19
22.6%
22.4%
3.3%
3.2%
5.6%
4.8%
35.9%
39.5%
39.9%
0.7%
0.7%
2.7%
91.1%
12.0%
14.6%
19.1%
7.0x
FY'18
22.8%
22.0%
3.3%
3.2%
6.9%
5.4%
35.6%
37.8%
37.8%
1.6%
1.5%
3.1%
102.7%
12.4%
12.8%
17.9%
7.0x
Change YoY
-0.2 pp
0.4 pp
0.0 pp
0.0 pp
-1.3 pp
-0.6 pp
0.3 pp
1.7 pp
2.1 pp
-0.9 pp
-0.8 pp
-0.4 pp
-11.6 pp
-0.4 pp
1.8 pp
1.2 pp
0.0x
4 Other operating non-interest income includes Net insurance premium earned after claims and acquisition costs
5 For the ratio calculation all relevant group recurring costs are allocated to the bank
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
109
FINANCIAL REVIEW CONTINUED
Net Interest Income
In FY 2019, net interest income amounted to GEL 801.5 million down by 3.0% YoY.
The YoY increase in interest income was primarily related to an increase in interest income from loans, which was related
to growth of gross loan portfolio by GEL 2,289.4 million, or 22.1%. This effect was partially offset by a 1.3 pp drop in loan
yields, mainly in the retail and MSME segments. The decrease in retail loan yields was driven by a continued impact of the
NBG’s regulation from January 2019, which limits the banks’ ability to lend money to higher-yield retail customers, while the
decrease in MSME loan yields was in line with the overall market trend.
Over the same period, interest expense increased by GEL 157.6 million, or 31.1%, which was mainly related to interest
expense from bonds issued in summer 2019, as well as the increase in interest expense from deposits. The latter was related
both to growth in the respective portfolio by 7.5% YoY and to an increase in deposit cost by 0.1 pp over the same period.
In 2019, we re-classified net gains on currency swaps from other operating income to net interest income. More information
is given in annex 2 on page 123.
Consequently, NIM stood at 5.6% in FY 2019, compared to 6.9% in FY 2018, while risk adjusted NIM for the same period
amounted to 4.8%, down by 0.6 pp YoY.
In thousands of GEL
Interest income
Interest expense
Net gains from currency swaps
Net interest income
NIM
Risk adjusted NIM
FY'19
FY'18
Change YoY
1,436,843
(663,860)
28,556
801,539
5.6%
4.8%
1,284,235
(506,213)
N/A
778,022
6.9%
5.4%
11.9%
31.1%
100%
3.0%
-1.3 pp
-0.6 pp
Net fee and commission income
In FY 2019, net fee and commission income totalled GEL 187.3 million, up by 18.9% on a YoY basis.
The increase on a YoY basis was spread across all categories and was related to overall growth of business.
In thousands of GEL
Net fee and commission income
Card operations
Settlement transactions
Guarantees issued and letters of credit
Other
Total net fee and commission income
FY'19
FY'18
Change YoY
56,037
73,228
30,289
27,736
187,290
50,174
62,051
23,414
21,891
157,530
11.7%
18.0%
29.4%
26.7%
18.9%
Other Non-Interest Income
Total other non-interest income decreased by 8.2% on a YoY basis and amounted to GEL 139.4 million in FY 2019. This was
mainly driven by the high base of other operating income last year due to the gain from sale of investment properties and the
recognition of an option to buy shares in one of our large corporate clients in 2018. Another driver was the decrease in net
income from foreign currency operations related to the re-classification of net gains on currency swaps. More information is
given in annex 2 on page 123.
This decrease was partially offset by increase in net insurance premium earned after claims and acquisition costs, which
increased by 50.8% YoY, mainly related to the increased scale of the insurance business.
110
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
In thousands of GEL
FY'19
FY'18
Change YoY
Other non-interest income
Net income from foreign currency operations
Net insurance premium earned after claims and acquisition costs 1
Other operating income
Total other non-interest income
101,467
18,510
19,437
139,414
106,874
12,275
32,767
151,916
-5.1%
50.8%
-40.7%
-8.2%
Credit Loss Allowance
In FY 2019, total credit loss allowance amounted to GEL 92.0 million, down by 44.7% on a YoY basis.
The decrease was mainly related to credit loss allowance on loans to customers, which was driven by strong performance
in all segments, as well as the portfolio product mix change, related to the responsible lending regulation effective from 1
January 2019.
In thousands of GEL
Credit loss allowance
Credit loss allowance for loan to customers
Credit loss allowance for other transactions
Total credit loss allowance
Operating income after credit loss allowance
Cost of risk
FY'19
FY'18
Change YoY
(82,030)
(9,962)
(91,992)
1,036,251
0.7%
(143,723)
(22,516)
(166,239)
921,229
1.6%
-42.9%
-55.8%
-44.7%
12.5%
-0.9 pp
Operating Expenses
In FY 2019, total reported operating expenses expanded 9.7% on a YoY basis and amounted to GEL 450.7 million, while over
the same period underlying operating expenses increased by 8.3% and stood at GEL 445.1 million.
The increase was primarily due to an increase in staff costs and a rise in depreciation and amortization. The increase in
staff costs was due to expansion of business as well as increase in share price over the three year period for the purpose
of top and middle management share based bonuses accruals. The increase in depreciation and amortization was mainly
due to the adoption of IFRS 16 from January 2019, which led to the reclassification of leases from administrative expenses
to depreciation.
As a result, our cost to income ratio increased by 2.1 pp and stood 39.9% in FY 2019, while underlying cost to income was
39.5% up by 1.7 pp YoY.
In thousands of GEL
Operating expenses
Staff costs
Provisions for liabilities and charges
Depreciation and amortization
Administrative & other operating expenses
Total reported operating expenses
Total underlying operating expenses
Reported cost to income
Underlying cost to income
FY'19
FY'18
Change YoY
(247,803)
(1,264)
(59,478)
(142,181)
(450,726)
(445,121)
39.9%
39.5%
(220,354)
(4,000)
(45,740)
(140,935)
(411,029)
(411,029)
37.8%
37.8%
12.5%
-68.4%
30.0%
0.9%
9.7%
8.3%
2.1 pp
1.7 pp
1 Net insurance premium earned after claims and acquisition costs can be reconciled to the standalone net insurance profit as follows: net insurance
premium earned after claims and acquisition costs less credit loss allowance, administrative expenses and taxes, plus fee and commission income
and net interest income
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
111
FINANCIAL REVIEW CONTINUED
Net Income
Reported net income for the full year 2019 increased by GEL 102.9 million, or 23.5% and stood at GEL 540.3 million. Without
one-off items our net income would have increased by GEL 90.2 million, or 19.8% and amounted to GEL 545.1 million.
As a result, ROE stood at 22.4%, up by 0.4 pp YoY, while ROA remained unchanged and stood at 3.2%. Our underlying ROE
stood at 22.6% down by 0.2 pp YoY, while ROA stood at 3.3% and remained the same over the same period.
In thousands of GEL
Profit before tax
Income tax expense
Reported profit for the period
Underlying profit for the period
Reported ROE
Underlying ROE
Reported ROA
Underlying ROA
FY'19
FY'18
Change YoY
585,525
(45,184)
540,341
545,105
510,200
(72,765)
437,435
454,861
22.4%
22.6%
3.2%
3.3%
22.0%
22.8%
3.2%
3.3%
14.8%
-37.9%
23.5%
19.8%
0.4 pp
-0.2 pp
0.0 pp
0.0 pp
Funding and Liquidity
Since September 2019, the National Bank of Georgia had introduced net stable funding ratio (NSFR) per Basel III standards.
The comparable figure for 2018 is based on internal estimates.
Minimum net stable funding ratio, as defined by NBG
Net stable funding ratio
Net loans to deposits + IFI funding
Leverage (Times)
Minimum liquidity ratio, as defined by the NBG
Liquidity ratio, as defined by the NBG
Minimum total liquidity coverage ratio, as defined by the NBG
Minimum LCR in GEL, as defined by the NBG
Minimum LCR in FC, as defined by the NBG
Total liquidity coverage ratio, as defined by the NBG
LCR in GEL, as defined by the NBG
LCR in FC, as defined by the NBG
31-Dec-19
31-Dec-18
100.0%
126.7%
104.8%
7.0x
30.0%
32.2%
100.0%
75.0%
100.0%
110.1%
83.7%
128.4%
N/A
129.3%1
89.9%
7.0x
30.0%
33.3%
100.0%
75.0%
100.0%
113.9%
102.5%
121.1%
Change
N/A
-2.6%
14.9%
0.0x
0.0%
-1.1%
0.0%
0.0%
0.0%
-3.8%
-18.8%
7.3%
Regulatory Capital
As of 31 December 2019, the Bank’s Basel III CET 1 capital stood at 12.0%, down by 0.4 pp on a YoY basis. The drop was mainly
driven by the increased portfolio and GEL depreciation during 2019. This effect was partially offset by net income generation
over the same period.
Our Tier 1 and Total capital ratios increased by 1.8 pp and 1.2 pp respectively. The increase was mainly driven by income
generation and issuance of AT1 instrument (in the amount of US$ 125 million) in summer 2019.
In thousands of GEL
CET 1 Capital
Tier 1 Capital
Total Capital
Total Risk-weighted Exposures
Minimum CET 1 ratio
CET 1 Capital adequacy ratio
Minimum Tier 1 ratio
Tier 1 Capital adequacy ratio
Minimum total capital adequacy ratio
Total Capital adequacy ratio
1
Based on internal estimates
112
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
31-Dec-19
31-Dec-18
1,871,892
2,281,706
2,974,029
15,590,927
10.4%
12.0%
12.5%
14.6%
17.5%
19.1%
1,629,594
1,678,716
2,351,269
13,154,871
8.3%
12.4%
11.8%
12.8%
15.8%
17.9%
Change
14.9%
35.9%
26.5%
18.5%
2.1 pp
-0.4 pp
2.2 pp
1.8 pp
1.7 pp
1.2 pp
Loan Portfolio
As of 31 December 2019, the gross loan portfolio reached GEL 12,662.0 million, up by 22.1% YoY, or by 17.9% on a constant
currency basis. This was mainly supported by growth in the corporate segments (as well as by the re-segmentation of
certain clients from the MSME segment in 1Q 2019 in the amount of GEL 128.0 million). Over the same period, the proportion
of gross loans denominated in foreign currency decreased by 1.4 pp on a YoY basis and accounted for 58.7% of total loans,
while on a constant currency basis the proportion of gross loans denominated in foreign currency increased by 2.9 pp and
stood at 57.2%.
At the end of December 2019, our market share in total loans stood at 39.5% up by 0.7 pp YoY, while our loan market share in
legal entities was 38.9% up by 1.6 pp YoY, and our loan market share in individuals stood at 40.0% and remained the same YoY.
In thousands of GEL
Loans and advances to customers
Retail
Retail loans GEL
Retail loans FC
Corporate
Corporate loans GEL
Corporate loans FC
MSME
MSME loans GEL
MSME loans FC
Total loans and advances to customers
Loan yields
Loan yields GEL
Loan yields FC
Retail loan yields
Retail loan yields GEL
Retail loan yields FC
Corporate loan yields
Corporate loan yields GEL
Corporate loan yields FC
MSME loan yields
MSME loan yields GEL
MSME loan yields FC
31-Dec-19
31-Dec-18
Change
5,053,203
2,386,750
2,666,453
4,660,473
1,424,309
3,236,164
2,948,279
1,419,804
1,528,475
12,661,955
4,698,699
2,063,283
2,635,416
3,177,289
905,372
2,271,917
2,496,594
1,170,343
1,326,251
10,372,582
7.5%
15.7%
1.2%
46.7%
57.3%
42.4%
18.1%
21.3%
15.2%
22.1%
FY'19
11.0%
15.7%
7.8%
12.1%
18.0%
7.3%
9.3%
11.6%
8.4%
11.4%
15.4%
7.7%
FY'18
Change YoY
12.3%
17.8%
8.5%
14.2%
20.8%
7.9%
9.5%
11.0%
9.0%
12.1%
16.2%
8.7%
-1.3 pp
-2.1 pp
-0.7 pp
-2.1 pp
-2.8 pp
-0.6 pp
-0.2 pp
0.6 pp
-0.6 pp
-0.7 pp
-0.8 pp
-1.0 pp
Loan Portfolio Quality
The total PAR 30 improved by 0.3 pp on a YoY basis, driven by the retail segment, while total NPLs stood at 2.7%, down by
0.4 pp, which was primarily attributable to the strong performance of the corporate and MSME segments as well as solid
portfolio growth.
Par 30
Retail
Corporate
MSME
Total Loans
Non-performing Loans
Retail
Corporate
MSME
Total Loans
31-Dec-19
31-Dec-18
2.1%
0.5%
2.8%
1.7%
2.6%
0.4%
2.8%
2.0%
31-Dec-19
31-Dec-18
3.0%
1.8%
3.8%
2.7%
2.9%
2.7%
4.2%
3.1%
Change
-0.5 pp
0.1 pp
0.0 pp
-0.3 pp
Change
0.1 pp
-0.9 pp
-0.4 pp
-0.4 pp
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
113
FINANCIAL REVIEW CONTINUED
NPLs Coverage
Corporate
Retail
MSME
Total
31-Dec-19
31-Dec-18
Exc. Collateral
Incl. Collateral
Exc. Collateral
Incl. Collateral
97.1%
111.1%
59.7%
91.1%
241.4%
182.9%
173.7%
194.2%
96.4%
132.4%
68.4%
102.7%
286.9%
204.4%
174.0%
216.4%
Cost of risk
The total cost of risk for FY 2019 stood at 0.7%, down by 0.9 pp YoY, driven by the change of product mix, as well as by robust
credit quality across all segments, related to the responsible lending regulation effective from 1 January 2019.
Cost of Risk
Retail
Corporate
MSME
Total
FY'19
1.6%
-0.1%
0.3%
0.7%
FY'18
2.7%
0.4%
0.7%
1.6%
Change YoY
-1.1 pp
-0.5 pp
-0.4 pp
-0.9 pp
Deposit Portfolio
The total deposit portfolio increased by 7.5% YoY and amounted to GEL 10,049.3 million, while on a constant currency basis
the total deposit portfolio was up by 2.9%. The proportion of deposits denominated in foreign currency increased by 0.2
pp on a YoY basis and accounted for 65.9% of total deposits, while on a constant currency basis the proportion of deposits
denominated in foreign currency increased by 1.3 pp and stood at 64.4%.
By the end December 2019, our market share in deposits amounted to 39.0% down by 2.2 pp YoY, and our market share in deposits
to legal entities stood at 40.6% down by 0.7 pp. Our market share in deposits to individuals stood at 37.9%, down by 3.3 pp YoY.
In thousands of GEL
Customer Accounts
Retail
Retail deposits GEL
Retail deposits FC
Corporate
Corporate deposits GEL
Corporate deposits FC
MSME
MSME deposits GEL
MSME deposits FC
Total Customer Accounts
Deposit rates
Deposit rates GEL
Deposit rates FC
Retail deposit yields
Retail deposit rates GEL
Retail deposit rates FC
Corporate deposit yields
Corporate deposit rates GEL
Corporate deposit rates FC
MSME deposit yields
MSME deposit rates GEL
MSME deposit rates FC
114
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
31-Dec-19
31-Dec-18
Change
5,673,917
1,098,681
4,575,236
3,187,319
1,735,746
1,451,573
1,188,088
594,388
593,700
10,049,324
5,103,971
935,339
4,168,632
3,230,653
1,754,282
1,476,371
1,017,518
515,827
501,691
9,352,142
FY'19
3.3%
5.8%
2.0%
2.8%
5.0%
2.3%
4.9%
7.4%
1.7%
0.9%
1.5%
0.3%
FY'18
3.2%
5.6%
2.1%
2.7%
4.4%
2.4%
4.9%
7.5%
1.9%
1.0%
1.7%
0.4%
11.2%
17.5%
9.8%
-1.3%
-1.1%
-1.7%
16.8%
15.2%
18.3%
7.5%
Change YoY
0.1 pp
0.2 pp
-0.1 pp
0.1 pp
0.6 pp
-0.1 pp
0.0 pp
-0.1 pp
-0.2 pp
-0.1 pp
-0.2 pp
-0.1 pp
SEGMENTS PROFITABILITY
Business Segments
The segment definitions are as follows (updated in 2019):
` 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 the MSME segment on a discretionary basis;
` Retail – non-business individual customers; all individual customers are included in retail deposits;
` MSME – business customers who are not included in the corporate segment; or legal entities which have been granted a pawn
shop loan; or individual customers of the fully-digital bank, Space; and
` Corporate centre and other operations – comprises the Treasury, other support and back office functions, and non-banking
subsidiaries of the Group.
Business customers are all legal entities or individuals who have been granted a loan for business purposes.
Income Statement by Segments
FY'19 In thousands of GEL
Interest income
Interest expense
Net gains on currency swaps
Net transfer pricing
Net interest income
Fee and commission income
Fee and commission expense
Net fee and commission income
Net insurance premium earned after claims
and acquisition costs
Retail
582,788
(152,751)
-
(66,951)
363,086
207,258
(88,679)
118,579
MSME
299,451
(10,202)
-
(101,424)
187,825
26,271
(9,081)
17,190
Corporate
356,652
(160,064)
-
31,352
227,940
49,338
(7,069)
42,269
Corp.Centre
197,952
(340,843)
28,556
137,023
22,688
10,564
(1,312)
9,252
Total
1,436,843
(663,860)
28,556
-
801,539
293,431
(106,141)
187,290
-
-
-
18,510
18,510
Net income/(expense) from foreign currency operations
30,990
24,220
49,851
(25,782)
79,279
Foreign exchange translation gains
less losses
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 and insurance profit
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 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/(loss) before tax
Income tax (expense)/credit
Profit for the year
-
(264)
-
-
-
-
9,563
1,093
-
40,289
(77,323)
411
-
(3,545)
-
-
25,313
(7,968)
124
-
(11)
-
441,497
222,473
(134,143)
(48,018)
(45,522)
(7,210)
-
-
(77,563)
(21,094)
(257,228)
(76,322)
184,269
146,151
(18,101)
(14,825)
166,168
131,326
-
-
-
2,953
-
52,804
3,261
(2,691)
-
2,211
(141)
325,653
(38,360)
(2,571)
-
(17,127)
(58,058)
267,595
(29,048)
238,547
22,188
22,188
(16)
169
5,307
632
21,008
-
-
(280)
169
18,916
632
139,414
(82,030)
(2,156)
582
582
(6,753)
(8,098)
(149)
(290)
46,628
1,036,251
(27,282)
(247,803)
(4,175)
(1,264)
(59,478)
(1,264)
(26,397)
(142,181)
(59,118)
(450,726)
(12,490)
16,790
4,300
585,525
(45,184)
540,341
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
115
FINANCIAL REVIEW CONTINUED
CONSOLIDATED FINANCIAL STATEMENTS OF TBC BANK GROUP PLC
Consolidated Statement of Financial Position
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
Bonds carried at amortized cost
Investments in finance leases
Investment properties
Current income tax prepayment
Deferred income tax asset
Other financial assets
Other assets
Premises and equipment
Right of use assets
Intangible assets
Goodwill
Investments in associates
TOTAL ASSETS
LIABILITIES
Due to credit institutions
Customer accounts
Lease liabilities
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
Shares held by trust
Share premium
Retained earnings
Group re-organisation reserve
Share based payment reserve
Revaluation reserve for premises
Fair value reserve
Cumulative currency translation reserve
Net assets attributable to owners
Non-controlling interest
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
31-Dec-18
31-Dec-19
1,166,911
1,003,583
47,316
33,605
1,422,809
1,591,829
10,038,452
12,349,399
1,005,239
985,293
654,203
1,022,684
203,802
256,660
84,296
72,667
2,116
25,695
2,097
2,173
167,518
133,736
192,792
255,712
367,504
385,736
-
59,693
109,220
167,597
31,286
61,558
2,654
2,432
18,410,274 15,497,993
3,593,901
10,049,324
59,898
113,608
1,634
1,213,598
21,331
23,128
95,162
591,035
15,762,619
3,031,503
9,352,142
-
98,714
63
13,343
22,237
18,767
104,337
650,919
13,292,025
1,650
1,682
-
(27,516)
796,854
848,459
1,523,879
1,953,364
(162,166)
(162,167)
(16,294)
(17,803)
57,240
56,374
8,680
(6,476)
(6,937)
(6,850)
2,202,906
2,639,067
3,062
8,588
2,205,968
2,647,655
18,410,274 15,497,993
116
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
Consolidated Statement of Profit or Loss and Other Comprehensive Income
in thousands of GEL
Interest income
Interest expense
Net gains from currency swaps
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
Net insurance premium earned after claims and acquisition costs
Net gains from trading in foreign currencies
Net gain/(losses) 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
Other operating income
Share of profit of associates
Other operating non-interest income
Credit loss allowance for loans 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 impairment losses
Staff costs
Depreciation and amortization
Provision for liabilities and charges
Administrative and other operating (expense)/income
Operating expenses
Profit before tax
Income tax expense
Profit for the period
Other comprehensive:
Items that may be reclassified subsequently to profit or loss:
Movement in fair value reserve
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 (expense)/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
FY’19
1,436,843
(663,860)
28,556
801,539
293,431
(106,141)
187,290
38,199
(19,689)
18,510
79,279
22,188
(280)
FY’18
1,284,235
(506,213)
N/A
778,022
235,701
(78,171)
157,530
23,601
(11,326)
12,275
91,678
15,196
173
169
18,916
632
120,904
(82,030)
582
(2,156)
(8,098)
(290)
1,036,251
(247,803)
(59,478)
(1,264)
(142,181)
(450,726)
585,525
(45,184)
540,341
(15,156)
85
-
-
(15,071)
525,270
537,895
2,446
540,341
522,843
2,427
525,270
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
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
117
FINANCIAL REVIEW CONTINUED
Consolidated Statements of Cash Flows
In thousands of GEL
Cash flows from/(used in) operating activities
Interest received
Interest received on currency swaps
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 (used in)/from operating activities
Cash flows from/(used in) investing activities
Acquisition of investment securities measured at fair value through other comprehensive income
Proceeds from disposal of investment securities measured at fair value
through other comprehensive income
Proceeds from redemption at maturity of investment securities measured at fair value
through other comprehensive income
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
Cash acquired
Proceeds from disposal of investment property
Net cash used in investing activities
Cash flows from/(used in) financing activities
Proceeds from other borrowed funds
Redemption of other borrowed funds
Repayment of principal of lease liabilities
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
Net cash flows from financing activities
Effect of exchange rate changes on cash and cash equivalents
Net 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
FY’19
FY’18
1,360,296
28,556
(647,427)
282,715
(106,526)
76,101
(21,787)
79,287
44,248
(216,465)
(169,582)
(70,413)
639,003
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
(22,009)
(2,013,577)
(43,719)
19,612
1,577
(343,772)
(1,718,446)
(54,784)
(35,570)
(4,486)
(1,938)
272,023
(8,267)
5,816
(1,151,479)
69,755
1,371,675
(12,136)
3,618
(76,048)
(1,781,816)
(717,729)
240,603
14,781
1,598,536
370,571
(39,297)
(613,383)
216,871
(120,333)
13,225
2,996
13,338
809
(395,717)
200,658
(89,263)
813
-
42,515
(469,260) (572,562)
1,819,899
(1,392,897)
6,453
-
(104,079)
1,176,049
(14,296)
(91,928)
-
1,386,295
71,116
1,776,489
(1,515,562)
-
255,900
(60,910)
(7,596)
-
(85,484)
-
362,837
21,207
(163,328) (264,566)
1,166,911 1,431,477
1,003,583 1,166,911
118
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
KEY RATIOS
Average Balances
The average balances included in this document are calculated as the average of the relevant monthly balances as of each
month-end. Balances have been extracted from TBC’s unaudited and consolidated management accounts, which were
prepared from TBC’s accounting records. These were used by the management for monitoring and control purposes.
Key Ratios
Ratios (based on monthly averages, where applicable)
Profitability ratios:
Underlying ROE1
Reported ROE2
Underlying ROA3
Reported ROA4
ROE before credit loss allowance5
Underlying Cost to Income6
Reported Cost to Income7
NIM8
Risk Adjusted NIM9
Loan Yields10
Risk Adjusted Loan Yields11
Deposit rates12
Yields on interest Earning Assets13
Cost of Funding14
Spread15
Asset quality and portfolio concentration:
Cost of Risk16
PAR 90 to Gross Loans17
NPLs to Gross Loans18
NPLs coverage exc. collateral19
NPLs coverage with collateral20
Credit loss level to Gross Loans21
Related Party Loans to Gross Loans22
Top 10 Borrowers to Total Portfolio23
Top 20 Borrowers to Total Portfolio24
Capital optimisation:
Net Loans to Deposits plus IFI Funding25
Net Stable Funding Ratio26
Liquidity Coverage Ratio27
Leverage28
CET 1 CAR (Basel III)29
Regulatory Tier 1 CAR (Basel III)30
Regulatory Total 1 CAR (Basel III)31
* Based on internal estimates
FY'19
FY'18
22.6%
22.4%
3.3%
3.2%
26.3%
39.5%
39.9%
5.6%
4.8%
11.0%
10.3%
3.3%
10.0%
4.7%
5.5%
0.7%
1.1%
2.7%
91.1%
194.2%
2.5%
0.1%
8.3%
12.3%
104.8%
126.7%
110.1%
7.0x
12.0%
14.6%
19.1%
22.8%
22.0%
3.3%
3.2%
30.4%
37.8%
37.8%
6.9%
5.4%
12.3%
10.8%
3.2%
11.4%
4.4%
7.0%
1.6%
1.2%
3.1%
102.7%
216.4%
3.2%
0.1%
10.1%
14.2%
89.9%
129.3%*
113.9%
7.0x
12.4%
12.8%
17.9%
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
119
FINANCIAL REVIEW CONTINUED
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. Reported 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. Reported 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. Underlying cost to income ratio equals total underlying 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. Reported 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).
8. Net interest margin (NIM) is net interest income divided by monthly average interest-earning assets; annualised where
applicable. Interest-earning assets include investment securities excluding corporate shares, net investment in finance
lease, net loans, and amounts due from credit institutions. The latter excludes all items from cash and cash equivalents,
excludes EUR mandatory reserves with NBG that currently have negative interest, and includes other earning items
from due from banks.
9. Risk Adjusted Net Interest Margin is NIM minus the cost of risk without one-offs and the currency effect.
10. Loan yields equal interest income on loans and advances to customers divided by monthly average gross loans and
advances to customers; annualised where applicable.
11. Risk Adjusted Loan yield is loan yield minus the cost of risk without one-offs and currency effect.
12. Deposit rates equal interest expense on customer accounts divided by monthly average total customer deposits;
annualised where applicable.
13. Yields on interest earning assets equal total interest income divided by monthly average interest earning assets;
annualised where applicable.
14. Cost of funding equals total interest expense divided by monthly average interest bearing liabilities; annualised where
applicable.
15. Spread equals difference between yields on interest earning assets (including but not limited to yields on loans,
securities and due from banks) and cost of funding (including but not limited to cost of deposits, cost on borrowings and
due to banks).
16. Cost of risk equals credit loss allowance for loans to customers divided by monthly average gross loans and advances to
customers; annualised where applicable.
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 a 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 equals total credit loss allowance for loans to customers calculated per IFRS 9 divided by the NPL loans.
20. NPLs coverage with collateral ratio equals credit loss allowance for loans to customers per IFRS 9 plus the 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 equals credit loss allowance for loans to customers 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 by NBG in line with Basel III guidelines.
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 CET 1 CAR equals CET 1 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.
120
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
30. Regulatory tier 1 CAR equals tier I capital divided by total risk weighted assets, both calculated in accordance with the
Pillar 1 requirements of 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. 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.
Exchange Rates
To calculate the YoY growth of the Balance Sheet items without the currency exchange rate effect, we used the US$/GEL
exchange rate of 2.6766 as of 31 December 2018. As of 31 December 2019, the US$/GEL exchange rate equalled 2.8677.
For P&L items growth calculations without currency effect, we used the average US$/GEL exchange rate for the following
periods: FY 2019 of 2.8192, FY 2018 of 2.5345.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
121
FINANCIAL REVIEW CONTINUED
ANNEX 1
Reconciliation of reported IFRS consolidated figures with the underlying numbers
Item (in thousands of GEL ) FY 2019
FY 2018
Description
Consulting fees
(5,605)
Reversal of
deferred tax gain
-
(17,426)
Consulting fees incurred in 2Q 2019, in
relation to the recent events regarding
historic matters surrounding TBC
Bank. For further details, please see
the press release dated 21.02.2019 and
the press release dated 09.01.2019.
In 2018, TBC Bank reversed the one-
off deferred tax gain recognized 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 tax relief for re-invested
profit from 1 January 2019 to 1 January
2023 for financial institutions.
Reason for exclusion from the Group’s
current reported performance
These costs are significant and non-
recurring in nature, and therefore
are not indicative of the Group’s
current underlying performance.
These costs are significant and
non-recurring in nature, and
therefore are not indicative of
the Group’s current underlying
performance.
in thousands of GEL
Reported net interest income
Reported net fee and commission income
Reported net insurance premium earned after claims and acquisition costs
Reported other operating income
Reported operating income
Reported total credit loss allowance
Reported operating income after provisions
Reported operating expenses
One-off consulting fees
Underlying operating expenses
Reported profit before tax
Underlying profit before tax
Reported income tax
Effect on tax of one-off items
Reversal of the one-off deferred tax gain
Underlying income tax
Reported net profit
Underlying net profit (APM)
Reported non-controlling interest (NCI)
Underlying NCI
Reported net profit less NCI
Underlying net profit less NCI
FY'19
801,539
187,290
18,510
120,904
1,128,243
(91,992)
1,036,251
(450,726)
5,605
(445,121)
585,525
591,130
(45,184)
(841)
(46,025)
540,341
545,105
2,446
2,446
537,895
542,659
FY'18
778,022
157,530
12,275
139,641
1,087,468
(166,239)
921,229
(411,029)
-
(411,029)
510,200
510,200
(72,765)
17,426
(55,339)
437,435
454,861
2,355
2,355
435,080
452,506
122
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
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 cost to income
Underlying cost to income (APM)
Reported ROE
Underlying ROE (APM)
Reported ROA
Underlying ROA (APM)
ANNEX 2
Net gains from currency swaps
FY'19
2,397,141
6,079
2,403,220
16,792,320
-
16,792,320
FY'18
1,977,359
10,088
1,987,447
13,623,594
-
13,623,594
FY'19
39.9%
39.5%
22.4%
22.6%
3.2%
3.3%
FY'18
37.8%
37.8%
22.0%
22.8%
3.2%
3.3%
In 2019, the Group entered into swap agreements denominated in foreign currencies in order to decrease its cost of funding.
As the contracts reached significant volume, the Group revisited the presentation of effects in the Statement of profit or loss.
Reclassifications from other non-interest operating income to net interest income have been recorded for the first three
quarters in 2019. 2018 information has not been restated due to immateriality of amounts.
in thousands of GEL
Net gains from currency swaps
4Q’19
9,054
3Q’19
8,355
2Q'19
6,967
1Q19
4,179
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
123
diversity were key areas of focus for the Board again this
year. I am pleased to report that Arne Berggren, an
independent non-executive Director has joined our Board
and, Eric Rajendra has rejoined us as an independent non-
executive Director following his recovery from a period of
illness. I am also pleased to report that Arne Berggren and
Eric Rajendra bring extensive banking and financial
services experience, which will serve to ensure that the
Board is well placed to function effectively and take
opportunities which present themselves to us in the year
ahead. The Board and Committee changes over the past
year are set out in further detail in the Corporate Governance
and Nomination Committee report on pages 143-146 .
An important part of my role as Chairman is to ensure that
the Board and its individual members operate effectively
and that the Board environment enables a culture of
openness, debate and high-quality decision making. The
Board is collectively responsible for overseeing delivery of
the Group’s strategy and has a significant role to play in
determining that the Group’s culture, values, strategy and
business model are all aligned in order to create sustainable
value for our shareholders and takes into account the
interests of all our stakeholders. A summary of our strategy
is outlined on pages 12-19 and how we impact on our
stakeholders is described on pages 52-55.
In accordance with the UK Corporate Governance Code (the
“Code”), all directors will be subject to re-election by
shareholders at our Annual General Meeting.
Nikoloz Enukidze
Chairman
28 April 2020
DIRECTORS’ GOVERNANCE STATEMENT
CHAIRMAN’S GOVERNANCE OVERVIEW
Dear shareholders,
As the Chairman of the Board, I am pleased to present our
corporate governance report for 2019. Our aim is to ensure
that our governance is fit for purpose and in line with best
practice. We remain firmly of the view that strong governance
should prevail throughout our 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
and taking into account the needs of our other key
stakeholders.
2019 was a challenging year for the Board. Following the
departure of the former Chairman and Deputy Chairman, a
number of changes were made to the boards of the Company
and its main subsidiary JSC TBC Bank (the “Bank”). We have
implemented a Mirror Board governance structure, with all
non-executive Directors of the Board also becoming
members of the Supervisory Board of the Bank. You can
read the full details about the Board and Committee
restructuring and composition in the Corporate Governance
and Nomination Committee report on pages 143-146.
We continue to firmly believe that a successful and properly
functioning Board requires the right balance of skills,
including country-specific knowledge, and diversity of
experience and perspectives
to achieve maximum
effectiveness. For this reason, composition of the Board and
124
TBC BANK ANNUAL REPORT AND ACCOUNTS 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 2019 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 July 2018 in full throughout 2019. In particular, the Board has considered
the changes made to the 2018 Code and the increased focus required upon a company’s purpose, culture and stakeholder
engagement. 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 purpose, culture, values and long term success strategy and
the delivery of sustainable value to stakeholders by establishing and overseeing the strategic direction of the Company and
its business. The directors are aware of their duties under section 172 of the Companies Act 2006 and further insight into how
the Board took account of the views and interests of our stakeholders can be found on pages 52-55.
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 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 the website at
www. tbcbankgroup.com.
During the year ended 31 December 2019, 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 internally facilitated Board evaluation exercise and the action plans resulting there from.
The principal decisions taken by the Board during 2019, and the impact that these had on various stakeholders are detailed below:
Decision:
2020 Business Plan and Budget
Context
Stakeholder
considerations
The Business Plan and Budget sets the annual targets and the costs of the necessary
resources to achieve these targets. It is developed in line with the overall strategy of the
Group and takes into account any specific challenges faced by the business. This includes
any stakeholder related considerations. The Chief Executive Officer, supported by key
members of management, presents the Business Plan and Budget for the Board’s challenge
and approval. Key senior management responsible for the key business units attend and
present their budget to the Board.
In reviewing the Business Plan and Budget, the Board considered the potential impact that
each operation and project might have on its stakeholders (employees, local communities,
government and regulators, contractors & suppliers, shareholders and customers) and
the environment.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
125
DIRECTORS’ GOVERNANCE STATEMENT CONTINUED
Decision:
2020 Business Plan and Budget
Strategic Actions
Supported by the Board
The strategic actions of the Business Plan and Budget supported by the Board to generate
value for stakeholders are:
` continued geographic expansion into other jurisdictions in the region;
` further system and process enhancements based on the agile system to increase efficiency
and improve control;
` wider use of digital banking technology to benefit customers;
` continuing high standards of corporate governance and adherence to regulations; and
` approval of investment plans, generating new products and businesses that provide
additional employment opportunities, enhanced customer services and supplier
opportunities.
Impact of these actions
on the long-term success
of the Company
The Business Plan and Budget creates a balance between current operating performance
and considerations that matter to all stakeholders in the short and long-term such as
health & safety, environmental performance and community relations. In addition a
wider range of client products will become available to customers in Georgia and other
jurisdictions across the region.
Outcome
Decision:
Context
In December 2019 the Board discussed and approved the 2020 Business Plan and Budget.
Share buy back
Following a reduction in the share price, the Board reviewed and considered whether to
take advantage of the powers given to it by shareholders to repurchase up to 10% of the
company’s issued share capital.
Stakeholder
considerations
The Board determined that, as a result of the reduction in share price, it was to the benefit
of shareholders to put into place a short term share buyback programme.
Strategic Actions
Supported by the Board
The share buyback programme was implemented in order to:
` support the share price; and
` make treasury stock available to satisfy employee long term share plans.
Impact of these actions
on the long-term success
of the Company
The Board actioned the share purchase programme, for a period of time and purchased
144,380 shares at an aggregate value of £ 1,967,133 (which does not include trade
commission). The repurchased shares were held in treasury, and then transferred to the
Employee Benefit Trust.
BOARD COMMITTEES
The Board is supported by its committees (the “Committees”) and delegates a broad range of responsibilities to them, while
maintaining the effective links between the 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 Risk
Committee. The chair of each Committee reports matters of significance to the Board after each meeting. Each of the Committees
is made up of independent non-executive Directors, apart from the Corporate Governance and Nominations Committee and the
Remuneration Committee, where the Chairman, who was independent on appointment, is also a member.
All Committees undertake an annual review of effectiveness and a review of their terms of reference.
The detailed roles and responsibilities of the Committees are set out in their terms of reference, which can be found on our website
at www.tbcbankgroup.com.
126
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
CORPORATE GOVERNANCE STRUCTURE
Board of Directors
Membership
Audit Committee
Remuneration
Committee
Corporate Governance
and Nomination Committee
Risk Committee
Outside Directors
Nikoloz Enukidze
Nicholas Dominic Haag (SID)
Maria Luisa Cicognani
Tsira Kemularia
Arne Berggren
Eric Rajendra
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, Nikoloz Enukidze 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, Nicholas Haag as the new 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
In accordance with the Code, the majority of the Board are independent non-executive Directors. At the date of this report, the
Board is comprised of a Chairman (Nikoloz Enukidze), two executive Directors (Vakhtang Butskhrikidze and Giorgi Shagidze)
and five independent non-executive Directors (Nicholas Haag (SID), Maria Luisa Cicognani, Tsira Kemularia, Arne Berggren
and Eric Rajendra).
Non-executive Directors constructively challenge and scrutinise the performance of management and help develop proposals
on strategy. In 2019, as mentioned previously, 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 that all non-executive Directors are independent in character and judgement.
Each non-executive Director has an ongoing obligation to inform the Board of any circumstances that could impair their independence.
Nikoloz Enukidze was considered to be independent on appointment to the Board and on taking up the role of Chairman. The
Board is unanimously of the opinion that Mr Enukidze 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.
Details of the individual Directors and their biographies are set out on pages 136-139.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
127
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 Board meetings and respective Committees 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. Every Board meeting follows a tailored agenda agreed in advance
by the Chairman. Prior to each meeting the Chairman reviews 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.
The Board recognises the need to prioritise time to focus on material strategic and business matters, while ensuring monitoring and
oversight of all other key matters within its remit.
The Board and Committees rely on the management to raise relevant items for approval. The processes of agenda setting
and reporting to the Board are reviewed as part of the Board performance evaluation. During the Board meetings, there
is also an extra day allocated for strategic sessions. This provides an opportunity for the Directors to focus exclusively on
strategy and gain deeper insights by hearing from relevant business line heads within the Group, asking questions and
debating matters in an informal way.
BOARD AND COMMITTEE MEETING ATTENDANCE
In 2019, the Company held 9 scheduled and 24 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 the Supervisory Board with the same
membership as the Board. There is also an equivalent committee structure and composition of the Supervisory Board as
the committee structure at the Board. There are therefore, in practice, two equivalent supervisory bodies within the Group
represented by the Board and the Supervisory Board, which are separate but interconnected together with their respective
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.
Attendance of meetings of the Board and the Committees in 2019 are set out below:
Board Attendance
Vakhtang Butskhrikidze
(Chief Executive Officer)
Giorgi Shagidze
(Chief Financial Officer)
Non-Executive Directors
Nikoloz Enukidze
(Chairman)
Mamuka Khazaradze
(former Chairman)
Badri Japaridze
(former Deputy Chairman)
Nicholas Dominic Haag
Maria Luisa Cicognani
Tsira Kemularia
Eric Rajendra
Arne Berggren
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
Risk Committee
meetings eligible to
attend/attended
40/40
40/40
40/40
24/23
24/23
40/36
40/38
40/38
13/13
11/11
0/0
0/0
11/11
0/0
0/0
14/14
14/14
3/3
9/9
3/3
0/0
0/0
10/10
0/0
0/0
10/9
10/10
0/0
5/4
0/0
0/0
0/0
11/11
0/0
5/5
5/5
0/0
11/11
3/3
0/0
0/0
0/0
4/4
0/0
0/0
7/7
7/7
7/7
2/2
3/3
128
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
Attendance of meetings of the Supervisory Board and its committees in 2019 are set out below:
Supervisory Board Attendance
Mamuka Khazaradze
(former Chairman)
Vakhtang Butskhrikidze
(Chief Executive Officer)
Giorgi Shagidze
(Chief Financial Officer)
Badri Japaridze
(former Deputy
Chairman)
Eric Rajendra
Nikoloz Enukidze
(Chairman)
Nicholas Dominic Haag
Maria Luisa Cicognani
Tsira Kemularia
Jyrki Kosleko
Arne Berggren
Supervisory Board
meetings eligible
to attend/attended
Audit Committee
meetings eligible to
attend/attended
Remuneration
Committee meetings
eligible to attend/
attended
Corporate Governance and
Nomination Committee
meetings eligible to attend/
attended
Risk Committee
meetings eligible to
attend/attended
9/7
0/0
0/0
9/9
7/7
56/56
56/55
56/53
56/56
12/10
21/21
0/0
0/0
0/0
0/0
2/2
10/10
13/13
13/13
13/13
0/0
3/3
0/0
0/0
0/0
0/0
10/10
8/8
8/8
3/3
8/8
0/0
0/0
0/0
0/0
0/0
2/2
2/2
8/8
2/2
0/0
8/8
0/0
0/0
0/0
0/0
0/0
0/0
4/4
15/15
20/20
20/20
20/20
0/0
5/5
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.
Detailed information on our diversity policy could be found in Corporate Governance and Nomination Committee report on
pages 143-146.
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 was one new appointment to the Board and its Committees. The
induction process for Arne Berggren 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,
Arne Berggren received training on his duties as directors of a listed company including the recent changes made to the Code,
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
An internally facilitated annual Board performance evaluation was conducted in 2019, following an externally evaluated review
undertaken by Independent Audit Limited in 2018 (IAL). The review was carried out at the initiative and with the participation
of the Company’s Corporate Governance and Nomination (“CGN”) Committee. Questionnaires were distributed to all Board
directors for their response and comment. The results were discussed at three levels: (i) among the members of the CGN
Committee; (ii) between Tsira Kemularia (as Chairman of the CGN Committee) and Nikoloz Enukidze Chairman of the
Board); and (iii) among the members of the Board as a whole. Following the review the SID met with all the Board members
individually to consider the Chairman’s performance. The comments received were fed back to him subsequently meeting.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
129
DIRECTORS’ GOVERNANCE STATEMENT CONTINUED
Board performance was deemed to be satisfactory. At
its February 2020 meeting, the Board agreed an action
plan for 2020 that would allow the Board to continue
developing its involvement in reviewing and considering
the management’s strategy proposals and to take into
account stakeholder considerations; and to ensure that
all Board and Committee meetings remain focused and
efficient. New initiatives will be introduced to support
director training, and the CGN Committee will continue
to review senior management succession plans in great
detail.
As a result of the 2019 action plan, approved by the Board
in February 2019, following the external evaluation by IAL,
the Board noted that its members had spent more time
considering the Group’s strategy plan and investment
proposals arising from it, and more focus has been made
on succession planning for senior executives. In addition,
information flows to both the Board and its Committees
had been improved and a restructuring of Committee
memberships had assisted in this.
The Company undertakes
performance
evaluations of the Board in line with the requirements
of the UK Corporate Governance Code. An externally
facilitated review is planned for 2021.
regular
DIRECTORS’ COMMITMENTS
The Directors are required to disclose to the Board their
external appointments or other significant commitments
prior to their appointment. Should these appointments
change during their tenure, the Directors are required to
disclose those changes and conflicts that might arise will
be considered and approved by the Board.
Each non–executive Director is required to devote such
time as is necessary for the effective discharge of their
duties. Whilst the 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 2019.
RE-ELECTION OF DIRECTORS
As mentioned above, all Directors are subject to annual re-
election by shareholders at the Annual General Meeting,
in accordance with the Code. Biographical details of the
Directors are included on pages 136-139.
REMUNERATION COMMITTEE
Information on the Remuneration Committee is included
in the Directors’ Remuneration report on pages 151 to 179.
ENGAGEMENT WITH STAKEHOLDERS
Effective communication with shareholders is given high
priority by the Board. The Chief Executive Officer and the
Chief Financial Officer, together with Chairman and Senior
Independent Director, maintain very close engagement
with the Company’s major shareholders. They have
participated in 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 the 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.
Details on our engagement with the stakeholders can be
found on pages 52-55.
ANNUAL GENERAL MEETING
The last Annual General Meeting (“AGM”) of the Company
was held on 24 June 2019 at the offices of Baker McKenzie,
100 New Bridge Street, London. 82.35% of total voting
rights were exercised by shareholders. All resolutions put
to shareholders were passed with votes in favour ranging
from 89.69% to 100.0% of the votes cast.
The 2020 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.
130
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
DIRECTORS’ REPORT
DIRECTORS’ REPORT
The Directors present their Annual Report together with the audited consolidated accounts for the year ended 31 December
2019, which can be found on pages 191-318.
The Strategic Report on pages 2 to 123 was approved by the Board on 28 April 2020 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 123 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 Committee report
Audit Committee report
Remuneration Committee report
Viability statement
Going concern statement
Greenhouse gas emissions
Risk management
Material existing and emerging risks
Board of Directors
Employee matters
Environmental matters
Share capital
Future developments in the business
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
Section 172 Statement
Employee engagement
Stakeholder engagement on key decisions
Page
124
143
147
180
151
134
134
73
93
84
136
60
72
269
14
175
132
285
317
52
52
52
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 2019 and remain in force as at the date of this report.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
131
DIRECTORS’ REPORT CONTINUED
POLITICAL DONATIONS
The Group did not make any political donations or incur
any political expenditure during 2019.
Details of the movements in share capital during the
year are provided in Note 26 to the consolidated financial
statements on page 269 of this Annual Report.
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.
Although neither Mamuka Khazaradze nor Badri Japaridze
are directors of the Company or any other member of the
Group, the Relationship Agreement continues to provide
certain protections for the Group from how they and the
other members of the Presumed Concerted Party Group
might act with respect to the Group as shareholders or
otherwise. Specifically, under the Relationship Agreement,
for as long as it remains in force, the members of the
Presumed Concerted Party Group shall, and have agreed
that each of their associates shall, when acting in a
capacity (which could include as a shareholder or director)
with any member of the Group, amongst other things:
` conduct all transactions and arrangements entered
into between any member of the Group (on the one
hand) and that member of the Presumed Concert
Party Group and/or his associates (on the other) on an
arm’s length basis and on normal commercial terms
and in accordance with the related-party transaction
rules set out in the Listing Rules;
` not take any action that would have the effect of
preventing the Company from complying with its
obligations under the Listing Rules; and/or
` not propose or procure the proposal of any resolution
of the shareholders which is intended, or appears to be
intended, to circumvent the proper application of the
Listing Rules.
SHARE CAPITAL
As of 28 April 2020, the Company’s issued ordinary share
capital comprised 55,155,896 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.
132
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
PROFIT AND DIVIDENDS
The profit for the financial year ending 31 December 2019
attributable to the Company’s shareholders, after taxation,
amounts to GEL 537,895,000. The Board is not planning to
recommend payment of a dividend.
POWERS OF DIRECTORS
The Directors may exercise all powers of the Company
subject to applicable laws and regulations and the Articles
of Association.
SPECIAL RIGHTS AND TRANSFER
RESTRICTIONS
None of the ordinary shares in the capital of the Company
carry special rights with regard to the control of the
Company. There are no specific restrictions on transfers
of shares in the Company, which is governed by its Articles
of Association and prevailing legislation, other than:
` certain restrictions which may from time to time be
imposed by laws or regulations such as those relating
to insider dealing;
` pursuant to the Group’s Share Dealing Code, whereby
the Directors and designated employees require
approval to deal in the Company’s shares;
` where a person with an interest in the Company’s
shares has been served with a disclosure notice and
has failed to provide the Company with information
concerning interests in those shares; and
` pursuant
to
the Group’s Senior Management
Compensation System, whereby Participants (as
defined therein) may be granted restricted share
awards, which vest subject to continuous employment
and malus and clawback provisions over three years
from the award date.
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 2019, the Company had been notified
under Rule 5 of the Disclosure Guidance and Transparency
Rules of the Financial Conduct Authority (the “DTRs”) of the
following interests in its total voting rights of 3% or more.
As of 31 December 2019
Shareholder
Mamuka Khazaradze
Badri Japaridze
European Bank for Reconstruction and Development
Dunross &Co
Schroder Investment Management
JPMorgan Asset Management
Creation Investments Capital Management
% of voting rights
10.26%
6.00%
8.04%
6.61%
6.48%
6.22%
3.00%
# of voting rights
5,658,048
3,308,616
4,436,406
3,647,918
3,571,864
3,430,002
1,652,388
Subsequent to the year end, JPMorgan Asset Management notified the Company in accordance with DTR5 of an indirect
holding of 3,435,378 ordinary shares, representing 6.23% of the Company’s issued share capital. Also, Schroders Investment
Management notified the Company in accordance with DTR5 of an indirect holding of 3,004,261 ordinary shares, representing
5.45% of the Company’s issued share capital and Mamuka Khazaradze notified the Company in accordance with DTR5 of
an indirect holding of 4,863,048 ordinary shares, representing 8.82% of the Company’s issued share capital. In addition,
Dunross&Co notified the Company in accordance with DTR5 of an indirect holding of 3,894,434 ordinary shares, representing
7.06% of the Company’s issued share capital. 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 24 June 2019, authorising the Directors to allot ordinary shares in the capital of the Company up to an
aggregate nominal value of £ 182,865.
This authority will apply until the conclusion of the 2020 AGM. Shareholders will be requested to renew these authorities at
the 2020 AGM.
On 29 July 2019, the Company launched a share buy-back program and repurchased 144,380 Ordinary Shares of the Company
that were held in Treasury and later transferred to TBC Bank Group PLC Employee Benefit Trust (the “EBT”). EBT will use
these shares to satisfy obligations arising from the TBC Bank Group PLC Deferred Share Plan (the “Deferred Share Plan”),
the TBC Bank Group PLC Long Term Incentive Plan and other share awards granted to employees.
APPOINTMENT / REPLACEMENT OF DIRECTORS AND AMENDMENT OF ARTICLES
OF ASSOCIATION
The appointment and retirement of Directors is governed by the Articles of Association, the 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, Arne Berggren and
Eric Rajendra were appointed to the Board as non-executive Directors in 2019 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
“Our Colleagues” section on pages 60 to 67 of this Annual Report.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
133
DIRECTORS’ REPORT CONTINUED
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
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 and the parent company’s consolidated financial
statements are prepared in line with the going concern
basis of accounting.
VIABILITY STATEMENT
In compliance with the Code, the Directors assessed
the prospects of the Group and its viability over a three-
year period beginning on 1 January 2020. The Directors
determined the three-year period ending on 1 January
2023 to be appropriate, as it is consistent with the Group’s
planning cycle, covering financial forecasts and the
strategic considerations of the Group. While assessing
the viability of the Group and its operations, the Directors
carried out a robust and thorough assessment of the
Group’s risk profile, including all material existing and
emerging risks that could cause a deviation in the Group’s
financial condition, operations and prospects from the
expectations over the period of assessment. As part of
their strategic planning, the Directors looked beyond this
period and took into consideration, as far as possible,
information from a variety of sources relating to local,
regional and other, broader macro-economic, political,
technological, social and environmental changes which
could 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. In
addition, the Directors analysed the Group’s ability to meet
all regulatory requirements. The Directors’ assessment
considered all of the principal and emerging risks of the
Group and the effectiveness of current and proposed
mitigating actions. The key areas of focus were:
` the risk of economic and political instability and its
impact on the Group’s future performance;
` the risk of not meeting regulatory requirements, with a
key focus on minimum capital adequacy ;
` foreign exchange rate risk, which is significant due to
the high dollarisation of the Group’s portfolio;
` the regulatory risk that derives from the significant
regulatory changes within the last two years;
` the risk of decreasing net interest income and net
interest margin as a result of new regulations,
increased competition and funding structure; and
` increased reputational risk related to the Company’s
founders’ media exposure.
In addition the directors have undertaken a detailed
review of the impact of the COVID-19 virus and the Group’s
viability. A summary of all of the material existing and
emerging risks the Group is exposed to and the mitigating
actions taken by the Group are set out on pages 84 to 92.
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 and the achievement of the Group’s
strategic objective, and ensured that those risks were
properly managed. The key focus areas were:
` the current business position and future prospects of
the Group;
` the capital, funding and liquidity profile of the Group; and
` 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, the clear
segregation of authority, and effective communications
between different entities facilitate 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 and emerging risks 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
2023, 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 2020 to 1 January 2023.
Stress testing
In 2019, the Bank, as part of its regular stress testing
internal, enterprise-wide
framework, performed an
stress testing exercise. The purpose of the stress test was
to assess the vulnerability of the Bank’s capital adequacy
and profitability to different macro scenarios. The Bank
developed three scenarios of different severity. The
134
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
stress scenarios covered certain assumptions about GEL
devaluation, inflation, total GDP growth, sectoral growth,
unemployment, changes in real estate and commodity
prices, changes in interest rates and loan and deposit
portfolio developments. The Directors consider the stress
scenarios and the associated results to be appropriate
to the business and its risk appetite, therefore no urgent
mitigation was required. The Bank will continue to use
stress testing exercise as one of the key tools in its risk
management framework.
In addition, the Bank performed specific stress testing
exercise related to COVID-19 pandemic by applying
multiple scenarios. Current situation is highly uncertain
but it is reasonable to expect that COVID-19 will have
material negative effect on the credit portfolio. Therefore,
in the severe stress scenario the Bank applied conservative
assumptions such as economic recession, significant
GEL devaluation, short term significant decrease in real
estate prices in USD, increase in GEL interest rates,
higher inflation, increase in current account deficit,
significant decline in income from tourism, export,
FDI and remittances as well as material increase in
unemployment. Significant external financing is also taken
into account, as well as the fact that there were no signs
of overheating of the economy or the real estate sector
before the distress. Also, in the severe stress scenario,
the economic contraction is expected to be more severe
in 2020, and the speed of recovery to the 2019 level is also
expcted to be slower.
The results of the stress test shows that the Bank remains
viable even within the severe stress scenario and is able
to meet updated capital regulatory requirements. Please
see page 86 summarizing countercyclical measures
introduced by the NBG in relation to the capital adequacy
requirements.
DIRECTORS’ RESPONSIBILITIES
The following statement, which should be read together
with the Auditors’ report set out on pages 191-318, 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 134 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 136 to 139 of this Annual Report, confirms
that to the best of their knowledge:
` the Group’s financial statements, which have been
prepared in accordance with the IFRS standards, give a
true and fair view of the assets, liabilities, financial position
and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole;
` the Strategic Report and Director’s Report contained
in this Annual Report include a fair review of the
development and performance of the business and the
position of the Company and the Group, together with
a description of the principal risks and uncertainties
that they face; and
` the Annual Report and financial statements, taken as
a whole, are fair, balanced and understandable, and
provide the information necessary for the shareholders
to assess the Company’s position and performance,
business and strategy.
This responsibility statement was approved by the Board
and is signed on its behalf by:
Nikoloz Enukidze
Chairman
28 April 2020
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
135
BOARD BIOGRAPHIES
NIKOLOZ ENUKIDZE
Chairman
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.
In 2006 – 2010 Nikoloz Enukidze served as the Chairman (and prior to that as Vice-
Chairman) of the Supervisory Board of Bank of Georgia and was one of the key people
leading the bank in its successful IPO on the London Stock Exchange, the first ever
IPO in London from the Caucasus region. He also serves as member of the board of
Yelo Bank in Azerbaijan. Prior to his roles at Bank of Georgia, Nikoloz worked at ABN
AMRO Corporate Finance in Moscow and London, Concorde Capital in Kyiv and Global
One Communications in Reston, Virginia.
Nikoloz Enukidze serves as the Chairman of TBC Bank Group PLC and JSC TBC Bank
since 25 July 2019 and 13 August 2019 respectively. Previous to that, Nikoloz was
appointed as the independent member of the Supervisory Board of JSC TBC Bank in
2013 and was Senior Independent Director of the Board from 2016 to August, 2019.
NICHOLAS DOMINIC HAAG
Senior 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 (exFrance); 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. In August 2019 Mr Haag was appointed as the Senior Independent
Director of the Board.
136
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
ERIC RAJENDRA
Independent Non-Executive Director
Eric Rajendra graduated from Brandeis University, earned his M.A.L.D. at The
Fletcher School in 1982 (Tufts University in cooperation with Harvard University) and
conducted postgraduate research at INSEAD Business School in the areas of financial
markets and institutions. Mr Rajendra is also a graduate of the Australian Institute
of Company Directors and was formerly an adjunct professor of strategy at INSEAD.
During 2005-2014, he held the position of senior advisor to the International Financial
Corporation and has served as a board director or consulting advisor on selected
emerging markets financial institutions where the World Bank Group has an equity
interest, as well as leading strategic initiatives for the firm. His IFC portfolio included
roles as Supervisory Board Director on Locko Bank (from 2006 to 2014), where he
was also the founder and Chairman of the Audit and Risk Committee, Orient Express
Bank (from 2010 to 2012) where he was the Chairman of the Strategy Committee,
and earlier at ACLEDA Bank (a leading bank in southeast Asia with a micro-finance
original focus).
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. 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 first appointed
to the Bank’s Supervisory Board in 2010 and to the Board as an independent non-
executive Director in May 2016 where he served until his resignation on 15 March 2019
due to health reasons. He was later re-appointed on 17 September 2019, following
the recovery in his health.
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 International Relations with a focus on 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).
Ms Cicognani served 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 listed on the London Stock
Exchange since October 2018.
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.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
137
BOARD BIOGRAPHIES CONTINUED
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. From 2016 to 2019,
Ms Kemularia was the Head of Group Pensions Strategy and Standards at Shell
International Ltd based in London and currently she manages Internal Audit for Shell
International Trading and Supply businesses globally.
From 2006 to 2010, Ms Kemularia was 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 company nominated Trustee of the 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 pursuing chartered directorship.
Ms Kemularia was appointed to the Board as an independent non-executive Director
of TBC Bank Group PLC, is a member of the Supervisory Board of JSC TBC Bank
in September 2018 and is a Chairwoman of the Governance and the Nominations
Committee.
ARNE BERGGREN
Independent Non-Executive Director
Mr Berggren has studied at a number of renowned academic institutions such as the
Swedish Institute of Management, New York University Graduate School of Business,
University of Geneva, University of Amsterdam and the University of Uppsala.
Arne Berggren has in various ways been involved in ownership issues, reconstructions
and sales of companies and banks in Sweden and abroad during more than 25 years.
Private and public employers as well as international organizations have engaged
him as an advisor, CEO or in other similar positions.
Arne Berggren currently serves as a member of the board of Bank of Cyprus, where
he is the Chairman of the risk committee and a member of the audit committee. He
also works at Piraeus Bank, where he is chairing the nomination and remuneration
committees and is a member of the risk- audit and strategy committees.
Prior to his current roles, Mr Berggren served as a board member of Turkish asset
management company, LBT Varlik Yonetim and Slovenian bank asset management
company, DUBT Ltd. He also has held a number of senior leadership and advisory
roles at prominent financial intuitions including the IMF, World Bank, Swedbank,
Carnegie Investment Bank AB and the Swedish Ministry of Finance and Bank Support
Authority.
Mr Berggren was appointed to the Bank’s Supervisory Board in July 2019 and to the
Board as an independent non-executive Director in August 2019.
138
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
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 a Chairman of the financial committee of the
Business Association of Georgia. Since 2016, Mr Butskhrikidze has been a member
of the Visa Business Council for Central & Eastern Europe, Middle East and Africa
(CEMEA).
In his earlier career, Mr Butskhrikidze acted as a 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. In March 2019 Mr 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.
Mr Butskhrikidze obtained an MBA from the European School of Management in
Tbilisi in 2001. He graduated from Tbilisi State University in 1992 with a degree in
Economics and holds postgraduate qualifications from the Institute of Economics,
Academy of Sciences of Georgia.
GIORGI SHAGIDZE
Deputy CEO, CHIEF FINANCIAL OFFICER
Following structural changes to the composition of the management board in
January 2020, Giorgi Shagidze assumed some functions of COO and when the Uzbek
subsidiary starts operations he will serve as the Chairman of that subsidiary’s
Supervisory Board.
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 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 occupying 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.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
139
THE BANK’S MANAGEMENT BOARD BIOGRAPHIES
(EXCEPT FOR CEO’S AND CFO’S BIOGRAPHIES, WHICH ARE PRESENTED ON PAGE 139)
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 Corporate 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).
NINO MASURASHVILI
Deputy CEO, RETAIL BANKING
Following David Chkonia’s resignation, Nino Masurashvili has been appointed as the
new Chief Risk Officer of TBC Bank on January 24, 2020.
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.
140
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
THE BANK’S MANAGEMENT BOARD BIOGRAPHIES
(EXCEPT FOR CEO’S AND CFO’S BIOGRAPHIES, WHICH ARE PRESENTED ON PAGE 139)
NIKOLOZ KURDIANI
Deputy CEO, MSME BANKING AND MARKETING
Following to structural changes to the composition of the management board in
January 2020, Nikoloz Kurdiani assumed responsibilities for payments ecosystems.
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.
TORNIKE GOGICHAISHVILI
Deputy CEO, CHIEF OPERATING OFFICER
Tornike Gogichaishvili has been appointed to lead retail banking business of TBC
Bank on January 24, 2020.
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).
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 2019
141
THE BANK’S MANAGEMENT BOARD BIOGRAPHIES CONTINUED
(EXCEPT FOR CEO’S AND CFO’S BIOGRAPHIES, WHICH ARE PRESENTED ON PAGE 139)
DAVID CHKONIA
Deputy CEO, Chief Risk Officer
David Chkonia stepped down from the Management Board of TBC Bank on January 24,
2020, at the end of his contractual term in order to pursue other career opportunities.
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.
142
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
CORPORATE GOVERNANCE AND NOMINATION COMMITTEE REPORT
CHAIRMAN’S LETTER
appointed as the SID of the Bank; and Arne Berggren has
joined the Board as an independent non-executive Director.
At the same time, the Supervisory Board of the Bank
accepted the resignation of Jyrki Koskelo from his role as
the Chairman of the Supervisory Board with immediate
effect.
We consider that these changes will maximise efficiencies
in the management and supervision of the Group’s business
and will add stability to the Group’s governance. The Board’s
structure is consistent with the requirements of the UK
Corporate Governance Code, including with respect to the
independence of its Chairman and having a majority of
independent non-executive Directors on the Board.
The Committee will continue to keep under review the
structure, size and composition of the Board and its
committees including the balance of skills, diversity,
knowledge and experience and will make appropriate
recommendations for changes to the Board.
In 2019, the Committee initiated and supervised an internal
performance evaluation of the Board and its committees.
The outcome was reviewed by the Board and an action plan
agreed for 2020.
Dear shareholders,
As the new Chairperson of the Corporate Governance and
Nomination Committee (the “Committee”), I am pleased to
present the Committee’s report to shareholders. 2019 was
a challenging year for TBC and saw changes in both the
structure and composition of the boards of TBC Bank Group
PLC (“TBC PLC”) and JSC TBC Bank (the “Bank”). The
Committee is satisfied that throughout this period of change
it led the process successfully. Following the decision of the
former Chairman and Deputy Chairman to step down from
the supervisory board of the Bank (the “Supervisory Board”)
and the board of directors of TBC PLC (the “Board”) and the
subsequent appointment of Nikoloz Enukidze as the new
Chairman, the Board has reviewed the governance structure
of TBC PLC and the Bank , taking into consideration the
feedback from shareholders, IFI partners and other key
stakeholders. Taking into account all feedback, as well as its
experience of the benefits in having the same individuals in
non-executive roles for both TBC PLC and the Bank, the
Board has introduced a “Mirror Board” governance structure
whereby:
` all non-executive members of the Board are also
members of the Supervisory Board;
` the Chairman of TBC PLC also serves as the
Chairman of the Bank; and
` the Senior Independent Director (“SID”) of TBC PLC
is also the SID of the Bank.
As a result of the introduction of the Mirror Board governance
structure, the following changes were also made: Nikoloz
Enukidze, the current Chairman of the Board has been
elected as the Chairman of the Supervisory Board; Nicholas
Domenic Haag, the current SID of TBC PLC has been
Tsira Kemularia
Chairman of Corporate Governance
and Nomination Committee
28 April 2020
MEMBERS OF THE COMMITTEE
As at 28 April 2020, the Committee is composed of three
independent non-executive Directors, Tsira Kemularia,
(Chairperson), Nicholas Haag, and Eric Rajendra; as well as
Nikoloz Enukidze the non-executive Chairman of the Board.
During 2019, Tsira Kemularia was appointed as Chairperson
of the committee. Nicholas Haag, having been appointed as
Senior Independent Director became a member of the
Committee. Eric Rajendra having stepped down as a director
on 15 March 2019 due to ill health, was reappointed as a
director following a recovery in his health, and re-joined the
Committee. For a short period of time Nikoloz Enukidze
chaired the Committee prior to Tsira Kemularia taking over
on a permanent basis, when he subsequently became
Chairman of the Board in August 2019. The Board believes
that the Group complies with the 2018 UK Corporate
Governance Code and that all the Committee members are
independent.
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
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
143
CORPORATE GOVERNANCE AND NOMINATION COMMITTEE REPORT CONTINUED
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 pages 128-129.
COMMITTEE EFFECTIVENESS
In October 2019, the Committee conducted an annual
Effectiveness Self-Review, coordinated by the Company
Secretary, and using an extensive and customised
questionnaire which drew on international best practice
surveys of a similar nature. Both the Committee and the
Board concluded that the former is constituted properly,
operates effectively and carries out all its responsibilities as
set out in its Terms of Reference. Going forward the
Committee intends to focus more closely on succession
planning issues, along with improved reporting to the
Committee on key issues. The Chairman of the Committee
is working closely with the Company Secretary to set future
agendas and all these improvements are being implemented.
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
were updated and approved by the Board in February 2020.
Minor changes were recommended by the Company
Secretary, with input from the Company’s lawyers, in order
to bring the Terms of Reference up to date to reflect recent
developments in the UK Corporate Governance Code. This
review will be undertaken 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:
` approving
` advising the Board periodically with respect to
significant developments in the law and practice of
corporate governance;
changes
corporate governance
guidelines, monitoring the Group’s compliance with
such guidelines and applicable legal and regulatory
requirements and recommending to the Supervisory
Board such changes or additional action as it deems
necessary;
to
` reviewing the independence standards for Board
members;
` monitoring and evaluating the process for assessing
the performance and effectiveness of the Board and its
committees (including the annual Effectiveness Self-
Review of this Committee); and
144
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
` 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:
` regularly reviewing the structure, size and composition
of the Board, including evaluating the current balance
of skills, experience, independence and knowledge on
the Board, including considering diversity and gender
balance;
` identifying suitable candidates from a wide range
of backgrounds, with use of open advertising and
services of external advisers;
` considering and making recommendations to the
Board on the composition of the Board;
` advising the Board on succession planning for the
roles of Chairman, Senior Independent Director, Chief
Executive Officer and for all other Board appointments;
` in conjunction with human resources, setting diversity
objectives and strategies for the Company as a whole
and monitoring the impact and outcome of diversity
initiatives;
` considering and making recommendations, as
necessary, on the removal and resignation of Board
members;
` assisting the Chairman of the Board and the senior
independent director with the implementation of an
annual evaluation process to assess the overall and
individual performance and effectiveness of the Board
and its committees;
` making recommendations to the Board on succession
planning for the Board over the longer term
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 the
newly-appointed independent non-executive Director, Arne
Berggren. The Committee has carried out an internally
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 in Directors’ Governance Statement.
Following discussions with the Bank’s regulator in Georgia
after the departure of the Founder shareholder directors
(Mamuka Khazaradze and Badri Japaridze), the Committee
agreed to consult with the Company’s minority shareholders
to identify two suitable candidates to be appointed to the
Board. In light of these circumstances, the Committee
decided not to appoint a search consultancy, and consulted
with the IFIs and minority shareholders to identify a suitable
pool of candidates. Following this process and after review of
a number of candidates, to ensure that a suitable candidate
was identified that met the Company’s skills and expertise
requirement, the Committee made a recommendation to
appoint Arne Berggren to the Board. The Board subsequently
approved his appointment as an independent non-executive
Director. Biographical details of Arne Berggren are set out
on page 138.
Following a review of skills available to the Board, the
Committee has been asked by the Board to undertake a
search to recruit an additional non-executive Director who
can bring additional experience to the Board in the Fintech
and digital banking areas. In light of the request from the
Bank’s Georgian regulator described above, the Committee
has again engaged with its shareholders, and explored its
own wide range of contacts, in order to identify suitable
candidates. This exercise is currently underway.
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 against objective criteria in the context of the skills
and experience required. The Committee notes the
recommendations of the Hampton Alexander review to
improve gender diversity and is pleased to report that two
female directors serve on the Board. In addition, the
Committee 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. As at
31 December 2019, 14% of Group’s top management and
35% of Group’s middle management roles were performed
by females. Moreover, 65% of employees across the Group’s
entire workforce were female. In a review of the CEO-1 level
succession plan, presented at the request of the Committee,
the Committee were pleased to note the high number of
female middle management who will in time be able to
succeed at a more senior level.The Committee will continue
to strive to further improve gender diversity going forward at
both the Board and management levels. Regarding ethnic
diversity,
the
recommendations of the “Report into the Ethnic Diversity of
UK Boards”, made by the Parker Review Committee and the
need to build a balanced Board, whilst remaining mindful of
the regional nature of the business.
taken account of
the Board has
THE COMMITTEE’S WORK IN 2019
In 2019, the Committee led an extensive process of
restructuring the Board and its committees. In addition, it
has also remained focused on succession planning, diversity
matters and an assessment of effectiveness of the Board
and its committees.
Composition of Board and its committees
Following the resignation of the former Chairman and
Deputy Chairman in February 2019, the Committee helped
advise the Board on a revised Mirror Board structure for the
Group, whereby all independent non-executive Directors of
TBC PLC were also members of the Supervisory Board. As a
result of these changes the Committee made the following
recommendations to the Board that:
` Nikoloz Enukidze be appointed as Chairman;
` Nicholas Haag be appointed as Senior Independent
director;
` Eric Rajendra be re-appointed as an independent
non-executive Director; and
` Arne Berggren be appointed as an independent non
executive Director.
In addition following the Board appointments noted above,
the Committee undertook a full review of committee
membership, and made several recommendations to the
Board which were adopted and are reported in full in the
individual committee reports.
Succession
The Committee recognises that people are the driving force
in sustaining the Group’s business, and succession planning
contributes to the delivery of the Group’s strategy, by
ensuring there is the necessary mix of skills and experience
in both the current and future senior management teams.
The Committee also reviews individuals identified as
potential successors to the Group’s executive board
members. The Committee considers succession planning
for the non-executive roles based on a clear understanding
of the full range of skills currently available to it and those
required to achieve successful delivery of its strategy. As
part of the succession planning process, the Committee also
consider gender balance and diversity. In addition, the Group
is implementing an executive development program, which
includes a clear roadmap to enhance both the knowledge
and personal strengths of all potential candidates for senior
management roles, including increasing their exposure to
the Board. This will ensure that future leadership needs are
met with an appropriate and diverse balance of skills and
experience.
Designated non-executive Director and staff engagement
Tsira Kemularia is the designated independent non-
executive Director, responsible for workforce engagement
and enabling communication between the Board and the
Group’s workforce. During 2019, in her role as Staff
Ambassador, she held three face-to-face meetings with
representative groups of staff where a wide range of topics
were discussed. She has also visited several major branches
and operational hubs in Georgia. The outcome of these
discussions have been fed back to both the Committee and
the Board.
The meetings held under this initiative were both constructive
and open. Employees shared their opinion and thoughts on
a variety of topics including: the Company’s mission and
vision; linking the Company’s mission to business objectives;
talent acquisition and resourcing; coaching opportunities for
senior leadership; the need for more delegation of day-to-
day decisions to appropriate levels of management; and
career development.
The Staff Ambassador will continue meetings different
groups of staff in 2020; allowing more diversity of discussion
topics and opinions.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
145
CORPORATE GOVERNANCE AND NOMINATION COMMITTEE REPORT CONTINUED
The Management Board of the Bank, supported by the Human Capital Department has developed a detailed action plan to give
more clarity to the staff on the Group’s strategic vision and initiatives. This plan envisages a range of activities for 2020, including,
town hall meetings, where the strategy, mission and vision will be shared with the staff. Allowing more linking of business
objectives to the strategy, through Quarterly Business Reviews, supported by videos and online briefings focussed on the
Company’s goals.
The Agile programme, being undertaken across part of the organization, has allowed greater delegation to key staff, increasing
decision making and improving employee empowerment. The increased use of personal development plans within the Group’s
staff performance management system is a key part of career and personal development.
Corporate governance and independence
The Committee oversaw the continued developments of the Group’s corporate governance framework and reviews of its
compliance with the UK Corporate Governance 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 UK Corporate Governance Code on these matters.
Board performance evaluation
As required by the UK Corporate Governance Code, in 2019 an internally facilitated Board performance evaluation was undertaken
by the Company and conducted by the Company Secretary, following the externally facilitated review undertaken by Independent
Audit in 2018. The Committee considered the form of questionnaire to be issued to the Board and oversaw the process of the
review. The 2019 review was undertaken by means of a written questionnaire, with anonymous ratings and responses considered
by the individual committees and the Board.
The outcome of the review and the action plan are described on pages 129 to 130. The Committee will monitor implementation
of the proposed action plan in 2020. The Company will appoint an independent evaluator to assist in the performance evaluation
process every three years.
LOOKING FORWARD TO 2020
In the coming year, the Committee’s workload will include overseeing the implementation of the improvements recommended
by the performance evaluation of the Board and its committees. The Committee will continue to monitor the Group’s succession
planning process to ensure that the next generation of senior management and key roles in middle management are in place. It
will also conclude the recruitment of a further independent non-executive Director. In addition, the Committee will continue to
review the Group’s overall governance structure.
146
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
RISK COMMITTEE REPORT
Dear shareholders,
As Chairman of the Risk Committee, I am pleased to present
the Risk Committee report for the year ending 31 December
2019. This is my first year reporting as Chairman of the Risk
Committee as I was appointed on 24 September 2019.
I am looking forward to working with the Risk Committee
to further develop and
improve the Group’s risk
management practices.
Throughout 2019, the Risk Committee 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 Group’s risk profile, risk management
practices and results, the Committee focused on several
other issues, namely:
` Leading the review and response to the inspection by
the NBG as well as related actions by the Georgian
Office of Public Prosecution in relation to certain
transactions that took place in 2007 and 2008. In
addition, the Risk Committee closely monitored the
subsequent enhancements made by the Bank to
relevant internal control systems;
` Important new regulations, including the full version
of the NBG’s responsible lending standards;
` Detailed analysis of the Bank’s liquidity and capital
position, and the respective capital and funding
strategy;
` Enhancing the Bank’s operational risk management; and
` Review and approval of the revised version of the
Risk Committee terms of reference, in line with the
requirements of the UK corporate code.
The Risk Committee has also reviewed the analyses that
have been made on the potential impact of COVID-19
pandemic on the Bank’s capital adequacy and liquidity
position.
In January 2020, Nino Masurashvili, Deputy CEO, who was
previously in charge of the development of TBC Bank’s
retail banking operations, was appointed as the new Chief
Risk Officer after the departure of the previous Chief Risk
Officer at the end of his contractual term to pursue other
career opportunities. The Risk Committee carefully
considered Nino Masurashvili’s appointment as Chief Risk
Officer and recommended it to the Board. With her
appointment, the Group’s Risk function will be further
strengthened as Nino leverages both her detailed
knowledge of the Group’s business and the skills that
brought significant success in her previous role.
Arne Berggren
Chairman of Risk Committee
28 April 2020
COMMITTEE RESPONSIBILITIES
The Risk Committee’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, together with implementation of the highest
standards of business ethics and compliance with all of the
legal requirements to which the Group is subject.
The Risk Committee 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
internal control framework. In addition, it determines the
nature and extent of the principal risks the Group is willing
to take in order to achieve its long-term strategic objectives.
The Risk Committee advises the Board on strategic
transactions focusing on risk aspects and implications for
the risk appetite and tolerance of the Group.
The Risk Committee reviews and approves the statement
concerning internal risk management and the Group’s
viability statement included in this annual report. It
ensures robust assessment of the emerging and principal
risks faced by the Group, including those that would
threaten the business model, future performance,
solvency and liquidity.
The Risk Committee 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 behavior. The Risk Committee supports
the fostering of an ethical culture within the Group, based on
the principles of honesty, integrity, fairness and transparency.
The Risk Committee’s Terms of Reference are available on
the Group’s website: www.tbcbankgroup.com.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
147
RISK COMMITTEE REPORT CONTINUED
COMMITTEE MEMBERS AND MEETINGS
As of 2 April 2020, the Risk Committee consists of four
independent, non-executive Directors: Arne Berggren
(Chairman), Nicholas Haag, Maria Luisa Cicognani and
Tsira Kemularia. Biographies of the Risk Committee
members can be found on pages 136 to 138.
Arne Berggren joined the Board in August 2019 as an
independent Non-Executive Director. In September Arne
was appointed as the Chairman of the Risk Committee.
Nikoloz Enukidze served as the Chairman of the Risk
Committee until September 2019, when he left this position
and was appointed as the Chairman of the Board. The Risk
Committee 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 Risk
Committee’s meetings during the year, at the Company
and the Bank levels, are set out in the Directors’ Governance
statement on pages 128-129.
RISK COMMITTEE ACTIVITIES DURING 2019
In 2019, the Risk Committee 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.
Moreover, in February 2020, the Risk Committee’s Terms
of Reference were updated and approved. Minor changes
were recommended by the Company Secretary, with
input from the company’s lawyers, in order to bring the
terms of reference up to date to reflect recent
developments in the UK Corporate Governance Code and
better to align our mission with the Terms of Reference
for other committees. This document is available on
TBC’s website at www.tbcbankgroup.com.
Risk appetite
The Risk Committee 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.
Over the course of 2019, the Risk Committee 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, liquidity and funding
metrics, which were mainly driven by regulatory changes
and further optimization of the capital structure of the Bank.
In addition, certain temporary changes were applied to
the Bank’s risk appetite metrics concerning the capital
adequacy. These changes were driven by the measures
introduced by the NBG as a consequence of the COVID-19
pandemic. The Rrisk Committee has also reviewed the
Bank’s growth prospects and growth appetite.
Credit risk
The Risk Committee reviewed the performance of the
Group’s credit portfolio at each meeting during 2019. The
Risk Committee was presented with a comprehensive risk
report covering the structure and performance of the
Group’s portfolio across business segments, products and
economic sectors. Additionally, the portfolio FX share and
concentration levels were actively monitored. At the
beginning of 2019, the NBG introduced the full version of
the responsible lending regulation. It defined income
verification techniques, 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 denominated in foreign currency. The Risk
Committee actively monitored the prudent implementation
of the regulation as well as the impact of the regulation on
the Bank’s growth and portfolio quality trends. In addition,
as part of assessing compliance with the regulatory ratios,
the Risk Committee discussed the changes to regulatory
concentration ratios.
In close co-ordination with the NBG, the Bank created an
extra regulatory loan loss provision buffer to prepare for
the potential impact of the COVID-19 pandemic on the
Georgian economy. As of 31 March 2020, TBC Bank booked
additional provisions in accordance with local standards in
amount of c.3.1% of the loan book.
Operational risk
The Operational Risk department performed its annual
Risk and Control Self-Assessment (RCSA). The RCSA
covered the most significant business processes and
identified areas for further
improvement. The Risk
Committee actively monitored the process.
The Operational Risk department conducted a
comprehensive consulting project with the involvement of
an external advisory company to further enhance and
adopt leading and innovative models of operational risk
management practices.
Financial risks
The Risk Committee closely re-examined the Group’s
financial risk positions on a regular basis, including an
assessment of the Bank’s risks associated with liquidity,
FX, banking book interest rates and counterparties.
In the first quarter of 2019, the Bank experienced a higher
volatility of deposit flows. The decrease was primarily
driven by retail deposit reductions (mostly in January and
February) prior to the settlement of the NBG investigation,
but it also reflected the effects of seasonality. The Risk
Committee extensively monitored the deposit flows and
analysed the various options to meet the funding
requirements. In addition, the Risk Committee reviewed
detailed assumptions as well as the results of the liquidity
stress test performed by the risk team.
Moreover, as part of assessing compliance with the
approved risk appetite limits, the Risk Committee
addressed the NBG’s updated regulations on the changes
to interest rates for FX mandatory reserves and the
changes to FX mandatory reserve requirements. In
addition, from October 2019 the Bank’s foreign currency
mandatory reserve was fully categorized as a high quality
148
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
liquid asset (HQLA) for regulatory LCR calculation
purposes, which had a positive effect on the LCR ratio.
Additionally, in September 2019, for long-term liquidity risk
management purposes the NBG introduced the Basel III-
based Net Stable Funding Ratio (NSFR), to which the NBG
applies supplementary assumptions within its discretion.
Certain changes to the Group’s risk appetite were applied
as a result of the regulatory change.
the committee discussed
Moreover,
the potential
countercyclical measures, that if necessary, will be
implemented by the NBG
liquidity
requirements amid COVID-19 pandemic:
in relation to
` Decreasing LCR limits;
` Decreasing mandatory reserve requirements
in
foreign currency;
` Updating criteria for security or repo pledging to
support GEL liquidity.
Capital management
The Risk Committee continued to closely monitor the
Bank’s capital standing as well as compliance with all
regulatory
ratios under different macroeconomic
scenarios. In 2019, the GEL was volatile having the negative
impact on the Bank’s capital adequacy. The committee
analysed capital projections within the context of the
deteriorating of currency rates.
During meetings, the Risk Committee examined the new
NBG initiatives that impact the Bank’s capital adequacy as
well as the expected changes to minimum capital
requirements. The key changes were: (i) an update of the
mandatory reserve requirements for attracted funds in
foreign currency; (ii) amendments to the proposed timeline
for the incorporation of HHI and net GRAPE buffer
requirements for Tier 1 and CET 1 capital; and (iii) changes
applied to the criteria for classifying exposures in
residential real estate class assets.
Certain changes to the capital adequacy risk appetite
metrics were discussed and introduced, mainly driven by
the optimisation of the Bank’s capital structure after the
issuance of the Bank’s US$ 125 million AT1 instrument.
In addition, committee members extensively discussed the
internal stress test methodology, stress scenarios and
their impact on the Bank’s capital adequacy and non-
performing loan ratios.
Furthermore, the Risk Committee analysed in detail the
latest GRAPE letter that the Bank received from the NBG. All
commercial banks in Georgia receive GRAPE letters as part
of the NBG’s general supervisory risk assessment program.
The letter summarises the key findings the NBG used to
determine the appropriate level for its net GRAPE buffer.1
Amid COVID-19 pandemic, the NBG implemented certain
countercyclical measures in relation to capital adequacy
requirements:
` Postponing the phasing in of concentration risk and
the net GRAPE (General Risk Assessment Program)
buffer capital requirements on CET1 capital, planned
in March 2020;
` Allowing banks to use the conservation buffer and
2/3 of currency induced credit risk (CICR) buffer;
` Leaving possibility of releasing all the remaining
pillar 2 buffers (remaining 1/3 CICR, concentration
risk and Net Grape buffers) in case of necessity.
During the time the Bank utilizes conservation and Pillar 2
buffers, it is restricted to make any form of capital
distribution.
The risk committee has reviewed various stress tests and
anaysed the implications of these changes on the Bank’s
capital adequacy position.
Compliance
Throughout the year the Risk Committee received regular
information on significant pieces of legislation that were
introduced during the year. The Risk Committee considered
and discussed several Group policies, including the
Group’s Compliance Regulation and Whistleblowing
Policy. The key areas of focus for 2019 were: embedding
the new Code of Ethics; addressing external adviser
recommendations on Conflict of Interest Risk Management
and Anti Money Laundering Risk Management; scrutinising
the Bank’s AML risk profile; and enhancing compliance
training. The Risk Committee closely examined the
Group’s related parties list and transaction tracker for the
purposes of the UK Listing Rules and Disclosure Guidance
and Transparency Rules, as well as related party
transactions for NBG purposes. Together with regulatory
matters, the Risk Committee discussed other compliance
topics in detail in each quarterly meeting.
NBG inspection related to past transactions
As reported in the strategic report, the Bank was subject to
an inspection by the NBG during late 2018 and 2019, in
relation to certain transactions that the founders of the
Bank undertook in 2007 and 2008 (see also page 106). The
Risk Committee 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
that might be required to prevent any recurrence. The Risk
Committee advised the Board on remedial actions to be
taken in connection with the NBG report. In particular, the
Risk Committee oversaw the directors’ actions taken in
relation to the situation, including reviewing documentation
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
remedial actions agreed with the NBG ( more details are
given on page 106).
Furthermore, the Bank, with the assistance of external
advisers, undertook a review of the Bank’s relevant
internal controls systems. Although these reviews did not
1 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 the NBG
capital adequacy framework
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
149
identify any material deficiencies in the Bank’s existing internal controls and compliance systems, they did make certain
recommendations for further technical improvements for the Bank. The Risk Committee closely monitored the whole review
process, extensively discussed the recommendations and monitored progress in the execution of recommendations.
THE COMMITTEE’S EFFECTIVENESS REVIEW
The Board and the Risk Committee members conduct a review of the Risk Committee’s effectiveness every year. In 2019, the
Risk Committee was found to be effective in overseeing the Group’s risk management, compliance activities and ethical
standards.
LOOKING AHEAD TO 2020
Going forward, the Risk Committee will continue to focus on its key responsibilities: assessing quarterly risk results and
compliance with the Bank’s risk appetite, providing sign-off on transactions with the largest exposures, and facilitating
progress in risk management tools and techniques. Moreover, the committee will continue to closely monitor the COVID-19
pandemic developments and its implications on the Bank’s portfolio quality, operations and financial conditions including
profitability, capital adequacy, liquidity and funding positions.
The Risk Committee will continue closely to monitor the impact that recent and upcoming regulatory changes may have on
the Bank’s financial standing and the respective implications for risk management processes. In addition, close attention will
be paid to overseeing the Group’s international expansion activities to ensure that the risks are managed properly across the
Group. The Risk Committee will continue to focus on the proper management of risks that may arise from further digitalization
of the Bank’s services.
150
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
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 2019.
The Committee continues to ensure that the Remuneration
Policy is closely aligned with the strategic priorities of the
Group (as defined below), provides fair rewards and meets
appropriate regulatory requirements and best practice
standards as well as takes into consideration the views of
all stakeholders. The Remuneration Committee reviews
annually both executive and non-executive Directors’
compensation and benchmarks them to ensure that they
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.
The Director’s Remuneration Policy was approved at the
2018 AGM and has applied since 1 January 2019. The full
policy is given in the 2017 Annual Report, which is available
at our website at www.tbcbankgroup.com. In setting
the Directors’ Remuneration Policy, the Remuneration
Committee engaged with shareholders and external
independent, consultants to ensure that the remuneration
structure was appropriate, whilst at the same time
allowing us to attract and retain the best talent.
Principles of Remuneration
The following principles have been considered when
determining executive Directors’ remuneration:
` clarity and simplicity - the Remuneration Committee
strives to ensure that performance measures are clear
and straight-forward. Executive Directors’ performance
against their KPIs (both financial and non-financial) and
the relative weightings thereof have been disclosed for
2019. To increase transparency we have also disclosed
the KPIs and relative weightings for 2020;
` risk - the Remuneration Committee has the discretion
to reduce an executive Director’s variable remuneration
if specific KPIs have not been met and every element of
executive Directors’ variable compensation is subject
to the relevant malus and clawback provisions. Malus
and clawback apply for up to 3 years after the deferral
period ends (for deferred awards) or settlement
(for conditional shares under the LTIP). Triggers
include, material misstatement, material downturn
in financial performance and misconduct that causes
serious reputational harm. Further, the Remuneration
Committee has the discretion under the LTIP and
deferred annual bonus to reduce awards if it considers
that either the underlying financial performance of the
Company or the performance of the individual is such
that the level of vesting cannot be justified1.
` predictability - the maximum possible value of the
executive Directors’ remuneration has been detailed in
the Remuneration Report at section 2.2 below and in
the Remuneration Policy;
` proportionality/alignment with culture
-
the
Remuneration Committee strives to ensure that
performance measures are aligned with the corporate
culture of the Group to foster the right behavior and
deliver remuneration packages that are proportionate
in
the circumstances, by measuring executive
Directors’ remuneration against a mix of financial,
non-financial and personal KPIs. Further, by deferring
a large proportion of executive Directors’ salary into
shares, this intrinsically aligns the executive Directors’
pay to the long-term success of the Group and fosters
a culture of sustainable long-term growth.
Form of Remuneration
The executive Directors’ remuneration for 2019 was
comprised of:
` 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;
` Long term incentive plan (LTIP) based on the level of
achievement of performance measures over 3 year
period (2019-2021) and also consisting of share-based
payments only; and
` Pensions and taxable benefits.
The share-based payments in relation to the fixed
compensation and the annual bonuses are subject to
2-year continued employment condition and holding
period. The employment and holding conditions are lifted
1 Further details of the malus and clawback provisions for the LTIP
and deferred annual bonus are provided in section 10
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
151
REMUNERATION COMMITTEE REPORT CONTINUED
on a phased basis as follows: 50% of the award on the first
anniversary from the award date and the other 50% on the
second anniversary from award date.
As a result, the annual bonus awarded to the CEO and CFO
represented 69% and 66% of the maximum opportunity in
2019 respectively.
Share-based payments in relation to LTIP are subject
to 2-year holding period (changing to 3 year holding
period for new grants, please see below) and continued
employment requirement once they are delivered. Shares
granted under the LTIP, therefore, are subject to a 5 year
(6 year under new grant) vesting and holding period. This
approach ensures that the executive Directors’ interests
are closely aligned with the Group’s long-term strategy
and shareholders’ interests.
2019 Executive Directors’ KPI and Performance
The Group recorded strong financial results in 2019. The net
profit increased by 23.5% year on year (YoY) and reached
GEL 540.3 million, while return on equity amounted to 22.4%
up by 0.4 pp YoY. The growth in net profit was supported
by an increase in net fee and commission income and net
interest income. Because of the recent National Bank of
Georgia’s regulation limiting lending to high risk customers,
the net interest margin decreased by 1.3 pp year-on-year
and stood at 5.6% in 2019 and 5.3% in the fourth quarter of
2019. By the end of 2019, the net interest margin has been
fully rebased to the new level reflecting the new rules and
going forward we expect it to stabilize at the 2019 fourth
quarter level. The growth in net profits was also strongly
supported by a decrease in credit loss allowance, which was
driven by improved performance across all segments. As a
result, our cost of risk stood at 0.7% in 2019 compared to
1.6% in 2018. In 2019, our operating expenses increased by
9.7% year-on-year, resulting in a cost-to-income of 39.9%,
up by 2.1 pp year-on-year. This increase was mainly related
to investments in our new ecosystems as well as into the
Group international expansion.
We also made strong progress towards our new strategic
objectives, which included the launch of the first customer
focused digital ecosystems
in Georgia, expansion of
our operations in Uzbekistan, the roll-out to certain
departments of our successful agile transformation and
important investment in human capital. In parallel, we
continued to maintain our leadership position in digital
capabilities and customer experience. The management
team has been working to fulfill these strategic targets
and achieved in general the objectives we set in the KPIs.
Core banking and the launching of Space in Uzbekistan
were achieved although with a slight delay on schedule.
However, the Remuneration Committee considered the
targets as met for the reasons set out in notes to the table
in section 2.2. More information is given in business model
and strategy section on pages 12-19.
The Remuneration Committee has thoroughly assessed
the executive Directors’ performance against corporate
financial and non-financial targets as well as personal
targets set at the beginning of the year and concluded that
their performance for 2019 was meeting expectations. The
detailed disclosure of KPIs and performance assessment
is given in section 2 of the Remuneration Report.
The Remuneration Committee reviewed in detail the basis for
awarding the proposed annual bonus level given the decline in
share price during the year and the different reasons influencing
such decline. In particular it took into account the fact that
around 85% of the executive Directors’ total compensation is in
the form of share based payments and that total shareholders
return (TSR) is included as LTIP performance measure with a
40% weighting ensuring that executive Directors’ benefits are
closely aligned with shareholders’ interest. Considering the
strong financial performance of the Group and its achievements
with new initiatives, which continue to successfully implement
the agreed strategy, the Remuneration Committee determined
that it was not appropriate to reduce the annual bonus level
below that which had been determined in accordance with the
fulfilment of the performance targets set out in section 2.2.
The assessment of executive Directors’ performance
in 2019 against LTIP performance measures will be
conducted in 2022 based on the results achieved during
the performance period 2019-2021 and will be included
in the executive Directors’ 2021 remuneration payable in
2022. The detailed information about LTIP performance
measures and targets is given in section 2.3.
In March 2020, the Remuneration Committee considered
whether any of the events set out in the Malus or Clawback
provisions had occurred. It was satisfied that in 2019 none
of the trigger events occurred and so the Remuneration
Committee has not used its powers under the Policy to
reduce or claw back any Share Awards.
The Remuneration Committee considered that the
Policy approved at the 2018 AGM was duly applied in
2019 and continues to fulfill its objectives regarding the
compensation quantum and structure to deliver results
that are in the best interests of the shareholders and the
Group.
Non-Executive Remuneration
The non-executive Directors’ remuneration is in the
form of monthly fixed cash payments and is based on
best practice against comparable FTSE 250 financial
companies and other regional peers’ board membership
fees. Non-executive Directors do not receive any form of
variable remuneration from the Group.
During 2019, the Chairman and Deputy Chairman of the
Board resigned and as a result the Board has undergone
a restructuring. As part of this restructuring, the role of
the Deputy Chairman has been abolished and the fees
for the remaining non-executive Directors (including the
new Chairman) have been amended several times during
the year to also comply with the principles of the NBG’s
new Corporate Governance Code for Commercial Banks.
To assist the Remuneration Committee determine the
appropriate fees for the non-executive Directors, the
Remuneration Committee has completed an externally
152
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
moderated benchmarking exercise against its peer bank
and FTSE 250 companies performed by Deloitte corporate
governance team which was retained as advisor.
As a result, the Remuneration Committee decreased the
Chairman’s fees from US$ 950,000 on 1st January 2019
to US$ 338,000 starting from 25 September 2019 (more
information is given in section 2.6) and no fees were paid
to former Chairman and Deputy Chairman for the months
following their resignations. Committee Chairmanship
(from
and membership fees have also decreased
$28,000 to $12,000 and $11,000 to $6,000 respectively).
The Remuneration Committee’s decision to increase
individual non-executive Directors’ (excluding Chairman)
fees for board membership from $84,000 to $130,000
while reducing committees’ fees has been done within the
non-executive Directors’ compensation policy approved at
the 2018 AGM. All-in-all the total average non-executive
Director fees, inclusive of board membership in both the
PLC and the JSC and committee fees, increased by 15%
compared to 2018. The rebalancing of the fee structure
within the 2018 AGM approved limits reflects a number
of operational challenges which the non-executive
board members are facing. The increased complexity
of business and the different regulatory environments
where the Group operates, the implementation of the
international expansion, the growth of customer focused
ecosystems in Georgia and also in our foreign operations
have required substantial additional time commitment
from the Board which has been estimated at around
17% in 2019 compared to 2018. After the changes were
implemented, the overall 2019 annual costs for non-
executive Directors’ compensation reduced by 39%
compared to 2018, considering that until the resignation of
the former Chairman and Deputy Chairman the previous
level of fees were paid. Further details of the changes can
be found in sections 9 and 12.
Changes to the Policy
The National Bank of Georgia (NBG), the regulator of JSC
TBC Bank, has introduced a new Corporate Governance
Code for Commercial Banks. This includes certain
requirements in relation to executive remuneration that
comes into force from 2020. Therefore, the Remuneration
Committee is preparing changes to the remuneration of
top management and executive Directors in relation to FY
2020 in order to meet the new regulatory requirements.
These changes are summarized below:
1. extend the holding period under the LTIP from 2 years
to 3 years, so that starting from 2020, LTIP awards will
have a 3-year vesting period, which will be followed by
a 3-year holding period;
2. change the expected remuneration in such a way
that the portion of the expected annual bonus as
a percentage of total variable remuneration, is
decreased from 45% to 40% for the CFO and from
46% to 40% for the CEO, while the expected portion of
LTIP as a percentage of total variable compensation
is increased from 55% to 60% for CFO and from 54%
to 60% for CEO.
These changes will align even more closely the executive
Directors’ interests to those of the shareholders and, as they
remain within the maximum levels approved by shareholders
in 2018 under the current remuneration policy, they will not
require additional shareholders’ approval.
In addition, following Board restructuring, as mentioned
above and more fully described in the Corporate Governance
and Nomination Committee Report on pages 143-146 and
as noted above, we have revised the remuneration policy for
the non-executive Directors as follows:
` The remuneration of the Chairman was reduced,
while the remuneration of the Deputy Chairman was
eliminated given that such position has not been
maintained;
` The remuneration of the other non-executive members
was changed to reflect the results of the benchmarking
exercise with peer banks and against overall FTSE 250
companies, as well as the requirements of NBG’s new
Corporate Governance Code for Commercial Banks.
The Remuneration Committee also took into the
account the increased complexity of business related
to international expansion and building of customer
focused ecosystems as well as
increased time
commitment needed to oversee these new initiatives
as mentioned above.
The full details are presented in section 12. All changes made
to the remuneration for the non-executive Directors are
within the Policy approved by shareholders at the 2018 AGM.
Looking ahead
As the business of the Group continues to evolve and
expand with new products and in new markets beyond
Georgia it remains of paramount importance that we
maintain a competitive Remuneration Policy to attract
the best talent and support our employees to acquire
and strengthen their required skills to achieve our goals.
We will continue to actively monitor trends in the market
and assess the Group remuneration competitiveness. If
any change will be required we will actively engage with
shareholders and all stakeholders to achieve the best
results and align all interests. I would like to thank all
the members of the Remuneration Committee for their
support and work during the year as well as the members
of the Board who have provided always their sound
feed-back to the Remuneration Committee. A fair and
competitive Remuneration Policy remains at the core of
giving the right incentives to the most important assets
the Group has: its employees.
In
light of the on-going COVID-19 pandemic, the
Remuneration Committee will continue to closely monitor
developments and consider if necessary adjustments to
maintain alignment between performance and executive
pay. As the medium and long term effects of the current
events remain highly uncertain
the Remuneration
Committee will continuously review both the quantitative
and the qualitative factors which are components of the
year-end executive performance assessment.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
153
REMUNERATION COMMITTEE REPORT CONTINUED
Given the on-going COVID-19 pandemic, the executive Directors and top management of JSC TBC Bank have voluntarily
decided to waive all variable compensation (usually representing majority of total compensation) in relation to 2020 (i.e.
annual bonus in relation to 2020 year to be awarded in February 2021) and LTIP grants for 2020 year.
I would like to thank our shareholders for their continued support. The alignment of compensation with our shareholders’
interest remains an important objective for the Remuneration Committee and our work will continue to adapt to changing
markets. I will be available at the Company’s upcoming Annual General Meeting to answer any questions in relation to this
Remuneration Report and our Remuneration Policy.
Maria Luisa Cicognani
Chairman of the Remuneration Committee
28 April 2020
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. New terms of reference for both the PLC and the JSC were reviewed and approved on 19 February 2020.
The Remuneration Committee membership is comprised of solely independent non-executive Directors and the Chairman of
the Board (whom was independent on appointment) from a wide variety of skills and backgrounds to provide the best input.
The members of the Remuneration Committee are: Maria Luisa Cicognani (Chairman), Nikoloz Enukidze, Eric Rajendra and
Nicholas Haag. The meetings of the Remuneration Committee are however always open to other non-executive Directors
who wish to participate.
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 pages 124-130.
1.1 Advisors to the Remuneration Committee
Members of the Remuneration Committee provide valuable input in updating the Remuneration Committee on the recent
developments in the area of remuneration. However when there is a need, the Remuneration Committee receives external
advisory services. TBC Bank undertook a review of non-executive Directors’ (NEDs) fees in early 2020 using benchmarking
data provided by Deloitte. The externally conducted benchmarking exercise was required to objectively compare the changes
in the non-executive Directors’ remuneration policy with market practice and ensure that the non-executive board members
are compensated for their time commitment and responsibilities in an ever increasing complex operational and regulatory
environment in UK, Georgia and abroad. Further details of the benchmarking exercise are presented in section 2.6.
Deloitte was selected as a result of a tender among a short list of three companies, all with internationally recognized
governance and compensation practices and track record in similar assignments. The amount of fees for the benchmarking
advice provided by Deloitte was GBP 25,000, net of taxes. The fees were charged on a time and materials basis, which was
capped at the amount mentioned above.
The Board is satisfied that Deloitte’s advice was objective and independent and that Deloitte team which rendered advice did
not have any connections with the Group that may impair its independence. The Board reviewed the potential for conflicts of
interest and decided that Deloitte had appropriate safeguards in place.
Deloitte also provided other services during the year to the Group, including advice on tax, IFRS 9, accounting treatment and
IT security. The provision of these services is in line with best governance practice.
1.2 Statement of voting at Annual General Meeting
The current Remuneration Policy was presented and approved at the 2018 AGM by 99.95% of the votes cast. Last year’s
Remuneration Report was presented and approved at the AGM on 24 June 2019. The results were as follows:
No
1
Resolution
Votes For
% of votes
cast
Votes
Against
% of votes
cast
Total votes
% of issued
share capital
voted
Votes
Withheld
To approve
the directors'
remuneration
report
41,393,441
96.84%
1,352,797
3.16% 42,746,238
77.92% 2,647,877
154
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
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 (including TBC Bank Group PLC
and JSC TBC Bank, defined as the “Group” or “TBCG”) for the financial years ended 31 December 2019 and 31 December 2018.
2.1 Single total figure for executive Directors (audited)
VAKHTANG BUTSKHRIKIDZE
CHIEF EXECUTIVE OFFICER - US$’000
GIORGI SHAGIDZE
CHIEF FINANCIAL OFFICER - US$’000
69% of max opportunity
66% of max opportunity
2019
51.1%
47.8%
1.1%
1,887
2019
52.8%
46.9%
0.3%
913
85% of max opportunity
88% of max opportunity
2018
27.7%
71.8%
0.5%
3,356
2018
27.0%
72.8%
0.2%
1,716
Fixed1
Variable2
Pension and taxable benefits
Notes to chart:
1.
2.
Fixed remuneration includes cash salary and deferred share salary.
Variable remuneration includes deferred share bonus award but not the LTIP, which was approved at the 2018 AGM. The first awards made under
the LTIP were granted in 2019 and are subject to a three year performance period.
Salary including:
Cash salary1
Deferred share salary
Taxable benefits (gross amount)
Deferred share bonus award2
Pension
Total remuneration3
Notes to table:
Vakhtang Butskhrikidze
2019 US$’0004
964
454
510
2018 US$’000
929
454
475
2019 US$’0004
482
227
255
21
902
-
1,887
18
2,409
-
3,356
3
428
-
913
Giorgi Shagidze
2018 US$’000
464
227
237
2
1,250
-
1,716
1.
2.
3.
4.
The precise figure of cash salary amounted to US$ 453,994 for CEO and US$ 227,004 for CFO.
The decrease of deferred share bonus in 2019 as compared to 2018, is mainly due to the rebalancing of the variable remuneration component and
moving certain part of the annual bonus to LTIP according to the new policy effective from 1 January 2019. A full explanation of the basis of the 2019
deferred share bonus awards is given at section 2.2.
Directors did not receive any other items in the nature of remuneration than those disclosed in the table.
The first LTIP award has been granted in 2019, but has not yet vested and so it is not included in this table to date. More details are given in section 2.3.
Description
Cash
Salary
Base salary paid in year to executive directors.
No additional fees were paid to executive directors.
d
e
x
i
F
Deferred
share
salary
Deferred share salary comprised of TBCG shares granted in respect of service in the relevant year.
2019
2018
The number of TBCG shares awarded
as deferred share salary under the new
remuneration policy, effective from 1 January
2019, is linked to the base salary and its
level is fixed at the maximum amount of
US$510,000 for Mr. Vakhtang Butskhrikidze
and US$ 255,000 for Mr. Giorgi Shagidze.
The number of shares awarded as deferred
share salary under the old remuneration
policy, which expired on 31 December 2018,
was linked to the base salary and its level was
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 2019 were
awarded on 19 February 2020 and its level
was determined at 24,072 TBCG shares for
Mr. Vakhtang Butskhrikidze and 12,135 TBCG
shares for Mr. Giorgi Shagidze.
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.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
155
REMUNERATION COMMITTEE REPORT CONTINUED
d Deferred
e
x
i
F
share
salary
e
l
b
a
i
r
a
V
Deferred
share
bonus
Deferred share salaries are subject to a
condition of continuous employment for 2
years and malus and clawback provisions.
The continuous employment condition is
lifted as follows: 50% of the award on the first
anniversary from the award date and the other
50% on the second anniversary from the award
date.
The 2019 award has been valued using the
average share price for the period of 9-18
February 2020 (GBP 12.93 converted into US$
using the cross rate of the official exchange
rates published by the NBG of 2.87 for GEL/
US$ and of 3.72 for GEL/GBP over the same
period) and grossed up for directors’ income
tax and national insurance contribution on
share awards paid by the Company.
The continuous employment condition is
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.
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 2.68 for GEL/
US$ and 3.55 for GEL/GBP on the same date)
and grossed up for directors’ income tax and
national insurance contribution on share
awards paid by the Company.
A deferred share bonus award is granted as a result of the achievement of performance
measures for the relevant financial year1.
2019
2018
The award is 100% deferred and is subject
to continuous employment and malus
and clawback provisions. The continuous
employment condition is lifted as follows: 50%
of the award on the first anniversary from the
award date and the other 50% on the second
anniversary from the award date.
Deferred shares in relation to 2019 were
awarded on 19 February 2020 and its level
was determined at 42,571 TBCG shares for
Mr. Vakhtang Butskhrikidze and 20,355 TBCG
shares for Mr. Giorgi Shagidze.
The 2019 award has been valued using the
average share price for the period of 9-18
February 2020 (GBP 12.93 converted into US$
using the cross rate of the official exchange
rates published by the NBG of 2.87 for GEL/
US$ and of 3.72 for GEL/GBP over the same
period) and grossed up for directors’ income
tax and national insurance contribution 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.
The award is 100% deferred and is subject
to continuous employment and malus
and clawback provisions. The continuous
employment condition is 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 2018 were
awarded on 21 March 2019 and its level was
determined at 89,421 TBCG shares for Mr.
Vakhtang Butskhrikidze and 46,674 TBCG
shares for Mr. Giorgi Shagidze.
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 2.68 for GEL/
US$ and 3.55 for GEL/GBP on the same date)
and grossed up for directors’ income tax and
national insurance contribution 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 the 2018
Annual Report.
Taxable
benefits
Pension
d
n
a
n
o
i
s
n
e
P
s
t
i
f
e
n
e
b
Taxable benefits comprise medical insurance, and in the case of our CEO, security allowances.
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. Both CEO and CFO opted
out the state pension scheme which came into force starting from January 2019 in Georgia.
2.2 Basis for determining executive Directors’ deferred share bonus awards (audited)
The 2019 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.
1 Given that the first LTIP award was granted in 2019 and is subject to a three year performance period, no money or other assets were received or
receivable by the executive directors in 2019 or 2018 (as applicable)
156
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
The compensation is structured by reference to a set of stretch targets for each of the KPIs that is reviewed by the
Remuneration Committee and approved by the Board. 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 target bonus.
While one KPI can be achieved at maximum level, achieving maximum level across all KPIs is extremely difficult and to date
it has never been achieved by any executive Director. Therefore, the maximum bonus has never been paid. The Remuneration
Committee will continue to monitor and implement challenging goals for its executives on an annual basis.
The below table illustrates the performance measures set for Mr. Butskhrikidze in respect of 2019, as well as his performance
against them. The selected financial performance measures are vital for the long-term financial sustainability of the
Group and are also closely monitored by investors. Non-financial measures including strategic HR, agile transformation,
international expansion and customer experience are closely linked to our strategic priorities as described in our business
model and strategy section.
Performance measure
Weighting10%
i
l
a
i
c
n
a
n
F
e
t
a
r
o
p
r
o
C
%
0
5
s
e
r
u
s
a
e
m
ROE1
NIM2
Cost of risk3
Cost to income4
Strategic HR5
%
0
4
s
e
r
u
s
a
e
m
i
l
a
i
c
n
a
n
F
-
n
o
N
e
t
a
r
o
p
r
o
C
Agile (number of employees
trained)
School of technology
(number of IT professionals
recruited)
Data analytics
(number of employees trained)
Learning and development
program
for certain departments
(number of employees trained)
Voice of the internal customer
(score)
Agile transformation6
Increase employee happiness
from the current level
(by certain percentage)
Improve FTE productivity
(by certain percentage)
Improve time-to-market and
release frequency (increase X
times)
16%
12%
10%
12%
10%
2%
2%
2%
2%
2%
12%
3%
3%
3%
60%
140%
100%
100%
0%
140%
100%
Minimum
(60%)
Target
(100%)
Maximum
(140%)
18.25%-20.28%
20.28%-21.40%
>21.40%
KPI
evaluation
140%
5.18%-5.63%
5.63%-5.80%
5.6%
1.2%-1.08%
1.08%-0.95%
22.4%
>5.80%
<0.95%
0.7%
41.68%-40.30%
40.30%-39.03%
<39.03%
>600
>80
>500
509
>90
39.9%
400-600
545
545
55-80
300-400
40-55
25
300-350
350-500
50-90
80
80
35-50
2.10-2.25
1.93
13%-18%
16%
16%
2.25-2.35
>2.35
0%
13%-18%
>25%
60%
10%-15%
15%-20%
>20%
16%
10%
x1.1-x1.5
x1.5-x2
>x2
>x211
60%
140%
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
157
REMUNERATION COMMITTEE REPORT CONTINUED
Improve organizational agility
score (by certain percentage)
International expansion7
1. Uzbekistan
Revenue generation for Payme -
target of UZS 17,153 K
Deployment of core banking
& Space launch
2. Azerbaijan
Loan portfolio growth –
target of AZN 212 mln
Deposit portfolio growth –
target of AZN 156 mln
Customer experience8
“The Best Service Company
in Georgia” (Retail)
Number of status clients
%
0
4
s
e
r
u
s
a
e
m
i
l
a
i
c
n
a
n
F
-
n
o
N
e
t
a
r
o
p
r
o
C
l
a
n
o
s
r
e
P
%
0
1
s
I
P
K
Leadership9
3%
8%
4%
2%
2%
4%
2%
2%
10%
5%
5%
10%
Total Corporate KPI-s fulfillment
Total Personal KPI-s fulfillment
Total
90%
10%
100%
13%-18%
18%-25%
>25
0%
4.3%
95%-98%
98%-103%
>103%
157%
Dec 2019
Nov-Sep 2019
Earlier than Sep 2019
Dec
90%-95%
-2.7%
90%-95%
57.5%
95%-105%
>105%
95%-105%
>105%
Negative Gap with
N1 >=-5% <=0%
Positive Gap with
N2 >0%<=10%
Gap with #2>10%
56.000-59.000
59.000-64.000
2.7%
>64.000
84.973
A
140%
100%
0%
0%
100%
140%
100%
87%
10%
97%
Notes to chart:
1.
2.
ROE target was increased from above 21.1% in 2018 to above 21.4% in 2019.
The net interest margin (NIM) has been rebased due to National Bank of Georgia’s (NBG’s) responsible lending regulation, which was introduced from the
beginning of 2019. This regulation limits the JSC TBC Bank’s ability to disburse loans to higher yield, higher risk customers by imposing loan to value and
payment to income limits for individuals’ loans and introducing additional requirements for income verification. As a result, the maximum NIM target has
been decreased from above 6.7% in 2018 to above 5.8% in 2019.
Cost of risk ratio (CoR) has also been rebased due to the NBG’s responsible lending regulation as mentioned above, resulting in the shift of the retail loan
portfolio mix towards mortgages, which represent lower risk products. As a result, the maximum CoR target has been made more aggressive from below
1.6% in 2018 to below 0.95% in 2019.
The maximum target of cost to income ratio (C/I) has been increased due to the following factors:
`
`
the NBG’s responsible lending regulation as mentioned above, which was expected to result in decrease in net interest income and therefore
decrease in C/I ratio.
the rapid expansion of the Group and building of digital ecosystems, as well as in international initiatives, which results in increased expenses for
future development.
As a result, the maximum C/I target increased from below 37.4% in 2018 to below 39.03% in 2019. However, on a standalone basis, the bank’s C/I ratio
improved by 0.3 percentage points YoY and amounted to 35.9% (for this ratio calculation purposes, all relevant group recurring costs are allocated to the Bank).
In line with our strategic priorities, we have identified key competences that need to be developed within JSC TBC Bank and have introduced relevant
trainings and learning programs along with their KPIs in this regard. In addition, to ensure that the front office staff receives maximum support from the
back offices, the Bank has introduced an initiative of the “voice of the internal customer”. Under this initiative, front office staff assess HR’s support level
via evaluating the quality of HR service in recruiting substitute staff in front-office, based on internal pre-determined questionnaire. This KPI is measured
on a scale of 0-3, with 3 meaning the best quality.
The importance of agile transformation is explained in our strategy section on pages 12-19. Based on the best practice shared by the consultants that TBC
has been working with in Agile implementation, the selected KPIs are used to measure agile implementation efficiency. Improved FTE productivity and
time-to-market and release frequency are direct results of a good agile programme. In addition, employee happiness and improved organizational agility
score are additional important benefits of the cultural change. TBC has agreed to embark on ambitious targets across all these impact areas and agreed
to set appropriate KPIs for each of them. Each KPI has a weighting of 3%:
3.
4.
5.
6.
158
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
`
`
`
`
FTE productivity implies that the same amount of work is conducted with less workforce;
Time-to-market measures the time it takes for the product to be launched from the idea origination date to the release date, while release frequency
measures how many times the systems are renewed within the given period of time.
Organizational agility score is measured based on internal predefined survey, which is based on the best practice examples;
Employee happiness is measured based on internal predefined survey, which is based on the best practice example prepared by external consultants.
The Remuneration Committee assessed that this KPI was satisfied at 60%.
Agile transformation has involved 471 employees during 2019.
7.
The rationale for our international expansion plans is described in our strategy section on pages 12-19. The selected financial measures are based on
management accounts.
Core banking implementation was completed in December 2019. Although the target date was September 2019, as the executive Directors had
substantially achieved their targets by year-end, the Remuneration Committee assessed the satisfaction of this KPI (which carried a weighting of 2%) at
100%. In exercising its discretion, the Remuneration Committee considered the successful launch of consumer finance in Uzbekistan and the fact that the
delay in completing this KPI was due to a delay in the local regulatory licensing process which was outside of the executive Directors’ control.
8.
In line with our aspiration to be the best service provider in Georgia, two measures were evaluated:
9.
10.
`
to conduct survey among mass retail customers to identify “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 2019
to be the number one in affluent banking in terms of number of clients.
`
Leadership skills are assessed by the Board and were regarded to be achieved “at target” level. Given the increasing complexities of the regulatory
and operational environments, the Board, under the leadership of the Remuneration Committee, reviewed the CEO leadership performance taking into
account the following parameters: self-leadership, people leadership, organizational leadership and cultural leadership. In 2019, it was the first time
such assessment was conducted within this new framework. In 2019, the CEO effectively led the Group across a number of challenges, including the
developments around TBC Bank related to the historic transactions and its potential impact on banks operational level. CEO, with his respective teams,
has managed to stabilize the bank very quickly and ensured that the business performed as usual. Finally, in such challenging year, under his leadership,
the Group recorded very strong financial and operational performance in Georgia and abroad.
In order to better align CEO’s KPIs with Group strategic priorities and the challenges he was facing in 2019 and which initiated in 2018, we have slightly
reduced the weightings of the financial measures from 56% in 2018 to 50% in 2019, while the non-financial measures were enhanced to cover strategic
HR, customer satisfaction, agile transformation and international expansion ambitions with corresponding weighting of 40% in 2019 versus 34% in 2018.
In 2020 the weightings of the financial measures will be raised to 70% as the overall strategic plan is now much more defined and in order to increase the
management’s focus on monetizing the Group’s strategic initiatives for the benefit of the shareholders.
11. Release frequency: 4-10 times improvement for in-house systems, 1.5-2 times improvement for vendor systems, time-to-market: 2-3 times improvement
for majority of systems.
As a result, during 2019, the Remuneration Committee therefore considered Mr Butskhrikidze’s performance as good
and determined the overall value of the deferred share bonus award of US$ 901,934 (being the net value awarded of US$
714,178 grossed up for directors’ income tax and national insurance contribution on deferred bonus share awards). The
actual deferred share bonus represented 69% of the maximum annual bonus, which could have been achieved if all the
performance measures had been met.
The below table illustrates the performance measures set for Mr. Shagidze in respect of 2019, 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 TBCG 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.
Performance measure
Weighting12%
i
l
a
i
c
n
a
n
F
e
t
a
r
o
p
r
o
C
%
7
3
s
e
r
u
s
a
e
m
ROE1
NIM2
Cost of risk3
Cost to income4
Strategic HR5
-
n
o
N
e
t
a
r
o
p
r
o
C
s
e
r
u
s
a
e
m
l
a
i
c
n
a
n
F
i
Agile (number of employees
trained)
%
3
3
School of technology
(number of IT professionals
recruited)
Data analytics
(number of employees trained)
11%
10%
8%
8%
8%
1.6%
1.6%
1.6%
Minimum
(60%)
Target
(100%)
Maximum
(140%)
18.25%-20.28%
20.28%-21.40%
>21.40%
KPI
evaluation
140%
5.18%-5.63%
5.63%-5.80%
5.6%
1.2%-1.08%
1.08%-0.95%
22.4%
>5.80%
<0.95%
0.7%
41.68%-40.30%
40.30%-39.03%
<39.03%
39.9%
400-600
545
545
55-80
300-400
40-55
25
300-350
350-500
>600
>80
>500
509
60%
140%
100%
100%
0%
140%
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
159
REMUNERATION COMMITTEE REPORT CONTINUED
%
3
3
s
e
r
u
s
a
e
m
i
l
a
i
c
n
a
n
F
-
n
o
N
e
t
a
r
o
p
r
o
C
Learning and development
program
for certain departments
(number of employees trained)
Voice of the internal customer
(score)
Agile transformation6
Increase employee happiness
from the current level
(by certain percentage)
Improve FTE productivity
(by certain percentage)
Improve time-to-market and
release frequency (increase X
times)
Improve organizational agility
score (by certain percentage)
International expansion7
1. Uzbekistan
Revenue generation for Payme -
target of UZS 17,153 K
Deployment of core banking
& Space launch
2. Azerbaijan
Loan portfolio growth –
target of AZN 212 mln
Deposit portfolio growth –
target of AZN 156 mln
Customer experience8
“The Best Service Company
in Georgia” (Retail)
Number of status clients
Financial:
Treasury9:
Treasury FX
l
a
n
o
s
r
e
P
%
0
3
s
I
P
K
Treasury Liquidity
International expansion -
Uzbekistan
Non-financial:
IR10
Leadership11
Total Corporate KPI-s fulfillment
Total Personal KPI-s
fulfillment
Total
160
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
1.6%
1.6%
8%
2%
2%
2%
2%
9%
5%
2.5%
2.5%
4%
2%
2%
8%
4%
4%
16%
8%
4%
4%
8%
14%
8%
6%
70%
30%
100%
35-50
2.10-2.25
1.93
13%-18%
16%
16
50-90
80
80
>90
100%
2.25-2.35
>2.35
0%
18%-25%
>25%
60%
10%-15%
15%-20%
>20%
16%
10%
x1.1-x1.5
x1.5-x2
13%-18%
18%-25%
4.3%
95%-98%
98%-103%
>x2
>x213
>25
>103%
157%
Dec 2019
Nov-Sep 2019
Earlier than Sep 2019
Dec
90%-95%
-2.7%
90%-95%
57.5%
95%-105%
>105%
95%-105%
>105%
Negative Gap with
N1 >=-5% <=0%
Positive Gap with
N2 >0%<=10%
Gap with #2>10%
56,000-59,000
59,000-64,000
2.7%
>64,000
84,973
95% -98% of the
budget
98% -103% of the
budget
> 103% of the
budget
102
95% -98% of the
budget
98% -103% of the
budget
> 103% of the
budget
108%
Same target as mentioned above in corporate KPIs
-10-0%
-18%14
0-10%
>10%
A
60%
140%
0%
140%
100%
0%
0%
100%
140%
100%
140%
120%
0%
100%
67%
25%
92%
Notes to table:
1.
2.
3.
4.
5.
6.
ROE target was increased from above 21.1% in 2018 to above 21.4% in 2019.
The net interest margin (NIM) has been rebased due to National Bank of Georgia’s (NBG’s) responsible lending regulation, which was introduced from the
beginning of 2019. This regulation limits the JSC TBC Bank’s ability to disburse loans to higher yield, higher risk customers by imposing loan to value and
payment to income limits for individuals’ loans and introducing additional requirements for income verification. As a result, the maximum NIM target has
been decreased from above 6.7% in 2018 to above 5.8% in 2019.
Cost of risk ratio (CoR) has also been rebased due to the NBG’s responsible lending regulation as mentioned above, resulting in the shift of the retail loan
portfolio mix towards mortgages, which represent lower risk products. As a result, the maximum CoR target has been made more aggressive from below
1.6% in 2018 to below 0.95% in 2019.
The maximum target of cost to income ratio (C/I) has been increased due to the following factors:
`
`
the NBG’s responsible lending regulation as mentioned above, which was expected to result in decrease in net interest income and therefore
decrease in C/I ratio.
the rapid expansion of the Group and building of digital ecosystems, as well as in international initiatives, which results in increased expenses for
future development.
As a result, the maximum C/I target increased from below 37.4% in 2018 to below 39.03% in 2019. However, on a standalone basis, the bank’s C/I ratio
improved by 0.3 percentage points YoY and amounted to 35.9% (for this ratio calculation purposes, all relevant group recurring costs are allocated to the Bank).
In line with our strategic priorities, we have identified key competences that need to be developed within JSC TBC Bank and have introduced relevant
trainings and learning programmes along with their KPIs in this regard. In addition, to ensure that the front office staff receives maximum support from
the back offices, the Bank has introduced an initiative of the “voice of the internal customer”. Under this initiative, front office staff assess HR’s support
level via evaluating the quality of HR service in recruiting substitute staff in front-office, based on internal pre-determined questionnaire. This KPI is
measured on a scale of 0-3, with 3 meaning the best quality.
The importance of agile transformation is explained in our strategy section on pages 12-19. Based on the best practice shared by the consultants that TBC
has been working with in Agile implementation, the selected KPIs are used to measure agile implementation efficiency. Improved FTE productivity and
time-to-market and release frequency are direct results of a good agile programme. In addition, employee happiness and improved organizational agility
score are additional important benefits of the cultural change. TBC has agreed to embark on ambitious targets across all these impact areas and agreed
to set appropriate KPIs for each of them. Each KPI has a weighting of 2%:
`
`
`
`
FTE productivity implies that the same amount of work is conducted with less workforce;
Time-to-market measures the time it takes for the product to be launched from the idea origination date to the release date, while release frequency
measures how many times the systems are renewed within the given period of time.
Organizational agility score is measured based on internal predefined survey, which is based on the best practice examples;
Employee happiness is measured based on internal predefined survey, which is based on the best practice example prepared by external consultants.
The Remuneration Committee assessed that this KPI was satisfied at 60%.
Agile transformation has involved 471 employees during 2019.
7.
The rationale for our international expansion plans is described in our strategy section on pages 12-19 The selected financial measures are based on
management accounts.
Core banking implementation was completed in December 2019. Although the target date was September 2019, as the executive Directors had substantially
achieved their targets, the Remuneration Committee assessed the satisfaction of this KPI (which carried a weighting of 2.5%) at 100%. In exercising its
discretion, the Remuneration Committee considered the successful launch of consumer finance in Uzbekistan and the fact that the delay in completing
this KPI was due to a delay in the licensing process which was outside of the executive Directors’ control.
8.
In line with our aspiration to be the best service provider in Georgia, two measures were evaluated:
`
`
to conduct survey among mass retail customers to identify “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 2019
to be the number one in affluent banking in terms of number of clients.
9.
The figures are based on the bank’s IFRS standalone numbers and envisages meeting certain level of income from foreign exchange operations and
liquidity management.
2019 Q4 average share price multiple of TBCG PLC compared with that of the peer bank.
10.
11. CFO’s leadership skills were assessed based on the following parameters: self-leadership, people leadership, organizational leadership and cultural
leadership. In addition to his daily functions, in 2019, the CFO successfully led the Uzbekistan project across a number of challenges, which resulted in
obtaining the pre-licence for starting banking operations in Uzbekistan as well launching consumer finance operations and acquisition of the leading
payment company, Payme. In parallel, the CFO successfully led the senior and AT1 bonds issuance project, which has been completed successfully.
In order to better align CFO’s KPIs with Group strategic priorities, we have reduced the weightings of the personal measures from 38% in 2018 to 30% in
2019, while the non-financial measures were enhanced to cover strategic HR, customer satisfaction, agile transformation and international expansion
ambitions with corresponding weighting of 33% in 2019 versus 26% in 2018. In 2020 the weightings of the financial measures will be raised to 54% in order
to increase the management’s focus on monetizing the Group’s strategic initiatives for the benefit of the shareholders.
12.
13. Release frequency: 4-10 times improvement of in-house systems, 1.5-2 times improvement of vendor systems, time-to-market: 2-3 times improvement
of majority of systems.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
161
REMUNERATION COMMITTEE REPORT CONTINUED
14. The Remuneration Committee and the board have assessed IR function and CFO’s role as excellent in the difficult year taking into the account the
increased focus and need to be closer to the shareholders and other stakeholders. The Remuneration Committee did not use its discretion to increase the
KPI given the significant drop in the share price, even though this decrease was outside management control.
The Remuneration Committee also considered Mr Shagidze’s performance as good and determined the overall value of the
deferred share bonus award of US$ 427,721 (being the net value awarded of US$ 341,481 grossed up for directors’ income
tax and national insurance contribution on deferred bonus share awards). The actual deferred share bonus represented 66%
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 LTIP award granted in 2019 (audited)
Awards granted in 2019 under the LTIP further align executives with the long-term success of the Group. Awards granted in
2019 will be subject to a 3 year performance period and will be delivered in 2022.
Performance conditions and targets together with corresponding weightings for CEO and CFO for LTIP awards granted in
2019 in respect of performance period 2019-2021 are as follows:
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
Below Target 60%
Target (inclusive) 100%
Above Target (140%)
40%
40%
20%
15-17%
15-18%
34-36%
17-20%
18-21%
36-40%
Above 20%
Above 21%
Above 40%
In the view of the Remuneration Committee the ROE target of above 21% is challenging given the pressure on net interest
margin due to responsible lending regulation introduced from 1st January 2019, which limits the bank’s ability to lend money
to higher yield retail customers and subsequently negatively affects the Group’s operating income. Further, the Group’s
planned investments into ecosystems and its international expansion initiatives (as explained in more details on pages 12-19
of the strategic report) were also expected to squeeze the ROE over the LTIP vesting period and these were taken into account
when setting the target. In addition, given the expected decrease in cost of equity due to overall improvement in the risk
profile of the country related to the continued development and expected decrease in the refinance rate, the Remuneration
Committee considered that the ROE of above 21% would be challenging to reach and would equally be attractive for the
investment opportunity. Equally, the Remuneration Committee determined that the market share of above 40% was also
appropriately challenging on the back of maintaining high profitability of ROE above 21% since the intensified competition
in the market puts pressure on loan yields. The Remuneration Committee considers that these targets strike the right
balance between wanting to foster and achieved long-term growth and success of the Company and to reward exceptional
performance.
The 2019 awards are scheduled to be released in 2022 and the maximum value of the award has been calculated by reference
to the share price of GBP 14.92 (10 days average price for the period of 22 February -3 March 2019, that is the average price
for the 10 days after the preliminary results for the full year 2018 have been released on 21 February 2019, based on data
published on Bloomberg platform), converted into US$ using average the cross rate of the official exchange rates published
by the NBG of 2.67 for GEL/US$ and of 3.51 for GEL/GBP over the same period. Accordingly, the maximum number of shares
would be 79,217 for CEO and 39,609 for CFO. Please see section 10 for more information.
162
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
2.4 Further details of fixed and discretionary deferred share compensation granted during 2019 (audited)
The following table sets out further details of the share awards granted to Mr Butskhrikidze and Mr. Shagidze in 2019.
Date of
award
Award
type
Face value
% of base
salary)1
Face
value
Vakhtang
Butskhrikidze
21
March
2019
Fixed:
Deferred
share
salary
Not
applicable
US$
474,700
Percentage
of award
receivable
if minimum
performance
achieved
Not
applicable
None
As
described
in section
2.1 above
Performance
measures
Basis
of which
award was
made
End of
performance
period
End of the
vesting/
holding
period
21
March
2019
Discretionary:
deferred
share bonus
250%
US$
2,408,813
Not
applicable
As
described
in section
2.1 above
See section 2.2
of 2018
Remuneration
Report
3
March
2019
21
March
2019
Giorgi
Shagidze
LTIP
161%
US$
1,554,240
44% of the
face value of
the awards
Fixed: Deferred
share salary
Not
applicable
US$
236,048
Not
applicable
The
maximum
value
under the
policy
As
described
in section
2.1 above
None
See section 2.3
31 Dec 2021
21
March
2019
Discretionary:
deferred share
bonus
259%
US$
1,250,408
Not
applicable
As
described
in section
2.1 above
See section 2.2
of 2018
Remuneration
Report
31 Dec 2018.
Subject to
continued
employment
condition until
21 March
2022.
31 Dec 2018.
Subject to
continued
employment
condition until
21 March
2022.
31 Dec 2018.
Subject to
continued
employment
condition until
21 March
2022.
31 Dec 2018.
Subject to
continued
employment
condition until
21 March
2022.
21 March
2021. The
holding
period for
50% of the
shares is
lifted on 21
March 20202
21 March
2021. The
holding
period for
50% of the
shares is
lifted on 21
March 20202
1Q 2024
(after expiry
of two year
holding
period)
21 March
2021. The
holding
period for
50% of the
shares is
lifted on 21
March 20202
21 March
2022. The
holding
period for
50% of the
shares is
lifted on 21
March 2020
1Q 2024
(after expiry
of two year
holding
period)
LTIP
161%
3
March
2019
US$
777,120
44% of the
face value of
the awards
See section 2.3
31 Dec 2021
The
maximum
value
under the
policy
Notes to table:
1.
2.
3.
For the purpose of this calculation, the base salary paid in 2019 used.
The deferred share salary/bonus subject to a two year continued employment and holding period, lifted on a phased basis: 50% on first anniversary of
grant and 50% on second anniversary of grant.
The share price of the deferred share salary and deferred bonus is based on closing market value of share price on 21 March 2019. Plaser refer to table
2.1 for more details.
2.5 Change in remuneration of the CEO compared with the wider employee population
The table below sets out the change in salary, benefits and bonus of the CEO compared with that of the wider employee
population between 2018 and 2019:
Salary1
Cash bonus
Taxable benefits
Pension-related benefits3
Deferred share bonus award4
Total remuneration
Chief Executive
3.8%2
0%
13.7%
0%
-62.6%
-43.8%
All employees
-0.4%
10.2%
6.3%
100%
-87.7%
5.8%
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
163
REMUNERATION COMMITTEE REPORT CONTINUED
Notes to table:
1.
2.
3.
4.
This includes cash and fixed deferred share salary. The CEO’s cash salary increase is calculated in US dollars, the currency which is fixed for his cash
salary.
The increase in fixed deferred share salary is related to the change in the policy, whereas the amount of deferred shares are calculated by reference to
cash amount rather than a fixed number of shares as per old policy.
Starting from 1st January 2019, the Georgian government introduced the mandatory pension scheme. Under this scheme, 2% of the employee fixed salary
is to be contributed by the JSC to a national pension fund. CEO has opted out of this scheme, therefore no contributions have been paid by the Company
in relation to this remuneration.
The actual number of shares awarded to CEO as part of deferred shares bonus decreased from 89,421 shares in 2018 to 42,571 in 2019. The decrease of
deferred share bonus in 2019 as compared to 2018, is mainly due to the rebalancing of the variable remuneration component and moving certain part of
the annual bonus to LTIP according to the new policy effective from 1 January 2019. Also, there was a decrease in share price as well. More details are
given in section 2.1. The total number of shares granted to all qualifying employees excluding the CEO decreased due to a decrease in the number of
shares granted to top management (excluding CEO) by around 53% YoY mainly due to the new remuneration policy as described above, while the number
of shares granted to other qualifying employees decreased by around 14% YoY mainly due to increase in the share price for the purpose of share based
bonuses accruals effective from January 2019. (Expense is accrued based on grant date share price, which was fixed at GBP 14.88, whilst grant date share
price of old scheme was USD 11.00. GEL/USD exchange rate at grant date was fixed at 2.2399 in old scheme, while in new schemes currency exchange
rate is not fixed).
2.6 Single total figure for non-executive Directors (audited)
The table below sets out the remuneration earned by each non-executive Director for the years ended 31 December 2018
and 31 December 2019. The independent non-executive Directors are remunerated based on the number of committees they
serve on and chair.
Director
Mamuka Khazaradze1
Badri Japaridze1
Nikoloz Enukidze2
Nicholas Haag
Eric Rajendra3
Maria Luisa Cicognani
Tsira Kemularia
Arne Berggren4
Stefano Marsaglia5
Stephan Wilcke5
Total amounts
Notes to table:
Year
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Fees
US$’000
382
950
328
800
248
166
157
135
68
154
149
38
144
33
51
0
0
95
0
83
1,527
2,454
Taxablebenefits6
US$’000
12
37
8
33
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
20
70
Total Remuneration7
US$’000
394
987
336
833
248
166
157
135
68
154
149
38
144
33
51
0
0
95
0
83
1,547
2,524
1. Mamuka Khazaradze and Badri Japaridze stepped down from their respective positions of Chairman and Deputy Chairman of the Board on 25 July 2019
2.
3.
Nikoloz Enukidze was appointed to serve as the Chairman of the Board on 25 July 2019 following the resignation of Mamuka Khazaradze.
Eric Rajendra was re-appointed as Independent non-executive Director on 17 September 2019 following his resignation on 15 March 2019 due to health
reasons. He was appointed as a member of JSC TBC Bank Supervisory Board on 9 October 2019.
Arne Berggren joined the Board as an independent non-executive Director on 13 August 2019 and was appointed as a member of JSC TBC Bank
Supervisory Board on 18 July 2019.
Stefano Marsaglia and Stephan Wilcke resigned from the Board in September 2018 and were replaced by Maria Luisa Cicognani and Tsira Kemularia respectively.
Taxable benefits comprise medical insurance, car, and security allowance. From 1st January 2019, as a result of pension reform, the state pension scheme
was introduced in Georgia, which required TBCG to pay into the pension scheme for Georgian resident directors (including non-executive Directors).
Individuals above 40 years are allowed to leave the scheme before a certain date. Mamuka Khazaradze was planning to opt out of this scheme but failed to
do so before the set deadline. The total pension contribution paid by TBCG during 2019 was GEL 12,415 and will be recovered in the first half of 2020. Badri
Japaridze opted out the scheme and the full amount paid by TBCG (GEL 9,988) was recovered in 2019.
Non-executive Directors have not received any other payments from the Group in 2019 and 2018.
4.
5.
6.
7.
164
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
The table below shows the detailed breakdown of annual fees paid to non-executive Directors in 2019 and 2018 in relation to
different roles paid from both TBC Bank Group PLC and JSC TBC Bank:
Fees paid
starting from
25.09.2019
US$’000*
338
0
Fees paid from
25.07.2019-
25.09.2019
US$’000*
320
0
Fees paid from
4.04.2019-
25.07.2019
US$’000*
450
400
130
15
12
6
3
130
15
12
6
3
130
15
12
6
3
Fees paid before
4.04.2019
US$’0001*
Fees paid
in 2018
US$’0001
950
800
84
20
28
11
0
950
800
84
20
28
11
0
Chairman
Deputy Chairman
Non-executive Director
(other than Chairman
and Deputy Chairman)
Senior independent director
Committee Chairmanship
Committee membership
Employee engagement
designated independent
board member role
Notes to the table:
1.
Before 4 April 2019, all board members received the same remuneration for the roles listed above except for Eric Rajendra who received the following
fees: board membership- US$ 94,533, committee Chairmanship-US$ 27,206, committee membership-US$ 10,882. This was caused by differences in tax
treatment between jurisdictions, as TBC Bank wished non-executive Directors to receive similar net pay regardless of the tax system applicable to them.
* These amounts reflect the annual rate that applies, or would have applied, from the date set out for that financial year.
During 2019, the Chairman and Deputy Chairman of the Board resigned and as a result the Board has undergone
a restructuring. As part of this restructuring, the role of the Deputy Chairman has been abolished and the fees for the
remaining non-executive Directors (including the new Chairman) have been amended several times during the year to also
comply with the principles of the National Bank of Georgia’s (NBG’s) new Corporate Governance Code for Commercial Banks.
To assist the Remuneration Committee determine the appropriate fees for the non-executive Directors, the Remuneration
Committee has completed an externally moderated benchmarking exercise against its peer bank and FTSE 250 companies
performed by Deloitte corporate governance team which was retained as advisor. As a result, the Remuneration Committee
decreased the Chairman’s fees from US$ 950,000 on 1st January 2019 to US$ 338,000 starting from 25 September 2019
and no fees were paid to former Chairman and Deputy Chairman for the months following their resignations. Committee
Chairmanship and membership fees have also decreased (from $28,000 to $12,000 and $11,000 to $6,000 respectively).
The Remuneration Committee’s decision to increase individual non-executive Directors (excluding Chairman) fees for board
membership from $84,000 to $130,000 while reducing Committees’ fees has been done within the non-executive Directors’
compensation policy approved at the 2018 AGM. All-in-all the total average non-executive Director fees, inclusive of board
membership in both the PLC and the JSC and committee fees, increased by 15% compared to 2018. The rebalancing of the
fee structure within the 2018 AGM approved limits reflects a number of operational challenges which the non-executive
board members are facing. The increased complexity of business and the different regulatory environments where the
Group operates, the implementation of the international expansion, the growth of customer focused ecosystems in Georgia
and also in our foreign operations have required substantial additional time commitment from the Board which has been
estimated at around 17% in 2019 compared to 2018. However, after the changes implemented, the overall 2019 annual costs
for non-executive Directors’ compensation reduced by 39% compared to 2018, considering that until the resignation of the
former Chairman and Deputy Chairman the previous level of fees were paid. Further details of the changes can be found in
sections 9 and 12.
The table below shows the new fee levels of the “ordinary board member”, which for these purposes is someone whom
chairs one committee and is a member of two committees.
Roles
Annual fees in thousands US$ per Role
Annual fees in thousands US$ per
combined responsibility
Total Annual Fee in thousands US$
Board membership
1
130
Committee membership
2
6
Committee Chairmanship
1
12
130
12
12
154
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
165
REMUNERATION COMMITTEE REPORT CONTINUED
Therefore the Board has decided not to make any adjustments to NED compensation, but will keep the matter under review,
particularly given the time commitment required by the TBC’s governance structure necessitating non-executives to sit on
two different Boards with different responsibilities and time commitments.
The table below shows the expected remuneration for the non-executive Directors in 2020 (unaudited).
Non-executive Directors’ expected fees in 2020 for both TBC PLC and JSC TBC Bank Boards
Nikoloz Enukidze
Nicholas Haag
Eric Rajendra
Maria Luisa Cicognani
Tsira Kemularia
Arne Berggren
Total amounts
Fees US$’000
350
175
142
154
157
148
1,126
The above table shows the total fees to be paid to non-Executive directors in 2020 in relation to different roles that they hold including chairman position,
committee membership and chairmanship, senior independent director and employee engagement designated independent board member roles.
3. REMUNERATION OF THE TOP MANAGEMENT OF JSC TBC BANK
The table below summarizes the total remuneration earned by the senior managers of the JSC TBC Bank for the financial
years ended 31 December 2019 and 31 December 2018, except for the CEO and CFO (as their remuneration information is
disclosed in section 2 of this Report).
Director 1
Year
Base salary
US$’000
Deferred share
salary US$’000
Total for the top managers
excluding CEO and CFO
Per Top manager excluding
CEO and CFO (average per 6 members)
2019
2018
2019
2018
1,160
1,490
232
248
1,479
1,666
296
278
Taxable
benefits
US$’000
26
15
5
2
Deferred share
bonus award
US$’0002
2,221
5,887
444
981
Total
remuneration
US$’0003
4,886
9,058
977
1,510
Notes to the table:
1.
2.
3.
In 2019, in addition to CEO and CFO, the top management of JSC TBC Bank was comprised of 5 individuals: Head of Retail Banking, Head of Corporate and
Investment Banking, Head of MSME Banking, Chief Risk Officer, Chief Operating Officer. In 2018, the top management also included the position of First
Deputy CEO, a position which was eliminated in the beginning of 2019.
The decrease of deferred share bonus in 2019 as compared to 2018, is mainly due to the rebalancing of the variable remuneration component and moving
certain part of the annual bonus to LTIP according to the new policy effective from 1 January 2019.
The first LTIP award has been granted in 2019, but has not yet vested as it is subject to a three year performance period. Thus, it is not included in this table.
166
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
Description
Cash
Salary
Base salary paid in year to executive directors.
No additional fees were paid to executive directors.
d
e
x
i
F
Deferred
share
salary
e
l
b
a
i
r
a
V
Deferred
share
bonus
Deferred share salary comprises of TBCG shares granted in respect of service in the relevant year.
2019
2018
The number of TBCG shares awarded as deferred
share salary under the new remuneration policy,
effective from 1 January 2019, is linked to the base
salary.
The number of shares awarded as deferred share
salary under the old remuneration policy, which
expired on 31 December 2018, was linked to the
base salary.
Deferred shares in relation to 2019 were awarded
on 19 February 2020. Deferred share salaries are
subject to a 2 year holding period and malus and
clawback provisions. The holding condition is lifted
as follows: 50% of the award on the first anniversary
from the award date and the other 50% on the
second anniversary from the award date.
The 2019 award has been valued using the average
share price for the period of 9-18 February 2020
(GBP 12.93 converted into US$ using the cross
rate of the official exchange rates published by the
NBG of 2.87 for GEL/US$ and of 3.72 for GEL/GBP
over the same period) and grossed up for directors’
income tax and national insurance contribution on
share awards paid by the Company.
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. The continuous
employment condition is 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.
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
2.68 for GEL/US$ and 3.55 for GEL/GBP on the same
date) and grossed up for directors’ income tax and
national insurance contribution on share awards
paid by the Company
A deferred share bonus award is granted as a result of the achievement of performance measures for the
relevant financial year.
2019
2018
The award is 100% deferred and is subject to a
2 year holding period and malus and clawback
provisions. The holding condition is lifted as follows:
50% of the award on the first anniversary from
the award date and the other 50% on the second
anniversary from the award date.
Deferred shares in relation to 2019 were awarded on
19 February 2020.
The 2019 award has been valued using the average
share price for the period of 9-18 February 2020
(GBP 12.93 converted into US$ using the cross rate
of the official exchange rates published by the of
2.87 for GEL/US$ and of 3.72 for GEL/GBP over the
same period) and grossed up for directors’ income
tax and national insurance contribution on share
awards paid by the Company.
The award is 100% deferred and is subject to
continuous employment and malus and clawback
provisions. The continued employment condition
is 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 2018 were awarded on
21 March 2019.
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 2.68 for GEL/ US$ and 3.55 for GEL/GBP on the
same date) and grossed up for directors’ income tax
and national insurance contribution on share awards
paid by the Company.
s
t
i
f
e
n
e
B
Taxable
benefits
Taxable benefits comprise medical insurance and pension contributions in relation to mandatory state
pension scheme effective from 1st January 2019 in cases where directors are not allowed to opt out of the
scheme due to their age.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
167
REMUNERATION COMMITTEE REPORT CONTINUED
4. PAYMENTS TO PAST DIRECTORS (AUDITED)
There were no payments made to past directors relating to 2019.
5. PAYMENTS FOR LOSS OF OFFICE (AUDITED)
There were no payments made in relation to loss of office in 2019.
6. STATEMENT OF DIRECTORS’ SHAREHOLDINGS AND SHARE INTERESTS (AUDITED)
The application of our remuneration structure 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. Both executive Directors have met the
Minimum Shareholding Requirement. 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 any further performance conditions.
The following table sets out a summary of each director’s shareholdings and share interests in the Company as at 31
December 2019. Although not a Company requirement, some non-executive Directors have chosen to become shareholders.
Number of shares
held not subject to
the continued employment
requirements and/or
performance conditions1
5,658,048
3,308,616
805,367
110,157
10,000
0
0
0
0
0
Number of shares
held subject to
the continued employment
requirements2
Number of shares
held subject to
the performance
conditions3
Total
interests
in shares
0
0
292,502
146,916
0
0
0
0
0
0
0
0
5,658,048
3,308,616
79,217
1,177,086
39,609
296,682
0
0
0
0
0
0
10,000
0
0
0
0
0
Mamuka Khazaradze
Badri Japaridze
Vakhtang Butskhrikidze4
(Executive Director)
Giorgi Shagidze4
(Executive Director)
Nikoloz Enukidze
Nicholas Haag
Eric Rajendra
Maria Luisa Cicognani
Tsira Kemularia
Arne Berggren
Notes to table:
1.
2.
3.
4.
This figure includes all shares held which are no longer subject to any conditions or transfer restrictions.
This figure includes shares that are still subject to conditions, including transfer restrictions, a continuous employment condition and malus and clawback
provision. 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.
This figure includes awards granted, but not vested, under the LTIP that are subject to performance conditions. Details of these interest are described at
section 2.1 and 2.3.
On 19 February 2020, the Company granted deferred shares to Mr Butskhrikidze and Mr. Shagidze, in respect of the year ended 31 December 2019, as part
of their fixed salary and as the annual bonus. Mr Butskhrikidze has been granted 66,642 shares and Mr. Shagidze has been granted 32,490 shares. These
shares are subject to two years continued employment and malus and clawback provisions. The continued employment condition is lifted as follows: 50%
of the award on the first anniversary from the award date and the other 50% on the second anniversary form the award date. In addition, during the first
quarter 2020, CEO and CFO sold 85,000 and 23,000 shares respectively. These have not been included in the above table. All figures in the table reflect
the position as at 31 December 2019. As at 28 April 2020, Mr Butskhrikidze held 251,757 shares and Mr. Shagidze held 125,123 shares that were subject
to continued employment conditions. Both the CEO and CFO have met the Shareholding Requirement - as explained in more detail on page 172. As of 31
December 2019, the total value of shareholdings for CEO and CFO respectively stood at 1940% and 908% of their respective base salaries. The values are
calculated based on GBP 13.0 share price as of 31 December 2019 converted into US$ using the cross rate of the official exchange rates published by the
NBG of 2.87 for GEL/US$ and of 3.76 for GEL/GBP for the same date. Except for the ones described above, no other changes have taken place since the
end of 2019 till 28 April 2020.
168
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
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 2019, 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.
190
180
170
160
150
140
130
120
110
100
90
TBC Bank Total Shareholder Return
FTSE All-Share Total Return Index
FTSE 250 Total Return Index
A ug - 2016
Oct - 2016
D ec - 2016
Feb- 2017
A pr- 2017
Jun- 2017
A ug- 2017
Oct- 2017
D ec- 2017
Feb- 2018
A pr- 2018
Jun- 2018
A ug- 2018
Oct- 2018
D ec- 2018
Feb- 2019
A pr- 2019
Jun- 2019
A ug- 2019
Oct- 2019
D ec- 2019
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
2019
2018
2017
Notes to table:
Single total figure
of remuneration (US$’000)1
1,887
3,356
4,084
Deferred share bonus as a percentage
of maximum opportunity (%)2
69%
85%
88%
1.
2.
Total remuneration includes fixed cash salary, deferred share salary, deferred share bonus award and taxable benefits as described in section 2.1, but
excludes LITP, which was awarded in 2019 but not yet vested. More details about LTIP is given in section 2.3.
For further details of the deferred share bonus please refer to section 2.2 above.
8. RELATIVE IMPORTANCE OF SPEND ON PAY
The following table illustrates the difference in spend on pay for all employees of the Group and the difference in dividend paid
to the shareholders between 2019 and 2018. Dividends paid to shareholders in 2019 for the year ended 31 December 2018
increased by 6% as compared to dividends paid to shareholders in 2018 for the year ended 31 December 2017.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
169
REMUNERATION COMMITTEE REPORT CONTINUED
8. RELATIVE IMPORTANCE OF SPEND ON PAY CONTINUED
Total spend on pay1 (US$’000)
Dividends paid to shareholders2 (US$’000)
Notes to table:
Year ended 31
December 2019
87,900
38,145
Year ended 31 December 2018
% change
86,942
36,156
1%
6%
1.
2.
Total spend on pay includes total staff costs per Group’s IFRS consolidated financial statements and is converted into US$ using average US$/GEL
exchange rate of 2.82 for 2019 and of 2.53 for 2018 respectively.
Dividend paid to shareholders are gross amounts converted into US$ using official exchange rate prevailing at the date of payment of the dividends, GEL
2.85 and GEL 2.46 for 2019 and 2018 respectively. The dividend amount includes both cash and scrip dividend.
9. POLICY IMPLEMENTATION IN 2020
Remuneration policy for executive Directors
The 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.
The National Bank of Georgia (NBG), the regulator of JSC TBC Bank, has introduced a new Corporate Governance Code
for Commercial Banks. This includes certain requirements in relation to executives’ remuneration that comes into force
from 2020. Therefore, the Remuneration Committee will adopt the required modifications to the remuneration of the top
management and executive Directors in relation to FY 2020 in order to meet the new regulatory requirements. These changes
are summarized below:
1. extend the holding period under the LTIP from 2 years to 3 years, so that starting from 2020, LTIP awards will have a
3-year vesting period, which will be followed by a 3-year holding period;
2.
change the expected remuneration in such a way that the portion of the expected annual bonus as a percentage of total variable
remuneration, is decreased from 45% to 40% for the CFO and from 46% to 40% for the CEO, while the expected portion of LTIP as
a percentage of total variable compensation is increased from 55% to 60% for CFO and from 54% to 60% for CEO.
These changes will even more align executive Directors’ interests to those of the shareholders. These changes remain within
the maximum levels of compensation approved by shareholders under the current remuneration policy and, therefore, they
will not require additional shareholders’ approval.
Given the on-going COVID-19 pandemic, the executive Directors and top management of JSC TBC Bank have voluntarily
decided to waive all variable compensation (usually representing majority of total compensation) in relation to 2020 (i.e.
annual bonus in relation to 2020 year to be awarded in February 2021) and LTIP grants for 2020 year.
Non-executive Director compensation
See section 2.6 and further details below on changes to the non-executive Directors’ compensation. These are in line with the
Policy approved by shareholders at the 2018 AGM.
To confirm adherence to best market practice, the Board undertook an externally performed benchmarking exercise regarding
the compensation of its non-executive Directors including the Chairman. This exercise was performed by Deloitte, as advisor
to the Board, which was selected as described in section 1.1. The benchmarking was performed taking into account two peer
groups, which consist of a primary peer group of UK and Irish financial service firms and similar financial services firms
operating in the Central and Eastern Europe region, as well as a secondary peer group consisting of the FTSE 250 as a whole
and FTSE 250 financial services firms. The work of the advisors presented challenges both in terms of gathering data, because
of the availability of public disclosure by the peer banks in the Central and Eastern Europe region, and identifying suitable peers
with similar governance structure (i.e., double boards and committees under a “mirror board” framework), geographic remit,
size, performance and regulatory regimes. In addition the “mirror board” structure which requires the Group non-executives
to work under two different regulatory environments (UK LSE listed companies and Georgia Banks Corporate Governance
Code) was a feature that has limited presence within the peer groups. Albeit these challenges, the exercise concluded that the
Chairman fee is below the lower quartile against the UK and Irish financial services firms. The non-executive Director single
figure amount, as presented in the table on page 165, is 93% of the cap approved by shareholders in 2018 and the total fee policy
for the non-executive Directors is within the market competitive range when compared with certain of its closest peers in the
UK and Irish financial services company peer group (i.e. those companies operating in multiple jurisdictions and/or with non
executives sitting on different Boards of the same group fulfilling different roles).
Statement of implementation
In 2020, the Remuneration Committee intends to continue to provide remuneration in accordance with the Policy as set out
in the tables below and as approved by shareholders at the 2018 AGM. Fees and salaries may be adjusted but in all cases will
not exceed the maximum levels stated in the relevant Policy, as approved by shareholders at the 2018 AGM. New targets will
be set for the deferred share bonus awards. The appropriate level of awards (including awards granted under the LTIP) to be
170
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
granted in 2020 will be assessed by the Remuneration Committee but in all cases they will remain within the maximum levels
stated in the relevant Policy table as approved by shareholders at the 2018 AGM.
From January 2020 the following will apply:
Executive directors
Base salary
(cash and
deferred shares)
Annual
bonus
Long term
incentive plan
(LTIP)
Non-Executive
Directors
Fees
Notes to table:
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 levels 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.
For 2020, the base salary has been set the same as it was in 2019, that is US$ 963,994 for CEO and
US$ 482,004 for CFO.
Performance measures and weightings:
Performance measures for 2020 are summarized below:
` Corporate financial KPIs that are comprised of return on equity, cost to income, net interest
margin, gap with peer bank in Retail, Micro & SME loans, revenue from ecosystems.
` Corporate non-financial KPIs that relate to strategic HR and customer experience.
` Personal KPIs include leadership skills in the case of the CEO and in the case of the CFO,
include financial KPIs comprising of treasury operations targets and targets related to
international expansion in Uzbekistan and non-financial targets including leadership skills
and IR function specific KPIs.
The corresponding weightings1 for 2020 are set as follows:
Corporate financial measures
Corporate non-financial measures
Personal KPIs
Financial
Non-financial
Total
CEO
70%
20%
10%
0%
10%
100%
CFO
54%
16%
30%
16%
14%
100%
Performance targets: Specific performance targets are considered commercially sensitive as they
may give our competitors information about our budget and strategy. The targets will be disclosed
in the Group’s 2020 annual report.
Performance conditions and targets together with corresponding weightings for CEO and CFO for
2020-2022 are as follows:
Total shareholder return (TSR)
for a period of 3 years (2020-2022)
Average ROE for 3 years (2020-2022)
Loan market share at the end of 2022
KPI weight Below target
On target
Above target
40%
15-17% 17-20% Above 20%
40%
20%
15-18% 18-21% Above 21%
34-36% 36-40% Above 40%
The fees paid to the non-executive directors will be within the Policy approved by shareholders at
the 2018 AGM. The Remuneration Committee has decided to revise the compensation for the non-
executive directors starting from 25 September 2019 as follows:
` Chairman’s remuneration was decreased from US$ 950,000 to US$ 338,0002
` Deputy Chairman’s remuneration was eliminated2
` Non-executive director’s remuneration was increased from US$ 84,000 to US$ 130,000
` Senior Independent Director remuneration was decreased from US$ 20,000 to US$ 15,000
` Committee Chairmanship remuneration was decreased from US$ 28,000 to US$ 12,000
` Committee membership remuneration was decreased from US$ 11,000 to US$ 6,000
` Employee engagement designated independent member role remuneration was set at US$ 3,000
The full details are given in section 12
1.
2.
the weightings of the financial measures have been increased substantially for CEO and CFO in 2020 compared to 2019 in order to increase the
management’s focus on monetizing the Group’s strategic initiatives started in the previous years for the benefit of the shareholders.
The remuneration of the Chairman and Deputy Chairman were revised to reflect the new board structure following the resignation of the founders,
Mamuka Khazaradze and Badri Japaridze on 25 July 2019
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
171
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.
Under the existing policy, the total executive Directors’ remuneration at target and maximum performance is below the one
under the previous policy as illustrated in the 2017 Annual Report on page 137.
As disclosed in last year’s Remuneration Report, in 2019 we made the following amendments to the Policy in relation to
shareholding requirements:
Shareholder guidelines
Executive Directors naturally build up a significant holding of shares in the Company over time. In order to encourage this
and set a standard position, the Company has introduced 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. Further, the Remuneration Committee also has the discretion, any time
after an award has been granted under the LTIP and deferred annual bonus, to reduce (including to zero) an award if the
Remuneration Committee considers that either the underlying financial performance of the Company or the performance of
the individual is such that the level of vesting cannot be justified.
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.
Component
Purpose and Link to
Strategy of the Group
Fixed Pay
Operation
Maximum Opportunity
Base Salary –
in the form
of cash and
deferred
shares
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.
Both the cash and deferred
share salaries are paid in part
under the executive director’s
service contract with JSC TBC
Bank and in part under his
service contract with TBCG PLC,
to reflect the executive director’s
duties to each of them.
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.
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.
Performance
Measures
Not
performance
based.
172
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
Performance
Measures
Not
performance
based.
Component
Purpose and Link to
Strategy of the Group
Fixed Pay
Operation
Maximum Opportunity
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.
Whilst the shares remain subject
to the continued employment
condition, the shares are
registered in the trustees name
as nominee for the participants.
The participants are entitled to
receive dividends and have voting
rights from the delivery date.
Base Salary –
in the form
of cash and
deferred
shares
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 malus during the
holding period and clawback
at any time before the third
anniversary of the end of the
holding period. If at any time
after making the deferred
compensation the award holder
deliberately misleads the
Group in relation to financial
performance, there is a
material misstatement in the
financial results of the Group,
the award holder’s unit suffers
a material downturn in its
financial performance caused
by the award holder, there
is misconduct on the part of
the award holder that causes
material harm to the Group’s
reputation, there is misconduct
on the part of the award holder
that causes failure of the risk
management resulting in a
material loss to the Group or,
in relation to unvested awards,
the Board Committee (or if
relevant the CEO) considers
that the underlying financial
performance of the Company
or the performance of any
individual award holder during
the holding period is such that
the number of shares cannot
be justified, 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).
The number of shares is
calculated based on the average
share price of the last 10 days
preceding the Remuneration
Committee decision date.
However, the maximum value
is fixed by reference to a cash
amount on that date.
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 value is fixed by
reference to a cash amount on
that date.
The Company 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 executive directors 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 here include such income tax estimates
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
173
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.
REMUNERATION COMMITTEE REPORT CONTINUED
Component
Variable Pay
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 paid 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.
Annual bonus
in the form
of deferred
shares
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 Remuneration
Committee decision date.
However, the maximum
is fixed by reference to a
cash amount on the date.
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 Remuneration
Committee decision date.
However, the maximum
is fixed by reference to
a cash amount on that
date.
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 in the 2017 Annual Report). 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 malus during
the holding period and clawback at any
time before the third anniversary of
the end of the holding period. If at any
time after making the award, the award
holder deliberately misleads the Group
in relation to the financial performance,
there is a material misstatement in the
financial results, the award holder’s
unit suffers a material downturn in
its financial performance caused by
the award holder, there is misconduct
on the part of the award holder that
causes material harm to the Group's
reputation, there is misconduct on
the part of the award holder that
causes failure of the risk management
resulting in a material loss to the Group
or, in relation to awards, the Board
Committee (or if relevant the CEO)
considers that the underlying financial
performance of the Company or the
performance of any individual award
holder during the holding period is such
that the number of shares cannot be
justified, 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).
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 here include such income tax estimates
174
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
Component
Long
Term
Incentive
Plan
(LTIP)
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.
Shares 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 a 2 year
holding period and
continued employment
requirement.
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
Maximum Opportunity
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.
The performance
period is three year.
The maximum value of
the award for the Chief
Executive Director in
any given year, under
the LTIP to be awarded
is US$ 1,554,240
(161% of base salary).
The number of
shares is calculated
based on the average
share price during
the 10 days after the
preliminary annual
results are published
for the financial year
preceding the year of
grant. (For example,
awards granted in
2019, will use the
average share price of
the 10 days following
publication of the 2018
accounts, in 2019).
The maximum value
of the award for
the Chief Financial
Officer in any given
year, under the LTIP
to be awarded is US$
777,120 (161% of base
salary). The number
of shares is calculated
based on the average
share price during
the 10 days after the
preliminary annual
results are published
for the financial year
preceding the year of
grant.
The Company pays
income tax3 and other
employee-related
taxes related to the
award, however, taxes
are included in the
maximum amounts.
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 and are measured over a period
of 3 years. (See more detail at 10.3(c) of the full
Remuneration Policy in the 2017 Annual Report). The
Remuneration Committee determines the size 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 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 malus at any time before
the award vests and clawback for a three years
after the shares are delivered (for conditional share
award). If at any time after making the award the
award holder deliberately misleads the Group in
relation to the financial performance, there is a
material misstatement (or material error) in the
financial statements of the Group, the award holder’s
unit suffers a material downturn in its financial
performance caused by the award holder, there is
misconduct on the part of the award holder that
causes material harm to the Company’s or the
Bank’s reputation or there is misconduct on the
part of the award holder that causes failure of the
risk management resulting in a material loss to the
Group, 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. Further, the
Remuneration Committee also has the discretion,
any time after an award has been granted, to reduce
(including to zero) an award if the Remuneration
Committee considers that either the underlying
financial performance of the Company or the
performance of the individual is such that the level of
vesting cannot be justified.
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 LTIP will be administered by the Remuneration
Committee.
2 This element has been added to the Remuneration Policy, in addition to the annual bonus plan, to further extend the long term outlook of the Policy and align executive
remuneration to long-term success of the Group
3 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 here include such income tax estimates
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
175
REMUNERATION COMMITTEE REPORT CONTINUED
Performance
Measures
Not
performance
based.
Not
performance
based.
Component
Purpose and Link to
Strategy of the Group
Operation
Maximum Opportunity
The maximum employer
contribution will not exceed 3%
of annual salary.
To assist our employees
in providing for their
retirement and to
maintain a market
competitive benefits
package to attract and
retain executive directors.
Pension
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 are in line with
Georgian market practice
and are designed to be
sufficient to attract and
retain high caliber talent.
Benefits
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.
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
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 equalization payment may
be paid to an executive director
if any part of his remuneration
becomes subject to double
taxation.
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.
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, employees who are part of
the agile structure, as well as some other key employees receive their entire salary in cash and are also eligible to cash and
share bonus variable compensation. The share bonuses granted are subject to 3 years of continued employment condition
and holding period gradually lifting the conditions. The long-term incentive plan applies only to top management.
All other employees within the Group receive cash salaries and may be eligible to receive cash bonuses. Executive Director
and employee pay is reviewed and determined through the application 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 participate in the mandatory
state pension scheme effective from 1 January 2019. According to the scheme, the company pays 2% of the employee’s total
remuneration as pension contribution to the State.
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
176
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
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 25 September 2019, the compensation for the non-executive Directors is presented in the below table and is
in line with the Policy approved by shareholders at the 2018 AGM valid until the end of 2021. The Deputy Chairman’s position
has been eliminated in 2019 as a result of the board restructuring as described in the Corporate Governance and Nomination
Committee Report on pages 143-146, therefore no payments will be made in relation to this position going forward.
Component
Purpose and Link to
Strategy of the Group
Operation
Maximum Opportunity as approved in
2018 AGM
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,
the Group’s remuneration policy
reflects the importance and unique
role he/she fulfills within the
Group.
Fees
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 maximum annual fees that
may be paid to the Chairman
and deputy Chairman are
US$ 950,000 and US$ 800,000
respectively.
The maximum annual fee paid to
the Senior Independent Director
is US$175,000.
The maximum annual fee paid
for acting as a non-executive
Director (other than for
Chairman, deputy Chairman and
Senior Independent Director) is
US$165,000.
` The annual fees for the Chairman
are US$ 338,000
` The annual fees for acting as a
non-executive director (other than
for Chairman) are US$ 130,000
` The annual fees for acting as
Senior Independent Director, in
addition to the fees received for
acting as a non-executive Director
are US$ 15,000
` The annual fees for relevant
committee memberships per
committee are US$ 6,000
` The annual fees for committee
Chairman positions per committee
are US$ 12,000
` The annual fees for employee
engagement designated
independent board member role
are US$ 3,000
The Remuneration Committee
reserves the right to structure
the non-executive Directors’ fees
differently in its absolute discretion.
The Remuneration Committee’s
discretion will be exercised fairly
and reasonably and with regard to
appropriate comparable market
practice and business strategy.
Fees are generally paid monthly in
cash. However, the Remuneration
Committee reserves the right to pay
the fees on a different basis. Fees are
periodically reviewed 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 2019
177
REMUNERATION COMMITTEE REPORT CONTINUED
Component
Purpose and Link to
Strategy
Operation
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.
Expenses
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).
Maximum Opportunity as approved in 2018
AGM
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. The non-executive Directors
are not eligible for performance-based share awards. 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 which is renewed and
reviewed on an annual basis.
13. THE MAXIMUM REMUNERATION RECEIVABLE FOR EXECUTIVE DIRECTORS IN CASE OF
SHARE PRICE APPRECIATION OF 50% UNDER LTIP
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 79,217 and 39,609 respectively using the average share price (GBP
14.92 converted into US$ using the cross rate of the official exchange rates published by the NBG of 2.67 for GEL/US$ and of
3.51 for GEL/GBP over the same period) 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 at the following address: 7 Marjanishvili
Street, Tbilisi, 0102, Georgia.
The details about the appointment of directors is given in Drectors’ Report on page 133.
15. CONSIDERATION OF EMPLOYMENT CONDITIONS WITHIN THE GROUP AND OF EMPLOYEE
ENGAGEMENT
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 analyzing the overall policy and level of 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.
178
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
The Company recognises the importance of employee engagement in setting remuneration for the executive Directors, NEDs
and senior management. To this end, in 2019, the Board appointed Tsira Kemularia as the designated non-executive Director
to enhance the dialogue between the workforce and the Board and to further strength employee engagement on the topic of
executive remuneration. For more information about Tsira Kemularia’s appointment, please see nomination report.
16. CONSIDERATION OF SHAREHOLDER ENGAGEMENT
Shareholders and their representative bodies have played an active role in developing the Remuneration Policy approved at
the 2018 AGM. The Remuneration Committee remains committed to ensuring an ongoing dialogue with shareholders and
will actively engage with shareholders and all stakeholders with respect to any changes to the Policy to achieve the best
results and align the interests of all.
17. 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 2019
179
AUDIT COMMITTEE REPORT
Dear shareholders,
I am pleased to present the Audit Committee Report
for the Group.
Nicholas Haag
Chairman of the Audit Committee
28 April 2020
SIGNIFICANT ISSUES FOR AUDIT
COMMITTEE IN 2019
` Internal and external (Big 4 firm) inspection of
the historic transactions investigated by the NBG,
case coordinated by the Audit Committee - events
established;
` Engagement with regulator
(National Bank of
Georgia) and other stakeholders on the case - matter
settled with regulator;
` Supervised “lessons learned” analysis from historic
case and policy refinements implemented;
` Review of terms of reference for Committee and
appropriate interface between Audit, Risk and other
committees - clarified and simplified;
` Review of a range of IT issues and optimisation of
Internal Audit coverage of IT and Cybersecurity risks
- decided on co-sourcing solution with Big 4 provider;
` Project “Internal Audit 3.0” to optimise function - on track;
` Commissioning of first External Quality Assessment
function - compliant status
Internal Audit
of
confirmed by Big 4 specialist;
` Consideration of audit and control
implications
around expansion of Group into new geographies
and business lines e.g. Uzbekistan, ecosystems,
insurance - continuing focus with Management and
discussed with internal and external auditors;
` Implications for controls and the financial reporting
of Group’s broad, agile and data-centric change
agenda - discussed with Management and internal
and external auditors;
` Supervision of accounting
judgements around
macroeconomic forecasts under multiple economic
scenarios in light of regional instability and local
volatility (e.g. currency) and uncertainty factors;
` Transition to new senior engagement partner at
external auditor (PwC) - executed smoothly;
` A review of cultural and behavioural standards
and procedures within the Group undertaken by
Internal Audit- completed with recommendations for
incremental improvements being implemented;
COMMITTEE STRUCTURE, ROLE
AND STATEMENTS MADE
The Audit Committees of the Bank and Company (together
the “AC” or the “Committee”) remain primarily responsible
for overseeing the financial reporting process including
the appointment of external auditors and
the
implementation of appropriate accounting policies and
practices ensuring the
integrity, accuracy and full
disclosure of the Group’s financial condition and helping
the Board to assess the ‘going concern’ status of the
Company and to make its Viability Statement. Committee
members have considered the accounting treatment
adopted by Management. We have 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. PwC’s conclusions on going concern
are set out on page 195. We reached this decision in
conjunction with detailed input from Management and the
Risk Committee regarding capital adequacy projections
for the Group.
The Committee reviews relevant content in the Annual
Report, preliminary and interim statements as well as
other financial releases. We check the clarity and
completeness of disclosures and ensure that these are
properly set in context. We also supervise the Bank’s
systems of internal control in relation to financial reporting
and certain operational risks including supporting internal
investigations into any identified control weaknesses or
fraud events. We evaluate Management’s competence in
all these areas ensuring that they take necessary
corrective steps in a timely manner to address any
vulnerabilities. Review of financial statements remains a
core role of the Committee but it also validates wider
information related to the Group’s financial data which is
included in strategic reports and corporate governance
statements.
The Committee, together with the Risk Committee,
represent an important governance ‘cluster’. Over the
course of 2019, the Committee continued to coordinate
closely with other committees of the board. In respect of
180
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
risk assessment, upon the appointment of a new Chairman
of the Risk Committee, we jointly reviewed the interface
between the Committee and the Risk Committee. There
was some useful internal debate about the optimal
committee to supervise issues in relation to IT and, in
particular, cybersecurity, which is an ever more important
focus for the entire Board. Historically there was some
overlap and duplication of this area between committees
and it was decided that the Risk Committee should be
unambiguously responsible for it given the obvious wider
risk implications. The Committee will however continue to
support Risk Committee in this objective and will ensure
that Internal Audit devotes sufficient attention to these
potential vulnerabilities. Likewise the Committee worked
with the Remuneration Committee to confirm that there
are no false incentives which could weaken controls or
might introduce management bias for example in terms of
expected credit losses in the loan portfolio and provisioning
and valuations.
The Committee bases its activities on information available
at the time of its discussions. Such information is typically
provided by Management. The Committee is satisfied that
it receives sufficient, reliable and timely information from
Management and from our internal and external auditors.
Management takes the initiative in supplying financial
information rather than waiting to be asked although the
Committee frequently does request additional data or fact-
checked evidence and this is provided in a thorough and
prompt fashion. The lines of communication with
Management are open with constructive, candid and
continual dialogue taking place throughout the year. We
note and appreciate that in our view Management have
typically displayed a pattern of professional caution and
conservatism when drafting financial statements. The
Committee draws on sufficient administrative resources
and benefited in 2019 from the reinforcement of the Board
secretariat and valuable input from the outsourced
Company Secretary in aligning our work with FTSE350
best practice.
We continue to pay attention to all annual reviews by the UK
Financial Reporting Council (FRC) regarding interpretation
of the Code and Accounting Standards and seek to apply
these refinements to the Group, as is demonstrated in this
report.
We are increasingly conscious of our legal and social
obligations to protect not only shareholders with the
transparency and clarity of our financial reporting, but the
interests of all stakeholders. This is reflected also in the
Group’s Section 172(1) reporting set out on pages 52 to 55.
This report has been designed with all stakeholders,
including potential shareholders, lenders, suppliers and
customers in mind.
COMMITTEE COMPOSITION,
COMPETENCE AND INDEPENDENCE
The Committee of the Group comprises four non-executive
Directors. We welcomed Arne Berggren who joined the
Committee soon after his election to the Supervisory
Board in July and Board in August 2019. Mr. Berggren was
(the
appointed to the Committee, following his appointment to
the Board, on the recommendation of the Corporate
“CGN
Governance & Nominations Committee
Committee”). He underwent an extensive
induction
programme, including in areas pertaining to audit. Mr.
Berggren has worked in executive and non-executive
capacities for a wide range of national, international,
governmental and private sector organisations and has
experience on the audit committee of other London Stock
Exchange listed banks. In accordance with UK governance
standards, Nika Enukidze was required to step down from
the Committee upon being appointed Chairman of the
Bank in August 2019 and Company in July 2019.
Nicholas Haag was appointed Senior Independent Director
of the Group in August 2019 and remains Chairman of the
Audit Committee. The fact that Arne Berggren chairs the
Risk Committee creates an additional synergy between
these key committees. Mr. Haag sits on all Committees
which gives him useful insights also in his capacity as
Chairman of the Committee. The membership of the
Committee has reduced from 5 to 4 during the year but we
would hope that the planned new member of the Board
and the Supervisory Board will join the Committee during
the first half of 2020. The Chairman would like to express
his thanks to Eric Rajendra who served on the Committee
in the first half of 2019 (and over many prior years) and I am
delighted that he is able to rejoin the Board following his
recovery from a period of illness.
The Committee welcomes the continued development of
the mirror boards structure between the Bank and
Company as this greatly simplifies the ability of the
Committee to fulfil its responsibilities across jurisdictions
bearing in mind that the vast majority of the Group’s
activities are concentrated in Georgia and given the
challenge otherwise of coordinating disparate supervisory
functions for external and internal audit and control
between London and Tbilisi.
All non-executive Directors have been deemed as
independent under the Code applicable to companies
listed on the premium segment of the London Stock
Exchange. In addition, members of the Committee continue
to satisfy the director independence criteria as defined by
the Georgian Law of Banks. We are confident that all
members continue to exercise fully independent judgement
in all matters related to the Committee’s activities.
All members of the Committee (see biographies on pages
136-139) are financially literate, have an understanding of
corporate financial matters and possess a detailed
understanding of the financial services sector, with
backgrounds primarily in banking in the EU and/or in
emerging and frontier markets over multiple continents.
We bring a collective view to the attention of the Board and
in 2019 there were no material areas of disagreement
(“disconnection”) between members of the Committee or
between the AC and the Board. We are fortunate in having
added Tsira Kemularia to the Committee last year (2018)
as she brings wider perspective from the non-banking
industry. She has assumed a senior internal audit position
at Royal Dutch Shell, the largest company in Europe by
revenue, which brings us additional valuable experience in
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
181
AUDIT COMMITTEE REPORT CONTINUED
financial experience
leading-edge financial controls. Most members of the
Committee have served on or chaired other banks’ audit
and risk committees which gives them the commercial
and
to guide and challenge
Management and internal and external auditors. The fact
that we still have a Georgian national (Ms. Kemularia) on
the Committee delivers further local context and insight
without jeopardizing independence.
The Board has confirmed that the Committee has recent
and relevant expertise to operate effectively and it calls
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 spend their time on other supervisory type
boards and all have sufficient time to devote to their
responsibilities towards the Group. Appropriate training is
available to members of the Committee and recent training
has focused on Board-wide governance optimisation
including AML topics which obviously touch on financial
controls. The intention is to undertake more specific
externally-facilitated training for the Committee in 2020
with a focus on technical and governance-related market
developments in accounting and financial control.
plans
succession
We continue to review, with our CGN Committee, suitable
medium-term
for Committee
membership. Our priority as before would be to select a
future member with a technical background in the audit
industry but recognise that the Board also has other
priorities in terms of skills sought from future incoming
directors especially in the area of IT and digital banking
and we regard accumulating expertise in these areas as
also critical to safeguarding the quality of control functions
within the Group.
ATTENDANCE AT COMMITTEE
The attendance levels at the Company’s Audit Committee
meeting over 2019 was 100%. The majority of meetings took
place in London and were either physical in-person or
telephonic meetings, in the latter case with most attendees
participating from locations in the UK, where 3 of the 4
Committee members reside. Attendance for the Bank’s
Committee meetings was also 100%. As with 2018, a high
proportion of these meetings were held in Georgia as the
Committee continues to maintain a deep level of interaction
with a range of on-the-ground staff, especially in internal
audit, finance and control roles and this is most practically
undertaken by hosting meetings in the Bank’s home country.
For the table regarding the composition and formal meeting
attendance for the Audit Committees of the Company and
the Bank in 2019 please refer to the pages 128-129.
COMMITTEE MEETING FORMAT
AND FREQUENCY OF MEETINGS
In the course of 2019, there were 14 formal meetings of the
Committee and 12 for the Bank’s audit committee. The
minutes for the Bank’s meetings were shared with the
NBG. In addition, members of the Committee are in
182
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
telephone or email contact with each other on various
matters relating to Committee work on an almost weekly
basis. 2019 was an especially busy year for the Committee
given the extra and often complex work involved in the
review of historic events related to alleged impropriety by
the founders of the Bank and reporting on these to the
wider Board. The attendances of members at the Audit
Committee meetings during 2019 are set out in the
Directors’ Governance statement on pages 124-130.
At each formal meeting, the Committee met with senior
members of Management, and Internal and External Audit.
We have a standing invitation for the CEO, CFO and CRO to
attend our meetings and their attendance and contributions
were gratifyingly high. Our External Auditors, PwC, are
invited to participate in and contribute to meetings on all
topics where there is not a direct conflict of interest (for
example when discussing reappointment of the auditors,
their performance, independence or fees).
The Committee met at least twice in or around each
quarter of 2019, broadly in sync with our quarterly financial
reporting cycle. At least one such quarterly meeting
coincided with the timing of Board meetings of the Group,
with the Committee meeting prior to the Board so we could
formally present our summary findings to the latter. Such
reports sometimes highlighted scope
for process
improvement and invited responses from Management
which led to follow-up actions, formally minuted by the
Board.
AUDIT COMMITTEE EFFECTIVENESS
The Committee’s Terms of Reference were reviewed in
November 2019 and the update version was approved in
February 2020. Minor changes were recommended by the
Company Secretary, with input from the Company’s lawyers,
in order to bring the charter up to date to reflect recent
developments in the Code and align better our mission with
the Terms of References for other committees. This
document is available on the Company’s website at: https://
tbcbankgroup.com/about-us/governance/committees/.
The Audit Committee Policy of the Bank was reviewed and
approved by the Supervisory Board of the Bank in February
2020.
In November, the Committee conducted an annual Audit
Committee Evaluation (formally known as the annual
Effectiveness Self-Review) coordinated by the Company
Secretary and using an extensive and customised
questionnaire drawing on international best practice
surveys. In addition the whole Board included in its wider
Self-Assessment certain questions relating to the efficacy
of the Committee amongst other committees. Both the
Committee and the Board concluded that the former is
constituted properly, operates effectively and carries out
all its responsibilities as laid out in its Terms of Reference.
Nevertheless, we see scope for further improvement
especially in the division of oversight activity with the Risk
Committee and the greater formalisation of an annual
work plan for the Committee. Overall, the intention is to
elevate to every meeting the most relevant systemic and
strategic issues facing the Group. The Chairman of the
Committee is working with the Company Secretary in
setting future agendas and all these improvements are
being implemented.
QUALITY OF FINANCIAL STATEMENTS
The Committee remains as focused as ever on ensuring
the integrity of our financial releases and internal records.
As noted above, the Committee pre-vets all audited and
unaudited financial releases (including notes thereto),
before making recommendations to the Board to approve
such releases. The Committee holds formal discussions
with the Management Board and, in particular, the CEO
and CFO (and his Finance team), about each of these
releases, typically with a multi-stage drafting, review and
approval process. We also monitor the financial data
published on the Company’s website to ensure its accuracy
and clarity, and maintain communication channels with
the Group’s Investor Relations Department.
We have reviewed, with our Finance, Risk and Internal
Audit teams, all data and narrative comments 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.
We have, as always, assessed the reasonableness and
appropriateness of all critical estimates and judgements in
applying accounting policies for which the management
are responsible. In the multiple planning meetings held
between the Committee and PwC, we focused on a number
of areas of greatest risk and PwC convincingly articulated
their response and testing strategies. This work was
addressed with appropriate resources, including the
necessary specialists.
We are satisfied, following
challenge and discussion with PwC and with input from
external consultants, that the markets and models to
which valuations are marked have liquidity and transaction
profiles that are adequate and sufficiently robust. We also
believe that all off balance sheet and contingent liabilities
have been identified and disclosed in sufficient detail.
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 underlying cost to income ratio,
risk-adjusted net interest margins and various other
return metrics. We consider that most of these are in
common usage, consistently used
in context and
meaningful additions to our reporting designed to clarify
our financial position and do not detract in any way from
our core IFRS numbers. As the Group expands into wider
financial services (such as insurance) and exciting new
geographies and growth areas (such as ecosystems), we
are conscious of the incremental reporting risks and the
need to supply meaningful and validated financial metrics.
The Committee also carefully reviews minor changes that
the Group make over time in the definition of its operating
segments and is satisfied that meaningful like-for-like
comparisons can be made.
The Committee recognises that the Company is a premium
listed company on the London Stock Exchange and the
largest financial services company in the Georgian market.
Our business is overwhelmingly tied to the performance of
the Georgian economy. In 2019 Georgia delivered a strong
real GDP growth of 5.1% as published by National Statistics
Office of Georgia, an improvement on the prior year’s
already very respectable growth trajectory of 4.8%.
Forecasts for 2020 growth will be profoundly impacted by
the global outbreak of COVID-19. The national and
international economic outlook is unfortunately very
unpredictable and locally Georgia will hold important
parliamentary elections in October 2020 which may lead to
some additional volatility in anticipation of the outcome of
the vote. The Committee and the Risk Committee closely
track relevant economic data for ‘warning signs’ that may
trigger a more elevated level of risk to the Group which will
require extra diligence by the Committee to ensure
realistic levels of prudence in relation to our financial
reporting and caution as to monitoring the efficacy of our
internal controls. The Committee and the Risk Committee
reviews previous periods of economic or political instability
and factors this experience into our collective judgements
of, for example, suitable provisioning levels.
We note with satisfaction, but not complacency, that ISS’s
ESG Governance Quality 2019 scorecard gave the Company
a top decile score (1 out of 10) for our Audit and Risk
Oversight, a score which aggregates a wide range of
different sub-categories.
COMMENT ON INVESTIGATIVE CASE
INVOLVING TBC BANK FOUNDERS
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 page 106).
In February, the Bank reached an agreement with the NBG
settling its inspection and, while there are ongoing
prosecutions against the founders of the Bank, they have
stepped down from all their positions at the Bank and the
Group. The Committee, as is customary with companies in
these circumstances, was involved over several months of
2019 in comprehensively investigating, with the assistance
of a specialist Big 4 firm, the historic events that predated
any members of the Committee’s joining the Supervisory
Board, reinforcing our independent judgement of these
events. This included reviewing all relevant surviving
historic internal documents and reviewing internal and
external potential witnesses.
In light of the above inspection and prosecutions, the
Committee took steps to consider thoroughly any implications
for the current or historic audits. These matters were
discussed with PwC. Nothing was identified that led us to
consider re-stating any elements of past audits.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
183
AUDIT COMMITTEE REPORT CONTINUED
As part of our ongoing commitment to good governance,
much work has been done by the CGN Committee and
other committees on bedding down best practices related
to validating the Group’s internal controls. This work was
given added urgency by the above investigative cases. We
engaged another one of the Big 4 accountancy firms to
check related party lending and anti-money laundering
procedures in the Bank (see page 106). The Committee
draws comfort from this work which demonstrated that
our internal controls in these crucial areas continue to
meet international best practice, with only minor additional
refinements needed and now being implemented. In
addition, throughout 2019, various committees of the Bank,
including the Committee, were involved in assessing
cultural and behavioural attitudes in the Bank and we
asked Internal Audit to lead a workstream on this to check
that appropriate ‘values’ were reflected in policies and
practices across the organisation (see below). While the
prevailing levels of training and behaviour were found to be
adequate, we identified areas where improvements could
be made and, working with the wider Board and
Management, these are being systematically implemented
with IA now routinely incorporating a cultural assessment
in its regular audit ratings.
EXTERNAL AUDIT TEAM, COORDINATION
AND PLANNING
The Committee makes recommendations on
the
appointment (or potentially removal) and compensation of
the External Auditors and seeks to maximize 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 Committee of the Company held audit planning
meetings with PwC in 4Q 2019. The Committee had the
opportunity (without participation 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. In addition,
the Chairman and sometimes other members of the
Committee had a number of more informal (i.e. not
minuted) meetings with PwC. 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. As noted, the Chairman and
majority of Committee members are based in the UK and
enjoy ready access to the external audit team there. Given
the exceptional regulatory circumstances of 2019, the
interaction between the Chairman of the Committee and
PwC was even more intense than in past years.
Due to 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. PwC Georgia is
part of PwC’s Central and Eastern Europe network firm. In
the opinion of the Committee, this ‘double coverage’ works
well and provides some extra reassurance to us in terms
of scrutiny. There is one unambiguous “group engagement
184
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
partner” and senior statutory auditor, Allan McGrath, who
is fully aware of his overall responsibility and ultimate
sign-off duties. Allan is new to TBC audit team having
replaced Jeremy Foster, who retired from PwC at the end
of 2019. The cooperation and communication between the
two practices seems to be well coordinated with a common
audit methodology and draws, as required, on wider
international subject matter experts of the firm, for
example in insurance. 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
Tbilisi’s work by PwC London both by means of in-person
visits and remotely.
We welcome Allan McGrath and note his deep experience
in auditing UK-registered financial services companies at
FTSE350 level. We are pleased to note that Allan has
already immersed himself comprehensively in the TBC
audit and has swiftly familiarised himself with the Group
and with the Georgian macroeconomic environment. He
brings a fresh pair of eyes and challenge to the Group’s
audit. We are pleased that, by way of continuity, Agnieszka
Accordi remains PwC’s engagement leader 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 her experience from other
geographic markets including Poland where she is based.
Other members of the audit team in both London and
Tbilisi remain very largely unchanged and we have good
access to Lasha Janelidze, the managing partner in PwC’s
expanding Georgian practice. Agnieszka Accordi has been
in post since 2017 and we anticipate that she will rotate (as
per FRC rules for EU PIEs on Key Audit Partners rotation)
after the 2021 year end audit.
The Chairman of the Committee would like to take this
opportunity to thank Jeremy Foster, who had been
engagement leader for PwC since the creation of our PLC
holding company in 2016, for his contribution. We wish him
well in his retirement.
The audit coverage levels and underlying audit materiality
levels have been discussed and agreed with PwC.
EXTERNAL AUDIT AND AUDIT COMMITTEE
AREAS OF FOCUS
Key Audit Matters
As a Committee, we engage in substantive dialogue with
PwC on Key Audit Matters, to understand the nature of
each of these and the auditors’ basis for their determination.
From discussions with PwC we understand that they did
not identify any “elevated” audit risks. We regard that
“Significant” risks both for the Group and Bank remain
management override of controls and expected credit loss
provisions for impairment of loans and guarantees. The
former is a priority risk factor on all audit engagements,
especially in a banking context, since management is
responsible for the design and operation of systems to
prevent and detect fraud and thus in a unique position to
manipulate accounting records.
Areas of Judgement
Other risks in terms of areas of judgement that PwC has
focused 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 as well as IFRS 9 model back testing, results of
tax inspections of the bank and assessment of business
combinations from the acquisitions made during 2019.
Loan Provisions
In terms of loan provisions, we have discussed with PwC
the current provisioning methodology used by the Bank,
the reasonableness of the assumptions and individual,
mostly corporate, loan exposures on the non-performing
and ‘watch’ lists and 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 discussed with PwC model governance controls,
model performance monitoring and post-model
adjustments with a review of model back testing. In
addition, another Big 4 audit firm was involved in improving
macroeconomic models required for IFRS 9.
Collectively-Assessed Loans
The Committee, benefiting from work streams led by the
Risk Committee, continues to monitor on a regular basis
individually-assessed loans on the Bank’s watch list but
also collectively-assessed loans that are less than 90 days
past due (and not yet classified as impaired) to calibrate
any deterioration of credit quality that may feed through
into impairments. 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. We
continue to look for signs of any deterioration in loan
vintages of different loan categories, especially in the
consumer lending space, and so far there have been no
adverse signals.
Stability of the Local Lari Currency
Clearly, one of the biggest factors impacting and also
reflecting the Georgian economy is the stability of the local
Lari currency. We monitor the possible impact of Lari
volatility on expected credit losses. The Lari has been
prone to periods of volatility again in 2019, partly due to
seasonal factors, and depreciated against the US dollar
over the year by 7% having rallied strongly towards year
end from lows recorded in the autumn. Given the still
highly dollarised nature of the Georgian economy and the
loan book, we scrutinised Management’s
Bank’s
judgements as to the continuing creditworthiness of those
of our clients (retail and corporate) without matching dollar
sources of
in reviewing
income. The Committee,
provisioning levels, has sought and received detailed data
on such currency mismatches and the Risk Committee 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.
Accounting Standards
Where new accounting standards are adopted, we engage
proactively with Management and auditors on the
implementation process including the transition impact
and whether the plan provides sufficient time and
resources to develop well-reasoned judgements. Since
the beginning of 2019, the Company has adopted the new
IFRS16 accounting model to recognise assets and liabilities
for all leases beyond a 12 months lease term. The Group
recognised a ‘right of use’ asset of GEL61 million against a
corresponding lease liability on 1 January 2019. The main
impact was an increase in depreciation expense by GEL
13.3 million and increase in interest expense by GEL 2.7
million. The Committee discussed this matter with the
CFO and with PwC and is satisfied that this is a suitable
implementation of the new standard.
Eurobonds
In 2019 upon issuing two debut Eurobonds, the Bank
became, for the first time, an EU Public Interest Entity
(“PIE”) following its debt listings on the Dublin Stock
Exchange. This necessitated a long form style audit report
but in essence is more a change of governance than of
audit procedures.
EXTERNAL AUDIT QUALITY, TENDER
ASSESSMENT AND REAPPOINTMENT
As noted earlier, the 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 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 relevant remuneration and terms of
engagement. This consideration has gained our focus
since the 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 have been the Group’s external auditor
since 2008 and 2016 for JSC TBC Bank and TBC Bank
Group PLC respectively. In 2018, the Committee held
extensive discussions on the merits and demerits of
putting the Group’s audit out for tender. Consequently, the
Committee, reporting to the Board, embarked on a series
of discussions during the year with three other major
firms and conducted a
international accounting
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 then that a superior
offering at more competitive fees was not yet on offer. In
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
185
AUDIT COMMITTEE REPORT CONTINUED
particular, we regret that other Big 4, or indeed smaller
audit firms, are not yet well-resourced in the Georgian
market although there is an encouraging trend in this
direction.
The Committee carried out a formal External Auditor
Assessment Review for 2019 which confirmed our view
that PwC continue to perform satisfactorily.
In 2018, 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. As a Committee, and with the
concurrence of the Board, we concluded that we had
reached a satisfactory understanding with PwC both as to
level of fees to be charged in 2019 and the resource base.
The commitments made by PwC in 2018 to meeting our
deadlines and delivering wider resources to the audit have
been honored. In addition, we updated our review of
comparative audit costs inside and outside Georgia and
concluded that PwC remain broadly competitive.
As a Committee, we wish to experience PwC‘s performance
under their new engagement leader, who brings fresh
perspective to the audit (which mitigates any risk of
overfamiliarity) before we consider again the ongoing audit
relationship and whether to re-launch a process. We will
review again in 2020 the case for and against a formal audit
tender and will take a decision based on the Committee’s and
the Board’s continuing satisfaction with the audit quality and
value offered by our incumbent auditor.
We have also taken into consideration the current
reputation issues impacting all Big 4 audit firms and
concluded that there are no grounds in this respect to
challenge the reappointment of PwC given that their
reputation is no more or less under scrutiny than that of
their peers. We follow the FRC’s Audit Quality Review
inspection results. We have also taken account of the
quality of PwC’s
communications/responsiveness,
industry expertise and knowledge of the Group and
countries in which we operate as well as our judgement of
their professional skepticism and project management
skills. We have assessed their internal quality control
procedures and indicators and reviewed their annual
transparency report.
We are following closely the extensive debate and multiple
commissioned official reports (such as Kingman, Brydon,
CMA and BEIS) concerning audit quality and competition.
All of these reports have made valuable recommendations
but so far there is no clear consensus or legislation arising
as to best practice or how to address the perceived “audit
expectations gap”. We await with
interest further
clarification and indeed any impact of Brexit given potential
changes to EU rules in relation to audit. We support in
principle the idea of a 3 year statement of a company’s
audit and assurance policy and allowing shareholders an
advisory vote on this.
In our view, as formally confirmed in a Committee meeting
resolution in February 2020, PwC continue to offer an
independent, professional and cost-effective service that
186
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
has not have brought to bear an appropriate degree of
professional skepticism. Any potential threats to auditor
objectivity (overfamiliarity, self-review and so on) are, we
believe, contained by existing safeguards and the
introduction of a new lead engagement partner for the
Company’s audit. We reached this decision on the basis of
PwC’s openness to challenge, our perception of their
proper independence from Management and absence of
any material prior year financial restatements. We remain
satisfied that PwC have a robust process for maintaining
independence and monitoring such compliance
in
accordance with the FRC’s 2017 Ethical Standards and the
2019 International Ethics Standards Board for Accountants
(IESBA) to which Georgian law also refers.
Given all the above considerations, it is our belief that the
Company has complied for the financial year under review,
and to the date of this report, with the requirements of The
Statutory Audit Services for Large Companies Market
Investigation (Mandatory Use of Competitive Tender
Processes and Audit Committee Responsibilities) Order
2014 which relates to the frequency and governance of
tenders for the appointment of the external auditors and
the scrutiny of a policy on the provision of non-audit
services (see below).
EXTERNAL AUDITOR FEES AND PROVISION
OF NON-AUDIT SERVICES
Policy for provision of non-audit services by the external
auditor is approved and available for the Group. As defined
by the policy all non-audit services must be approved in
advance by the Committee following recommendation by
the Group Chief Financial Officer.Overall the Group spent
US$4.0 million on work done by various accounting-based
professional services firms over the year.
In 2019 the Group paid PwC fees of approximately US$1.1
million of which c. $0.7 million was in respect of audit
services, of which over half was for the Bank’s audit. The
US$0.7 million included audit fees for subsidiaries of both
the Bank and PLC, notably TBC Leasing and TBC Insurance.
Most of the remaining balance of the US$1.1 million was
paid in respect of work (review of Q1 financials and
prospectus as well as comfort letters) done in relation to
our issuance of senior and subordinated bonds during the
year, where there were natural synergies relating to the
audit work conducted and some market timing imperatives.
We benchmarked PwC’s fees against other similar
services previously performed or provided to other
players. Other fees paid to PwC were minor in nature,
involving for example certification of financial covenants
and again linked to the audit role. Given the unexpected
issues relating to the issuance of bonds, fees in total paid
to PwC for non audit services totaled US$0.415 million
over the year which represented 53% of the average paid to
the firm for the Group audit services over the preceding 3
years, this figure being still well within the 70% cap as
required by the Group policy on non-audit services. In the
prior year ratio was 1%.
All 4 major UK audit firms have announced that they broadly
support a ban applicable to FTSE350 (typically from 2020)
on UK auditors selling consultancy and other non-audit
related services to their audit clients. The Chairman of PwC
UK has confirmed that this is the case for PwC applicable
from January 2020. To set PwC’s fees in context, total non-
audit fees paid to other accountancy-based firms, not only
the Big 4, amounted to c. US$1.9 million over 2019. We have
a policy of deliberately sharing business between firms in
order to provide diversification, promote competition and
build relationships. In 2019, we allocated work to 8 different
accounting-based firms and took a conscious decision to
reach out beyond the Big 4. The largest single non-audit
spend in 2019 was in respect of work done externally to
verify certain facts pertinent to the above-mentioned
historic case relating to the Bank’s founders.
EXTERNAL AUDITOR INDEPENDENCE
The Committee is rigorous in ensuring (with a written
policy existing) that all non-audit assignments to our
External Auditor do not jeopardise the latter’s proper
independence of
judgement. Essentially, all such
engagements, without exception or derogation, were first
recommended by the CFO and pre-cleared with the
Committee. We only used PwC for non-audit (and of
course non-prohibited) services where there was either a
clear synergy with their audit role (i.e. an immediate ‘by
product’ of the audit process), where required by legislation
or where they offered 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 who from 2020 will typically be self-
excluding themselves from such tenders.
(in
in writing
PwC have confirmed
their annual
‘independence letter’) both their independence and that no
‘blacklisted’ prohibited non-audit services were provided
over 2019. Reviewing and ensuring the continuation of the
independence and objectivity of PwC as our external
statutory auditors was an important factor in fulfilling our
governance as a Committee and was equally monitored by
PwC through their own procedures for pre-approving any
non-audit services.
INTERNAL AUDIT GOVERNANCE AND
RESOURCING
The Committee relies heavily on Internal Audit (“IA”) to
provide an objective and professionally skeptical view of
how the Group is handling a number of key financial and
non-financial reporting and record-keeping tasks in order
to protect the assets, reputation and sustainability of the
organisation. 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 Committee meets regularly with the
Head of IA (Chief Audit Executive) with no management
present. The CAE always attends the entirety of our
Committee meetings. IA has unrestricted access and
scope within the organisation. As Chairman of the
Committee, I am in at least monthly (and often weekly)
contact with
functionally reports
unambiguously to me and makes an extensive quarterly
submission to the Committee. The Committee regards IA
as its “eye and ears” within the Group.
the CAE who
IA seeks to complete audits of all the Group’s key operating
units on a regular recurring basis structured through a
rolling audit plan agreed in advance with the Committee.
Such planned audits continued throughout the year and
99% of all pre-agreed internal audit assignments were
completed in 2019. We track very closely all deficiencies
identified by IA 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, such an
example having been TBC Pay. The Committee was
pleased to note that in 2019 there was again further
improvement in the rate and speed of remediation of
identified IA deficiencies. We have agreed with the CEO that
such deficiencies, whilst all addressed, should be even
more clearly prioritised into a hierarchy according to the
potential systematic risk they represent.
The hiring and retention of IA staff is a challenge in a
country like Georgia and, whilst attracting new talent, we
also need to embrace alternative and more flexible staffing
models. Nevertheless, we are satisfied that IA has
sufficient human and financial resources to perform its
role and the Committee has where necessary requested
additional funds to hire or retain staff and to purchase the
training and tools (e.g. specialist software) necessary for
them to function effectively. The Committee requires all
managerial IA executives to attend training, including for
relevant international (Certified Internal Auditor) exams;
the pass rate is improving but needs to be improved further
incentive staff
and measures have been taken to
accordingly including allowing study days. There is a
particular shortage of internal IT auditors in the country.
After discussion among the Committee and given the
importance of mitigating IT risk, it was decided to conduct
a tender process to select an external Big 4 firm (drawing
on international resources in 3 countries) with whom we
will, from 2020, co-source these skills at the same time as
using this collaboration to educate our own audit staff and
to gain experienced insights into best practices and
emerging technologies.
IA’s Audit’s Charter was reviewed and approved largely
unchanged in December 2019 and is appropriate to the
current needs of the organisation. The Committee routinely
reviews IA’s remit, annual and rolling 5 year plan, provides
feedback on it and authorises any changes to its scope. The
plan allows for some flexibility where any urgent matters
or emerging risks arise and the Committee supports this
approach. 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. Given the overlap
of particularly operational risk issues, the CAE is now
invited to attend also meetings of the Group’s Risk
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
187
AUDIT COMMITTEE REPORT CONTINUED
Committee. The CAE, who is sufficiently senior in the
Group’s hierarchy, has direct access to the CEO and also
the External Auditor and we will be encouraging more
interaction with both in the coming year.
The Committee solely determines IA’s budget and
compensation including variable bonus payments to the
CAE and her staff; the 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. We
believe, with corroboration by the external EQA (see
its arms-length
below),
independence from Management and is free from any
interference in determining the scope and performance of
its work and communication of its results. It feels properly
empowered and motivated to do its job and is respected by
Management and of use to them, its value reflected in the
latter’s proactive requests (with sign-off from the
Committee) for their involvement in various projects and
internal investigations.
IA has established
that
The CAE has now been in role for 8 years and we are aware
of IIA guidance on tenure beyond 7 years. We have discussed
this as a Committee and have concluded, on the basis of her
displayed behaviour and proven tenacity, that the CAE’s
objectivity and independence remains undoubted.
IA has delivered its 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.
The Committee notes the recent (January 2020) publication
of an updated Internal Audit Code of Practice by the
Chartered Institute of Internal Auditors (IIA). This is a far
reaching code which the Committee intends to implement
over the course of the year. Most of its recommendations
were already ‘in force’ for financial services firms so already
adopted by the Group, for example in relation to the audit of
risk appetite and risk culture. Nevertheless there are a
number of new recommendations, for example regarding
supporting strategic and operational decision-making. We
welcome this direction as it places the function of internal
audit in an increasingly value-added internal consulting role
whilst enhancing its core risk mitigation mission.
INTERNAL AUDIT PROJECTS
The Committee is overseeing a project (internally referred
to as “Internal Audit 3.0”) to move the IA function towards a
more ‘agile’ approach. We are seeking to use robust root
cause analysis to develop more themed reports, prioritising
the higher risk areas of the Group and responding even
more rapidly to emerging issues, undertaking special
deep-dive
from
situations where the Group may have heightened
vulnerability or has been the victim of fraud) and ensuring
that IA is able to add more strategic value.
(particularly arising
investigations
In addition to its regular workload, there were a number of
special assignments commissioned by the Committee from
188
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
IA in 2019. Some involved investigations of particular fraud
events. We also asked them to review some of the Bank’s
in particular TBC Pay, TBC
significant subsidiaries,
Insurance and TBC Leasing as well as Space (which is TBC’s
digital neobank). In addition, IA maintained its focus on the
identification/reporting processes around capturing and
disclosing related party lending and anti-money laundering
procedures within the Group, all the more important given
stakeholder focus on these vital issues. In addition, IA
assessed the Bank’s compliance with SWIFT requirements
in terms of its customer security control framework,
penetration testing and training requirements. IA undertook
a review of certain Treasury functions and, importantly led a
review of the Bank’s document retention and retrieval policy
since this was an issue emerging from prior audits. We also
requested IA to confirm the adherence of the Bank to its
approved risk tolerances. A recurring theme in all IA’s audits
was information security and data protection.
IA is in the process of updating its Internal Audit handbook.
This is a reference guide for all internal audit activities.
Based on the main standards applicable to best practice
audit functions, it describes all IA’s methodologies. The Risk
Committee is leading a process of updating the Group’s Risk
Register and we believe that this will provide a useful tool
also for IA and the Committee to align our priorities.
CULTURE AND BEHAVIOUR
Culture is a key driver and potential mitigant of conduct and
operating risk within any organisation, especially in a bank.
Therefore, as noted above, we asked IA to undertake its first
formal review of culture and observed behaviour within the
Bank. As non-executive Directors of a company, it is
sometimes hard to understand the prevailing culture at
lower levels of an organisation yet this often determines the
opportunity, incentives and pressures for staff to commit
dishonest acts or to by-pass critical procedures and even
mentally to rationalise this behaviour. Therefore, the
Committee considers that such cultural audits are essential
to monitoring behavioural and operational risks presented
by our most valuable asset, our human capital, and
confirming that employees ‘live’ the ethical values espoused
by the Company and that this is matched and driven by a
suitable “tone at the top”. Our priority, as a Board, supported
by Internal Audit, is to guarantee that there is real
commitment to good ethics beyond mere slogans, ensuring
that we continue to be a high integrity organisation from top
to bottom and to ensure alignment with TBC’s strategy and
taking into account of stakeholders’ interests.
This audit focused on issues such as our code of ethics,
perceptions of the Group’s visions and values, training
issues, employee awareness of our whistleblowing hotline,
employee commitment and morale and, importantly,
customer protection. The Group is ever more aware of the
regulatory and moral imperative for protection of its
customers and has signalled its intention to move from a
product-centric strategy to a customer-centric one that
prioritises above all else customer protection and service.
Independent surveys demonstrate that the Bank is already
the national leader in terms of customer satisfaction. In
addition to IA’s work in this area, the HR department recently
completed an employee engagement survey and the Board
has initiated a process of nominating one of our independent
directors as a rotating ‘staff ambassador’ to meet in
confidence with focus groups of employees at all levels
better to gauge the Bank’s prevailing culture. IA is now
including an ethics-related evaluation within every audit
engagement. The Board and Committee has agreed that the
Risk Committee will henceforth supervise the ongoing
monitoring of ‘culture’ as part of its formal Ethics remit.
IA will be including new geographies and additional
subsidiaries in their rolling audit plan. We would stress
that IA is a Group-wide not just Bank function and as we
enter new geographies and sectors beyond Georgia and
mainstream banking,
for example Uzbekistan and
ecosystems, we will need to pay attention to ensuring
process and ethical standards in these areas, some of
which are evolving very fast and present heightened levels
of operational and conduct risk and thus new challenges.
For example, our CAE already led an advisory audit of
Nikoil Bank in Azerbaijan with which we are hoping to
finalise a merger with our TBC Kredit local subsidiary. The
Chairman of the Committee also recently made a trip to
Baku and met with senior management and internal
auditors there.
EXTERNAL ASSESSMENT AND EVOLUTION
OF INTERNAL AUDIT
In early 2019, the Committee supervised the completion of
an External Quality Assessment (EQA) of our Internal Audit
department focused on assessing IA’s function in terms of
“efficiency and effectiveness in matters of Governance,
People, Infrastructure and Operations”. The yardstick was
the Code of Ethics and International Standards for the
Professional Practice of
Internal Auditing and the
Chartered Institute of Internal Auditors’ (“IIA”) September
2017 Guidance on Effective Internal Audit in the Financial
Services Sector. The exercise was conducted by
international specialists in a Big 4 firm (selected after a
tender process of the Big 4 and others). It included some
international benchmarking analysis of our maturity level
against peers according to the IIA’s Audit Intelligence Suite
Benchmarking Report. It was the first time that the Group
has conducted an EQA exercise and not only were the
results reassuring but also the unit benefited from the
feedback and the assessment process itself.
The conclusion gave IA a “generally conforms” score (the
highest available ranking) with a conclusion that “in
general there is a high degree of compliance with IIA
standards’ requirements”, with the function being “well
aligned with the Bank’s operations and its people”. It
confirmed that the Internal Audit function acts as a trusted
adviser to the Bank. We were advised that the unit ranks in
the top 20% equivalent for banks in the CEMEEA region.
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.
We have reviewed the scale of Internal Audit’s function
comparing it with other similar-sized financial institutions
and consider it right-sized. We noted the EQA’s comment
that “Internal Audit Function is a talent pipeline for the
business” and intend to boost IA’s integration into the
Group and to encourage a rotation of staff both into and out
of the department.
The EQA assessment gave us good scores for automation
but the direction of travel is for us to now take IA into more
technology-driven capabilities, using automated audit
scripts, laying the foundation for continuous (if not “robo”)
and more agile auditing of critical controls, monitoring
high risk areas in real time. This will also free up more IA
resources to shift the focus from pure assurance
(“policeman”) activities to more consulting level activities,
recognising that IA can and should act as an agent of
change, anticipating and deflecting risk.
Capitalising on new software tools, we will be shifting the
emphasis from traditional rotational 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).
Ultimately, we hope to apply the power of data to deliver
‘intelligent audit’.
CONTROL ENVIRONMENT
A sound system of
internal control contributes to
safeguarding the best interests of all stakeholders and the
Group’s assets and liabilities. Management is responsible
for establishing and maintaining adequate
internal
controls over the capturing, processing and reporting of
financial information but the 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 Group. As noted above, IA reports on control
weaknesses and breakdowns with robust root cause
analysis and recommendations with clear ownership/
accountability and deadlines. 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
process
improvement. The Committee was pleased to note that in
2019 there was again a further improvement in the rate
and speed of remediation of identified IA deficiencies. We
have implemented a new Internal Audit scoring system
that sets clear thresholds on what level of ‘failure’ is
unacceptable and which processes demand zero failure
rates.
commitment
continuous
to
In 2019 a Big 4 firm was commissioned to undertake an
evaluation of the Group’s operational risk governance
framework and risk assessment methodologies.
The Committee is conscious of increased regulatory and
stakeholder focus on ICFR (Internal Control Over Financial
Reporting) issues and the need for proactive responses
from companies and audit committees. Much of the
Finance function involves data gathering. We discussed
with PwC the level of manual processes in the Group and
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
189
AUDIT COMMITTEE REPORT CONTINUED
whether these posed heightened risk. The vast majority of
financial numbers are system generated. The Group is
increasing its automation of remaining manual controls
which reduces the risks of human error or malpractice
and also delivers cost-saving benefits. We are also working
with Finance to understand better how using data analytics
and artificial intelligence can deliver sharper predictive
insights which could be relevant to our reporting and
provisioning agenda. In 2020 the Committee will continue
to work with Finance on its transformation strategy. At the
same time we are conscious that new and disruptive
technologies can bring their own risks in collecting,
interpreting and protecting all this data.
On a wider issue, we are aware of the strains that
international expansion and diversification can potentially
place on the Finance team of the Group and are taking
steps to ensure that competent resources are in place to
cope with the extra workload involved.
In accordance with our mandate, we have reviewed the
robustness of the Bank’s wider controls, working with our
External Auditor and IA. In the opinion of the Committee,
there is a proper system and allocation of responsibilities
for day to day monitoring of financial and other 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.
After every noted fraud event larger than US$20,000,
Management conducts a full post-mortem which is shared
with the Committee and often the full Board (as well as the
CEO and divisional head responsible), concluding lessons
learned to avoid any future repeat events. The 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 2019, as with
2018, is that typically our processes were watertight but
had not been fully followed due to human error or
deliberate malfeasance. The Committee was promptly
notified in accordance with escalation procedures.
We have reviewed PwC’s management letter from the
2018 audit, discussed Management’s responses to it and
confirmed that there are no major issues raised therein.
We are also satisfied with the PwC’s requested
management representation letter (signed by the CEO and
CFO) in relation to the 2019 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
in place for proportionate and
independent investigation of all such cases and appropriate
follow up actions. We agreed in 2019 that the Risk
Committee would
for
overseeing these whistleblowing reports since it has the
take primary responsibility
Compliance mandate. However, IA will continue to be
involved as appropriate. We believe that our employees
and customers have come to realise that ‘speaking up’ is
valued and taken seriously.
The 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. 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 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 Group is undergoing a significant amount of change in
IT as it implements new systems and invests in network
automation, digitalisation and other new technologies.
The Group is pursuing a phased approach to its core IT
systems strategy and is seeking to bring more system
development in-house and to create more modular,
decentralised and agile, less monolithic, capabilities. The
intention is to facilitate faster development and deployment
of new technologies. The Committee believes that this
approach will allow us to achieve our goals at lower cost
and with lower risk of IT failure.
The Committee, with support from IA, supervised an
internal cyber ‘health check’ and ‘gap analysis’. The
Committee, together with the Risk Committee, received a
presentation from the IT division on its cyber and
information security status highlighting its governance
framework, maturity level, improvements underway and
threat assessment and we have received feedback on
extensive externally facilitated penetration testing. Our
conclusion was that the risk environment is satisfactory
and that we have sufficient prevention, detection and
containment practices in place.
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
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.
As noted above, it was agreed in 2019 that the Risk
Committee would assume primary responsibility for
overseeing IT and cyber risks.
190
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
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 2019 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 2019;
` 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;
` The summary of significant accounting policies; and
` The notes to the financial statements.
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 34 to the financial statements, we have provided no non-audit services to the group
or the parent company in the period from 1 January 2019 to 31 December 2019.
Our audit approach
Overview
` Overall group materiality: GEL 29.3 million (2018: GEL 25.5 million), based on 5% of profit before tax.
` Overall parent company materiality: GEL 15.7 million (2018: GEL 15.5 million), based on 1% of total assets.
` Our scoping was driven by legal entity contribution to profit before tax and other key financial metrics. 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.
` Key audit matters which were of most significance in the audit of the consolidated financial statements were the
expected credit loss allowance for loans and advances to customers and the impact of Coronavirus (COVID-19) on
the 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 2019
191
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 the rules of the National Bank of Georgia,
and we considered the extent to which non-compliance might have a material effect on the financial statements. We also
considered those laws and regulations that have a direct impact on the preparation of 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;
` Attendance at and inquiry of selected 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 meeting specific risk criteria.
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.
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.
192
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
Key audit matter
How our audit addressed the key audit matter
Expected credit loss allowance of loans and advances to
customers
Refer to pages 180 to 190 (Audit Committee Chair’s report),
pages 206 to 224 (Summary of Significant Accounting
Policies), page 224 to 225 (Critical Accounting Estimates),
and pages 230-246 (note 9: Loans and Advances to
customers).
We focused on this area as the management estimates
regarding the expected credit loss (‘ECL’) allowance are
complex and require a significant degree of judgement.
Under IFRS 9 management is required to determine the
ECL allowance expected to 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 allowance to be
significant:
` Setting of appropriate criteria for what represents an
SICR;
` Critical
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 ECL allowance 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 key parameters calculation by the
calculation engine;
` Controls over regular monitoring of the financial
standing of the borrowers;
` Controls over assignment of staging criteria to
exposures;
` Controls over ECL calculation and analysis of results;
and
` Controls over changes and approval of ECL
methodology.
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
specialists 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 critical 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 2019
193
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF TBC BANK GROUP PLC CONTINUED
Key audit matter
How our audit addressed the key audit matter
We critically assessed the Director’s conclusions that the
matter be treated as a non-adjusting post balance sheet
event and that the impact cannot be reliably estimated at
this stage. In particular we considered:
` The timing of the development of the outbreak across
the world;
` The timing and nature of advice from the World Health
Organisation (WHO) and from the Georgian government
to its citizens.
` How the financial statements might be impacted by
the aforementioned disruption and the complexity in
measuring such impacts.
In forming our conclusions over going concern, we
evaluated whether the Director’s assessment considered
impacts arising from COVID-19. Our procedures in respect
of going concern included:
` Evaluating management’s assessment of the impact
of the events on the Group’s operations, capital and
liquidity positions; and
` Evaluating the Group’s access to funding.
Based on the work performed, we are satisfied that the
matter has been appropriately evaluated and reflected in
the financial statements.
Impact of Coronavirus (COVID-19) on the financial statements
Refer to page 183 (Audit Committee Chair’s report), pages
2 to 123 (Strategic Report),
Since the balance sheet date, there has been a global
pandemic of COVID-19 virus. In addition to the human cost,
the pandemic has been disruptive to the financial markets
and is translating into a global economic crisis, potentially
plunging the major economies into deep recessions. The
Directors believe that, notwithstanding the unprecedented
fiscal and monetary response from governments and
regulators around the world, the financial impact of
COVID-19 on TBC Bank Group plc is expected to be
significant, at least over the short-term.
The Directors have specifically considered the impact of
this on the financial statements, including on the going
concern assessment and post balance sheet events
disclosures. The directors have concluded that the
impact of COVID-19 is a non-adjusting post balance sheet
event under IAS 10 “Events After the Reporting Period”
and therefore no adjustments have been made to the
primary financial statements or the notes to the financial
statements.
However, IAS 10 states that the financial statements
should not be prepared on a going concern basis where
events after the reporting date indicate that the going
concern assumption is no longer appropriate. This
guidance applies even if those events would otherwise be
non-adjusting. The Directors have therefore considered
whether developments subsequent to the reporting date
have any implications for the going concern assumption
through evaluating the impact on the Group’s capital and
liquidity position. As stated on page 134, the Directors have
concluded that the going concern basis of accounting is
appropriate and in reaching their conclusions, they have
taken into consideration all of the latest information,
including new assumptions and judgements about
forward-looking economic scenarios.
Given the sudden onset of the virus, there remains a
considerable level of uncertainty about the duration of this
pandemic and its medium to long term consequences.
Therefore, significant judgement has been exercised by
management and directors in reaching their conclusions.
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 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 represent 97% of the group assets and 99% 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
194
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
GEL 27.8 million (2018: GEL 24.2 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 99% 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:
Overall
materiality
How we
determined it
Rationale for
benchmark applied
Group financial statements
Parent company financial statements
GEL 29.3 million (2018: GEL 25.5 million).
GEL 15.7 million (2018: GEL 15.5 million).
5% of profit before tax.
1% of total assets.
We believe that profit before tax is the
primary measure used by the shareholders
in assessing the performance of the
Group, and is a generally accepted auditing
benchmark.
The parent company is the top holding
company with investments in the subsidiaries
within the Group. The parent company’s
performance is measured primarily on the
value of these investments, and therefore total
assets is considered an appropriate materiality
benchmark.
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 27.8 million and GEL 29.3 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 GEL
1.4 million (group audit) (2018: GEL 1.3 million) and GEL 0.8 million (parent only) (2018: GEL 0.8 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.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
195
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF TBC BANK GROUP PLC CONTINUED
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).
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 2019 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 pages 134-135 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 134-135 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 135, 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 184 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 acco
rdance with the Companies Act 2006. (CA06)
196
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
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 135, 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 4 years, covering the years ended 31 December 2016 to 31 December 2019.
Allan McGrath
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Edinburgh
28 April 2020
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
197
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
Net Investments in leases
Investment properties
Current income tax prepayment
Deferred income tax asset
Other financial assets
Other assets
Premises and equipment
Right of use assets
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
Lease Liabilities
Subordinated debt
TOTAL LIABILITIES
EQUITY
Share capital
Shares held by trust
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
2019
31 December
2018
31 December
2017
6
7
8
9
10
10
11
13
17
35
12
14
15
16
15
18
19
20
23
21
35
22
24
16
25
26
26
26
26
27
39
1,003,583
33,605
1,591,829
12,349,399
1,166,911
47,316
1,422,809
10,038,452
1,431,477
39,643
1,033,818
8,325,353
985,293
-
1,022,684
256,660
72,667
25,695
2,173
133,736
255,712
385,736
59,693
167,597
61,558
2,654
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
-
657,938
449,538
143,836
79,232
19,084
2,855
146,144
156,651
366,913
-
83,492
28,658
1,278
18,410,274
15,497,993
12,965,910
3,593,901
10,049,324
113,608
1,634
1,213,598
21,331
23,128
95,161
59,898
591,035
3,031,503
9,352,142
98,714
63
13,343
22,237
18,767
104,337
-
650,919
2,620,714
7,816,817
91,753
447
20,695
602
13,200
84,440
-
426,788
15,762,618
13,292,025
11,075,456
1,682
(27,517)
848,459
1,953,364
(162,166)
(17,802)
56,374
(6,476)
-
(6,850)
2,639,068
8,588
2,647,656
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
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
18,410,274
15,497,993
12,965,910
The financial statements on pages 198 to 318 were approved by the Board of Directors on 28 April 2020 and signed on its behalf
by:
Vakhtang Butskhrikidze
Chief Executive Officer
Giorgi Shagidze
Chief Financial Officer
The notes set out on pages 205 to 318 form an integral part of these financial statements.
198
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
In thousands of GEL
Interest income
Interest expense
Net gains on currency swaps
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
Net gains from disposal of Investment Securities measured at fair value
through other comprehensive income
Net gains 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 loans to customers
Credit loss allowance for investments in 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 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 /(expense) (OCI):
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/(expense)
Other comprehensive income for the year
TOTAL COMPREHENSIVE INCOME/(EXPENSE) 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
30
30
30
31
31
32
9
13
22
12
33
15,17
22
34
35
10
10
35
2019
1,436,843
(663,860)
28,556
801,539
293,431
(106,141)
187,290
38,199
(19,689)
18,510
79,279
22,188
(280)
169
-
18,916
632
120,904
(82,030)
582
(2,156)
(8,098)
(290)
1,036,251
(247,803)
(59,478)
(1,264)
(142,181)
(450,726)
585,525
(45,184)
540,341
(15,156)
-
85
-
-
(15,071)
525,270
537,895
2,446
540,341
522,824
2,446
525,270
28
28
9.8
9.8
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)
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)
(4,056)
(16,609)
(153)
(12,439)
(86)
921,229
(220,354)
(45,740)
(4,000)
(140,935)
(411,029)
510,200
(72,765)
437,435
-
754,078
(203,100)
(37,265)
2,495
(121,530)
(359,400)
394,678
(34,750)
359,928
6,949
-
425
-
5,489
181
10,749
(2,363)
15,760
453,195
435,080
2,355
437,435
450,903
2,292
453,195
8.1
8.0
-
(422)
5,248
365,176
354,410
5,518
359,928
359,585
5,591
365,176
6.7
6.6
The notes set out on pages 205 to 318 form an integral part of these financial statements.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
199
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
In thousands of GEL
Note
Share
capital
Shares held
by trust
Share
premium
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
Balance as of 1 January
2017
Profit for the year
Other comprehensive
income
Total comprehensive
income
for 2017
Share issue
Share based payment
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 (expense)
Total comprehensive
income for 2018
Share issue
Share based
payment
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 201
Profit for the year
Other comprehensive
expense
Total comprehensive
income for 2019
Share issue
Share buy-back
Share based
payment
Business Combination
Purchase of additional
interest from NCI
Dividends declared
Transfer of revaluation
surplus to retained
earnings and other
movements
Balance as of 31
December 2019
26
27
26
26
27
27
26
27
27
1,581
-
-
-
21
-
3
-
1,605
-
1,605
-
-
-
23
-
22
-
-
-
1,650
-
-
-
32
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
677,211 (162,166)
-
-
23,327
-
70,460 (3,681)
-
-
- (7,538)
-
-
955,173 1,554,367
354,410
354,410
28,264
5,518
1,582,631
359,928
-
-
-
(415)
5,411
-
32,308
-
5,132
-
-
-
- (24,253)
10,754
-
-
-
-
-
(415)
-
-
-
-
5,411
-
-
-
-
-
-
-
-
-
-
179
-
5,175
73
5,248
179
-
-
-
-
354,410
-
-
(1,909)
(74,809)
359,585
8,076
10,754
3,226
(74,809)
5,591
-
(211)
(3,197)
(1,192)
365,176
8,076
10,543
29
(76,001)
714,651 (162,166)
9,828
70,045
1,730
- (7,359) 1,232,865 1,861,199
29,255
1,890,454
-
-
-
-
(1,730)
1,730
-
(62,928)
(62,928)
(719)
(63,647)
714,651 (162,166)
-
-
9,828
-
70,045
-
-
-
-
8,466
-
42,031
-
40,172
-
-
-
-
-
- (38,669)
8,466
-
-
-
-
-
-
12,547
-
-
-
-
-
- (21,271)
-
-
796,854 (162,166) (16,294)
-
-
-
-
-
-
57,240
-
-
-
-
-
-
-
-
-
-
-
(27,517)
-
51,605
-
-
-
- (35,306)
-
-
33,798
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(866)
-
-
-
-
-
-
-
-
-
-
-
-
1,730 (7,359) 1,169,937 1,798,271
435,080
435,080
-
-
28,536
2,355
1,826,807
437,435
6,950
422
-
15,838
(78)
15,760
6,950
-
422
-
435,080
-
450,918
3,385
2,277
-
453,195
3,385
-
-
-
-
-
-
-
-
-
-
-
(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)
8,680 (6,937) 1,523,879 2,202,906
537,895
537,895
-
-
3,062
2,446
2,205,968
540,341
-(15,156)
-(15,156)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
85
85
-
-
-
2
-
(15,071)
-
(15,071)
537,895
-
-
522,824
16,331
(27,517)
2,446
-
-
525,270
16,331
(27,517)
-
-
33,798
2
(35)
3,134
33,763
3,136
-
-
- (108,622)
-
(108,622)
(19)
-
(19)
(108,622)
-
212
(654)
-
(654)
1,682
(27,517)
848,459 (162,166) (17,802)
56,374
- (6,476) (6,850) 1,953,364 2,639,068
8,588
2,647,656
The notes set out on pages 205 to 318 form an integral part of these financial statements.
200
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
CONSOLIDATED STATEMENT OF CASH FLOWS
In thousands of GEL
Cash flows from (used in) operating activities
Interest received
Interest received on currency swaps
Interest paid
Fees and commissions received
Fees and commissions paid
Insurance and reinsurance 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
Net investment in 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 (used in)/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 of investment securities measured at fair value through other
comprehensive income
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
Cash acquired from acquired subsidiaries
Proceeds from disposal of investment property
Net cash used in investing activities
Cash flows from (used in) financing activities
Proceeds from other borrowed funds
Redemption of other borrowed funds
Repayment of principal of lease liabilities
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
Note
2019
2018
2017
1,360,296
28,556
(647,427)
282,715
(106,526)
76,101
(21,787)
79,287
44,248
(216,465)
(169,582)
(70,413)
639,003
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
(22,009)
(343,772)
(2,013,577) (1,718,446)
(54,784)
(35,570)
(4,486)
(43,719)
19,612
1,577
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
(1,938)
272,023
(8,267)
5,816
(1,151,479)
69,755
1,371,675
(12,136)
3,618
(76,048)
(228,486)
1,329,071
18,263
3,487
140,588
10 (1,781,816)
(717,729)
-
10
10
-
-
(560,226)
240,603
14,781
-
10 1,598,536
10
-
(39,297)
11
11
15
(613,383)
216,871
(120,333)
13,225
2,996
13,338
(469,260)
370,571
-
809
(395,717)
200,658
(89,263)
813
-
42,515
(572,562)
1,819,899
1,776,489
(1,392,897) (1,515,562)
-
255,900
(60,910)
(7,596)
-
(85,484)
(6,453)
-
(104,079)
1,176,049
(14,296)
(91,928)
1,386,295
71,116
(163,328)
6 1,166,911
6 1,003,583
362,837
21,207
(264,566)
1,431,477
1,166,911
-
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
The notes set out on pages 205 to 318 form an integral part of these financial statements.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
201
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
Shares held by trust
Shares Premium
Retained earnings
Profit for the year
Other reserves
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
Note
31 December
2019
31 December
2018
31 December
2017
5,546
40,815
-
278
1,519,922
465
1,567,026
1,751
1,751
1,682
(27,516)
848,459
681,048
100,630
(39,028)
1,565,275
1,567,026
2
26
27
26
27
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
The financial statements on pages 198 to 318 were approved by the Board of Directors on 28 April 2020 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 205 to 318 form an integral part of these financial statements.
202
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
SEPARATE STATEMENT OF CHANGES IN EQUITY
In thousands of GEL
Balance as of 1 January 2017
Profit for the year
Total comprehensive income for 2017
Share issue
Dividends declared
Share based payment
Balance as of 31 December 2017
Profit for the year
Total comprehensive income for 2018
Share issue
Dividends declared
Share based payment
Balance as of 31 December 2018
Profit for the year
Total comprehensive income for 2019
Share issue
Share buy-back
Dividends declared
Share based payment
Balance as of 31 December 2019
Note
26
26
27
26
26
27
26
26
26
27
Share
capital
1,581
-
-
24
-
-
1,605
-
-
45
-
-
1,650
-
-
32
-
-
1,682
Shares held
by trust
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(27,516)
-
-
(27,516)
Share
premium
677,211
-
-
37,440
-
-
714,651
-
-
82,203
-
-
796,854
-
-
51,605
-
-
848,459
Other
reserves
4,882
-
-
(24,253)
-
10,543
(8,828)
-
-
(38,668)
-
11,668
(35,828)
-
-
(34,941)
Retained
Earnings
745,253
86,789
86,789
-
(74,809)
-
757,233
121,306
121,306
-
(88,869)
-
789,670
100,630
100,630
-
-
31,741
(39,028)
(108,622)
-
781,678
Total
equity
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
100,630
100,630
16,696
(27,516)
(108,622)
31,741
1,565,275
The notes set out on pages 205 to 318 form an integral part of these financial statements.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
203
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, net of cash acquired
Cash contribution to subsidiaries
Dividends received
Income from recharge agreement
Dividends paid
Placement/withdrawal of deposits
Issuance of debt to subsidiary
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
2019
2018
2017
9,933
(42)
(17)
(4,520)
(10,439)
215
1,908
-
(12)
(3,797)
(3,569)
16
1,348
-
(12)
(3,469)
(1,423)
11
(4,870)
(5,454)
(3,545)
(10)
(101)
360
(4,621)
(40,162)
(8,857)
99,662
16,005
(91,925)
34,007
-
8,730
-
-
(767)
3,342
2,204
5,546
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
The notes set out on pages 205 to 318 form an integral part of these financial statements.
204
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
NOTES TO THE 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 2019 (2018:
99.88%, 2017: 98.67%), thus representing the Bank’s ultimate parent company. The Bank is a parent of a group of companies
incorporated in mainly in Georgia, Azerbaijan and Uzbekistan, their primary business activities include providing banking,
leasing, brokerage and card processing services to corporate and individual customers. The Group’s list of subsidiaries 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”). 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. The Bank has been operating since 20 January 1993 under a general banking
license issued by the National Bank of the Georgia (“NBG”). In 2018, the Bank launched fully-digital bank, Space.
The Bank has 148 (2018:146; 2017:154) branches within Georgia.
As of 31 December 2019, 31 December 2018 and 31 December 2017, 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 2019, 31 December 2018 and 31 December 2017 the Group had no ultimate controlling party
Shareholders
European Bank for Reconstruction and Development
Dunross & Co.
Schroder Investment Management
JPMorgan Asset Management
Badri Japaridze*
Liquid Crystal International N.V. LLC
Mamuka Khazaradze*
Other**
Total
% of ownership interest held as of 31 December
2019
8.04%
6.61%
6.48%
6.22%
6.00%
5.55%
4.71%
56.39%
100.00%
2018
8.18%
5.51%
7.08%
8.40%
6.08%
5.64%
6.19%
52.92%
100.00%
2017
8.38%
0.00%
9.53%
9.21%
6.23%
5.78%
6.35%
54.52%
100.00%
* Represents direct ownership of the shares for Mamuka Khazaradze and Badri Japaridze. Mamuka Khazaradze has beneficial ownership of 10.26% (2018: 13.54%; 2017:
13.87% and Badri Japaridze has beneficial ownership of 6.00%, (2018: 6.77%; 2017: 6.93%).
** Other includes individual as well as corporate shareholders.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
205
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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 financial statements. 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 accounting policy for leases by the Group as a lessee. The Group adopted IFRS 16, Leases, using modified retrospective
method and applied certain simplifications or practical expedients. The standard is effective for annual periods beginning
on or after 1 January 2019. Refer to section 2.3 below. The Group has not adopted early any other standard, interpretation or
amendment that has been issued but is not yet effective.
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.
206
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Subsidiaries and associates. The TBC Bank Group PLC holds 99.88%of the Bank as of 31 December 2019. The consolidated
financial statements include the following principal subsidiaries:
Proportion of voting rights and ordinary
share capital held as of 31 December
Subsidiaries Name
JSC TBC Bank
United Financial Corporation JSC
TBC Capital LLC
TBC Leasing JSC
TBC Kredit LLC
Banking System Service Company LLC2
TBC Pay LLC
2019
99.88%
99.53%
100.00%
100.00%
100.00%
N/A
100.00%
2018
99.88%
98.67%
100.00%
99.61%
100.00%
100.00%
100.00%
TBC Invest LLC
100.00%
100.00%
Index LLC
BG LLC1
JSC TBC Insurance
Redmed LLC
TBC International LLC
Swoop JSC
Online Tickets LLC
TKT UZ
My.Ge LLC
Mypost LLC
Billing Solutions LLC
Vendoo LLC (Geo)
Allproperty.ge LLC
F Solutions LLC
Inspired LLC
VENDOO LLC (UZ Leasing)
100.00%
N/A
100.00%
100.00%
100.00%
100.00%
55.00%
75.00%
65.00%
100.00%
51.00%
100.00%
90.00%
100.00%
51.00%
100.00%
100.00%
N/A
100.00%
N/A
N/A
100.00%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
The Group has investments in the following associates:
2017
Principal place
of business or
incorporation
98.67% Tbilisi, Georgia
98.67% Tbilisi, Georgia
100.00% Tbilisi, Georgia
99.61% Tbilisi, Georgia
75.00% Baku, Azerbaijan
100.00% Tbilisi, Georgia
100.00% Tbilisi, Georgia
Ramat
Gan,Israel
100.00%
100.00% Tbilisi, Georgia
N/A Tbilisi, Georgia
100.00% Tbilisi, Georgia
N/A Tbilisi, Georgia
N/A Tbilisi, Georgia
N/A Tbilisi, Georgia
N/A Tbilisi, Georgia
Tashkent,
N/A
Uzbekistan
N/A Tbilisi, Georgia
N/A Tbilisi, Georgia
N/A Tbilisi, Georgia
N/A Tbilisi, Georgia
N/A Tbilisi, Georgia
N/A Tbilisi, Georgia
Tashkent,
Uzbekistan
Tashkent,
Uzbekistan
N/A
N/A
Year of
incorporation
1992
1997
1999
2003
Industry
Banking
Card processing
Brokerage
Leasing
Non-banking credit
1999
institution
2009 Information services
Processing
2009
2011
PR and marketing
Real estate
management
2011
Real Estate
2018
Insurance
2014
2019
Insurance
2019 Asset management
Retail Trade
2010
Computer and
Software Services
2015
2019
2019
2019
2019
2019
2013
2019
2011
2019
Retail Trade
E-Commerce
Postal Service
Software Services
Retail Leasing
Real estate
management
Software Services
Processing
Retail Leasing
Associate Name
Proportion of voting rights and ordinary share
capital held as of 31 December
2017
2018
2019
Principal place
of business or
incorporation
Year of
incorporation
CreditInfo Georgia JSC
21.08%
21.08%
21.08% Tbilisi, Georgia
Online Tickets LLC3
N/A
26.00%
26.00% Tbilisi, Georgia
2005
2015
Industry
Financial
intermediation
Computer and
Software Services
The country of registration or incorporation is also the principal area of operation of each of the above subsidiaries. The
Group’s corporate structure consists of a number of related undertakings, comprising subsidiaries and associates, which are
not consolidated or equity accounted due to immateriality. A full list of these undertakings, the country of incorporation and
the ownership of each share class is set out below.
1 The Group had de-facto control over the subsidiary (control without legal form of ownership). The company was acquired and subsequently legally
merged with Bank in 2019.
2 The company was merged to United Financial Corporation JSC in 2019.
3 The group became 55% shareholder of the company in 2019.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
207
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Proportion of voting rights and ordinary
share capital held as of 31 December
Company Name
TBC Invest International Ltd
University Development Fund2
UFC International Ltd3
Natural Products of Georgia LLC
2019
100.00%
33.33%
N/A
25.00%
2018
100.00%
33.33%
N/A
25.00%
2017
Principal place
of business or
incorporation
100.00% Tbilisi, Georgia
33.33% Tbilisi, Georgia
British Virgin
80.00%
Islands
25.00% Tbilisi, Georgia
Mobi Plus JSC
GRDC
14.81%
14.81%
14.81% Tbilisi, Georgia
1.75%
1.75%
1.64% Tbilisi, Georgia
Georgian Card JSC
Georgian Securities Central Depositor
JSC Givi Zaldastanishvili American
Academy In Georgia
United Clearing Centre
Banking and Finance Academy of
Georgia
Tbilisi's City JSC
Swift
TBC Trade
0.15%
0.05%
14.48%
18.75%
16.67%
1.80%
0.15%
0.05%
14.48%
18.75%
16.67%
1.80%
0.01%
100.00%
0.01%
100.00%
14.48% Tbilisi, Georgia
18.75% Tbilisi, Georgia
16.67% Tbilisi, Georgia
1.80% Tbilisi, Georgia
La Hulpe,
Belgium
100.00% Tbilisi, Georgia
0.01%
Mineral Oil Distribution Corporation JSC
9.90%
9.90%
9.90% Tbilisi, Georgia
Year of
incorporation
Industry
2016 Investment Vehicle
Education
2007
2001 Investment Vehicle
Trade, Service
2001
Data monitoring and
processing
Investment Real
Estate
2009
2008
2001
2008
1998
2007
Education
Clearing Centre
Education
Education
2014
2008
2009
Finance, Service
Trade, Service
Data monitoring and
processing
0.15% Tbilisi, Georgia
0.05% Tbilisi, Georgia
1997Plastic Card Services
Finance, Service
1999
Business combinations and Goodwill accounting. 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 acquisition date. Acquisition-related costs are recognised as an expense in the profit or loss 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.
2 Non-entrepreneurial (non-commercial) legal entity
3 Liquidated in 2018
208
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Business combinations and Goodwill accounting (continued).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.
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.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
209
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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 (“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. 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). 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
(expected credit loss) 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.
210
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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.
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, i.e. 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 and 2019.
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 - expected credit loss (ECL) allowance.
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 37 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 37.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
211
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Change in ECL is recognized in the 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.
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, but are still subject to enforcement activity was principal
amount GEL 110 million (31 December 2018: GEL 96 million), accrued interest GEL 28 million (31 December 2018: GEL 18
million) and accrued off balance sheet penalty GEL 114 million (31 December 2018: 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 predetermined payment schedule is changed 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 will not be substantially different (exceed 10% test) 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.
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.
212
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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 fair value through profit or loss (FVTPL). Otherwise
they are carried at fair value (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, fair value through other comprehensive income (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.
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 37 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 repossessed collateral 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. 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.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
213
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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.
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.
Net investments in 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 net investments in leases and carried at the present value
of the future lease payments. Net Investments in 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 net investments in leases 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 lease investments. 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
214
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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 investments in 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 as non-financial
assets. On commencement of the leases, advances towards lease contracts are transferred into net investment in finance
lease.
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 recognized 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.
When derivative instruments are entered into with a view to decrease cost of funding, respective interest effect is presented
as a separate line of statement of comprehensive income, within net interest income
Goodwill. Goodwill is carried at cost less accumulated impairment losses, if any. The Group tests goodwill for impairment at
least annually and whenever there are indications that goodwill may be impaired. Goodwill is allocated to the cash-generating
units, or groups of cash-generating units, that are expected to benefit from the synergies of the business combination. Such
units or group of units represent the lowest level at which the Group monitors goodwill, and are not larger than an operating
segment. Gains or losses on disposal of an operation within a cash generating unit to which goodwill has been allocated
include the carrying amount of goodwill associated with the disposed operation. This is generally measured on the basis of
the relative values of the disposed operation and the portion of the cash-generating unit which is retained.
Premises and equipment. Premises and equipment, except for land, buildings and construction in progress, are stated
at cost, less accumulated depreciation and provision for impairment, where required. Cost of premises and equipment of
acquired subsidiaries is the estimated fair value at the date of acquisition.
Following initial recognition, land, buildings and construction in progress are carried at a revalued amount, being the fair
value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment
losses. Revaluations are performed frequently enough to ensure that the carrying amount does not differ materially from
that which would be determined using fair values at the end of reporting period.
Any revaluation surplus is credited to the revaluation reserve for premises and equipment included in equity, except to the
extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss. In this case the increase
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
215
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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
and right-of-use assets 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:
30 – 100 years;
Premises
Furniture and fixtures
Computers and office equipment
Motor vehicles
Other equipment
Right-of-use assets the term of the underlying lease; and
Leasehold improvements
5 – 8 years;
3 – 8 years;
4 – 5 years;
2 – 10 years;
the term of the underlying lease or if not defined, not more than 7 years.
The residual value of an asset is the estimated amount that the Group would currently obtain from disposal of the asset less
the estimated costs of disposal, if the asset was already of the age and in the condition expected at the end of its useful life.
The residual value of an asset is nil if the Group expects to use the asset until the end of its physical life. The assets’ residual
values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Investment property. Investment property is property that the Groups owns to earn rental income or for capital appreciation,
or both, and that it does not occupy.
Investment property is stated at cost less accumulated depreciation and provision for impairment, where required. It is
amortised on a straight line basis over an expected useful life of 30 to 50 years. In case of any indication that the investment
properties may be impaired, the Group estimates the recoverable amount as the higher of value in use and fair value less
costs to sell. The carrying amount of an investment property is written down to its recoverable amount through a charge to
profit or loss for the year. An impairment loss recognised in prior years is reversed if there has been a subsequent change in
the estimates used to determine the asset’s recoverable amount.
Land included in investment property is not depreciated. Depreciation on other items of investment properties is calculated
using the straight-line method to allocate their cost to their residual values over their estimated useful lives of 30 to 50 years.
Residual values of investment properties are estimated to be nil.
Earned rental income is recorded in profit or loss for the year within other operating income.
Subsequent expenditure is capitalised to the asset’s carrying amount only when it is probable that future economic benefits
associated with the expenditure will flow to the Group and the cost can be measured reliably. All other repairs and maintenance
costs are expensed when incurred.
Intangible assets. All of the Group’s intangible assets have definite useful life and primarily include capitalised computer
software and licenses.
Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific
software. All other costs associated with computer software, e.g. its maintenance, are expensed when incurred. Intangible
assets are amortised on a straight line basis over expected useful lives of 2 to 15 years.
Accounting for leases by the Group as a lessee from 1 January 2019. The Group leases office, branches and service centre
premises. Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset
216
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is
charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance
of the liability for each period. The right-of-use asset is recognised at cost and depreciated over the shorter of the asset’s
useful life and the lease term on a straight-line basis.
Liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value
of the following lease payments:
` fixed payments (including in-substance fixed payments), less any lease incentives receivable;
` variable lease payment that are based on an index or a rate;
` amounts expected to be payable by the lessee under residual value guarantees;
` he exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and
` payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee’s
incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain
an asset of similar value in a similar economic environment with similar terms and conditions.
Right-of-use assets are measured at cost comprising the following:
` the amount of the initial measurement of lease liability;
` any lease payments made at or before the commencement date less any lease incentives received;
` any initial direct costs, and
` restoration costs.
As an exception to the above, the Group accounts for short-term leases and leases of low value assets by recognising the
lease payments as an operating expense on a straight line basis.
In determining the lease term, management of the Group considers all facts and circumstances that create an economic
incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination
options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).
Accounting for operating leases by the Group as a lessee prior to 1 January 2019. Where the Group is a lessee in a lease
which does not transfer substantially all the risks and rewards incidental to ownership from the lessor to the Group, the total
lease payments are charged to profit or loss for the year (rental expense) on a straight-line basis over the period of the lease.
Leases embedded in other agreements are separated if (a) fulfilment of the arrangement is dependent on the use of a
specific asset or assets and (b) the arrangement conveys a right to use the asset.
Accounting for operating leases by the Group as a lessor. When assets are leased out under an operating lease, the lease
payments receivable are recognised as rental income on a straight-line basis over the lease term.
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.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
217
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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.
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.
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
218
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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.
Such income includes recurring fees for recurring fees for account maintenance, account servicing fees, account subscription
fees, annual plastic card fees etc. Variable fees are recognised only to the extent that management determines that it is
highly probable that a significant reversal will not occur.
Other fee and commission income is recognised at a point in time when the Group satisfies its performance obligation,
usually upon execution of the underlying transaction. The amount of fee or commission received or receivable represents
the transaction price for the services identified as distinct performance obligations. Such income includes fees for arranging
a sale or purchase of foreign currencies on behalf of a customer, fees for processing payment transactions, plastic card
transactions, merchant fees, fees for cash settlements, collection or cash disbursements, etc.
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 2019 the closing rate of exchange used for translating
foreign currency balances was GBP 1 = 3.7593 (2018: GBP 1 = GEL 3.3955; 2017: GBP 1 = GEL 3.5005); USD 1 = 2.8677 (2018:
USD 1 = GEL 2.6766; 2017: USD 1 = GEL 2.5922); EUR 1 = 3.2095 (2018: EUR 1 = GEL 3.0701; 2017: EUR 1 = GEL 3.1044).
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
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
219
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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 period.
Diluted earnings per share. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary
shares outstanding to assume conversion of all dilutive potential ordinary shares. In calculating diluted EPS, non-vested
ordinary shares are treated as outstanding on the grant date.
Segment reporting. Operating segments are reported in a manner consistent with the internal reporting provided to the
Group’s chief operating decision maker. Segments whose revenue, result or assets are ten percent or more of all the
segments are reported separately.
Share based payments. A share-based payment arrangement is an agreement between the entity and another party
(including an employee) that entitles the other party to receive cash or other assets of the entity for amounts that are based
on the price (or value) of equity instruments (including shares or share options) of the entity or another group entity, or
equity instruments (including shares or share options) of the entity or another group entity, provided the specified vesting
conditions, if any, are met. Under the share-based compensation plan the Group receives services from the management as
consideration for equity instruments of the Group. The fair value of the employee services received in exchange for the grant
of the equity instruments is recognised as an expense. The total amount to be expensed is determined by the reference to
the fair value of the equity instruments granted, excluding the impact of any non-market service and performance vesting
conditions. Non-market vesting conditions are included in the assumptions about the number of equity instruments that are
expected to vest. The total amount expensed is recognised over the vesting period, which is the period over which all of the
specified vesting conditions are to be satisfied. At each balance sheet date, the Group revises its estimates of the number of
equity instruments that are expected to vest based on the non-marketing vesting conditions. It recognises the impact of the
revision of original estimates, if any, in profit or loss, with a corresponding adjustment to equity. Increase in equity on accrued
shares resulting from the equity settled scheme is accounted for under share based payment reserve. Upon 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 (i.e. an asset) for a particular risk exposure or paid to transfer a net short position (i.e. a liability) for a
particular risk exposure in an orderly transaction between market participants at the measurement date. This is applicable
for assets carried at fair value on a recurring basis in case the Group: (a) manages the group of financial assets and financial
liabilities on the basis of the entity’s net exposure to a particular market risk (or risks) or to the credit risk of a particular
counterparty in accordance with the entity’s documented risk management or investment strategy; (b) it provides information
on that basis about the group of assets and liabilities to the entity’s key management personnel; and (c) the market risks,
including duration of the entity’s exposure to a particular market risk (or risks) arising from the financial assets and financial
liabilities is substantially the same.
Valuation techniques such as discounted cash flow models or models based on recent arm’s length transactions or
220
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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.
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.
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.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
221
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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.
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
222
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
amount and the present value of estimated future cash flows discounted by the exposure’s original effective interest rate
for fixed rate loans or current effective interest rate for variable rate loans. The Bank considers two types of sources for
recoveries: cash recoveries and/or collateral recovery. For cash recoveries the estimated recoverable amount is equal to the
present value of the estimated future cash flows. Collateral recoveries reflect the cash flows that may result from collateral
foreclosure. The Bank uses its best estimates to assess future recoveries, applying scenario analysis and taking into account
all relevant information available at the reporting date including adverse changes in general macroeconomic environment or
the industry the borrower operates in.
If the Group determines that there is no objective evidence that an individually assessed financial asset incurred in impairment
whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and
collectively assesses them for impairment. For collective assessment purposes exposures are grouped into a homogenous
risk pools based on similar credit risk characteristics. Common credit risk characteristics of the group include but are not
limited to: type of counterparty (individual vs. business), type of product, past-due status of the exposure, restructuring status
and type of collateral.
In order to calculate impairment allowance for collectively assessed loans pools, the Bank estimates the following risk
parameters: probability of default, cure rate, recovery rate, survival rate and loss give default, based on historical experience.
In case of a change in either the internal or external environment and historical data no longer reflect the current situation,
the Bank adjusts risk parameters on the basis of current observable data to reflect the effects of present conditions that did
not affect past periods, and to remove the effects of past conditions that do no longer exist.
If the terms of an impaired financial asset held at amortised cost are renegotiated or otherwise modified because of financial
difficulties of the borrower or issuer, impairment is measured using the original effective interest rate before the modification
of terms.
The Bank reverses previously recognised impairment loss if, once identified, the amount of the impairment loss decreases
and the decrease is related to an objective event. The previously recognised impairment loss is reversed by adjusting the
allowance account through profit or loss. In order to reverse provisions for individually significant borrowers there should be
objective evidence that the borrowers’ financial standing has improved or there is improvement in collateral coverage. For
collectively assessed loans the Bank applies the notion of “quarantine period” defined as period necessary for an exposure
to satisfy performing loans criteria’s in order to be reclassified in a performing loans pool.
Impairment losses on loans and advances and net investments in lease (comparatives only). The Group regularly reviews
its loan portfolio and net investments in lease 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
net investments in lease 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 would result in an additional or lower charge for loan loss impairment of GEL
11 thousand as at 31 December 2017 and additional charge for impairment of net investments in lease of GEL 63 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 GEL14 thousand as at 31 December 2017, 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, respectively.
Credit related commitments (comparatives only). The Group enters into credit related commitments, including letters of
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
223
AUDIT COMMITTEE REPORT CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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.
Net investments in 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 net investments in lease and carried
at the present value of the future lease payments. Net investments in lease 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 Net investments in lease 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 lease investment. 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:
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 37. 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. The effects of respective sensitivity are
described below:
224
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES
CONTINUED
In thousands of GEL
2019
2018
20% decrease in SICR thresholds
10% increase in Stage 2 exposures
Increase impairment allowance on loans
and advances by GEL 1,954
Change of the Bank’s cost of credit risk
ratio by 2 basis points
Increase impairment allowance on loans
and advances by GEL 2,380
Increase impairment allowance on loans
and advances by GEL 2,056
Change of the Bank’s cost of credit risk
ratio by 2 basis points
Increase impairment allowance on loans and
advances by GEL 2,723
Change of the Bank’s cost of credit risk
ratio by 2 basis points
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. The effects of respective sensitivity are described below
In thousands of GEL
2019
2018
10% increase (decrease) in PD estimates
10% increase (decrease) in LGD estimates
Increase (decrease)
impairment allowance on loans and
advances by GEL 17,427 (GEL 17,547)
Change of the Bank’s cost of credit risk
ratio by 16 (16) basis points
Increase (decrease) impairment
allowance on loans and advances by GEL
24,758 (GEL 26,604)
Change of the Bank’s cost of credit risk
ratio by 22 (24) basis points
Increase (decrease) impairment allowance
on loans and advances by GEL 18,876
(GEL 18,942) Change of the Bank’s cost
of credit risk ratio by 21 (21) basis points
Increase (decrease) impairment allowance on
loans and advances by GEL 28,185
(GEL 28,012)Change of the Bank’s cost of
creditrisk ratio by 31 (31) basis points
4. ADOPTION OF NEW OR REVISED STANDARDS AND INTERPRETATIONS
Adoption of IFRS 16, Leases. IFRS 16 replaces IAS 17 Leases for annual periods beginning on or after 1 January 2019. The
group has adopted IFRS 16 using modified retrospective method from 1 January 2019 with certain simplifications, and has
not restated comparatives for the previous reporting periods, as permitted under the specific transitional provisions in the
standard (modified retrospective approach). The reclassifications and the adjustments arising from the new leasing rules
are therefore recognised in the opening balance sheet on 1 January 2019. The comparative information for 2018 and 2017 is
reported under IAS 17 and is not comparable to the information presented for 2019.
On adoption of IFRS 16, the group recognised lease liabilities in relation to leases which had previously been classified
as ‘operating leases’ under the principles of IAS 17 Leases. These liabilities were measured at the present value of the
remaining lease payments, discounted using the lessee’s incremental borrowing rates as of 1 January 2019 which were
applied on a portfolio basis of leases with reasonably similar characteristics.
The average incremental borrowing rates applied to the lease liabilities on 1 January 2019 was 3.77% for USD denominated
contracts and 9.19% for GEL denominated contracts.
In applying IFRS 16 for the first time, the group has used the following practical expedients permitted by the standard:
` the use of a single discount rate to a portfolio of leases with reasonably similar characteristics;
` the accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases.
` excluding initial direct costs for the measurement of the right-of-use asset at the date of initial application, and
` using hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
The Group has also elected not to reassess whether a contract is, or contains a lease at the date of initial application. Instead,
for contracts entered into before the transition date the group relied on its assessment made applying IAS 17, Leases, and
IFRIC 4, in determining whether an arrangement contains a Lease.
The Group did not have finance leases balances outstanding as at 31 December 2018. TBCG has made no adjustments
where the Group acts as lessor, in either a finance or operating lease, of physical assets it owns. Where TBCG acts as an
intermediate lessor, i.e., enters into a head lease and subleases the asset to a third party, the sublease has been classified as
either a finance or operating lease based primarily on whether the sublease term consumes the majority of the remaining
useful life of the right-of-use asset arising from the head lease as at the transition date.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
225
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
4. ADOPTION OF NEW OR REVISED STANDARDS AND INTERPRETATIONS CONTINUED
The following table reconciles the commitments in respect of operating leases as at 31 December 2018 to the opening lease
liabilities recognized on 1 January 2019:
In thousands of GEL
Total future minimum lease payments for non-cancellable* operating leases disclosed as at 31 December 2018.
1 January 2019
11,022
- 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
-Less short-term leases not recognised as a liability
- Less low-value leases not recognised as a liability
Total effect on the Lease Liability as at 1 January 2019
Of which are:
- Current lease liabilities
- Non-current lease liabilities
58,573
(1,744)
(575
(6,233)
61,043
11,467
49,576
* Non-cancellable leases include those cancellable only: (a) upon the occurrence of some remote contingency, (b) with the permission of the lessor, (c) if the lessee enters into a
new lease for the same or an equivalent asset with the same lessor; or (d) upon payment by the lessee of such an additional amount that, at inception of the lease, continuation
of the lease is reasonably certain.
The right-of use assets were measured at the amount equal to the lease liability. There were no onerous lease contracts that
would have required an adjustment to the right-of-use assets at the date of initial application. The recognised right-of-use
assets mostly relate to properties for own use, in particular branches and office buildings.
The change in accounting policy affected the following items in the balance sheet on 1 January 2019:
` right-of-use assets – increase by GEL 61,043 thousand;
` lease liabilities – increase by GEL 61,043 thousand.
The net impact on retained earnings on 1 January 2019 was nil.
IFRS 16 subsequent recognition and policies
As at 31 December 2019, the balances of Right of the use asset and the Lease liability are GEL 59,693 thousand and GEL
59,898 thousand respectively. The interest charge on lease liabilities presented within interest expense amounted GEL 2,670
thousand, recognized within interest expense. During 2019, the weighted average lease term was approximately 5 years and
depreciation expense of right-of-use assets amounted GEL 13,311 thousand.
TBCG predominantly enters into lease contracts, or contracts that include lease components, as a lessee of real estate,
including offices, retail branches and service centers. TBCG identifies non-lease components of a contract and accounts for
them separately from lease components.
When TBCG is lessee in a lease arrangement, TBCG recognizes a lease liability and corresponding right-of-use (RoU) asset
at the commencement of the lease term when TBCG acquires control of the physical use of the asset. The lease liability is
measured based on the present value of the lease payments over the lease term, discounted using TBCG’s incremental
borrowing rate. Interest expense on the lease liability is presented within Interest expense from financial instruments. The
RoU asset is recorded at an amount equal to the lease liability but is adjusted for rent prepayments, initial direct costs, any
costs to refurbish the leased asset or lease incentives received. The RoU asset is depreciated over the shorter of the lease
term or the useful life of the underlying asset, with the depreciation presented within depreciation expense in statement of
comprehensive income.
226
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
4. ADOPTION OF NEW OR REVISED STANDARDS AND INTERPRETATIONS CONTINUED
Lease payments generally include fixed payments. When the lease contains an extension or termination option that the
Group considers reasonably certain to be exercised, the expected rental payments or costs of termination are included within
the lease payments used to generate the lease liability. TBCG does not typically enter into leases with purchase options or
residual value guarantees.
Where TBCG acts as lessor or sublessor under a finance lease, a receivable is recognized and measured at amortized cost
at an amount equal to the present value of the aggregate of the lease payments plus any unguaranteed residual value that
TBCG expects to recover at the end of the lease term.
Initial direct costs are also included in the initial measurement of the lease receivable. Lease payments received during the
lease term are allocated as repayments of the outstanding receivable.
Interest income reflects a constant periodic rate of return on TBCG’s net investment using the interest rate implicit in the
lease (or, for subleases, the rate for the head lease). TBCG reviews the estimated unguaranteed residual value annually, and
if the estimated residual value to be realized is less than the amount assumed at lease inception, a loss is recognized for the
expected shortfall. Where TBCG acts as a lessor or sublessor in an operating lease of owned real estate, TBCG recognizes
the operating lease income on a straight-line basis over the lease term.
From 1 January 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the
leased asset is available for use by the group. Each lease payment is allocated between the liability and interest expense. The
interest expense is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset’s useful
life and the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net
present value of the following lease payments:
` fixed payments (including in-substance fixed payments), less any lease incentives receivable;
` variable lease payment that are based on an index or a rate;
` amounts expected to be payable by the lessee under residual value guarantees;
` the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and
` payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee’s
incremental borrowing rate is used, being the rate that the lessee would have to pay to borrow the funds necessary to obtain
an asset of similar value in a similar economic environment with similar terms and conditions.
Right-of-use assets are measured at cost comprising the following at initial recognition:
` the amount of the initial measurement of lease liability;
` any lease payments made at or before the commencement date less any lease incentives received;
` any initial direct costs, and
` restoration costs.
Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an
expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise
IT-equipment and small items of office furniture or the items below the market value of around GEL 15,000.
Extension and termination options
Extension and termination options are included in a number of property and equipment leases across the group. These
terms are used to maximize operational flexibility in terms of managing contracts. The majority of extension and termination
options held are exercisable only by the group and not by the respective lessor.
Judgements in determining the lease term
In determining the lease term, management considers all facts and circumstances that create an economic incentive to
exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options)
are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). The assessment
is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is
within the control of the lessee.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
227
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
4. ADOPTION OF NEW OR REVISED STANDARDS AND INTERPRETATIONS CONTINUED
The Group also determines non-cancellable lease period for leases, taking into consideration penalties that would be
incurred upon termination, including economic disincentives such as leasehold improvements, cost of relocating or the
importance of the premises to the Group’s operations.
As for the adoption date management has reassessed expected lease terms for the branch offices. The assessment
was performed by retail sales department taking into account a few criteria, namely: location, profitability and strategic
importance of the branch offices. Based on the analysis performed, management identified and recorded expected terms for
the lease contracts, subject to lease extension options that are reasonably certain to be exercised. As at 31 December 2019,
the Group has reassessed expected terms for existing lease contracts in line with standard requirements.
Adoption of other IFRS.
The following amended standards became effective from 1 January 2019, but did not have any material impact on the Group:
`
`
`
`
`
`
IFRIC 23 “Uncertainty over Income Tax Treatments” (issued on 7 June 2017 and effective for annual periods beginning
on or after 1 January 2019).
Prepayment Features with Negative Compensation – Amendments to IFRS 9 (issued on 12 October 2017 and effective
for annual periods beginning on or after 1 January 2019).
Amendments to IAS 28 “Long-term Interests in Associates and Joint Ventures” (issued on 12 October 2017 and effective
for annual periods beginning on or after 1 January 2019).
Annual Improvements to IFRSs 2015-2017 cycle - amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23 (issued on 12
December 2017 and effective for annual periods beginning on or after 1 January 2019).
Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement” (issued on 7 February 2018 and effective for
annual periods beginning on or after 1 January 2019).
Amendment to IAS 12, Income Taxes, included in the Annual Improvements to IFRSs 2015-2017 cycle.
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 2019 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 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.
228
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
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 cash equivalents
Less: Credit loss allowance
Total carrying amount of cash and cash equivalents
2019
650,700
35,133
191,420
2018
491,928
118,749
371,902
2017
419,605
371,342
571,078
126,360
1,003,613
(29)
1,003,584
184,429
1,167,008
(97)
1,166,911
69,452
1,431,477
-
1,431,477
85% of the correspondent accounts and overnight placements with other banks are placed with OECD (The Organization for
Economic Co-operation and Development) banking institutions (31 December 2018: 95%; 31 December 2017: 97%).
As of 31 December 2019 GEL 11,348 thousand was placed on interbank term deposits with one non-OECD bank and GEL
115,012 thousand with one OECD banks (31 December 2018: GEL 13,383 thousand 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). Interest rate analysis of cash and cash equivalents is disclosed in Note 37.
The 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
2019
-
66,805
13,816
-
20,286
69,302
-
733
3,680
12,346
4,452
-
-
191,420
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
The 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+
BB
B+
Not rated
Total
2019
-
-
115,012
-
1,719
9,629
-
126,360
2018
10,021
-
161,025
-
-
13,383
-
184,429
2017
-
-
-
57,031
-
-
12,421
69,452
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 2019 there
were no investment securities held as collateral against placements with other banks under the reverse repo agreements (31
December 2018: nil; 2017: nil). For the purpose of ECL measurement cash and cash equivalents balances are included in Stage
1. As the ECL for 31 December 2018 is measured per IFRS 9, it is not comparable to the prior periods.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
229
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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 2019, 2018 and 2017. Credit ratings of
placements with other banks with original maturities of more than three months were as follows:
In thousands of GEL
AA
A+
A
BBB+
BBB
BB+
BB
BB-
B+
B
Not rated
Total
2019
-
9,549
-
-
2,493
-
9,045
5,323
7,195
-
-
33,605
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
As of 31 December 2019 the TBC Bank had no placements, with original maturities of more than three months and with
aggregated amounts above GEL 5,000 thousand (2018: one placement with one bank; 2017: one placement with one bank).
The total aggregated amount of these placement was nil (2018: GEL 19,311 thousand; 2017: 23,147 thousand) or 40.8% of the
total amount due from other (2018: 41%; 2017: 58%).
As of 31 December 2019 GEL 11,836 thousand, (2018: GEL 15,725 thousand; 2017: GEL 13,121 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 37. As the ECL for year 2018 is measured per IFRS 9, 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 2019 is GEL 9 thousand (31 December 2018: 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 9.0%, 1.25% and (0.7%) annual
interest in GEL, USD and EUR respectively on mandatory reserve with NBG in 2019 (2018: 6.0%, 0.8% and (0.6%) in GEL, USD
and EUR respectively; 2017: 5.0%, 0.6% and (0.4%) in GEL, USD and EUR respectively).
In February 2019 Fitch Ratings has upgraded Georgia’s Long-Term Foreign and Local-Currency Issuer Default Ratings (IDRs)
to ‘BB’ from ‘BB-’. The outlook is a stable. The issue ratings on Georgia’s long-term senior unsecured foreign and local-
currency bonds are also upgraded to ‘BB’ from ‘BB-’. The Country Ceiling is upgraded to ‘BBB-’ from ‘BB’ and the Short-
term Foreign and Local-Currency IDRs affirmed 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
2019
4,660,473
1,884,006
3,169,197
2,948,279
12,661,955
(312,556)
2018
3,177,289
1,989,516
2,709,183
2,496,594
10,372,582
(334,130)
Total carrying amount of loans and advances to customers at AC
12,349,399
10,038,452
2017
2,475,392
2,163,425
2,069,728
1,844,672
8,553,217
(227,864)
8,325,353
230
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
9. LOANS AND ADVANCES TO CUSTOMERS CONTINUED
The credit loss allowance as at 31 December 2019 and 31 December 2018 is reported under IFRS 9 and is not comparable to
the information presented for 2017.
As of 31 December 2019 loans and advances to customers carried at GEL 474,480 thousand have been pledged to local banks
or other financial institutions as collateral with respect to other borrowed funds (2018: GEL 228,454 thousand; 2017: GEL
246,267 thousand).
In 2019, the Group has reassessed its definition of segments as disclosed in Note 29. Some of the clients were reallocated to
different segments. Comparative information as of 31 December 2018 has not been updated due to impracticability.
The following tables disclose 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. Below main movements in
the table are described:
`
`
`
`
`
`
`
Transfers between Stage 1, 2 and 3 due to balances experiencing significant increases (or decreases) of credit risk or
becoming credit-impaired in the period, and the consequent “step up” (or “step down”) between 12-month and Lifetime
ECL. It should be noted, that
- Movement does not include exposures which were issued and repaid during the period;
- For loans, which existed at the beginning of the period, opening exposures are disclosed as transfer amounts;
- For newly issued loans, starting exposures are disclosed as transfer amount
- For the exposures which changed stage several times during the period, transfers between starting and ending
stage is disclosed.
New originated or purchased gives us information regarding gross loans and corresponding credit impairment losses
issued during the period (however, exposures which were issued and repaid during the period and issued to refinance
existing loans are excluded);
The line, derecognised during the period refers to starting balance of loans which were repaid or written-off during the
period (gross exposure and corresponding credit impairment losses, however, exposures which were issued and repaid
during the period and repaid by newly issued refinancing loans are excluded);
Net repayments refers to net changes in gross carrying amounts, consisting of withdrawal of loan and repayment;
Net write offs refer to write off of loans during the period, and net of written off and recoveries of already written off
loans for ECL
Foreign exchange translations of assets denominated in foreign currencies and effect to translation in presentational
currency for foreign subsidiary.
Net remeasurement due to stage transfers and risk parameters changes refers to the movements in ECL as a result of
transfer of exposure between stages or changes in risk parameters and forward looking expectations.
For presentation purposes, amounts are rounded to the nearest thousands of GEL, which in certain cases is disclosed as nil.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
231
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
9. LOANS AND ADVANCES TO CUSTOMERS CONTINUED
Corporate loans
Gross carrying amount
Stage 1
(12-months
ECL)
Stage 2
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit
impaired)
In thousands of GEL
Credit loss allowance
Stage 2
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit
impaired)
Stage 1
(12-months
ECL)
Total
Total
At 1 January 2019
2,903,313
138,715
135,261 3,177,289
32,940
4,994
43,571
81,505
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
Net repayments
Resegmentation
Net Write-offs
Net remeasurement
due to stage transfers
and risk parameters
changes
Foreign exchange
movements
(126,154)
137,126
(10,972)
(27,531)
(5,261)
32,792
72,484
(71,151)
(1,333)
-
-
-
(2,876)
5,184
(2,308)
(2,914)
(192)
3,106
2,806
(2,806)
-
-
-
-
-
25,355
1,638,709
-
- 1,638,709
25,355
-
1,988
(31,192)
(13,862)
(43,066)
(2,544)
(1,064)
(9,094)
(12,702)
(186,958)
(70,285)
(27,812)
(285,055)
55,356
711
-
-
-
-
-
-
-
56,067
-
-
-
176
-
-
76
-
-
-
630
-
252
630
(14,698)
(4,398)
991
(18,105)
3,815
80,750
103,478
5,746
7,305
116,529
908
175
2,732
At 31 December 2019
4,434,685
104,409
121,379 4,660,473
39,153
1,969
39,628
232
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
9. LOANS AND ADVANCES TO CUSTOMERS CONTINUED
Corporate loans
Gross carrying amount
Stage 1
(12-months
ECL)
Stage 2
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit
impaired)
In thousands of GEL
Credit loss allowance
Stage 2
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit
impaired)
Stage 1
(12-months
ECL)
Total
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
Net repayments
Other movements
Resegmentation
Net Write-offs
Net remeasurement
due to stage transfers
and risk parameters
changes
Foreign exchange
movements
(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)
(145,691)
2
36,699
-
-
(25,028)
-
(39,857)
-
(210,576)
2
488
-
-
37,187
(321)
(321)
-
-
283
-
-
-
-
-
-
-
-
-
-
283
3,269
3,269
-
-
-
(3,430)
3,162
21,877
21,609
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 2019
233
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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 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)
Total
Stage 3
(lifetime
ECL for
credit
impaired)
Total
At 1 January 2019
2,210,617
193,157
92,820
2,496,594
19,273
22,379
29,362
71,014
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
(181,576)
186,581
(5,005)
(51,354)
(42,338)
93,692
49,093
(48,292)
(801)
-
-
-
(3,097)
5,142
(2,045)
(2,568)
(6,711)
9,279
6,191
(5,872)
(319)
-
-
-
1,312,100
-
-
1,312,100
11,981
-
-
11,981
(354,274)
(47,777)
(48,874)
(450,925)
(2,356)
(2,582)
(6,102)
(11,040)
Net repayments
Resegmentation
(333,112)
(42,333)
(14,348)
(389,793)
(55,356)
(786)
-
(56,142)
(28,963)
(28,963)
-
-
-
-
-
-
(11,134)
6,047
10,948
5,861
-
(176)
-
-
(78)
-
-
-
(254)
-
(12,946)
(12,946)
Net Write-offs
Net remeasurement due
to stage transfers and risk
parameters changes
Foreign exchange
movements
54,123
6,487
4,798
65,408
227
268
1,034
1,529
At 31 December 2019
2,650,261
204,699
93,319
2,948,279
18,341
18,593
29,211
66,145
234
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
9. LOANS AND ADVANCES TO CUSTOMERS CONTINUED
Loans to micro, small and
medium enterprises
In thousands of GEL
Gross carrying amount
Stage 2
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit
impaired)
Stage 1
(12-months
ECL)
Stage 1
(12-months
ECL)
Total
Credit loss allowance
Stage 2
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit
impaired)
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
Other movements
(146,754)
(21)
(20,622)
6
788
349
(166,588)
334
-
-
-
-
-
-
-
-
Resegmentation
75,069
23,747
1,725
100,541
4,377
8,457
1,611
14,445
Net Write-offs
Net remeasurement
due to stage transfers
and risk parameters
changes
Foreign exchange
movements
-
-
-
(22,004)
(22,004)
-
-
(5,664)
(5,664)
-
-
-
4,781
(6,245)
5,997
4,533
15,460
1,727
1,479
18,666
9
8
113
130
At 31 December 2018
2,210,617
193,157
92,820
2,496,594
19,273
22,379
29,362
71,014
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
235
NOTES TO THE 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
impaired)
Stage 1
(12-months
ECL)
Stage 2
(lifetime ECL
for SICR)
Stage 3
(lifetime ECL
for credit
impaired)
Total
Total
At 1 January 2019
1,641,978
265,687
81,851
1,989,516
42,903
59,245
54,575 156,723
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
(166,459)
176,428
(9,969)
(60,362)
(67,012)
127,374
81,453
(80,023)
(1,430)
-
-
-
(16,454)
21,029
(4,575)
(5,682)
(16,168)
21,850
16,851
(16,013))
(838)
-
-
-
641,207
-
-
641,207
34,363
-
-
34,363
(101,437)
(39,416)
(125,004)
(265,857)
3,706
(11,085)
(7,972)
(15,351)
Net repayments
Resegmentation
(460,554)
(42,061)
109,208
(393,407)
2,583
1,092
572
4,247
(110,243)
(110,243)
-
-
-
-
-
-
(38,995)
15,212
78,558
54,775
-
15
-
-
97
-
-
-
184
296
(97,652)
(97,652)
Net Write-offs
Net remeasurement due
to stage transfers and risk
parameters changes
Foreign exchange
movements
14,853
2,122
1,568
18,543
17
122
663
802
At 31 December 2019
1,593,262
216,817
73,927 1,884,006
36,724
52,439
44,793 133,956
236
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
9. LOANS AND ADVANCES TO CUSTOMERS CONTINUED
Consumer loans
Gross carrying amount
Credit loss allowance
Stage 1
(12-months
ECL)
Stage 2
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit
impaired)
Stage 1
(12-months
ECL)
Total
Stage 2
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit
impaired)
Total
In thousands of GEL
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)
(97,030)
(64,020)
161,050
73,142
(71,235)
(1,907)
-
-
-
(34,737)
38,429
(3,692)
(28,073)
(16,142)
44,215
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
Foreign exchange
movements
-
-
-
-
(122,095)
(122,095)
-
- (100,885)
(100,885)
-
-
16,760
3,298
92,489
112,547
4,765
760
356
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 2019
237
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
9. LOANS AND ADVANCES TO CUSTOMERS CONTINUED
Mortgage loans
Gross carrying amount
In thousands of GEL
Stage 1
(12-months
ECL)
Stage 2
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit
impaired)
Credit loss allowance
Stage 2
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit
impaired)
Total
Stage 1
(12-months
ECL)
Total
At 1 January 2019
2,470,604
194,410
44,169
2,709,183
1,696
9,166
14,026
24,888
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
Net repayments
Resegmentation
Net Write-offs
Net remeasurement due
to stage transfers and risk
parameters changes
Foreign exchange
movements
(172,796)
182,744
(9,948)
(12,481)
(23,593)
36,074
66,513
(64,675)
(1,838)
-
-
-
(384)
3,294
(2,910)
(95)
(1,597)
1,692
2,563
(1,991)
(572)
-
-
-
811,030
-
-
811,030
818
-
-
818
(81,648)
(46,649)
4,720
(123,577)
(137)
(1,796)
(691)
(2,624)
(313,332)
(22,613)
(10,568)
(346,513)
(572)
(955)
(4,172)
(955)
-
(15)
-
-
(94)
-
-
-
(184)
3,608
(293)
3,608
(2,583)
(1,017)
-
-
-
-
-
-
(3,018)
2,172
4,478
3,632
108,419
12,562
3,220
124,201
43
532
1,101
1,676
At 31 December 2019
2,873,726
231,169
64,302
3,169,197
1,471
9,686
20,548
31,705
238
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
9. LOANS AND ADVANCES TO CUSTOMERS CONTINUED
Mortgage loans
Gross carrying amount
Credit loss allowance
Stage 1
(12-months
ECL)
Stage 2
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit
impaired)
Stage 1
(12-months
ECL)
Total
Stage 2
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit
impaired)
Total
In thousands of GEL
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
-
(2,446)
-
(3,576)
(3,576)
-
-
(12)
-
-
-
(8)
-
-
-
-
-
(20)
-
1,963
1,963
Other movements
Resegmentation
Net Write-offs
Net remeasurement
due to stage transfers
and risk parameters
changes
Foreign exchange
movements
-
-
-
-
-
195
(632)
1,969
1,532
28,556
3,803
950
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
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
239
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
9. LOANS AND ADVANCES TO CUSTOMERS CONTINUED
Movements in the provision for loan impairment during 2019 are as follows:
In thousands of GEL
Credit Loss allowance as of 1
January 2019
Resegmentation effect
Credit loss allowance during
the year
Amounts written off during
the period as uncollectible
Recoveries
Effect of translation to
presentation currency
Foreign exchange movements
Credit Loss allowance as of
31 December 2019
Corporate loans
Consumer loans
Mortgage loans
81,505
767
(3,261)
-
630
-
1,109
156,723
-
74,581
(110,243)
12,591
64
240
24,888
-
2,742
(955)
4,563
115
352
Loans to micro,
small and medium
enterprises
71,014
(767)
Total
334,130
-
7,968
82,030
(28,963)
16,017
(140,161)
33,801
383
493
562
2,194
80,750
133,956
31,705
66,145
312,556
Loans and advances to customers written off in 2019 included loans to customers in the gross amount of GEL 39,464
thousand issued in 2019, out of which, none was previously issued performance guarantee transformed into loan in 2019 and
GEL 100,697 thousand was issued in previous years.
Movements in the provision for loan impairment during 2018 were as follows:
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
Corporate loans
Consumer loans
Mortgage loans
49,626
18,337
67,963
446
13,416
(320)
-
121,538
33,032
154,570
(14,889)
139,143
(122,095)
(6)
17,577
5,232
22,809
(21)
5,648
(3,576)
28
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
(22,004)
(147,995)
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 was issued in previous years.
240
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
9. LOANS AND ADVANCES TO CUSTOMERS CONTINUED
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
(82,601)
76
384
(6,507)
98
21,521
141,150
(20,265)
(138,759)
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 was 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 37.
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
had 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.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
241
NOTES TO THE 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 2019:
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
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)
4,094,403
339,960
322
-
-
4,434,685
(39,153)
4,395,532
1,107,490
330,361
155,411
-
-
1,593,262
(36,724)
1,556,538
2,668,691
182,049
22,986
-
-
2,873,726
(1,471)
2,872,255
2,223,262
407,106
19,893
-
-
2,650,261
(18,341)
2,631,920
7,882
75,872
19,827
828
-
104,409
(1,969)
102,440
5,436
17,620
176,815
16,946
-
216,817
(52,439)
164,378
17,970
80,289
121,743
11,167
-
231,169
(9,686)
221,483
23,114
87,244
80,947
13,394
-
204,699
(18,593)
186,106
-
-
-
-
121,379
121,379
(39,628)
81,751
-
-
-
-
73,927
73,927
(44,793)
29,134
-
-
-
-
64,302
64,302
(20,548)
43,754
-
-
-
-
93,319
93,319
(29,211)
64,108
Total
4,102,285
415,832
20,149
828
121,379
4,660,473
(80,750)
4,579,723
1,112,926
347,981
332,226
16,946
73,927
1,884,006
(133,956)
1,750,050
2,686,661
262,338
144,729
11,167
64,302
3,169,197
(31,705)
3,137,492
2,246,376
494,350
100,840
13,394
93,319
2,948,279
(66,145)
2,882,134
242
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
9. LOANS AND ADVANCES TO CUSTOMERS CONTINUED
The credit quality of 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
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
1,865,077
324,306
21,342
-
-
2,210,725
(19,301)
2,191,424
6,417
130,798
1,238
260
-
138,713
(4,994)
133,719
3,371
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
16,285
72,742
84,520
19,502
-
193,049
(22,379)
170,670
-
-
-
-
135,261
135,261
(43,571)
91,690
-
-
-
-
81,850
81,850
(54,575)
27,275
-
-
-
-
44,170
44,170
(14,026)
30,144
-
-
-
-
92,820
92,820
(29,334)
63,486
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
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 2019
243
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
9. LOANS AND ADVANCES TO CUSTOMERS CONTINUED
For description of the credit risk grading used in the tables above refer to Note 37.
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
2,259
-
-
-
-
-
-
-
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
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
244
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
9. LOANS AND ADVANCES TO CUSTOMERS CONTINUED
Economic sector risk concentrations within the customer loan portfolio are as follows
31 December 2019
31 December 2018
In thousands of GEL
Individual
Energy & Utilities
Hospitality & Leisure
Real Estate
Food Industry
Trade
Construction
Agriculture
Healthcare
Services
Pawn Shops
Automotive
Transportation
Metals and Mining
Financial Services
Communication
Other
Total loans and advances to
customers (before impairment)
Amount
5,046,804
1,089,643
988,467
1,076,102
785,539
616,475
576,923
498,783
305,152
212,661
203,633
183,912
134,223
99,321
96,430
43,329
704,558
%
40%
Amount
4,677,328
%
45%
9%
8%
8%
6%
5%
5%
4%
2%
2%
2%
1%
1%
1%
1%
0%
5%
776,204
759,605
564,197
570,810
445,290
359,549
418,432
220,756
180,045
278,384
156,241
80,075
100,855
71,617
229,522
483,672
7%
7%
5%
6%
4%
3%
4%
2%
2%
3%
2%
1%
1%
1%
2%
5%
Amount
4,198,386
31 December 2017
%
49%
9%
5%
5%
7%
5%
3%
3%
2%
1%
3%
2%
1%
1%
1%
1%
2%
719,854
450,741
453,415
524,286
394,495
233,771
269,844
172,255
108,186
279,410
160,795
96,427
84,419
87,501
114,032
205,400
12,661,955
100%
10,372,582
100%
8,553,217
100%
As of 31 December 2019 the Group had 239 borrowers (2018: 170 borrowers; 2017: 142 borrowers) with aggregated gross
loan amounts above GEL 5,000 thousand. The total aggregated amount of these loans was GEL 4,443,036 thousand (2018:
GEL 3,054,314 thousand; 2017: GEL 2,437,750 thousand) or 35.1% of the gross loan portfolio (2018: 29.4%; 2017: 28.5%).
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, shares, 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 2019:
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 Fair value of collateral
8,481,849
2,232,728
6,171,802
3,682,456
950,847
2,949,426
Carrying value of the assets
978,017
933,159
219,771
Fair value of collateral
310,419
37,658
107,183
2,579,002
10,161,731
5,983,285
22,869,664
369,277
2,500,224
164,979
620,239
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
245
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
9. LOANS AND ADVANCES TO CUSTOMERS CONTINUED
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 Fair value of collateral
6,516,492
2,543,720
5,404,518
2,857,207
1,213,594
2,663,362
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
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 Fair value of collateral
5,194,598
2,132,566
4,429,201
2,129,927
908,387
2,042,001
Carrying value of the assets
345,465
1,255,038
27,727
Fair value of collateral
97,386
25,781
17,189
1,688,438
6,768,753
3,970,931
15,727,296
156,234
1,784,464
146,949
287,305
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 collateral such as movable assets and precious metals.
Collateral values include the contractual price of third-party guarantees, which, due to their nature, are capped at the loan’s
carrying value. The values of third-party guarantees in the tables above amounted to GEL 595,464 thousand, GEL 625,719
thousand and GEL 527,498 thousand as of 31 December 2019, 2018 and 2017 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
37. Information on related party balances is disclosed in Note 44. As of 31 December 2019 gains less losses recognised in
profit or loss on modifications of loans with lifetime ECL that did not lead to derecognition was GEL 844 thousand (As of 31
December 2018: GEL 196 thousand).
10. INVESTMENT SECURITIES MEASURED AT FAIR VALUE
THROUGH OTHER COMPREHENSIVE INCOME
The 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 2019 and as at 31
December 2018 is reported under IFRS 9 and is not comparable to the information presented for 2017.
246
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
10. INVESTMENT SECURITIES MEASURED AT FAIR VALUE
THROUGH OTHER COMPREHENSIVE INCOME CONTINUED
In thousands of GEL
Corporate bonds
Ministry of Finance of Georgia Treasury Bills
Certificates of Deposit of the National Bank of Georgia
Ministry of Finance of Uzbekistan Treasury Bills
Netherlands Government Bonds
Less: Credit loss allowance
Total debt securities
Corporate shares – unquoted
Total investment securities measured at fair value
through other comprehensive income
2019
611,694
330,096
40,346
1,596
-
(1,438)
982,294
2,999
985,293
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
All debt securities except for corporate bonds, Uzbekistan treasury bills and Netherlands government bonds were 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 October 2019). Latest country ratings for Uzbekistan and Netherlands stand at
BB- and AAA respectively. 56.7% of corporate bonds are issued by triple A rated international financial institutions, 19.7%
of corporate bonds are issued by A rated international financial institutions and 6.0% of corporate bond are issued at BB-
rating, whereas 17.4% and 0.2% 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 2 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 2019 investment securities measured at fair value through other comprehensive income carried at GEL
696,961 thousand have been pledged to local banks or financial institutions as collateral with respect to other borrowed
funds (2018: GEL 613,466 thousand; 2017: GEL 424,892 thousand). Refer to Note 19. None of the debt securities measured
at fair value through other comprehensive income are overdue or impaired. As of 31 December 2019 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
2019
365
21,11
523
2,999
2018
365
1,004
337
1,706
2017
365
1,004
335
1,704
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
Transfers from bonds carried at amortised cost
Purchases
Disposals
Redemption at maturity
Revaluation
Interest income accrued
Interest income received
Effect of translation to presentation currency
Transfer to investments in associate
Change in credit loss allowance*
Carrying amount as of 31 December
Note
30
2019
1,005,239
27,241
1,781,817
(240,603)
(1,598,534)
(15,156)
74,043
(58,539)
10,087
-
(302)
985,293
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
*For the purpose of ECL measurement, securities balances are included in Stage 1. Refer to Note 37 for the ECL measurement approach.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
247
NOTES TO THE 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
2019
1,023,459
-
-
1,131
(1,906)
1,022,684
2018
654,618
-
-
500
(915)
654,203
2017
424,876
24,662
-
-
-
449,538
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 October 2019).
The movements in bonds carried at amortised cost are as follows:
In thousands of GEL
Carrying amount as of 1 January
Transfers to investment securities at FVOCI
Purchases
Redemption at maturity
Interest income accrual
Interest income received
Effect of translation to presentation currency
Change in credit loss allowance
Carrying amount as of 31 December
2019
654,203
(27,241)
614,000
(216,667)
58,682
(59,316)
14
(991)
1,022,684
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
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 37.
As of 31 December 2019 bonds carried at amortised cost of GEL 579,142 thousand have been pledged to local banks or
financial institutions as collateral with respect to other borrowed funds (2018: GEL 212,337 thousand; 2017: GEL 223,860
thousand). Refer to Note 19.
None of the bonds carried at amortised cost as of 31 December 2019, 31 December 2018 and 31 December 2017 were either
overdue or impaired. For the purpose of ECL measurement securities balances are included in Stage 1. Refer to Note 37 for
the ECL measurement approach. As the ECL for year 2019 is measured per IFRS 9, 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
Foreign exchange forward contracts
Other
Total gross amount of other financial assets
Less: Credit loss allowance
Total carrying amount of other financial assets
2019
32,844
1,695
3,866
26,177
21,895
21,837
4,921
2,833
-
-
2,087
46,450
164,605
(30,869)
133,736
2018
43,671
36,869
32,293
21,451
14,390
12,651
8,292
3,492
2,527
-
1,490
18,486
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
1,767
17,530
164,164
(18,020)
146,144
The credit loss allowance as at 31 December 2019 and as at 31 December 2018 is reported under IFRS 9 and is not comparable
to the information presented for 2017.
248
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
12. OTHER FINANCIAL ASSETS CONTINUED
Movements in the credit loss allowance of other financial assets during 2019 were as follows:
In thousands of GEL
Credit loss allowance as of 1 January 2019
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 2019
Receivables on
terminated leases
9,377
5,382
-
-
14,759
Other
18,717
(1,102)
(1,489)
(16)
16,110
Total
28,094
4,280
(1,489)
(16)
30,869
The credit loss allowance as at 31 December 2019 and as at 31 December 2018 is reported under IFRS 9 and is not comparable
to the information presented for 2017.
Movements in the provision for impairment 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 were 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 were included in insurance and reinsurance receivables.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
249
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
12. OTHER FINANCIAL ASSETS CONTINUED
As at 31 December 2019 and 2018, presentation of other financial assets gross carrying amount and credit loss allowance by
IFRS 9 stages is as follows:
Stage 1
(12-months
ECL)
126,785
Gross carrying amount
Stage 2
(lifetime
ECL for
SICR)
74
Stage 3
(lifetime ECL
for credit
impaired)
47,302
Stage 1
(12-months
ECL)
13,144
Total
174,161
Credit loss allowance
Stage 2
(lifetime
ECL for
SICR)
14
Stage 3
(lifetime ECL
for credit
impaired)
14,936
Total
28,094
In thousands of GEL
At 1 January 2019
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
Foreign exchange movements
At 31 December 2019
(21)
(55)
47
106,839
-
(115,851)
4,022
-
123
121,889
23
(15)
(47)
-
-
(11)
-
-
1
25
(2)
70
-
-
(4)
(1)
4
(15)
-
-
-
106,839
4
21,675
(4)
-
-
16
-
-
-
-
-
21,675
-
(30,852)
355
(1,489)
1,130
16,514
-
(146,714)
4,377
(1,489)
1,254
138,428
31
(16,642)
-
-
-
18,207
(6)
13
-
-
-
6
1,448
(2,255)
-
(1,489)
-
12,656
1,473
(18,884)
-
(1,489)
-
30,869
Gross carrying amount
Stage 2
(lifetime
ECL for
SICR)
174
-
174
Stage 3
(lifetime ECL
for credit
impaired)
33,099
-
33,099
Stage 1
(12-months
ECL)
115,149
-
115,149
In thousands of GEL
At 31 December 2017
IFRS 9 effect
At 1 January 2018
Transfers:
Credit loss allowance
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)
Total
8,920 18,020
1,019
9,112 19,039
192
- to lifetime (from Stage 1 and
Stage 3 to Stage 2)
- to credit-impaired (from Stage
(48)
1 and Stage 2 to Stage 3)
(5,013)
- 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
Foreign exchange movements
At 31 December 2018
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
7,062
(1,858)
-
(6,404)
219
14,936 28,094
250
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
12. OTHER FINANCIAL ASSETS CONTINUED
The credit quality of Other Financial Assets is as follows at 31 December 2019:
In thousands of GEL
Other Financial Assets 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)
121,589
219
81
-
-
121,889
(18,207)
103,682
1
1
23
-
-
25
(6)
19
-
-
-
-
16,514
16,514
(12,656)
3,858
The credit quality of Other Financial Assets is as follows at 31 December 2018
In thousands of GEL
Other Financial Assets 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)
126,540
238
7
-
-
126,785
(13,144)
113,641
18
39
17
-
-
74
(14)
60
-
-
-
-
47,302
47,302
(14,936)
32,366
Total
121,590
220
104
-
16,514
138,428
(30,869)
107,559
Total
126,558
277
24
-
47,302
174,161
(28,094)
146,067
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
251
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
12. OTHER FINANCIAL ASSETS CONTINUED
The table below illustrates the credit quality of other financial assets:
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
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-
B
Not rated
Total
252
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
31 December 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
2017
13,003
4,116
6,265
-
217
7
4,332
-
726
103,229
131,895
12. OTHER FINANCIAL ASSETS CONTINUED
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 1,531 thousand (2018: GEL 1,484 thousand; 2017: GEL 1,206 thousand). The remaining
assets are not collateralised.
13. NET INVESTMENTS IN LEASE
As of 31 December 2019 net investments in lease of GEL 256,660 thousand (2018: GEL 203,802 thousand; 2017: GEL 143,836
thousand) are represented by leases of fixed assets excluding land and buildings.
Finance lease payments receivable (gross investment in the leases) and their present values are as follows:
In thousands of GEL
Lease payments receivable as of 31 December 2019
Unearned finance income
Credit loss allowance
Present value of lease payments receivable as of 31 December 2019
Due in 1 year
147,959
(41,969)
(1,430)
104,560
Due between 1 and 5 years
193,143
(39,688)
(1,355)
152,100
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
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
122,056
(32,981)
(1,789)
87,286
86,186
(23,720)
(765)
61,701
148,623
(30,294)
(1,813)
116,516
105,595
(22,727)
(733)
82,135
Total
341,102
(81,657)
(2,785)
256,660
270,679
(63,275)
(3,602)
203,802
191,781
(46,447)
(1,498)
143,836
For fair values refer to Note 42.
The credit loss allowance as at 31 December 2019 and as at 31 December 2018 is reported under IFRS 9 and is not
comparable to the information presented for 2017. The table below illustrates the movements in the credit loss allowance of
net investment in lease:
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
253
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
13. NET INVESTMENTS IN LEASE CONTINUED
The following table discloses the changes in the credit loss allowance and gross carrying amount for net Investments in
lease between the beginning and the end of the reporting period:
At 31 December 2019
1,999
In thousands of GEL
At 1 January 2019
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 exchange
movements
Other movements
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 exchange
movements
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
2,045
205
1,352
3,602
178,171
10,861
18,372
207,404
(14)
14
-
-
(5,951)
6,598
(647)
(27)
(65)
92
-
(22,099)
(2,941)
25,040
1
1,319
(858)
-
(467)
-
-
(1)
89
(154)
-
8
-
-
96
-
-
4,968
(2,972)
(1,996)
81
1,489
138,634
18,663
5,836
163,133
(1,536)
-
701
(2,548)
-
242
(55,562)
(38,828)
-
-
-
-
-
2,622
3,660
(4,849)
(2,253)
-
170
522
(10,407)
(9,448)
-
(70,818)
(50,529)
-
1,022
2,259
3,814
6,441
690 2,785
205,615
23,799
30,031
259,445
-
-
-
Credit loss allowance
Gross carrying amount
Stage 1
(12-months
ECL)
Stage 2
(lifetime ECL
for SICR)
Stage 3
(lifetime ECL for
credit impaired
519
345
864
51
394
445
928
-
928
Stage 1
(12-months
ECL)
Stage 2
(lifetime ECL
for SICR)
Stage 3
(lifetime ECL for
credit impaired)
128,500
-
128,500
11,610
-
11,610
5,224
-
5,224
Total
1,498
739
2,237
Total
145,334
-
145,334
(9)
9
-
(367)
(20)
387
357
(357)
-
-
-
-
(3,996)
4,078
(82)
(10,605)
(4,533)
15,138
1,052
(1,033)
(19)
-
-
-
1,350
(103)
-
(47)
-
-
108
(81)
-
101
-
-
205
256
1,714
120,992
7,208
5,165
133,365
(717)
-
498
(901)
-
552
(36,040)
(24,985)
-
-
-
-
-
1,250
2,003
(5,372)
(1,468)
-
94
277
(3,541)
(4,887)
-
(44,953)
(31,340)
-
289
1,085
1,633
3,365
1,352
3,602
178,171
10,861
18,372
207,404
At 31 December 2018
2,045
254
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
13. NET INVESTMENTS IN LEASE CONTINUED
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 Group normally structures its finance lease contracts so that the lessee makes a minimum prepayment of 20% of the
equipment purchase price at the inception of the lease term. The Group holds title to the leased assets during the lease term.
The title to the asset under the finance lease contract is transferred to the lessees at the end of the contracts terms, including
full repayment of lease payments. Generally the lease terms are up to five years.
The amount and type of collateral required depends on an assessment of the credit risk of the counterparty. The main types
of collateral obtained are:
` Leased assets (inventory and equipment);
` Down payment;
` Real estate properties;
` Third party guarantees.
The financial effect of collateral is presented by disclosing the collateral values separately for (i) those assets where collateral
and other credit enhancements are equal to or exceed the assets’ carrying value(“over-collateralised assets”) and (ii) those
assets where collateral and other credit enhancements are less than the assets’ carrying value (“under-collateralised
assets”).
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.
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;
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.
The Group incorporates forward looking information (FLI) 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 Group 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 37 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 Group 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.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
255
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
13. NET INVESTMENTS IN LEASE CONTINUED
As at 31 December 2019, credit quality of net investment in lease is analysed below:
In thousands of GEL
Net Investments in 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)
175,468
30,147
-
-
-
205,615
(1,999)
203,616
-
13,688
6,361
3,750
-
23,799
(96)
23,703
-
-
-
-
30,031
30,031
(690)
29,341
As at 31 December 2018, credit quality of net investment in lease is analysed below:
In thousands of GEL
Net Investments in 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
Credit quality of net investment in lease as at 31 December 2017 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 days to 90 days overdue
Total past due but not impaired
impaired leases
- 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 lease
Impairment loss provision
Total net investment in lease
*Total impaired leases include both collectively and individually impaired leases
256
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
Total
175,468
43,835
6,361
3,750
30,031
259,445
(2,785)
256,660
Total
145,220
35,301
6,712
1,799
18,372
207,404
(3,602)
203,802
31 December 2017
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
13. NET INVESTMENTS IN LEASE CONTINUED
The effect of collateral as of 31 December 2019:
In thousands of GEL
Investment in leases
Total
Over-collateralised assets
Under-collateralised assets
Carrying value of
the assets
228,651
228,651
Fair value of
collateral
365,934
365,934
Carrying value
of the assets
30,794
30,794
Fair value of
collateral
22,292
22,292
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
collateral
34,527
34,527
The effect of collateral as of 31 December 2017:
In thousands of GEL
Investment in leases
Total
14. OTHER ASSETS
In thousands of GEL
Current other assets
Repossessed collateral
Prepayments for other assets
Prepayments for purchase of leasing assets
Other inventories
Prepaid taxes other than income tax
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
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
2019
152,109
33,664
31,426
6,965
2,890
227,054
6,968
6,321
190
10,401
2,876
1,902
28,658
255,712
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
Repossessed collateral represents real estate assets acquired by the Group in settlement of overdue loans. The Group
expects to dispose of the assets in the foreseeable future. The assets do not meet the definition of non-current assets held
for sale, and are classified as inventories in accordance with IAS 2 “Inventories”. The assets were initially recognised at fair
value when acquired. In 2019, collateral repossessed for settlement of impaired loans amounted to GEL 78.9 million (2018:
GEL 30million; 2017: GEL 53 million).
With regards to certain repossessed collateral, the Group has granted previous owners a right to repurchase the repossessed
collateral 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 24 months from the reporting date, during this time the repossessed collateral may not be
disposed to third parties. As of 31 December 2019, the carrying value of the repossessed collateral subjected to the repurchase
agreement was GEL 62,578 thousand (2018: GEL 44,024 thousand; 2017: GEL 11,170 thousand).
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
257
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
15. PREMISES, EQUIPMENT AND INTANGIBLE ASSETS
Land, Premises
and leasehold
improvements
Office and Other
equipment*
Construction in
progress
Total premises and
equipment
Intangible
Assets
Total
217,299
175,636
53,164
446,099
90,950
537,049
(30,349)
(101,718)
-
(132,067)
(29,993)
(162,060)
73,918
26,440
53,164
48,663
314,032
80,787
60,957
34,877
374,989
115,664
-
(11,326)
-
1,114
(11,962)
79
-
-
(88)
11
-
1,114
(12,050)
90
(782)
(25,663)
(1,916)
(10,436)
(2,698)
(36,099)
9,383
30
9,413
(75)
57
(18)
-
-
-
(46)
-
-
-
197,924
78,534
90,455
366,913
83,492
450,405
233,118
191,762
90,455
515,335
123,834
639,169
(35,194)
(113,228)
-
(148,422)
(40,342)
(188,764)
78,534
46,619
301
90,455
8,538
-
366,913
83,492
450,405
63,961
3,908
42,525
-
106,486
3,908
-
(2,661)
-
-
-
1,317
(32,628)
-
114
-
(4)
-
1,317
(32,628)
(27,105)
10,749
-
-
(603)
-
1,317
(32,628)
(27,708)
10,749
46
11
57
(499)
(28,302)
-
(16,257)
(499)
(44,559)
348
8,783
-
9,131
58
9,189
186,950
5,684
11,326
1,114
(2,324)
-
(9,638)
25
54
(6)
(5,567)
(730)
(20,096)
747
(25)
8,636
(50)
197,924
8,804
3,607
2,661
-
-
(4,160)
10,635
-
-
(22,945)
-
23
23
(474)
(5,754)
(21)
(22,548)
In thousands of GEL
Cost or valuation as of 1 January
2017
Accumulated depreciation/
amortisation Including
accumulated impairment loss
Carrying amount as of 1 January
2017
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
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
258
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
15. PREMISES, EQUIPMENT AND INTANGIBLE ASSETS CONTINUED
In thousands of GEL
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
Additions
Business combination
Transfers within premises and
equipment
Transfer from investment
property
Transfer to Financial leases or
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 2019
Cost or valuation as of 31
December 2019
Accumulated depreciation/
amortisation including
accumulated impairment loss
Carrying amount as of 31
December 2019
Land, Premises
and leasehold
improvements
Note
Office and Other
equipment*
Construction in
progress
Total premises and
equipment
Intangible
Assets
Total
(22)
35
-
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
4,359
1,027
3,597
-
45
17
88,781
27,862
857
36
-
65,131
24,946
-
(3,633)
367,504
57,167
1,884
109,220
70,319
4,782
476,724
127,486
6,666
1,817
1,817
-
-
-
-
1,817
-
(6,020)
(1,439)
(11,805)
-
(4,785)
(1,439)
(22,610)
-
(753)
(1,439)
(23,363)
48
-
75
44
(5,761)
(22,869)
1,582
8,393
(48)
(45)
-
(6)
-
-
-
123
38
23
-
146
38
(28,630)
(16,604)
(45,234)
9,975
635
10,610
(93)
(25)
(118)
212,376
89,890
83,470
385,736
167,597
553,333
257,340
232,071
83,470
572,881
240,468
813,349
(44,964)
(142,181)
-
(187,145)
(72,871)
(260,016)
212,376
89,890
83,470
385,736
167,597
553,333
*Office and other equipment include furniture and fixtures, computer and office equipment, motor vehicles as well as other equipment.
The 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.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
259
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
15. PREMISES, EQUIPMENT AND INTANGIBLE ASSETS CONTINUED
The management considers that the fair value has not changed significantly between 30 November 2018 and 31 December
2019. 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
98,737
Sales comparison
approach
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 2019 the carrying amount of premises would have been GEL 165,491 thousand (2018: GEL 166,707
thousand; 2017: GEL 144,778 thousand) had the assets been carried at cost less depreciation and impairment losses. At 31
December 2019 the carrying amount of construction in progress would have been GEL 60,581 thousand (2018: GEL 42,243
thousand; 2017: GEL 67,033 thousand) had the assets been carried at cost less impairment losses.
16. RIGHT OF USE ASSETS AND LEASE LIABILITIES
The Group leases offices, branches and service centers. Rental contracts are typically made for fixed periods of 1 to 15 years.
Until 31 December 2018 leases of premises were classified as operating leases. From 1 January 2019, leases are recognised
as a right-of-use asset and a corresponding liability from the date when the leased asset becomes available for use by the
Group.
The right of use assets by class of underlying items is analysed as follows:
In thousands of GEL
Carrying amount at 1 January 2019
Additions
Disposals
Depreciation charge
Carrying amount at 31 December 2019
Buildings
61,043
20,437
(8,476)
(13,311)
59,693
Total
61,043
20,437
(8,476)
(13,311)
59,693
Interest expense on lease liabilities was GEL 2,670 thousand.
Expenses relating to short-term leases (included in in administrative and other operating expenses) and to leases of low-
value assets that are not shown as short-term leases are included in in administrative and other operating expenses:
In thousands of GEL
Expense relating to short-term leases
Expense relating to leases of low-value assets that are not shown above as short-term leases
2019
7,388
6,154
Total cash outflow for leases in 2019 was GEL 16,066 thousand.
The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the
lessor. Leased assets may not be used as collateral for borrowings.
Extension and termination options are included in a number of property leases across the Group. These are used to
maximise operational flexibility in terms of managing the assets used in the Group’s operations. The majority of extension
and termination options held are exercisable only by the Group and not by the respective lessor.
260
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
17. 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 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
Effect of translation to presentation currency
Gross book value as of 31 December
Accumulated depreciation as of 31 December
Carrying amount as of 31 December
Note
15
45
2019
86,884
(2,588)
84,296
(1,817)
4,914
-
47
(13,507)
717
(933)
-
-
(1,050)
76,521
(3,854)
72,667
2018
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
As of 31 December 2019, investment properties comprised of 63 lots (2018: 73 lots; 2017: 102lots) of land and 111 buildings
(2018: 127 buildings; 2017: 144 buildings) located in Tbilisi and other regions of Georgia with the fair value amounting to GEL
123,325 thousand (2018: GEL 97,425 thousand; 2017: GEL 85,012 thousand).
For disclosure purposes a fair valuation exercise was carried out for investment properties as of 31 December 2019. The
valuation in 2019 and 2018 was carried out by external valuators (in 2017 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 2019
(valuation date)
60,946
62,379
Valuation technique
Sales comparison
approach
Sales comparison
approach
Unobservable
inputs
Price per
square meter
Price per
square meter
Range of unobservable
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
18. GOODWILL
2019
207
230
437
2018
185
-
185
Movements in goodwill arising on the acquisition of subsidiaries are:
In thousands of GEL
Carrying amount as of 1 January
Acquisition of subsidiaries
Carrying amount as of 31 December
Note
45
2019
31,286
30,272
61,558
2018
28,658
2,628
31,286
2017
177
-
177
2017
28,658
-
28,658
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
261
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
18. GOODWILL CONTINUED
Goodwill Impairment Test
Goodwill is allocated to cash-generating units (CGUs, which represent the lowest level within the Group at which the goodwill
is monitored by Management and which are not larger than a segment) as follows:
In thousands of GEL
JSC Bank Republic*
Bank Republic Retail
Bank Republic Corporate
Bank Republic MSME
Bank Republic Other
LLC Bonaco
JSC Swoop
CGU Micro
JSC United Financial Corporation
LLC TBC Kredit
JSC TBC Insurance
LLC Inspired (Note 45)
LLC F Solution LLC
LLC My.ge (Note 45)
LLC TKT.ge
Total carrying amount of goodwill
2019
24,166
11,088
7,491
4,791
796
2,567
61
769
695
1,262
1,766
14,015
270
15,812
175
61,558
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
*Due to the 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.
In thousands of GEL
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
LLC Bonaco
Growth rate beyond five years of Free Cash Flow to equity
Pre-tax discount rate
LLC My.ge
Growth rate beyond five years of Free Cash Flow to equity
Pre-tax discount rate
LLC Inspired
Growth rate beyond five years of Free Cash Flow to equity
Pre-tax discount rate
2019
2018
2017
4.64 p.a.
16.50% p.a.
4.64 p.a.
10.36 p.a.
4.64 p.a.
15.51% p.a.
2.7% p.a.
16.37% p.a.
4.64 p.a.
17.49% p.a.
4.64 p.a.
10.17% p.a.
4.64 p.a.
17.49% p.a.
5.5 p.a.
21.14% p.a.
5.54% p.a.
20.27% p.a.
4.17% p.a.
18.71% p.a.
5.54% p.a.
13.06% p.a.
4.17% p.a.
12.01% p.a.
5.54% p.a.
18.31% p.a.
4.17% p.a.
18.16% p.a.
1.3% p.a.
24.57% p.a.
1.3% p.a.
31.35% p.a.
5.54% p.a.
18.24% p.a.
4.17% p.a.
18.15% p.a.
-
-
-
-
-
-
-
-
-
-
-
-
**Assumptions related to JSC Bank Republic are similar for all related CGU’s.
262
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
18. GOODWILL CONTINUED
Goodwill Impairment Test (continued) The management determined the budgeted gross margin based on past performance
and its market expectations. The weighted average long term 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
goodwill or carrying value of net assets of the CGU. Recoverable amount of Bank Republic Retail CGU exceeds its carrying
amount by GEL 3,068,466 thousand (2018: 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 39.87% p.a. (2018: 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 2,316,056 thousand (2018: 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 36.34% p.a. (2018: 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 1,210,045 thousand (2018: 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 36.52% p.a. (2018: 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 (2018: nil; 2017: nil). Recoverable amount of CGU Micro/JSC
Bank Constanta CGU exceeds its carrying amount by GEL 732,567 thousand (2018: GEL 913,325 thousand; 2017: GEL 440,075
thousand). The CGU’s carrying amount would equal its value in use at a discount rate of 29.74% p.a. (2018: 48.53% p.a.; 2017:
34.60% 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 goodwill or carrying value of net assets of the CGU (. Recoverable amount of JSC United Financial Corporation CGU
exceeds its carrying amount by GEL 8,222 thousand (2018: GEL 13,458 thousand; 2017: GEL 17,866 thousand). The CGUs’
carrying amount would equal its value in use at a discount rate of 19.53% p.a. (2018: 29.8% p.a.; 2017: 39.27% 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 (2018:nil;
2017: nil). Recoverable amount of LLC TBC Kredit CGU exceeds its carrying amount by GEL 192,436 thousand (2018: GEL
277,830 thousand; 2017: GEL 36,420 thousand). The CGUs’ carrying amount would equal its value in use at a discount rate
134.64% of p.a.(2018: 132.34% p.a.; 2017: 119.51% 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 (2018: nil; 2017: nil). Recoverable amount of JSC TBC Insurance CGU
exceeds its carrying amount by GEL 142,799 thousand (2018: GEL 208,095 thousand; 2017: 51,549). The CGU’s carrying
amount would equal its value in use at a discount rate of 62.29% p.a. (2018: 111.71% 2017: 63.63%).
If the revised estimated pre-tax discount rate applied to the discounted cash flows of LLC Bonaco 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 (2018: nil; 2017: nil). Recoverable amount of LLC Bonaco CGU exceeds its carrying
amount by GEL 500,031thousand. The CGU’s carrying amount would equal its value in use at a discount rate of 49.45% p.a.
If the revised estimated pre-tax discount rate applied to the discounted cash flows of LLC My.ge 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 (2018: nil; 2017: nil). Recoverable amount of LLC My.ge CGU exceeds its carrying
amount by GEL 48,629 thousand. The CGU’s carrying amount would equal its value in use at a discount rate of 35.31% p.a..
If the revised estimated pre-tax discount rate applied to the discounted cash flows of LLC Inspired 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 (2018: nil; 2017: nil). Recoverable amount of LLC Inspired CGU exceeds its carrying
amount by GEL 22,965 thousand. The CGU’s carrying amount would equal its value in use at a discount rate of 37.65% p.a..
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
263
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
19. 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
2019
2018
2017
27,747
139,267
-
167,014
2,005,900
1,378,995
536
41,456
3,426,887
3,593,901
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
As of 31 December 2019 for the purposes of maturity analysis of financial liabilities (Note 37) the above-mentioned loans are
included within the amounts for which repayment is expected within 3 months.
20. 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
2019
2018
2017
616,397
298,177
3,151,507
310,558
2,712,910
2,959,775
10,049,324
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
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 2019
31 December 2018
31 December 2017
Amount
5,672,685
596,703
741,385
505,494
308,268
322,331
288,860
446,876
322,416
110,816
98,294
50,915
12,264
-
-
-
572,017
10,049,324
%
56%
6%
7%
5%
3%
3%
3%
5%
3%
1%
1%
1%
0%
0%
0%
0%
6%
100%
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%
264
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
20. CUSTOMER ACCOUNTS CONTINUED
As of 31 December 2019 the Group had 359 customers (2018: 305 customers; 2017: 261 customers) with balances above GEL
3,000 thousand. Their aggregate balance was GEL 4,327,035 thousand (2018: GEL 4,117,881 thousand; 2017: GEL 3,439,673
thousand) or 43% of total customer accounts (2018: 44%; 2017: 44%).
As of 31 December 2019 included in customer accounts are deposits of GEL 9,555 thousand and GEL 101,615 thousand (2018:
GEL 6,766 thousand and GEL 158,306 thousand; 2017: GEL 11,040 thousand and GEL 120,406 thousand) held as collateral
for irrevocable commitments under letters of credit and guarantees issued, respectively. Refer to Note 38. As of 31 December
2019, deposits held as collateral for loans to customers amounted to GEL 469,205 thousand (2018: GEL 270,787 thousand;
2017: 224,899 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.
21. DEBT SECURITIES IN ISSUE
In thousands of GEL
Bonds issued on Irish stock exchange
Bonds issued on Irish stock exchange
Total debt securities in issue
Currency
USD
USD
Carrying amount in GEL
as of 31 December 2019
842,471
371,127
1,213,598
In thousands of GEL
Bonds issued on Georgian stock exchange
Bonds issued on Georgian stock exchange
Total debt securities in issue
Currency
USD
USD
In thousands of GEL
Bonds issued on Georgian stock exchange
Bonds issued on Georgian stock exchange
Bonds issued on Georgian stock exchange
Total debt securities in issue
Currency
USD
USD
USD
Carrying amount in GEL
as of 31 December 2018
7,927
5,416
13,343
Carrying amount in GEL
as of 31 December 2017
7,637
5,224
7,834
20,695
Maturity Date
19-Jun-24
3-Oct-24
Coupon rate Effective interest rate
6.4%
11.4%
5.8%
10.8%
Maturity Date
22-Jul-19
16-May-19
Coupon rate Effective interest rate
8.1%
8.7%
7.3%
8.0%
Maturity Date
22-Jul-19
16-May-19
15-Aug-18
Coupon rate Effective interest rate
8.1%
8.7%
8.6%
7.3%
8.0%
7.8%
Refer to Note 42 for the disclosure of the fair value of debt securities in issue.
On 19 June 2019 the Bank completed the transaction of a debut USD 300 million 5-year 5.75% (6% yield)
senior unsecured bonds issue (the “Notes”). The Notes are listed on the regulated market of Euronext Dublin
and are rated Ba2 by Moody’s and BB- by Fitch. The Notes have been simultaneously listed on JSC Georgian
Stock Exchange, making it the first dual-listed international offering of senior unsecured Notes from Georgia.
On 3 July 2019 the Bank completed the transaction of a debut inaugural USD 125 million 10.75% yield Additional Tier 1
Capital Perpetual Subordinated Notes issue (“AT1 Notes”). The AT1 Notes are listed on the regulated market of Euronext
Dublin and are rated B- by Fitch. The AT1 Notes have been simultaneously listed on JSC Georgian Stock Exchange, making
it the first dual-listed international offering of additional Tier 1 Capital Notes from Georgia.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
265
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
22. 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 2017
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
Charges less releases recorded in profit or loss
Utilization of provision
Effect of translation to presentation currency
Carrying amount as of 31 December 2019
Performance
guarantees
2,635
(579)
-
11
2,067
684
2,751
1,640
2
4,393
3,069
-
4
7,466
Credit related
commitments
8,049
190
-
-
8,239
(4,661)
3,578
1,846
-
5,424
(913)
-
-
4,511
Other
5,342
(332)
(2,116)
-
2,894
-
2,894
6,056
-
8,950
3,305
(1,104)
-
11,151
Total
16,026
(721)
(2,116)
11
13,200
(3,977)
9,223
9,542
2
18,767
5,461
(1,104)
4
23,128
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 2,040 thousand (2018: GEL 1,486 thousand; 2017: GEL 1,621 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 842 thousand (2018: GEL 570 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
37 for the ECL measurement approach.
266
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
23. OTHER FINANCIAL LIABILITIES
Other financial liabilities comprise the following:
In thousands of GEL
Security deposits for net investments in lease
Trade payables
Derivative financial liabilities
Debit or credit card payables
Insurance Contracts Liabilities
Other accrued liabilities
Total other financial liabilities
Note
41
2019
27,094
23,687
20,161
13,259
7,613
21,794
113,608
2018
22,100
24,270
2,119
19,146
16,839
14,240
98,714
Refer to Note 42 for disclosure of the fair value of other financial liabilities.
24. OTHER LIABILITIES
Other financial 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 liabilities
2019
42,197
10,730
11,260
24,156
6,818
95,161
2018
48,393
19,477
10,867
17,911
7,689
104,337
2017
20,647
31,497
575
10,567
10,992
17,475
91,753
2017
42,497
14,180
10,350
14,221
3,192
84,440
All of the above liabilities are expected to be settled within twelve months after the year-end.
25. SUBORDINATED DEBT
As of 31 December 2019, subordinated debt comprised of:
In thousands of GEL
Kreditanstalt für Wiederaufbau Bankengruppe
Kreditanstalt für Wiederaufbau Bankengruppe
Green for Growth Fund
European Fund for Southeast Europe
European Fund for Southeast Europe
Asian Development Bank (ADB)
Private lenders
Subordinated Bond
Global climate partnership fund
ResponsAbility SICAV (Lux) Microfinance Leaders
ResponsAbility SICAV (Lux) Financial inclusion fund
ResponsAbility Micro and SME finance fund
BlueOrchard Microfinance Fund
BlueOrchard Microfinance Fund
European Fund for Southeast Europe
Total subordinated debt
Grant Date Maturity Date
8-May-21
10-Jun-14
8-May-21
4-May-15
18-Dec-25
18-Dec-15
18-Dec-25
18-Dec-15
15-Mar-26
15-Mar-16
18-Oct-26
18-Oct-16
19-Dec-24
8-Jun-17
30-Nov-22
17-Aug-18
20-Nov-28
20-Nov-18
30-Nov-28
30-Nov-18
30-Nov-28
30-Nov-18
30-Nov-28
30-Nov-18
14-Dec-25
14-Dec-18
14-Dec-28
14-Dec-18
21-Dec-28
21-Dec-18
Outstanding
amount in original
currency
6,162
6,739
15,305
7,663
7,662
50,585
25,218
10,101
25,089
1,006
3,117
5,935
14,924
14,920
20,074
Currency
GEL
GEL
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
Outstanding
amount in GEL
6,162
6,739
43,890
21,975
21,971
145,064
72,318
28,976
71,948
2,884
8,940
17,020
42,797
42,786
57,565
591,035
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
267
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
25. SUBORDINATED DEBT CONTINUED
As of 31 December 2018, subordinated debt comprised of:
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 Development Bank (ADB)
Private lenders
Subordinated Bond
Global climate partnership fund
ResponsAbility SICAV (Lux) Microfinance Leaders
ResponsAbility SICAV (Lux) Financial inclusion fund
ResponsAbility 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
31-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 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 Development 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
The debt ranks after all other creditors in case of liquidation.
Refer to Note 42 for the disclosure of the fair value of subordinated debt. Information on related party balances is disclosed
in Note 44.
268
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
26. SHARE CAPITAL
In thousands of GEL except for number of shares
As of 1 January 2017
Shares issued
Scrip dividend issued
Share exchange
As of 31 December 2017
Shares issued
Scrip dividend issued
Share exchange
As of 31 December 2018
Shares issued
Scrip dividend issued
As of 31 December 2019
Number of
ordinary shares
52,166,703
516,140
146,903
102,121
52,931,867
618,640
58,762
635,060
54,244,329
615,175
296,392
55,155,896
Share capital
1,581
16
5
3
1,605
21
2
22
1,650
22
10
1,682
As of 31 December 2019 the total authorised number of ordinary shares was 55,155,896 shares (31 December 2018:
54,244,329 shares; 31 December 2017: 52,931,867 shares). Each share has a nominal value of one British Penny. All issued
ordinary shares are fully paid and entitled to dividends.
Shares are held by employee benefit trust (EBT) for the purpose of future employee share based payments plan. The number
of shares held by trust as at 31 December 2019 comprised 595,380. The EBT has waived its rights to receive dividends on
such shares.
On 21 March 2019, 615,175 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 the TBC PLC group long term incentive plan
and rank pari passu in all respects with TBC PLC’s existing ordinary shares.
On 24 June 2019, at the Annual General Meeting, TBC Bank Group PLC’s shareholders agreed on a dividend of GEL 1.98
per share, based on the 2018 audited financial statements. The dividend was recorded respectively and on 12 July 2019
shareholders received the payment of the total GEL 91,926 dividends. Scrip dividend shares amounted to 296,392 and were
issued on 12th of July.
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 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 8 March 2018, 618,640 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 the TBC PLC group long term incentive plan
and rank pari passu in all respects with TBC PLC’s existing ordinary shares.
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 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.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
269
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
27. SHARE BASED PAYMENTS
June 2015 arrangement:
In June 2015, the Bank’s Supervisory Board approved management compensation scheme for the top and middle management
and it accordingly authorised the issue of a maximum 3,115,890 new shares. The system was enforced from 2015 through
2018. According to the scheme, each year, subject to predefined performance conditions, a certain number of shares were
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 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 also received the
fixed number of shares. Once awarded, all shares carry service conditions and, before those conditions are met, are eligible
to dividends; however they 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 are 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 were 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 remained
conceptually the same and was only updated to reflect the Group’s new structure, whereby TBC Bank Group PLC distributes
its shares to the scheme’s participants, instead of JSC TBC Bank. The respective shares’ value is recharged to JSC TBC Bank.
As a result, the accounting of the scheme did not change in the consolidated financial statements.
The Bank also payed personal income tax on behalf of equity settled scheme beneficiaries, which was accounted as cash
settled part.
The share based payment scheme for middle management and other eligible employees continues under existing terms for
2019-2020.
December 2018 arrangements:
The new compensation system was approved by shareholders at the AGM on 21 May 2018 and came into effect on 1 January
2019. On 28 December 2018, the Board of Directors approved following new compensation schemes for the top management
and group considers that as a grant date. Arrangements are discussed in below paragraphs:
Deferred share salary plan
Part of the top management 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. The new system is
enforced from January 2019 through 2021. 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.
Where applicable, deferred share salary is 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 a directors’ service contracts with the
Group. 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).
The number of shares is calculated based on the average share price of the last 10 days preceding the committee decision
date. The bank pays income tax and other employee-related taxes related to the award, however, taxes are included in the
maximum amounts.
270
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
27. SHARE BASED PAYMENTS CONTINUED
Deferred Bonus plan
The annual bonus for the top management is determined as to the extent that the annual KPIs have been met. The new
system is enforced from January 2019 through 2021. Shares are usually delivered during the first quarter of the second year
(i.e. the year after the work is performed) and the exact date is determined by the remuneration committee. Once shares are
delivered, they remain subject to continued employment; 50% of the shares for 1 year and the other 50% for 2 years from
the delivery date. Upon the delivery, whilst the shares remain subject to the continued employment condition the shares are
registered in the trustees name as the nominee for the participants and the participants are entitled to receive dividends.
KPIs are set by the Remuneration Committee at the beginning of each year in relation to that year. 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. 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).
The number of shares is calculated based on the average share price of the last 10 days preceding the committee decision
date. The bank pays income tax and other employee-related taxes related to the award, however, taxes are included in the
maximum amounts.
Long Term Incentive Plan (LTIP)
Long term incentive plan is used to provide a strong motivational tool to achieve long term performance conditions and to provide
rewards to the extent those performance conditions are achieved. 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.
The new system will be enforced from 2021 through 2023. Shares 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. An award holder shall
have no voting rights, or rights to receive dividends, in respect of a conditional share award before such award becomes a vested
award. 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. 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.
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 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 tax and other employee-related taxes
related to the award, however, taxes are included in the maximum amounts.
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: 1) a measure of efficiency (e.g. ROE) 2) a measure of share price performance
(e.g. EPS/TSR) 3) a measure of customer experience Weightings of these measures may vary year-on-year.The performance
period is three year.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
271
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
27. SHARE BASED PAYMENTS CONTINUED
Tabular information on both of the schemes is given below:
In GEL except for number of shares
Number of unvested shares at the beginning of the period
Number of shares granted
Change in estimates of number of shares
expected to be granted**
Change in estimate of number of shares expected to vest based on
performance conditions
Number of shares vested
Number of unvested shares at the end of the period
Value at grant date per share according to
June 2015 scheme (GEL)
Value at grant date per share (GEL) middle management and other
eligible employees plan
Value at grant date per share (GEL) Deferred share salary plan
Value at grant date per share (GEL) Deferred bonus plan
Value at grant date per share (GEL) LTIP*
Expense on equity-settled part (GEL thousand)
Expense on cash-settled part (GEL thousand)
Expense recognised as staff cost during the period (GEL thousand)
31 December 2019
2,121,129
1,613,101
31 December 2018
2,284,773
-
31 December 2017
2,622,707
-
(57,058)
(16,501)
(519,130)
3,141,541
24.64
50.16
50.16
50.16
50.16
33,798
59
33,857
-
-
166,377
(330,021)
2,121,129
(13,100)
(324,834)
2,284,773
24.64
-
-
-
-
11,668
8,424
20,092
24.64
-
-
-
-
10,543
5,119
15,662
*Grant date for LTIP plan has been determined for the first award tranche only, which is planned in 2021. For remaining tranches
expense is accrued based on estimated fair value during the future grant date.
** The maximum amount is fixed for deferred share compensation for top management, the exact number will be calculated as per
policy.
Liability in respect of the cash-settled part of the award amounted to GEL 3,160 thousand as of 31 December 2019 (31
December 2018: GEL 11,001 thousand; 31 December 2017: GEL 12,675 thousand). Tax part of the new bonus system for
the top management is accounted under equity settled basis.
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 2019 based on level of achievement of key performance indicators the management has reassessed
the number of shares that will have to be issued to the participants of the share based payment system and decreased
estimated number of shares to vest by 16,501 (31 December 2018: increased by 166,377 shares; 31 December 2017:
decreased by 13,100 shares).
In 2019 the Group established employee benefit trust (EBT) set up Executive Equity Compensation Trustee – Sanne
Fiduciary Services Limited (the “Trustee”) which acts as the trustee of the Group’s share based payments plan. It
purchases Group’s shares from the open market and holds them before they are awarded to participants and vesting
date is due. The number of shares to be purchased and held are instructed by the Group. The shares are presented as
treasury shares under Shares held by trust category in the Statement of Financial Position until they are awarded to
participants. As at 31 December 2019 the share number held by Trustee was 595,380.
272
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
28. 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)
2019
2018
2017
537,895
54,684,038
435,080
53,906,472
354,410
52,685,702
9.8
8.1
6.7
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)
2019
2018
2017
537,895
435,080
354,410
55,129,444
54,415,642
53,480,632
9.8
8.0
6.6
29. SEGMENT ANALYSIS
The Board of Directors 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 2019 the Group made the re-segmentation after which some of the clients
were reallocated to different segments – GEL 166 million of loans and customers amount was transferred from MSME to
Corporate segment. In the tables below is disclosed the information as of 31 December 2019 both with and without re-
segmentation effect.
The operating segments in 2019 and 2018 are 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; all individual customers are included in retail deposits;
` MSME – Business customers who are not included in either corporate 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 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.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
273
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
29. SEGMENT ANALYSIS CONTINUED
No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Group’s total
revenue in 2019, 2018 or 2017.
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 37.
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 2019, 2018 and 2017 is provided below:
Per new segmentation:
Inter-segment interest income(expense)
In thousands of GEL
31 December 2019
Interest income
-
-
interest expense
- Net gains on currency swaps
-
Net interest income
- Fee and commission income
- Fee and commission expense
Net Fee and commission income
-
- Net gains from trading in foreign currencies
- Net gains from foreign exchange translation
- Net losses from derivative financial instruments
- Gains less losses from disposal of
Insurance Profit
investment securities measured at FVOCI
- 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
net investments in lease
- Credit loss allowance for other financial assets
- Credit loss allowance for financial assets
measured at FVOCI
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
-
- Profit for the year
Income tax (expense)/credit
Total gross loans and advances
to customers reported
Total customer accounts reported
Total credit related commitments
and performance guarantees
274
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
Corporate
Retail
Micro, small and
medium enterprises
Corporate centre and
other operations
Total
356,652
(160,064)
-
31,352
227,940
49,338
(7,069)
42,269
-
49,851
-
-
-
2,953
-
52,804
3,261
582,788
(152,751)
-
(66,951)
363,086
207,258
(88,679)
118,579
-
30,990
-
(264)
-
9,563
-
40,289
(77,323)
(2,691)
411
-
2,211
(141)
325,653
(38,360)
(2,571)
-
(17,127)
(58,058)
267,595
(29,048)
238,547
-
(3,545)
-
441,497
(134,143)
(45,522)
-
(77,563)
(257,228)
184,269
(18,101)
166,168
299,451
(10,202)
-
(101,424)
187,825
26,271
(9,081)
17,190
-
24,220
-
-
-
1,093
-
25,313
(7,968)
124
-
(11)
-
222,473
(48,018)
(7,210)
-
(21,094)
(76,322)
146,151
(14,825)
131,326
197,952
(340,843)
28,556
137,023
22,688
10,564
(1,312)
9,252
18,510
(25,782)
22,188
(16)
169
5,307
632
21,008
-
1,436,843
(663,860)
28,556
-
801,539
293,431
(106,141)
187,290
18,510
79,279
22,188
(280)
169
18,916
632
139,414
(82,030)
-
(2,156)
582
(6,753)
582
(8,098)
(149)
(290)
46,628
(27,282)
(4,175)
(1,264)
(26,397)
(59,118)
(12,490)
16,790
4,300
1,036,251
(247,803)
(59,478)
(1,264)
(142,181)
(450,726)
585,525
(45,184)
540,341
4,660,473
3,187,319
5,053,203
5,673,917
2,948,279
1,188,088
- 12,661,955
- 10,049,324
2,451,769
205,433
302,648
-
2,959,850
29. SEGMENT ANALYSIS CONTINUED
Per old segmentation:
Inter-segment interest income(expense)
In thousands of GEL
31 December 2019
Interest income
-
-
interest expense
- Net gains on currency swaps
-
Net interest income
- Fee and commission income
- Fee and commission expense
Net Fee and commission income
-
- 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
Insurance Profit
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 net
investments in 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
344,107
(159,088)
-
31,352
216,371
48,516
(7,069)
41,447
-
51,671
-
-
582,788
(152,751)
-
(66,951)
363,086
207,258
(88,679)
118,579
-
30,990
-
(264)
-
2,953
-
54,624
3,261
-
9,563
-
40,289
(77,323)
(2,691)
411
-
2,211
(141)
-
(3,545)
-
315,082
(38,471)
(2,571)
-
(17,313)
(58,355)
256,727
(29,020)
227,707
441,497
(135,842)
(45,522)
-
(83,486)
(264,850)
176,647
(17,371)
159,276
311,996
(11,178)
-
(101,424)
199,394
27,093
(9,081)
18,012
-
22,400
-
-
-
1,093
-
23,493
(7,968)
124
-
(11)
-
233,044
(48,546)
(7,210)
-
(22,993)
(78,749)
154,295
(14,593)
139,702
197,952
(340,843)
28,556
137,023
22,688
10,564
(1,312)
9,252
18,510
(25,782)
22,188
(16)
1,436,843
(663,860)
28,556
-
801,539
293,431
(106,141)
187,290
18,510
79,279
22,188
(280)
169
5,307
632
21,008
-
169
18,916
632
139,414
(82,030)
-
(2,156)
582
(6,753)
582
(8,098)
(149)
(290)
46,628
(24,944)
(4,175)
(1,264)
(18,389)
(48,772)
(2,144)
15,800
13,656
1,036,251
(247,803)
(59,478)
(1,264)
(142,181)
(450,726)
585,525
(45,184)
540,341
4,494,349
3,100,953
5,053,203
5,672,602
3,114,403
1,275,769
- 12,661,955
- 10,049,324
2,451,769
205,433
302,648
-
2,959,850
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
275
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
29. 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
-
- Net gains/(losses) from trading in foreign
Insurance Profit
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
- 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
net investments in lease
- Credit loss allowance for other financial assets
- Credit loss allowance for financial assets
measured a fair value through other
comprehensive income
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
-
- Profit for the year
Income tax expense
Total gross loans and advances
to customers reported
Total customer accounts reported
Corporate
Retail
Micro, small and
medium enterprises
Corporate centre and
other operations
Total
264,559
(133,302)
35,531
166,788
40,667
(6,661)
34,006
-
609,989
(123,729)
(78,453)
407,807
170,082
(64,270)
105,812
-
44,629
-
28,811
-
255,833
(9,710)
(83,475)
162,648
22,498
(6,861)
15,637
-
22,002
-
153,854
(239,472)
126,397
40,779
2,454
(379)
2,075
12,275
1,284,235
(506,213)
-
778,022
235,701
(78,171)
157,530
12,275
(3,764)
15,196
91,678
15,196
-
(223)
-
396
173
-
19,691
-
64,320
(9,826)
-
8,658
-
37,246
(118,043)
(2,827)
(412)
-
(8,634)
-
(3,959)
(95)
-
243,732
(30,266)
(2,226)
-
(12,616)
(45,108)
198,624
(29,907)
168,717
428,451
(128,957)
(36,745)
-
(90,329)
(256,031)
172,420
(22,898)
149,522
-
748
-
22,750
(15,854)
(247)
-
(2)
-
184,932
(43,385)
(4,980)
-
(21,184)
(69,549)
115,383
(17,250)
98,133
2
2,341
1,154
27,600
-
2
31,438
1,154
151,916
(143,723)
(570)
(4,056)
(1,765)
(4,014)
(1,765)
(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
3,177,289
3,230,653
4,698,699
5,103,971
2,496,594
1,017,518
- 10,372,582
9,352,142
-
276
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
29. 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
-
- Net gains/(losses) from trading in foreign
Insurance Profit
currencies
- Net gains 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 net investments in
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/(loss) before tax
Income tax (expense)/credit
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
(103,707)
22,489
121,864
30,037
(6,942)
23,095
-
38,885
-
-
-
13,465
-
52,350
27,031
183
-
535,851
(118,516)
(73,141)
344,194
140,582
(51,199)
89,383
-
22,597
-
-
-
12,670
-
35,267
(106,579)
(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
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
2,475,392
2,410,862
4,233,153
4,378,265
1,844,672
1,027,690
1,160,517
229,178
199,662
110,998
(196,040)
102,140
17,098
2,990
(893)
2,097
6,773
1,033,939
(429,924)
-
604,015
193,944
(67,983)
125,961
6,773
(1,268)
4,374
(36)
93
3,936
909
14,781
-
(542)
(492)
87,099
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
In thousands of GEL
31 December 2019
- 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
Total
49,338
2,952
52,290
207,258
9,563
216,821
52,262
28
215,341
1,480
26,271
1,093
27,364
27,359
5
10,564
5,308
15,872
293,431
18,916
312,347
15,872
-
310,834
1,513
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
277
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
29. 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
Total
40,667
19,691
60,358
56,397
3,961
170,082
8,658
178,740
160,555
18,185
22,498
748
23,246
22,950
296
2,454
2,341
4,795
4,790
5
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
Net investments in leases
Other assets
Premises and equipment
Intangible assets
Investment properties
Goodwill
Right of use assets (Net)
Investments in Associates
Total assets per statement of financial position
31 December 2019
12,661,955
(312,556)
1,003,583
1,591,829
33,605
31 December 2018
10,372,582
(334,130)
1,166,911
1,422,809
47,316
31 December 2017
8,553,217
(227,864)
1,431,477
1,033,818
39,643
985,293
-
1,022,684
25,695
2,173
133,736
256,660
255,712
385,736
167,597
72,667
61,558
59,693
2,654
18,410,274
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
-
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
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 2019
10,049,324
3,593,901
1,213,598
1,634
21,331
23,128
173,506
95,161
591,035
15,762,618
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
278
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
30. INTEREST INCOME AND EXPENSE
In thousands of GEL
2019
2018
2017
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 financial assets
Other interest income
Investments in leases
Total interest income
Interest expense
Customer accounts
Due to credit institutions
Subordinated debt
Debt securities in issue
Other interest expense
Lease liabilities
Other
Total interest expense
Net gains on currency swaps
Net interest income
1,225,196
58,682
-
74,043
29,570
1,418
47,934
1,436,843
320,379
226,899
63,693
50,248
2,670
(29)
663,860
28,556
801,539
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
In the year ended 31 December 2019 the interest accrued on impaired loans amounted to GEL 14,372 thousand (2018: 41,373
thousand; 2017: 16,332 thousand).
In 2019, the Group entered into swap agreements denominated in foreign currencies in order to decrease its cost of funding.
As the contracts reached significant volume, the Group revisited the presentation of effects in the Statement of profit or loss.
2018 information has not been restated due to immateriality of amounts.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
279
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
31. FEE AND COMMISSION INCOME AND EXPENSE
In thousands of GEL
Fee and commission income
Fee and commission income in respect of financial instruments
not at fair value through profit or loss:
- Card operations
- Settlement transactions
- 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 letters of credit received
- Self-service and point of service (POS) terminal transactions
- Other
Total fee and commission expense
Net fee and commission income
32. OTHER OPERATING INCOME
In thousands of GEL
Gain from sale of investment properties
Revenues from operational leasing
Warrant option
Gain from sale 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
Other
Total other operating income
2019
2018
2017
138,620
86,967
28,701
13,211
5,215
2,841
17,876
293,431
82,583
13,739
4,732
3,627
31
1,429
106,141
187,290
2019
938
3,046
-
2,755
926
344
2,440
-
-
-
8,467
18,916
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
2018
9,781
6,544
2,677
2,577
1,715
683
352
225
-
-
6,884
31,438
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
2017
4,353
6,544
-
2,383
1,093
1,408
1,017
4,090
2,486
2,077
6,346
31,797
Revenue from operational leasing is wholly attributable to investment properties. The carrying value of the repossessed
collateral disposed in the year ended 31 December 2019 was GEL 32,306 thousand (2018: GEL 33,295 thousand; 2017: GEL
24,284 thousand).
280
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
33. STAFF COSTS
In thousands of GEL
Salaries and bonuses
Share based compensation
Other compensation cost
Salaries and other employee benefits
2019
201,344
33,857
12,602
247,803
2018
190,304
20,092
9,958
220,354
2017
182,784
15,662
4,654
203,100
In 2019 the monthly average number of persons employed by the Group was 7,262 people (2018: 7,170; 2017: 6,993).
Breakdown of monthly average number of employees by categories is as follows:
In thousands of GEL
Headquarters*
Branches*
Other administrative staff **
2019
2,924
3,638
700
2018
2,837
3,824
509
2017
2,788
3,773
432
* Under monthly average number of employees in headquarters and branches employees in JSC TBC Bank, JSC Bank
Republic, JSC TBC Insurance, Bank Constanta JSC and LLC TBC Kredit’s are considered.
** Employees from other subsidiaries are considered under other administrative staff.
In 2019 monthly average number of employees in TBC PLC was 10 individuals (2018: 10; 2017: 10).
34. 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
Write down of current assets to fair value less cost to sell
Reversal of previously written-down current assets
to fair value less costs to sell
Other
Total administrative and other operating expenses
2019
22,634
13,541
25,865
12,885
6,962
6,874
9,828
5,960
5,167
1,660
2,612
2,140
2,035
3,120
1,990
938
1,310
-
2,545
(815)
14,930
142,181
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
567
(1,593)
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
2
(540)
15,501
121,530
*2019 information is reported under IFRS 16 and is not comparable with information presented for 2018 and 2017, which
irs reported under IAS 17.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
281
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
34. ADMINISTRATIVE AND OTHER OPERATING EXPENSES CONTINUED
Auditors’ remuneration is included within professional services expenses above and comprises:
In thousands of GEL
2019
Fees payable to the company’s auditors and its associates for the audit of
parent company and consolidated financial statements
Audit of the financial statements of the company’s subsidiaries
Audit-related assurance services
Other assurance services
Total auditors’ remuneration
2018
Fees payable to the company’s auditors and its associates for the audit of
parent company and consolidated financial statements
Audit of the financial statements of the company’s subsidiaries
Audit-related assurance services
Other assurance services
Total auditors’ remuneration
2017
Fees payable to the company’s auditors and its associates for the audit of
parent company and consolidated financial statements
Audit of the financial statements of the company’s subsidiaries
Audit-related assurance services
Other assurance services
Total auditors’ remuneration
Audit Audit Related
Other Services
Total
1,427
248
-
-
1,675
1,894
241
-
-
2,135
1,145
296
-
-
1,441
-
-
561
-
561
-
-
310
-
310
-
-
213
-
213
-
-
-
864
864
-
-
-
97
97
-
-
-
196
196
1,427
248
561
864
3,100
1,894
241
310
97
2,542
1,145
296
213
196
1,850
Fees presented in the tables above are exclusive of taxes. As of 31 December 2019, GEL 1,125 thousands is attributable to
reporting accountant fees related to listing of debt securities on the Irish stock exchange.
35. INCOME TAXES
Income tax expenses comprises of the following:
In thousands of GEL
Current tax charge
Deferred tax (credit)/charge
Total income tax expense for the year
2019
46,166
(982)
45,184
2018
52,914
19,851
72,765
2017
39,313
(4,563)
34,750
The income tax rate applicable to the majority of the Group’s income was 15% (2018: 15%; 2017: 15%). The income tax rate
applicable to the majority of subsidiaries income ranged from 15% to 20% (2018: 15% - 20%; 2017: 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
(2019: 15%-20%; 2018: 15%-20%; 2017: 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
Total income tax expense for the year
282
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
2019
585,525
2018
510,200
2017
394,678
87,829
76,500
59,119
(19,318)
(2,083)
(20,757)
(487)
45,184
(16,869)
(746)
13,833
47
72,765
(12,958)
(117)
(11,794)
500
34,750
35. INCOME TAXES CONTINUED
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%
(2018: 15%; 2017: 15%) for Georgia and 20% for Azerbaijan and United Kingdom (2018: 20%; 2017: 20%).
Income which is exempt from taxation includes interest income from placements in NBG, Georgian government Treasury
bills and IFI securities. Non-deductible expenses include penalties paid and charity expenses towards beneficiary which are
not registered charity organizations.
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.
As of 31 December 2019, deferred tax assets/liabilities are re-measured to the amounts that are estimated to be utilized in
the period from 1 January 2020 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
Due to credit institutions
Subordinated debt
Other financial liabilities
Other liabilities
Share based payment
Net deferred tax asset/(liability)
Recognised deferred tax asset
Recognised deferred tax liability
Net deferred tax asset/(liability)
1 January 2019
(Credited)/
Charged to
profit or loss
Charged directly to
other comprehensive
income
31 December 2019
(23,202)
2,866
2,421
(3,641)
(70)
(41)
864
663
(20,140)
2,097
(22,237)
(20,140)
9,386
(11,688)
2,300
1,155
70
833
(2,664)
1,590
982
76
906
982
-
-
-
-
-
-
-
-
-
-
-
-
(13,816)
(8,822)
4,721
(2,486)
-
792
(1,800)
2,253
(19,158)
2,173
(21,331)
(19,158)
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
283
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
35. INCOME TAXES CONTINUED
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 AFS
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)
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
(Credited)/
Charged 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
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.
284
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
36. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES
The table below sets out movements in the Group’s liabilities from financing activities for each of the periods presented. The
items of these liabilities are those that are reported as financing activities in the statement of cash flows.
In thousands of GEL
Liabilities from financing activities
at 1 January 2017
Cash flows
Foreign exchange adjustments
Other non-cash movements
Liabilities from financing activities
at 1 January 2018
Cash flows
Foreign exchange adjustments
Other non-cash movements
Liabilities from financing activities
at 31 December 2018
Adoption of IFRS 16, Leases
Liabilities from financing activities
at 1 January 2019
Cash flows
Foreign exchange adjustments
Other non-cash movements
Liabilities from financing activities
at 31 December 2019
Other
borrowed funds
Debt
Securities in Issue
Subordinated
debt
Lease
liabilities
Liabilities from financing activities
1,880,670
519,289
(13,266)
147,803
2,534,496
79,390
70,883
187,300
2,872,069
-
2,872,069
222,395
122,591
209,832
23,508
(3,251)
(1,505)
1,943
20,695
(9,308)
554
1,402
13,343
-
13,343
1,160,729
37,362
2,164
368,381
22,837
(765)
36,335
426,788
171,781
9,958
42,392
650,919
-
650,919
(167,847)
45,533
62,430
-
-
-
-
-
-
-
-
-
61,043
61,043
(21,417)
4,108
16,164
Total
2,272,559
538,875
(15,536)
186,081
2,981,979
241,863
81,395
231,094
3,536,331
61,043
3,597,374
1,193,860
209,594
290,590
3,426,887
1,213,598
591,035
59,898
5,291,418
37. 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.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
285
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
37. FINANCIAL AND OTHER RISK MANAGEMENT CONTINUED
Both the Supervisory Board and the management Board have established dedicated risk committees. Risk, Ethics and
Compliance Committee of Supervisory Board approves Bank’s Risk Appetite, supervises risk profile and risk governance
practice within the Bank while Audit Committee is responsible for implementation of key accounting policies and facilitation
of activities of internal and external auditors. Management Board Risk Committee is established to guide group-wide risk
management activities and monitor major risk trends to make sure risk profile complies with the established Risk Appetite
of the Group. Operational Risk Committee makes decisions related to operational risk governance while Asset-Liability
Management Committee (“ALCO”) is responsible for implementation of ALM policies.
The Board, the Supervisory Board and Senior Management govern risk objectives through Risk Appetite Statement (“RAS”)
which sets desired risk profile and respective risk limits for different economic environments. Risk Appetite (“RA”) establishes
monitoring and reporting responsibilities as well as escalation paths for different trigger events and limit breaches which as well
prompt risk teams to establish and implement agreed mitigation actions. In order to effectively implement Risk Appetite in the
Group’s day-to-day operations, the RA metrics are cascaded into more granular business unit level limits. That way risk allocation
is established across different segments and activities. The Board level oversight coupled with the permanent involvement of
the Senior Management in TBC Group risk management ensures the clarity regarding risk objectives, intense monitoring of risk
profile against risk appetite, prompt escalation of risk-related concerns and establishment of remediation actions.
The daily management of individual risks is based on the principle of the three lines of defense. While business lines are
primary risk owners, risk teams assume the function of the second line defense. This role is performed through sanctioning
transactions as well as tools and techniques for risk identification, analysis, measurement, monitoring and reporting. The
committees are established at operational levels in charge of making transaction-level decisions that comprise of component
of clear and sophisticated delegations of the authority framework based on “four-eye principle”. All new products/projects go
through the risk teams to assure risks are analyzed comprehensively.
Such control arrangements guarantee that the Bank takes informed risk-taking decisions that are adequately priced, avoiding
taking risks that are beyond the Group’s established threshold. Within the Risk Organization the below teams manage the
credit, liquidity, market, operational and other non-financial risks:
` Enterprise Risk Management (ERM);
` Credit Risk Management;
` Underwriting (Credit sanctioning);
` Restructuring and Collections;
` Financial Risk Management;
` Operational Risk Management.
The strong and independent structure enables 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.
286
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
37. FINANCIAL AND OTHER RISK MANAGEMENT CONTINUED
Credit risk. The Group is exposed to credit risk, which is the risk that a customer or counterparty will be unable to meet its
obligation to settle outstanding amounts. The Group’s exposure to credit risk arises as a result of its lending operations and
other transactions with counterparties giving rise to financial assets. Maximum exposure to credit risk of on-balance sheet
items equals their carrying values. For maximum exposure on off-balance sheet commitments refer to Note 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.
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.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
287
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
37. FINANCIAL AND OTHER RISK MANAGEMENT CONTINUED
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.
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, and
` Default – exposures in default, with observed credit impairment.
288
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
37. FINANCIAL AND OTHER RISK MANAGEMENT CONTINUED
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. 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 assesses 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.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
289
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
37. FINANCIAL AND OTHER RISK MANAGEMENT CONTINUED
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:
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
290
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
37. FINANCIAL AND OTHER RISK MANAGEMENT CONTINUED
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.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
291
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
37. FINANCIAL AND OTHER RISK MANAGEMENT CONTINUED
The geographical concentration of the Group’s assets and liabilities as of 31 December 2019 is set out below:
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 measured
at fair value through OC
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
Lease liabilities
Subordinated debt
Total financial liabilities
Non-financial liabilities
Total liabilities
Net balance sheet position
Performance guarantees
Credit related commitments
Georgia
OECD
Non-OECD
Total
701,993
21,538
1,591,829
11,775,027
985,293
1,022,684
255,596
132,060
16,486,020
1,029,732
17,515,752
1,813,684
8,406,484
1,213,598
113,271
59,898
100,993
11,707,928
135,131
11,843,059
5,672,693
603,910
1,485,032
287,079
12,067
-
408,217
-
-
-
1,431
708,794
28
708,822
1,744,130
733,778
-
329
-
343,861
2,822,098
829
2,822,927
(2,114,105)
232,328
4,476
14,511
-
1,003,583
33,605
-
166,155
1,591,829
12,349,399
-
-
1,064
245
181,975
3,725
185,700
36,087
909,062
-
8
-
146,181
1,091,338
5,294
1,096,632
(910,932)
622,646
11,459
985,293
1,022,684
256,660
133,736
17,376,789
1,033,485
18,410,274
3,593,901
10,049,324
1,213,598
113,608
59,898
591,035
15,621,364
141,254
15,762,618
2,647,656
1,458,884
1,500,967
Table above includes geographical concentration by country of incorporation. Loans and advances to OECD and Non-OECD
resident customers, as well as to Georgian customers, are issued to the entities most of which are based and performing in
Georgia. As at 31 December 2019, out of total net exposure of loans and advances to customers, GEL 12,330,467 thousand is
issued to the entities operating in Georgian market, GEL 18,932 thousand operating in other economies.
292
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
37. 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
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
Georgia
OECD
Non-OECD
Total
650,575
28,418
1,422,809
9,526,939
1,004,564
654,203
202,850
166,899
13,657,257
788,042
14,445,299
1,154,327
7,790,236
7,927
98,379
94,264
9,145,133
144,386
9,289,519
5,155,780
684,810
870,446
515,159
12,852
-
121,713
-
-
-
329
650,053
55
650,108
1,811,299
697,753
-
296
420,031
2,929,379
525
2,929,904
(2,279,796)
291,795
3,751
1,177
6,046
-
389,800
675
-
952
290
398,940
3,646
402,586
65,877
864,153
5,416
39
136,624
1,072,109
493
1,072,602
(670,016)
219,207
1,638
1,166,911
47,316
1,422,809
10,038,452
1,005,239
654,203
203,802
167,518
14,706,250
791,743
15,497,993
3,031,503
9,352,142
13,343
98,714
650,919
13,146,621
145,404
13,292,025
2,205,968
1,195,812
875,835
Table above includes geographical concentration by country of incorporation. Loans and advances to OECD and Non-OECD
resident customers, as well as to Georgian customers, are issued to the entities most of which are based and performing in
Georgia. As at 31 December 2018, out of total net exposure of loans and advances to customers, GEL 10,015,062 thousand is
issued to the entities operating in Georgian market, GEL 23,390 thousand operating in other economies.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
293
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
37. 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
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
Georgia
OECD
Non-OECD
Total
820,647
27,183
1,033,818
7,960,107
657,068
449,538
143,836
145,798
11,237,995
733,417
11,971,412
1,069,211
6,499,134
7,821
90,649
62,508
7,729,323
96,759
7,826,082
4,145,330
387,890
968,019
608,728
8,733
-
67,805
-
-
-
141
685,407
55
685,462
1,535,644
694,821
-
474
232,263
2,463,202
1,084
2,464,286
(1,778,824)
151,502
2,996
2,102
3,727
-
297,441
870
-
-
205
304,345
4,691
309,036
15,859
622,862
12,874
630
132,017
784,242
846
785,088
(476,052)
72,905
6,045
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
2,620,714
7,816,817
20,695
91,753
426,788
10,976,767
98,689
11,075,456
1,890,454
612,297
977,060
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 2019, the Bank maintained an aggregate open currency position of 0.5% of regulatory capital
(2018: 7.6%; 2017: 1.5%). 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.
On 13 August 2018 the NBG introduced new regulation on changes to OCP calculation method, according to this regulation,
from March 2019 special reserves assigned to FC balance-sheet assets would be deductible gradually for OCP calculation
purposes and fully implemented by July 2022 in line with the transition period defined by the NBG (according to the
amendment disclosed in December 2019).
Currency risk management framework is governed through the Market Risk Management Policy, market risk management
procedure and relevant methodologies. The Bank has in place the methodology developed 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 part of the provisions to
be denominated in the FC 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.
294
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
37. FINANCIAL AND OTHER RISK MANAGEMENT CONTINUED
In thousands of GEL
Georgian Laris
US Dollars
Euros
Other
Total
As of 31 December 2019
Monetary
financial assets
7,502,497
6,846,799
2,970,008
57,485
17,376,789
Monetary
financial liabilities
5,706,300
8,774,033
1,035,944
105,087
15,621,364
Derivatives
(100,140)
1,955,050
(1,925,463)
56,136
(14,417)
Net position
1,696,057
27,816
8,601
8,534
1,741,008
In thousands of GEL
As of 31 December 2018
Monetary
financial
assets
Monetary
financial
liabilities
Georgian Lari
US Dollars
Euros
Other
Total
5,920,867
7,309,173
1,375,295
100,915
4,663,300
7,445,413
948,398
89,498
14,706,250 13,146,609
As of 31 December 2017
Net
balance sheet
position
Monetary
financial
assets
Monetary
financial
liabilities
1,343,689
187,066
17,332
10,959
1,559,046
4,814,429
6,475,155
816,565
121,579
3,767,858
6,299,024
805,153
104,732
12,227,728 10,976,767
Net
balance sheet
position
1,211,092
22,682
2,097
15,948
1,251,819
Derivatives
164,521
(153,449)
(9,315)
(899)
858
Derivatives
86,122
323,306
(409,565)
(458)
(595)
US Dollar strengthening by 10% (weakening 10%) would increase Group’s profit or loss and equity in 2019 by GEL 2,782
(decrease by GEL 2,782). Euro strengthening by 10% (weakening 10%) would increase Group’s profit or loss and equity in
2019 by GEL 860 (decrease by GEL 860). US Dollar strengthening by 10% (weakening 10%) would increase Group’s profit or
loss and equity in 2018 by GEL 18,807 (decrease by GEL 18,807). Euro strengthening by 10% (weakening 10%) would increase
Group’s profit or loss and equity in 2019 by GEL 1,733 (decrease by GEL 1,733). US Dollar strengthening by 10% (weakening
10%) would increase Group’s profit or loss and equity in 2017 by GEL 2,268 (decrease by GEL 2,268). Euro strengthening by
10% (weakening 10%) would increase Group’s profit or loss and equity in 2019 by GEL 210 (decrease by GEL 210).
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 part of the 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 also 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.
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. Cross-Currency 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.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
295
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
37. FINANCIAL AND OTHER RISK MANAGEMENT CONTINUED
In thousands of GEL
31 December 2019
Total financial assets
Total financial liabilities
Net interest sensitivity gap
as of 31 December 2019
31 December 2018
Total financial assets
Total financial liabilities
Net interest sensitivity gap
as of 31 December 2018
31 December 2017
Total financial assets
Total financial liabilities
Net interest sensitivity gap
as of 31 December 2017
Less than 1
month
From 1 to 6
months
From 6 to 12
months
More than 1
year
Total
6,650,943
6,016,285
5,034,027
3,087,372
1,022,854
1,026,326
5,354,287
6,184,815
18,062,111
16,314,798
634,658
1,946,655
(3,472)
(830,528)
1,747,313
4,782,800
4,563,135
3,610,949
3,337,999
1,017,711
948,719
5,295,712
4,297,701
14,707,172
13,147,554
219,665
272,950
68,992
998,011
1,559,618
3,427,631
4,094,978
2,449,029
2,634,518
1,069,488
1,038,842
5,302,335
3,229,143
12,248,483
10,997,481
(667,347)
(185,489)
30,646
2,073,192
1,251,002
As of 31 December 2019, if interest rates had been 100 basis points lower with all other variables held constant, profit for
the year would have been GEL 19.4 million lower (2018: GEL 4.8 million; 2017 GEL 7.4 million;), mainly as a result of lower
interest income on variable interest assets. Other comprehensive income would have been GEL 9.4 million higher (2018: GEL
8.6 million; 2017: GEL 6.1 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 20 million
higher (2018: GEL 4.8 million; 2017: GEL 7.4 million), mainly as a result of higher interest income on variable interest assets.
Other comprehensive income would have been GEL 9.1 million lower (2018: GEL 8.2 million; 2017: GEL 5.9million), 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. TBC Bank closely monitors the adverse effect of possible parallel
yield curve shift scenarios on net interest income over a one-year period to ensure compliance with the predefined risk
appetite of the Bank.
In order to manage Interest Rate risk the Bank establishes appropriate limits. The Bank monitors compliance with the limits
and prepares forecasts. ALCO decides on actions that are necessary for effective interest rate risk management and follows
up on the implementation. Periodic reporting is done to Management Board and the Board’s Risk, Ethics and Compliance
Committee.
Liquidity Risk. The liquidity risk is the risk that TBC Bank either does not have sufficient financial resources available to meet
all of its obligations and commitments as they fall due, or can access those resources only at a high cost. The risk is managed
by the Financial Risk Management and Treasury Departments and is monitored by the ALCO.
The principal objectives of the TBC Bank’s liquidity risk management policy are to: (i) ensure the availability of funds in order
to meet claims arising from total liabilities and off-balance sheet commitments, both actual and contingent, at an economic
price; (ii) recognise any structural mismatch existing within TBC Bank’s statement of financial position and set monitoring
ratios to manage funding in line with well-balanced growth; and (iii) monitor liquidity and funding on an 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.
296
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
37. FINANCIAL AND OTHER RISK MANAGEMENT CONTINUED
Funding liquidity risk is the risk that TBC will not be able to efficiently meet both expected and unexpected current and
future cash flow and collateral needs without affecting either its daily operations or its financial condition. To manage funding
liquidity risk TBC Bank internally developed Liquidity Coverage ratio and a Net Stable Funding ratio models set, forth under
Basel III, as well as minimum liquidity ratio defined by the NBG. 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. In 2019, for
long-term liquidity risk management purposes NBG introduced Net Stable Funding Ratio (“”NBG NSFR”). From September,
2019, on a monthly basis the Bank monitors compliance with the set limit for NBG NSFR.
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 monitors deposit concentration for large deposits and set limits for non-Georgian residents deposits share in total
deposit portfolio.
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 deposits and IFI funding within the Bank’s risk appetite.
The loan to deposit and IFI funding ratio (defined as total value of net loans divided by total value of deposits and funds
received from International financial institutions)) stood at 104.8%, 89.9% and 92.5%, at the 31 December 2019, 2018 and
2017 respectively.
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 2019’ 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.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
297
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
37. FINANCIAL AND OTHER RISK MANAGEMENT CONTINUED
The maturity analysis of financial liabilities as of 31 December 2019 is as follows:
In thousands of GEL
Liabilities
Due to Credit institutions
Customer accounts – individuals
Customer accounts – other
Other financial liabilities
Lease liabilities
Subordinated debt
Debt securities in issue
Gross settled forwards
Performance guarantees
Financial guarantees and letters of credit
Other credit related commitments
Total potential future payments for financial obligations
Less than
3 months
From 3 to
12 months
From
12 months to
5 years
Over
5 years
Total
1,590,089
3,407,952
3,722,452
90,944
4,367
2,019
-
1,476,685
115,997
84,103
1,150,110
11,644,718
616,417
1,658,316
339,113
10,133
12,509
55,182
-
552,630
332,833
176,822
-
3,753,955
3,724,084
699,554
250,328
4,917
57,058
1,255,291
1,213,598
164,099
909,502
89,342
-
8,367,773
435,233
27,344
142,043
-
11,988
2,330,270
-
-
100,552
590
-
3,048,020
6,365,823
5,793,166
4,453,936
105,994
85,922
3,642,762
1,213,598
2,193,414
1,458,884
350,857
1,150,110
26,814,466
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 and letters of credit
Other credit related commitments
Total potential future payments for financial obligations
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
9,474,965
372,517
1,408,710
208,250
21,192
71,519
13,847
16,008
349,354
44,703
-
2,506,100
1,909,587
628,831
137,275
-
388,594
-
-
671,333
51,337
-
3,786,957
187,454
27,397
195,007
-
588,197
-
-
55,166
-
-
3,419,642
5,217,789
4,362,394
98,714
1,053,577
14,213
583,267
1,195,812
105,972
769,863
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 and letters of credit
Other credit related commitments
Total potential future payments for financial obligations
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
7,844,350
418,613
1,378,835
192,852
8,808
74,191
8,814
5,509
241,460
122,014
-
2,451,096
1,167,970
522,104
133,236
260
198,042
13,687
-
306,788
74,457
-
2,416,544
Over
5 years
151,417
40,727
80,976
-
346,703
-
-
8,135
155
-
628,113
Total
2,880,865
4,473,705
3,475,091
91,753
623,996
23,005
182,331
612,297
248,882
728,178
13,340,103
298
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
37. FINANCIAL AND OTHER RISK MANAGEMENT CONTINUED
The undiscounted financial liability analysis gap does not reflect the historical stability of the current accounts. Their
liquidation has historically taken place over a longer period than the one indicated in the tables above. These balances are
included in amounts due in less than three months in the tables above.
Term Deposits included in the customer accounts are classified based on remaining contractual maturities, according to the
Georgian Civil Code, however, individuals have the right to withdraw their deposits prior to maturity if they partially or fully
forfeit their right to accrued interest and the Group is obliged to repay such deposits upon the depositor’s demand. Based
on the Bank’s deposit retention history, the management does not expect that many customers will require repayment on
the earliest possible date; accordingly, the table does not reflect the management’s expectations as to actual cash outflows.
The Group does not use the above undiscounted maturity analysis to manage liquidity. Instead, the Group monitors the
liquidity gap analysis based on the expected maturities. In particular, the customers’ deposits are distributed in the given
maturity gaps following their behavioural analysis.
As of 31 December 2019 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
Net investments in lease
Insurance and Reinsurance Receivables
Other financial assets
Total financial assets
Liabilities
Due to Credit institutions
Customer accounts
Debt securities in issue
Other financial liabilities
Lease liabilities
Insurance contracts liabilities
Subordinated debt
Total financial liabilities
Credit related commitments and performance guarantees
Performance guarantees
Financial guarantees
Other credit related commitments
Credit related commitments and performance guarantees
Net liquidity gap as of 31 December 2019
Cumulative gap as of 31 December 2019
Less than
3 months
From 3 to
12 months
From
12 months to
5 years
Over
5 years
Total
1,003,583
15,193
1,591,829
1,303,711
985,293
124,006
34,448
9,072
104,612
5,171,747
1,573,720
1,082,198
-
90,944
4,394
1,850
331
2,753,437
7,466
4,511
100,212
112,189
2,306,121
2,306,121
-
3,500
-
2,307,064
-
215,711
70,398
17,104
2,946
2,616,723
427,794
174,905
-
10,133
8,513
5,763
-
627,108
-
14,912
-
5,108,650
-
555,379
148,542
-
2
5,827,485
1,496,459
-
1,213,598
4,918
38,831
-
113,497
2,867,303
-
-
-
3,629,974
-
127,588
3,272
-
-
3,760,834
1,003,583
33,605
1,591,829
12,349,399
985,293
1,022,684
256,660
26,176
107,560
17,376,789
95,928
8,792,221
-
-
8,160
-
477,207
9,373,516
3,593,901
10,049,324
1,213,598
105,995
59,898
7,613
591,035
15,621,364
-
-
-
-
1,989,615
4,295,736
-
-
-
-
2,960,182
7,255,918
-
-
-
-
(5,612,682)
1,643,236
7,466
4,511
100,212
112,189
1,643,236
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
299
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
37. FINANCIAL AND OTHER RISK MANAGEMENT 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
Net investments in lease
Other financial assets
Total financial assets
Liabilities
Due to Credit institutions
Customer accounts
Debt securities in issue
Other financial liabilities
Subordinated debt
Total financial liabilities
Credit related commitments and performance guarantees
Performance guarantees
Financial guarantees
Other credit related commitments
Credit related commitments and performance guarantees
Net liquidity gap as of 31 December 2018
Cumulative gap as of 31 December 2018
Less than
3 months
From 3 to
12 months
From
12 months 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
4,994,841
933,511
997,594
112
77,522
3,048
2,011,787
4,393
5,424
103,029
112,846
2,870,208
2,870,208
-
11,075
-
2,056,149
-
92,877
56,432
34,268
2,250,801
-
9,088
-
4,152,436
-
368,843
113,087
1,664
4,645,118
-
-
-
2,739,346
-
72,994
3,150
-
2,815,490
1,166,911
47,316
1,422,809
10,038,452
1,005,239
654,203
203,802
167,518
14,706,250
271,993
128,395
13,231
21,192
23,246
458,057
1,653,575
-
-
-
182,986
1,836,561
172,424
8,226,153
-
-
441,639
8,840,216
3,031,503
9,352,142
13,343
98,714
650,919
13,146,621
-
-
-
-
1,792,744
4,662,952
-
-
-
-
2,808,557
7,471,509
-
-
-
-
(6,024,726)
1,446,783
4,393
5,424
103,029
112,846
1,446,783
The management believes that the Group has sufficient liquidity to meet its current on- and off-balance sheet obligations.
300
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
37. 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
Net investments in lease
Other financial assets
Total financial assets
Liabilities
Due to Credit institutions
Customer accounts
Debt securities in issue
Other financial liabilities
Subordinated debt
Total financial liabilities
Credit related commitments and performance guarantees
Performance guarantees
Financial guarantees
Other credit related commitments
Credit related commitments and performance guarantees
Net liquidity gap as of 31 December 2017
Cumulative gap as of 31 December 2017
38. CONTINGENCIES AND COMMITMENTS
Less than
3 months
From 3 to
12 months
From
12 months to
5 years
Over
5 years
Total
1,431,477
32,845
1,033,818
1,031,608
657,938
81,859
22,896
110,604
4,403,045
1,137,076
844,123
47
82,685
3,471
2,067,402
-
3,071
-
1,767,797
-
105,956
38,526
22,207
1,937,557
351,381
136,821
7,778
8,808
49,694
554,482
2,067
8,239
105,268
115,574
2,220,069
2,220,069
-
-
-
-
1,383,075
3,603,144
-
3,727
-
3,438,180
-
216,177
82,414
13,333
3,753,831
990,480
-
12,870
260
97,372
1,100,982
-
-
-
-
2,652,849
6,255,993
-
-
-
2,087,768
-
45,546
-
-
2,133,314
141,777
6,835,873
-
-
276,251
7,253,901
-
-
-
-
(5,120,587)
1,135,406
1,431,477
39,643
1,033,818
8,325,353
657,938
449,538
143,836
146,144
12,227,747
2,620,714
7,816,817
20,695
91,753
426,788
10,976,767
2,067
8,239
105,268
115,574
1,135,406
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 2019, 2018 and 2017 no provision for potential tax liabilities has been recorded.
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 2019, 31 December 2018 and 31
December 2017. 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.
The Group was in compliance with all other covenants as of 31 December 2019, 31 December 2018 and 31 December 2017.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
301
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
38. CONTINGENCIES AND COMMITMENTS CONTINUED
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 provision)
Credit loss allowance for credit related commitments
Total credit related commitments
2019
1,150,110
109,733
241,124
1,500,967
(4,511)
1,496,456
2018
769,863
105,972
-
875,835
(5,424)
870,411
2017
728,178
106,919
141,963
977,060
(8,239)
968,821
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 2019 were GEL 472,485 thousand (2018: GEL 344,360 thousand; 2017: GEL
389,148 thousand).
Performance guarantees. Performance guarantees are contracts that provide compensation in case of another party fails
to perform a contractual obligation. Such contracts do not transfer credit risk. The risk under the performance guarantee
contracts is the possibility that the insured event occurs (i.e.: the failure to perform the contractual obligation by another
party). The key risks the Group faces are significant fluctuations in the frequency and severity of payments incurred on such
contracts, relative to expectations.
Outstanding amount of performance guarantees and respective provision as of 31 December 2019 is GEL 1,458,884
thousand and GEL 7,466 thousand (2018: GEL 1,195,812 thousand and GEL 4,393 thousand, 2017: GEL 612,297 thousand and
GEL 2,067 thousand).
Fair value of credit related commitments were GEL 4,511 thousand as of 31 December 2019 (2018: GEL 5,424 thousand;
2017: GEL 8,239 thousand). Total credit related commitments and performance guarantees are denominated in currencies
as follows:
In thousands of GEL
Georgian Laris
US Dollars
Euros
Other
Total
2019
1,155,422
1,203,296
542,303
58,830
2,959,851
2018
853,965
955,829
218,091
43,762
2,071,647
2017
618,544
734,970
166,304
69,539
1,589,357
Capital expenditure commitments. As of 31 December 2019, the Group has contractual capital expenditure commitments
amounting to GEL 33,723 thousand (2018: GEL 12,210 thousand; 2017: GEL 7,816 thousand). Out of total amount as at 31
December 2019, contractual commitments related to the head office construction amounted GEL 13,186.
302
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
39. NON-CONTROLLING INTEREST
The following table provides information about each subsidiary with a non-controlling interest as of 31 December 2019:
In thousands of GEL
Inspired LLC
TKT Online LLC
TKT UZ
My.GE LLC
AllProperty.ge LLC
Billing Solutions LLC
TBC Bank JSC including:
TBC Leasing JSC*
United Financial Corporation JSC
Proportion of non-controlling
interest’s voting rights held
49%
45%
25%
35%
10%
49%
0.12%
0.39%
0.47%
Profit attributable to
non-controlling interest
1,350
303
(0)
130
(65)
0
728
11
63
Accumulated non-controlling
interest in the subsidiary
1,906
815
21
2,094
(36)
169
3,619
-
582
*In May 2019 the Group purchased remaining 0.39% shareholding from TBC Leasing JSC shareholders and became 100% owner of the Company.
The summarised financial information of these subsidiaries was as follows as of 31 December 2019:
In thousands of GEL
Inspired LLC
TKT Online LLC
TKT UZ
My.GE LLC
AllProperty.ge LLC
Billing Solutions LLC
TBC Bank JSC
TBC Leasing JSC
TBC Kredit LLC
*In 2018 the Group
purchased remaining
25% shareholding
from TBC Kredit LLC
shareholders and
became 100% owner of
the company
Current
assets
2,796
1,586
231
863
1,286
-
8,026,612
180,282
10,605
Non-current
assets
1,177
1,562
5
5,845
1,053
344
Current
liabilities
185
1,336
1
586
426
-
10,280,004 11,254,319
133,198
6,238
172,275
14,140
Non-current
liabilities
-
-
-
-
582
-
4,520,588
182,804
5,730
Revenue
5,683
1,468
-
2,122
1,965
-
1,010,616
29,894
4,543
Profit
2,759
714
(1)
442
651
-
545,055
6,861
2,221
Total
comprehensive
income
2,756
675
(1)
442
651
-
545,080
6,861
2,221
Cash flows
1,686
1,280
230
482
697
-
(434,292)
719
473
9,507
8,821
155
435
12,023
4,725
4,725
(622)
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
Accumulated non-controlling
interest in the subsidiary
3,062
96
-
517
-
(88)
-
*In 2018 the Group purchased remaining 25% shareholding from TBC Kredit LLC shareholders and became 100% owner of the company
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
303
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
39. NON-CONTROLLING INTEREST CONTINUED
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
7,421,134
160,619
19,639
Non-current
assets
Current
liabilities
8,031,716 9,955,303
138,582
13,961
128,610
14,987
Non-current
liabilities
3,385,828
126,954
10,813
Revenue
1,066,089
26,998
3,177
Profit
433,051
6,585
1,836
Total
comprehensive
income
448,749
6,585
1,836
Cash flows
(264,368)
10,773
(1,622)
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 non-controlling interest as of 31 December 2017: T
In thousands of GEL
TBC Bank JSC including:
TBC Leasing JSC
TBC Kredit LLC
United Financial Corporation JSC
Proportion of non-controlling
interest’s voting rights held
1.33%
0.39%
25%
1.33%
Profit attributable to
non-controlling interest
5,518
14
275
63
Accumulated non-controlling
interest in the subsidiary
29,255
70
4,165
500
he 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
6,490,075
111,169
19,771
Non-current
assets
Current
liabilities
6,447,122 8,830,604
95,988
11,858
87,928
20,319
Non-current
liabilities
2,258,231
85,262
20,636
Revenue
850,450
15,236
5,172
Profit
362,429
3,436
1,098
Total
comprehensive
income
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
40. OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES
As of 31 December 2019, financial instruments subject to offsetting, enforceable master netting and similar arrangements
were as follows:
Gross amounts
before offsetting
in the statement of
financial position
(a)
Gross amount
set off in the
statement
of financial
position
(b)
Net amount after
offsetting in the
statement of
financial position
(c) = (a) - (b)
In thousands of GEL
ASSETS
Other financial assets:
- Receivables on credit card
services and money transfers
24,139
2,244
21,895
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
304
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
24,139
2,244
21,895
17,518
2,244
15,274
17,518
2,244
15,274
Amounts subject to
master netting and similar
arrangements not set off in the
statement of financial position
Financial
instruments
(d)
Cash collateral
received
(e)
Net amount of
exposure
(c) - (d) - (e)
-
-
-
-
-
-
-
-
21,895
21,895
15,274
15,274
40. OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES CONTINUED
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
(a)
Gross amount
set off in the
statement
of financial
position
(b)
Net amount after
offsetting in the
statement of
financial position
(c) = (a) - (b)
Amounts subject to
master netting and similar
arrangements not set off in the
statement of financial position
Financial
instruments
(d)
Cash collateral
received
(e)
Net amount of
exposure
(c) - (d) - (e)
In thousands of GEL
ASSETS
Other financial assets:
- Receivables on credit card
services and money transfers
17,544
3,154
14,390
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
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
As of 31 December 2017, financial instruments subject to offsetting, enforceable master netting and similar arrangements
were as follows:
Gross amounts
before offsettin
in the statement of
financial position
(a)
Gross amount
set off in the
statement
of financial
position
(b)
Net amount after
offsetting in the
statement of
financial position
(c) = (a) - (b)
Amounts subject to
master netting and similar
arrangements not set off in the
statement of financial position
Financial
instru-ments
(d)
Cash collateral
received
(e)
Net amount of
exposure
(c) - (d) - (e)
In thousands of GEL
ASSETS
Other financial assets:
- Receivables on credit card
services and money transfers
29,308
2,605
26,703
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
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
The amount set off in the statement of financial position reported in column (b) is the lower of (i) the gross amount before
offsetting reported in column (a) and (ii) the amount of the related instrument that is eligible for offsetting. Similarly, the
amounts in columns (d) and (e) are limited to the exposure reported in column (c) for each individual instrument in order not
to understate the ultimate net exposure.
Deposits placed with other banks and deposits received from other banks as part of gross settled currency swap arrangements
have been netted-off in these financial statements and the instrument has been presented as either asset or liability at a fair value.
The disclosure does not apply to loans and advances to customers and related customer deposits unless they are netted-off
in the statement of financial position.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
305
NOTES TO THE 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
2019
5,849
(20,266)
-
(14,417)
2018
1,490
(2,085)
-
(595)
2017
1,767
(909)
(267)
591
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
2019
2018
2017
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
-
2,089,038
-
105,152
-
25,239
-
60,652
(133,987)
-
(205,292)
-
(1,950,702)
-
(4,517)
-
-
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)
-
2,280,081 (2,294,498)
581,794
(582,389)
180,106
(179,248)
(14,417)
(595)
858
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 2018 the fair value of interest rate swaps was
negative GEL 267 thousand; 2017: negative GEL 267 thousand).
Information on related party balances is disclosed in Note 44.
306
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
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 2019
31 December 2018
31 December 2017
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
-
-
-
-
-
-
-
-
-
-
40,346
611,000
14,982
-
- 548,864
1,596
-
66,760
329,352
- 372,927
-
-
-
-
14,982
548,864
-
7,728
- 328,761
66,760
-
-
372,927
- 319,745
-
-
-
-
-
-
7,728
328,761
-
319,745
5,849
-
1,490
-
1,490
-
1,767
-
1,767
40,346
611,000
1,596
329,352
5,849
-
-
-
-
-
-
-
-
-
-
-
- 212,376
212,376
-
- 277,798
277,798
-
- 283,905
283,905
-
988,143 212,376 1,200,519
- 1,005,023 277,798 1,282,821
- 658,001 283,905
941,906
-
-
-
-
20,266
20,266
-
-
-
-
20,266
20,266
-
-
-
-
2,085
2,085
-
-
-
-
2,085
2,085
-
-
-
267
909
1,176
-
-
-
267
909
1,176
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
307
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
42. FAIR VALUE DISCLOSURES CONTINUED
There were no transfers between levels 1 and 2 during the year ended 31 December 2019 (2018 none, 2017: none). For
sensitivity disclosures of premises and leasehold improvements please refer to the Note 15.
(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
2019
2018
2017
Valuation technique
Inputs used
982,295
1,003,533
656,234
5,848
1,490
1,767
988,143
1,005,023
658,001
Discounted
cash flows
(“DCF”)
Forward pricing
using present value
calculations
Government
bonds yield
curve
Official
exchange rate,
risk-free rate
-
-
267
20,266
20,266
2,085
909
2,085
1,176
Swap model using
present value
calculations
Forward pricing
using present value
calculations
Observable yield
curves
Official
exchange rate,
risk-free rate
There were no changes in the valuation technique for the level 2 and level 3 recurring fair value measurements during the
year ended 31 December 2019 (2018: none; 2017: 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.
308
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
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 2019
31 December 2018
31 December 2017
Level 1
Level 2
Level 3
Carrying
Value
Level 1
Level 2
Level 3
Carrying
Value
Level 1
Level 2
Level 3
Carrying
Value
650,700
352,883
-
33,605
-
-
1,003,583
491,928
674,983
-
1,166,911 419,605
1,011,872
33,605
-
47,316
-
47,316
-
1,591,829
-
1,591,829
-
1,422,809
-
1,422,809
-
-
-
-
-
-
4,838,348
4,579,723
1,876,364
1,750,050
3,354,901
3,137,492
-
-
-
-
3,212,490
3,095,784
-
1,970,006
1,832,793
-
2,702,768
2,684,295
-
-
2,891,382
2,882,134
-
-
2,440,078
2,425,580
-
990,537
-
1,022,684
-
660,916
-
654,203
-
-
-
265,165
256,660
-
-
207,579
203,802
-
127,888
127,888
-
-
166,028
166,028
-
-
123,325
72,667
-
-
97,425
84,296
-
-
-
1,431,477
39,643
1,033,818
39,643
1,033,818
-
-
-
-
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
-
-
-
-
-
-
-
-
-
-
TOTAL ASSETS
650,700 2,968,854 13,477,373 16,458,315 491,928 2,806,024 10,796,374 13,783,817 419,605
2,544,283 9,743,347 11,647,274
-
-
1,136,297
3,600,318
-
3,593,901
6,480,250 3,580,630 10,049,324
-
-
153,240
594,893
-
-
-
1,136,297
153,240
591,035
1,136,297 10,828,701 3,580,630 15,523,797
-
-
-
-
-
-
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
4,992,099 2,937,349
7,816,817
20,695
-
20,695
90,577
-
90,577
425,809
-
426,788
8,155,335 2,937,349 10,975,591
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
309
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
FINANCIAL
LIABILITIES
Due to credit
institutions
Customer
accounts
Debt securities
in issue
Other financial
liabilities
Subordinated
debt
TOTAL
LIABILITIES
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
42. FAIR VALUE DISCLOSURES CONTINUED
The fair values in the level 2 and level 3 of fair value hierarchy were estimated using the discounted cash flows valuation
technique. The fair value of unquoted fixed interest rate instruments was calculated based on estimated future cash flows
expected to be received discounted at current interest rates for new instruments with similar credit risk and remaining
maturity. The fair value of investment properties was estimated using market comparatives (refer to Note 17).
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 2019 (2018: none; 2017: none).
43. PRESENTATION OF FINANCIAL INSTRUMENTS BY MEASUREMENT CATEGORY
For the measurement purposes, IFRS 9, classifies financial assets into the categories discussed in Note 2. The following
table provides a reconciliation of classes of financial assets with these measurement categories as of 31 December 2019:
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 FVOCI
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
Amortised cost
Fair value through other
comprehensive income
Fair value through
profit or loss
Total
1,003,583
33,605
1,591,829
12,349,399
-
1,022,684
133,736
16,134,836
-
-
-
-
-
-
-
985,293
-
-
985,293
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,003,583
33,605
1,591,829
12,349,399
985,293
1,022,684
133,736
17,120,129
256,660
1,033,485
18,410,274
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, net investments in lease form a separate category. The following table
provides a reconciliation of classes of financial assets with these measurement categories as of 31 December 2018:
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
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
310
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
Amortised cost
Fair value through other
comprehensive income
Fair value through
profit or loss
Total
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
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 2017:
In thousands of GEL
ASSETS
Cash and cash equivalents
Due from other banks
Mandatory cash balances
with the National Bank of Georgia
Loans and advances to customers
Investment securities available for sale
Bonds carried at amortised cost
Investments in leases
Other financial assets:
- Other financial receivables
TOTAL FINANCIAL ASSETS
NON-FINANCIAL ASSETS
TOTAL ASSETS
Loans and
receivables
Available
for sale assets
Net investments
in lease
Assets held
for trading
1,431,477
39,643
1,033,818
8,325,353
-
449,538
-
144,377
11,424,206
-
-
-
-
-
-
657,938
-
-
-
657,938
-
-
-
-
-
-
-
-
143,836
-
143,836
-
-
Total
1,431,477
39,643
1,033,818
8,325,353
657,938
449,538
143,836
-
-
-
-
-
-
-
1,767
1,767
-
-
146,144
12,227,747
738,163
12,965,910
The following table provides a reconciliation of classes of financial assets with these measurement categories as of 31
December 2017:
As of 31 December 2019 and 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, 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.
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 footnote1).
As of 31 December 2019, 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: 6.6% – 36.0%)
Impairment provisions for loans
and advances to customers
Customer accounts
(contractual interest rate: 0.0% – 11.5%)
Significant shareholders
Key management personnel
77
-
16,418
9,723
1
12,997
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
311
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
44. RELATED PARTY TRANSACTIONS CONTINUED
The Group’s income and expense items with related parties except from key management compensation for the year 2019
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
42
87
Key management personnel
620
197
159
50
77
68
68
283
61
978
The Group’s income and expense items with related parties except from key management compensation for the year 2019
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
249
(1,878)
Key management personnel
15,160
(17,747)
During the year 2019, 3 related parties were removed from the insider list. If they had remained in the list, customer accounts
with related parties as of 31 December 2019 would have been GEL 266 thousand higher.
As of 31 December 2019, 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 2019
40,815
6,612
1,463,084
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 2019 were as follows:
In thousands of GEL
Interest income
Fee and commission expense
Dividend income
2019
5,625
48
109,520
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
-
-
1 https://www.nbg.gov.ge/uploads/legalacts/fts/eng/regulation_on_the_management_of_the_conflict_of_interests.pdf
312
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
44. RELATED PARTY TRANSACTIONS CONTINUED
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
Key management personnel
591
411
479
28
87
89
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)
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
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
313
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
44. RELATED PARTY TRANSACTIONS CONTINUED
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
Key management personnel
444
-
449
108
(46)
122
104
58
46
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)
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
314
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
44. RELATED PARTY TRANSACTIONS CONTINUED
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
2019
Accrued
liability
-
-
-
-
Expense
12,481
6,424
9,369
28,274
2018
Accrued
liability
270
8,395
-
Expense
13,339
3,905
8,469
2017
Accrued
liability
-
9,772
-
8,665
25,713
9,772
Expense
10,274
(1,627)
25,695
34,342
Included in salaries and bonuses for 2019, GEL 2,879 thousand (2018: GEL 2,347 thousand; 2017: GEL 2,326 thousand)
relates to compensation for directors (2019: 9 person, 2018: 8 person, 2017: 8 person) of TBCG paid by TBC Bank Group PLC.
Details of director’s compensation is discussed in the remuneration comittee report. Details of director’s compensation is
discussed in the remuneration comittee report.
45. BUSINESS COMBINATION
Acquisition of Inspired LLC
In May 2019 TBC bank group PLC finalized acquisition process of Inspired LLC – the leading payment platform “Payme”. The
acquired interest amounted 51% of total shareholding. The transaction is in line with the Group’s international expansion
strategy of operations. The consideration amounted GEL 14,981 thousands.
The acquisition-date fair value of the total purchase consideration is follows:
In thousands of GEL
Cash consideration paid
Total purchase consideration
14,981
14,981
The consideration paid by the Group was based on results of an appraisal of the acquiree’s business taken as a whole.
However, in accordance with IFRS 3 “Business Combinations”, the Group must account for acquisitions based on fair values
of the identifiable assets acquired and liabilities and contingent liabilities assumed. These two different approaches can lead
to differences; and, as set out in the table below, recognition of goodwill. Details of the assets and liabilities acquired and
goodwill arising is as follows:
In thousands of GEL
Cash and cash equivalents
Due from other banks
Other financial assets
Premises and equipment
Intangible assets
Other assets
Other liabilities
Fair value of net assets of subsidiary
Non-controlling interest
Goodwill arising from the acquisition
Total purchase consideration
Less: cash and cash equivalents of subsidiary acquired
Outflow of cash and cash equivalents on acquisition
Fair Values
223
424
676
379
212
79
(159)
1,834
(868)
14,015
14,981
(223)
14,758
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
315
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
45. BUSINESS COMBINATION CONTINUED
The goodwill is primarily attributable to the profitability of the acquired business and the positive synergies expected to arise.
The acquired business combination contributed to Group’s net revenue in the amount of GEL 5,683 thousand and to Group’s
net profit in the amount of GEL 2,759 thousand from the date of acquisition to 31 December 2019. If the acquisition had
occurred on 1st of January 2019, the contribution to the Group’s net revenues for the year ended 31 December 2019 would
have been of GEL 8,561 thousand and to net profit would have been positive of GEL 4,272 thousand.
Acquisition of My.ge LLC
In August 2019 TBC bank group PLC finalized acquisition process of LLC My.ge – the leading online services platform in
Georgia “My Group”. The acquired interest amounted 65% of total shareholding. The transaction is in line with the Group’s
international expansion strategy of operations. The consideration amounted GEL 19,450 thousands.
The acquisition-date fair value of the total purchase consideration is follows:
In thousands of GEL
Cash consideration paid
Total purchase consideration
19,450
19,450
The consideration paid by the Group was based on results of an appraisal of the acquiree’s business taken as a whole.
However, in accordance with IFRS 3 “Business Combinations”, the Group must account for acquisitions based on fair values
of the identifiable assets acquired and liabilities and contingent liabilities assumed. These two different approaches can lead
to differences; and, as set out in the table below, recognition of goodwill. Details of the assets and liabilities acquired and
goodwill arising is as follows
In thousands of GEL
Cash and cash equivalents
Other financial assets
Premises and equipment
Intangible assets
Other assets
Other financial liabilities
Other liabilities
Fair value of net assets of subsidiary
Non-controlling interest
Goodwill arising from the acquisition
Total purchase consideration
Less: cash and cash equivalents of subsidiary acquired
Outflow of cash and cash equivalents on acquisition
Fair Values
1,667
232
1,208
4,403
1
(1,862)
(51)
5,598
(1,960)
15,812
19,450
(1,667)
17,783
The goodwill is primarily attributable to the profitability of the acquired business and the positive synergies expected to arise.
The acquired business combination contributed to Group’s net revenue in the amount of GEL 2,122 thousand and to Group’s
net profit in the amount of GEL 442 thousand from the date of acquisition to 31 December 2019. If the acquisition had
occurred on 1st of January 2019, the contribution to the Group’s net revenues for the year ended 31 December 2019 would
have been of GEL 5,208 thousand and to net profit would have been positive of GEL 1,497 thousand.
316
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
46. EVENTS AFTER REPORTING PERIOD
COVID 19- outbreak
In late February 2020 the first incident of the coronavirus (COVID-19) was reported in Georgia. This is clearly a serious situation
impacting not just Georgia, but also the global economy. The position has been, and continues to be difficult to predict with
any certainty. The Group does not consider COVID-19 to be an adjusting event and as such any impacts are not reflected within
these financial statements. Our economists’ latest analysis forecasts the Georgian economy to contract in 2020, which will
have a negative impact on many businesses and individuals in the country. Therefore, in close co-ordination with the National
Bank of Georgia (“NBG”), we have decided to create an extra loan loss provision buffer to prepare for the potential impact of
the COVID-19 pandemic on the Georgian economy.
TBC Bank has implemented a number of actions to protect its customers and staff members and to minimize disruption to
the Group’s operations during the COVID-19 outbreak. In developing our response, we have looked at best practices from
major global companies as well as organizations like the World Health Organization. We are also closely coordinating with
the Government of Georgia, NBG and the other banks in the country. While for the time being most of our branches remain
open, we have introduced a number of additional security and infection prevention measures in our branch network. We have
introduced remote working practices for most of our head office and back office units and divided all our critical service
units into different groups and locations. We have also refreshed the list of critical roles in the company and ensured their
continuous operational engagement and remote access.
In order to support our customers during the coming difficult months, in coordination with the Government, NBG and the
banking sector, we have introduced a three-month grace period on principle and interest payments for all our individual and
MSME customers as well as those corporate customers whose business is the most exposed in the current situation.
Our digital penetration is very high, mainly driven by mobile banking transactions. To ensure continued communication and
customer care, we have activated and enhanced all our channels, launched intensive communication campaigns to promote
cashless transactions (cash is a potential transmission vector for the virus) and active usage of our digital channels. For the
next three months, we have revised tariff plans to further incentivize our digital channel usage. The multichannel promotion
campaigns together with the loan repayment grace period are expected to substantially decrease customer flow in our branch
network and reduce the risk of spreading the infection. If needed, this will allow us to further optimize branch network
operations and decrease the number of front office staff as well as to introduce different shifts in branches. In terms of our IT
infrastructure, we have rigorous measures to ensure adequate capacity and security, and we are closely monitoring the system
with all controls active.
We expect the pandemic to have a negative economic effect as long as the number of cases is expanding, but we expect a
gradual return of economic strength as the number of cases eases. The government has come up with a number of initiatives
to support businesses and the economy.
The group assessed the changes in the environment on its capital and liquidity positions and is comfortable that it can keep
solid financial standing. Management will keep monitoring the developments and update its strategy and course of actions as
necessary in circumstances.
However, taking into consideration the unprecedented uncertainty triggered by the COVID-19 outbreak, the Board of Directors
has decided not to recommend a dividend. The decision will be revisited once there is better visibility on the potential economic
impact of the outbreak, which we do not expect to occur before the end of May 2020.
Banking licence in Uzbekistan
In April 2019 the Group’s subsidiary, TBC Bank in Uzbekistan (“TBC UZ”), has obtained its banking licence and is planning
to launch banking operations in June 2020. The range of products offered by the bank at launch will include current and
savings accounts, cash loans, salary backed loans and car loans; and cards, mobile application and transactional capabilities
including (but not limited to) P2P transactions, money transfers and utility payments. In addition, the bank will also run the
point-of-sale consumer finance operation.
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
317
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
FULL LIST OF RELATED UNDERTAKINGS AND THE COUNTRY
OF INCORPORATION IS SET OUT BELOW
Company Name
JSC TBC Bank
Country of incorporation
7 Marjanishvili Street, 0102, Tbilisi, Georgia
United Financial Corporation JSC
154 Agmashenebeli Avenue, 0112, Tbilisi, Georgia
TBC Capital LLC
TBC Leasing JSC
TBC Kredit LLC
11 Chavchavadze Avenue, 0179, Tbilisi, Georgia
80 Chavchavadze Avenue, 0162,, Tbilisi, Georgia
71-77, 28 May Street, AZ1010, Baku, Azerbaijan
Banking System Service Company LLC
7 Marjanishvili Street, 0102, Tbilisi, Georgia
TBC Pay LLC
TBC Invest LLC
Index LLC
JSC TBC Insurance
Redmed LLC
TBC Invest International Ltd
University Development Fund
JSC CreditInfo Georgia
LTD Online Tickets
VENDOO LLC
Swoop JSC
Natural Products of Georgia LLC
Mobi Plus JSC
7 Marjanishvili Street, 0102, Tbilisi, Georgia
7 Jabonitsky street, , 52520, Tel Aviv, Israel
8 Tetelashvili,0102,, Tbilisi, Georgia
24B, Al. Kazbegi Avenue, 0160, Tbilisi, Georgia
24 Al. Kazbegi Avenue, 0160, Tbilisi, Georgia
7 Marjanishvili Street, 0102, Tbilisi, Georgia
1 Chavchavadze Avenue, 0128 , Tbilisi, Georgia
2 Tarkhnishvili street, 0179, Tbilisi, Georgia
3 Irakli Abashidze street, 0179, Tbilisi, Georgia
3 Chavchavadze Avenue, 0128, Tbilisi, Georgia
74 Chavchavadze Avenue, 0162, Tbilisi, Georgia
1 Chavchavadze Avenue, 0128 , Tbilisi, Georgia
45 Vajha Pshavela Street, 0177, Tbilisi, Georgia
Mineral Oil Distribution Corporation JSC
11 Tskalsadeni Street, 0153, Tbilisi, Georgia
Georgian Card JSC
106 Beliashvili Street, 0159, Tbilisi Georgia
Georgian Securities Central Depositor
74 Chavchavadze Avenue, 0162, Tbilisi, Georgia
JSC Givi Zaldastanishvili American Academy In Georgia
37 Chavchavadze Avenue, 0162, Tbilisi Georgia
United Clearing Centre
GRDC
5 Sulkhan Saba Street, 0105, Tbilisi, Georgia
2 Vagzali Square, 0112, Tbilisi, Georgia
Banking and Finance Academy of Georgia
123, Agmashenebeli Avenue, 0112, Tbilisi, Georgia
Tbilisi's City JSC
Swift
TBC Trade
15 Rustaveli Avenue, 0108, Tbilisi Georgia
1 Adele Avenue, B-1310, La Hulpe, Belgium
11A Chavchavadze Ave, 0179, Tbilisi, Georgia
318
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
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.
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
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
319
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
320
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
ABBREVIATIONS
ACCA
Association of Chartered Certified Accountants
IASB
International Accounting Standards Board
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
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
TBC BANK ANNUAL REPORT AND ACCOUNTS 2019
321
NOTES
2019
TBC Bank Group PLC
Elder House St Georges Business Park
207 Brooklands Road
Weybridge, Surrey
KT13 0TS
United Kingdom