TBC Bank Group PLC (TBCG) Earnings Call Transcript

Welcome, everyone, to the TBC Bank Second Quarter and First Half of 2025 IFRS Results Conference Call. [Operator Instructions] I will now hand you over to Andrew Keeley, Director of Investor Relations, to begin. Andrew, please go ahead when you're ready.

Thanks very much, Carla. Hello, everybody. It's great to welcome you to our second quarter first half 2025 results call. As usual, I'm joined on the call by our CEO, Vakhtang Butskhrikidze, and our CFO, Giorgi Megrelishvili. We'll start with a presentation, and then we'll move to Q&A. And with that, I'll hand over to Vakhtang. Thank you.

Yes. Thank you, Andrew. Hello, everyone, and thank you for joining us today. I'm pleased to present another strong set of results for the second quarter. As you can see, our group's net profit reached GEL 346 million, up by 5% year-on-year, while return on equity was above 24%. In Georgia, we maintained high profitability with double-digit growth in our loan book and operating income, whilst maintaining a solid capital position. Over the same period, Uzbekistan's operating income increased by an excellent 86%, while our loan book more than doubled year-on-year. We also surpassed 20 million registered users, a great achievement. We continue to build out a digital ecosystem in Uzbekistan. In the second quarter, we launched the country's first fully digital insurance service. We also agreed to acquire BILLZ, which is Uzbekistan's leading SaaS platform for businesses serving the retail sector, thus strengthening our business banking proposition. In addition, I am proud to share that TBC Uzbekistan became the first and only business from Uzbekistan and Central Asia to be included the world's top fintech companies list of 2025 by CNBC and Statista, which is excellent recognition for what Niko, Oliver and the team are building. Thanks to our strong profits and a solid capital position, the Board has declared the second quarterly dividend of GEL 1.75 per share, bringing the total first half 2025 dividend to GEL 3.25. We have also announced a GEL 75 million share buyback, which reflects our commitment to returning excess capital to shareholders. Now turning to Georgia. Georgia's economy continued to perform very well. Real GDP growth reached 7.1% in the second quarter, bringing first half of growth to 8.3%. And our macro team has upgraded its 2025 GDP growth forecast to 7.1%. The inflation rate reached 4% in June, surpassing the NBG's 3% target. Even so inflation is expected to ease over the next few months. On the next slide, I want to highlight the consistent and high profitability that our Georgian business delivers quarter after quarter. Over the past 3 years, average return on equity has been about 25% with the loan book growing in average at 17%. As we see on Slide 8, we continue to be a leader player in Georgia. In the second quarter, our gross loans increased by 11% year-on-year, and I'd like to highlight the excellent progress we are making in one of our key focus areas of unsecured consumer lending. As our first consumer loans increased by 45% year-on-year in the second quarter, and we continue to gain market share in this segment. Over the same period, our total customer deposits grew by 10% year-on-year. We continue to hold the strong positions across both lending and deposits, and we are consistently improving the way we serve individuals and the businesses. This leads nicely on to Slide 9, which shows the growing trend of digital engagement within our retail customer base in Georgia. As of June, our digital monthly users exceeded 1.1 million with 66% penetration in our active customers. Over the same period, our daily active users to monthly active users ratio stood at a very decent 47%. I'd also like to highlight that our monthly active users have been consistently growing by around 50,000 quarter-over-quarter over the past year. Our growing share of a fully digitally issued consumer loans and retail deposits show that our customers are highly engaged with our digital channels. Digital customer loans issuance surpassed 80%, while deposit offloading reached 70%, respectively. Now Slide 10 on this slide, I'm pleased to share that TBC Bank has been recognized as the best digital bank in Georgia by Euromoney, reflecting our ongoing commitment to innovation and digital excellence. For example, in the second quarter, we introduced a number of improvements to our mobile bank application focused on personalization, seamless onboarding, smarter financial tools of PFM and robo advisory and improved user accessibility across key digital banking services. Now let's move to our Uzbekistan business and its economy. Like Georgia, the Uzbek economy also remained very strong with real GDP growth of 7.5% in the second quarter, bringing the first half of 2025 growth to 7.2%. Inflation is also easing, dropping to 8.7% in June, supported by tighter monetary policy. Slide 13 provides an excellent snapshot of the great progress we have made over the past few years in Uzbekistan across all the major metrics. We have now over 20 million unique registered users, out of which almost 6 million are monthly active users. Our loan book has more than doubled year-on-year and now tops $900 million, while our deposits increased by 86%, reaching almost $500 million. Our operating income reached a record $62 million in the second quarter, doubled year-on-year in the first half, which is testament of the strength of our core business. Net profit came in at $12 million, up over 35% year-on-year. Now let's turn to some of our recent achievements in Uzbekistan. The uptake of our core daily banking product, Salom Card has been excellent with over 0.5 million cards issued since its launch last November. At the same time, we have issued around 70,000 Osmon credit cards as we roll out the new and innovative product for the Uzbek market. In the second quarter, we also launched a fully digital insurance offering, starting with the credit life insurance, and we plan to expand the portfolio to introduce a comprehensive suite of personal insurance products. To date, we have issued over 180,000 policies. Another major recent milestone was partnership with built Uzbekistan's leading B2B SaaS platform for businesses serving the retail sector, serving more than 4,000 merchants. This will further strengthen our business banking proposition. And finally, Slide 15 shows how our business in Uzbekistan continues to gain market share and is now a material contributor to the group. By the end of the second quarter, we held over 5% in the retail loans and over 4% in the retail deposits. Uzbekistan also generated 20% of the operating income and 9% of the group's net profit in the second quarter. With that, I want to pass to Giorgi, please.

Thanks, Vakhtang, and thanks all for joining our Q2 and H1 call today. So I will go through our financials. And if we can move to the next slide, I'll start with Slide 17. As you can see, it has been another very strong quarter from the profitability side. Our net profit has been GEL 346 million, up by 5% year-on-year. And this growth is particularly notable because if you remember last year, we had few elevated income, for example, for FX when the FX was quite volatile and also GEL 10 million recovery from the provision. But actually, despite that, we still delivered 5% growth in net income that translated very nicely into a 24% plus ROE. So if we go to the next slide to go through the key drivers. Our top line growth is very strong, 23% year-on-year, and that's driven by all revenue lines. Net interest income is up by 27%, noninterest income by 15%. That's driven by our very strong fee and commission income growth, 26% year-on-year, and that's [indiscernible] to our payment businesses in both countries. So if we go to next slide, Slide 19. It shows another driver of our profitability growth. We see that NIM actually exceeded 7% level. It's been a while since we see this level, and we do hope to remain at this level for a while in the foreseeable future. The 40 basis points quarterly growth was driven by 2 factors. One, of course, TB Uzbekistan is growing portfolio that is much higher yield, higher margin loans. But on the other side, we're also very pleased to see that NIM increase in Georgia as well. It was up by 40 basis points to 5.9%, and that's driven by kind of increasing loan yields. Vakhtang mentioned our consumer loans are going up. That's one of the driver. We are very happy to see our strategy working out and also continuous management of our balance sheet. That also supports our NIM increase. Now if we go to the next slide, Slide 20. So our cost problem dynamics remain unchanged, quite stable. We increased 22% year-over-year because we are scaling our business, both in Georgia into TBC Uzbekistan, 45% cost growth coming outside Georgia. But on the other hand, we are growing our revenues as well because as you can see, our cost-to-income ratio remained almost flat. Actually, it's even slightly ticked down to 37.6%. So if we go to the next slide, Slide 21. So again, we are seeing -- so now I would like to discuss our cost of risk dynamics. In Q2, our group's cost of risk stood around 1.6%. It's up by 20 basis points. But breaking down by the countries, Georgian cost of risk remained stable on a quarterly basis, 80 basis points, no change, very stable, very healthy level. While the cost of risk in Uzbekistan stood at 9.9%. That's obviously a higher level than we actually expected, but that's driven by a few factors. Over the past few quarters, we have been testing our new SINA files, less data-rich customer segments in our core ICL products. As well, we actually also grew into our post-merchant partners into the longer tail. This is part of our data-driven test and learn, let's say, approach. And although much of this new business is profitable, in H2, we will ease down a bit in some of the newer segments and we will remain focused on profitable growth. We have also some, let's say, operational issues around collections that mainly was due to telecom capacity, which is basically a function of very strong loan growth, but we have sorted out this issue already. Overall, we do expect our cost of risk to remain around -- to be around 7% to 10% range over the next few quarters, but we will ensure the business delivers high profitability. One thing I also would like to highlight that we are seeing now positive trends, both first payment default, second payment defaults are coming down. July dynamics, the initial numbers are also showing the better trend and probably Q3, we should expect to be lower than Q2. So if I move to the next slide. Here, we see our portfolio dynamics, both loan and customer funding are growing very nicely. Loan growth 16% year-on-year. Customer deposits 14%, both on constant currency basis. Probably if we go to next slide, Andrew 23. So I now will move back to TBC Uzbekistan. Here, again, we see very strong performance. Our top line is up by 100%. Our operating income doubled. It is $120 million. Our net profit also grew very nicely. It was up by 36%, maybe not as strong as 100%, but still very strong growth. The difference is driven by provisions that we expect to again stabilize quite shortly, and we do expect a very strong profitability growth over the next quarter or a few quarters. Our return on equity is 20%. And again, we target to go our like mid-20% or higher 20s target even from next quarter level. So next slide. I'll continue on the TBC Uzbekistan slide. Like, the NIM was very healthy 23%, although slightly soft trend compared to the last quarter. And there are a few drivers. We have always kind of guided or communicated that maintaining into mid -20s probably not realistic, but we do expect and are confident to remain 20% plus NIM territory. So the tick down is driven by general market dynamics that drives loan yields down. And as well as we diversify into products more and more, we will see [ like our coming down ]. However, on the other hand, we also see the funding cost coming down, customer deposits coming down. So overall, this more or less offset each other. But again, as I mentioned, probably it will continue coming down if we call 20% plus NIM coming down. I already covered the risk side quite extensively. So I'll stop here and move to the next slide. On the loan side, another phenomenal outcome. Our loan book year. It's already $900 million plus. As you remember, our target is $1 billion by year-end, we are almost there. So we don't have any like again achieving or, let's say, even overachieving this target. So our growth continues very strongly. And on the right-hand side, it's the first time we are showing this data, our portfolio breakdown. Our core product, how we start with Uzbekistan, instant cash loans still 78%. However, we are also seeing that other products are -- their share are also going up. Post lending 11%. Very pleased to see business lending is 7% and credit cards already mentioned is now 4% around. So this trend will continue. Our portfolio reshape and we show you the progress quarter-over-quarter. Now next slide, Andrew. So again, not much to say on this slide rather than we have very strong capital positions in both countries, comfortably above regulatory limits. So we remain very well capitalized in both countries. And if you go to the slide, exactly this very strong capital positions, combined with very high profitability that I have been talking throughout my presentation, allowed us to pay GEL 75 million share buybacks that will start in the second half of August and also to declare [ GEL 1.75 ] per share dividend. That brings -- that brings our overall like our dividend for H1 is GEL 3.25. That's a significant increase compared to H1 last year. So we continue to generate like a very strong profitability, have high capital positions and giving capital back to our, let's say, shareholders. So on this note, I will hand back to Vakhtang for some final comments before we open for Q&A.

And to conclude the part of the call, I'd like to revisit our strategic targets. I'm confident that we are well on track to meet our group's net income target for this year. As for the Uzbekistan, it remains our plan and the expectation that we will hit our earnings target. As our top line growth shows, it is still a very good operating environment in Uzbekistan. That said, the development in the first half around the regulatory headwinds and cost of risk with the fraud in the first quarter and the softer risk number in the second quarter make it more difficult to meet our earnings target, but I can assure you that the team is working extremely hard to achieve this. And I'd also like to mention that we plan to outline our future plans and the new strategic targets for the next few years at our Strategy Day in early 2026 following the release of our full year 2025 results. Thank you for your attention, and we are happy to answer your questions.

[Operator Instructions]

So our first question comes from Rahim at Investec.

Three questions, if I may. The first was just to try and get some guidance on the outlook for NIM. It's obviously a source of strong performance in the quarter. Just to help us understand what the full year outlook might be would be helpful. The second was, I guess, a little bit on the flip side was just the outlook for cost of risk. Obviously, Georgia has been quite stable. But should we -- how should we be thinking about Uzbekistan given the test and learn processes that's been going on there? And then finally, just staying with Uzbekistan, obviously, the move into insurance is obviously quite an interesting one. Just your initial take on how that's being received by clients and what the source of kind of upside is in terms of the medium term and what we should be looking for next in that regard?

I'll take the first 2 questions on the NIM and cost of risk and Vakhtang will cover the insurance business. So to start with outlook for NIM, as I mentioned, to be to target to remain at 7% plus at the group level. In Uzbekistan, we are at 23% with some decline. It will be gradual, not immediate, probably little bit, as I mentioned, we are confident that it will be 20% plus, maybe a few pluses. It depends on the quarter, not very quickly as well. In Georgia, we landed 5.9%. Generally, in the medium term, we are comfortable mid-5 levels. Next few quarters, it can easily be high 5s. So our expectation will be again high 5s. That's on the NIM side. And we do expect nice growth in net interest income both in Georgia and Uzbekistan at group level. So if I go to the cost of risk outlook in Georgia, the portfolio is very stable with a very robust and decent credit quality. Again, as we guide somewhere between 80 and 100 basis points is our, let's say, normalized cost of risk, and we do expect to like to stay at this level, sometimes maybe a bit lower. On Uzbekistan, cost of risk, there are a few moving parts. And I just would like to take some time to cover that because probably some of you may [ questions to ] kind of clear out this topic. First of all, I would like to highlight that it's a growth business in frontier market. And we have been coming to this point without any banks. But again, it's frontier market. We need to grow business into new less data segments. One thing I would like to highlight like, for example, 2/3 of Uzbekistan population have never taken a loan. So in credit bureau, we only have 1/3 of the population. So therefore, we need to understand which segments are profitable, where we can go gather the data. That's exactly our test and loan approach that we are taking. And that helps us to gather data, determine most profitable segments that will fuel our growth profitably. We have done a lot of tests to understand which segments now we can do good business. We have quite a clear idea. Of course, this test has a cost, and that's exactly the cost we are coming through, but they also have benefits that will be coming through like next few quarters or actually in the longer period. Bulk of the business also we booked profit just immediate short-term claims that we are taking at the moment. We have done our job. And now we are slowing down a bit also in some newer segments a bit, although and we focus on kind of to continue our profitable growth. Now also that means that we are continuing the strategy in a disciplined data-driven and risk lending strategy. And we will continue expanding into new segments to integrate new data sources, understand new customers. And as I mentioned, we are already seeing our first payment defaults coming down, second payment defaults are coming down, and we are carefully looking at the profitability level. So generally, as I said, like probably somewhere 7% to 10% next few quarters is the right level to think about, and we need to see how business evolves. But our key focus will be, as I mentioned, next few quarters to kind of go back to mid- to high 20% return on equity profitability on a longer-term stabilized basis, 30% plus return on equity for this business remains untouched. So that's the level we were targeting. So that's about the cost of risk. And I hand back now to Vakhtang for the insurance part.

Yes. As we mentioned already in our presentation, just we began our insurance business just listed a few months ago, and we are in the beginning of our journey. So we sell only the credit life insurance product, but we have plans to bring the new type of insurance product as we are micro and SME businesses in addition to other products in the bank. But till now, it's the beginning. So I mentioned in my part of the presentation, we sold only 180,000 insurance products to the market, but as disbursement growing up, so it's a huge potential for us. And not only insurance product, but also as we mentioned in the presentation, we have more than 500,000 debit card Salon cards. We have more than 70,000 credit cards and the business is growing up. There is a huge potential in the fee and commission income and probably in the coming quarters, we will see high growth fee and commission income from the issuance and from the other type of the income. But more details and the long-term views, we will bring on our Investor Day, what I mentioned in the beginning in the first quarter of the next year.

Next question comes from [indiscernible].

I have a question on Uzbekistan. I saw you shared a chart of your market share in retail loans. And can you just clarify what is included in your definition of retail loans? Does that include both secured and unsecured and personal loans, credit card? Just a little bit more color on how you define retail loans would be helpful. And I have a follow-up after that.

All the loans that retail customers take. It's credit cards, secured mortgages as well that makes 5% even more I would say impressive because we don't have any mortgage businesses or secured [ businesses at ICL and credit ] cards, and we are already at 5%.

Okay. And so you intend to go into mortgages at some point?

[indiscernible] but it's not our focus in 2026.

Okay. And then car loans, does that loans include loans for you?

Auto loans, we have it, but very small part. It's not material in the portfolio.

So it's over 1 million secured loans.

Yes.

Okay. And then what about micro loans, SMEs, that is classified separately, right? Or is that part of retail loans?

It's separate.

It's separate. Okay. And what do you think is realistic? So you're at 5% share of retail loans today? What do you think is realistic market share that you can gain that you can have in Uzbekistan retail loans, say, 3 to 5 years from now?

Yes. So thank you for this question. But as we mentioned already, we want to bring that next few years, I mean, 3 to 5 years plans what we want to achieve in Georgia, Uzbekistan in probably in February, March on the Investor Day. But we will have a very ambition plans. minimum, we will target minimum to go to 8% to 10%, but more detailed and clear plans we will bring in the first quarter of 2026.

Okay. And can I ask another question? Yes. So I'm still learning about Uzbekistan banking sector. But one of the things that struck me was that liquidity is like a challenge from a system-wide point of view. So you have a system LDR about sort of [ 2% ] based on the recent report that I see. And correct me if I'm wrong, but that's the number that I saw, which means that to sustain at the pace of growth that you're in that you deliver, you have to continue to gain market share of deposits from the incumbents because system-wide liquidity is constrained. So first of all, do you agree with that hypothesis? And can you elaborate a little bit more on your deposit strategy? And as part of that includes targeting deposits of established conventional banks?

I'll take that question. So to start with customer funding is one of probably the areas we found a bit more constrained a few years ago when we entered. But we -- one of the strategy we took we started as a deposit taker in the country. And since then, we have been -- and then we had it long. Since then, we have been growing really nicely. As you know already, we have 4% market share as a digital bank. It's very kind of -- we are one of the fastest growing deposit market. Therefore, we are going to get like a big market share. We don't see any issues. Another question comes how the market is developing and how the market will grow. And we see very nice frontier market it just started. People are learning on saving culture and the regulator, the local government is like, again, promoting this. And we do expect this trend to change and become better and better as time passes as we've seen in many other countries. So to kind of summarize on one front on deposit side, we are expecting the deposit growth to actually accelerate in the country, and we to continue getting the big share. On the other hand, there are another question, so how we are going to fund because obviously, our target growth like -- can't be really funded direct only through customer funding. But we don't see any issues here because we are very capable on wholesale funding. And there are a few things on this. For example, in Georgia, we operate with every IFI name, honestly. Probably there is kind of none we did not work. And now we are working with IFIs to fund Uzbekistan business, and we have already more than dozen deals with them. So it's like in local currency. And again, the funds this circle is going up and up and increasing. Another thing is the wholesale fund capital markets. We just like printed $200 million, let's say, equivalent bond into some with so far, it was a top option. So far, we only used $140 million. We still have $60 million to be used. So -- and if needed Uzbekistan will become part of the capital markets. Therefore, we do have capacity capability to fund any gap through, I would say, let's say, let's say, wholesale funding. So we don't foresee any challenges on that side.

I have another question, but I'll go back to the so I can give other people an opportunity to ask question.

It's fine, TJ. While you're on, you can just ask.

Okay. This was kind of what I promised. So no, on asset quality, so I do recognize there is a massive opportunity for consumer and lending in Uzbekistan. You mentioned the statistics that's only about 1/3 of households have taken credit. But one of the things that I read was that household credit has also expanded a lot over the last 5 years or so. And we are now starting to see signs. I mean, it might be like pockets, but we see signs of stress. You had an incident in your last quarter and then the Central Bank, it seems like it's trying to restrain consumer credits in certain segments. So what are you learning and because of the point that you made earlier about going into certain sectors to -- sorry, I'm missing the frame of what are used, but you were indicating that you are taking lessons to be able to better serve the individual borrower. So what are the key lessons that you've learned about credit in Kazakhstan in terms of mitigating risk.

I'll take that question. To start with, there are a few bits and I'll try to break them down. The first bit like we already mentioned in Q1, it was isolated one-off incident has nothing to do overall credit quality of the country or cycle. It was very unfortunate event that we contained. We extensively discussed that in Q1, and we are confident that we close all the loop holes from this perspective. So I would just split that bit from the overall credit quality. So on the credit quality side, we don't see any signs of the cycle. So like as I mentioned in the few quarters, yes, our cost of risk is picking up and also the regulator trying to put a cap on the consumer lending. So I'll try again to split these 2 parts. From regulator perspective, putting 25% cap is more [indiscernible] to try and to push and somehow facilitate SME lending. So their key focus is to increase the business and the SME business that we are their focus and they want to see more activity there. That's probably one intention. Another one, as I mentioned, there's no signs. But in future, there may be some signs. So for example, they are somehow trying to preempt and kind of like work, let's say, in advance to ensure that it is managed and controlled growth within the sector. So these are the 2 aspects from regulator side. So again, that's not happening because they see any credit quality or [indiscernible]. On our side, I already mentioned it -- again, we don't see any issues in the high single digits where we stand. It's our test and learn approach. It's less. I'd say we are actually investing into this to understand well profitable segments. We have to grow, how to grow. And we are on top of these things at the moment. And as I mentioned now, we are going to slow down in a few sectors that we found are not very profitable. We are going to grow into more some other segments we found to be very profitable. And you will see again from our profitability numbers from the next few quarters and years to come.