Earnings call transcript: TBC Bank Q1 2025 sees 7% profit rise, stock drops

TBC Bank Group PLC reported a robust financial performance in the first quarter of 2025, with net profit rising by 7% year-on-year, reaching $319 million. Despite these positive results, the company’s stock experienced a significant decline, dropping 10.19% to $4,365 from the previous close of $4,860. According to InvestingPro data, the stock remains undervalued with a P/E ratio of 6.75, significantly below peers. The company has demonstrated strong momentum with an impressive 83.48% return over the past year, suggesting potential upside despite current market concerns.

Key Takeaways

• Net profit increased by 7% year-on-year to $319 million.
• Stock price fell by 10.19% following the earnings report.
• Total operating income grew by 25% to $774 million.
• The company maintained a return on equity (ROE) of 23%.
• TBC Bank launched new digital products and expanded its card offerings in Georgia and Uzbekistan.

Company Performance

TBC Bank demonstrated strong financial health in Q1 2025, with a notable 25% increase in total operating income, amounting to $774 million. This growth was driven by a record net interest income of $500 million, up 20% from the previous year, and a 38% rise in non-interest income, which reached $240 million. The company also maintained a stable cost-to-income ratio of 37.2%, despite a 25% rise in costs. InvestingPro analysis shows the bank maintains a GOOD Financial Health score of 2.96, with particularly strong momentum metrics. Subscribers can access 12 additional ProTips and comprehensive financial analysis through the Pro Research Report.

Financial Highlights

• Revenue: $774 million, up 25% year-on-year
• Net profit: $319 million, a 7% increase year-on-year
• Adjusted net profit: $330 million, a 14% increase
• Net interest income: $500 million, a 20% increase
• Non-interest income: $240 million, a 38% increase
• Return on Equity (ROE): 23%

Market Reaction

Despite the positive earnings report, TBC Bank’s stock fell by 10.19% to $4,365 in pre-market trading. This decline can be attributed to investor concerns over a recent fraud incident in Uzbekistan and regulatory changes affecting the microloan portfolio. However, analysts maintain a Strong Buy consensus on the stock, with price targets ranging from $46.30 to $84.20. The company’s market capitalization stands at $3.2 billion, with revenue growing at 19.59% year-over-year.

Outlook & Guidance

TBC Bank remains committed to quarterly dividend distributions, aiming for a payout at the top of the guided range of 35%. The company has demonstrated strong commitment to shareholder returns, with dividend growth of 29.95% in the last twelve months and a current dividend yield of 4.57%. The company expects to maintain its net interest margin (NIM) around the mid-5% range and is targeting a loan book of $2.5-3 billion in Uzbekistan over the next three to four years. Get deeper insights into TBC Bank’s financial health and growth prospects with InvestingPro’s comprehensive analysis tools and expert research reports. The bank is also focusing on diversifying its product mix with new credit cards and MSME lending initiatives.

Executive Commentary

CEO Vaktang Wutsgeri Kitsze expressed confidence in the company’s ability to build on its strong start to 2025, stating, "We are confident the group is well positioned to deliver strong results for our shareholders in 2025." Oliver Hughes, Head of International, highlighted the benefits of increased regulation in consumer lending, noting, "The more regulation there is in consumer lending, the safer the market for everybody."

Risks and Challenges

• Regulatory changes in Uzbekistan limiting microloans to 25% of the portfolio could impact future earnings.
• The recent fraud incident in Uzbekistan may affect investor confidence and operational integrity.
• Inflationary pressures in Uzbekistan, currently at 10.3%, could challenge cost management.
• Market expansion efforts may face competitive pressures and geopolitical uncertainties.
• Maintaining a stable cost-to-income ratio amidst rising costs remains a challenge.

Q&A

During the earnings call, analysts inquired about the recent fraud incident in Uzbekistan and its impact on operations. Executives provided a detailed explanation and reassured stakeholders about the measures being taken to prevent future occurrences. Questions also focused on the company’s strategy for market expansion and the implications of regulatory changes on the microloan portfolio.

Full transcript - TBC Bank Group PLC (TBCG) Q1 2025:

Andrew, Moderator/Host, TBC Bank: thank you, everybody, for joining our first quarter results call this afternoon. As usual, I’m joined on the call by our CEO, Vaktang Wutsgeri Kitsze and our CFO, Georgi Megrelischvili. And we’ll also be joined today by our Head of International, Oliver Hughes, who will join for the Q and A part of the call. As usual, we’ll have a presentation, first of all, and then we’ll move to Q and A. And with that, I’ll hand over to Vaktang.

Thank you.

Vaktang Wutsgeri Kitsze, CEO, TBC Bank: Thank you, Andrew. Good afternoon, everyone, and thanks for joining our first quarter financial results conference call. I’m happy to start our call with some good news. Our Board has approved quarterly dividend distributions to enhance shareholder value through more regular terms. As a result, the Board has declared an interim dividend of ZAR1.5 per share for the first quarter of twenty twenty five.

Moving to our quarterly results, Slide four presents some of the key financial and operation highlights from the first quarter of this year. I am pleased to report a strong start of 2025, which is particularly welcome given the uncertain global backdrop. Our net profit reached CLP 1 and 19,000,000, up by 7% year on year. At the same time, the group’s return of equity in the first quarter was about 23%, in line with our medium term guidance. In Georgia, we maintained a high profitability with an excellent return of equity of 23.3%.

Double digit growth in our loan book whilst maintaining a solid capital position during the volatile times. Over the same period, Uzbekistan’s loans and operating income both more than doubled year on year. And I am delighted to report that as of April, we have more than 20,000,000 unique registered users there, which is more than a half of Uzbekistan’s population. In the first quarter, in TBC Uzbekistan recorded a nonrecurring impairment charge of L24.6 million related to a market wide data integrity issue affecting our borrower income verification processes. Without this, Uzbekistan’s profit and the return of equity would have been L42 million and 26.6%, respectively.

I think it is important to say that we spotted this issue quickly, have adjusted our underwriting and our defraud processes and move on, and we are expecting a stronger second quarter. I also want to highlight that we are very pleased with our robust new digital product pipeline in both geographies with very strong issuance of TBC card in Georgia and Salem and Osman card in Uzbekistan as well as the recent launch of MSM Landing in Uzbekistan. Now shifting focus on Georgia, let’s examine the broader macroeconomic environment. Georgia’s economy remains extremely robust at 9.3% real GDP growth in the first quarter, with inflation at 3.5%, slightly above the target of 3%. International organizations such as the World Bank and Monetary Fund expect economic outlook to for this year around 6%, which is broadly in line with our in house projections provided by our macro team in DBS Capital.

On the next slide, we can see our solid balance sheet growth in third year and the first quarter. Our gross loans increased by 13%. In the retail space, we have been reengineering all aspects of our fast consumer loan offerings, and we have seen a 52% year on year increase in the first quarter. Over the same period, our total customer deposits grew by 9%. Next slide shows the growing trend of our digital engagement within our retail customer base in Georgia.

As of March, our digital monthly users reached 1,100,000. At the same time, our daily active users to monthly active users ratios stood at 47%, up by three percentage point year on year. I’m also pleased to highlight the ongoing long term trend of increasing digitalization within our Georgian business. Our customers are highly engaged with our digital channels as evidenced by the growing share of fully digital issued consumer loans and retail deposits, which stood at 7968%, respectively, both continuing to show a strong upward trajectory. Next slide gives an update on our new TBC card launched in the last quarter of the last year.

With the help of this new flagship daily banking product, our number of issued debit cards almost tripled year on year, and it helped to add 100,000 new debit cardholders in our user base in the first quarter. Now let’s move to our Uzbekistan business and its economy. The Uzbek economy also remains very strong with a real GDP growth of 6.8% in the first quarter and international organizations forecasting around 6% GDP growth in this year. Inflation remains elevated at 10.3% as of March, and it will take time to reduce this to the target level of 5%. Next slide shows our performance in Uzbekistan.

As I mentioned earlier, we now top 20,000,000 unique registered users, of which more than 6,000,000 are monthly active users, adding an incredible 1,400,000 monthly active users year on year. Our loan book more than doubled year on year, reaching more than $770,000,000 while our deposit increased by 85%, totaling $440,000,000 Our operating income grew exceptionally strongly, reaching $57,000,000 in the first quarter, which represents a 118% year on year increase. Net profit came at $8,000,000 or $15,000,000 adjusted for the one off charge. Now let’s turn to the new products. Our Salon Card daily banking product and Osman credit card have both seen strong early success that has exceeded our expectations with more than 220,000 SALO and up to 50,000 Osman credit cards issued by the end of the first quarter.

We have also recently extended our MSME digital banking offering as we took to develop the huge untapped opportunity within the MSME sector in the country. I’d like to add that at the April, the Central Bank of Uzbekistan announced plans to phasing until 2029 regulatory changes that will limit the respective share of microloans, credit cards and car loans in the bank’s credit portfolios to 25% for each segment. We do not see this impacting either our this year guidance or our long term growth and profitability plans. We now have a diversified loan of product offerings, including our core instant cash loans, credit cards, POS and BNPL loans and MSME lending, and we remain excited about the huge growth opportunities ahead in Uzbekistan. Next slide shows how we continue to gain market share.

By the end of the first quarter, we held more than 17% market share in unsecured consumer lending. And over the same period, our market share in the retail deposits reached 4%. Next slide shows how Kibisu Uzbekistan is becoming more and more material contributor to the group, in particular contributing over 20% of the group’s operating income in the first quarter. I’d also like to highlight another important milestone achieved in the first quarter with the creation of the new holdco in Uzbekistan, TBC Digital, in which TBC Group owns 80% and our iFi partners 20%. Through this process, we folded our two businesses, TBCUs and PayMe, into a single shareholding structure, enabling us to more effectively unlock synergies and increase shareholder value in Uzbekistan.

With that, I pass the floor over to Georgi.

Georgi Megrelischvili, CFO, TBC Bank: Thank you, Waktang, and thanks all for joining our call today. Let’s now move to the financial results for the first quarter ’twenty five. I’m pleased to report that we delivered another quarter of consistent and strong profitability. Our net profit for the first quarter reached $319,000,000, up by 7% year on year, while the, let’s say, net profit, if we adjust for the one off charge, was $330,000,000 with growth of 14% year on year. As you can see, ROA stood at strong level, over 23%.

Even given the stabilization in cost of risk and Georgian NIM and after the one off charge, it still remains aligned with our group’s midterm target of maintaining it above 23%. For same period, the, let’s say, underlying ROAE would have been 24.2%. Now let’s look at our net income stream list performance. Our total operating income grew by an excellent 25% year on year, reaching NIS $774,000,000, with a very strong growth in both interest and noninterest income. In the first quarter, our net net, say let’s say, net interest income stood at record high level of 500,000,000, up by 20% year on year.

Over the same period, our noninterest income reached PLN240 million, up by 38% year on year, including 42% growth in net fee and commission income. That is actually driven by our payment business in both Georgia and TBC Uzbekistan. Now let’s have a look at our margin dynamics. Although in Georgia, we saw a bit of NIM sliding down mainly to the higher LARI funding costs, we successfully maintained a stable NIM of 6.7% during Q1 twenty twenty five. Going forward, we would target to maintain NIM in Georgia around the current level for the next few quarters.

Now let’s move to the next slide that actually outlines our cost management approach. We are committed to maintaining disciplined cost control, while also we would like to invest in a sustainable growth of our businesses in both countries. Our cost grew by 25% year on year in Q1, driven by the continued growth of our business. Meanwhile, cost growth in Georgia was only 11% year on year, even with newly introduced resolution fund charge of around $4,500,000 in Q1. Without this charge, the cost growth in Georgia was 9%.

As a result, the group’s cost to income ratio stood at 37.2% in Q1, flat year on year. Georgia’s cost to income ratio was 31.8%. Now let’s have a look at our credit quality. As already mentioned, in the first quarter, we had a nonrecurring impairment charge of $25,000,000 This was actually related, as Wassner already mentioned, to an issue that had an effect on number of lenders and banks in the market, and it was driven by borrower salary verification process. It is important for me to highlight that we spotted that we spotted the problem quickly, adjusted our credit and ARTI processes quickly, put measures in place to ensure that it doesn’t repeat.

We believe now we have closed the loophole, learned from it, and we can move on. The underlying risk cost in Uzbekistan also slightly ticked up on strong loan growth, which, as you know, would require front loading per IFRS as well as our strategy of testing some riskier but more profitable new segments. As a result, the, let’s say, the core without the charge would have been 8%, which is at higher end of 7% to 8% range we broadly expected. I’d like to highlight that underlying credit quality for both countries remains very healthy. Now moving to our balance sheet, growth here remains strong.

As of March 25, our gross loans grew by 18% year on year on a constant currency basis, and total customer funding grew by 12% over the same period on the same basis. Now let’s turn again to our Uzbekistan business. Aside from the Vanuve charge, it was a great quarter on all other fronts. Adjusted net profit for the business reached 15,000,000 lari, more than double year on year, with ROAE 26.6%. This was powered by 118% year on year growth in the operating income with an excellent contribution from NII and fees.

Now let’s look at our Uzbekistan financials in more details. We continue to maintain high margins, with NIM is up by around 50 basis points and stands at 24.7% in Q1. As already mentioned, the asset quality remained healthy with an adjusted core of 8%, and the NPLs stood at 2.1%. Now let’s have a look at our capital position. I’m pleased to say that even post the final dividends, our capital positions remained very solid, and we continue to maintain strong capital buffers comfortably above the regulatory requirements in both countries.

Now finally, I would like to reiterate that we do remain committed to returning capital to our shareholders. We have decided to move to quarterly dividends to provide more timely capital return to our shareholders, confirming the good visibility we have on the business and strong capital discipline. The Board has approved a quarterly dividend of 1.5 per share for the first quarter twenty twenty five, and we continue to expect to pay out dividends at the top of our guided range for 2025, it means 35%. And on this note, thanks to all of you, and I will hand back to Lhastan for some final comments before we open for Q and A.

Vaktang Wutsgeri Kitsze, CEO, TBC Bank: Thank you, Georgi. And to summarize this part of the call, I’d like to revisit our strategy targets. And I’m confident the group is well positioned to build on the solid start of the year to deliver strong results for our shareholders in 2025 and that we remain firmly on a track to achieve all our strategic targets for this year. So many thanks for your attention, and we are happy to answer your questions.

Operator: Thank

Andrew, Moderator/Host, TBC Bank: Okay. Thanks very much. Our first question comes from Stephen Payne of Peel Hunt. Stephen, please go ahead.

Stephen Payne, Analyst, Peel Hunt: Three questions, if I may. First one, with regard to the nonrecurring impairment charge in Uzbekistan. Could you just give us a little bit more color around exactly sort of what did happen there just to help sort of reinsure investors that this is an isolated incident and it’s sort of completely closed out?

Oliver Hughes, Head of International, TBC Bank: Yes. Hello, everybody. I think I’ll I’ll take this one. You can hear me okay. Yeah.

Good. So just to give you a bit more color, and then if if you want me to take in different directions so we can drill down, then please feel free to do so. So the a high level description of the situation. Firstly, this is a one off. So we we discovered it quickly.

As soon as we understood exactly what was happening, we we closed it quickly. And this happened in it was localized to January and February. It was actually localized more or less to three regions in Uzbekistan. So we have a good handle exactly what happened, and we’ve implemented measures. I can give you some color on those measures to make sure this doesn’t happen again.

So this is something which is now done and dusted and provisioned. So just to give you a few high level numbers so you can get a a better feel for what it was. So we we’ve discovered around $11,400,000 of of fraud. Some of that is in a in a question mark zone, So it it could or couldn’t be fraud, and that’ll develop over time, but we we’ve taken a conservative number. We think it’s 1,400,000.0.

And it was just shy of 5,000 customers. Just to put this in context straight away, that’s around 1.3% of our total gross loan book. So it’s it’s a number, but it’s small. And every day, we disperse nine to 10,000 cash loans. So the total number was was less than 5,000.

So it’s less than half a day’s disbursement. Yes. So, again, it’s a number, but it’s it’s very manageable and not material to our yearly figures in any way. So $11,400,000 of of what we believe to be fraud fraudulent loans. It’s now down to $10,400,000.

So we’ve already recovered a million dollars. So around 9% and we’re recovering every day. These these customers are contactable because most of them are legitimate customers, and I’ll explain exactly how this this scheme works in a second. We provisioned 80%. As I said, we’ve we’ve recovered 10%.

We think we can recover more. If we need to provision a little bit more, then obviously we’ll do that. But we took the hit in quarter one for the 80%. So what what exactly was this fraud scheme? So all banks in Uzbekistan use, the tax registry database in order to verify income.

So we have different categories of customers. We have, customers whose income we can verify. We have customers’ income. We can’t verify because it’s not in the tax database, and that’s actually quite a lot for parts of population of Uzbekistan. We can find them in the credit bureau.

We can use transaction data. We have lots of different data sources. One of the important ones is obviously the tax registry. There’s a a fraudulent ring, so it’s professional fraudsters on an industrial level who went around Uzbekistan, focused in three regions, but it wasn’t localized entirely to those three regions, and basically recruited people on the street or in companies, cultivated them over quite a long period of time, and by through a variety of means, compromise the data and the tax registry for these people. And there’s a a few ways that this happened.

There’s a bit of a hydrogen, unfortunately, which is what may made this one of the rather difficult to detect it early on. So I’ll just just describe a few. These individuals received fictitious salaries, which were loaded to the tax database, but the companies were not real companies. Non operating so so they’re real companies, but these people were not employees. So these are fictitious employees.

Non operational companies that still have the ability to upload data tax registry. Legitimate companies where people actually worked, but a person on the inside was colluding with the fraudsters to upload fraudulent information to the the tax database. In some cases, the for example, chief accountant’s account was hacked and fraudulent information was uploaded to the tax tax registry that way. Legitimate employees of legitimate companies whose income data was inflated. So as you can see, you know, a variety of different ways going over a long period of time.

It may sound strange, this this particular scheme because you would imagine that this would trigger a tax liability in the, in the tax registry. But, this is actually a legitimate tool or feature that legitimate companies use because, you know, things change. Sometimes mistakes are being made in reporting. So there’s a feature which allows companies to go into the tax registry and change income data for for their employees. And it was this loophole that was exploited by the forces, as I say, with often with people on the inside in in the some of the employers.

So it wasn’t just a case of, you know, there’s been a change to a tax record. Therefore, it’s a bad customer because the overwhelming use case is legitimate. And I was saying that this this sounds a little bit strange because creates a a tax liability. The the actual change does not create a new tax burden. And actually, in these cases, the the fraudsters will then go back and and and change the the information of the tax registry after the event.

So we discovered this, by, not when we saw a spike in our first payment default, but earlier. So we have some offline locations, actually quite a few of them, over 200. And we saw some unusual people coming to these what we call them customer acquisition points. They’re often in retail centers or busy busy areas. And and so this signal went up to the fraud investigation team who started investigating and started discovering these patterns, and we started implementing measures to make sure that this didn’t occur, so since we understood the pattern.

So what are the the measures that we’ve implemented to make sure this doesn’t occur? So as I said, just to reiterate, we’ve we’ve understood the the pattern. We isolated this within our portfolio to understand the quantum. It’s now done and dusted. It’s closed.

But to make sure that this doesn’t happen in the future, and also even if it moves because, obviously, for us as a dApps to make sure it doesn’t happen in the future, I’m gonna explain what’s, what we’ve done. So we’ve implemented a bunch of rules to make sure that when we’re using tax agency data, we can identify fraudulent, information that’s been uploaded to the the bureau, and we look at recency, to make sure that, that is it gets a higher weight in the fraud scoring. We’re implementing a new anti fraud in house service, which looks at employer velocity. It looks at behavioral patterns and analysis of employers themselves. Basically, it’s a employer scoring.

Within the income fraud portfolio, we’ve identified some demographics and some regions which are high risk. As I mentioned a couple of times, this was mainly concentrated in three regions. So they got special treatments in terms of fraud monitoring and scoring. We’re just about to implement cross checks with

Andrew, Moderator/Host, TBC Bank: a pension

Oliver Hughes, Head of International, TBC Bank: database, and we have stepped up our verification. So we had a a minimal very manual verification process, but now we’ll do as soon as some trigger or some threshold is reached, we’ll be routing that to manual verification. And we believe that this will make sure that we, we never have repeat of, of this kind of fraud. It’s in the future, industrial level fraud. So that’s that’s oh, maybe I should also say on the collection side that we’re we’re working hard on collecting as much as possible.

So a lot of these because they were legitimate customers who worked inclusion with the fraudsters. They took a cut from the loan that they received. These are customers who had a verifiable income, but as it turns out, income that have been tampered with or fraudulently uploaded, but they do not have a credit bureau history. So we’re working with these people. We’ve launched mass litigation.

We’ve launched special collections processes, and we are still collecting as you can see from the recovery rates of around 10% and growing. So so we will continue to work very hard on that front to make sure we recover as much as possible. Andrew Georgi, I’m not sure if you wanted to add anything to that, but that is that is basically a a fairly detailed description of the situation.

Georgi Megrelischvili, CFO, TBC Bank: You covered it in fully, Oliver.

Andrew, Moderator/Host, TBC Bank: Stephen, do you have any follow ups or other questions?

Stephen Payne, Analyst, Peel Hunt: Yeah. Thank you very much for that also very detailed explanation. Okay. I think that gives us a lot more clarity. I mean, maybe the second question, maybe I’ll just touch on the, you know, again, in Uzbekistan, the regulatory change that we’ve seen come through from the Central Bank, which I know sort of Moody’s actually welcomed in terms of limiting the microloans individuals to 25% of the total loan portfolio.

Just trying to understand what sort of proportion of the portfolio they account for currently and how you see that sort of panning out through to the dates in 2029.

Oliver Hughes, Head of International, TBC Bank: Sure. So, this is something which has been, on the on the agenda, the discussion agenda for a few months. The Central Bank has been talking to the banking sector and including themselves, obviously, as a leading consumer lender. So the reason why they’ve done this is firstly to rebalance, as I say, the national loan book, and I want to put a lot more emphasis on the growth of MSME. So they would like to see over time banks putting efforts into growing SME lending.

And the second reason is that there’s absolutely no signs of distress in the national loan book or in our loan book. There’s no cycle in Uzbekistan. It’s still a very low level of credit to GDP, so it’s around 13%. And micro loans is an even smaller share of that, obviously, so it’s three or 4%. But they want to make sure that nothing gets out of shape in terms of national loan book.

There’s no distortions in the market, no overheating, no extension of credit. So they want to slow it down over time and gradual change, hence, the long adaptation period to make sure that there’s no bubble created and problems down the road. So those are reasons why they’ve they’ve been discussing why they made this this change. As as Vacho said, it applies to micro loans, which is unsecured personal loans, that’s what they call in Uzbekistan, to credit cards, and auto loans has already been capped at 25% for a couple of years now. So the capitals are introduced from the 01/01/2029, ’20 ’5 ’20 ’5 percent.

Right now, we’re obviously mainly, what used to be called a monoline. So on the asset side, 90% or so of our loan book is micro loans. But we have a a very well communicated product development roadmap. We were, obviously, medium term planning to diversify our loan book and and launch new products, which we’ve been doing, as you know, very active recently. So we launched credit cards in the autumn of last year, and that’s growing nicely.

We were due to launch MSM MSME loans a little bit later this year, but we accelerated this in the light of our conversations with the with the the regulator and knowing what what probably coming down the tubes, which has now been published. So we’ll if you think about our business, we will still be growing our consumer loans, micro loans, up quite a trot, but that will be growing over time at a lower rate than other products that we’ll be launching our public development road map. Credit cards, which are capped separately, so they don’t come with the micro loan cap. They’ve got their own separate cap of 25% in the portfolio. That will be a large part of our business going forward.

Point of sale loans or installment lending, that is not capped, and that’s doesn’t come with the credit card or the micro loan cap, and that’s already 10% of our business, if you look at a group level, and, that will continue to grow. We have big plans for that as we’ve we’ve talked to, investors about many times. SME, will be a material part of our loan book by the end of this year. And, obviously, over time, we’ll we’ll become a very big number in terms of our loan book if you think four years out. So the CB has given us a long adaptation period.

The whole of the market is long adaptation period, but it overlays nicely on what we were planning to do anyway. So we’ve had to reject things a little bit in terms of sequencing, but it makes no no difference when the to us in the longer run. We have reiterated that we will deliver on our guidance this year. And in the longer run, you know, we’ve been saying explaining to the market how we think in terms of the opportunity set in Uzbekistan, say, 2 and a half billion dollars worth of loan book. That’s that’s something we stand by as well.

So this is all achievable with all of the different products that we’ve we’ll be launching. Just to finish this this off, we will be moving into secured lending as well. So auto loans is something we’ve been thinking a lot about. Maybe other forms of secured lending is certainly on the m s m m MSME side. So this will all be something that will also be something that will come into the loan book over time, change the loan mix, and will help us achieve these longer term soft guidance we’ve been talking about.

Vaktang Wutsgeri Kitsze, CEO, TBC Bank: But what is Oliver saying? Openly said these regulations in line with our local strategy in this, but he’s done as Oliver said already because to remember you from the middle of the last year, we already began to work on the credit cards, and we launched already in the first quarter. We mentioned in our presentation today that we launched already in the 70 business and the long term business from which we had already just exactly approximately same. We made a very tiny changes in our existing long term plan, but it’s exactly same what you want to achieve in the 2027 to 2028.

Oliver Hughes, Head of International, TBC Bank: could just maybe add add just one of the thoughts here. So regulation obviously always requires a bit of adaptation. It goes well saying, smart players and good quality players know how to adapt. And but the more regulation there is in consumer lending, the safer the market for everybody. So it means we have PTI, which is rigorously enforced in Uzbekistan.

We have rate caps. We have now portfolio caps with this long adaptation period. We have a ban on FX lending to consumer. We have risk weights, which are, you know, actively managed up and down. And and so this makes it a a well regulated market with a lot of the the regulation you would expect to come at a later stage given the the the level of developments in the market at an early stage.

And it means that the likelihood that someone is gonna overextend credit or compete irresponsibly and extend credit to our customers and blow our customers up in our portfolio is is drastically reduced. So, obviously, it makes it much healthier environment to work in, which is great.

Andrew, Moderator/Host, TBC Bank: Steven. That’s answered your questions. Yeah? Steven, you’re I think you’re on mute.

Stephen Payne, Analyst, Peel Hunt: Sorry. Yes, that’s brilliant. Maybe just one quick last one on Georgia. Mean, clearly, the economy was very strong in the first quarter, and that’s where the bulk of the operations are. Just in terms of the momentum that you’re seeing in the business sort of moving into the second quarter?

Georgi Megrelischvili, CFO, TBC Bank: Yes. So in

Vaktang Wutsgeri Kitsze, CEO, TBC Bank: the in the quarter, so I think this momentum, which we’ve had in the first quarter will be continued also in the second quarter, and we more or less know what happened already in April, and probably the growth will be on this approximately on on the same level. May will be in the order of the April, and it will be approximately on the same level what was in the first quarter. And our internal forecast that was the economy growth will be in the range, just a minimum of the range. Just today, it was a meeting with the minister of economy, and they are forecasted minimum. They they are forecasting the GDP growth 6.65%.

And I I mentioned in my presentation that monetary fund and the world went up for the country, point five six So this is the realistic assumptions, and we believe that also for second quarter has to be very strong for TBC Bank of Georgia operations.

Stephen Payne, Analyst, Peel Hunt: Okay. Great. Thank you very much.

Andrew, Moderator/Host, TBC Bank: Thanks very much, Steven. And the next question comes from Augusto Ribbe. Augusto, please go ahead. I think you’re on mute, Augusto. You need to unmute.

Hello?

Georgi Megrelischvili, CFO, TBC Bank: Maybe try changing secure and back over to Augusta later on. Yeah.

Operator: Thank you. We do have a question on the telephone line from Rahim Karim with Investec. Rahim, your line is open. Please go ahead.

Rahim Karim, Analyst, Investec: Rahim. I’d like to ask a question on cost of risk. Appreciate the comments that were made on an underlying basis around the move in Uzbekistan about 8% in quarter. It would be helpful just to get a bit more color on how you see that evolving. I appreciate the impact from product innovation and the desire to try and broaden the product mix out.

If you could just help us think about how that evolves for the rest of ’twenty five and possibly into the medium term? Second question was just around the outlook for NIM in Georgia into the next couple of quarters. Feels like base rates might be coming down. I don’t know if would be useful to get your sense on that, but how we think that evolved, it felt pretty solid in the first quarter. So how you think that might evolve would be helpful.

And then finally, just any comments you might have around cost to income ratios for 25 across, you know, both businesses, if if possible. Thank you.

Oliver Hughes, Head of International, TBC Bank: Well, I’ll start with cost of risk in in Uzbekistan. So thanks for your question, Alakim. So we we, as you quite rightly say, adjusted for the fraud, which happened in quarter one. We came out around 8%, which is, you know, the kind of higher end of where we’ve been soft guiding to. So we’ve been saying we’re we’re gonna tick up our risk to the seven to eight percent area.

I’ll explain why that’s happening. So we’ve been doing, obviously, a lot of growth, as you know. We’ve been doing a lot of testing. We’ve been testing new segments to understand well, basically, we have to test together data, build new models. We also have to test to understand where the interesting segments are in terms of NPV.

And so tests have a cost because of how a risk is associated with them. That’s one of the reasons. The second reason for the cost of risk going up is front loading from high growth under IFRS nine, and we grew by 24% quarter on quarter in the first quarter of twenty twenty five. And so, you know, some very strong growth continuing. And the third reason is that we have some operational stuff going on, you know, some of it seasonal.

So this this this means that our cost of risk has been drifting up a little bit. It may go up a little bit more as we go into quarter two, but the underlying credit quality and the underlying portfolio metrics that we see, also NPLs and and first payment default, they’re more or less where we’d expect them to see. So we we expect to finish the year probably in the same corridor of around seven seven to 8%. So fundamentally, nothing changing. There’s certainly no cycle.

There’s no signs of any stress in the portfolio. This is all planned stuff as we as we look for, you know, the various segments that we can enter. If you just think of, for example, one of the big tests is is thin file customers. And so we we started our alliance in Uzbekistan tackling more of the income segments and site and segments with credit histories. And then we expanded into other segments.

We used telco data to do that. We used the transactional data to do that. And some of them are not just thin file, but no file customers in order to gather data on them to understand where we should where we whether we can do business there and what happens with our models to gather the data to build those models. We have to move into them and, obviously, it’s higher risk in those no file segments. And another area is in point of sale lending, so pay me now.

We’ve been going to the long tail of merchants. So we started with the top merchants then moved to the next level of the top next 20, top 20 merchants, and then we moved into long tail where the risks are a lot higher. So we go over the data and they’ll build our models. We’ll switch them off. We’ll continue to work with some.

So this is absolutely normal growth stuff. As I say, we’re, you know, very happy with the underlying credit quality apart from the the floors that we had in the first quarter. So so you should still think of the seven to eight range going towards the end of this year and then probably moving into next year.

Georgi Megrelischvili, CFO, TBC Bank: Okay. Thanks. I’ll take the rest of the questions. Just one thing to add to what Oliver also mentioned is just if you look at Taiwan NIM because testing causes customers about higher risk also translates into higher, like, NIM and profitability. For example, as I mentioned, NIM tick cut up by 50 basis points.

Therefore, that is, I would say, net profit and growth is accretive over long term. So that’s kind of balanceless inputs into our profitability. Now coming to your questions. One was on NIM, the second one on cost to income. I’ll start with cost to income, continuing with our TBCUs business.

So in TBCUs business, the moment, we do expect cost to income ratio to go down, but that’s not our major focus at the moment because business is growing. We are developing new products, technological capabilities. The key focus on us to create very strong ground for future growth and to hit our targets. So ultimately, what we are committed is that we will deliver profitability. We will deliver the targets we communicated to the market.

We are going to communicate new targets for the kind of around November this year at our Capital Markets Day that we will communicate in a due course. But ultimately, we will cost as support how to drive the business profitability and growth. But again, we do expect cost to come to slightly starting coming down. On Georgia, as I mentioned, the cost growth normalized. So we had 11% growth even with the newly, let’s say, reduced fund, the resolution funds that now actually exist in all other countries, it was 11%, resulted 9%.

So but in Georgia, we are also growing. We are also putting new products, automation, supercar, doing many other things. So we need to invest. However, the growth will be much lower, maybe kind of low teens and around that level. But we expect our income to grow at a higher pace.

So at a group level, to translate it, we are going to stay more or less this year where we are, like, around that level, maybe to some changes. So and we don’t really like kind of anything below, like, mid to high surface view as absolutely normal for our business. Now moving to our NIM, net interest margin. Like, at the moment, we landed quarter 5.5%. That’s probably the range we have been talking about.

Mid fives is something we will stay in the medium term. Maybe some quarters are a bit higher, less likely to be less lower, but it may happen, but not highly. So probably somewhere in mid fives. And as I mentioned in q one, we also had higher largely funding costs that was due to kind of large short maturity of the markets. We also have higher, let’s say, liquidity position because during this situation, we prefer to have high buffers.

And now it’s kind of at the moment, we are going to actually close those buffers. So in q two, we definitely don’t expect to go down, maybe higher. But overall, let’s say, term, as I mentioned, mid five is the right level to think about.

Rahim Karim, Analyst, Investec: That’s very helpful. Thank you, mate.

Andrew, Moderator/Host, TBC Bank: Thanks, Raheem. Do you have any other questions on the phone line?

Operator: We have no other questions on the phone line at the moment, but please press star followed by one if you would like to.

Andrew, Moderator/Host, TBC Bank: Okay. We we have Augusto is back with us. Augusto, please go ahead and unmute yourself.

Oliver Hughes, Head of International, TBC Bank: Yes. You.

Vaktang Wutsgeri Kitsze, CEO, TBC Bank: Sorry for the technical difficulties earlier. I just have one quick question. Can you give us some color in the oil and gas exposure and export exposure of your loan book, both in Georgia and Uzbekistan, please? Thank you.

Georgi Megrelischvili, CFO, TBC Bank: So maybe I’ll take. In Uzbekistan, it’s have consumer loans at the moment is zero. So at the moment, I don’t know if any customers, I would say, to work with all those companies. That’s it. So it can cost you the zero.

In Georgia also, mean, Georgia is not all, let’s say, production country. We don’t have any, like, maybe some petrol importers or so. We can consider that we don’t have much exposure from this perspective.

Vaktang Wutsgeri Kitsze, CEO, TBC Bank: From our gen zero. Closer to zero. Yeah.

Georgi Megrelischvili, CFO, TBC Bank: Yes. And, generally, for other sectors, we have very strict mandated scale policy. We manage our concentration risk just generally. Here, it’s zero. But in all other segments, we don’t kind of overload any particular, let’s say, a sector or a segment.

So that’s part of our risk.

Andrew, Moderator/Host, TBC Bank: Next question is from Dan Michailof. Lydia, can you open Dan’s line?

Vaktang Wutsgeri Kitsze, CEO, TBC Bank: So probably

Andrew, Moderator/Host, TBC Bank: Sorry, Dan. We can’t

Rahim Karim, Analyst, Investec: here we go.

Stephen Payne, Analyst, Peel Hunt: Hi. First of all, thank you for the call. Congratulations on the results. I just had one question on the cost of risk in Georgia and how we should think about it going forward. We saw a sequential spike in retail cost of risk and CIB cost of risk as well as SMEs.

What do you think is a sustainable level of cost of risk in Georgia going forward?

Georgi Megrelischvili, CFO, TBC Bank: Thank you very much. So we have been guiding our normalized cost of risk around 1% through the cycle, And like 80 basis points is a very healthy level for our business. So there is some factor of seasonality as well in Q1. For example, if you compare to Q1 last year, it was 70 basis points. You mentioned CIB cost uptick.

CIB cost of resetting zero forever, very long time. It can’t be zero forever. We are doing business. We are in bank. We are kind of lending.

So there is some cost of risk, but it’s a very healthy level. So we saw some small upticks, but again, it’s very below our kind of normalized risk profile. And generally, we do expect around 80 to 100 basis points on a, let’s say, normalized basis. We don’t expect to go beyond that in Georgia. Certain quarters may be lower, for example, but that is the right level to think about.

And as I mentioned, particularly in SME segments, this is another q one also kind of impacts if you look at the, let’s say, statistics. But, again, all credit parameters are very currency, very strong in Georgia. We don’t have any concerns whatsoever. Did I answer your question?

Stephen Payne, Analyst, Peel Hunt: Yes. Thank you. No more questions for me. Thanks, Dan.

Andrew, Moderator/Host, TBC Bank: Next is Path Path. Please go ahead.

Pav, Analyst: Wonderful. Thanks, Andrew. And just one question for Oliver. I think when you spoke in past on a couple of occasions, do you have this expectation setting that you want to head 10% market share in Uzbek Istan and the medium term beyond 2025. And now we have seen this portfolio rate regulation.

So is it fair to presume that you would still hit that market share, but on an overall loan portfolio basis? Number one. And number two, is the profitability profile in the medium term less attractive than what it was a couple of quarters ago because now you have more fixed that’s potentially NIM dilutive and your expectation of normalized cost of risk has gone up because I think ever since Uzbekistan business started gaining steam, the understanding was the normalized cost of risk of 600 basis point, which has now gradually moved up to 800 basis point. So directionally, it seems like profitability seems like a headwind, of course, relative to what we expected few quarters ago, if you can unpack these couple of topics. Thank you.

Oliver Hughes, Head of International, TBC Bank: Yeah. Yeah. Thanks for the question, Pav. So so on the market share, so we don’t wanna think of think in mark terms of market shares. It’s just a way of of helping you get some of the numbers that we were thinking about in terms of the opportunity setting in in Uzbekistan.

We do not have market share targets, and, you know, it’s it’s 5% or 15% is kind of less important than what we actually have in terms of our loan book and the economics of that loan book. Yeah? And and also the rest of the business alongside it.

Vaktang Wutsgeri Kitsze, CEO, TBC Bank: The rates that could jump today in micro loans, we have 17% and the total retail loans are more than 4%. Exactly.

Oliver Hughes, Head of International, TBC Bank: So so we’re we’re more interested in having a loan book irrespective of the composition of 2 and a half billion dollars plus three, four years down the line. That’s also how we think about this. So there was never a plan to do 2 and a half billion or $3,000,000,000 worth of of of micro loans because that’s probably not sustainable in the market. So we’re always going to roll out other products and services, which would help us to get that. So as I mentioned earlier, that’s point of sale loans or installment finance.

It’s credit cards. It’s probably gonna be auto loans down the line, and it’s definitely SME lending. And SME lending, we started with unsecured, but we’ll also go down into secured over time as we learn this business. And and who knows, maybe some other loan types which we’ll we’ll start looking at. For example, BNPL, we’re starting to double in that.

So actually, rather successfully given the early signs at the moment. So so the loan book makes we have a rough idea to be communicated over time. And just to remind you that we’ll have our CMD later this year towards the end of the year, and we’ll be giving three year guidance, and we’ll be able to give you a little bit more detail about that in terms of, you know, how we how we think this mix will pan out, but we’d we’d like to give a bit of flexibility. So market share is not the name of the game. As Virchow says, we’re already at 17% in micro loans and growing, but we’re we’re thinking the other opportunities which will be driving the loan growth as well as we go along.

And that feeds into probably my answer to the second question, which is that the loan book mix will change, and you’ll see it changing by the end of this year. It’ll be a dynamic thing as we go along over the next three or four years with different slices of different products contributing to the loan mix. I’m not changing loan mix. We’ll change the the overall shape of our NIM. So I would expect, and you’ll be seeing that playing out this year, the gross yield starting to come down.

And that’s as we move into different products, but also as we move into better quality segments. What does that mean? That means that we’re gonna be issuing loans to more affluent or mass affluent customers So they have bigger tickets, lower risk, a lower margin. That’s that’s already gonna be changing the the shape of our portfolio economics. So the the gross yield will take down.

Our funding cost will be ticking down. Medium term, we expect our NIMs still to be around 20%. Our ROEs, we’ve always said longer term, we believe we can get to 13% plus. And I think if you look at the the adjusted numbers for this first quarter, you can already see that, you know, we’re definitely still moving in that direction. And as we achieve more economies of scale, obviously, helps propel us in that direction.

And then lastly, on the cost of risk. So we’ve been ticking it up because we were taking too little risk. We needed to look into different areas based on our NPV based approach to understand where we can do business in new segments, new products, new channels. And so that meant we were gonna be ticking up to where we are now around 8% adjusted for for the first quarter. Longer term, going back to the first point I made, as the loan mix changes, we’ll be moving into better quality customers in our existing product lines and moving into lower margin products as well, particularly secured when we get that.

So that means that our our of blended cost of risk will move down over time as well. So just to just to wrap up, it doesn’t change the economics of our business and our, you know, our predictions as to where this will take us in terms of ROE and ROA. So the the yields will come down as low mix changes. The deposit our funding costs will come down, and our our risk should tick down as well over time. Oh, that answers your question.

Pav, Analyst: Yeah. It it does answer my question. I think my my understanding was a couple of quarters ago with credit cards mix going up in the portfolio, the gross fees were presumed to go up in the medium term, but it looks like you are now shifting much more faster towards secure and other products, which could potentially bring it back to the current level. So no. This is helpful.

I’m not that’s what I’m alluding to.

Oliver Hughes, Head of International, TBC Bank: But it’s also we’re we’re we’re not doing any secured lending at the moment. That’s probably what we’re seeing. Yeah. But but but we’re moving into MSC loan MSME loans. We’re moving into Yes, sir.

A different type of borrower on the cash loan business. Yeah.

Pav, Analyst: No. Wonderful. That’s helpful. And I think we’ll have more stuff to talk about later this year. So thank you.

Andrew, Moderator/Host, TBC Bank: Thanks very much, Pa. Are there any other questions on the phone line?

Operator: We have no questions on the phone line.

Andrew, Moderator/Host, TBC Bank: Okay. Doesn’t look like we have any more questions on the call. Yep. Okay. I think there are no further questions.

So just to say thank you everybody for for joining this call. We very much look forward to hosting you again in August when we publish our second quarter results. And please feel free to keep in touch, and hope to speak to you all soon. Thank you.

Rahim Karim, Analyst, Investec: Thank you. Thank you. You.

Operator: This concludes today’s call. Thank you very much for joining. Your line will now be disconnect.

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