TBC Bank Group PLC LON:TBCG (TBC), is one of two Georgian (the former Soviet Republic, not the US State) banks listed on the London Stock Exchange, the other being Bank of Georgia LON:BGEO (BoG), which The Armchair Trader has previously reported on. Both reside in the FTSE250 index.
One would think that given the conflict between Russia and Ukraine – now in its twenty-first month – that the neighbourhood, especially those countries that do a lot of business with the belligerents, would be negatively affected. But in conversations with the management of Bank of Georgia nothing could be further from the truth, and in fact, BoG has had record performances since the conflict erupted, and in its last set of results for 1H23, published in August, BoG reported a 40.8% increase in year-on-year profits before taxation and a one-off cost. Even after the one-off cost was taken off, BoG still reported a 33.5% increase in profits y-o-y.
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BoG and TBC are similar in market capitalisation, both weighing-in around the GBP1.5bn mark, and TBC has been recounting a similar story to BoG.
TBC opened trading on 31st October at 2,775p and has offered investors a 22% increase over the year-to-date and 47.3% over one year.
Both banks are also similar operationally with strong fintech expertise, with TBC claiming to be the leading financial services group in Georgia; although BoG disputes that, as it says it is more domestic-focussed, than TBC, and the premium banking group in Georgia, given that its competitor is more internationally-diversified, being a significant player in neighbouring Uzbekistan, having entered the market in 2019.
TBC had at last count (end of 2Q23) GEL28.9bn of assets and GEL19.4bn gross loans, up 11% and 10.4% respectively y-o-y. It had increased its net interest income by 31.25% to GEL399m and profit by 24.7% y-o-y to GEL293m.
Low NPL rate in Georgia
According to Black Sea Trade & Development Bank (BSTDB), the Georgian banking sector has the lowest level of NPLs among BSTDB member countries and among the lowest in the wider region. NPLs have been low for many years and by the end of 2020, they accounted for only 2% of total gross loans.
Due to the subsidies introduced by the government to the sectors most hit by the pandemic and banks’ moratoria decisions on debt service, the full impact of the pandemic is not yet reflected in the actual NPLs. To address the potential worsening of loan quality stemming from the current slowdown of economic activity, banks increased loan loss provisioning considerably in early 2020.
As a result, the current volume of provisions is well above the actual level of NPLs. Hence, even a significant worsening of the credit portfolio could be absorbed before having material impact on banks’ profitability and capital positions.
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One of TBC’s USPs is its fintech offering. The company has invested heavily in its digital banking services, especially in Uzbekistan. Vakhtang Butskhrikidze, TBC’s chief executive said: “For 1H23, our net profit stood at GEL548m, up 20% y-o-y, with return-on-equity reaching 26.7%. I am proud to see that our fintech businesses in Uzbekistan are not only growing rapidly, but are also profitable, already accounting for almost 5% of the group’s profit in 1H23.”
TBC Bank earning international recognition
TBC’s progress is being recognised outside the Caucasus. In May, Fitch Ratings upgraded the credit rating of its local subsidiary, JSC TBC Bank. The bank’s Long-Term Issuer Default Rating (IDR) has been increased to ‘BB’ from ‘BB-‘, and Viability Rating to ‘bb’ from ‘bb-‘. The Outlook remains Stable.
This is a great opportunity for investors to climb aboard the economic development of a rapidly growing region. The conflict in Ukraine has caused a distortion in the markets, and both financial capital and intellectual capital has sought a safe regional haven, with Georgia being a very attractive option as the progress of BoG and TBC have demonstrated over the last year-and-a-half. In fact, with Russia involved in Ukraine, Georgians are feeling more stable as their big neighbour’s eyes are focussed elsewhere.
TBC is targeting annual growth in loan book of 80% in Uzbekistan, ROE of more than 23% and annual net profit growth of 15% to reach GEL1.5bn with a dividend payout rate of 25% to 35%. All punchy figures, but you wouldn’t bet against TBC achieving them
