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TBC Bank Group PLC Half-year Report

18/08/2021 7:00am

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TBC Bank Group PLC

18 August 2021

TBC BANK GROUP PLC ("TBC Bank")

2 Q AND 1H 2021 UNAUDITED CONSOLIDATED FINANCIAL RESULTS

Forward-Looking Statements

This document contains forward-looking statements; such forward-looking statements contain known and unknown risks, uncertainties and other important factors, which may cause the actual results, performance or achievements of TBC Bank Group PLC ("the Bank" or "the Group") to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are based on numerous assumptions regarding the Bank's present and future business strategies and the environment in which the Bank will operate in the future. Important factors that, in the view of the Bank, could cause actual results to differ materially from those discussed in the forward-looking statements include, among others: the achievement of anticipated levels of profitability; growth, cost and recent acquisitions; the impact of competitive pricing; the ability to obtain the necessary regulatory approvals and licenses; the impact of developments in the Georgian economy; the impact of COVID-19; the political and legal environment; financial risk management; and the impact of general business and global economic conditions.

None of the future projections, expectations, estimates or prospects in this document should be taken as forecasts or promises, nor should they be taken as implying any indication, assurance or guarantee that the assumptions on which such future projections, expectations, estimates or prospects are based are accurate or exhaustive or, in the case of the assumptions, entirely covered in the document. These forward-looking statements speak only as of the date they are made, and, subject to compliance with applicable law and regulations, the Bank expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in the document to reflect actual results, changes in assumptions or changes in factors affecting those statements.

Certain financial information contained in this presentation, which is prepared on the basis of the Group's accounting policies applied consistently from year to year, has been extracted from the Group's unaudited management accounts and financial statements. The areas in which the management accounts might differ from the International Financial Reporting Standards and/or U.S. generally accepted accounting principles could be significant; you should consult your own professional advisors and/or conduct your own due diligence for a complete and detailed understanding of such differences and any implications they might have on the relevant financial information contained in this presentation. Some numerical figures included in this report have been subjected to rounding adjustments. Accordingly, the numerical figures shown as totals in certain tables might not be an arithmetic aggregation of the figures that preceded them.

Second Quarter and First Half of 2021 Unaudited Consolidated Financial Results Conference Call

TBC Bank Group PLC ("TBC PLC") will release its second quarter and first half of 2021 unaudited consolidated financial results on Wednesday, 18 August 2021 at 7.00 am BST (10.00 am GET), while the results call will be held at 14.00 (BST) / 15.00 (CEST) / 9.00 (EDT).

Please click the link below to join the webinar:

https://tbc.zoom.us/j/93113731736?pwd=MWhLNHlPSVVNRlZVUUxkLzZiVFdNZz09

Webinar ID: 931 1373 1736

Passcode: 124283

Or, use the following dial-ins:

   --      Georgia: +995 3224 73988  or +995 7067 77954  or 800 100 293 (Toll Free) 

-- The United Kingdom: 0 800 260 5801 (Toll Free) or 0 800 358 2817 (Toll Free) or 0 800 031 5717 (Toll Free)

-- US: 833 548 0276 (Toll Free) or 833 548 0282 (Toll Free) or 877 853 5257 (Toll Free) or 888 475 4499 (Toll Free)

   --      Russia: 8800 100 6938 (Toll Free) or 8800 301 7427 (Toll Free) 
   Webinar ID   931 1373 1736# , please dial the ID number slowly. 

Other international numbers available at: https://tbc.zoom.us/u/aeIeUaqK4W

The call will be held in two parts. The first part will be comprised of presentations and during the second part of the call, you will have the opportunity to ask questions. All participants will be muted throughout the webinar.

Webinar Instructions:

For those participants who will be joining through the webinar, in order to ask questions, please use the "hand icon" that you will see at the bottom of the screen. The host will unmute those participants who have raised hands one after another. After the question is asked, the participant will be muted again.

Call Instructions:

For those participants who will be using the dial in number to join the webinar, please dial *9 to raise your hand.

Contacts

 
Zoltan Szalai                    Anna Romelashvili            Investor Relations Department 
 Director of International        Head of Investor Relations 
 Media and Investor Relations 
 
 E-mail: ZSzalai@Tbcbank.com.ge   E-mail: IR@tbcbank.com.ge    E-mail: IR@tbcbank.com.ge 
 Tel: +44 (0) 7908 242128         Tel: +(995 32) 227 27        Tel: +(995 32) 227 27 
 Web: www.tbcbankgroup.com        27                           27 
 Address: 68 Lombard              Web: www.tbcbankgroup.com    Web: www.tbcbankgroup.com 
 St, London EC3V 9LJ,             Address: 7 Marjanishvili     Address: 7 Marjanishvili 
 United Kingdom                   St. Tbilisi, Georgia         St. Tbilisi, Georgia 
                                  0102                         0102 
 

Table of Contents

2Q and 1H 2021 Results Announcement

Key Results Highlights...................................................................................................................................5

Letter from the Chief Executive Officer ..............................................................................................................................7

Economic Overview .................................................................................................................................................................. 9

Unaudited Consolidated Financial Results Overview for 2Q 2021 ............................................................................ 11

Unaudited Consolidated Financial Results Overview for 1H 2021 .............................................................................24

Additional Disclosures .............................................................................................................................................................. 36

1) TBC Bank - Background ..................................................................................................................................................... 36

2) Subsidiaries of TBC Bank Group PLC ............................................................................................................................ 36

3) TBC Insurance.. ...................................................................................................................................................................... 37

4) First digital bank in Uzbekistan .......................................................................................................................................... 38

5) Reclassification of certain balance sheet profit and loss items and changes in methodology ......................... 38

6) Loan book breakdown by stages according IFRS 9 ...................................................................................................... 39

7) Reconciliation of Return on Equity (ROE) with ROE before expected credit loss allowances ......................40

Material Existing and Emerging Risks ...................................................................................................................................41

Statement of Directors' Responsibilities ............................................................................................................................... 52

Unaudited Condensed Consolidated Interim Financial Statements ...............................................................................54

TBC Bank's Unaudited 2Q and 1H 2021 Consolidated Financial Results

Record high profitability on the back of strong revenue generation and improved performance on asset quality side

European Union Market Abuse Regulation EU 596/2014 requires TBC Bank Group PLC to disclose that this announcement contains Inside Information, as defined in that Regulation.

The information in this announcement, which was approved by the Board of Directors on 17 August 2021, does not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2020, which contained an unmodified audit report under Section 495 of the Companies Act 2006 and which did not make any statements under Section 498 of the Companies Act 2006, have been delivered to the Registrar of Companies in accordance with Section 441 of the Companies Act 2006.

Key Results Highlights

2Q 2021 P&L Highlights

   -- Profit for the period amounted to GEL 250.4 million (2Q 2020: GEL 126.2 million) 
 
   -- Operating income[1] amounted to GEL 380.3 million (2Q 2020: GEL 250.0 million) 
 
   -- Operating expenses amounted to GEL 134.7 million (2Q 2020: GEL 95.1 million) 
 
   -- Return on average equity (ROE) stood at 31.0% (2Q 2020: 19.5%) 
 
   -- Return on average assets (ROA) stood at 4.4% (2Q 2020: 2.6%) 
 
   -- Cost to income of TBC Bank Group PLC stood at 35.4% (2Q 2020: 38.0%) 
 
   -- Standalone cost to income ratio of the Bank[2] was 28.6% (2Q 2020: 32.3%) 
 
   -- Cost of risk stood at -1.3% (2Q 2020: 0.0%) 
 
   -- Net interest margin (NIM) stood at 5.0% (2Q 2020: 4.3%) 
 
   -- Basic earnings per share stood at GEL 4.55 (2Q 2020: 2.30) 
 
   -- Diluted earnings per share stood at GEL 4.49 (2Q 2020: 2.29) 

1H 2021 P&L Highlights

   -- Profit for the period amounted to GEL 403.4 million (1H 2020: GEL 69.2 million) 
 
   -- Operating income 1 amounted to GEL 691.4 million (1H 2020: GEL 540.3 million) 
 
   -- Operating expenses amounted to GEL 256.9 million (1H 2020: GEL 201.5 million) 
 
   -- Return on average equity (ROE) stood at 25.9% (1H 2020: 5.2%) 
 
   -- Return on average assets (ROA) stood at 3.6% (1H 2020: 0.7%) 
 
   -- Cost to income of TBC Bank Group PLC stood at 37.2% (1H 2020: 37.3%) 
 
   -- Standalone cost to income ratio of the Bank 2 was 30.6% (1H 2020: 32.0%) 
 
   -- Cost of risk stood at -0.4% (1H 2020: 2.1%) 
 
   -- Net interest margin (NIM) stood at 4.8% (1H 2020: 4.7%) 
 
   -- Basic earnings per share stood at GEL 7.33 (2Q 2020: 1.24) 
 
   -- Diluted earnings per share stood at GEL 7.24 (2Q 2020: 1.23) 

Balance Sheet Highlights as of 30 June 2021

   -- Gross loans and advances to customers stood at GEL 15,274.9   million , up by 12.0 % YoY or at 8.5% on a constant 
      currency basis 
 
   -- Total customer deposits amounted to GEL 12,870.4   million, up by 23.5% YoY or 20.1% on constant currency basis 
 
   -- NPLs were 3.4%, up by 0.5 pp YoY 
 
   -- NPL provision coverage and total coverage ratios stood at 91.3%, or 169.6%, respectively on 30 June 2021 compared 
      to 134.7% or 208.0%, as of 30 June 2020 
 
   -- Net loans to deposits + IFI funding stood at 102.8%, down by 2.5 pp YoY, and Regulatory Net Stable Funding Ratio 
      (NSFR), stood at 130.6% up by 3.1 pp YoY 
 
   -- The Bank's Basel III CET 1, Tier 1 and Total Capital Adequacy Ratios per the NBG's methodology stood at 13.0%, 
      15.5%, and 19.6%, respectively, compared to minimum regulatory requirements including restored buffers of 11.2%, 
      13.5%, and 17.8%, respectively. 

Market Shares as of 30 June 2021 ([3])

   -- Market share by total assets reached 38.2%, up by 0.3 pp YoY (#1 position) 
 
   -- Market share by total loans was 38.1%, down by 1.4 pp YoY  (#1 position) 
 
   -- Market share of total deposits reached 37.8%, up by 0.7 pp YoY (#2 position) 

Digital Highlights for 2Q 2021

   -- Active retail digital users[4] increased by 15.8% YoY and amounted to 688,000 
 
   -- Average daily active retail digital users (DAU)[5] in June increased by 27.0 % YoY and stood at 249,000 
 
   -- Average daily active retail digital users (DAU) divided by monthly active retail digital users (MAU)[6] stood at 
      41.8% in June 2021 (June 2020: 38.6%) 
 
   -- 97% of all transactions were conducted through digital channels[7] (2Q 2020 : 96 %) 
 
   -- The penetration ratio for internet and mobile banking[8] stood at 53% for 2Q 2021 ( 2Q 2020 : 47%) 

TBC UZ Highlights

   -- The number of registered users increased more than four times since March 2021 and stood at around 403,000 by the 
      end of July. 
 
   -- During the second quarter 2021, we enriched our existing unsecured consumer-lending proposition with new types of 
      loans and added new savings options for deposits. 
 
   -- Our call center and online support services received the highest customer satisfaction score among 27 Uzbek banks, 
      according to an independent survey conducted by Bank.uz. 
 
   -- Our loan portfolio amounted to GEL 31.8 million in July 2021, compared to GEL 1.0 million in March 2021. 
 
   -- Our deposit portfolio amounted to GEL 49.6 million in July 2021, compared to GEL 2.8 million in March 2021. 

For more financial information about our Uzbek subsidiary, please refer to Annex 4.

Letter from the Chief Executive Officer

I am delighted to present a strong set of financial results for the second quarter and first half of 2021 on the back of an impressive recovery in the macroeconomic environment. Our outstanding performance resulted in solid capital generation, which allowed the Board to declare an interim dividend of GEL 1.5 per share payable in second half of September 2021. W e also continue to deliver on our strategic objectives and I am particularly pleased with the results of our Uzbek business, which has been growing faster than our expectations.

Strong economic rebound

The Georgian economy has rebounded at a speed that exceeded even the most optimistic expectations. Importantly, this growth has been broad-based, supported by strong external inflows and increased domestic demand. According to the preliminary estimates of Geostat[9], the economy posted 29.8% year-on-year real growth in the second quarter. While the low base a year ago played a role, in the second quarter the economy surpassed even its 2019 level by 12.6%. Together with an exceptional performance in exports, the continued strong flow of remittances and a gradual recovery in tourism, record-low interest rates on US$ deposits stimulated consumer spending and real estate investments. Bank credit displayed a solid rebound in the second quarter with 12.6% year-on-year growth in FX adjusted terms, which is also strongly supportive to the outlook. While COVID-19 and election related uncertainties pose downside risks to the outlook, real GDP growth for the year is likely to be above 10.0%, even under conservative assumptions.

Strong financial performance

In the second quarter of 2021, our consolidated net profit amounted to GEL 250.4 million, almost doubling year-on-year, while our return on equity and return on assets stood at 31.0% and 4.4%, respectively.

Our profitability was driven by strong income generation both in the interest and non-interest income categories. Net interest margin returned to its pre-pandemic level and amounted to 5.0%, while net fee and commission income increased by 59.4% year-on-year, primarily due to the revival of business activities, the fast growth at our Uzbek subsidiary, Payme, as well as various business initiatives undertaken in our domestic payments business. The growth in other operating income was partially related to the gain received from sale of one of our investment properties.

Our strong operating income was further supported by recoveries of credit loss allowances due to the improved macro outlook on the back of the better than expected economic performance, as well as repayment from a single large CIB borrower. As a result, our cost of risk decreased to -1.3% in the second quarter 2021. Over the same period, our cost to income ratio dropped to 35.4%, down by 2.6pp year-on-year. This was driven by strong income generation, which offset the growth in operating expenses. At the same time, the stand-alone cost to income ratio for the Bank stood at 28.6% ([10]) .

Our strong financial performance in the second quarter of 2021, coupled with resilient results in the first quarter of 2021, resulted in consolidated net profit of GEL 403.4 million in the first half 2021. Over the same period, return on equity stood at 25.9% and return on assets stood at 3.6%.

Our loan book increased by 8.5% year-on-year in constant currency terms, which translated into a 38.1% market share. Over the same period, our deposits increased by 20.1% in constant currency terms. As a result, our market share in total deposits amounted to 37.8% as of 30 June 2021.

As of 30 June 2021, our CET1, Tier 1 and Total Capital ratios stood at 13.0%, 15.5% and 19. 6 %, respectively, comfortably above the respective minimum regulatory requirements including the restored buffers of 11.2%, 13.5% and 17.8%. We continue to maintain a robust liquidity position, with net stable funding (NSFR) and liquidity coverage ratios (LCR) standing at 130.6% and 127.1%, respectively, as of 30 June 2021.

Progress towards our strategic objectives

During the quarter, we concentrated our efforts on increasing the utilization of digital channels, enhancing our payments business, as well as expanding our Uzbek operations in line with our strategic priorities. Furthermore, we continue to make further progress in relation to our environmental, social and governance matters ("ESG").

o The number of retail digital transactions during the second quarter of 2021 increased by 53.1% year-on-year and by 19.1% quarter-on-quarter. Over the same period, the number of digital sales also remained strong. The consumer loan sales offloading ratio ([11]) amounted to 37%, while the deposit sales offloading ratio ([12]) stood high at 7 2%.

o The volume of payment transactions went up by 26% quarter-on-quarter, while the number of transactions increased by 22% in the second quarter of 2021. As the leading payments provider in the country, we are constantly working on enhancing payments solutions for our customers. In June, we launched a new platform, Payments Space (available on www.tbcpayments.ge) , for our merchants, which allows them to easily control their daily transactions, receive analytical reports and manage their payments products.

o Our Uzbek business demonstrated remarkable results over the recent period. The number of registered and active users of our digital banking app TBC UZ continued its rapid growth and reached 403,000 and 135,000, respectively, as of 31 July 2021. We have also started expanding outside Tashkent and already operate 34 client acquisition points in 11 regional cities. Our loan book and deposit portfolio continued their steady growth and reached GEL 31.8 million and GEL 49.6 million, respectively, as of 31 July 2021, while the total number of transactions more than tripled in July compared to March.

o Our Uzbek payments subsidiary, Payme, also continued its rapid growth, driven by P2P transfers and utility payments, which together accounted for around 94% of total volume of transactions conducted in the second quarter 2021. Over the same period, the number of its registered users reached 3.5 million, up by 52.2% year-on-year. In terms of financial metrics, Payme's revenue during the quarter increased by 86.8% year-on-year to GEL 6.6 million, while net profit grew by 81.9% year-on-year to GEL 4.1 million.

o TBC Bank has received accreditation by the Green Climate Fund (GCF), making it the first commercial bank in the Caucasus region to receive this accreditation. It will enable TBC Bank to have direct access to GCF funding to finance various green projects. In addition, we have published our full-scale Sustainability Report for the second year in a row, which is available at www.tbcbankgroup.com . Finally, I am proud to say that our investment banking subsidiary, TBC Capital, participated as joint lead manager in the very successful placement of US$ 500 million Green Eurobonds by Georgian Railway on the London Stock Exchange, a very important transaction for our country. It is only the second Green Eurobond issued from Georgia, and last year, TBC Capital was co-manager of the first such issuance, by "Georgia Global Utilities".

Outlook

Our strong financial results and continued progress towards our strategic objectives during the first half of 2021 together with revived business activities and positive macroeconomic outlook fill me with optimism about the rest of 2021.

To conclude, I would like to re-iterate our medium term guidance: ROE of above 20%, a cost to income ratio below 35%, a dividend pay-out ratio of 25-35% and annual loan growth of 10-15%.

Economic Overview

Economic growth

After a 4.5% drop in the first quarter of 2021, Georgia's economy showed unexpected strength in April with real GDP reaching a 44.8% year-on-year expansion, followed by similarly solid year-on-year growth of 25.8% and 18.7% in May and June 2021, respectively. The year-on-year growth in the second quarter was 29.8%. Taking into account the easing restrictions, the upturn in the external sector and the global recovery, it can be firmly stated that the economy has embarked on a rebound path. Real GDP in 2021 had already substantially surpassed 2019 levels, being around a 5.3% higher in the first half of the year and 12.6% higher - in the second quarter.

External sectors

Similar to GDP, the external sector experienced a strong rebound in 2Q 2021 with exports growing by 47.1% year-on-year and 10.9% compared with 2Q 2019. Notably, domestic exports lead the recovery with the share of re-exports in the total exports decreasing significantly, from 41.4% in 2Q 2019 to 27.5% in 2Q 2021. Despite the ongoing recovery in the tourism related imports and re-exports, imports of goods also went up by 44.8% YoY in 2Q 2021and by 1.3% when compared with the same period in 2019. Importantly, the rebound in the trade in goods was broad based, reflecting the increased overall external as well as the domestic demand.

Remitta nce inflows were also very strong with a 53.5% increase YoY in the second quarter and a 36.8% increase compared to the same period in 2019. Although part of the rebound compared with 2019 can be attributed to the border closures and more cash remittances being transferred through the digital channels, overall growth is still substantial given that the share of cash inflows is only likely to be around 10.0% -15.0%, according to the NBG's estimates.

Tourism inflows in 2Q 2021 increased by 753.3% year-on-year in US$ terms, while dropping by 72.0% compared to the same period in 2019. This was a significant improvement after a 90.7% drop in the first quarter compared to 2019 . The latest monthly dynamics are also promising: 64.0% decline in June 2021compared with June 2019, while early indicators based on the spending by non-residents through TBC Bank's channels suggest an even more sizable rebound in July ([13]) . Overall, even taking into account increased risks due to a higher number of infection cases, TBC Capital's latest projection of tourism inflows to recover by around 40.0% in 2021 compared to 2019 still looks reasonable[14].

Fiscal stimulus

The fiscal deficit is also expected to remain large in 2021 at an estimated 6.9% of GDP following a deficit of 9.3% of GDP in 2020. However, according to the Ministry of Finance, fiscal consolidation is expected in the coming years with deficit-to-GDP ratios of 4.4%, 3.0% and 2.7% in 2022, 2023 and 2024, respectively. Importantly, the major source of deficit financing in 2020-2021 was an external one, largely compensating for the pandemic related drop in net inflows.

Credit growth

By the end of 2Q 2021, bank credit growth has increased to 12.6% year-on-year, compared to a 7.8% year-on-year growth by the end of 1Q 2021. In terms of segments, MSME lending growth has increased by 5.5pp from 1Q 2021 to 2Q 2021 and amounted to 18.1% year-on year. Corporate lending also increased from 3.5% at the end of 1Q 2021 to 8.3% year-on-year, respectively. Growth in the retail sector, increased by 4.3pp to 12.6% year-on-year on the back of stronger mortgage and non-mortgage loans growth.

Inflation, monetary policy and the exchange rate

After the depreciation against the US$ in the first quarter of 2021, the GEL has regained some of its value since May, mainly on the back of higher exports, remittances, tourism inflows and a tighter monetary policy stance with a refinancing rate of 10.0%. Due to stronger inflows, the NBG has eased its FX market operations, selling US$ 83.7 million in April and only US$ 9.3 million in June. On the other hand, year-on-year inflation reached 11.9% in July, mainly due to the earlier depreciation of GEL and higher commodity and utility prices. Inflation is expected to moderate somewhat throughout the year before reaching the target of 3.0% in 2022.

Going forward

With a stronger than expected rebound in the second quarter, TBC Capital's forecast for real GDP growth in 2021 has been revised upwards to 10.5% followed by a solid 6.5% growth in 2022. Meanwhile, in June the World Bank revised their 2021 growth projections for Georgia from 4.0% to 6.0%, while the IMF increased their forecast in July from 3.5% to 7.7 %

Mor e information on the Georgian economy and financial sector can be found at www.tbccapital.ge .

Unaudited Consolidated Financial Results Overview for 2Q 2021

This statement provides a summary of the unaudited business and financial trends for 2Q 2021 for TBC Bank Group plc and its subsidiaries. The quarterly financial information and trends are unaudited.

TBC Bank Group PLC's financial results has been prepared in accordance with UK-adopted International Accounting Standard (IAS) 34 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the Financial Conduct Authority (FCA).

Please note that there might be slight differences in previous periods' figures due to rounding.

Financial Highlights

 
Income Statement Highlights 
in thousands of GEL                                 2Q'21      1Q'21      2Q'20     Change YoY  Change QoQ 
Net interest income                                 242,767    225,131    184,365   31.7%       7.8% 
Net fee and commission income                       63,008     45,293     39,517    59.4%       39.1% 
Other operating non-interest income[15]             74,512     40,665     26,161    NMF         83.2% 
Credit loss allowance                               45,291     (17,244)   (12,586)  NMF         NMF 
Operating profit after expected credit losses       425,578    293,845    237,457   79.2%       44.8% 
Losses from modifications of financial instrument   (104)      (1,487)    (3,527)   -97.1%      -93.0% 
Operating expenses                                  (134,688)  (122,240)  (95,059)  41.7%       10.2% 
Profit before tax                                   290,786    170,118    138,871   NMF         70.9% 
Income tax expense                                  (40,394)   (17,131)   (12,665)  NMF         NMF 
Profit for the period                               250,392    152,987    126,206   98.4%       63.7% 
 
 
 
 
  Balance Sheet and Capital Highlights 
in thousands of GEL                       Jun-21      Mar-21      Jun-20              Change YoY  Change QoQ 
Total Assets                              22,091,541  23,617,046         19,813,429   11.5%       -6.5% 
Gross Loans                               15,274,926  15,332,209         13,635,392   12.0%       -0.4% 
Customer Deposits                         12,870,418  14,239,837         10,420,330   23.5%       -9.6% 
Total Equity                              3,336,825   3,125,735            2,653,405  25.8%       6.8% 
Regulatory Common Equity Tier I Capital 
 (Basel III)                              2,382,595   2,059,599            1,631,006  46.1%       15.7% 
Regulatory Tier I Capital (Basel III)     2,837,805   2,550,144            2,068,052  37.2%       11.3% 
Regulatory Total Capital (Basel III)      3,573,282   3,327,134            2,787,136  28.2%       7.4% 
Regulatory Risk Weighted Assets (Basel 
 III)                                     18,275,845  18,921,231         16,249,475   12.5%       -3.4% 
 
 
 
Key Ratios                                  2Q'21   1Q'21   2Q'20   Change YoY  Change QoQ 
ROE                                         31.0%   20.3%   19.5%   11.5 pp     10.7 pp 
ROA                                         4.4%    2.7%    2.6%    1.8 pp      1.7 pp 
NIM                                         5.0%    4.7%    4.3%    0.7 pp      0.3 pp 
Cost to income                              35.4%   39.3%   38.0%   -2.6 pp     -3.9 pp 
Standalone cost to income of the Bank[16]   28.6%   33.1%   32.3%   -3.7 pp     -4.5 pp 
Cost of risk                                -1.3%   0.5%    0.0%    -1.3pp      -1.8 pp 
NPL to gross loans                          3.4%    4.8%    2.9%    0.5 pp      -1.4 pp 
NPL provision coverage ratio                91.3%   81.0%   134.7%  -43.4pp     10.3 pp 
Total NPL coverage ratio                    169.6%  154.4%  208.0%  -38.4 pp    15.2 pp 
CET 1 CAR (Basel III)                       13.0%   10.9%   10.0%   3.0 pp      2.1 pp 
Regulatory Tier 1 CAR (Basel III)           15.5%   13.5%   12.7%   2.8 pp      2.0 pp 
Regulatory Total CAR (Basel III)            19.6%   17.6%   17.2%   2.4 pp      2.0 pp 
Leverage (Times)                            6.6x    7.6x    7.5x    -0.9 pp     1.0 pp 
 

Net Interest Income

In 2Q 2021, net interest income amounted to GEL 242.8 million, up by 31.7% YoY and 7.8% on a QoQ basis.

The YoY rise in interest income by GEL 65.5 million, or 16.7%, was mainly driven by an increase in interest income from loans related to a growth in the gross loan portfolio of GEL 1,639.5 million, or 12.0%, together with an increase in the respective yield by 0.5pp.

In 2Q 2021, interest expense increased by GEL 10.7 million, or 5.0%, mainly driven by an increase in interest expense from deposits, which was related to a growth in the respective portfolio of GEL 2,450.1 million, or 23.5% YoY. Over the same period, the cost of deposits stood at 3.4% and remained broadly flat YoY. The growth was partially offset by a decrease in interest expense from other borrowed funds, on the back of a decline in the respective portfolio by GEL 821.5 million, or 19.8%. Overall, the change in liability structure towards deposits had a positive effect on our cost of funding, which dropped by 0.4pp on a YoY basis.

The increase in interest income on a QoQ basis of GEL 18.0 million, or 4.1%, was mainly driven by an increase in interest income from loans to customers on the back of 0.4pp growth in loan yields. This increase was mainly attributable to GEL loan yields, on the back of an increase in the refinance rate . Over the same period, the loan portfolio remained broadly stable.

The increase in interest expense of GEL 2.5 million, or 1.1% on a QoQ basis, was mainly driven by an increase in other borrowed funds on the back of a rise in the respective yield by 1.4pp. The increase in GEL yields was due to growth in the refinance rate, while the increase in FC yields was related to prepayment fees on certain borrowed funds. The respective portfolio decreased by GEL 109.1 million, or 3.2%. This increase was partially offset by a decrease in interest expense from customer accounts, which was attributable to decrease in a Ministry of Finance deposits and the release of a single short-term CIB depositor. As a result, the respective portfolio decreased by GEL 1,369.4 million, or 9.6% on a QoQ basis.

In 2Q 2021, our NIM stood at 5.0%, up by 0.7pp YoY and 0.3pp on a QoQ basis.

 
In thousands of GEL             2Q'21      1Q'21      2Q'20      Change YoY  Change QoQ 
Interest income                 458,572    440,613    393,114    16.7%       4.1% 
Interest expense                (223,456)  (220,980)  (212,714)  5.0%        1.1% 
Net gains from currency swaps   7,651      5,498      3,965      93.0%       39.2% 
Net interest income             242,767    225,131    184,365    31.7%       7.8% 
 
NIM                             5.0%       4.7%       4.3%       0.7 pp      0.3 pp 
 

Net fee and commission income

In 2Q 2021, net fee and commission income totaled GEL 63.0 million, up by 59.4% YoY and 39.1% QoQ.

The strong YoY and QoQ increases were attributable to the revival of business activities in 2Q 2021, which was further supported by various initiatives undertaken on our domestic payments business, which resulted in upgrading the existing cards with higher class cards and the contribution of our fast-growing Uzbek payments subsidiary, Payme.

 
In thousands of GEL                       2Q'21   1Q'21   2Q'20   Change YoY  Change QoQ 
Net fee and commission income 
Card operations                           22,627  10,323  10,962  NMF         NMF 
Settlement transactions                   28,435  24,567  18,169  56.5%       15.7% 
Guarantees issued and letters of credit   9,561   9,402   9,498   0.7%        1.7% 
Other                                     2,385   1,001   888     NMF         NMF 
Total net fee and commission income       63,008  45,293  39,517  59.4%       39.1% 
 

Other Non-Interest Income

Total other non-interest income increased significantly and amounted GEL 74.5 million in 2Q 2021.

Both the YoY and QoQ increases in other non-interest income were related to an increase in other operating income and net income from foreign currency operations. The former increase was driven by the gain from the disposal of one of our investment properties, in the amount of GEL 26.3 million, while the latter increase was due to an increase in the scale of FX transactions.

 
In thousands of GEL                                                   2Q'21   1Q'21   2Q'20   Change YoY  Change QoQ 
Other non-interest income 
Net income from foreign currency operations                           31,372  28,507  19,137  63.9%       10.1% 
Net insurance premium earned after claims and acquisition costs[17]   5,470   4,403   5,481   -0.2%       24.2% 
Other operating income                                                37,670  7,755   1,543   NMF         NMF 
Total other non-interest income                                       74,512  40,665  26,161  NMF         83.2% 
 

Credit Loss Allowance

Credit loss allowance for loans in 2Q 2021 amounted to GEL 45.3 million. The recoveries of credit loss allowances were mainly attributable to improved macro outlook on the back of the better than expected economic performance, as well as repayment from a single large CIB borrower.

 
In thousands of GEL               2Q'21    1Q'21     2Q'20     Change  Change 
                                                                YoY     QoQ 
Credit loss allowance for 
 loan to customers                50,112   (17,549)  (8,191)   NMF     NMF 
Credit loss allowance for 
 other transactions               (4,821)  305       (4,395)   9.7%    NMF 
Total credit loss allowance       45,291   (17,244)  (12,586)  NMF     NMF 
Operating profit after expected 
 credit losses                    425,578  293,845   237,457   79.2%   44.8% 
 
                                                               -1.3    -1.8 
Cost of risk                      -1.3%    0.5%      0.0%       pp      pp 
 

Operating Expenses

In 2Q 2021, our operating expenses expanded by 41.7% YoY and 10.2% on a QoQ basis.

The QoQ Increase in staff costs was related to the expansion of our Uzbek operations as well as one-off staff costs incurred in 2Q 2021. While the YoY increase was further amplified by restoration of management bonuses and increase in staff variable compensation driven by increased operating income.

The QoQ growth in administrative and other expenses was entirely attributable to expansion of the Uzbek operations, excluding Uzbekistan operation these costs would have remained flat QoQ. As for the YoY growth in administrative and other expenses, it was attributable to the low base in 2Q 2020 due to cost optimizations related to COVID-19 (including GEL 4.2 million from rent reduction per IFRS 16).

The growth in operating expenses was offset by our strong operating income, which resulted in exceptionally low cost to income ratio of 35.4% in 2Q 2021.

 
In thousands of GEL                         2Q'21      1Q'21      2Q'20     Change YoY  Change QoQ 
Operating expenses 
Staff costs                                 (77,757)   (70,314)   (57,204)  35.9%       10.6% 
Provisions for liabilities and charges      (54)       45         (59)      -8.5%       NMF 
Depreciation and amortization               (19,337)   (17,364)   (16,427)  17.7%       11.4% 
Administrative & other operating expenses   (37,540)   (34,607)   (21,369)  75.7%       8.5% 
Total operating expenses                    (134,688)  (122,240)  (95,059)  41.7%       10.2% 
 
Cost to income                              35.4%      39.3%      38.0%     -2.6 pp     -3.9 pp 
Standalone cost to income*                  28.6%      33.1%      32.3%     -3.7 pp     -4.5 pp 
 
 

* For the ratio calculation all relevant group recurring costs are allocated to the bank

Net Income

In 2Q, we generated GEL 250.4 million in net profit, up by 98.4% YoY and 63.7% QoQ. Our record high profitability was driven by strong operating performance across all revenue categories, as well as recoveries in credit loss allowances across all segments.

As a result, our ROE and ROA for the second quarter reached 31.0% and 4.4%, accordingly, while ROE before credit loss allowances stood at 26.0%.

 
 In thousands of GEL                                 2Q'21     1Q'21     2Q'20     Change YoY  Change QoQ 
Losses from modifications of financial instruments   (104)     (1,487)   (3,527)   -97.1%      -93.0% 
Profit before tax                                    290,786   170,118   138,871   NMF         70.9% 
Income tax expense                                   (40,394)  (17,131)  (12,665)  NMF         NMF 
Profit for the period                                250,392   152,987   126,206   98.4%       63.7% 
 
ROE                                                  31.0%     20.3%     19.5%     11.5 pp     10.7 pp 
ROE before expected credit loss allowances           26.0%     22.4%     21.3%     4.7 pp      3.6 pp 
ROA                                                  4.4%      2.7%      2.6%      1.8 pp      1.7 pp 
 

Funding and Liquidity

As of 30 June 2021, total liquidity coverage ratio, as defined by the NBG, was 127.1%, above the 100% limit. The decrease on a QoQ basis in the foreign currency liquidity coverage ratio was attributable to the release of a short-term placement from a single CIB client, while the decline in the GEL liquidity coverage ratio was mainly related to a repayment of a wholesale funding , as well as an increase in the loan book.

As of 30 June 2021, NSFR stood at 130.6%, compared to the regulatory limit of 100%.

 
                                                                30-Jun-21  31-Mar-21  Change QoQ 
Minimum net stable funding ratio, as defined by the NBG         100.0%     100.0%     0.0 pp 
Net stable funding ratio as defined by the NBG                  130.6%     131.4%     -0.8 pp 
 
Net loans to deposits + IFI funding                             102.8%     92.2%      10.6 pp 
Leverage (Times)                                                6.6x       7.6x       -1.0x 
 
Minimum total liquidity coverage ratio, as defined by the NBG   100.0%     100.0%     0.0 pp 
Minimum LCR in GEL, as defined by the NBG                       75%*       n/a        NMF 
Minimum LCR in FC, as defined by the NBG                        100.0%     100.0%     0.0 pp 
 
Total liquidity coverage ratio, as defined by the NBG           127.1%     136.7%     -9.6 pp 
LCR in GEL, as defined by the NBG                               122.9%     140.8%     -17.9 pp 
LCR in FC, as defined by the NBG                                129.2%     135.5%     -6.3 pp 
 

* In May 2021, NBG restored the NBG GEL LCR limit, which was temporarily removed for one year

Regulatory Capital

As of 30 June 2021, our capital adequacy ratios were comfortably above the minimum regulatory requirements including the restored buffers .

By 31 July 2021, we have restored all temporarily released capital buffers. This has lifted any restrictions on capital distribution.

Our strong capital generation was driven by our exceptional operating income as well as strong performance on the asset quality side. The growth was further supported currency local currency appreciation QoQ.

 
In thousands of GEL             30-Jun-21   31-Mar-21   Change QoQ 
 
CET 1 Capital                   2,382,595   2,059,599   15.7% 
Tier 1 Capital                  2,837,805   2,550,144   11.3% 
Total Capital                   3,573,282   3,327,134   7.4% 
Total Risk-weighted Exposures   18,275,845  18,921,231  -3.4% 
 
 
 
Minimum CET 1 ratio                    11.2%*  7.8%   3.4 pp 
CET 1 Capital adequacy ratio           13.0%   10.9%  2.1 pp 
 
Minimum Tier 1 ratio                   13.5%*  9.7%   3.8 pp 
Tier 1 Capital adequacy ratio          15.5%   13.5%  2.0 pp 
 
Minimum total capital adequacy ratio   17.8%*  13.7%  4.1 pp 
Total Capital adequacy ratio           19.6%   17.6%  2.0 pp 
 
 

* Minimum requirements with restored buffers

Loan Portfolio

As of 30 June 2021, the gross loan portfolio reached GEL 15,274.9 million, down by 0.4% QoQ, or up by 3.7% on a constant currency basis.

The proportion of gross loans denominated in foreign currency decreased by 2.9pp QoQ and accounted for 56.3% of total loans, while on a constant currency basis the proportion of gross loans denominated in foreign currency decreased by 1.1pp QoQ and stood at 58.0%.

As of 30 June 2021, our market share in total loans stood at 38.1%, down by 0.4pp QoQ. Our loan market share in legal entities was 38.0%, remaining the same QoQ, and our loan market share in individuals stood at 38.3%, down by 0.7pp QoQ.

 
In thousands of GEL                     30-Jun-21   31-Mar-21   Change QoQ 
Loans and advances to customers 
 
Retail                                  5,688,519   5,761,488   -1.3% 
Retail loans GEL                        3,100,158   2,980,635   4.0% 
Retail loans FC                         2,588,361   2,780,853   -6.9% 
CIB                                     5,851,634   5,939,056   -1.5% 
CIB loans GEL                           1,746,149   1,629,821   7.1% 
CIB loans FC                            4,105,485   4,309,235   -4.7% 
MSME                                    3,734,773   3,631,665   2.8% 
MSME loans GEL                          1,828,264   1,647,846   10.9% 
MSME loans FC                           1,906,509   1,983,819   -3.9% 
Total loans and advances to customers   15,274,926  15,332,209  -0.4% 
 
 
                         2Q'21  1Q'21  2Q'20  Change YoY  Change QoQ 
Loan yields              10.2%  9.8%   9.7%   0.5 pp      0.4 pp 
Loan yields GEL          15.1%  14.6%  15.0%  0.1 pp      0.5 pp 
Loan yields FC           6.7%   6.6%   6.5%   0.2 pp      0.1 pp 
Retail Loan Yields       11.4%  11.1%  10.7%  0.7 pp      0.3 pp 
Retail loan yields GEL   15.8%  15.7%  15.8%  0.0 pp      0.1 pp 
Retail loan yields FC    6.4%   6.2%   6.1%   0.3 pp      0.2 pp 
CIB Loan Yields          9.0%   8.7%   8.5%   0.5 pp      0.3 pp 
CIB loan yields GEL      13.8%  12.8%  13.3%  0.5 pp      1.0 pp 
CIB loan yields FC       7.1%   7.1%   6.9%   0.2 pp      0.0 pp 
MSME Loan Yields         10.3%  9.8%   10.2%  0.1 pp      0.5 pp 
MSME loan yields GEL     15.1%  14.5%  15.2%  -0.1 pp     0.6 pp 
MSME loan yields FC      6.1%   5.9%   6.1%   0.0 pp      0.2 pp 
 

Loan Portfolio Quality

In 2Q, NPL improved by 1.4pp across all segments, driven by resumed repayments from restructured retail and MSME customers, as well as by the repayment of a single large CIB borrower.

The total Par 30 ratio improved by 0.3pp and amounted to 2.2%. The decrease was mainly driven by the CIB segment due to two large borrowers (including the one mentioned above). The Retail and MSME ratios stayed stable compared to previous quarter.

Our NPLs had a 91% provision coverage as of 30 June 2021 and an additional 79% collateral coverage. Only 13% of NPLs were unsecured loans with strong provision coverage of 294%.

 
Par 30        30-Jun-21  31-Mar-21  Change QoQ 
Retail        3.0%       3.0%       0.0% 
CIB           0.3%       1.2%       -0.9% 
MSME          3.9%       3.8%       0.1% 
Total Loans   2.2%       2.5%       -0.3% 
 
 
 
Non-performing Loans   30-Jun-21  31-Mar-21  Change QoQ 
Retail                 4.0%       6.0%       -2.0% 
CIB                    1.6%       2.2%       -0.6% 
MSME                   5.4%       7.0%       -1.6% 
Total Loans            3.4%       4.8%       -1.4% 
 
 
NPL Coverage [18]   30-Jun-21                           31-Mar-21 
                    Provision Coverage  Total Coverage  Provision Coverage  Total Coverage 
Retail              117.9%              189.6%          93.8%               161.0% 
CIB                 82.9%               157.0%          81.9%               150.5% 
MSME                64.8%               152.7%          63.1%               147.5% 
Total               91.3%               169.6%          81.0%               154.4% 
 
 
NPL Coverage (30 June 2021) [19] 
               Collateral coverage   Provision coverage  Total coverage  Share in NPL portfolio 
Secured[20]    90%                   62%                 152%            87% 
Unsecured      -                     294%                294%            13% 
Total          79%                   91%                 170%            100% 
 
 

Cost of risk

The recoveries of credit loss allowances translated into -1.3% cost of risk for 2Q 2021. As mentioned above, the recoveries were driven by improved macro outlook on the back of the better than expected economic performance, as well as repayment from a single large CIB borrower.

 
Cost of risk   2Q'21  1Q'21  2Q'20  Change YoY  Change 
                                                 QoQ 
 
Retail         -0.1%  0.8%   -0.7%  0.6%        -0.9% 
CIB            -2.0%  -0.2%  0.3%   -2.3%       -1.8% 
MSME           -2.0%  1.0%   1.0%   -3.0%       -3.0% 
Total          -1.3%  0.5%   0.0%   -1.3%       -1.8% 
 

Deposit Portfolio

The total deposits portfolio decreased by 9.6% QoQ, or 5.0% on a constant currency basis and amounted to GEL 12,870.4 million.

The decrease on a QoQ basis was attributable to a decline of a Ministry of Finance deposits, as well as release of short-term placement from a single CIB client. Without Minstry of Finance deposits, our deposits portfolio would have been broadly stable on constant currency basis. The proportion of deposits denominated in a foreign currency decreased by 2.5pp QoQ and accounted for 65.7% of total deposits, while on a constant currency basis the proportion of deposits denominated in foreign currency decreased by 0.8pp QoQ and stood at 67.4%.

As of 30 June 2021, our market share in deposits amounted to 37.8%, down by 2.0pp QoQ, while our market share in deposits to legal entities stood at 35.7%, down by 4.1pp QoQ. Our market share in deposits to individuals stood at 39.6%, down by 0.2pp QoQ.

 
In thousands of GEL        30-Jun-21   31-Mar-21   Change QoQ 
Customer Accounts 
 
Retail                     5,287,787   5,369,851   -1.5% 
Retail deposits GEL        1,269,466   1,266,543   0.2% 
Retail deposits FC         4,018,321   4,103,308   -2.1% 
CIB                        5,939,188   6,728,126   -11.7% 
CIB deposits GEL           2,218,972   1,803,883   23.0% 
CIB deposits FC            3,720,216   4,924,243   -24.5% 
MSME                       1,397,516   1,299,482   7.5% 
MSME deposits GEL          675,932     619,717     9.1% 
MSME deposits FC           721,584     679,765     6.2% 
Total Customer Accounts*   12,870,418  14,239,837  -9.6% 
 

* Total deposit portfolio includes Ministry of Finacne deposits in the amount of, GEL 843 mln and GEL 245 mln as of 31 March 2021 and 30 June 2021, respectively

 
                           2Q'21  1Q'21  2Q'20  Change   Change 
                                                 YoY      QoQ 
Deposit rates              3.4%   3.5%   3.4%   0.0 pp   -0.1 pp 
Deposit rates GEL          6.6%   6.6%   6.4%   0.2 pp   0.0 pp 
Deposit rates FC           1.7%   1.9%   1.9%   -0.2%    -0.2 pp 
Retail Deposit Yields      2.2%   2.5%   2.7%   -0.5 pp  -0.3 pp 
Retail deposit rates GEL   4.7%   5.0%   5.7%   -1.0 pp  -0.3 pp 
Retail deposit rates FC    1.5%   1.7%   1.7%   -0.2 pp  -0.2 pp 
CIB Deposit Yields         4.0%   3.9%   4.5%   -0.5 pp  0.1 pp 
CIB deposit rates GEL      8.3%   7.9%   8.5%   -0.2 pp  0.4 pp 
CIB deposit rates FC       2.1%   2.2%   2.5%   -0.4 pp  -0.1 pp 
MSME Deposit Yields        0.9%   0.8%   0.9%   0.0 pp   0.1 pp 
MSME deposit rates GEL     1.5%   1.5%   1.7%   -0.2 pp  0.0 pp 
MSME deposit rates FC      0.3%   0.2%   0.4%   -0.1 pp  0.1 pp 
 

Segment definition and PL

Business Segments

The segment definitions are as follows:

-- Corporate and Investment Banking (CIB) - a legal entity/group of affiliated entities with an annual revenue exceeding GEL 12.0 million or which has been granted facilities of more than GEL 5.0 million. Some other business customers may also be assigned to the CIB segment or transferred to the MSME segment on a discretionary basis. In addition, CIB includes Wealth Management private banking services to high-net-worth individuals with the threshold of US$ 250,000 on assets under management (AUM), as well as on discretionary basis;

   --      Retail - non-business individual customers; 

-- MSME - business customers who are not included in the CIB segment; or individual customers of the fully digital bank, Space.

-- 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

 
2Q'21                                Retail    MSME      CIB       Corp.Centre  Total 
Interest income                      163,057   95,892    139,272   60,351       458,572 
Interest expense                     (30,689)  (3,058)   (61,772)  (127,937)    (223,456) 
Net gains from currency swaps        -         -         -         7,651        7,651 
Net transfer pricing                 (36,770)  (36,678)  12,728    60,720       - 
Net interest income                  95,598    56,156    90,228    785          242,767 
Fee and commission income            58,575    13,434    25,149    7,887        105,045 
Fee and commission expense           (11,920)  (8,180)   (19,509)  (2,428)      (42,037) 
Net fee and commission income        46,655    5,254     5,640     5,459        63,008 
Net insurance premium earned 
 after claims and acquisition 
 costs                               -         -         -         5,470        5,470 
Net gains from derivatives, 
 foreign currency operations 
 and translation                     8,600     6,999     14,254    1,835        31,688 
Gains less Losses from Disposal 
 of Investment Securities Measured 
 at Fair Value through Other 
 Comprehensive Income                -         -         515       4,138        4,653 
Other operating income               2,181     668       1,117     28,525       32,491 
Share of profit of associates        -         -         -         210          210 
Other operating non-interest 
 income and insurance profit         10,781    7,667     15,886    40,178       74,512 
Credit loss allowance for 
 loans to customers                  1,661     18,365    30,086    -            50,112 
Credit loss allowance for 
 performance guarantees and 
 credit related commitments          70        (158)     1,372     -            1,284 
Credit loss allowance for 
 investments in finance lease        -         -         -         (1,204)      (1,204) 
Credit loss allowance for 
 other financial assets              (3,309)   -         (1,143)   (1,237)      (5,689) 
Credit loss allowance for 
 financial assets measured 
 at fair value through other 
 comprehensive income                -         -         840       408          1,248 
Other non-financial assets 
 impairment                          95        23        7         (585)        (460) 
Profit/(loss) before G&A expenses 
 and income taxes                    151,551   87,307    142,916   43,804       425,578 
Losses from modifications 
 of financial instruments            (112)     (63)      71        -            (104) 
Staff costs                          (34,266)  (14,170)  (11,676)  (17,645)     (77,757) 
Depreciation and amortization        (12,355)  (3,085)   (1,303)   (2,594)      (19,337) 
Provision for liabilities 
 and charges                         -         -         -         (54)         (54) 
Administrative and other operating 
 expenses                            (17,865)  (7,256)   (3,470)   (8,949)      (37,540) 
Operating expenses                   (64,486)  (24,511)  (16,449)  (29,242)     (134,688) 
Profit before tax                    86,953    62,733    126,538   14,562       290,786 
Income tax expense                   (10,368)  (8,784)   (16,307)  (4,935)      (40,394) 
Profit                               76,585    53,949    110,231   9,627        250,392 
 

Consolidated Financial Statements of TBC Bank Group PLC

Consolidated Balance sheet

 
In thousands of GEL                                                               Jun-21      Mar-21 
Cash and cash equivalents                                                         1,414,414   2,425,584 
Due from other banks                                                              59,314      54,189 
Mandatory cash balances with National Bank of Georgia                             2,117,157   2,364,760 
Loans and advances to customers                                                   14,796,968  14,742,344 
Investment securities measured at fair value through other comprehensive income   2,022,385   2,284,697 
Bonds carried at amortized cost*                                                  10,069      17,748 
Investments in finance leases                                                     245,261     272,090 
Investment properties                                                             33,407      65,605 
Current income tax prepayment                                                     14,966      62,022 
Deferred income tax asset                                                         6,747       1,453 
Other financial assets[21]                                                        287,761     292,410 
Other assets                                                                      311,218     265,299 
Premises and equipment                                                            371,909     377,273 
Right of use assets                                                               51,160      54,535 
Intangible assets                                                                 284,555     272,597 
Goodwill                                                                          59,964      59,964 
Investments in associates                                                         4,286       4,476 
TOTAL ASSETS                                                                      22,091,541  23,617,046 
LIABILITIES 
Due to credit institutions                                                        3,482,830   3,612,067 
Customer accounts                                                                 12,870,418  14,239,837 
Lease liabilities                                                                 53,755      60,934 
Other financial liabilities (21)                                                  124,308     153,606 
Current income tax liability                                                      653         697 
Debt Securities in issue                                                          1,445,614   1,583,929 
Deferred income tax liability                                                     18,457      21,865 
Provisions for liabilities and charges                                            21,435      22,526 
Other liabilities                                                                 101,265     87,888 
Subordinated debt                                                                 635,981     707,962 
TOTAL LIABILITIES                                                                 18,754,716  20,491,311 
EQUITY 
Share capital                                                                     1,682       1,682 
Shares held by trust                                                              (25,489)    (25,494) 
Share premium                                                                     848,459     848,459 
Retained earnings                                                                 2,680,951   2,432,872 
Group re-organisation reserve                                                     (162,167)   (162,167) 
Share based payment reserve                                                       (15,348)    (19,288) 
Fair value reserve                                                                170         36,929 
Cumulative currency translation reserve                                           (5,199)     759 
Net assets attributable to owners                                                 3,323,059   3,113,752 
Non-controlling interest                                                          13,766      11,983 
TOTAL EQUITY                                                                      3,336,825   3,125,735 
TOTAL LIABILITIES AND EQUITY                                                      22,091,541  23,617,046 
 

* In 2020, the Group changed its business model in relation to certain portfolio of bonds carried at amortized cost (Ministry of Finance Treasury Bills). The respective reclassifications have been applied prospectively from 1 January 2021, as required by IFRS. As a result of reclassification, Bonds carried at amortized cost in the amount of GEL 1,059,946 thousand has been transferred to Investment securities measured at fair value through other comprehensive income with the fair value of GEL 1,086,008 thousand. The difference has been recognized in other comprehensive income as required by IFRS

Consolidated Statement of Profit or Loss and Other Comprehensive Income

 
In thousands of GEL                                                                    2Q'21      1Q'21      2Q'20 
Interest income                                                                        458,572    440,613    393,114 
Interest expense                                                                       (223,456)  (220,980)  (212,714) 
Net gains from currency swaps                                                          7,651      5,498      3,965 
Net interest income                                                                    242,767    225,131    184,365 
Fee and commission income                                                              105,045    81,108     65,038 
Fee and commission expense                                                             (42,037)   (35,815)   (25,521) 
Net fee and commission income                                                          63,008     45,293     39,517 
Net insurance premiums earned                                                          16,146     14,143     13,385 
Net insurance claims incurred and agents' commissions                                  (10,676)   (9,740)    (7,904) 
Net insurance premium earned after claims and acquisition costs                        5,470      4,403      5,481 
Net gains from derivatives, foreign currency operations and translation                31,688     28,496     19,124 
Gains less losses from disposal of investment securities measured at fair value 
 through other 
 comprehensive income                                                                  4,653      2,388      (1,480) 
Other operating income                                                                 32,491     4,992      3,083 
Share of profit of associates                                                          210        386        (47) 
Other operating non-interest income                                                    69,042     36,262     20,680 
Credit loss allowance for loans to customers                                           50,112     (17,549)   (8,191) 
Credit loss allowance for investments in finance lease                                 (1,204)    (1,311)    (3,408) 
Credit loss allowance for performance guarantees and credit related commitments        1,284      646        1,227 
Credit loss allowance for other financial assets                                       (5,689)    363        (988) 
Credit loss allowance for financial assets measured at fair value through other 
 comprehensive 
 income                                                                                1,248      594        46 
Other non-financial assets impairment                                                  (460)      13         (1,272) 
Operating profit after expected credit losses                                          425,578    293,845    237,457 
Losses from modifications of financial instruments                                     (104)      (1,487)    (3,527) 
Staff costs                                                                            (77,757)   (70,314)   (57,204) 
Depreciation and amortization                                                          (19,337)   (17,364)   (16,427) 
(Provision for)/ recovery of liabilities and charges                                   (54)       45         (59) 
Administrative and other operating expenses                                            (37,540)   (34,607)   (21,369) 
Operating expenses                                                                     (134,688)  (122,240)  (95,059) 
Profit before tax                                                                      290,786    170,118    138,871 
Income tax expense                                                                     (40,394)   (17,131)   (12,665) 
Profit                                                                                 250,392    152,987    126,206 
Other comprehensive income: 
Items that may be reclassified subsequently to profit or loss: 
Movement in fair value reserve                                                         (36,758)   25,772     (38) 
Exchange differences on translation to presentation currency                           (5,976)    2,903      (2,002) 
Other comprehensive income for the period                                              (42,734)   28,675     (2,040) 
Total comprehensive income for the period                                              207,658    181,662    124,166 
Profit attributable to: 
 - Shareholders of TBCG                                                                247,945    151,224    125,100 
 - Non-controlling interest                                                            2,447      1,763      1,106 
Profit                                                                                 250,392    152,987    126,206 
Total comprehensive income is attributable to: 
 - Shareholders of TBCG                                                                205,195    179,923    123,060 
 - Non-controlling interest                                                            2,463      1,739      1,106 
Total comprehensive income for the period                                              207,658    181,662    124,166 
 

Consolidated Statement of Cash Flows

 
In thousands of GEL                                   30-Jun-2021          31-Mar-2021 
Cash flows from (used in) operating activities 
Interest received                                               906,444              442,636 
Interest received on currency swaps                               13,149                 5,498 
Interest paid                                                 (452,751)            (183,320) 
Fees and commissions received                                   170,658                74,044 
Fees and commissions paid                                       (78,793)             (36,510) 
Insurance and reinsurance received                                43,358               20,559 
Insurance claims paid                                           (16,239)               (7,270) 
Income received from trading in foreign currencies                32,659             (33,046) 
Other operating income received                       28,880                           14,282 
Staff costs paid                                              (134,594)              (65,416) 
Administrative and other operating expenses 
 paid                                                           (79,430)             (37,873) 
Income tax paid                                                   (4,446)              (1,199) 
Cash flows from operating activities before 
 changes in operating assets and liabilities          428,895                       192,385 
Net change in operating assets 
Due from other banks and mandatory cash balances 
 with the National Bank of Georgia                    23,326                         100,916 
Loans and advances to customers                               (711,980)              (23,866) 
Net investments in lease                                          24,158                 6,083 
Other financial assets                                          (38,835)             (89,537) 
Other assets                                                      14,151               18,454 
Net change in operating liabilities 
Due to credit institutions                            11,940                           21,347 
Customer accounts                                               667,190           1,360,791 
Other financial liabilities                                   (137,291)            (104,089) 
Other liabilities and provision for liabilities 
 and charges                                                      16,659                 6,595 
Net cash flows (used in)/from operating activities    298,213                    1,489,079 
Cash flows from (used in) investing activities 
Acquisition of investment securities measured 
 at fair value through other comprehensive 
 income                                                       (196,871)              (28,972) 
Proceeds from disposal of investment securities 
 measured at fair value through other comprehensive 
 income                                               -                              275,679 
Proceeds from redemption at maturity of investment 
 securities measured at fair value through 
 other comprehensive income                                     757,583                92,438 
Proceeds from redemption of bonds carried                         19,633                      - 
 at amortised cost 
Acquisition of premises, equipment and intangible 
 assets                                                         (91,993)             (49,264) 
Proceeds from disposal of premises, equipment 
 and intangible assets                                              6,334                   351 
Proceeds from disposal of investment property                     20,210                 3,430 
Net cash used in investing activities                          514,896              293,662 
Cash flows from (used in) financing activities 
Proceeds from other borrowed funds                           1,757,879            1,190,364 
Redemption of other borrowed funds                         (2,736,476)          (2,160,119) 
Repayment of principal of lease liabilities                       (5,591)              (3,950) 
Redemption of subordinated debt                                 (12,562) 
Dividends paid                                                    (1,741)              (1,354) 
Net cash flows from financing activities                     (998,491)            (975,059) 
Effect of exchange rate changes on cash and 
 cash equivalents                                     (35,609)                      (17,502) 
Net (decrease)/ increase in cash and cash 
 equivalents                                                 (220,991)              790,180 
Cash and cash equivalents at the beginning 
 of the year                                                1,635,405            1,635,404 
Cash and cash equivalents at the end of the 
 year                                                 1,414,414                  2,425,584 
 

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)   2Q'21   1Q'21   2Q'20 
 
Profitability ratios: 
ROE(1)                                                 31.0%   20.3%   19.5% 
ROA(2)                                                 4.4%    2.7%    2.6% 
ROE before expected credit loss allowances(3)          26.0%   22.4%   21.3% 
Cost to income(4)                                      35.4%   39.3%   38.0% 
NIM(5)                                                 5.0%    4.7%    4.3% 
Loan yields(6)                                         10.2%   9.8%    9.7% 
Deposit rates(7)                                       3.4%    3.5%    3.4% 
Yields on interest earning assets(8)                   9.5%    9.2%    9.1% 
Cost of funding(9)                                     4.6%    4.5%    5.0% 
Spread(10)                                             4.9%    4.7%    4.1% 
 
Asset quality & portfolio concentration: 
Cost of risk(11)                                       -1.3%   0.5%    0.0% 
PAR 90 to Gross Loans(12)                              1.2%    1.6%    1.0% 
NPLs to Gross Loans(13)                                3.4%    4.8%    2.9% 
NPL provision coverage(14)                             91.3%   81.0%   134.7% 
Total NPL coverage(15)                                 169.6%  154.4%  208.0% 
Credit loss level to Gross Loans(16)                   3.1%    3.8%    3.9% 
Related Party Loans to Gross Loans(17)                 0.1%    0.0%    0.1% 
Top 10 Borrowers to Total Portfolio(18)                7.8%    8.2%    8.2% 
Top 20 Borrowers to Total Portfolio(19)                11.9%   12.4%   12.3% 
 
Capital & liquidity positions: 
Net Loans to Deposits plus IFI* Funding(20)            102.8%  92.2%   105.3% 
Net Stable Funding Ratio(21)                           130.6%  131.4%  127.5% 
Liquidity Coverage Ratio(22)                           127.1%  136.7%  124.8% 
Leverage(23)                                           6.6x    7.6x    7.5x 
CET 1 CAR (Basel III)(24)                              13.0%   10.9%   10.0% 
Regulatory Tier 1 CAR (Basel III)(25)                  15.5%   13.5%   12.7% 
Regulatory Total 1 CAR (Basel III)(26)                 19.6%   17.6%   17.2% 
 

* International Financial Institutions

Ratio definitions

1. 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.

2. 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.

3. Return on average total equity (ROE) before expected credit loss allowances equals net income attributable to owners excluding all credit loss allowance with respective tax effects, but after net modification losses divided by the monthly average of total shareholders' equity attributable to the PLC's equity holders for the same period.

4. 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).

5. 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 CIB shares), net investment in finance lease, net loans, and amounts due from credit institutions.

6. Loan yields equal interest income on loans and advances to customers divided by monthly average gross loans and advances to customers; annualised where applicable.

7. Deposit rates equal interest expense on customer accounts divided by monthly average total customer deposits; annualised where applicable.

8. Yields on interest earning assets equal total interest income divided by monthly average interest earning assets; annualised where applicable.

9. Cost of funding equals total interest expense divided by monthly average interest bearing liabilities; annualised where applicable.

10. 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).

11. Cost of risk equals credit loss allowance for loans to customers divided by monthly average gross loans and advances to customers; annualised where applicable.

12. 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.

13. 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.

14. NPL provision coverage equals total credit loss allowance for loans to customers divided by the NPL loans.

15. Total NPL coverage equals total credit loss allowance plus the minimum of collateral amount of the respective NPL loan (after applying haircuts in the range of 0%-50% for cash, gold, real estate and PPE) and its gross loan exposure divided by the gross exposure of total NPL loans.

16. Credit loss level to gross loans equals credit loss allowance for loans to customers divided by the gross loan portfolio for the same period.

17. Related party loans to total loans equals related party loans divided by the gross loan portfolio.

18. Top 10 borrowers to total portfolio equals the total loan amount of the top 10 borrowers divided by the gross loan portfolio.

19. Top 20 borrowers to total portfolio equals the total loan amount of the top 20 borrowers divided by the gross loan portfolio.

20. Net loans to deposits plus IFI funding ratio equals net loans divided by total deposits plus borrowings received from international financial institutions.

21. 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.

22. Liquidity coverage ratio equals high-quality liquid assets divided by the total net cash outflow amount as defined by the NBG.

23. Leverage equals total assets to total equity.

24. 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. Calculations are made for TBC Bank stand-alone, based on local standards.

25. 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. Calculations are made for TBC Bank stand-alone, based on local standards.

26. 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. Calculations are made for TBC Bank stand-alone, based on local standards.

Exchange Rates

To calculate the QoQ growth of the Balance Sheet items without the currency exchange rate effect, we used the US$/GEL exchange rate of 3.4118 as of 3 1 March 2021. As of 30 June 2021 the US$/GEL exchange rate equaled 3.1603. For P&L items growth calculations without currency effect, we used the average US$/GEL exchange rate for the following periods: 2Q 2021 of 3.3271, 1Q 2021 of 3.3142, 2Q 2020 of 3.1379.

Unaudited Consolidated Financial Results Overview for 1H 2021

This statement provides a summary of the unaudited business and financial trends for 1H 2021 for TBC Bank Group plc and its subsidiaries. The half year financial information and trends are unaudited.

TBC Bank Group PLC's financial results has been prepared in accordance with UK-adopted International Accounting Standard (IAS) 34 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the Financial Conduct Authority (FCA).

Financial Highlights

 
Income Statement Highlights 
in thousands of GEL                                  1H'21      1H'20      Change YoY 
Net interest income                                  467,898    392,324    19.3% 
Net fee and commission income                        108,301    83,069     30.4% 
Other operating non-interest income[22]              115,177    64,905     77.5% 
Credit loss allowance                                28,047     (259,676)  NMF 
Operating profit after expected credit losses        719,423    280,622    NMF 
Losses from modifications of financial instrument    (1,591)    (34,170)   NMF 
Operating expenses                                   (256,928)  (201,535)  27.5% 
Profit before tax                                    460,904    44,917     NMF 
Income tax expense                                   (57,525)   24,283     NMF 
Profit for the period                                403,379    69,200     NMF 
 
 
 
 
  Balance Sheet and Capital Highlights 
in thousands of GEL                                   Jun-21                Jun-20              Change YoY 
Total Assets                                                   22,091,541          19,813,429   11.5% 
Gross Loans                                                    15,274,926          13,635,392   12.0% 
Customer Deposits                                              12,870,418          10,420,330   23.5% 
Total Equity                                               3,336,825                 2,653,405  25.8% 
Regulatory Common Equity Tier I Capital (Basel III)              2,382,595           1,631,006  46.1% 
Regulatory Tier I Capital (Basel III)                            2,837,805           2,068,052  37.2% 
Regulatory Total Capital (Basel III)                             3,573,282           2,787,136  28.2% 
Regulatory Risk Weighted Assets (Basel III)                    18,275,845          16,249,475   12.5% 
 
 
 
Key Ratios                                  1H'21   1H'20   Change YoY 
ROE                                         25.9%   5.2%    20.7 pp 
ROA                                         3.6%    0.7%    2.9 pp 
NIM                                         4.8%    4.7%    0.1 pp 
Cost to income                              37.2%   37.3%   -0.1 pp 
Standalone cost to income of the Bank[23]   30.6%   32.0%   -1.4 pp 
Cost of risk                                -0.4%   2.1%    -2.5 pp 
NPL to gross loans                          3.4%    2.9 %   0.5 pp 
NPL provision coverage ratio                91.3%   134.7%  -43.4 pp 
Total NPL coverage ratio                    169.6%  208.0%  -38.4 pp 
CET 1 CAR (Basel III)                       13.0%   10.0%   3.0 pp 
Regulatory Tier 1 CAR (Basel III)           15.5%   12.7%   2.8 pp 
Regulatory Total CAR (Basel III)            19.6%   17.2%   2.4 pp 
Leverage (Times)                            6.6x    7.5x    -0.9x 
 

Net Interest Income

In 1H 2021, net interest income amounted to GEL 467.9 million, up by 19.3% YoY, whereby interest income increased by 14.1% and interest expense increased by 8.9%.

The YoY increase in interest income was primarily related to an increase in interest income from loans, which was driven by an increase in the gross loan portfolio by GEL 1,639.5 million, or 12.0%. Over the same period, loan yield remained broadly stable.

Our interest expense increased by 8.9%, which was primarily related to an increase in interest expense from deposits due to an increase in the respective portfolio of GEL 2,450.1 million. Over the same period, the cost of deposits remained broadly stable YoY, as the increase in GEL cost of deposits was more than offset by a decrease in FC cost of deposits.

In 1H 2021, our NIM stood at 4.8%, up by 0.1pp YoY .

 
In thousands of GEL             1H'21      1H'20      Change YoY 
Interest income                 899,185    787,893    14.1% 
Interest expense                (444,436)  (408,091)  8.9% 
Net gains from currency swaps   13,149     12,522     5.0% 
Net interest income             467,898    392,324    19.3% 
 
NIM                             4.8%       4.7%       0.1 pp 
 

Net fee and commission income

In 1H 2021, net fee and commission income totalled GEL 108.3 million, up by 30.4% YoY. The increase was spread across all major sub-categories due to the revival of business activities, further supported by various initiatives undertaken on the payments side, as well as the contribution from our fast-growing Uzbek payments subsidiary, Payme.

 
In thousands of GEL                       1H'21    1H'20   Change YoY 
Net fee and commission income 
Card operations                           32,951   23,502  40.2% 
Settlement transactions                   53,002   38,012  39.4% 
Guarantees issued and letters of credit   18,963   17,919  5.8% 
Other                                     3,385    3,636   -6.9% 
Total net fee and commission income       108,301  83,069  30.4% 
 

Other Non-Interest Income

Total other non-interest income increased by 77.5% YoY and amounted to GEL 115.2 million in 1H 2021. The YoY increase was driven by growth in net income from foreign currency operations and growth in other operating income. The former increase was driven by an increase in the scale of FX transactions, while the later increase was driven by a gain from the disposal of one of our investment properties, in the amount of GEL 26.3 million.

 
In thousands of GEL                                                   1H'21    1H'20   Change YoY 
Other non-interest income 
Net income from foreign currency operations                           59,880   47,779  25.3% 
Net insurance premium earned after claims and acquisition costs[24]   9,873    10,281  -4.0% 
Other operating income                                                45,424   6,845   NMF 
Total other non-interest income                                       115,177  64,905  77.5% 
 
 

Credit Loss Allowance

Total credit loss allowance in 1H 2021 amounted to GEL 28.0 million. This significant decrease was driven by recoveries in 2Q across all segments, as explained above, and by a high base in 1H 2020 due to creation of COVID-19 related provisions.

 
In thousands of GEL                  1H'21    1H'20      Change 
                                                          YoY 
Credit loss allowance for loans      32,563   (249,216)  NMF 
Credit loss allowance for other 
 transactions                        (4,516)  (10,460)   -56.8% 
Total credit loss allowance          28,047   (259,676)  NMF 
Operating income after credit loss 
 allowance                           719,423  280,622    NMF 
 
Cost of risk                         -0.4%    2.1%       -2.5 pp 
 

NMF - no meaningful figures

Operating Expenses

In 1H 2021, our total operating expenses expanded by 27.5% YoY.

YoY growth in staff costs was mainly attributable to the low base of share-based payments in 1H 2020, as a result of reversal of management's bonuses, increase in staff bonuses related to revival of business activities in 1H 2021, as well as the expansion of our Uzbekistan operations. The increase in administrative expenses were mainly impacted by cost optimizations in 1H 2020 related to COVID-19 (including GEL 4.2 mln from renegotiated rent expenses per IFRS 16).

The cost to income ratio stood at 37.2%, down by 0.1 pp YoY, while our standalone cost to income was 30.6%, down by 1.4pp over the same period.

 
In thousands of GEL                         1H'21      1H'20      Change YoY 
Operating expenses 
Staff costs                                 (148,071)  (114,006)  29.9% 
Provisions for liabilities and charges      (9)        77         NMF 
Depreciation and amortization               (36,701)   (32,215)   13.9% 
Administrative & other operating expenses   (72,147)   (55,391)   30.3% 
Total operating expenses                    (256,928)  (201,535)  27.5% 
 
Cost to income                              37.2%      37.3%      -0.1 pp 
Standalone Cost to income*                  30.6%      32.0%      -1.4 pp 
 

* For the ratio calculation all relevant group recurring costs are allocated to the bank

NMF - no meaningful figures

Net Income

In 1H 2021, our solid profitability was related to strong performance in operating profit across all categories, as well as recoveries in credit loss allowances across all segments.

As a result, our ROE stood at 25.9%, ROE before expected credit loss allowances stood at 24.3% and ROA stood at 3.6%.

 
In thousands of GEL                                  1H'21     1H'20     Change YoY 
Losses from modifications of financial instruments   (1,591)   (34,170)  -95.3% 
Profit before tax                                    460,904   44,917    NMF 
Income tax expense                                   (57,525)  24,283    NMF 
Profit for the period                                403,379   69,200    NMF 
 
ROE                                                  25.9%     5.2%      20.7 pp 
ROE before expected credit loss allowances           24.3%     23.3%     1.0 pp 
ROA                                                  3.6%      0.7%      2.9 pp 
 

Funding and Liquidity

As of 30 June 2021, the total liquidity coverage ratio, as defined by the NBG, was 127.1 % , above the 100% limit, while the LCR in GEL and FC stood at 122.9% and 129.2% respectively, above the respective limits of 75% and 100%.

As of 30 June 2021, NSFR stood at 130.6%, compared to the regulatory limit of 100%.

 
                                                                30-Jun-21  30-Jun-20  Change 
                                                                                       YoY 
Minimum net stable funding ratio, as defined by the NBG         100%       100%       0.0 pp 
Net stable funding ratio as defined by the NBG                  130.6%     127.5%     3.1 pp 
 
Net loans to deposits + IFI funding                             102.8%     105.3%     -2.5 pp 
Leverage (Times)                                                6.6x       7.5x       -0.9x 
 
Minimum total liquidity coverage ratio, as defined by the NBG   100.0%     100.0%     0.0 pp 
Minimum LCR in GEL, as defined by the NBG                       75%*       n/a        NMF 
Minimum LCR in FC, as defined by the NBG                        100.0%     100.0%     0.0 pp 
 
Total liquidity coverage ratio, as defined by the NBG           127.1%     124.8%     2.3 pp 
LCR in GEL, as defined by the NBG                               122.9%     141.0%     -18.1 pp 
LCR in FC, as defined by the NBG                                129.2%     117.3%     11.9 pp 
 

* In May 2021, NBG restored the NBG GEL LCR limit, which was temporarily removed for one year

Regulatory Capital

On a YoY basis, the bank's CET1, Tier 1 and Total capital adequacy ratios increased by 3.0pp, 2.8pp and 2.4pp, respectively. The increase was mainly driven by strong net income generation, which was partially offset by local currency depreciation and an increase in loan book.

 
In thousands of GEL                    30-Jun-21   30-Jun-20   Change YoY 
 
CET 1 Capital                          2,382,595   1,631,006   46.1% 
Tier 1 Capital                         2,837,805   2,068,052   37.2% 
Total Capital                          3,573,282   2,787,136   28.2% 
Total Risk-weighted Exposures          18,275,845  16,249,475  12.5% 
 
Minimum CET 1 ratio                    11.2%*      6.9%        4.3 pp 
CET 1 Capital adequacy ratio           13.0%       10.0%       3.0 pp 
 
Minimum Tier 1 ratio                   13.5%*      8.7%        4.8 pp 
Tier 1 Capital adequacy ratio          15.5%       12.7%       2.8 pp 
 
Minimum total capital adequacy ratio   17.8%*      13.3%       4.5 pp 
Total Capital adequacy ratio           19.6%       17.2%       2.4 pp 
 

* Minimum requirement with restored buffers

Loan Portfolio

As of 30 June 2021, the gross loan portfolio reached GEL 15,274.9 million, up by 12.0% YoY or up by 8.5% on a constant currency basis. The YoY increase was spread across all segments. The proportion of gross loans denominated in foreign currency decreased by 4.4pp YoY and accounted for 56.3 % of total loans, while on a constant currency basis the proportion of gross loans denominated in foreign currency was down by 5.9pp YoY and stood at 54.9%.

As of 30 June 2021, our market share in total loans stood at 38.1%, down by 1. 4 pp YoY, while our loan market share in legal entities was 38.0%, down by 1.3pp over the same period, and our loan market share in individuals stood at 38.3%, down by 1.6pp QoQ.

 
In thousands of GEL                     30-Jun-21   30-Jun-20   Change YoY 
Loans and advances to customers 
Retail                                  5,688,519   5,229,005*  8.8% 
Retail loans GEL                        3,100,158   2,536,206   22.2% 
Retail loans FC                         2,588,361   2,692,799   -3.9% 
CIB                                     5,851,634   5,200,281   12.5% 
CIB loans GEL                           1,746,149   1,344,965   29.8% 
CIB loans FC                            4,105,485   3,855,316   6.5% 
MSME                                    3,734,773   3,206,106   16.5% 
MSME loans GEL                          1,828,264   1,470,959   24.3% 
MSME loans FC                           1,906,509   1,735,147   9.9% 
Total loans and advances to customers   15,274,926  13,635,392  12.0% 
 

* In 1Q 2021, we reclassified all relevant BS and PL items of the Wealth Management business from Retail Banking to CIB. As of 30 June 2020, GEL 129.7 million loans were reclassified. For more information, please refer to Annex 5.

 
                         1H'21  1H'20  Change YoY 
Loan yields              10.0%  10.1%  -0.1 pp 
Loan yields GEL          14.8%  15.2%  -0.4 pp 
Loan yields FC           6.6%   6.7%   -0.1 pp 
Retail Loan Yields       11.2%  11.1%  0.1 pp 
Retail loan yields GEL   15.7%  16.3%  -0.6 pp 
Retail loan yields FC    6.3%   6.4%   -0.1 pp 
CIB Loan Yields          8.8%   8.8%   0.0 pp 
CIB loan yields GEL      13.3%  13.3%  0.0 pp 
CIB loan yields FC       7.1%   7.1%   0.0 pp 
MSME Loan Yields         10.1%  10.5%  -0.4 pp 
MSME loan yields GEL     14.8%  15.4%  -0.6 pp 
MSME loan yields FC      6.0%   6.3%   -0.3 pp 
 

Loan Portfolio Quality

On a YoY basis, total par 30 and NPL ratio increased by 0.9pp and 0.5pp, respectively, mainly driven by the Retail and MSME segments. The increase was primarily attributable to the low base in 2Q 2020, which was related to the payment holidays offered to our customers. This effect was slightly offset by a 0.3pp drop in the CIB segment, which was driven by a repayment from a single large CIB borrower.

 
              30-Jun-21  30-Jun-20  Change YoY 
  Par 30 
Retail        3.0%       1.3%       1.7 pp 
CIB           0.3%       0.6%       -0.3 pp 
MSME          3.9%       2.3%       1.6 pp 
Total Loans   2.2%       1.3%       0.9 pp 
 
 
Non-performing Loans   30-Jun-21  30-Jun-20  Change YoY 
Retail                 4.0%       3.0%       1.0 pp 
CIB                    1.6%       2.0%       -0.4 pp 
MSME                   5.4%       4.2%       1.2 pp 
Total Loans            3.4%       2.9%       0.5 pp 
 
 
NPL Coverage   30-Jun-21                           30-Jun-20 
               Provision Coverage  Total Coverage  Provision Coverage  Total Coverage 
Retail         117.9%              189.6%          188.5%              253.8% 
CIB            82.9%               157.0%          107.7%              177.7% 
MSME           64.8%               152.7%          91.9%               177.0% 
Total          91.3%               169.6%          134.7%              208.0% 
 
 

Cost of risk

The total cost of risk for 1H 2021 stood at -0.4%, down by 2.4pp YoY. The recoveries in credit loss allowances were related to the improved macro outlook on the back of the better than expected economic performance, as well as repayment from a single large CIB borrower as explained above.

 
Cost of Risk    1H'21    1H'20  Change YoY 
 
Retail          0.4%     3.3%   -2.9 pp 
CIB             - 1.1 %  0.7%   -1.8 pp 
MSME            -0.5%    2.3%   -2.8 pp 
Total           -0.4%    2.1%   -2.5 pp 
 
 
 

Deposit Portfolio

The total deposits portfolio increased by 23.5% YoY and amounted to GEL 12,870.4 million, while on a constant currency basis the total deposit portfolio increased by 20.1pp over the same period. The proportion of deposits denominated in foreign currency was up by 0.1pp YoY and accounted for 65.7% of total deposits, while on a constant currency basis the proportion of deposits denominated in foreign currency dropped by 0.9pp YoY and stood at 64.8%.

As of 30 June 2021, our market share in deposits amounted to 37.8%, up by 0.7 pp YoY, and our market share in deposits to legal entities stood at 35.7%, down by 0.2 pp over the same period. Our market share in deposits to individuals stood at 39.6%, up by 1.6pp QoQ.

 
In thousands of GEL         30-Jun-21   30-Jun-20    Change YoY 
Customer Accounts 
Retail                      5,287,787   4,227,236 *  25.1% 
Retail deposits GEL         1,269,466   1,094,920    15.9% 
Retail deposits FC          4,018,321   3,132,316    28.3% 
CIB                         5,939,188   4,874,761 *  21.8% 
CIB deposits GEL            2,218,972   1,791,102    23.9% 
CIB deposits FC             3,720,216   3,083,659    20.6% 
MSME                        1,397,516   1,178,321    18.6% 
MSME deposits GEL           675,932     555,530      21.7% 
MSME deposits FC            721,584     622,791      15.9% 
Total Customer Accounts**   12,870,418  10,420,330   23.5% 
 

* In 1Q 2021, we reclassified all relevant BS and PL items of the Wealth Management business from Retail Banking to CIB. As of 30 June 2020, GEL 1,792.1 million deposits were reclassified. For more information, please refer to Annex 5.

** Total deposit portfolio includes Ministry of Finance deposits in the amount of GEL 140 million and GEL 24 6 million as of 3 0 June 2020 and 30 June 2021, respectively

 
                           1H'21  1H'20  Change 
                                          YoY 
Deposit rates              3.4%   3.5%   -0.1 pp 
Deposit rates GEL          6.6%   6.4%   0.2 pp 
Deposit rates FC           1.8%   1.9%   -0.1 pp 
Retail Deposit Yields      2.4%   2.6%   -0.2 pp 
Retail deposit rates GEL   4.9%   5.4%   -0.5 pp 
Retail deposit rates FC    1.6%   1.7%   -0.1 pp 
CIB Deposit Yields         4.5%   4.0%   0.5 pp 
CIB deposit rates GEL      8.0%   8.3%   -0.3 pp 
CIB deposit rates FC       2.2%   2.5%   -0.3 pp 
MSME Deposit Yields        0.8%   0.9%   -0.1 pp 
MSME deposit rates GEL     1.5%   1.6%   -0.1 pp 
MSME deposit rates FC      0.3%   0.3%   0.0 pp 
 

Segment definition and PL

Business Segments

The segment definitions are as follows:

-- Corporate and Investment Banking (CIB) - a legal entity/group of affiliated entities with an annual revenue exceeding GEL 12.0 million or which has been granted facilities of more than GEL 5.0 million. Some other business customers may also be assigned to the CIB segment or transferred to the MSME segment on a discretionary basis. In addition, CIB includes Wealth Management private banking services to high-net-worth individuals with the threshold of US$ 250,000 on assets under management (AUM), as well as on discretionary basis;

   --      Retail - non-business individual customers; 

-- MSME - business customers who are not included in the CIB segment; or individual customers of the fully digital bank, Space.

-- 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

 
1H'21                                   Retail     MSME      CIB        Corp.Centre  Total 
Interest income                         321,483    181,002   271,402    125,298      899,185 
Interest expense                        (63,061)   (5,931)   (121,201)  (254,243)    (444,436) 
Net gains from currency swaps                                           13,149       13,149 
Net transfer pricing                    (72,867)   (68,593)  24,865     116,595      - 
Net interest income                     185,555    106,478   175,066    799          467,898 
Fee and commission income               101,851    23,323    46,861     14,118       186,153 
Fee and commission expense              (24,364)   (14,698)  (34,754)   (4,036)      (77,852) 
Net fee and commission income           77,487     8,625     12,107     10,082       108,301 
Net insurance premium earned 
 after claims and acquisition 
 costs                                  -          -         -          9,873        9,873 
Net gains from derivatives, 
 foreign currency operations 
 and translation                        14,201     11,730    22,576     11,677       60,184 
Gains less Losses from Disposal 
 of Investment Securities Measured 
 at Fair Value through Other 
 Comprehensive Income                   -          -         515        6,526        7,041 
Other operating income                  3,511      726       1,642      31,604       37,483 
Share of profit of associates           -          -         -          596          596 
Other operating non-interest 
 income and insurance profit            17,712     12,456    24,733     60,276       115,177 
Credit loss allowance for loans 
 to customers                           (10,344)   9,687     33,220     -            32,563 
Credit loss allowance for performance 
 guarantees and credit related 
 commitments                            405        (74)      1,599      -            1,930 
Credit loss allowance for investments 
 in finance lease                       -          -         -          (2,515)      (2,515) 
Credit loss allowance for other 
 financial assets                       (3,309)    -         (625)      (1,392)      (5,326) 
Credit loss allowance for financial 
 assets measured at fair value 
 through other comprehensive 
 income                                 -          -         738        1,104        1,842 
Other non-financial assets 
 impairment                             108        23        7          (585)        (447) 
Profit/(loss) before G&A expenses 
 and income taxes                       267,614    137,195   246,845    67,769       719,423 
Losses from modifications of 
 financial instruments                  (642)      (93)      (856)      -            (1,591) 
Staff costs                             (66,060)   (27,774)  (22,140)   (32,097)     (148,071) 
Depreciation and amortization           (23,609)   (5,859)   (2,454)    (4,779)      (36,701) 
Provision for liabilities and 
 charges                                -          -         -          (9)          (9) 
Administrative and other operating 
 expenses                               (34,525)   (13,639)  (7,618)    (16,365)     (72,147) 
Operating expenses                      (124,194)  (47,272)  (32,212)   (53,250)     (256,928) 
Profit before tax                       142,778    89,830    213,777    14,519       460,904 
Income tax expense                      (15,329)   (11,402)  (24,846)   (5,948)      (57,525) 
Profit                                  127,449    78,428    188,931    8,571        403,379 
 

Consolidated Financial Statements of TBC Bank Group PLC

Consolidated Balance sheet

 
In thousands of GEL                                                               Jun-21      Jun-20 
Cash and cash equivalents                                                         1,414,414   981,803 
Due from other banks                                                              59,314      30,879 
Mandatory cash balances with National Bank of Georgia                             2,117,157   1,794,010 
Loans and advances to customers                                                   14,796,968  13,105,988 
Investment securities measured at fair value through other comprehensive income   2,022,385   1,082,520 
Bonds carried at amortized cost*                                                  10,069      1,335,415 
Investments in finance leases                                                     245,261     270,172 
Investment properties                                                             33,407      70,716 
Current income tax prepayment                                                     14,966      36,703 
Deferred income tax asset                                                         6,747       7,470 
Other financial assets[25]                                                        287,761     174,378 
Other assets                                                                      311,218     258,349 
Premises and equipment                                                            371,909     345,265 
Right of use assets                                                               51,160      62,664 
Intangible assets                                                                 284,555     194,689 
Goodwill                                                                          59,964      60,296 
Investments in associates                                                         4,286       2,112 
TOTAL ASSETS                                                                      22,091,541  19,813,429 
LIABILITIES 
Due to credit institutions                                                        3,482,830   4,403,406 
Customer accounts                                                                 12,870,418  10,420,330 
Lease liabilities                                                                 53,755      65,937 
Other financial liabilities (21)                                                  124,308     138,749 
Current income tax liability                                                      653         692 
Debt Securities in issue                                                          1,445,614   1,396,141 
Deferred income tax liability                                                     18,457      5 
Provisions for liabilities and charges                                            21,435      25,558 
Other liabilities                                                                 101,265     80,557 
Subordinated debt                                                                 635,981     628,649 
TOTAL LIABILITIES                                                                 18,754,716  17,160,024 
EQUITY 
Share capital                                                                     1,682       1,682 
Shares held by trust                                                              (25,489)    (34,450) 
Share premium                                                                     848,459     848,459 
Retained earnings                                                                 2,680,951   2,029,545 
Group re-organisation reserve                                                     (162,167)   (162,167) 
Share based payment reserve                                                       (15,348)    (31,808) 
Fair value reserve                                                                170         (1,492) 
Cumulative currency translation reserve                                           (5,199)     (5,685) 
Net assets attributable to owners                                                 3,323,059   2,644,084 
Non-controlling interest                                                          13,766      9,321 
TOTAL EQUITY                                                                      3,336,825   2,653,405 
TOTAL LIABILITIES AND EQUITY                                                      22,091,541  19,813,429 
 

* In 2020, the Group changed its business model in relation to certain portfolio of bonds carried at amortized cost (Ministry of Finance Treasury Bills). The respective reclassifications have been applied prospectively from 1 January 2021, as required by IFRS. As a result of reclassification, Bonds carried at amortized cost in the amount of GEL 1,059,946 thousand has been transferred to Investment securities measured at fair value through other comprehensive income with the fair value of GEL 1,086,008 thousand. The difference has been recognized in other comprehensive income as required by IFRS

Consolidated Statement of Profit or Loss and Other Comprehensive Income

 
In thousands of GEL                                                                             1H'21      1H'20 
Interest income                                                                                 899,185    787,893 
Interest expense                                                                                (444,436)  (408,091) 
Net gains from currency swaps                                                                   13,149     12,522 
Net interest income                                                                             467,898    392,324 
Fee and commission income                                                                       186,153    138,752 
Fee and commission expense                                                                      (77,852)   (55,683) 
Net fee and commission income                                                                   108,301    83,069 
Net insurance premiums earned                                                                   30,289     26,618 
Net insurance claims incurred and agents' commissions                                           (20,416)   (16,337) 
Net insurance premium earned after claims and acquisition costs                                 9,873      10,281 
Net gains from derivatives, foreign currency operations and translation                         60,184     47,759 
Gains less losses from disposal of investment securities measured at fair value through other 
 comprehensive income                                                                           7,041      (1,202) 
Other operating income                                                                          37,483     7,977 
Share of profit of associates                                                                   596        90 
Other operating non-interest income                                                             105,304    54,624 
Credit loss allowance for loans to customers                                                    32,563     (249,216) 
Credit loss allowance for investments in finance lease                                          (2,515)    (4,278) 
Credit loss allowance for performance guarantees and credit related commitments                 1,930      (797) 
Credit loss allowance for other financial assets                                                (5,326)    (4,222) 
Credit loss allowance for financial assets measured at fair value through other comprehensive 
 income                                                                                         1,842      (538) 
Other non-financial assets impairment                                                           (447)      (625) 
Operating profit after expected credit losses                                                   719,423    280,622 
Losses from modifications of financial instruments                                              (1,591)    (34,170) 
Staff costs                                                                                     (148,071)  (114,006) 
Depreciation and amortization                                                                   (36,701)   (32,215) 
(Provision for)/ recovery of liabilities and charges                                            (9)        77 
Administrative and other operating expenses                                                     (72,147)   (55,391) 
Operating expenses                                                                              (256,928)  (201,535) 
Profit before tax                                                                               460,904    44,917 
Income tax expense                                                                              (57,525)   24,283 
Profit                                                                                          403,379    69,200 
Other comprehensive income: 
Items that may be reclassified subsequently to profit or loss: 
Movement in fair value reserve                                                                  (10,985)   4,984 
Exchange differences on translation to presentation currency                                    (3,072)    1,165 
Other comprehensive income for the period                                                       (14,057)   6,149 
Total comprehensive income for the period                                                       389,322    75,349 
Profit attributable to: 
 - Shareholders of TBCG                                                                         399,168    67,625 
 - Non-controlling interest                                                                     4,211      1,575 
Profit                                                                                          403,379    69,200 
Total comprehensive income is attributable to: 
 - Shareholders of TBCG                                                                         385,120    73,793 
 - Non-controlling interest                                                                     4,202      1,556 
Total comprehensive income for the period                                                       389,322    75,349 
 

Consolidated Statements of Cash Flows

 
In thousands of GEL                                                          30-Jun-21            30-Jun-20 
Cash flows from/(used in) operating activities 
Interest received                                                                      906,444              579,414 
Interest received on currency swaps                                                      13,149               12,522 
Interest paid                                                                        (452,751)            (404,923) 
Fees and commissions received                                                          170,658              131,347 
Fees and commissions paid                                                              (78,793)             (56,054) 
Insurance and reinsurance received                                                       43,358               43,373 
Insurance claims paid                                                                  (16,239)             (13,458) 
Income received from trading in foreign currencies                                       32,659               49,406 
Other operating income received                                               28,880                            2,860 
Staff costs paid                                                                     (134,594)            (120,706) 
Administrative and other operating expenses paid                                       (79,430)             (61,860) 
Income tax paid                                                                          (4,446)            (11,983) 
 
 
Cash flows from operating activities before changes in operating assets and 
 liabilities                                                                 428,895                       149,938 
 
Net change in operating assets 
Due from other banks and mandatory cash balances with the National Bank of 
 Georgia                                                                     23,326                       (183,202) 
Loans and advances to customers                                                      (711,980)            (357,130) 
Net investments in lease                                                                 24,158               11,008 
Other financial assets                                                                 (38,835)               (8,483) 
Other assets                                                                             14,151               10,847 
Net change in operating liabilities 
Due to credit institutions                                                    11,940                          85,357 
Customer accounts                                                                      667,190              (88,078) 
Other financial liabilities                                                          (137,291)                11,915 
Other liabilities and provision for liabilities and charges                              16,659                 3,838 
 
 
Net cash flows from operating activities                                      298,213                    (363,990) 
 
 
Cash flows from/(used in) investing activities 
Acquisition of investment securities measured at fair value through other 
 comprehensive income                                                                (196,871)            (251,486) 
Proceeds from redemption at maturity of investment securities measured at 
 fair value through 
 other comprehensive income                                                            757,583              180,702 
Acquisition of bonds carried at amortised cost                                 -                          (495,945) 
Proceeds from redemption of bonds carried at amortised cost                              19,633             171,137 
Acquisition of premises, equipment and intangible assets                               (91,993)             (74,550) 
Proceeds from disposal of premises, equipment and intangible assets                        6,334              24,172 
Proceeds from disposal of investment property                                            20,210                 3,128 
Acquisition of subsidiaries and associates                                     -                                   936 
 
 
Net cash used in investing activities                                                 514,896            (441,906) 
 
 
Cash flows from/(used in) financing activities 
Proceeds from other borrowed funds                                                  1,757,879            1,615,016 
Redemption of other borrowed funds                                                (2,736,476)             (966,746) 
Acquisition of treasury shares                                                 -                            (25,493) 
Repayment of principal of lease liabilities                                              (5,591)              (5,420) 
Redemption of subordinated debt                                                        (12,562)     - 
Proceeds from debt securities in issue                                         -                            171,531 
Redemption of debt securities in issue                                         -                            (12,569) 
Dividends paid                                                                           (1,741)   - 
 
Net cash flows from financing activities                                            (998,491)              776,319 
 
Effect of exchange rate changes on cash and cash equivalents                  (35,609)                         7,797 
                                                                                   1,635,405            1,003,583 
Net increase in cash and cash equivalents                                           (220,991)              (21,780) 
Cash and cash equivalents at the beginning of the period                           1,635,405            1,003,583 
Cash and cash equivalents at the end of the period                                 1,414,414               981,803 
 

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)   1H'21   1H'20 
 
Profitability ratios: 
ROE(1)                                                 25.9%   5.2% 
ROA(2)                                                 3.6%    0.7% 
ROE before expected credit loss allowances(3)          24.3%   23.3% 
Cost to income(4)                                      37.2%   37.3% 
NIM(5)                                                 4.8%    4.7% 
Loan yields(6)                                         10.0%   10.1% 
Deposit rates(7)                                       3.4%    3.5% 
Yields on interest earning assets(8)                   9.4%    9.4% 
Cost of funding(9)                                     4.6%    5.0% 
Spread(10)                                             4.8%    4.4% 
 
Asset quality & portfolio concentration: 
Cost of risk(11)                                       -0.4%   2.1% 
PAR 90 to Gross Loans(12)                              1.2%    1.0% 
NPLs to Gross Loans(13)                                3.4%    2.9% 
NPL provision coverage(14)                             91.3%   134.7% 
Total NPL coverage(15)                                 169.6%  208.0% 
Credit loss level to Gross Loans(16)                   3.1%    3.9% 
Related Party Loans to Gross Loans(17)                 0.1%    0.1% 
Top 10 Borrowers to Total Portfolio(18)                7.8%    8.2% 
Top 20 Borrowers to Total Portfolio(19)                11.9%   12.3% 
 
Capital & liquidity positions: 
Net Loans to Deposits plus IFI* Funding(20)            102.8%  105.3% 
Net Stable Funding Ratio(21)                           130.6%  127.5% 
Liquidity Coverage Ratio(22)                           127.1%  124.8% 
Leverage(23)                                           6.6x    7.5x 
CET 1 CAR (Basel III)(24)                              13.0%   10.0% 
Regulatory Tier 1 CAR (Basel III)(25)                  15.5%   12.7% 
Regulatory Total 1 CAR (Basel III)(26)                 19.6%   17.2% 
 

* International Financial Institutions

Ratio definitions

1. 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.

2. 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.

3. Return on average total equity (ROE) before expected credit loss allowances equals net income attributable to owners excluding all credit loss allowance with respective tax effects, but after net modification losses divided by the monthly average of total shareholders' equity attributable to the PLC's equity holders for the same period.

4. 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).

5. 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 CIB shares), net investment in finance lease, net loans, and amounts due from credit institutions.

6. Loan yields equal interest income on loans and advances to customers divided by monthly average gross loans and advances to customers; annualised where applicable.

7. Deposit rates equal interest expense on customer accounts divided by monthly average total customer deposits; annualised where applicable.

8. Yields on interest earning assets equal total interest income divided by monthly average interest earning assets; annualised where applicable.

9. Cost of funding equals total interest expense divided by monthly average interest bearing liabilities; annualised where applicable.

10. 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).

11. Cost of risk equals credit loss allowance for loans to customers divided by monthly average gross loans and advances to customers; annualised where applicable.

12. 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.

13. 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.

14. NPL provision coverage equals total credit loss allowance for loans to customers divided by the NPL loans.

15. Total NPL coverage equals total credit loss allowance plus the minimum of collateral amount of the respective NPL loan (after applying haircuts in the range of 0%-50% for cash, gold, real estate and PPE) and its gross loan exposure divided by the gross exposure of total NPL loans.

16. Credit loss level to gross loans equals credit loss allowance for loans to customers divided by the gross loan portfolio for the same period.

17. Related party loans to total loans equals related party loans divided by the gross loan portfolio.

18. Top 10 borrowers to total portfolio equals the total loan amount of the top 10 borrowers divided by the gross loan portfolio.

19. Top 20 borrowers to total portfolio equals the total loan amount of the top 20 borrowers divided by the gross loan portfolio.

20. Net loans to deposits plus IFI funding ratio equals net loans divided by total deposits plus borrowings received from international financial institutions.

21. 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.

22. Liquidity coverage ratio equals high-quality liquid assets divided by the total net cash outflow amount as defined by the NBG.

23. Leverage equals total assets to total equity.

24. 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. Calculations are made for TBC Bank stand-alone, based on local standards.

25. 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. Calculations are made for TBC Bank stand-alone, based on local standards.

26. 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. Calculations are made for TBC Bank stand-alone, based on local standards.

Exchange Rates

To calculate the YoY growth without the currency exchange rate effect, we used the US$/GEL exchange rate of 3.0552 as of 30 June 2020. As of 30 June 2021 the US$/GEL exchange rate equaled 3.1603. For P&L items growth calculations without currency effect, we used the average US$/GEL exchange rate for the following periods: 1H 2021 of 3.3207, 1H 2020 of 3.0323.

.

Additional Disclosures

   1)   TBC Bank - Background 

TBC Bank is the largest banking group in Georgia, where 99.4% of its business is concentrated, with a 38.2% market share by total assets. It offers retail, CIB, and MSME banking nationwide.

These unaudited financial results are presented for TBC Bank Group PLC ("TBC Bank" or "the Group"), which was incorporated on 26 February 2016 as the ultimate holding company for JSC TBC Bank Georgia. TBC Bank became the parent company of JSC TBC Bank Georgia on 10 August 2016, following the Group's restructuring. As this was a common ownership transaction, the results have been presented as if the Group existed at the earliest comparative date as allowed under the International Financial Reporting Standards ("IFRS"), as adopted by the United Kingdom. TBC PLC is listed on the London Stock Exchange under the symbol TBCG and is a constituent of the FTSE Small Cap Index. It is also a member of the FTSE4Good Index Series and the MSCI United Kingdom Small Cap Index.

TBC Bank Group PLC's financial results has been prepared in accordance with UK-adopted International Accounting Standard (IAS) 34 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the Financial Conduct Authority (FCA).

   2)   Subsidiaries of TBC Bank Group PLC[26] 
 
                      Ownership  Country     Year               Industry             Total Assets 
                       / voting               of incorporation                        (after elimination) 
                       % as of 
                       30 June 
                       2021 
Subsidiary                                                                           Amount      % in 
                                                                                      GEL'000     TBC Group 
JSC TBC Bank          99.9%      Georgia     1992               Banking              21,434,038  97.02% 
   United Financial 
    Corporation 
    JSC               99.5%      Georgia     1997               Card processing      17,774      0.08% 
   TBC Capital 
    LLC               100.0%     Georgia     1999               Brokerage            4,498       0.02% 
   TBC Leasing 
    JSC               100.0%     Georgia     2003               Leasing              359,836     1.63% 
   TBC Kredit                                                   Non-banking 
    LLC               100.0%     Azerbaijan  1999                credit institution  16,767      0.08% 
   TBC Pay LLC        100.0%     Georgia     2009               Processing           40,565      0.18% 
                                                                Real estate 
   Index LLC          100.0%     Georgia     2011                management          1,500       0.01% 
   TBC Invest 
    LLC               100.0%     Israel      2011               PR and marketing     328         0.00% 
JSC TBC Insurance     100.0%     Georgia     2014               Insurance            84,769      0.39% 
    Redmed LLC        100.0%     Georgia     2019               E-commerce           1 ,262      0.00% 
TBC Ecosystem 
 Companies            100.0%     Georgia     2019               Asset Management     17          0.00% 
   Swoop JSC          100.0%     Georgia     2010               Retail Trade         544         0.00% 
   LLC Online 
    Tickets           55.0%      Georgia     2015               Software Services    1, 667      0.01% 
   TKT UZ             75.00%     Uzbekistan  2019               Retail Trade         119         0.00% 
                                                                E-commerce, 
                                                                 Housing and 
   My.ge LLC          65.0%      Georgia     2008                Auto                8,752       0.04% 
   LLC Vendoo 
    (Geo)             100.0%     Georgia     2019               Retail Leasing       3,228       0.01% 
   LLC Mypost         100.0%     Georgia     2019               Postal Service       108         0.00% 
   LLC Billing 
    Solutions         51.00%     Georgia     2019               Software Services    426         0.00% 
   All property.ge                                              Real estate 
    LLC               90.0%      Georgia     2013                management          2, 579      0.01% 
   LLC F Solutions    100.0%     Georgia     2019               Software Services    9           0.00% 
TBC Connect 
 LLC                  100.0%     Georgia     2020               Software Services    2           0.00% 
TBC Concept           100.0%     Georgia     2020               Food Industry        305         0.00% 
Artarea.ge LLC        100.0%     Georgia     2021               PR and marketing     51          0.00% 
Saba                  85.0%      Georgia     2012               Education            47          0.00% 
Art Gallery           100.0%     Georgia     2012               PR and marketing     0           0.00% 
Space International 
 JSC                  100.0%     Georgia     2021               Software Services    128         0.00% 
TBC Group Support 
 LLC                  100.0%     Georgia     2020               Risk Management      0           0.00% 
Inspired LLC          51.0%      Uzbekistan  2011               Processing           13,265      0.06% 
TBC Bank UZ 
 JSCB                 100.0%     Uzbekistan  2020               Banking              64,351      0.29% 
LLC Vendoo (UZ 
 Leasing)             100.00%    Uzbekistan  2019               Consumer financing   1,429       0.01% 
 
 
   3)   TBC Insurance 

TBC Insurance, a wholly owned subsidiary of TBC Bank, is one of the leading players on the Georgian non-health insurance market. The company was acquired by the Group in October 2016 and has since grown significantly, becoming the second largest player on the property and casualty insurance and life insurance (non-health) market and the largest player in the retail segment, holding 1 6 . 7 % and 3 2 . 2 % market shares ([27]) without border motor third party liability (MTPL) insurance, respectively, in 2Q 2021.

TBC Insurance serves both individual and legal entities and provides a broad range of insurance products covering motor, travel, personal accident, credit life and property, business property, liability, cargo, agro, and health insurance products. The company differentiates itself through its advanced digital channels, which include TBC Bank's award-winning internet and mobile banking applications, a wide network of self-service terminals, a web channel, and B-Bot, a Georgian-speaking chat-bot that is available through Facebook messenger.

In 2019, we entered the health insurance market, with a strategy to target the premium segment by providing superior customer experience coupled with the most innovative approach to products and services. From 2021, we are planning to expand our value proposition to the mid-premium segment, having accumulated sufficient market knowledge and claims statistics.

In 2Q 2021, net profit including the health insurance business amounted to GEL 2,846 thousands, which was broadly flat YoY, attributable to a high base in 2Q 2020, which resulted from the decrease in claims due to the COVID-19 lockdown, as well as effective cost control.

The QoQ increase in net profit including health insurance business was driven by the revival of business activities and the seasonal low in 1Q 2021.

 
Information excluding   2Q'21   1Q' 2   2Q'20   1H'21   1H'20 
 health insurance                1 
In thousands of GEL 
Gross written premium   22,831  21,263  18,849  44,094  37,143 
Net earned premium 
 ([28])                 18,595  16,653  15,535  35,248  31,538 
Net profit              3,512   2,895   3,033   6,406   5,092 
 
Net combined ratio      81.6%   83.5%   79.4%   82.5%   82.9% 
 
 
Information including   2Q'21   1Q' 2   2Q'20   1H'21   1H'20 
 health insurance                1 
In thousands of GEL 
Gross written premium   26,414  25,515  21,540  51,929  41,735 
Net earned premium      21,539  19,131  17,329  40,671  34,647 
Net profit              2,846   2,193   2,894   5,039   4,365 
 
Net combined ratio      88.0%   90.1%   82.6%   89.0%   87.0% 
 

Note: IFRS standalone data

   4)   First digital bank in Uzbekistan 

In October 2020 we successfully launched TBC UZ, a digital commercial bank in Uzbekistan, which demonstrated a rapid growth:

 
in thousands of GEL                              Jul-2021  Jun-2021  May-2021  Apr-2021  Mar-2021 
# of total registered users                      403       302       230       157       98 
Loan portfolio (GEL)                             31,797    25,239    14,997    6,144     953 
Deposit portfolio (GEL)                          49,585    15,543    11,567    6,543     2,839 
# of total cards issued (cumulative figures)     78        66        54        42        31 
# of other cards attached (cumulative figures)   187       126       81        49        29 
Total monthly number of transactions             626       563       407       323       203 
 
   5)   Reclassification of certain balance sheet profit and loss items and changes in methodology 

In 1Q 2021, we reclassified certain BS and PL items for all quarters of 2020 and 1Q 2021, as outlined below.

Wealth Management business reclassification

Following structural changes in the Management Board, starting from January 2021, Deputy CEO George Tkhelidze, head of Corporate and Investment Banking, assumed responsibility for the Wealth Management business. As a result, we reclassified all relevant BS and PL items of the Wealth Management business from Retail Banking to Corporate and Investment Banking.

The amounts of the Wealth Management loan and deposit portfolios are given in a table below:

 
             Loan book (million  Deposit portfolio (million 
              GEL)                GEL) 
June 2021    142.8               2,193.7 
March 2021   139.0               2,415.9 
June 202 0   129.7               1,792.1 
 

Reclassification of other non-financial assets impairment

In 2021, the Group reclassified impairment/recovery of non-financial assets from "Administrative and other operating expenses" to "Impairment of other non-financial assets". A significant part of any impairment/recoveries recorded is related to repossessed assets and investment properties. The management believes that those type of assets are not actively used in daily operations, but are primarily targeted for sale in the future. Considering the nature of those expenses/recovery, such a presentation is more appropriate and would increase the understandability and clarity of the Group's financial statements. The presentation of comparative figures has been adjusted to conform to the presentation of the current period amounts:

 
                                    As originally     Reclassification  As reclassified 
                                     presented                           at 
                                     at 30 June 2020                     30 June 2020 
Impairment of other non-financial 
 assets                             -                 (625)             (625) 
Administrative and other 
 operating expenses                 (56,016)          625               (55,391) 
 

Changes in methodology - NPL collaterals coverage

In 1Q 2021, in order to further increase the focus on the collateral coverage, the Bank reviewed its methodology and applied a more conservative approach, namely under the updated methodology, the collateral amount is capped at the respective loan amount. The NPL coverages for all four quarters of 2020 have been recalculated per updated methodology.

The table below outlines the NPL coverage ratios as of 30 June 2020, calculated per previous and the updated methodology.

 
         Collateral coverage         Total NPL coverage 
                                      (provisions plus collateral) 
         Per previous  Per updated   Per previous     Per updated 
          methodology   methodology   methodology      methodology 
Retail   79%           65%           267%             254% 
CIB      160%          70%           268%             178% 
MSME     115%          85%           207%             177% 
Total    112%          73%           247%             208% 
 
   6)   Loan book breakdown by stages according IFRS 9 

Total (in million GEL)

 
       30-Jun-21          31-Mar-21          30-Jun-20 
Stage  Gross   LLP rate*  Gross   LLP rate*  Gross   LLP rate* 
1      12,709  0.9%       12,101  1.1%       11,332  1.6% 
2      1,803   5.6%       2,296   5.4%       1,899   10.3% 
3      763     34.4%      935     36.1%      404     38.9% 
Total  15,275  3.1%       15,332  3.8%       13,635  3.9% 
 

CIB (in million GEL)

 
       30-Jun-21         31-Mar-21         30-Jun-20 
Stage  Gross  LLP rate*  Gross  LLP rate*  Gross  LLP rate* 
1      4,899  0.9%       4,760  1.1%       4,556  1.1% 
2      826    1.0%       991    0.9%       479    1.3% 
3      127    18.8%      188    24.5%      165    32.9% 
Total  5,852  1.3%       5,939  1.8%       5,200  2.1% 
 

MSME (in million GEL)

 
       30-Jun-21         31-Mar-21         30-Jun-20 
Stage  Gross  LLP rate*  Gross  LLP rate*  Gross  LLP rate* 
1      3,026  0.7%       2,764  0.9%       2,652  1.5% 
2      459    6.3%       583    7.0%       443    10.0% 
3      250    31.9%      285    32.5%      111    34.7% 
Total  3,735  3.5%       3,632  4.4%       3,206  3.8% 
 

Retail (in million GEL)

 
       30-Jun-21         31-Mar-21         30-Jun-20 
Stage  Gross  LLP rate*  Gross  LLP rate*  Gross  LLP rate* 
1      4,784  1.0%       4,577  1.0%       4,124  2.1% 
2      519    12.3%      722    10.4%      976    14.9% 
3      386    41.1%      462    43.1%      129    50.1% 
Total  5,689  4.7%       5,761  5.6%       5,229  5.7% 
 

* LLP rate is defined as credit loss allowances divided by gross loans

   7)   Reconciliation of Return on Equity (ROE) with ROE before expected credit loss allowances 
 
     Income Statement Highlights 
#    in thousands of GEL               2Q'21      1Q'21        2Q'20       1H'21        1H'20 
1.   Net interest income               242,767    225,131      184,365     467,898      392,324 
     Net fee and commission 
2.    income                           63,008     45,293       39,517      108,301      83,069 
     Other operating non-interest 
3.    income                           74,512     40,665       26,161      115,177      64,905 
4.   Credit loss allowance             45,291     (17,244)     (12,586)    28,047       (259,676) 
     Operating profit after 
5.    expected credit losses           425,578    293,845      237,457     719,423      280,622 
     Losses from modifications 
6.    of financial instrument          (104)      (1,487)      (3,527)     (1,591)      (34,170) 
7.   Operating expenses                (134,688)  (122,240)    (95,059)    (256,928)    (201,535) 
8.   Profit before tax                 290,786    170,118      138,871     460,904      44,917 
9.   Income tax expense                (40,394)   (17,131)     (12,665)    (57,525)     24,283 
10.  Profit for the period             250,392    152,987      126,206     403,379      69,200 
     Profit for the period 
12.   less Non-controlling interest    247,946    151,224      125,100     399,170      67,625 
     Income tax expense of 
13.   credit loss allowance            4,685      (1,593)      (1,215)     2,901        (25,071) 
     Profit before Credit loss 
      allowances less Non-controlling 
      interest and respective 
      tax effect 
14.   (12 - 4 + 13)                    207,340    166,875      136,471     374,024      302,230 
 
 
 
#    in thousands of GEL             2Q'21      1Q'21      2Q'20      1H'21      1H'20 
     Average equity attributable 
15.   to the PLC's equity holders    3,203,351  3,017,527  2,576,397  3,109,965  2,607,011 
     Return on equity (ROE) 
16.   (12÷15)*                  31.0%      20.3%      19.5%      25.9%      5.2% 
     Return on equity (ROE) 
      before expected credit 
17.   loss allowances (14÷15)*  26.0%      22.4%      21.3%      24.3%      23.3% 
     *annualised where applicable 
 
 

Material Existing and Emerging Risks

The emergence of the COVID-19 pandemic has enhanced the critical importance of risk management to the Group's strategy. During the COVID-19 era, it is even more essential to identify any 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.

Principal Risks 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 Georgia's financial sector, currency-induced credit risk is a component of credit risk, which relates to risks arising from foreign currency-denominated loans to unhedged borrowers in the Group's portfolio. Credit risk also includes concentration risk, which is the risk related to credit portfolio quality deterioration 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.

COVID-19 has increased uncertainty and caused significant economic disruptions in many sectors, particularly in the hospitality & leisure, real estate management and development sectors. Such economic disruptions run the risk of deteriorating the financial standing of borrowers and increase the credit risk for the Group.

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 medium-sized business borrowers, the loan review process is conducted within specific sectoral teams, 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 the Group level. As of 30 June 2021, the retail segment represented 37.2% of the total portfolio, which was split between mortgage and non-mortgage exposures of 66.7% and 33.3%, respectively. No single business sector represented more than 9.6% of the total portfolio as of 30(th) June 2021.

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 collateralized portfolio in all its segments, with real estate representing a major share of collateral. As of 30 June 2021, 75.4% 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.

As a result of the COVID-19 pandemic, the Group has identified highly vulnerable clients and outlined a strategy for payment holidays, refinancing, or restructuring across all segments. Since the start of the COVID-19 pandemic, the Bank granted payment holidays on principal and interest payments to individual and MSME customers as well as to corporate borrowers that have been adversely affected by the government lockdowns. In line with our strategy, some clients were only given payment holidays on interest, while other clients were given payment holidays on both interest and principal amounts. The government expanded upon a special support programme for the affected sectors: for example, restaurants and small and medium sized hotels received subsidies in the amount of 70-80% of interest payments.

In the first half of 2021, the grace periods ended for those loans that had been restructured in late 2020. On the back of strong economic recovery and easing of Covid-19-related restrictions,the vast majority of these borrowers managed to successfully continue repayment, which resulted in a decrease in non-performing loans and improvements in the portfolio quality in general.

Additionally, the Bank actively performs stress testing and scenario analysis in order to check the resilience of borrowers under various stress conditions. The stress tests entail assumptions about the depreciation of the local currency, GDP growth, sectoral growth, unemployment, inflation, changes in real estate and commodity prices, changes in interest rates and loan and deposit portfolio developments. The Bank carries out intensive financial monitoring to identify the borrower's weakened financial and business prospects in order to offer them a restructuring plan that is tailored to their individual needs.

The Bank revised credit underwriting standards across all segments in light of the COVID-19 pandemic and tightened them, where applicable. The revision and tightening of the standards, among other measures, included: changes in the delegation on decision-making and approval, particularly for borrowers from vulnerable sectors, applied haircuts to the revenues of individual borrowers from affected sectors, and the integration of macroeconomic sectoral expectations into the assessment process for business borrowers.

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, mainly in US$ and EUR. As of 30 June 2021, 56.3% of the Group's total gross loans and advances to customers (before provision for loan impairment) were denominated in foreign currencies.

The income of many customers is directly linked to 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 the first half of 2021 and the average currency exchange rate of GEL weakened by 9.5% year-on-year. 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. 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.

Given the experience and knowledge built throughout the recent currency volatility, the Group is in a good position to promptly mitigate exchange rate depreciation risks. In January 2019, the government authorities continued their efforts to reduce the economy's dependence on foreign currency financing by increasing the cap to GEL 200,000, under which loans 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 for hedged borrowers. For unhedged borrowers, however, PTI and LTV thresholds will remain significantly more conservative.

3. The Group's performance may be compromised by adverse developments in the economic environment, particularly due to the COVID-19 pandemic

An abrupt slowdown in the economic recovery, or even contraction, owing to pandemic-related disruptions and further lockdowns due to the slow vaccination process and newly emerged virus variants, will likely have an additional adverse impact on the repayment capacity of borrowers, restraining their future investment and expansion plans. In addition, the Fed's new hike cycle started earlier than expected amid fast recovery in the US economy, which could trigger the GEL depreciation and slower growth of the Georgian economy. 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 Group's performance through various parameters, such as exchange rate depreciation, a spike in interest rates, rising unemployment, a decrease in household disposable income, falling property prices, worsening loan collateralization, or falling debt service capabilities of companies as a result of decreasing sales. Potential political and economic instability in neighboring countries and main trading/economic 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

As a result of the COVID-19 pandemic, Georgia endured an economic downturn in 2020, with real GDP down by 6.2%. The 2021 first quarter real GDP growth came in at a negative 4.5%, yet affected by the pandemic-related restrictions and still relatively high base effect a year before; thereafter, amid easing COVID-related restrictions and global recovery, the economy has embarked on a rebound path, increasing by 44.8% YoY (+20.8 compared to 2019), 25.8% YoY (+8.8 compared to 2019) and 18.7% YoY (+9.6% compared to 2019) in April, May and June, respectively. Going forward, according to TBC Capital projections the economy is estimated to recover by 10.5% and 6.5% in 2021 and 2022 respectively. According to the World Bank's latest projections[29], the Georgian economy is projected to grow at 6.0% in 2021 and by 5.0% in 2022.

Since the beginning of 2021, the GEL gained some value against the US dollar, rising from 3.28 US$/GEL to 3.14 US$/GEL, as of 15 July. In June 2021, consumer prices went up considerably by 9.9%, which can be primarily explained by increased commodity prices, a weak GEL and increased gas tariffs in Tbilisi. Since the beginning of 2021, the NBG increased its policy rate from 8.0% to 9.5%. Considering the moderating inflation outlook, the recovery in tourism inflows and lower pressures on the exchange rate, it is likely that there will be gradual rate cuts this year.

In addition to use of the interest rate policy tool, the NBG continued to supply FX to the market in 2021, selling in total US$ 248 million as of June 2021 (US$ 873.2 million in 2020). These interventions were primarily financed through external government borrowing. The fiscal deficit also significantly supported the overall growth as well as assisting those businesses and households that were impacted negatively by the pandemic. According to the budget plan, the fiscal deficit is expected to be sizeable again in 2021, with a deficit to GDP ratio of 6.9% (compared to 9.3% of GDP in 2020). Bank credit growth strengthened to 12.6% year-on-year in FX adjusted terms by the end of June 2021, compared to 9.1% year-on-year growth by the end of 2020.

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 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 analyze their implications 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. 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.

Taking into account the impact of the COVID-19 crisis on Georgia's economy, the Group has adjusted its risk management framework, leveraging its already existing stress testing practices. This included more thorough and frequent monitoring of the portfolio as well as stress testing, to ensure close control of the changes in capital, liquidity, and portfolio quality during times of increased uncertainty.

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.

The regulation includes a phase-in schedule and gradually introduces the buffers over the course of a four-year period. However, in response to the COVID-19 pandemic, the NBG has implemented certain countercyclical measures in relation to capital adequacy requirements, which are as follows:

o Postponing the phasing-in of concentration risk and the net General Risk Assessment Programme (GRAPE) buffer capital requirements on CET1 and Tier 1 capital that was supposed to be introduced in March 2020;

o Allowing banks to use the conservation buffer and 2/3 of the Currency Induced Credit Risk (CICR) buffer;

o Allowing banks to release all the remaining Pillar 2 buffers (remaining 1/3 CICR, concentration risk and Net Grape buffers) in case of necessity.

Since the above-mentioned countercyclical measures were put in place, the NBG outlined a new schedule for the gradual introduction of capital requirements under Basel III. According to the new schedule, concentration risk and the net GRAPE buffers phase-in resumed from March 2021 and will be fully introduced by March 2023. The systemic buffer will increase by 0.5pp to 2.5% at the end of 2021.

In June 2021, the NBG also announced its decision on the restoration of CICR and Conservation buffers. Based on this decision, the restoration of buffers will begin from January 2022 and will last for two years. Banks will be required to fully restore the CICR buffer by the end of 2022 and Conservation buffer by the end of 2023. However, the Bank should fully restore and comply with the buffers in case it wants to pay out dividends.

Since the introduction of these measures, the Bank has been utilizing both the conservation and 2/3rds of the CICR buffer, and was restricted from making any capital distributions. However, amid strong capital generation, as of June 2021, TBC Bank is in full compliance with the fully restored minimum requirements and has confirmed to the NBG that it will fully restore the temporarily released capital buffers by 31 July 2021. This lifts any regulatory restriction on making capital distributions.

The Bank's capitalization as of 30(th) June 2021 is given in the table below:

 
                 Minimum Requirements  Fully Restored         TBC Capital  Surplus        Surplus over 
                                        Minimum Requirements   Adequacy     over Min       Fully Restored 
                                                               Ratios       Requirements   Minimum Requirements 
CET1 Capital     7.8%                  11.2%                  13.0%        5.2%           1.8% 
Tier 1 Capital   9.8%                  13.5%                  15.5%        5.7%           2.0% 
Total Capital    13.7%                 17.8%                  19.6%        5.9%           1.8% 
 

Apart from the challenges brought by the Covid-19 pandemic, GEL volatility has been and remains one of the most significant risks impacting the Bank's capital adequacy. A 10% GEL depreciation would translate into a 0.87pp, 0.77pp and 0.64 pp 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.

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.

Under Georgian banking regulations, the Bank is required, among other things, to comply with minimum reserve requirements and mandatory financial ratios, and to regularly 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.

The Bank's subsidiary was granted a banking license in Uzbekistan and launched operations in 2020. As a result, the regulatory compliance requirements have increased for the Group.

The Group takes all necessary steps to comply with the relevant legislation and regulations. The Group is also subject to financial covenants in its debt agreements.

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. A dedicated compliance department reports directly to the Chief Executive Officer and has the 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. 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.

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 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 (Hospitality, Restaurants & Leisure) standing at 9.2% of the loan portfolio, which demonstrates adequate credit portfolio diversification. At the end of half year 2021, exposure to the 20 largest borrowers stands at 11.9% 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 countries, will trigger the Group's review of the risk appetite criteria to mitigate the emerging risk of concentration. Stringent monitoring tools are in place to ensure compliance with the established limits. Due to the increased uncertainty caused by the COVID-19 pandemic, close monitoring was carried out consistently, based on macro expectations, to estimate the performance of the top 20 corporate borrowers.

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 capitalized to mitigate concentration risks.

7. Liquidity risk is inherent in the Group's operations

While 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 took place 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 availability of funding for companies operating in any of these markets.

Risk description

The Group was in compliance with the minimum liquidity requirements set by the NBG, which include the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR). As of 30 June 2021, the net loan to deposits plus international financial institution funding ratio stood at 102.8%, the liquidity coverage ratio at 127.1%, and the net stable funding ratio at 130.6%. These figures are all comfortably above the NBG's minimum requirements or guidance for such ratios.

 
                                      30-Jun-21  31-Dec-20  31-Dec-19 
Minimum net stable funding ratio, 
 as defined by the NBG                100%       100%       100% 
Net stable funding ratio as defined 
 by the NBG                           130.6%     126.0%     126.7% 
 
Net loans to deposits + IFI funding   102.8%     101.2%     104.8% 
 
Minimum total liquidity coverage 
 ratio, as defined by the NBG         100.0%     100.0%     100.0% 
Minimum LCR in GEL, as defined 
 by the NBG                           75%        n/a        75.0% 
Minimum LCR in FC, as defined 
 by the NBG                           100.0%     100.0%     100.0% 
 
Total liquidity coverage ratio, 
 as defined by the NBG                127.1%     134.2%     110.1% 
LCR in GEL, as defined by the 
 NBG                                  122.9%     132.2%     83.7% 
LCR in FC, as defined by the 
 NBG                                  129.2%     134.9%     128.4% 
 

In May 2021, NBG restored the NBG GEL LCR limit (>=75%), which was removed for one year as one of the countercyclical measures implemented in relation to liquidity requirements as a result of COVID-19.

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. 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). Due to its high liquidity position in foreign currency, the Bank made prepayments of some IFI resources in the amount of US$ 143m in late 2020 and throughout the first half of 2021.

8. Any decline in the Group's net interest income or net interest margin (NIM) 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 the Group's 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 local 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 first half of 2021, the NIM increased by 0.1pp year-on-year to 4.8%, mainly driven by a decrease in the cost of funding for both local and foreign currencies, as well as change in liability structure towards deposits.

The Bank manages its exposure to interest rate risk, following the NBG IRR regulation introduced from September 2020. As of 30 June 2021, GEL 3,959[30] million in assets (19%) and GEL 2,095(3) million in liabilities (11%) were floating in GEL currency, whereas GEL 7,673(3) million of assets (36%) and GEL 1,077(3) million of liabilities (6%) were floating, related to the LIBOR/Euribor/FED/ECB rates.

The Bank was in compliance with the EVE (Economic Value of Equity) sensitivity limit set by the NBG at 15% of Tier 1 Capital, with the ratio standing at 3.3% by 30 June 2021.

Risk mitigation

In 2021, NIM had an improving trend, after the decrease since the start of the Covid-19 pandemic; this positive trend is expected to continue throughout 2021. The strong performance in net fee and commission income and other operating income, as well as efficient cost discipline, helps safeguard against margin declines and profitability concerns for the Group going forward.

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

In order to mitigate the risks associated with cyber-attacks and ensure the security of clients, the Group continuously updates and enhances its in-depth security strategy, which covers multiple preventive and detective controls ranging from the data and end-point computers to edge firewalls.

A Security Operations Center has been built, which monitors every possible anomaly that is identified across the organization's network in order to detect potential incidents and respond to them effectively.

At least once a year, a full information security and cyber security threat analysis is performed, taking into consideration the relevant regional and sector specific perspectives. At least once every two years, as part of this analysis, an external consultant is contracted to assess the efficiency of our capabilities against industry best practices and real world cyber-attack scenarios. This analysis gives the Group a broad review as well as detailed insight, which helps to further enhance the information and cyber security systems. In addition, cyber-attack readiness exercises are performed on a regular basis. These exercises evaluate the actual position of the Group in this area and provide a benchmark against international best practices.

Our employees play a crucial role in information security. As a result, regular mandatory training sessions are conducted for all employees, which are comprised of remote learning courses on security issues, fraud and phishing simulations as well as informative emails to further assist our employees with information security matters. New employees are also given training as part of the onboarding process. These measures ensure that employees are fully aware of their responsibilities and are prepared for various security threats.

The Information Security Steering Committee governs information and cyber security to ensure that relevant risks are at an acceptable level and that continuous improvement of the management processes are achieved.

Disaster recovery plans are in place to ensure business continuity in case of contingency.

As a result of the COVID-19 pandemic, the Group activated secure remote working policies, which ensure that homeworking environments are protected against relevant cyber-threats and that the security team provides effective oversight of teleworking channels. Although there has been a noticeable increase in phishing attempts against employees, there have been no major incidents. The Security Operation Center and Threat Hunting teams have successfully adopted effective remote collaboration and communication tools and practices.

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, loans and client phishing. Internal frauds arise from actions committed by the Group's employees, and such events happen less frequently. None of these cases had a material impact on the Group's profit and loss statement. As a result of the COVID-19 pandemic, the threat of fraud and the rapid growth in digital crime have been exacerbated and 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 the 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 remains exposed to some reputational risk

Risk Description

There are reputational risks to which the Group may be exposed, such as risks related to the COVID-19 pandemic, and increased cases of cybercrimes (cyberattack, phishing). The upcoming elections in October 2021 make all banks a target for popular resentment as some politicians use anti-bank narratives during their pre-election campaigns.

However, none of the aforementioned risks are unique to the Group; instead, they are issues faced by the entire banking sector.

Risk Mitigation

To mitigate the possibility of reputational risks, the Bank has all of the necessary safeguards in place, including preventive measures, contingency plans and crisis response scenarios. The Bank works continuously to maintain strong brand recognition among its stakeholders, actively monitoring its brand value and media coverage by receiving feedback from stakeholders on an ongoing basis. The Bank closely monitors and reports on any negative publicity about TBC. The Group tries to identify early warning signs of potential reputational or brand damage in order to both mitigate and elevate it to the attention of the Board before escalation. Dedicated internal and external marketing and communications teams are in place that monitor risks, develop response scenarios and respective action plans.

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. With the emergence of COVID-19, the Group has strengthened further its focus on the main strategic pillars: customer centricity, digital capabilities, data analytics, agility and international expansion. As such, given that the strategic review has been a regular exercise in the past, these strategic themes have not shifted significantly.

However, increased uncertainty together with the major economic and social disruptions caused by the COVID-19 pandemic may hamper the Group's ability to effectively develop and execute its strategic initiatives in a timely manner.

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. In addition, the COVID-19 pandemic has created additional HR challenges in relation to safeguarding employees' health and wellbeing, maintaining high efficiency levels, strong internal communication and a strong corporate culture.

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 and Risk 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.

In response to the COVID-19 pandemic, the Bank promptly moved back-office employees to a remote working practice by equipping them with all of the necessary IT infrastructure. To ensure the maintenance of an effective internal communication system, we enhanced different digital channels to engage with our employees. Regular management meetings are conducted with staff in order to keep them updated with the Group's strategic initiatives and financial position as well as address their concerns during this highly uncertain period. In order to further promote and enhance our corporate culture, the Bank's internal Facebook group has become more active by, for example, posting employee profiles and sharing success stories. Additionally, the new remote working policy adopted by the Bank gives the possibility to attract new talent from beyond Georgia.

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 the potential to increase in significance over time 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

Our subsidiary, TBC Bank in Uzbekistan, obtained a banking license in April 2020 and launched its operations in Uzbekistan in October 2020 to wider public. We have already invested US$ 22 million into the charter capital of the Bank and have secured interest from our potential partners: EBRD, IFC and the Uzbek-Oman Investment Company. Our plans foresee a minimum 51% shareholding. This investment exposes the Group to Uzbekistan's macro-economic, political and regulatory environments, including, but not limited to, exposure to risks arising from credit, market, operational and capital adequacy risks as well as risks related to the COVID-19 pandemic in Uzbekistan.

Currently, the Group's business activities are mainly concentrated in Georgia, but international activities are expected to contribute to around 10%-15% of the Group's net profit over the medium to long-term.

Risk description

The risk posed by the operating environment in Uzbekistan may change the Group's risk profile.

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 high future growth. The 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.

Despite the impact of the COVID-19 pandemic, Uzbekistan's economy grew by 1.6% in 2020. According to the latest World Bank's forecasts[31] for 2021-2022, real GDP growth is expected to accelerate to 4.8% and 5.5%, respectively.

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 to lower credit risk. The Group will partner with international financial institutions that 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.

Overall, from the Group's perspective, international expansion will result in the 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 a physical impact arising from more frequent and severe weather changes and a transitional impact that may entail extensive policy, legal and technological changes to reduce the ecological footprint of households and businesses. For the Group, both of these risks can materialize through the impairment of asset values and the deteriorating creditworthiness of our customers, which could result in a 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, 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 minimize 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 ("EMS") and ensures that the Group's operations adhere 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. The management of environmental and social risks is embedded in the Group's lending process through 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.

The full Environmental Policy is available at www.tbcbankgroup.com . In June 2021, the Group released its full-scale sustainability report for the year 2020 in reference to the Global Reporting Initiative (GRI) standards. The Global Reporting Initiative (GRI) helps the private sector to realise and understand its role and influence on sustainable development issues such as climate change, human rights and governance. The report is designed for all interested parties and groups in Georgia as well as abroad and aims to give them clear, fact-based information about the social, economic and environmental impact of our activities in 2020. It presents our endeavours to create value for our employees, clients, suppliers, partners and society as a whole. The Sustainability Report 2020 is available at www.tbcbankgroup.com .

We are in the process of introducing the Task Force for a Climate-related Financial Disclosure (TCFD) framework.

Governance:

   --      The ESG strategy will be further refined and developed in order to integrate the following: environmental, social and governance factors related to climate change; our direct and indirect environmental impact, sustainable development across the Group, customers, employees, suppliers and society, financial inclusion, employee relations and talent management; and workplace diversity and inclusion. 

-- A framework to ensure regular reporting of ESG matters to the Board and Risk Committee is in the process of development.

-- An ESG Committee has been established at the senior executive level, which takes responsibility for implementing the ESG strategy and overseeing the implementation of the TCFD framework.

   --      A working group has been established with strong focus on climate related matters. 

Strategy:

-- The Group is in process of analysing actual and potential impacts of climate-related risks and opportunities on its business activities.

-- By the end of 2021, TBC Bank is planning full implementation of the Green Lending Framework within the Group, which will encourage our customers to run their businesses in more eco-friendly way. In the beginning of July 2021, TBC Bank received accreditation from Green Climate Fund that will enable the Bank to have direct access to GCF funding to finance projects for adaptation to, and mitigation of, climate change and play a leading role in supporting sustainable development in Georgia.

Risk Management

-- The Group is planning to undertake the specific risk analysis TCFD framework, which will allow us to better understand the climate risks and sector specific developments in order to further enhance our E&S risk management system.

Metrics and targets:

-- The Group is working on defining climate related targets for different time horizons and respective metrics within ESG strategy;

ESG KPIs linked to top management remuneration will be defined.

3. The Group's performance may be affected by Libor discontinuation and transition

Risk description

There are 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 upon financial sector participants to start working towards the transition to other reference rates. As was disclosed in H1 2021, part indices will be discontinued by the end of 2021YE, while other indices will be discontinued by the end of H1 2023. 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 the implications of such a 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. The Group is starting its efforts to raise awareness of the transition, both internally and externally, to ensure that staff have all the necessary knowledge and tools to facilitate the transition and that all of the Group's customers are treated fairly. As a first step in the transition process, the Bank started including fall-back clauses in new loan agreements, regulating the transition from LIBOR after its discontinuation. We actively monitor international as well as local transition-related developments to regulate and align the Group's transition process with market practice.

Statement of Directors' Responsibilities

Each of the Directors (the names of whom are set out below) confirm that to the best of their knowledge that:

-- The condensed consolidated interim financial statements have been prepared in accordance with UK-adopted International Accounting Standard 34, 'Interim Financial Reporting';

-- The interim management report herein includes a fair review of the information required by Disclosure Guidance and Transparency Rules sourcebook of the UK's Financial Conduct Authority (FCA), 4.2.7R and 4.2.8R namely:

o an indication of important events that have occurred during the six months ended 30 June 2021 and their impact on the condensed consolidated interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

o any related party transactions in the six months ended 30 June 2021 that have materially affected the financial position or performance of TBC Bank during that period and any changes in the related party transactions described in the last Annual Report that could have a material effect on the financial position or performance of TBC Bank in the six months ended 30 June 2021.

Signed on behalf of the Board by:

 
Vakhtang Butskhrikidze 
CEO 
17 August 2021 
 
TBC Bank Group PLC Board of Directors: 
Chairman 
Arne Berggren 
Executive Directors     Non-executive Directors 
Vakhtang Butskhrikidze  Eran Klein 
 (CEO) 
                        Maria Luisa Cicognani 
                        Tsira Kemularia 
                         Per Anders Fasth 
                         Thymios P. Kyriakopoulos 
                         Abhijit Akerkar 
 

TBC BANK GROUP PLC

Condensed Consolidated Interim Financial

Statements (Unaudited)

30 June 2021

Contents

Independent Review Report 5 6

Unaudited Condensed Consolidated Interim Financial Statements

Condensed Consolidated Interim Statement of Financial Position 58

Condensed Consolidated Interim Statement of Profit or Loss and Other Comprehensive Income

59

Condensed Consolidated Interim Statement of Changes in Equity 61

Condensed Consolidated Interim Statement of Cash Flows

62

Notes to the Condensed Consolidated Interim Financial Statements

   1     Introduction 
   2     Significant Accounting Policies 
   3     Critical Accounting Estimates and Judgements in Applying Accounting Policies 
   4     New or Revised Standards and Interpretations and Accounting Pronouncements 
   5     Cash and Cash Equivalents 
   6     Due from Other Banks 
   7     Mandatory Cash Balances with the National Bank of Georgia 
   8     Loans and Advances to Customers 
   9     Investment Securities Measured at Fair Value through Other Comprehensive Income 
   10    Premises, Equipment and Intangible Assets 
   11    Due to Credit Institutions 
   12    Customer Accounts 
   13    Provisions for Performance Guarantees, Credit Related Commitment Liabilities and Charges 
   14    Debt Securities in Issue 
   15    Subordinated Debt 
   16    Share Capital 
   17    Share Based Payments 
   18    Earnings per Share 
   19    Segment Analysis 
   20    Interest Income and Expense 
   21    Fee and Commission Income and Expense 
   22    Other Operating Income 
   23    Administrative and Other Operating Expenses 
   24    Income Taxes 
   25    Financial and Other Risk Management 
   26    Contingencies and Commitments 
   27    Fair Value Disclosures 
   28    Related Party Transactions 

29 Events after Reporting Period 121

Independent review report to TBC Bank Group plc

Report on the unaudited Condensed Consolidated Interim Financial Statements

Our conclusion

We have reviewed TBC Bank Group plc's unaudited condensed consolidated interim financial statements (the "interim financial statements") in the 2Q and 1H 2021 Financial Results of TBC Bank Group plc for the 6 month period ended 30 June 2021 (the "period").

Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

   --      the Condensed Consolidated Interim Statement of Financial Position as at 30 June 2021; 

-- the Condensed Consolidated Interim Statement of Profit or Loss and Other Comprehensive Income for the period then ended;

   --      the Condensed Consolidated Interim Statement of Cash Flows for the period then ended; 

-- the Condensed Consolidated Interim Statement of Changes in Equity for the period then ended;

   --      the explanatory notes to the interim financial statements. 

The interim financial statements included in the 2Q and 1H 2021 Financial Results of TBC Bank Group plc have been prepared in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The 2Q and 1H 2021 Financial Results, including the interim financial statements, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the 2Q and 1H 2021 Financial Results in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the 2Q and 1H 2021 Financial Results based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, 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.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the 2Q and 1H 2021 Financial Results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

Edinburgh

17 August 2021

 
                                            Note  30 June 2021  31 December 
                                                                 2020 
 In thousands of GEL                               (Unaudited) 
 
Assets 
Cash and cash equivalents                   5     1,414,414     1,635,405 
Due from other banks                        6     59,314        50,805 
Mandatory cash balances with National 
 Bank of Georgia                            7     2,117,157     2,098,506 
Loans and advances to customers             8     14,796,968    14,594,274 
Investment securities measured at fair 
 value through other comprehensive income   9     2,022,385     1,527,268 
Bonds carried at amortised cost                   10,069        1,089,801 
Net investments in leases                         245,261       271,660 
Investment properties                             33,407        68,689 
Current income tax prepayment                     14,966        69,888 
Deferred income tax asset                         6,747         2,787 
Other financial assets                            287,761       171,302 
Other assets                                      311,218       266,960 
Premises and equipment                      10    371,909       372,956 
Right of use assets                               51,160        53,927 
Intangible assets                           10    284,555       239,523 
Goodwill                                          59,964        59,964 
Investments in associates                         4,286         4,090 
 
Total assets                                      22,091,541    22,577,805 
 
Liabilities 
Due to credit institutions                  11    3,482,830     4,486,373 
Customer accounts                           12    12,870,418    12,572,728 
Other financial liabilities                       124,308       227,432 
Current income tax liability                24    653           853 
Deferred income tax liability                     18,457        13,088 
Debt securities in issue                    14    1,445,614     1,496,497 
Provisions for liabilities and charges      13    21,435        25,335 
Other liabilities                                 101,265       87,842 
Lease liabilities                                 53,755        58,983 
Subordinated debt                           15    635,981       672,740 
 
Total liabilities                                 18,754,716    19,641,871 
 
EQUITY 
Share capital                               16    1,682         1,682 
Shares held by trust                              (25,489)      (33,413) 
Share premium                                     848,459       848,459 
Retained earnings                                 2,680,951     2,281,428 
Group reorganisation reserve                      (162,167)     (162,167) 
Share based payment reserve                 17    (15,348)      (20,568) 
Fair value reserve                                170           11,158 
Cumulative currency translation reserve           (5,199)       (2,124) 
 
Net assets attributable to owners                 3,323,059     2,924,455 
 
Non-controlling interest                          13,766        11,479 
Total equity                                      3,336,825      2,935,934 
Total liabilities and equity                      22,091,541     22,577,805 
 

The condensed consolidated interim financial statements on pages 62 to 121 were approved by the Board of Directors on 17 August 2021 signed on its behalf by:

___________________________

Vakhtang Butskhrikidze

Chief Executive Officer

 
 
                                                                                   Six months ended 
                                                                                 30 June 2021  30 June 2020 
In thousands of GEL                                                        Note  (Unaudited)   (Unaudited/restated * ) 
 
Interest income                                                            20    899,185       787,893 
Interest expense                                                           20    (444,436)     (408,091) 
Net interest gains on currency swaps                                       20    13,149        12,522 
 
 
Net interest income                                                              467,898       392,324 
 
 
Fee and commission income                                                  21    186,153       138,752 
Fee and commission expense                                                 21    (77,852)      (55,683) 
 
 
Net fee and commission income                                                    108,301       83,069 
 
 
Net insurance premiums earned                                                    30,289        26,618 
Net insurance claims incurred and agents' commissions                            (20,416)      (16,337) 
 
 
Insurance profit                                                                 9,873         10,281 
 
 
Net gains from currency derivatives, foreign currency operations and 
 translation                                                                     60,184        47,759 * 
Net gains/(losses) from disposal of investment securities measured at 
 fair value through other 
 comprehensive income                                                            7,041         (1,202) 
Other operating income                                                     22    37,483        7,977 
Share of profit of associates                                                    596           90 
 
 
Other operating non-interest income                                              105,304       54,624 
 
 
Recovery of/(charges to) credit loss allowance for loan to customers       8     32,563        (249,216) 
Credit loss allowance for investments in leases                                  (2,515)       (4,278) 
Recovery of/(charges to) credit loss allowance for performance guarantees 
 and credit related 
 commitments                                                               13    1,930         (797) 
Credit loss allowance for other financial assets                                 (5,326)       (4,222) 
Recovery of/(charges to) credit loss allowance for financial assets 
 measured at fair value 
 through other comprehensive income                                              1,842         (538) 
Net impairment of non-financial assets                                           (447)         (625) * 
 
 
Operating profit after expected credit and non-financial asset impairment 
 losses                                                                          719,423       280,622 * 
 
 
Losses from modifications of financial instruments                         8     (1,591)       (34,170) 
 
 
Staff costs                                                                      (148,071)     (114,006) 
Depreciation and amortisation                                              10    (36,701)      (32,215) 
(Charges to)/recovery of provision for liabilities and charges                   (9)           77 
Administrative and other operating expenses                                23    (72,147)      (55,391) * 
 
 
Operating expenses                                                               (256,928)     (201,535) * 
 
 
Profit before income tax                                                         460,904       44,917 
 
 
Income tax (expense)/credit                                                24    (57,525)      24,283 
 
 
Profit for the period                                                            403,379       69,200 
 
Other comprehensive income: 
 Items that may be reclassified subsequently to profit or loss: 
Movement in fair value reserve                                                   (10,985)      4,984 
Exchange differences on translation to presentation currency                     (3,072)       1,165 
 
 
Other comprehensive (expense)/income for the period                              (14,057)      6,149 
 
 
Total comprehensive income for the PERIOD                                        389,322       75,349 
 
 

*Certain amounts do not correspond to the 30 June 2020 condensed consolidated interim financial statements as they reflect the adjustments made due to the changes in classification, as described in Note 2.

 
 
                                                                                 Six months ended 
                                                                               30 June 2021  30 June 2020 
In thousands of GEL                                                      Note  (Unaudited)   (Unaudited/restated * ) 
 
Profit is attributable to: 
- Shareholders of TBCG                                                         399,168       67,625 
- Non-controlling interest                                                     4,211         1,575 
 
Profit for the period                                                          403,379       69,200 
 
 
Total comprehensive income is attributable to: 
- Shareholders of TBCG                                                         385,120       73,793 
- Non-controlling interest                                                     4,202         1,556 
 
 
Total comprehensive income for the period                                      389,322       75,349 
 
 
Earnings per share for profit attributable to the owners of the Group: 
- Basic earnings per share                                               18    7.33          1.24 
- Diluted earnings per share                                             18    7.24          1.23 
 
 
 

*Certain amounts do not correspond to the 30 June 2020 condensed consolidated interim financial statements as they reflect the adjustments made due to changes in classification, as described in Note 2.

 
 
                  Note  Share    Shares     Share     Group           Share      Fair      Cumulative   Retained    Total       Non-control-ling  Total 
                        capital  held by    pre-mium  reorganisation  based      value     currency      earnings               interest           equity 
In thousands of                  trust                reserve         payments   reserve   translation 
GEL                                                                   reserve              reserve 
 
Balance as of 1 
 January 2020           1,682    (27,517)   848,459   (162,166)       (17,803)   (6,476)   (6,850)      1,961,172   2,590,501   8,589             2,599,090 
 
Profit for the 
 six months 
 ended 30 June 
 2020 
 (unaudited)            -        -          -         -               -          -         -            67,625      67,625      1,575             69,200 
Other 
 comprehensive 
 income for six 
 months ended 30 
 June 2020 
 (unaudited)            -        -          -         -               -          4,984     1,184        -           6,168       (19)              6,149 
Total 
 comprehensive 
 income for six 
 months ended 30 
 June 2020 
 (unaudited)            -          -        -         -               -          4,984     1,184        67,625      73,793      1,556             75,349 
 
Share based 
 payment expense  17    -        -          -         -               6,063      -         -            -           6,063       (28)              6,035 
Delivery of 
 shares to 
 employees under 
 SBP scheme             -        18,559     -         -               (20,068)   -         -            -           (1,509)     -                 (1,509) 
Share buy-back          -        (25,493)   -         -               -          -         -            -           (25,493)    -                 (25,493) 
Other movements         -        -          -         -               -          -         (19)         748         729         (796)             (67) 
Balance as of 30 
 June 2020 
 (unaudited)            1,682    (34,451)   848,459   (162,166)       (31,808)   (1,492)   (5,685)      2,029,545   2,644,084   9,321             2,653,405 
 
Balance as of 31 
 December 2020           1,682    (33,413)   848,459   (162,167)       (20,568)   11,158    (2,124)      2,281,428   2,924,455   11,479            2,935,934 
 
Profit for the 
 six months 
 ended 30 June 
 2021 
 (unaudited)             -        -          -         -               -          -         -            399,168     399,168     4,211             403,379 
Effect of change 
 in business 
 model*                  -        -          -         -               -          26,062    -            -           26,062      -                 26,062 
Other 
 comprehensive 
 income for six 
 months ended 30 
 June 2021 
 (unaudited)            -        -          -         -               -          (37,047)  (3,063)      -            (40,110)   (9)                (40,119) 
Total 
 comprehensive 
 income for six 
 months ended 30 
 June 2021 
 (unaudited)            -        -          -         -               -          (10,985)  (3,063)      399,168      385,120    4,202              389,322 
 
Share based 
 payment expense  17    -        -          -         -               14,258     -         -            238         14,496      (3)               14,493 
Delivery of 
 shares to 
 employees under 
 SBP scheme             -        7,924      -         -               (9,038)    -         -            -           (1,114)     -                 (1,114) 
Dividends paid 
 to 
 non-controlling 
 interest                                                                                                           -           (1,741)           (1,741) 
Other movements         -        -          -         -               -          (3)       (12)         117         102         (171)             (69) 
 
Balance as of 30 
 June 2021 
 (unaudited)             1,682    (25,489)   848,459   (162,167)       (15,348)   170       (5,199)      2,680,951   3,323,059   13,766            3,336,825 
 
 

* Changes in business model in late 2020 resulted in reclassification of bonds carried at amortised cost to investment securities measured at fair value through other comprehensive income, which takes effect from 1 January 2021.

 
 
                                                                Six months ended 
 
  In thousands of GEL                                   Note  30 June 21 (Unaudited)  30 June 20 (Unaudited/restated*) 
 
Cash flows from/(used in) operating activities 
Interest received                                              906,444                 579,414 
Interest received on currency swaps                            13,149                  12,522 
Interest paid                                                  (452,751)               (404,923) 
Fees and commissions received                                  170,658                 131,347 
Fees and commissions paid                                      (78,793)                (56,054) 
Insurance and reinsurance received                             43,358                  43,373 
Insurance claims paid                                          (16,239)                (13,458) 
Income received from trading in foreign currencies             32,659                  49,406 
Other operating income received                                28,880                  2,860 
Staff costs paid                                               (134,594)               (120,706) 
Administrative and other operating expenses paid               (79,430)                (61,860) 
Income tax paid                                                (4,446)                 (11,983) 
 
 
Cash flows from operating activities before changes in 
 operating assets and liabilities                              428,895                149,938 
 
 
Net change in operating assets 
Due from other banks and mandatory cash balances with 
 the National Bank of Georgia                                  23,326                  (183,202) 
Loans and advances to customers                                (711,980)               (357,130) 
Net investments in lease                                       24,158                  11,008 
Other financial assets                                         (38,835)               ( 8,483 ) * 
Other assets                                                   14,151                  10,847 
Net change in operating liabilities 
Due to credit institution                                      11,940                  85,357 
Customer accounts                                              667,190                 (88,078) 
Other financial liabilities                                    (137,291)               11,915 
Other liabilities and provision for liabilities and 
 charges                                                       16,659                 3,838 
 
 
Net cash from/(used in) operating activities                  298,213                 (363,990) * 
 
 
Cash flows from/(used in) investing activities 
Acquisition of investment securities measured at fair 
 value through other comprehensive income                      (196,871)               (251,486) 
Proceeds from redemption at maturity/disposal of 
 investment securities measured at fair value 
 through other comprehensive income                            757,583                 180,702 
Acquisition of bonds carried at amortised cost                 -                       (495,945) 
Proceeds from redemption of bonds carried at amortised 
 cost                                                          19,633                  171,137 
Acquisition of premises, equipment and i ntangible 
 assets                                                 10     (91,993)                (74,550) 
Proceeds from disposal of premises, equipment and i 
 ntangible assets                                       10     6,334                   24,172 
Proceeds from disposal of investment property                  20,210                  3,128 
Acquisition of subsidiaries and associates                     -                       936 
 
 
Net cash from/(used in) investing activities                   514,896                (441,906) 
 
 
Cash flows from/(used in) financing activities 
Proceeds from other borrowed funds                             1,757,879               1,615,016 
Redemption of other borrowed funds                             (2,736,476)             (966,746) 
Acquisition of treasury shares                                 -                      (25,493) * 
Repayment of principal of lease liabilities                    (5,591)                 (5,420) 
Redemption of subordinated debt                                (12,562)                - 
Proceeds from debt securities in issue                  14     -                       171,531 
Redemption of debt securities in issue                  14     -                       (12,569) 
Dividends paid                                                 (1,741)                - 
 
 
Net cash flows (used in)/from financing activities             (998,491)              776,319 * 
 
 
Effect of exchange rate changes on cash and cash 
 equivalents                                                   (35,609)               7,797 
 
 
Net decrease in cash and cash equivalents                      (220,991)              (21,780) 
Cash and cash equivalents at the beginning of the 
 period                                                 5      1,635,405              1,003,583 
 
Cash and cash equivalents at the end of the period      5      1,414,414              981,803 
 
 

*Certain amounts do not correspond to the 30 June 2020 condensed consolidated interim financial statements as they reflect the adjustments made due to changes in classification, as described in Note 2.

   1       Introduction 

Principal activity . TBC Bank Group PLC ("TBCG" or "Group") is a public limited company, incorporated in England and Wales. TBCG held 99.88% of the share capital of JSC TBC Bank (hereafter the "Bank") as at 30 June 2021 (31 December 2020: 99.88%), thus representing the Bank's ultimate parent company. The Bank is a parent of a group of companies incorporated in Georgia, Azerbaijan and Uzbekistan and its 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 below.

The shares of TBCG ("TBCG Shares") were admitted to the Premium Listing segment of the Official List of the UK Listing Authority and admitted to trading on the London Stock Exchange PLC's main market for listed securities effective on 10 August 2016 (the "Admission", Note 1 6 ). 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 arranged 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 Group had 151 branches and 8,937 employees mainly within Georgia as at 30 June 2021 (The Group had 156 branches and 7,854 employees mainly within Georgia as at 30 June 2020).

As at 30 June 2021 and 31 December 2020, the following shareholders directly owned more than 3% of the total outstanding shares of the Group. Other shareholders individually owned less than 3% of the outstanding shares. As at 30 June 2021 and 31 December 2020, the Group had no ultimate controlling party. Other includes individual as well as corporate shareholders.

 
 
Shareholders                                       30 June 2021  31 December 
                                                    ownership     2020 ownership 
                                                    interest      interest 
European Bank for Reconstruction and Development   5.05%         5.05% 
Dunross & Co.                                      7.42%         7.42% 
Schroder Investment Management                     3.27%         3.12% 
JPMorgan Asset Management                          3.45%         4.56% 
Creation Investments Capital Management            3.22%         3.22% 
Allan Gray Investment Management                   5.33%         4.26% 
Founders*                                          14.61%        14.64% 
Other**                                            57.65%        57.73% 
Total                                              100.00%       100.00% 
 

* Includes effective ownership of Mamuka Khazaradze and Badri Japaridze.

** Other includes individual as well as corporate shareholders.

   1       Introduction (Continued) 

The condensed consolidated interim financial statements ("financial statements") include the following principal subsidiaries:

 
                     Proportion of voting rights and 
                     ordinary share capital 
                                                             Principal place    Year of             Industry 
                                                             of business or     incorpo-ration 
Subsidiary Name      30 June 2021        31 December 2020    incorporation 
 
JSC TBC Bank         99.88%              99.88%              Tbilisi, Georgia   1992                Banking 
United Financial 
 Corporation JSC     99.53%              99.53%              Tbilisi, Georgia   2001                Card processing 
TBC Capital LLC      100.00%             100.00%             Tbilisi, Georgia   1999                Brokerage 
TBC Leasing JSC      100.00%             100.00%             Tbilisi, Georgia   2003                Leasing 
                                                                                                    Non-banking credit 
TBC Credit LLC       100.00%             100.00%             Baku, Azerbaijan   1999                institution 
TBC Pay LLC          100.00%             100.00%             Tbilisi, Georgia   2008                Processing 
TBC Invest LLC       100.00%             100.00%             Ramat Gan,Israel   2011                PR and marketing 
                                                                                                    Real estate 
Index LLC            100.00%             100.00%             Tbilisi, Georgia   2009                management 
JSC TBC Insurance    100.00%             100.00%             Tbilisi, Georgia   2014                Insurance 
Redmed LLC           100.00%             100.00%             Tbilisi, Georgia   2019                Insurance 
TBC Ecosystem 
 companies LLC[32]   100.00%             100.00%             Tbilisi, Georgia   2019                Asset management 
Swoop JSC            100.00%             100.00%             Tbilisi, Georgia   2010                Retail trade 
                                                                                                    Computer and 
Online Tickets LLC   55.00%              55.00%              Tbilisi, Georgia   2015                software services 
                                                             Tashkent, 
TKT UZ               75.00%              75.00%              Uzbekistan         2019                Retail trade 
My.Ge LLC            65.00%              65.00%              Tbilisi, Georgia   2008                E-Commerce 
Mypost LLC           100.00%             100.00%             Tbilisi, Georgia   2019                Postal service 
Billing Solutions 
 LLC                 51.00%              51.00%              Tbilisi, Georgia   2019                Software services 
Vendoo LLC (Geo)     100.00%             100.00%             Tbilisi, Georgia   2018                Retail leasing 
                                                                                                    Real estate 
Allproperty.ge LLC   90.00%              90.00%              Tbilisi, Georgia   2013                management 
F Solutions LLC      100.00%             100.00%             Tbilisi, Georgia   2016                Software services 
TBC Connect          100.00%             100.00%             Tbilisi, Georgia   2020                Software services 
                                                             Tashkent, 
Inspired LLC         51.00%              51.00%              Uzbekistan         2011                Processing 
VOO LLC (UZ                                               Tashkent, 
 Leasing)            100.00%             100.00%             Uzbekistan         2019                Retail leasing 
TBC Concept LLC      100.00%             100.00%             Tbilisi, Georgia   2020                Food and beverage 
                                                             Tashkent, 
TBC Bank UZ          100.00%             100.00%             Uzbekistan         2020                Banking 
TBC Group Support 
 LLC                 100.00%             100.00%             Tbilisi, Georgia   2020                Risk monitoring 
SABA LLC             85.00%              N/A                 Tbilisi, Georgia   2012                Education 
Artarea.ge LLC       100.00%             N/A                 Tbilisi, Georgia   2012                PR and marketing 
TBC Art Gallery LLC  100.00%             N/A                 Tbilisi, Georgia   2012                PR and marketing 
Space International  100.00%             N/A                 Tbilisi, Georgia   2021                S oftware services 
 JSC 
 
 

The country of registration or incorporation is also the principal area of operation of each of the above subsidiaries.

The Group has investments in the following associates :

 
Associate name                30 June  31 December  Principal           Year of         Principal 
                               2021     2020         place of business   incorporation   activities 
                                                     or incorporation 
Credit Info Georgia                                                                     Financial 
 JSC                          21.08%   21.08%       Tbilisi, Georgia    2005             intermediary 
Tbilisi Stock Exchange                                                                  Finance, 
 JSC                          28.87%   28.87%       Tbilisi, Georgia    2015             Service 
Georgian Central Securities                                                             Finance, 
 Depository JSC               22.87%   22.87%       Tbilisi, Georgia    1999             Service 
Georgian Stock Exchange                                                                 Finance, 
 JSC                          17.33%   17.33%       Tbilisi, Georgia    1999             Service 
                                                                                        Finance, 
Kavkasreestri JSC             10.03%   10.03%       Tbilisi, Georgia    1998             Service 
 
 
   1       Introduction (Continued) 

The Group's corporate structure consists of related undertakings not accounted for due to immateriality. A full list of these undertakings, the country of incorporation is set out in appendix A below.

 
                     Proportion of voting rights and 
                     ordinary share capital 
                     30 June            31 December 2020    Principal place of  Year of             Industry 
                      2021                                  business or         incorpo-ration 
Company Name                                                incorporation 
 
TBC Invest 
 International Ltd   100.00%            100.00%             Tbilisi, Georgia    2016                Investment Vehicle 
University 
 Development Fund    33.33%             33.33%              Tbilisi, Georgia    2007                Education 
Natural Products of 
 Georgia LLC         25.00%             25.00%              Tbilisi, Georgia    2001                Trade, Service 
                                                                                                    Data Monitoring 
Mobi Plus JSC        14.81%             14.81%              Tbilisi, Georgia    2007                and Processing 
JSC Givi 
 Zaldastanishvili 
 American Academy 
 in Georgia          14.48%             14.48%              Tbilisi, Georgia    2001                Education 
Banking and Finance 
 Academy of Georgia  16.67%             16.67%              Tbilisi, Georgia    1998                Education 
Tbilisi City JSC     1.80%              1.80%               Tbilisi, Georgia    1996                Education 
TBC Trade            100.00%            100.00%             Tbilisi, Georgia    2008                Trade, Service 
Mineral Oil 
 Distribution                                                                                       Data Monitoring 
 Corporation JSC     9.90%              9.90%               Tbilisi, Georgia    2009                and Processing 
TBC Capital Asset 
Management LLC       100.00%            N/A                 Tbilisi, Georgia    2021                Asset Management 
Freeshop.ge LLC      100.00%            100.00%             Tbilisi, Georgia    2010                Retail Trade 
The.ge LLC           100.00%            100.00%             Tbilisi, Georgia    2012                Retail Trade 
 

Operating environment of the Group . Georgia, where Group's most activities are located, displays certain characteristics of an emerging market. The legal, tax and regulatory frameworks continue to develop and are subject to frequent changes and varying interpretations (Note 26). Starting from Q2 2021, the Georgian economy is rebounding faster than expected after contracting sharply in 2020. However, Georgia continues to face downside risks to economic growth due to prolongation of the pandemic, internal and external political tensions as well as undesirable side effects of the Fed's sooner-than-expected rate hike.

After declining in early 2021, daily new COVID-19 cases accelerated alongside the emergence of new variants and increased population mobility. Georgia, among other region countries, faces vaccination process challenges, lagging behind the world average. Thus, the probability of reintroduction of restrictive measures is considerable. These measures, among other things, could severely restrict economic activity in Georgia, negatively impacting business environment and clients of the Group, however, likely only temporarily.

Management is taking necessary measures to ensure sustainability of the Group's operations and support its customers and employees. Furthermore, in response of the deteriorated economic situation, the Management took additional measures to identify inefficient processes and through optimising them further support the financial condition of the Group.

The future effects of the current economic situation and the above measures are difficult to predict and management's current expectations and estimates could differ from actual results.

For the purpose of measurement of expected credit losses ("ECL") the Group uses supportable forward-looking information, including forecasts of macroeconomic variables. As with any economic forecast, however, the projections and likelihoods of their occurrence are subject to a high degree of inherent uncertainty and therefore the actual outcomes may be significantly different from those projected. Note 25 provides more information of how the Group incorporated forward-looking information in the ECL models.

Climate Impact

Although, global market conditions have affected market confidence and consumer spending patterns, the Group remains well placed to continue displaying strong financial results through investing in local and Uzbekistan markets. The Group has reviewed its exposure to climate-related and other emerging business risks , but has not identified any risks , that could significantly impact the financial performance or position of the Group as at 30 June 2021.

   2       Significant Accounting Policies 

2.1 Basis of preparation

On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement Board. TBC Bank Group PLC and its subsidiaries (together referred to as the "Group") transitioned to UK-adopted International Accounting Standards in its consolidated financial statements on 1 January 2021. This change constitutes a change in accounting framework. However, there is no impact on recognition, measurement or disclosure in the period reported as a result of the change in framework.

These condensed consolidated interim financial statements for six months ended 30 June 2021 for the Group has been prepared in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the Financial Conduct Authority (FCA), and in accordance with UK-adopted International Accounting Standard (IAS) 34 'Interim Financial Reporting'. These condensed consolidated interim financial statements do not include all the notes, normally included in annual consolidated financial statements. Accordingly, this report is to be read in conjunction with the annual consolidated financial statements for the year ended 31 December 2020, which were prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards (IFRSs) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

These condensed consolidated interim financial statements have been reviewed, not audited. Auditor's review conclusion is included in this report.

Going Concern. T he Board of Directors of TBC Bank Group PLC have prepared these interim financial statements on a going concern basis. In making this judgement, management considered the Group's financial position, current intentions, profitability of operations and access to financial resources. Management is not aware of any material uncertainties that may cast significant doubt upon the Group's ability to continue as a going concern. In reaching this assessment, the directors have specifically considered the implications of the COVID-19 pandemic upon the Group's performance and projected funding and capital position and also taken into account the impact of further stress scenarios. On this basis, the directors are satisfied that the Group will maintain adequate levels of funding and capital and comply with the loan covenant requirements for the foreseeable future .

Presentation currency. These condensed consolidated interim financial statements are presented in thousands of Georgian Lari ("GEL thousands"), except per-share amounts and unless otherwise indicated.

Condensed consolidated interim 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.

Accounting policies and relevant changes within. Except as described below, the same accounting policies and methods of computation were followed in the preparation of this condensed consolidated interim financial statements as compared with the annual consolidated financial statements of the Group for the year ended 31 December 2020.

Interim period tax measurement . Interim period income tax expense is accrued using the effective tax rate that would be applicable to expected total annual earnings, that is, the estimated weighted average annual effective income tax rate applied to the pre-tax income of the interim period.

   2       Significant Accounting Policies (Continued) 

Changes in presentation of the net gains from currency derivatives, foreign currency operations and translation

To further foster clarity of the condensed consolidated interim financial statement of profit or loss and other comprehensive income, the Group has re-considered the presentation of the net gains from currency derivatives, foreign currency operations and translation. As a result of reclassification, management has combined "Net gains/(losses) from trading in foreign currencies", "Net gains/(losses) from foreign exchange translation" and "Net gains/(losses) from derivative financial instruments", under one financial statement line item "Net gains from currency derivatives, foreign currency operations and translation". Management believes, that such presentation will allow the Group to present the results of foreign currency operations clearly and allow the users to understand the effectiveness of the Group's foreign currency management. June 2020 presentation is in accordance with 2020 year-end report updated policies. The presentation of comparative figures has been adjusted to confirm to the presentation of the current period amounts (detailed breakdown below represents before changes figures, while total represents current presentation):

 
in thousands of GEL                                                                      30 June 2021  30 June 2020 
 
Net gains/(losses) from trading in foreign currencies                                    32,650        49,406 
Net gains/(losses) from foreign exchange translation                                     27,230        (1,627) 
Net gains/(losses) from derivative financial instruments                                 304           (20) 
Total net gains from currency derivatives, foreign currency operations and translation   60,184        47,759 
 

Changes in presentation of the cash flows from operating and financing activities

To further foster clarity and comparability of the condensed consolidated interim statements of cash flow, the Group made following changes: for condensed consolidated interim statements of cash flow, it has re-considered the presentation of acquisition of treasury shares from change in other financial assets (operating activity) and transferred it to "acquisition of treasury shares" (financing activity). For separate statement of cash flows, it has re-considered the presentation of acquisition of treasury shares from Income received from recharge agreement (investing activities) and transferred it to "acquisition of treasury shares" (financing activity).

Management believes, that reclassifications will enable the Group to enhance the presentation of the condensed consolidated interim statements of cash flow from operating, investing and financing activities. June 2020 presentation is in accordance with 2020 year-end report updated policies. The presentation of comparative figures for condensed consolidated interim statements of cash flow has been adjusted per 2020 annual report presentation changes reported:

Effect on consolidated statement of cash flows

 
in thousands of GEL                            As originally presented  Reclassification  As restated at 
                                                                                           30 June 2020 
 
Cash flows from operating activities: change 
 in other financial assets                     (33,976)                 25,493            (8,483) 
Cash flows used in financing activities: 
 acquisition of treasury shares                -                        (25,493)          (25,493) 
 
 

Changes in presentation of the impairment of non-financial assets

During 2021, the Group reclassified impairment/recovery of non-financial assets from "Administrative and other operating expenses" to "Impairment of other non-financial assets". Significant part of any impairment/recoveries recorded are related to repossessed assets and investment properties. Management believes , that those type of assets are not actively used in daily operations, but are primarily targeted for sale in future. Considering nature of those expenses/recovery such presentation is more appropriate and would increase understandibility and clarity of the Group's financial statements. The presentation of comparative figures has been adjusted to confirm to the presentation of the current period amounts:

 
in thousands of GEL                           As originally presented  Reclassification          As restated at 
                                               at 30 June 2020                                    30 June 2020 
Impairment of other non-financial assets      -                        (625)                     (625) 
Administrative and other operating expenses   (56,016)                                      625  (55,391) 
 
   2       Significant Accounting Policies (Continued) 

Business model change

The Bank historically used Ministry of Finance (MoF) securities to invest the excess monetary resources and receive interest charges in return of the investment. In majority of the cases the securities were held till their maturity and the Bank has not been engaged in trading activities for profit making purposes. As a result, according to their business model such securities were classified under hold to collect category and were recorded as "Bonds carried at amortised cost" in the consolidated and separate statements of financial position.

From the end of 2020 Ministry of Finance has launched a new primary dealer platform to increase liquidity of the securities, further encourage the trading of Government notes and develop Georgian securities market. Third party dealers were established for trading between the Ministry of Finance and investors. The platform should expand investor data base and enhance liquidity of secondary market. TBC Bank will have a primary dealer status in the platform, that enable to act as an intermediary between investors and the Ministry of Finance by executing an order on behalf of investors.

As far as, secondary market became more active from the end of 2020, the Bank plans to stay alert on beneficial market opportunities and start selling Ministry of Finance securities in rare cases, if the action will not impact the liquidity position of the Bank and generate strong profit compared to collecting principal and interest till their maturity. As a result, treasury securities management practices for holding majority of Ministry of Finance securities till their maturity has changed and will depend on the market and liquidity condition of the Bank.

Respective change in Management's processes caused changes in existing business model from hold to collect to hold to collect and sell. Accordingly MOF securities has been re-classified from "Bonds carried at amortised cost" to "Investment securities measured at fair value through other comprehensive income" in the consolidated and separate statements of financial position, with respective effects also accounted in the statement of profit or loss and other comprehensive income. According to IFRS 9 requirement the change has been accounted for prospectively from the reclassification date. The reclassification date represents the first day of the first reporting period following the change in business model, that results in an entity reclassifying financial assets, which is 1 January 2021. Management believes that such presentation is more appropriate for the nature of the transactions.

Based on business model assessment performed, Management considers respective securities should be carried at fair value through other comprehensive income (FVTOCI). Internally performed test of solely payment of principal and interest ('SPPI') has shown, that those securities are held for collection of contractual cash flows and for selling, where those cash flows represent SPPI, and they are not designated at fair value through profit and loss (FVTPL).

Effects on respective periods are disclosed below:

 
in thousands of GEL            Balance as at              Change in business  Balance as at 
                                31 December                model               1 January 2021 
                                2020 
Fair value reserve             11,158                     26,062              37,220 
Bonds carried at amortised 
 cost                          1,089,801                  (1,059,946)         29,855 
Investment securities 
 measured at fair value 
 through other comprehensive 
 income                                        1,527,268  1,086,008           2,613,276 
 
   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:

     3       Critical Accounting Estimates and Judgements in Applying Accounting Policies (Continued) 

ECL measurement. Measurement of ECLs is a significant estimate that involves forecasting future economic conditions, longer the term of forecasts more management judgment is applied and those judgements may be the source of uncertainty. Details of ECL measurement methodology are disclosed in Note 25. 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 :

 
In thousands of GEL    30 June 2021               31 December 2020 
 
20% decrease in SICR   Increase credit loss 
 thresholds             allowance on loans        Increase credit loss 
                        and advances by GEL        allowance on loans and 
                        1,734.                     advances by GEL 2,543. 
                       Change of the Bank's       Change of the Bank's 
                        cost of credit risk        cost of credit risk 
                        ratio by 2 basis points.   ratio by 2 basis points. 
 
 
10% increase in Stage  Increase credit loss 
 2 exposures            allowance on loans        Increase credit loss 
                        and advances by GEL        allowance on loans and 
                        2,220.                     advances by GEL 3,311. 
                       Change of the Bank's       Change of the Bank's 
                        cost of credit risk        cost of credit risk 
                        ratio by 3 basis points.   ratio by 2 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      30 June 2021             31 December 2020 
 
10% increase (decrease)  Increase (decrease) 
 in PD estimates          credit loss allowance   Increase (decrease) 
                          on loans and advances    credit loss allowance 
                          by GEL 19,928 (GEL       on loans and advances 
                          20,308).                 by GEL 24,901 (GEL 26,013). 
                         Change of the Bank's     Change of the Bank's 
                          cost of credit risk      cost of credit risk 
                          ratio by 26 (27) basis   ratio by 18 (19) basis 
                          points.                  points. 
 
 
10% increase (decrease)  Increase (decrease)      Increase (decrease) 
 in LGD estimates         credit loss allowance    credit loss allowance 
                          on loans and advances    on loans and advances 
                          by GEL 41,674 (GEL       by GEL 50,719 (GEL 53,813). 
                          44,199). 
                         Change of the Bank's     Change of the Bank's 
                          cost of credit risk      cost of credit risk 
                          ratio by 55 (58) basis   ratio by 37 (39) basis 
                          points.                  points. 
 
 

Macroeconomic scenarios: The Bank incorporates forward-looking information with three macro-economic scenarios to calculate unbiased and probability weighted ECL. They represent the Baseline scenario (most likely outcome) and two less likely scenarios, referred as the Upside (better than Baseline) and Downside (worse than Baseline).

In 2020, due to severity of the COVID-19 pandemic impact, the scenario probabilities were adjusted to reflect the management's expectations regarding their future realisation. The baseline, upside and downside scenarios were assigned probability weighing of 60%, 10% and 30%, respectively. Taking into account the prolongation of the pandemic, the weights remained unchanged.

   3       Critical Accounting Estimates and Judgements in Applying Accounting Policies (Continued) 

The following table describes the key macroeconomic variables under each scenario for future 3-year period as at 30 June 2021. Macro assumptions are in line with the range of expected forecasted levels available from Group's macro team as well as external parties as of June 2021.

 
               Baseline          Upside            Downside 
Growth rates   2021  2022  2023  2021  2022  2023  2021  2022   2023 
 YoY, % 
GDP            6.5%  6.5%  5.0%  7.0%  7.4%  6.1%  5.2%  4.4%   2.3% 
USD/GEL rate 
 (EOP)         3.25  3.20  3.05  3.03  2.86  2.70  3.46  3.44   3.34 
EUR/GEL rate 
 (EOP)         3.90  3.74  3.66  3.55  3.26  3.02  4.26  4.30   4.28 
RE Price (in 
 USD)          2.5%  1.5%  2.3%  4.0%  3.7%  5.1%  0.3%  -1.8%  -1.9% 
Employment     2.6%  1.0%  1.0%  2.9%  1.3%  1.3%  2.3%  0.7%   0.6% 
 
 

The Bank assessed the impact of changes in GDP growth and unemployment variables on ECL. These two macroeconomic variables were identified as most critical economic factors in ECL assessment. The sensitivity analysis was performed separately for each of the variable to show their significant in ECL assessment, but changes in those variables may not happen in isolation as various economic factors tend to be correlated across the scenarios. The variables were adjusted in all three macroeconomic scenarios. From the assessment of forward looking scenarios management is comfortable with the scenarios capturing the non-linearity of the losses.

The table below shows the impact of +/-20% change in GDP growth and unemployment variables across all scenarios on the Bank's ECL :

 
                      Change in GDP growth        Change in unemployment 
in thousands of GEL   20% increase  20% decrease  20% increase  20% decrease 
Impact on ECL         (4,150)       4,617         3,044         (2,790) 
 
   4       New or Revised Standards and Interpretations and Accounting Pronouncements 

The following amended standards became effective from 1 January 2021:

Covid-19-Related Rent Concessions - Amendments to IFRS 16 (issued on 31 March 2021 and effective for annual periods beginning on or after 1 April 2021).

In May 2020 an amendment to IFRS 16 was issued that provided an optional practical expedient for lessees from assessing whether a rent concession related to COVID-19, resulting in a reduction in lease payments due on or before 30 June 2021, was a lease modification. An amendment issued on 31 March 2021 extended the date of the practical expedient from 30 June 2021 to 30 June 2022.

Management believes, that the amendment did not have any material impact on the Group.

Interest rate benchmark (IBOR) reform - phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (issued on 27 August 2020 and effective for annual periods beginning on or after 1 January 2021).

The Phase 2 amendments address issues that arise from the implementation of the reforms, including the replacement of one benchmark with an alternative one. The amendments cover the following areas:

-- Accounting for changes in the basis for determining contractual cash flows as a result of IBOR reform: For instruments to which the amortised cost measurement applies, the amendments require entities, as a practical expedient, to account for a change in the basis for determining the contractual cash flows as a result of IBOR reform by updating the effective interest rate using the guidance in paragraph B5.4.5 of IFRS 9. As a result, no immediate gain or loss is recognised. This practical expedient applies only to such a change and only to the extent it is necessary as a direct consequence of IBOR reform, and the new basis is economically equivalent to the previous basis. Insurers applying the temporary exemption from IFRS 9 are also required to apply the same practical expedient. IFRS 16 was also

   4       New or Revised Standards and Interpretations and Accounting Pronouncements (Continued) 

amended to require lessees to use a similar practical expedient when accounting for lease modifications that change the basis for determining future lease payments as a result of IBOR reform.

-- End date for Phase 1 relief for non contractually specified risk components in hedging relationships: The Phase 2 amendments require an entity to prospectively cease to apply the Phase 1 reliefs to a non-contractually specified risk component at the earlier of when changes are made to the non-contractually specified risk component, or when the hedging relationship is discontinued. No end date was provided in the Phase 1 amendments for risk components.

-- Additional temporary exceptions from applying specific hedge accounting requirements: The Phase 2 amendments provide some additional temporary reliefs from applying specific IAS 39 and IFRS 9 hedge accounting requirements to hedging relationships directly affected by IBOR reform.

-- Additional IFRS 7 disclosures related to IBOR reform: The amendments require disclosure of: (i) how the entity is managing the transition to alternative benchmark rates, its progress and the risks arising from the transition; (ii) quantitative information about derivatives and non-derivatives that have yet to transition, disaggregated by significant interest rate benchmark; and (iii) a description of any changes to the risk management strategy as a result of IBOR reform.

Libor is the most frequently used floating rate within the Group, as a result, below analysis is primarily concentrated on Libor change.

Libor change

On 5 March 2021, the IBA confirmed its intention to cease the publication of GBP, CHF, EUR, and JPY LIBOR (all tenors) and USD LIBOR (one week and two-month tenors) at the end of 2021. The remaining USD LIBOR tenors will be published by IBA until the end of June 2023.

Under these amendments, practical expedient exists for the changes to the basis for determining the contractual cash flows are reflected by adjusting the effective interest rate. No immediate gain or loss is recognised. These revisions of effective interest rate are only applicable when the change is necessary as a direct consequence of interest rate benchmark reform, and the new basis for determining the contractual cash flows is economically equivalent to the previous basis.

The Group has implemented a robust plan, that sets out the actions we will take in case LIBOR tenors ceases to exist or materially changes. According to this plan, the Group is taking the following steps:

(a) An impact assessment in relation to that affected benchmark will be performed;

(b) If it has not been feasible and appropriate to nominate an alternative benchmark, a proposal of actions to be taken in relation to the affected benchmark may be prepared. The proposal will take into account the impact assessment and shall consider, for example, the replacement of that benchmark with an alternative benchmark, seeking approval or notifying a regulatory body (where relevant), an amendment to contractual documentation, and notification to stakeholders;

(c) Once the proposal has been approved, internal stakeholders will work together to implement the proposal. For example, clients may be notified or their consent may be sought to change the benchmark, and contractual documentation may be amended.

In coordination with the regulator, international financial institutions, and other stakeholders, the Group is working on the transition process to avoid risking any disorderly cessation events. The Group also enhances its IT systems and internal processes to ensure a smooth transition from LIBOR to alternative benchmark interest rates.

Once alternative benchmark rates are agreed with the international financial institutions for the Group's borrowings, the Management will then assess and match the lending side to manage potential liquidity risks and any arbitrage differences between LIBOR and alternative rates.

New Accounting Pronouncements

The IASB has published a number of 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 30 June 2021 and it expects they will have an insignificant effect, when adopted, on the condensed consolidated interim financial statements of the Group.

   4       New or Revised Standards and Interpretations and Accounting Pronouncements (Continued) 

IFRS 17 "Insurance Contracts" (issued on 18 May 2017 and effective for annual periods beginning on or after 1 January 2023).

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: 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 expects to apply the standard to performance guarantees that it issues and is currently assessing the impact of the new standard on its financial statements. Potential impact on insurance products embedded in loans and similar instruments is also under consideration .

Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of Accounting policies (issued on 12 February 2021 and effective for annual periods beginning on or after 1 January 2023).

IAS 1 was amended to require companies to disclose their material accounting policy information rather than their significant accounting policies. The amendment provided the definition of material accounting policy information. The amendment also clarified that accounting policy information is expected to be material if, without it, the users of the financial statements would be unable to understand other material information in the financial statements. The amendment provided illustrative examples of accounting policy information that is likely to be considered material to the entity's financial statements. Further, the amendment to IAS 1 clarified that immaterial accounting policy information need not be disclosed. However, if it is disclosed, it should not obscure material accounting policy information. To support this amendment, IFRS Practice Statement 2, 'Making Materiality Judgements' was also amended to provide guidance on how to apply the concept of materiality to accounting policy disclosures.

Deferred tax related to assets and liabilities arising from a single transaction - Amendments to IAS 12 (issued on 7 May 2021 and effective for annual periods beginning on or after 1 January 2023).

The amendments to IAS 12 specify how to account for deferred tax on transactions such as leases and decommissioning obligations. In specified circumstances, entities are exempt from recognising deferred tax when they recognise assets or liabilities for the first time. Previously, there had been some uncertainty about whether the exemption applied to transactions such as leases and decommissioning obligations - transactions for which both an asset and a liability are recognised. The amendments clarify that the exemption does not apply and that entities are required to recognise deferred tax on such transactions. The amendments require companies to recognise deferred tax on transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences.

Classification of liabilities as current or non-current - Amendments to IAS 1 (issued on 23 January 2020 and effective for annual periods beginning on or after 1 January 2022) .

These narrow scope amendments clarify that liabilities are classified as either current or non-current, depending on the rights that exist at the end of the reporting period. Liabilities are non-current if the entity has a substantive right, at the end of the reporting period, to defer settlement for at least twelve months. The guidance no longer requires such a right to be unconditional. Management's expectations whether they will subsequently exercise the right to defer settlement do not affect classification of liabilities. The right to defer only exists if the entity complies with any relevant conditions as of the end of the reporting period. A liability is classified as current if a condition is breached at or before the reporting date even if a waiver of that condition is obtained from the lender after the end of the reporting period. Conversely, a loan is classified as non-current if a loan covenant is breached only after the reporting date. In addition, the amendments include clarifying the classification requirements for debt a company might settle by converting it into equity. 'Settlement' is defined as the extinguishment of a liability with cash, other resources embodying economic benefits or an entity's own equity instruments. There is an exception for convertible instruments that might be converted into equity, but only for those instruments where the conversion option is classified as an equity instrument as a separate component of a compound financial instrument.

   5       Cash and Cash Equivalents 
 
                                                  30 June                 31 December 
In thousands of GEL                                2021                    2020 
 
Cash on hand                                      832,304                 755,687 
Cash balances with the National Bank 
 of Georgia (other than mandatory reserve 
 deposits)                                        166,365                 102,522 
Correspondent accounts and overnight 
 placements with other banks                      415,806                 588,409 
Placements with and receivables from 
 other banks with original maturities 
 of less than three months                        12                      188,867 
 
 
Total gross amount of cash and cash equivalents   1,414,487               1,635,485 
Less: Credit loss allowance                        (73)                   (80) 
Stage 1                                            (73)                   (80) 
Stage 2                                                                -  - 
Stage 3                                                                -  - 
 
Total cash and cash equivalents                   1,414,414               1,635,405 
 

As 30 June 2021, 84% of the correspondent accounts and overnight placements with other banks was placed with OECD (The Organization for Economic Co-operation and Development) banking institutions (31 December 2020: 89%).

As 30 June 2021, there was no interbank placed term deposits neither in non-OECD, nor in OECD banks (As at 31 December 2020 GEL 25,030 thousand was placed on interbank term deposits with one non-OECD bank and GEL 163,838 thousand with one OECD bank).

   6       Due from Other Banks 

Amounts due from other banks include placements with original maturities of more than three months, that are not collateralised and do not represent past due amounts at the 30 June 2021 and 31 December 2020 .

As at 30 June 2021 the Group had no placements, with original maturities of more than three months and with aggregated amounts above GEL 5,000 thousand (2020 : GEL 5,000 thousand). The total aggregated amount of these placement was GEL nil (2020: GEL 2,012 thousand) or 0.0% of the total amount due from other banks (2020: 4.0%).

As at 30 June 2021 GEL 29,132 thousand (2020: GEL 11,744 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 27 for the estimated fair value of amounts due from other banks.

For the purpose of ECL measurement due from other banks balances are included in Stage 1. The ECL for these balances at 30 June 2021 is GEL 7.4 thousand (2020: GEL 8 thousand).

   7       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 9.5%, (0.25%) and (0.7%) annual interest in GEL, USD and EUR respectively on mandatory reserve with NBG in June 2021 (2020: 8.0%, (0.25%) and (0.7%) in GEL, USD and EUR respectively).

In February 2021, Fitch Ratings has affirmed Georgia's Long-Term Foreign and Local Currency Issuer Default Rating (IDRs) at 'BB'. The Outlook is Negative; The Country Ceiling Rating is affirmed at 'BBB-', short-term foreign and local-currency IDRs at 'B'.

   8       Loans and Advances to Customers 
 
                                               30 June     31 December 
In thousands of GEL                             2021        2020 
 
Corporate loans                                5,851,634    5,690,749 
Consumer loans                                  1,892,441   2,011,585 
Mortgage loans                                  3,796,078   3,942,102 
Loans to micro, small and medium enterprises    3,734,773   3,556,084 
Total gross loans and advances to customers 
 at amortised cost                             15,274,926  15,200,520 
Less: credit loss allowance                    (477,958)   (606,246) 
Total loans and advances to customers at 
 amortised cost                                14,796,968  14,594,274 
 

As at 30 June 2021, loans and advances to customers carried at GEL 935,836 thousand have been pledged to local banks or other financial institutions as collateral with respect to other borrowed funds (31 December 20 20 :

GEL 889,353   thousand). 

In 2021, the Group has reassessed its definition of segments as disclosed in Note 19. Wealth Management business with high net worth individuals has been transferred from retail to corporate segment due to changes in segment definitions. Other transfers between segments were primarily due to changes in client size and specifications compared to prior period .

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 periods. Major movements in the table are described below:

-- Transfers between Stage 1, 2 and 3 due to balances experiencing significant increase (or decrease) of credit risk or becoming defaulted in the period, and the consequent "step up" (or "step down") between 12-month and lifetime ECL. It should be noted, that:

o Movement does not include exposures of loans, which were issued and repaid during the period;

o For loans, which existed at the beginning of the period, opening exposures are disclosed as transfer amounts;

o For newly issued loans, starting exposures are disclosed as transfer amount;

o For the loan exposures which changed stage several times during the period, transfers between starting and ending stage is disclosed.

-- Newly originated or purchased gives us information regarding gross loans and corresponding expected credit losses issued during the period (however, exposures which were issued and repaid during the period and issued to refinance existing loans are excluded);

-- Derecognised during the period refers to the balance of loans and credit loss allowance at the beginning of the period, which were fully repaid during the period. Exposures which were issued and repaid during the period, written off or refinanced by other loans, are excluded;

-- Net repayments refers to the net changes in gross carrying amounts, which is loan disbursements less repayments;

-- Net write offs refer to write off of loans during the period, while net of written off and recoveries refer to already written off loans for ECL;

-- Foreign exchange movements refers to the translation of assets denominated in foreign currencies and effect to translation in presentational currency for foreign subsidiary;

-- Net re-measurement 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;

Re - segmentation refers to the transfer of loans from one reporting segment to another. For presentation purposes, amounts are rounded to the nearest thousands of GEL, which in certain cases is disclosed as nil.

   8       Loans and Advances to Customers (Continued) 
 
Total loans        Gross carrying amount                               Credit loss allowance 
                   Stage        Stage       Stage                      Stage        Stage       Stage 
                    1            2           3                          1            2           3 
                                             (lifetime                                           (lifetime 
                                 (lifetime   ECL for                                 (lifetime   ECL for 
 In thousands of    (12-months    ECL for    credit                     (12-months    ECL for    credit 
  GEL                ECL)         SICR)      im-paired)  Total           ECL)         SICR)      im-paired)  Total 
 
At 1 January 2021  11,860,556    2,448,127   891,837      15,200,520    130,226      142,912     333,108      606,246 
Movements with impact on credit loss allowance 
 charge for the period: 
Transfers: 
- to lifetime 
 (from Stage 1 
 and Stage 3 to 
 Stage 2)           805,405      (805,405)   -            -             36,456       (36,456)    -            - 
- to defaulted 
 (from Stage 1 
 and Stage 2 to 
 Stage 3)           (507,875)    563,130     (55,255)     -             (9,269)      32,399      (23,130)     - 
- to 12-months 
 ECL (from Stage 
 2 and Stage 3 
 to Stage 1)        (70,295)     (113,970)   184,265      -             (8,238)      (20,480)    28,718       - 
 
New originated 
 or purchased       2,470,736    -           -            2,470,736     28,957       -           -            28,957 
Derecognised 
 during 
 the period         (636,690)    (86,633)    (59,962)     (783,285)     (96)         (5,552)     (27,777)     (33,425) 
Net repayments      (871,862)    (133,469)   (71,902)     (1,077,233)   -            -           -            - 
Net 
 re-measurement 
 due to stage 
 transfers 
 and risk 
 parameters 
 changes            -            -           -            -             (62,587)     (11,346)    45,838       (28,095) 
 
Movements without impact on credit loss allowance 
 charge for the period: 
Net write-offs      -            -           (107,321)    (107,321)     -            -           (92,338)     (92,338) 
Modification        3,237        1,068       1,718        6,023         -            -           -            - 
Foreign exchange 
 movements          (344,723)    (70,762)    (23,864)     (439,349)     (808)        (643)       (1,936)      (3,387) 
Other movements     297          648         3,890        4,835         -            -           -           - 
At 30 June 2021     12,708,786   1,802,734   763,406      15,274,926    114,641      100,834     262,483      477,958 
 
 
 
Total loans        Gross carrying amount                              Credit loss allowance 
                   Stage         Stage       Stage                    Stage        Stage       Stage 
                    1             2           3                        1            2           3 
                                              (lifetime                             (lifetime   (lifetime 
                                  (lifetime   ECL for                                ECL         ECL for 
 In thousands of    (12-months     ECL for    credit                   (12-months    for         credit 
  GEL                ECL)          SICR)      im-paired)  Total         ECL)         SICR)       im-paired)  Total 
 
At 1 January 2020  11,551,934    757,094     352,927      12,661,955  95,689       82,687      134,180       312,556 
 
Transfers: 
- to lifetime 
 (from 
 Stage 1 and 
 Stage 
 3 to Stage 2)      (1,284,853)   1,313,249   (28,396)     -           (27,215)     36,666      (9,451)       - 
- to defaulted 
 (from 
 Stage 1 and 
 Stage 
 2 to Stage 3)      (53,073)      (67,656)    120,729      -           (2,074)      (10,526)    12,600        - 
- to 12-months 
 ECL 
 (from Stage 2 
 and 
 Stage 3 to Stage 
 1)                 103,973       (103,709)   (264)        -           13,411       (13,196)    (215)         - 
New originated or 
 purchased          1,579,595     -           -            1,579,595   58,395       -           -             58,395 
Derecognised 
 during 
 the period         (511,370)     (59,941)    (8,921)      (580,232)   (2,709)      (9,238)     (4,735)       (16,682) 
Net repayments      (461,982)     (4,097)     (15,890)     (481,969)   -            -           -             - 
Net Write-offs      -             -           (41,673)     (41,673)    -            -           (34,200)      (34,200) 
Net 
 re-measurement 
 due to stage 
 transfers 
 and risk 
 parameters 
 changes            -             -           -            -           37,170       106,430     52,858        196,458 
Modifications       (21,392)      (6,885)     (847)        (29,124)    -            -           -             - 
Foreign exchange 
 movements          427,657       71,613      17,875       517,145     3,468        3,430       5,980         12,878 
Other movements     2,032         (827)       8,490        9,695       -            -           -             - 
At 30 June 2020    11,332,521    1,898,841   404,030      13,635,392  176,135      196,253     157,017       529,405 
 
   8       Loans and Advances to Customers (Continued) 
 
Corporate loans    Gross carrying amount                             Credit loss allowance 
                   Stage        Stage       Stage                    Stage        Stage       Stage 
                    1            2           3                        1            2           3 
                                             (lifetime                             (lifetime   (lifetime 
                                 (lifetime   ECL for                                ECL        ECL for 
 In thousands of    (12-months    ECL for    credit                   (12-months    for        credit 
  GEL               ECL)          SICR)      im-paired)  Total        ECL)          SICR)      im-paired)  Total 
 
At 1 January 2021   4,700,871    965,036     165,964      5,831,871   54,160       8,408       46,489       109,057 
Movements with impact on credit loss allowance 
 charge for the period: 
Transfers: 
- to lifetime 
 (from Stage 1 
 and Stage 3 to 
 Stage 2)           129,211      (129,211)   -            -           785          (785)       -            - 
- to defaulted 
 (from Stage 1 
 and Stage 2 to 
 Stage 3)           (88,857)     95,068      (6,211)      -           (1,388)      1,883       (495)        - 
- to 12-months 
 ECL (from Stage 
 2 and Stage 3 
 to Stage 1)        973          (14,096)    13,123       -           9,034        (267)       (8,767)      - 
New originated 
 or purchased       680,196      -           -            680,196     (2,352)      -           -            (2,352) 
Derecognised 
 during 
 the period         (244,255)    (2,570)     (16,907)     (263,732)   (1,227)      (47)        (7,778)      (9,052) 
Net repayments      (205,683)    (63,554)    (27,631)     (296,868)   -            -           -            - 
Net 
 re-measurement 
 due to stage 
 transfers 
 and risk 
 parameters 
 changes            -            -           -            -           (12,726)     (1,135)     (7,955)      (21,816) 
 
Movements without impact on credit loss allowance 
 charge for the period: 
Re-segmentation     90,053       19,704      1,865        111,622     322          91          1,865        2,278 
Net write-offs      -            -           (1)          (1)         -            -           900          900 
Modification        273          563         623          1,459       -            -           -            - 
Foreign Exchange 
 movements          (164,035)    (45,374)    (3,504)      (212,913)   (529)        (113)       (349)        (991) 
Other movements     -            -           -            -           -            -           -            - 
 
 
At 30 June 2021     4,898,747    825,566     127,321      5,851,634   46,079       8,035       23,910       78,024 
 
 
 
Corporate loans      Gross carrying amount                             Credit loss allowance 
                     Stage        Stage       Stage                    Stage        Stage       Stage 
                      1            2           3                        1            2           3 
                                               (lifetime                             (lifetime   (lifetime 
                                   (lifetime    ECL for                               ECL         ECL for 
 In thousands of      (12-months    ECL for     credit                  (12-months    for         credit 
  GEL                  ECL)         SICR)       im-paired)  Total        ECL)         SICR)       im-paired)  Total 
 
At 1 January 2020    4,434,685    104,409     121,379       4,660,473  39,153       1,969       39,628        80,750 
 
Transfers: 
- to lifetime (from 
 Stage 1 and Stage 
 3 to Stage 2)        (363,236)    366,356     (3,120)       -          (3,171)      3,253       (82)          - 
- to defaulted 
 (from 
 Stage 1 and Stage 
 2 to Stage 3)        (32,464)     (13,190)    45,654        -          (163)        (1,305)     1,468         - 
- to 12-months ECL 
 (from Stage 2 and 
 Stage 3 to Stage 
 1)                   11,288       (11,288)    -             -          166          (166)       -             - 
New originated or 
 purchased            469,844      -           -             469,844    9,512        -           -             9,512 
Derecognised during 
 the period           (99,799)     (55)        (2,862)      (102,716)   (3,987)      (11)        (1,071)       (5,069) 
Net repayments        (200,350)    (3,037)     (5,624)      (209,011)   -            -           -             - 
Re-segmentation       27,220       -           -             27,220     91           -           -             91 
Net Write-offs        -            -           -             -          -            -           125           125 
Net re-measurement 
 due to stage 
 transfers 
 and risk 
 parameters 
 changes              -            -           -             -          4,870        2,071       11,011        17,952 
Modifications         (2,091)      (728)       132           (2,687)    -            -           -             - 
Foreign exchange 
 movements            196,905      21,997      8,538         227,440    2,043        197         2,951         5,191 
 
At 30 June 2020      4,442,002    464,464     164,097       5,070,563  48,514       6,008       54,030        108,552 
 
   8       Loans and Advances to Customers (Continued) 
 
 
 
 Loans to micro,     Gross carrying amount                             Credit loss allowance 
 small and medium 
 enterprises 
                   Stage        Stage       Stage                    Stage        Stage       Stage 
                    1            2           3                        1            2           3 
                                             (lifetime                                         (lifetime 
                                 (lifetime   ECL for                               (lifetime   ECL for 
 In thousands of    (12-months    ECL for    credit                   (12-months    ECL for    credit 
  GEL                ECL)         SICR)      im-paired)  Total         ECL)         SICR)      im-paired)  Total 
 
At 1 January 2021   2,661,786    631,347     262,951      3,556,084   24,490       46,852      88,567       159,909 
Movements with impact on credit loss allowance 
 charge for the period: 
Transfers: 
- to lifetime 
 (from 
 Stage 1 and 
 Stage 
 3 to Stage 2)      243,352      (243,352)   -            -           12,810       (12,810)    -            - 
- to defaulted 
 (from 
 Stage 1 and 
 Stage 
 2 to Stage 3)      (150,051)    162,650     (12,599)     -           (1,342)      6,061       (4,719)      - 
- to 12-months 
 ECL 
 (from Stage 2 
 and 
 Stage 3 to Stage 
 1)                 (20,344)     (35,602)    55,946       -           (4,085)      (5,521)     9,606        - 
New originated or 
 purchased          821,123      -           -            821,123     9,004        -           -            9,004 
Derecognised 
 during 
 the period         (200,535)    (35,251)    (9,958)      (245,744)   (306)        (1,409)     (4,624)      (6,339) 
Net repayments      (195,150)    (17,612)    (18,640)     (231,402)   -            -           -            - 
Net 
 re-measurement 
 due to stage 
 transfers 
 and risk 
 parameters 
 changes            -            -           -            -           (18,909)     (4,650)     11,207       (12,352) 
 
Movements without impact on credit loss allowance 
 charge for the period: 
Re-segmentation     (58,422)     9,423       (1,346)      (50,345)    (294)        521         (1,768)      (1,541) 
Net Write-offs      -            -           (22,148)     (22,148)    -            -           (17,098)     (17,098) 
Modifications       673          210         279          1,162       -            -           -            - 
Foreign exchange 
 movements          (76,541)     (13,331)    (7,810)      (97,682)    (172)        (179)        (1,359)      (1,710) 
Other movements     6            131         3,588        3,725       -            -           -           - 
 
At 30 June 2021     3,025,897    458,613     250,263      3,734,773   21,196       28,865      79,812       129,873 
 
Loans to micro, 
 small and medium 
 enterprises         Gross carrying amount                             Credit loss allowance 
                   Stage        Stage       Stage                    Stage        Stage       Stage 
                    1            2           3                        1            2           3 
                                             (lifetime                             (lifetime   (lifetime 
                                 (lifetime   ECL for                                ECL        ECL for 
 In thousands of    (12-months    ECL for    credit                   (12-months    for        credit 
  GEL                ECL)         SICR)      im-paired)  Total         ECL)         SICR)      im-paired)  Total 
 
At 1 January 2020  2,650,261    204,699     93,319       2,948,279   18,341       18,593      29,211       66,145 
 
Transfers: 
- to lifetime 
 (from 
 Stage 1 and 
 Stage 
 3 to Stage 2)      (292,430)    297,657     (5,227)      -           (3,762)      5,231       (1,469)      - 
- to defaulted 
 (from 
 Stage 1 and 
 Stage 
 2 to Stage 3)      (7,278)      (22,749)    30,027             -     (488)        (2,831)     3,319        - 
- to 12-months 
 ECL 
 (from Stage 2 
 and 
 Stage 3 to Stage 
 1)                 32,938       (32,938)    -            -           3,287        (3,287)     -            - 
New originated or 
 purchased          476,744      -           -            476,744     11,170       -           -            11,170 
Derecognised 
 during 
 the period        (194,995)    (14,872)     (2,663)     (212,530)    (3,239)      (1,155)     (1,069)      (5,463) 
Net repayments     (69,938)     (2,812)      (7,300)     (80,050)     -            -           -            - 
Re-segmentation     (28,301)     -           -           (28,301)     (91)         -           -            (91) 
Net write-offs      -            -           (8,725)      (8,725)     -            -           (5,504)      (5,504) 
Net 
 re-measurement 
 due to stage 
 transfers 
 and risk 
 parameters 
 changes            -            -           -            -           14,058       26,475      12,839       53,372 
Modification        (4,790)      (1,350)     (315)        (6,455)     -            -           -            - 
Foreign exchange 
 movements          90,073       15,440      4,542        110,055     876          1,160       1,058        3,094 
Other movements     112          46          6,931        7,089       -            -           -            - 
 
 
At 30 June 2020     2,652,396   443,121      110,589      3,206,106  40,152       44,186       38,385       122,723 
 
 
 
 
Consumer loans     Gross carrying amount                             Credit loss allowance 
                   Stage        Stage       Stage                    Stage        Stage       Stage 
                    1            2           3                        1            2           3 
                                             (lifetime                                         (lifetime 
                                 (lifetime   ECL for                               (lifetime   ECL for 
 In thousands of    (12-months    ECL for    credit                   (12-months    ECL for    credit 
  GEL               ECL)          SICR)      im-paired)  Total         ECL)         SICR)      im-paired)  Total 
 
At 1 January 2021   1,499,148    267,075     187,328      1,953,551   48,240       66,330      126,984      241,554 
Movements with impact on credit loss allowance 
 charge for the period: 
Transfers: 
- to lifetime 
 (from Stage 1 
 and Stage 3 to 
 Stage 2)           109,255      (109,255)   -            -           16,828       (16,828)    -            - 
- to defaulted 
 (from Stage 1 
 and Stage 2 to 
 Stage 3)           (103,770)    121,644     (17,874)     -           (6,994)      19,988      (12,994)     - 
- to 12-months 
 ECL (from Stage 
 2 and Stage 3 
 to Stage 1)        (24,762)     (42,815)    67,577       -           (9,538)      (13,084)    22,622       - 
New originated 
 or purchased       467,005      -           -            467,005     21,234       -           -            21,234 
Derecognised 
 during 
 the period         (127,652)    (13,609)    (15,632)     (156,893)   (304)        (3,282)     (8,754)      (12,340) 
Net repayments      (236,450)    (29,243)    (8,317)      (274,010)   -            -           -            - 
Net 
 re-measurement 
 due to stage 
 transfers 
 and risk 
 parameters 
 changes            -            -           -            -           (24,439)     650         32,539       8,750 
 
Movements without impact on credit loss allowance 
 charge for the period: 
Re-segmentation     (2,165)      (1,003)     (403)        (3,571)     (10)         (25)        (104)        (139) 
Net Write-offs      -            -           (84,905)     (84,905)    -            -           (76,815)     (76,815) 
Modification        1,378        223         627          2,228       -            -           -            - 
Foreign exchange 
 movements          (9,651)      (984)       (1,439)      (12,074)    (25)         (166)       (48)         (239) 
Other movements     291          517         302          1,110       -            -           -           - 
 
 
At 30 June 2021     1,572,627    192,550     127,264      1,892,441   44,992       53,583      83,430       182,005 
 
 
 
Consumer loans      Gross carrying amount                              Credit loss allowance 
                    Stage        Stage       Stage                     Stage        Stage       Stage 
                     1            2           3                         1            2           3 
                                              (lifetime                                          (lifetime 
                                  (lifetime    ECL for                               (lifetime    ECL for 
 In thousands of     (12-months    ECL for     credit                   (12-months    ECL for     credit 
  GEL                 ECL)         SICR)       im-paired)  Total         ECL)         SICR)       im-paired)  Total 
 
At 1 January 2020   1,593,262    216,817     73,927        1,884,006   36,724       52,439      44,793        133,956 
 
Transfers: 
- to lifetime 
 (from 
 Stage 1 and Stage 
 3 to Stage 2)       (189,868)    198,858     (8,990)       -           (19,486)     24,134      (4,648)       - 
- to defaulted 
 (from 
 Stage 1 and Stage 
 2 to Stage 3)       (11,156)    (21,424)     32,580        -           (1,239)      (5,796)     7,035         - 
- to 12-months ECL 
 (from Stage 2 and 
 Stage 3 to Stage 
 1)                  32,915      (32,651)     (264)         -           9,396        (9,181)     (215)         - 
New originated or 
 purchased           382,704       -           -            382,704     37,196        -           -            37,196 
Derecognised 
 during 
 the period          (163,490)   (22,160)     (3,519)       (189,169)   4,072        (7,201)     (1,733)       (4,862) 
Net repayments       (97,337)     1,813       (1,224)      (96,748)      -            -           -            - 
Re-segmentation      1,000         -           -            1,000        -            -           -            - 
Net write-offs        -            -         (32,569)      (32,569)      -            -         (28,706)      (28,706) 
Net re-measurement 
 due to stage 
 transfers 
 and risk 
 parameters 
 changes              -            -           -            -           10,830       55,436      21,913        88,179 
Modification         (9,293)      (2,879)     (323)        (12,495)      -            -           -            - 
Foreign exchange 
 movements           19,770       3,430       1,132         24,332      154          395         573           1,122 
Other movements      1,625        (853)       275           1,047        -            -           -            - 
 
At 30 June 2020     1,560,132    340,951     61,025        1,962,108   77,647       110,226     39,012        226,885 
 
 
Mortgage loans     Gross carrying amount                             Credit loss allowance 
                   Stage        Stage       Stage                    Stage        Stage       Stage 
                    1            2           3                        1            2           3 
                                             (lifetime                                         (lifetime 
                                 (lifetime   ECL for                               (lifetime    ECL for 
 In thousands of    (12-months    ECL for    credit                   (12-months    ECL for     credit 
  GEL               ECL)          SICR)      im-paired)  Total         ECL)         SICR)       im-paired)  Total 
 
At 1 January 2021   2,998,751    584,669     275,594      3,859,014   3,336        21,322      71,068        95,726 
Movements with impact on credit loss allowance 
 charge for the period: 
Transfers: 
- to lifetime 
 (from Stage 1 
 and Stage 3 to 
 Stage 2)           323,587      (323,587)   -            -           6,033        (6,033)     -             - 
- to defaulted 
 (from Stage 1 
 and Stage 2 to 
 Stage 3)           (165,197)    183,768     (18,571)     -           455          4,467       (4,922)       - 
- to 12-months 
 ECL (from Stage 
 2 and Stage 3 
 to Stage 1)        (26,162)     (21,457)    47,619       -           (3,649)      (1,608)     5,257         - 
New originated 
 or purchased       502,412      -           -            502,412     1,071        -           -             1,071 
Derecognised 
 during 
 the period         (64,248)     (35,203)    (17,465)     (116,916)   1,741        (814)       (6,621)       (5,694) 
Net repayments      (234,579)    (23,060)    (17,314)     (274,953)   -            -           -             - 
Net 
 re-measurement 
 due to stage 
 transfers 
 and risk 
 parameters 
 changes            -            -           -            -           (6,513)      (6,211)     10,047        (2,677) 
 
Movements without impact on credit loss allowance 
 charge for the period: 
Re-segmentation     (29,466)     (28,124)    (116)        (57,706)    (18)         (587)       7             (598) 
Net write-offs      -            -           (267)        (267)       -            -           675           675 
Modification        913          72          189          1,174       -            -           -             - 
Foreign exchange 
 movements          (94,496)     (11,073)    (11,111)     (116,680)   (82)         (185)       (180)         (447) 
 
At 30 June 2021     3,211,515    326,005     258,558      3,796,078   2,374        10,351      75,331        88,056 
 
 
 
Mortgage loans       Gross carrying amount                             Credit loss allowance 
                     Stage        Stage       Stage                    Stage        Stage       Stage 
                      1            2           3                        1            2           3 
                                               (lifetime                             (lifetime   (lifetime 
                                   (lifetime    ECL for                               ECL         ECL for 
 In thousands of      (12-months    ECL for     credit                  (12-months    for         credit 
  GEL                  ECL)         SICR)       im-paired)  Total        ECL)         SICR)       im-paired)  Total 
 
At 1 January 2020    2,873,726    231,169     64,302        3,169,197  1,471        9,686       20,548        31,705 
 
Transfers: 
- to lifetime 
 (from Stage 1 
 and Stage 3 to 
 Stage 2)             (439,319)    450,378     (11,059)      -          (796)        4,048       (3,252)       - 
- to defaulted 
 (from Stage 1 
 and Stage 2 to 
 Stage 3)             (2,175)      (10,293)    12,468        -          (184)        (594)       778           - 
- to 12-months 
 ECL (from Stage 
 2 and Stage 3 
 to Stage 1)          26,832       (26,832)    -             -          562          (562)       -             - 
New originated 
 or purchased         250,303      -           -             250,303    517          -           -             517 
Derecognised during 
 the period           (53,086)     (22,854)    123           (75,817)   445          (871)       (862)         (1,288) 
Net repayments        (94,357)     (61)        (1,742)       (96,160)   -            -           -             - 
Re-segmentation       81           -           -             81         -            -           -             - 
Net write-offs        -            -           (379)         (379)      -            -           (115)         (115) 
Net re-measurement 
 due to stage 
 transfers 
 and risk 
 parameters 
 changes              -            -           -             -          7,412        22,448      7,095         36,955 
Modification          (5,218)      (1,928)     (341)         (7,487)    -            -           -             - 
Foreign exchange 
 movements            120,909      30,746      3,663         155,318    395          1,678       1,398         3,471 
Other movements       295          (20)        1,284         1,559      -            -           -             - 
 
At 30 June 2020      2,677,991    650,305     68,319        3,396,615  9,822        35,833      25,590        71,245 
 
   8       Loans and Advances to Customers (Continued) 

The credit quality of loans to customers carried at amortised cost is as follows at 30 June 2021:

 
                        Stage 1      Stage 2         Stage 3 
                                                      (lifetime ECL 
In thousands of          (12-months   (lifetime ECL    for credit 
 GEL                      ECL)         for SICR)       impaired)     Total 
 
Corporate loans 
 risk category 
- Very low               4,828,391    11,095           -              4,839,486 
- Low                    68,770       705,079          -              773,849 
- Moderate               1,586        109,392          -              110,978 
- High                    -            -               -              - 
- Default                 -            -              127,321         127,321 
Gross carrying amount    4,898,747    825,566         127,321         5,851,634 
Credit loss allowance    (46,079)     (8,035)         (23,910)        (78,024) 
Carrying amount          4,852,668    817,531         103,411         5,773,610 
 
Consumer loans risk 
 category 
- Very low               1,023,448    17,059          1,076           1,041,583 
- Low                    461,524      36,248           -              497,772 
- Moderate               87,655       110,724          -              198,379 
- High                    -           28,519           -              28,519 
- Default                 -            -              126,188         126,188 
Gross carrying amount    1,572,627    192,550         127,264         1,892,441 
Credit loss allowance    (44,992)     (53,583)        (83,430)        (182,005) 
Carrying amount          1,527,635    138,967         43,834          1,710,436 
 
Mortgage loans risk 
 category 
- Very low               2,877,349    18,835          912             2,897,096 
- Low                    307,024      193,247          -              500,271 
- Moderate               27,142       99,408           -              126,550 
- High                    -           14,515           -              14,515 
- Default                 -            -              257,646         257,646 
Gross carrying amount    3,211,515    326,005         258,558         3,796,078 
Credit loss allowance    (2,374)      (10,351)        (75,331)        (88,056) 
Carrying amount          3,209,141    315,654         183,227         3,708,022 
 
Loans to MSME risk 
 category 
- Very low               2,475,428    73,393          8,826           2,557,647 
- Low                    538,428      275,104          -              813,532 
- Moderate               12,041       93,130           -              105,171 
- High                    -           16,986           -              16,986 
- Default                 -            -              241,437         241,437 
Gross carrying amount    3,025,897    458,613         250,263         3,734,773 
Credit loss allowance    (21,196)     (28,865)        (79,812)        (129,873) 
Carrying amount          3,004,701    429,748         170,451         3,604,900 
 
   8       Loans and Advances to Customers (Continued) 

The credit quality of loans to customers carried at amortised cost is as follows at 31 December 2020:

 
                        31 December 2020                                       Total 
in thousands of GEL     Stage 1       Stage 2          Stage 3 
                          (12-months    (lifetime        (lifetime ECL 
                          ECL)          ECL for SICR)    for credit impaired) 
Corporate loans risk 
 category 
- Very low               4,324,191     6,178            -                       4,330,369 
- Low                    248,246       913,832          -                       1,162,078 
- Moderate               1,697         35,177           -                       36,874 
- Default                -             -                161,428                 161,428 
Gross carrying amount    4,574,134     955,187          161,428                 5,690,749 
Credit loss allowance    (53,995)      (8,194)          (45,452)                (107,641) 
Carrying amount          4,520,139     946,993          115,976                 5,583,108 
Consumer loans risk 
 category 
- Very low               1,010,723     20,041           -                       1,030,764 
- Low                    453,899       64,950           -                       518,849 
- Moderate               91,937        159,726          -                       251,663 
- High                   -             22,579           -                       22,579 
- Default                -             -                187,730                 187,730 
Gross carrying amount    1,556,559     267,296          187,730                 2,011,585 
Credit loss allowance    (48,372)      (66,352)         (127,101)               (241,825) 
Carrying amount          1,508,187     200,944          60,629                  1,769,760 
Mortgage loans risk 
 category 
- Very low               2,852,661     97,936           -                       2,950,597 
- Low                    186,597       334,579          -                       521,176 
- Moderate               28,822        154,372          -                       183,194 
- High                   -             7,409            -                       7,409 
- Default                -             -                279,726                 279,726 
Gross carrying amount    3,068,080     594,296          279,726                 3,942,102 
Credit loss allowance    (3,371)       (21,516)         (71,983)                (96,870) 
Carrying amount          3,064,709     572,780          207,743                 3,845,232 
Loans to MSME risk 
 category 
- Very low               2,252,448     145,445          -                       2,397,893 
- Low                    395,733       348,147          -                       743,880 
- Moderate               13,605        121,925          -                       135,530 
- High                   -             15,830           -                       15,830 
- Default                -             -                262,951                 262,951 
Gross carrying amount    2,661,786     631,347          262,951                 3,556,084 
Credit loss allowance    (24,490)      (46,853)         (88,567)                (159,910) 
Carrying amount          2,637,296    584,494          174,384                  3,396,174 
 

The contractual amounts outstanding on loans to customers that have been written off during the period partially or fully, but are still subject to enforcement activity was principal amount GEL 6.6 million (31 December 20 20 : GEL 48 million), accrued interest GEL 1.6 million (31 December 2020: GEL 11 million) and accrued off balance sheet penalty GEL 111 million (31 December 2020: GEL 135 million).

   8       Loans and Advances to Customers (Continued) 

The table below presents the economic sector risk concentrations within the customer loan portfolio:

 
                                 30 June 2021      31 December 2020 
In thousands of GEL              Amount      %     Amount        % 
 
Individual                       5,817,104   38%   5,948,346     39% 
Real Estate                      1,462,407   10%   1,460,821     10% 
Hospitality, Restaurants 
 & Leisure                       1,406,877   9%    1,368,887     9% 
Energy & Utilities               1,092,806   7%    1,078,504     7% 
Food Industry                    715,320     5%    898,597       6% 
Trade                            745,773     5%    708,559       4% 
Agriculture                      704,309     5%    667,904       4% 
Construction                     733,874     5%    642,024       4% 
Healthcare                       383,879     2%    369,645       2% 
Services                         299,760     2%    268,982       2% 
Automotive                       305,644     2%    263,276       2% 
Metals and Mining                191,369     1%    229,368       2% 
Pawn Shops                       157,476     1%    168,571       1% 
Transportation                   159,820     1%    159,857       1% 
Financial Services               109,928     1%    78,923        1% 
Communication                    42,724      0%    46,406        0% 
Other                            945,856     6%    841,850       6% 
 
 
Total gross loans and advances 
 to customers                    15,274,926  100%  15,200,520    100% 
 
 

As 30 June 2021, the Group had 314 borrowers (31 December 2020: 307 borrowers) with the aggregated gross loan amounts above GEL 5,000 thousand. The total aggregated amount of these loans was GEL 5,535,718 thousand (31 December 2020: GEL 5,598,041 thousand) or 36.3% of the gross loan portfolio (31 December 2020: 36.8%).

The amount and type of collateral required depends 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. 

In March 2021 the Bank reviewed its definition of secured and the types of collateral and the haircuts were modified to bring them into line with the IFRS loan loss provisioning methodology.

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 following table illustrates the effect of collateral as 30 June 2021:

 
                        Over-collateralised                             Under-collateralised 
                         Assets                                          Assets 
                        Carrying value of the   Fair value of           Carrying value of the   Fair value of 
  In thousands of GEL   assets                  collateral              assets                  collateral 
 
Corporate loans         3,614,712               7,994,167               2,236,922               878,015 
Consumer loans          636,027                 1,731,923               1,256,414               23,490 
Mortgage loans          3,448,586               7,367,097               347,492                 131,231 
Loans to micro, small 
 and medium 
 enterprises            2,829,915               6,571,834               904,858                 364,678 
 
 
Total                   10,529,240              23,665,021              4,745,686               1,397,414 
 
 
   8       Loans and Advances to Customers (Continued) 

The following table illustrated the effect of collateral as 31 December 2020:

 
                        Over-collateralised                             Under-collateralised 
                         Assets                                          Assets 
                        Carrying value of the   Fair value of           Carrying value of the   Fair value of 
  In thousands of GEL   assets                  collateral              assets                  collateral 
 
Corporate loans          4,603,143               9,630,768               1,087,606               477,701 
Consumer loans           869,317                 2,231,778               1,142,268               20,474 
Mortgage loans           3,703,164               7,915,172               238,938                 158,292 
Loans to micro, small 
 and medium 
 enterprises             3,114,829               7,102,534               441,255                 157,047 
 
 
Total                    12,290,453              26,880,252              2,910,067               813,514 
 
 

The effect of collateral by classes as at 30 June 2021[33]:

 
                      Over-collateralised          Under-collateralised 
                       Assets                       Assets 
in thousands of GEL   Carrying     Fair value      Carrying     Fair value 
                       value of     of collateral   value of     of collateral 
                       the assets                   the assets 
Cash Cover            217,499      167,808         133,111      133,072 
Gold                  115,237      142,999         23,043       23,043 
Inventory             320,546      1,121,494       87,815       87,786 
Real Estate           9,875,958    22,232,720      1,155,410    1,153,513 
Unsecured              -            -              3,346,307     - 
Total                 10,529,240   23,665,021      4,745,686    1,397,414 
 
 
The effect of collateral by classes as at 31 December 2020: 
                          Over-collateralised          Under-collateralised 
                           Assets                       Assets 
 in thousands of GEL      Carrying     Fair value      Carrying     Fair value 
                           value of     of collateral   value of     of collateral 
                           the assets                   the assets 
 Cash Cover               332,438      358,847         12,937       39,109 
 Gold                     115,139      158,008         37,856       37,946 
 Inventory                753,658      2,149,849       24,536       24,498 
 Other                    137,749      849,249         7,960        20,313 
 Real Estate              10,697,040   23,217,956      428,092      395,398 
 Third party guarantees   254,429      146,343         310,272      296,250 
 Unsecured                -            -               2,088,414    - 
 Total                    12,290,453   26,880,252      2,910,067    813,514 
 

The financial effect of collateral is determined by comparing the fair value of collateral to outstanding gross loans and advances in the reporting date.

   8       Loans and Advances to Customers (Continued) 

Stage 3 loans presented by segments and collateral classes as at 30 June 2021 are the following[34]:

 
 
                                                     Loans to 
                                                      micro, small 
                                                      and medium 
                                                      enterprises 
in thousands of GEL   Corporate  Consumer  Mortgage 
Cash Cover             20         39        39        87 
Gold                   -          582       -         311 
Inventory              6,472      12        -         1,897 
Real Estate            101,994    57,298    249,552   219,829 
Unsecured              18,834     69,334   8,967      28,140 
Total                  127,320    127,265   258,558   250,264 
 

Stage 3 loans presented by segments and collateral classes as at 31 December 2020 are the following:

 
 
in thousands of GEL      Corporate  Consumer         Mortgage                   Loans to 
                                                                                 micro, small 
                                                                                 and medium 
                                                                                 enterprises 
Cash Cover                 21                    36                         38               47 
Gold                      -          1,717            -                          430 
Inventory                 15,991     8,909            185                        4,250 
Real Estate               97,824     65,645           273,577                    231,925 
Third Party Guarantees    5,013      968              2,308                      7,347 
Unsecured                 42,579     110,455          3,618                      18,898 
Other                     -          -                -                          54 
Total                    161,428    187,730          279,726                    262,951 
 

The gross carrying amount of loans by stages, that have been modified since initial recognition and for which stages have changed during the reporting period:

 
in thousands of GEL   30 June 2021  31 December 
                                     2020 
Stage 1               71,686        737,197 
Stage 2               270,499       1,602,759 
Stage 3               578,999       293,205 
Total                 921,184       2,633,161 
 

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.

In some instances, where the discounted recovery from the liquidation of collateral (adjusted for the liquidity haircut and discounted for the period of expected selling time) is larger than the estimated exposure at default, no credit loss allowance is recognised. 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 653,856 thousand and GEL 564,701 thousand, as of 30 June 2021 and 31 December 2020, respectively. These third-party guarantees are not taken into consideration when assessing the impairment allowance. Information on related party balances is disclosed in Note 28.

For the year ended 30 June 2021 net (losses)/ gains recognised in profit or loss on modifications of loans with lifetime ECL that did not lead to derecognition was GEL 8,382,717 thousand (30 June 2020: GEL 3,081,142 thousand).

   9       Investment Securities Measured at Fair Value through Other Comprehensive Income 
 
in thousands of GEL                             30 June    31 December 
                                                 2021       2020 
Corporate bonds                                 668,132     666,133 
Ministry of Finance of Georgia treasury bills   1,354,972   839,839 
Ministry of Finance of Uzbekistan treasury 
 bills                                          1,807       1,951 
Certificates of deposit of the National Bank 
 of Georgia                                      -          21,687 
Less: credit loss allowance by stages           (3,582)     (3,258) 
Stage 1                                         (3,582)    (3,258) 
Stage 2                                         -          - 
Stage 3                                         -          - 
Total debt securities                           2,021,329   1,526,352 
Corporate shares - unquoted                     1,056      916 
Total investment securities measured at fair 
 value through other comprehensive income       2,022,385   1,527,268 
 

All debt securities in 2021 and 2020 except for corporate bonds and Uzbekistan treasury bills are issued by the Government of Georgia and National Bank of Georgia. Country rating for Georgia stands at BB with negative outlook (as affirmed by Fitch Rating in February 2021). Latest country rating for Uzbekistan stands at BB-. 67% of corporate bonds are issued by triple A rated international financial institutions, 33% of corporate bonds are issued at BB- rated corporations. The investees have not published recent financial information about their operations, their shares are not quoted and recent trade prices are not publicly accessible.

The Group designated investments in corporate shares disclosed in the above table as equity securities at FVOCI. 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 (for more details please refer to note 2).

As at 30 June 2021 investment securities measured at fair value through other comprehensive income carried at GEL 733,306 thousand have been pledged with local banks or financial institutions as a collateral with respect to other borrowed funds (2020: GEL 699,483 thousand).

As at 30 June 2021 the principal equity investment securities measured at fair value through other comprehensive income are as follows:

 
in thousands of GEL      Nature of business     Country of      30 June  31 December 
                                                 registration    2021     2020 
                                                Hilversum, 
GRDC N.V                 Property development    Netherlands    365      365 
Other                    Various                Various         691      551 
Total corporate shares                                          1,056    916 
 

The movements in investment securities measured at fair value through other comprehensive income are as follows:

 
in thousands of GEL                             Note  30 June    30 June 2020 
                                                       2021 
Carrying amount as of 31 December 2020                1,527,268  986,730 
Transfer from investment securities measured 
 at amortised cost due to changes in business 
 model[35]                                            1,059,946  - 
Revaluation at transfer date                          26,062     - 
Carrying amount as of 1 January                       2,613,276  986,730 
Transfer from investment securities measured 
 at amortised cost                                    -          15,000 
Purchases                                             196,871    251,484 
Disposals                                             (402,255)  (67,301) 
Redemption at maturity                                (355,328)  (113,401) 
Revaluation                                           (34,694)   4,984 
Interest income accrued                         20    98,500     47,406 
Interest income received                              (89,708)   (43,871) 
Effect of translation to presentation 
 currency                                             (3,953)    3,066 
Change in credit loss allowance                       (324)      (1,577) 
Carrying amount as of period end                      2,022,385  1,082,520 
 
   10     Premises, Equipment and Intangible Assets 
 
                               Land,          Office and      Construction    Total          Intangible     Total 
                               Premises and   Other           in              premises and   Assets 
                               leasehold      equipment*      progress        equipment 
In thousands of GEL            improvements 
 
C arrying amount at 1 January 
 2020                          162,637        89,890          82,201          334,728        167,597        502,325 
 
Additions                       1,101          14,831          9,702           25,634         37,417         63,051 
Transfers                       -              (779)           779             -              -              - 
Disposals                       (1,044)        (732)           (175)           (1,951)        -              (1,951) 
Transfer to Inventory           (388)          (39)            -               (427)          -              (427) 
Transfer to financial leases 
 and repossessed assets         -              (198)           -               (198)          -              (198) 
(Impairment charge)/reversal 
 of impairment to profit or 
 loss                           -              (94)            -               (94)           -              (94) 
Depreciation/amortisation 
 charge                         (2,782)        (10,893)        -               (13,675)       (10,473)       (24,148) 
Elimination of accumulated 
 depreciation/amortisation on 
 disposals                      99             1,115           -               1,214          44             1,258 
Effect of translation to 
 presentation currency Cost     (55)           (218)           -               (273)          371            98 
Effect of translation to 
 presentation currency 
 Accumulated depreciation       56             50              -               106            (125)          (19) 
Transfer from Provision for 
 other assets impairment        -              -               -               -              (142)          (142) 
 
Carrying amount at 30 June 
 2020                           159,624        92,933          92,507          345,064        194,689        539,753 
 
Cost at 30 June 2020            205,693        244,842         92,507          543,042        278,256        821,298 
Accumulated 
 depreciation/amortisation 
 including accumulated 
 impairment loss at 30 June 
 2020                           (46,069)       (151,909)       -               (197,978)      (83,567)       (281,545) 
 
 
C arrying amount at 1 January 2021               163,747    105,453    103,756   372,956    239,523    612,479 
Additions                                         4,605      16,364     6,869     27,838     60,811     88,649 
Transfers                                         2,708      (32)       (2,708)   (32)       32         - 
Disposals                                         (16,306)   (4,975)    (1,649)   (22,930)   (561)      (23,491) 
Transfer to financial leases and repossessed 
 assets                                           (614)      (1,887)    -         (2,501)    -          (2,501) 
(Impairment charge)/reversal of impairment to 
 profit or loss                                   -          (3)        -         (3)        -          (3) 
Depreciation/amortisation charge                 (2,789)    (11,226)    -         (14,015)   (15,164)   (29,179) 
Elimination of accumulated 
 depreciation/amortisation on disposals           7,141      3,385      -         10,526     9          10,535 
Effect of translation to presentation currency 
 Cost                                             (58)       (75)       -         (133)      (134)      (267) 
Effect of translation to presentation currency 
 accumulated depreciation                         44         159        -         203        39         242 
 
Carrying amount at 30 June 2021                   158,478    107,163    106,268   371,909    284,555    656,464 
 
Cost at 30 June 2021                              202,731    273,380    106,268   582,379    396,952    979,331 
Accumulated depreciation/amortisation including 
 accumulated impairment loss at 30 June 2021     (44,253)   (166,217)  -         (210,470)  (112,397)  (322,867) 
 
 

*Office and other equipment include furniture and fixtures, computer and office equipment, motor vehicles as well as other equipment.

On 18 June 2021, the Group sold land and buildings, where some of its back office functions is currently located, to IG Development LLC for cash consideration of USD 25 million. USD 5 million (GEL 16.5 million) has already been received, while the remaining USD 20 million (GEL 63.2 million) will be received until 30 April 2022 . Selling of those assets was part of the Group's plan to gradually prepare for relocation to new headquarter, which is in the process of construction. Under the existing plan the Group will gradually discharge the occupied part of the buildings up until 30 April 2022 and staff will be distributed to existing offices before the new headquarter will be completed. Net carrying amount of disposed properties was GEL 37,416 thousand, out of which net balance disposed from premises and equipment were GEL 5,442 thousand, while the remaining part was disposed from investment property. Net gain on disposal from the sale was recognised as part of other operating income in the condensed consolidated interim statement of profit or loss in the amount of GEL 26,294 thousand.

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.

   11     Due to Credit Institutions 
 
In thousands of GEL                                                       30 June 2021  31 December 2020 
 
  Due to other banks 
Correspondent accounts and overnight placements                           78,617         43,298 
Deposits from banks                                                       76,863         97,496 
Total due to other banks                                                  155,480        140,794 
 
Other borrowed funds 
Borrowings from foreign banks and international financial institutions    1,773,377      2,370,656 
Borrowings from other financial institutions                              59,308         58,949 
Borrowings from other local banks and financial institutions              8,137          32,684 
National Bank of Georgia                                                  1,486,528      1,883,290 
Total other borrowed funds                                                3,327,350     4,345,579 
 
Total amounts due to credit institutions                                  3,482,830     4,486,373 
 

As of 30 June 2021 for the purposes of maturity analysis of financial liabilities (Note 25) the above-mentioned loans are included within the amounts for which repayment is expected within 3 months.

   12     Customer Accounts 
 
In thousands of GEL              30 June 2021  31 December 2020 
 
State and public organisations 
- Current/settlement accounts    546,104        504,019 
- Term deposits                  318,318        590,426 
 
Other legal entities 
- Current/settlement accounts    3,643,908      3,490,836 
- Term deposits                  911,195        722,710 
 
Individuals 
- Current/demand accounts        3,723,253      3,487,017 
- Term deposits                  3,727,640      3,777,720 
 
 
Total customer accounts          12,870,418    12,572,728 
 
 

State and public organisations include government owned profit orientated businesses.

   12     Customer Accounts (Continued) 

Economic sector concentrations within customer accounts are as follows:

 
                          30 June 2021      31 December 2020 
 
In thousands of GEL       Amount         %    Amount        % 
 
Individual                7,450,894   58%   7,264,737     58% 
Financial services        1,051,494   8%    709,943       6% 
Trade                     953,248     7%    873,995       7% 
Services                  569,059     4%    526,227       4% 
Construction              502,976     4%    610,321       5% 
Government sector         470,491     4%    647,856       5% 
Real estate               336,247     3%    323,547       3% 
Energy & utilities        299,352     2%    384,660       3% 
Transportation            296,701     2%    332,850       2% 
Healthcare                164,026     1%    131,936       1% 
Hospitality & leisure     113,198     1%    99,770        1% 
Agriculture               58,104      1%    58,005        0% 
Metals and mining         23,446      0%    18,458        0% 
Other                     581,182     5%    590,423       5% 
 
 
Total customer accounts   12,870,418  100%  12,572,728    100% 
 
 

As at 30 June 202 1 the Group had 461 customers (31 December 2020: 452 customers) with balances above GEL 3,000 thousand. Their aggregate balance was GEL 5,723,401 thousand (31 December 2020: GEL 5, 569,608 thousand) or 43.7% of total customer accounts (31 December 2020: 44.0%).

As at 30 June 2021 included in customer accounts are deposits of GEL 9,579 thousand and GEL 73,634 thousand (31 December 2020: GEL 4,903 thousand and GEL 94,348 thousand) held as collateral for irrevocable commitments under letters of credit and guarantees issued, respectively. Refer to Note 25. As at 30 June 2021, deposits held as collateral for loans to customers amounted to GEL 499,833 thousand (31 December 2020: GEL 512,637 thousand).

Refer to Note 27 for the disclosure of the fair value of customer accounts. Information on related party balances is disclosed in Note 28.

   13      Provisions for Performance Guarantees, Credit Related Commitment Liabilities and Charges 

Movements in provisions for performance guarantees, credit related commitment and liabilities and charges are as follows:

 
In thousands of GEL                            Perfor-mance guarantees  Credit related commitments  Other     Total 
 
Carrying amount as of 1 January 2021             5,603                    4,247                       15,485    25,335 
 
Charges less releases recorded in profit or 
 loss                                           (1,566)                  (364)                      (1,682)   (3,612) 
Effect of translation to presentation 
 currency                                       (196)                    (92)                       -         (288) 
 
 
Carrying amount at 30 June 2021                 3,841                    3,791                       13,803    21,435 
 
 
 
In thousands of GEL                                Perfor-mance guarantees  Credit related commitments  Other   Tota l 
Carrying amount as of 1 January 2020               7,466                    4,511                       11,151  23,128 
 
Charges less releases recorded in profit or loss   (1,900)                  2,697                       1,280   2,077 
Effect of translation to presentation currency     400                      -                           (47)    353 
 
 
Carrying amount at 30 June 2020                    5,966                    7,208                       12,384  25,558 
 
 

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 2 and 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 Group distinguishes between revocable and irrevocable loan commitments. For revocable commitments, the Bank does not create an impairment allowance. As for the irrevocable undisbursed exposures the Group 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 Group applies the same impairment framework approach as the one used for the respective type of on balance exposures.

Charges 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 1,691 thousand (30 June 2020: GEL 1,335 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 payables in the amount of GEL 9 thousand (June 2020: recovery of GEL 77 thousand), that are included in charges less releases recorded in profit or loss for "Other" provision.

   14     Debt Securities in Issue 
 
                              Currency   Carrying   Maturity   Coupon rate   Effective 
                                          amount     Date                     interest 
                                          as of                               rate 
                                          30 June 
in thousands of GEL                       2021 
Bonds issued on Irish Stock 
 Exchange                     USD        934,513    6/19/2024  5.8%          6.4% 
Bonds issued on Irish Stock 
 Exchange                     USD        398,442    10/3/2024  10.8%         11.4% 
Private placement             USD        42,487     5/27/2023  8.2%          9.0% 
Private placement             USD        31,654     3/19/2023  6.5%          7.1% 
Bonds issued on Georgian 
 Stock Exchange               GEL        38,518     3/20/2023  TIBR3M+3.25%  12.5% 
Total debt securities in 
 issue                                   1,445,614 
 
   14     Debt Securities in Issue (Continued) 
 
                              Currency   Carrying      Maturity   Coupon rate   Effective 
                                          amount        Date                     interest 
                                          as of                                  rate 
                                          31 December 
in thousands of GEL                       2020 
Bonds issued on Irish Stock 
 Exchange                     USD        966,793       6/19/2024  5.8%          6.4% 
Bonds issued on Irish Stock 
 Exchange                     USD        414,216       10/3/2024  10.8%         11.4% 
Private placement             USD        44,467        5/27/2023  8.2%          9.0% 
Private placement             USD        32,517        3/19/2023  6.5%          7.1% 
Bonds issued on Georgian 
 Stock Exchange               GEL        38,504        3/20/2023  TIBR3M+3.25%  12.5% 
Total debt securities in 
 issue                                   1,496,497 
 

On 27 May 2020 the TBC Bank Group PLC completed the transaction of a USD 15 million 3-year 8.2% senior unsecured bonds issue (the "Notes"). The private placement is direct, unsecured and unsubordinated obligations of the Company.

On 20 March 2020, TBC Leasing with the help of TBC Capital placed senior secured bonds of amount GEL 58.4 million on the Georgian Stock Exchange. The percentage of securities is variable, 3.25% added to the 3-month interbank rate in Tbilisi. Fitch rates the bonds 'BB-'.

On 19 March 2020 the TBC Bank Group PLC completed the transaction of a debut USD 10 million 3-year 6.45% senior unsecured bonds issue. The private placement is direct, unsecured and unsubordinated obligations of the Company.

   15     Subordinated Debt 

As 30 June 2021, subordinated debt comprised of:

 
                              Grant       Maturity    Currency   Outstanding   Outstanding 
                               Date        Date                   amount        amount 
                                                                  in original   in GEL 
In thousands of GEL                                               currency 
BlueOrchard Microfinance 
 Fund                         14-Dec-18   14-Dec-25   USD         14,954        47,258 
BlueOrchard Microfinance 
 Fund                         14-Dec-18   14-Dec-28   USD         14,944        47,226 
ResponsAbility SICAV (Lux) 
 - Financial Inclusion 
 Fund                         30-Nov-18   30-Nov-28   USD         3,114         9,840 
European Fund for Southeast 
 Europe                       18-Dec-15   16-Dec-30   USD         7,593         23,997 
European Fund for Southeast 
 Europe                       15-Mar-16   17-Mar-31   USD         7,591         23,991 
European Fund for Southeast 
 Europe                       21-Dec-18   21-Dec-28   USD         20,074        63,439 
Green for Growth Fund         18-Dec-15   16-Dec-30   USD         15,187        47,996 
Micro and SME Finance 
 Leaders                      30-Nov-18   30-Nov-28   USD         1,004         3,174 
Global Climate Partnership 
 Fund                         20-Nov-18   20-Nov-28   USD         25,090        79,292 
ResponsAbility SICAV (Lux) 
 Micro and SME Finance 
 Fund                         30-Nov-18   30-Nov-28   USD         5,927         18,733 
Asian Development Bank        18-Oct-16   31-Dec-26   USD         50,447        159,426 
Private Lenders               8-Jun-17    19-Dec-24   USD         25,212        79,677 
Subordinated Bond (Private 
 lender)                      31-Aug-18   25-Jan-23   USD         10,104        31,932 
 
 
Total subordinated debt                                                         635,981 
 
 
   15     Subordinated Debt (Continued) 

As of 31 December 2020, subordinated debt comprised of:

 
                           Grant Date   Maturity Date   Currency   Outstanding amount in     Outstanding amount in GEL 
In thousands of GEL                                                original currency 
 
KfW                        10-June-14   8-May-21        GEL        6,161                     6,161 
KfW                        4-May 15     8-May-21        GEL        6,737                     6,737 
Green for Growth Fund      18-Dec-15    18-Dec-25       USD        15,244                    49,950 
European Fund for 
 Southeast Europe          21-Dec-18    21-Dec-28       USD        20,079                    65,789 
European Fund for 
 Southeast Europe          18-Dec-15    16-Dec-30       USD        7,633                     25,010 
European Fund for 
 Southeast Europe          15-Mar-16    17-Mar-31       USD        7,631                     25,004 
Private Lenders            8-Jun-17     19-Dec-24       USD        25,217                    82,628 
Subordinated Bond 
 (Private lender)          31-Aug-18    25-Jan-23       USD        10,102                    33,098 
BlueOrchard Microfinance 
 Fund                      14-Dec-18    14-Dec-25       USD        14,949                    48,983 
BlueOrchard Microfinance 
 Fund                      14-Dec-18    14-Dec-28       USD        14,941                    48,956 
Asian Development Bank     18-Oct-16    31-Dec-26       USD        50,438                    165,266 
ResponsAbility SICAV 
 (Lux) Micro and SME 
 Finance Fund              30-Nov-18    30-Nov-28       USD        5,930                     19,430 
Micro and SME Finance 
 Leaders                   30-Nov-18    30-Nov-28       USD        1,005                     3,292 
Global Climate 
 Partnership Fund          20-Nov-18    20-Nov-28       USD        25,096                    82,230 
ResponsAbility SICAV 
 (Lux) - Financial 
 Inclusion Fund            30-Nov-18    30-Nov-28       USD        3,115                     10,206 
 
 
Total subordinated debt                                                                       672,740 
 
 

The debt ranks after all other creditors in case of liquidation.

Refer to Note 27 for the disclosure of the fair value of subordinated debt. Information on related party balances is disclosed in Note 28.

   16          Share Capital 
 
                                                  Number of         Share capital 
In thousands of GEL except for number of shares    ordinary shares 
 
As of 1 January 2020                              55,155,896        1,682 
 
As of 31 December 2020                            55,155,896        1,682 
 
As of 30 June 2021                                55,155,896        1,682 
 

As 30 June 2021 the total authorised number of ordinary shares was 55,155,896 shares (31 December 2020: 55,155,896 shares). Each share has a nominal value of one British Penny. All issued ordinary shares are fully paid and entitled to dividends.

Part of the 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 30 June 2021 comprised 641,391 shares (31 December 2020: 778,183 shares). The EBT has waived its rights to receive dividends on such shares.

   17          Share Based Payments 

June 2015 arrangement:

In June 2015, the Bank's Supervisory Board approved new management compensation scheme for the top and middle management and it accordingly authorised the issue of a maximum 3,115,890 new shares. The 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 3 years 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 share based payment scheme for middle management and other eligible employees continues under existing terms for 2020-2021.

December 2018 arrangements:

A new compensation system was approved by shareholders at the AGM on 21 May 2018 and came into effect on 1 January 2019 and it covers the period 2019-2021 inclusive. On 28 December 2018, the Board of Directors approved the following details for this new compensation schemes for the top management and the Group considers that as a grant date. All the top management schemes are equity settled and accounted respectively.

Deferred share salary plan

Part of the top management salary is paid with shares with the objective of closely promoting the long-term success of the Group and aligning senior executive directors' and shareholders' interests. Shares are usually delivered during the first quarter of the second year (i.e. the year after the performance year) and the exact date is determined by the Board. 50% of the shares have 1 year deferral period and the remaining 50% is deferred for 2 years from the delivery date. 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 and approved by the Supervisory Board and Board of Directors. The Remuneration Committee assists both Boards in compensation related matters and makes respective recommendations. 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).

   17    Share Based Payments (Continued) 

The number of shares is calculated based on the average share price of the last 10 days preceding the committee decision date.

Deferred Bonus plan

The annual bonus for the top management is determined as to the extent that the annual KPIs have been met. Shares are usually delivered during the first quarter of the second year (i.e. the year after the performance year): and the exact date is determined by the Board. 50% of the shares have 1 year deferral period and the remaining 50% is deferred for 2 years from the delivery date. The shares are registered in the trustees name as nominee for the participants and the participants are entitled to receive dividends .

Annual KPIs are set by the Remuneration Committee at the beginning of each year in relation to that year and approved by the Board. To the extent that the KPIs are achieved, the Remuneration Committee may recommend to the Board 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 with their specific weightings and targets is disclosed in the published annual report. 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 can recommend to the Board that 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.

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 the Group's and the Bank's 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 rolling performance conditions over the 3 year performance period.

More details about the LTIP and share based payments are given in Remuneration Committee report for FY 2020 available publicly.

Tabular information on the schemes is given below:

   17    Share Based Payments (Continued) 
 
In GEL except for number of shares                                                      30 June 2021  31 December 2020 
 
Number of unvested shares at the beginning of the period                                3,028,818     3,141,541 
 
 
Number of shares granted                                                                759,112***    528,325*** 
Number of shares granted - Middle management, subsidiaries' management and other 
eligible 
employees                                                                               759,112***    528,325 *** 
 
Number of shares granted                                                                759,112***    528,325*** 
 
Change in estimates of number of shares expected to be granted** 
Change in estimates for 2020 award for Deferred salary, 2021 awards for Deferred bonus 
 and 
 LTIP                                                                                   -              479,580 
Management forfeiture of rights for 2020 bonus                                          -              (428,451) 
Change in estimates of number of shares expected to be granted**                                      51,129 
 
Change in estimate of number of shares expected to vest based on performance 
 conditions - 
 2019 performance                                                                       -             (71,847) 
 
 
Number of shares vested 
2016 year award - 80% vesting                                                           -              (413,544) 
2017 year award - 10% vesting                                                           -              (105,527) 
2017 year award - 80% vesting                                                           (451,251)     - 
2018 year award - 10% vesting                                                           (57,102)      (101,259) 
2019 year award - MM 33% vesting                                                        (47,401)      - 
2019 year award - TM 50% vesting                                                        (137,779)     - 
Number of shares vested                                                                 (693,533)     (620,330) 
 
Number of unvested shares at the end of the period                                      3,094,397     3,028,818 
 
Value at grant date per share according to June 2015 scheme (GEL)                       25            25 
Value at grant date per share (GEL) middle management and other eligible employees 
 plan                                                                                   50            50 
Value at grant date per share (GEL) Deferred share salary plan                          50            50 
Value at grant date per share (GEL) Deferred bonus plan                                 50            50 
Value at grant date per share (GEL) LTIP*                                               50            50 
Expense on equity-settled part (GEL thousand)                                           11,361         19,448 
Expense on cash-settled part (GEL thousand)                                             2,255          (950) 
 
 
Expense recognised as staff cost during the period (GEL thousand)                       13,616        18,498 
 
 

*Grant date for LTIP plan has been determined for the first award tranche only, which is planned in 2022. For remaining tranches expense is accrued based on estimated fair value during the future grant date.

** The maximum amount is fixed for deferred share compensations for top management, the exact number will be calculated as per policy.

*** Represents shares granted to subsidiaries' management.

Liability in respect of the cash-settled part of the award amounted to GEL 2,255 thousand as 30 June 2021 (31 December 2020: GEL 2,000 thousand). Tax part of the new bonus system for the top management is accounted under equity settled basis.

   17    Share Based Payments (Continued) 

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.

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 30 June 2021 the share number held by Trustee was 641,391 (31 December 2020: 778,183), which represents 1.2% of total outstanding shares (31 December 2020: 1.4%).

   18          Earnings per Share 

Basic earnings per share are calculated by dividing the profit or loss attributable to the owners of the Group by the weighted average number of ordinary shares in issue during the period.

 
 In thousands of GEL except for number of shares    30 June 2021  30 June 2020 
 
 Profit for the period attributable to the owners 
  of the Bank                                       399,168       67,625 
 
 Weighted average number of ordinary shares 
  in issue                                          54, 451,777   54,421,866 
 
Basic earnings per ordinary share attributable 
 to the owners of the Bank (expressed in GEL 
 per share)                                         7.33          1.24 
 
 
 

Diluted earnings per share are calculated by dividing the profit or loss attributable to owners of the Group 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                                    30 June 2021                                                    30 June 2020 
 
Profit for the period attributable to 
 the owners 
 of the Bank                              399,168                                                         67,625 
 
Weighted average number of ordinary 
 shares 
 in issue adjusted for the effects of 
 all dilutive 
 potential ordinary shares during the 
 period                                                                                       55,156,405  54,950,082 
 
Diluted earnings per ordinary share 
 attributable 
 to the owners of the Bank (expressed in 
 GEL 
 per share)                               7.24                                                            1.23 
 
 
   19     Segment Analysis 

The Management Board (the "Board") is the chief operating decision maker and it reviews the Group's internal reporting in order to assess the performance and to allocate resources. In 2021 the Group made the re-segmentation after which some of the clients were reallocated to different segments - GEL 99.6 million of loans and GEL 64.7 million of customer accounts were transferred from MSME to Corporate segment. Wealth Management business with high net worth individuals has been transferred from retail to corporate segment due to changes in segment definitions. Other transfers between segments were primarily due to changes in client size and specifications compared to prior period. In the tables below is disclosed the information as of 30 June 2021 both with and without re-segmentation effect.

The operating segments according to the definition are determined as follows:

-- Corporate (CIB) - a legal entity/group of affiliated entities with an annual revenue exceeding GEL 12.0 million or which has been granted facilities of more than GEL 5.0 million. Corporate segment also includes wealth management private banking services to high net worth individuals, with the threshold of USD 250,000 on assets under management (AUM). Some other business customers may also be assigned to the corporate segment on a discretionary basis.

   --           Retail - non-business individual customers; 

-- MSME - business customers who are not included in the corporate segment; or individual customers of the fully-digital bank, Space;

-- 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.

The Board of Directors assesses the performance of the operating segments based on a measure of profit before income tax.

The reportable segments are the same as the operating segments.

No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Group's total revenue in as 30 June 2021 and 31 December 2020.

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 25.

A summary of the Group's reportable segments as 30 June 2021 with updated segmentation and also without re-segmentation effect (for comparative reasons) and 30 June 2020 is provided below.

   19     Segment Analysis (Continued) 
 
Segment disclosure below is prepared with the effect of 2021 re-segmentation as described 
 above. 
                                    Corpo-rate  Retail      MSME        Corpo-rate centre and other        Total 
In thousands of GEL                                                     operations 
 
30 June 2021 
 
- Interest income                    271,402     321,483     181,002     125,298                            899,185 
- Interest expense                   (121,201)   (63,061)    (5,931)     (254,243)                          (444,436) 
- Net gains on currency swaps        -           -           -           13,149                             13,149 
- Inter-segment interest 
 income/(expense)                    24,865      (72,867)    (68,593)    116,595                            - 
 
 
- Net interest income                175,066     185,555     106,478     799                                467,898 
 
 
- Fee and commission income          46,861      101,851     23,323      14,118                             186,153 
- Fee and commission expense         (34,754)    (24,364)    (14,698)    (4,036)                            (77,852) 
 
 
- Net Fee and commission income      12,107      77,487      8,625       10,082                             108,301 
 
- Insurance profit                   -           -           -           9,873                              9,873 
- Net gains/(loss) from 
 derivatives, foreign currency 
 operations and translation          22,576      14,201      11,730      11,677                             60,184 
- Gains less losses from disposal 
 of investment securities measured 
 at FVOCI                            515         -           -           6,526                              7,041 
- Other operating income             1,642       3,511       726         31,604                             37,483 
- Share of profit of associates      -           -           -           596                                596 
 
 
- Other operating non-interest 
 income and insurance profit         24,733      17,712      12,456      60,276                             115,177 
 
 
- Credit loss allowance for loans 
 to customers                        33,220      (10,344)    9,687       -                                  32,563 
- Credit loss allowance reversal/ 
 (credit loss allowance) for 
 performance guarantees and credit 
 related commitments                 1,599       405         (74)        -                                  1,930 
- Credit loss allowance for net 
 investments in lease                -           -           -           (2,515)                            (2,515) 
- Credit loss allowance for other 
 financial assets                    (625)       (3,309)     -           (1,392)                            (5,326) 
- Credit loss allowance for 
 financial assets measured at 
 FVOCI                               738         -           -           1,104                              1,842 
- Net impairment of non-financial 
 assets                              7           108         23          (585)                              (447) 
 
 
- Operating profit after expected 
 credit and non-financial asset 
 impairment losses                  246,845     267,614     137,195     67,769                             719,423 
- Losses from modifications of 
 financial instruments              (856)       (642)       (93)        -                                  (1,591) 
 
 
- Staff costs                        (22,140)    (66,060)    (27,774)    (32,097)                           (148,071) 
- Depreciation and amortisation      (2,454)     (23,609)    (5,859)     (4,779)                            (36,701) 
- Provision for liabilities and 
 charges                             -           -           -           (9)                                (9) 
- Administrative and other 
 operating expenses                  (7,618)     (34,525)    (13,639)    (16,365)                           (72,147) 
 
 
- Operating expenses                 (32,212)    (124,194)   (47,272)    (53,250)                           (256,928) 
 
- Profit before tax                  213,777     142,778     89,830      14,519                             460,904 
- Income tax expense                 (24,846)    (15,329)    (11,402)    (5,948)                            (57,525) 
- Profit for the period              188,931     127,449     78,428      8,571                              403,379 
 
 
30 June 2021 
Total gross loans and advances to 
 customers reported                  5,851,634   5,688,519   3,734,773   -                                  15,274,926 
Total customer accounts reported     6,185,115   5,287,787   1,397,516   -                                  12,870,418 
Total credit related commitments 
 and performance guarantees          2,999,097   177,427     334,281    -                                   3,510,805 
 
 
   19     Segment Analysis (Continued) 
 
For comparison purposes segment disclosure for 2021 below is prepared without the effect of 
 2021 re-segmentation as described above. 
                                     Corpo-rate  Retail      MSME       Corpo-rate centre and other         Total 
In thousands of GEL                                                     operations 
 
30 June 2021 
 
- Interest income                     267,098     321,483     185,306    125,298                             899,185 
- Interest expense                    (120,825)   (63,061)    (6,307)    (254,243)                           (444,436) 
- Net gains on currency swaps         -           -           -          13,149                              13,149 
- Inter-segment interest 
 income/(expense)                     26,118      (72,867)    (69,846)   116,595                             - 
 
 
- Net interest income                 172,391     185,555     109,153    799                                 467,898 
 
 
- Fee and commission income           46,405      101,851     23,779     14,118                              186,153 
- Fee and commission expense          (34,754)    (24,364)    (14,698)   (4,036)                             (77,852) 
 
 
- Net Fee and commission income       11,651      77,487      9,081      10,082                              108,301 
 
- Insurance profit                    -           -           -          9,873                               9,873 
- Net gains/(loss) from 
 derivatives, foreign currency 
 operations and translation           21,900      14,201      12,406     11,677                              60,184 
- Gains less losses from disposal 
 of investment securities measured 
 at FVOCI                             515         -           -          6,526                               7,041 
- Other operating income              1,642       3,511       726        31,604                              37,483 
- Share of profit of associates       -           -           -          596                                 596 
 
 
- Other operating non-interest 
 income and insurance profit         24,057      17,712      13,132     60,276                              115,177 
 
 
- Credit loss allowance for loans 
 to customers                         32,635      (10,344)    10,272     -                                   32,563 
- Credit loss allowance reversal/ 
 (credit loss allowance) for 
 performance guarantees and credit 
 related commitments                  1,591       405         (66)       -                                   1,930 
- Credit loss allowance for net 
 investments in lease                 -           -           -          (2,515)                             (2,515) 
- Credit loss allowance for other 
 financial assets                     (625)       (3,309)     -          (1,392)                             (5,326) 
- Credit loss allowance for 
 financial assets measured at FVOCI   738         -           -          1,104                               1,842 
- Net impairment of non-financial 
 assets                               7           108         23         (585)                               (447) 
 
 
- Operating profit after expected 
 credit and non-financial asset 
 impairment losses                   242,445     267,614     141,595    67,769                              719,423 
- Losses from modifications of 
 financial instruments               (856)       (642)       (93)       -                                   (1,591) 
 
 
- Staff costs                         (22,140)    (66,060)    (27,774)   (32,097)                            (148,071) 
- Depreciation and amortisation       (2,454)     (23,609)    (5,859)    (4,779)                             (36,701) 
- Provision for liabilities and 
 charges                              -           -           -          (9)                                 (9) 
- Administrative and other 
 operating expenses                   (7,618)     (34,525)    (13,639)   (16,365)                            (72,147) 
 
 
- Operating expenses                  (32,212)    (124,194)   (47,272)   (53,250)                            (256,928) 
 
- Profit before tax                   209,377     142,778     94,230     14,519                              460,904 
- Income tax expense                  (24,053)    (15,329)    (12,195)   (5,948)                             (57,525) 
- Profit for the period               185,324     127,449     82,035     8,571                               403,379 
 
 
30 June 2021 
Total gross loans and advances to 
 customers reported                  5,752,029   5,688,519   3,834,378  -                                   15,274,926 
Total customer accounts reported     6,120,436   5,287,787   1,462,195  -                                   12,870,418 
Total credit related commitments 
 and performance guarantees          2,999,097   177,427     334,281    -                                   3,510,805 
 
 
   19     Segment Analysis (Continued) 
 
Segment disclosure below is prepared without the effect of 2020 re-segmentation as described 
 above : 
                                     Corpo-rate  Retail      MSME       Corpo-rate centre and other         Total 
In thousands of GEL                                                     operations 
 
30 June 2020 
 
- Interest income                     225,082     285,336     162,144    115,331                             787,893 
- Interest expense                    (87,181)    (86,768)    (5,426)    (228,716)                           (408,091) 
- Net gains on currency swaps         -           -           -          12,522                              12,522 
- Inter-segment interest 
 income/(expense)                     841         (32,744)    (64,097)   96,000                              - 
 
 
- Net interest income                 138,742     165,824     92,621     (4,863)                             392,324 
 
 
- Fee and commission income           24,949      96,189      11,443     6,171                               138,752 
- Fee and commission expense          (3,990)     (45,757)    (5,171)    (765)                               (55,683) 
 
 
- Net fee and commission income       20,959      50,432      6,272      5,406                               83,069 
 
- Insurance profit                   -           -           -          10,281                              10,281 
- Net gains/(loss) from 
 derivatives, foreign currency 
 operations and translation           25,763      17,897      13,748     (9,649)                            47,759 
- Gains less losses from disposal 
 of investment securities measured 
 at FVTOCI                            -           -           -          (1,202)                             (1,202) 
- Other operating income              858         2,390       129        4,600                               7,977 
- Share of profit of associates       -           -           -          90                                  90 
 
 
- Other operating non-interest 
 income and insurance profit          26,621      20,287      13,877     4,120                               64,905 
 
 
- Credit loss allowance for loans 
 to customers                         (26,627)    (160,861)   (61,728)   -                                   (249,216) 
- Credit loss allowance for 
 performance guarantees and credit 
 related commitments                  650         (378)       (1,069)    -                                   (797) 
- Credit loss allowance for net 
 investments in lease                 -           -           -          (4,278)                             (4,278) 
- Credit loss allowance for other 
 financial assets                     (1,964)     (69)        -          (2,189)                             (4,222) 
- Credit loss allowance for 
 financial assets measured at FVOCI   8           -           -          (546)                               (538) 
- Other non-financial assets 
 impairment                          (332)       (295)       (100)      102                                 (625) 
 
 
- Profit/(loss) before 
 administrative and other expenses 
 and income taxes                     158,057     74,940      49,873      (2,248)                            280,622 
- Losses from modifications of 
 financial instruments               (2,675)     (22,547)    (7,068)    (1,880)                             (34,170) 
 
 
- Staff costs                         (14,894)    (54,421)    (23,331)   (21,360)                            (114,006) 
- Depreciation and amortisation       (2,028)     (21,738)    (5,422)    (3,027)                             (32,215) 
- Provision for liabilities and 
 charges                              -           -           -          77                                  77 
- Administrative and other 
 operating expenses                   (5,471)     (27,977)    (9,184)    (12,759)                            (55,391) 
 
 
- Operating expenses                  (22,393)    (104,136)   (37,937)   (37,069)                            (201,535) 
 
- Profit/(loss) before tax            132,989     (51,743)    4,868      (41,197)                            44,917 
- Income tax expense                  (8,990)     25,745      5,991      1,537                               24,283 
- Profit/(loss) for the period        123,999     (25,998)    10,859     (39,660)                            69,200 
 
 
30 June 2020 
Total gross loans and advances to 
 customers reported                  5,070,563   5,358,723   3,206,106  -                                   13,635,392 
Total customer accounts reported     3,222,718   6,019,291   1,178,321  -                                   10,420,330 
Total credit related commitments 
 and performance guarantees          2,861,193   190,710     261,182    -                                   3,313,085 
 
 
   19     Segment Analysis (Continued) 
 
                       Corporate  Retail   Micro, small  Corporate          Total 
                                            and medium    centre and 
in thousands of GEL                         enterprises   other operations 
30 June 2021 
- Fee and commission 
 income                46,861     101,851  23,323        14,118             186,153 
- Other operating 
 income                1,642      3,511    726           31,604             37,483 
Total                  48,503     105,362  24,049        45,722             223,636 
Timing of revenue 
 recognition: 
- At point in time     48,474     104,452  24,046        45,722             222,694 
- Over a period of 
 time                  29         910      3                                942 
 
 
                       Corporate  Retail  Micro, small  Corporate          Total 
                                           and medium    centre and 
in thousands of GEL                        enterprises   other operations 
30 June 2020 
- Fee and commission 
 income                24,949     96,189  11,443        6,171              138,752 
- Other operating 
 income                858        2,390   129           4,600              7,977 
Total                  25,807     98,579  11,572        10,771             146,729 
Timing of revenue 
 recognition: 
- At point in time     25,761     97,124  11,549        10,771             145,205 
- Over a period of 
 time                  46         1,455   23             -                 1,524 
 

Reportable segments' assets were reconciled to total assets as follows:

 
in thousands of GEL                                30 June      31 December 
                                                    2021         2020 
Total segment assets (gross loans and advances 
 to customers)                                      15,274,926   15,200,520 
Credit loss allowance                               (477,958)    (606,246) 
Cash and cash equivalents                           1,414,414    1,635,405 
Mandatory cash balances with National Bank 
 of Georgia                                         2,117,157    2,098,506 
Due from other banks                                59,314       50,805 
Investment securities measured at fair value 
 through other comprehensive income                 2,022,385    1,527,268 
Bonds carried at amortised cost                     10,069       1,089,801 
Current income tax prepayment                       14,966       69,888 
Deferred income tax asset                           6,747        2,787 
Other financial assets                              287,761      171,302 
Net investments in leases                           245,261      271,660 
Other assets                                        311,218      266,960 
Premises and equipment                              371,909      372,956 
Intangible assets                                   284,555      239,523 
Investment properties                               33,407       68,689 
Goodwill                                            59,964       59,964 
Right of use assets                                 51,160       53,927 
Investments in associates                           4,286        4,090 
Total assets per statement of financial position   22,091,541   22,577,805 
 
   19     Segment Analysis (Continued) 

Reportable segments' liabilities are reconciled to total liabilities as follows:

 
in thousands of GEL                             30 June 2021  31 December 
                                                               2020 
Total segment liabilities (customer accounts)    12,870,418    12,572,728 
Due to credit institutions                       3,482,830     4,486,373 
Debt securities in issue                         1,445,614     1,496,497 
Current income tax liability                     653          853 
Deferred income tax liability                    18,457        13,088 
Provisions for liabilities and charges           21,435        25,335 
Other financial liabilities                      124,308      227,432 
Other liabilities                                101,265       87,842 
Subordinated debt                                635,981       672,740 
Lease Liabilities                                53,755        58,983 
Total liabilities per statement of financial 
 position                                       18,754,716    19,641,871 
 
   20      Interest Income and Expense 
 
In thousands of GEL                          30 June 2021  30 June 2020 
 
Interest income calculated using effective 
 interest method 
Loans and advances to customers              762,432       663,530 
Investment securities measured at fair 
 value through OCI                           98,500        46,056 
Due from other banks                         9,225         9,573 
Bonds carried at amortised cost              1,344         42,363 
Other financial asset                        1,186         854 
 
Other interest income 
Net investments in lease                     26,498         25,517 
 
 
Total interest income                        899,185        787,893 
 
 
Interest expense 
 Customer accounts                           230,839       177,846 
 Due to credit institutions                  125,448       149,560 
 Subordinated debt                           27,624         27,650 
 Debt Securities in issue                    58,989        51,498 
 
  Other interest expense 
 Lease liabilities                           1,452         1,537 
 Other                                       84            - 
 
 
Total interest expense                       444,436       408,091 
 
 
  Net gains on currency swaps                13,149        12,522 
 
Net interest income                          467,898        392,324 
 
 

During the six months ended 30 June 2021 the interest accrued on impaired loans amounted to GEL 34,663 thousand (30 June 2020: GEL 16,175 thousand).

   21     Fee and Commission Income and Expense 
 
In thousands of GEL                        30 June 2021  30 June 2020 
 
Fee and commission income in respect of 
 financial instruments not at fair value 
 through profit or loss: 
- Card operations                          89,891        65,033 
- Settlement transactions                  61,375         43,868 
- Guarantees issued                        18,369         17,047 
- Cash transactions                        3,959          3,886 
- Issuance of letters of credit            2,913          2,686 
- Foreign exchange operations              964            580 
- Other                                    8,682         5,652 
 
 
Total fee and commission income            186,153        138,752 
 
 
 
Fee and commission expense in respect of 
 financial instruments not at fair value 
 through profit or loss: 
- Card operations                          56,941                       41,531 
- Settlement transactions                  8,373                          5,856 
- Cash transactions                        3,104                          3,989 
- Guarantees received                      1,279                          1,149 
- Letters of credit                        1,040                             665 
- Foreign exchange operations              156                               110 
- Other                                    6,959                          2,383 
 
 
Total fee and commission expense           77,852                    55,683 
 
 
Net fee and commission income              108,301                     83,069 
 
 
   22     Other Operating Income 
 
In thousands of GEL                           30 June 2021  30 June 2020 
 
Gain from sale of investment properties       22,752        368 
Gain on disposal of premises and equipment    5,106         48 
Revenues from e-commerce                      2,998         2,759 
Gain from sale of repossessed collateral      2,064         322 
Revenues from operational leasing             1,341         1,283 
Revenues from non-credit related fines        149           122 
Revenues from sale of cash-in terminals       95            317 
Other                                         2,978         2,758 
 
 
Total other operating income                  37,483        7,977 
 
 

Revenue from operational leasing is wholly attributable to investment properties. The carrying value of

repossessed collateral disposed of in the period ended 30 June 2021 was GEL 15,630 thousand (30 June 2020: GEL 4,840 thousand).

Gain on disposal of premises and equipment and gain from sale of investment properties include gain generated from disposal of land and buildings where Bank's headquarter is currently located. Details of the transaction are described i n note 10.

   23     Administrative and Other Operating Expenses 
 
                                              30 June   30 June 
In thousands of GEL                            2021      2020 
 
Advertising and marketing services            12,036   10,348 
Professional services                         11,701   8,122 
Intangible asset maintenance                  9,514    6,756 
Rent expense                                  7,661    6,641 
Taxes other than on income                    5,071    4,839 
Premises and equipment maintenance            4,467    3,262 
Utility services                              4,271    3,426 
Communications and supply                     3,434    2,952 
Stationery and other office expenses          2,831    3,086 
Insurance                                     1,200    954 
Transportation and vehicle maintenance        1,189    794 
Security services                             939      943 
Personnel training and recruitment            615      511 
Loss on disposal of premises and equipment    524      10 
Charity                                       278      799 
Loss on disposal of inventories               113      120 
Business trip expenses                        109      558 
Other                                         6,194    1,270 
 
 
Total administrative and other operating 
 expenses                                     72,147   55,391 
 
 
   24          Income Taxes 

As at 30 June 2021, the statutory income tax rate applicable to the majority of the Group's income is 15% (six months ended 30 June 2020: 15%). O n 12 June 2018, the new amendment to the current corporate taxation model came into force that postpones tax relief for re-invested profit from 1 January 2019 to 1 January 2023 for commercial banks, credit unions, insurance organizations, microfinance organizations and pawnshops. As a result, deferred tax assets/liabilities are measured to the amounts that are realizable until 31 December 2022.

   25          Financial and Other Risk Management 

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. 

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.

   25     Financial and Other Risk Management (Continued) 

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 defaulted 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 defaulted. The exposures for which the defaulted 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 potentially 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. 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.

In As a result of Covid 19, the Group introduced additional default criteria to exposures particularly affected by the covid-19 restriction. The criteria included lower days past due threshold and deterioration in debt coverage ratio for the compromised borrowers. Given that majority of the credit moratoria has already expired, the past due days appropriately reflect the credit quality of the borrower and the respective additional criteria is no longer applicable as of June 2021. Deteriorating debt coverage rates is still maintained as of June 2021.

Significant increase in credit risk ("SICR")

Financial assets for which the Group identifies significant increase in credit risk since its origination are classified in Stage 2. SICR indicators are recognized at financial instrument level even though some of them refer to the borrower's characteristics. The Group uses both quantitative and qualitative indicators of SICR.

Quantitative criteria

On a quantitative basis the Bank assess change in probability of default parameter for each particular exposure since initial recognition and compares it to the predefined threshold. When absolute change in probability of default exceeds the applicable threshold, SICR is deemed to have occurred and exposure is

   25     Financial and Other Risk Management (Continued) 

transferred to Stage 2. Quantitative indicator of SICR is applied to retail and micro segments, where the Group has sufficient number of observations.

Qualitative criteria

Financial asset is transferred to Stage 2 and lifetime ECLs is measured if at least one of the following SICR qualitative criteria is observed:

   --      delinquency period of more than 30 days on contractual repayments; 
   --      exposure is restructured, but is not defaulted; 
   --      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.

As a result of COVID 19, the Group introduced additional SICR criteria to compromised borrowers who were subject to COVID-19 restrictions. The criteria was based on the repayment history of the exposure after the grace period and availability of recent financial monitoring information for the vulnerable business borrowers. As of June 2021, the effect of additional SICR criteria have been exhausted.

ECL measurement

The Group utilizes two approaches for ECL measurement - individual assessment and collective assessment. Individual assessment is mainly used for stage 2 and stage 3 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 a result of COVID-19 pandemic, the Bank performed individual assessment for the majority of individually significant borrowers operating in vulnerable sectors, such as Hospitality & Leisure and Real Estate. Under an individual assessment, the Bank considered the financial prospects of the borrowers by taking into account the future macroeconomic conditions and analyzing the implications of COVID-19 pandemic on their business and operations.

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:

   25     Financial and Other Risk Management (Continued) 

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. In light of the COVID-19 pandemic, the Group expects that prepayment rates will be lower compared to the pre-pandemic levels. In order to reflect this expectation in the EAD modelling, the respective downward adjustment was applied to the prepayment rates for the future one-year period in December 2020. The Group decided to follow the assumption made as of 31 December 2020 and gradually ease adjustments made to the prepayment rates to return to pre-pandemic level at the end of 2021. As the result, in June 2021 downward adjustment was applied to the prepayment rates for future half-year period (except for Corporate Segment, where FPR adjustment is still applied for the following 12 months, as improved prepayment rates were not observed). For revolving products, the Group estimates the EAD based on the expected limit utilisation percentage conditional on the default event.

Probability of default (PD)

Probability of default parameter describes the likelihood of a default of a facility over a particular time horizon. It provides an estimate of the likelihood that a borrower will be unable to meet its contractual debt obligations. The PD parameter is time-dependent (i.e. has a specific term structure) and is applied to all non-defaulted contracts. Taking into account specific nature of different segments of clients for which the PD is estimated as well as unique characteristics that drive their default propensity, the PD is modelled differently for Retail and Micro segments and Corporate and SME segments. PD assessment approach is also differentiated for different time horizons and is further adjusted due to expected influence of macroeconomic variables as forecasted for the period (see 'Forward Looking Information" section for further details on incorporation of macroeconomic expectations in ECL calculation). 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. As a result of COVID, the Bank reduced recovery rates for retail and micro exposures in stage 3 to reflect the expected impact of the pandemic related restrictions. As of June recovery rate related assumptions were remained unchanged. Further, the Group applied an additional downward adjustment to the collateral values for stage 3 exposures in SME and Corporate segments to capture the expected real estate price drop. As of June, the Group updated the adjustment based on the new macroeconomic forecast.

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

   25     Financial and Other Risk Management (Continued) 

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. 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 Bank uses statistical models and historical relationship between the various macroeconomic factors and default observations to derive forward-looking adjustments. In case these models do not provide reasonable results either from statistical or business perspective, the Bank may apply expert judgment or use alternative approach. As at 30 June 2021, The Bank uses same approaches as in 31 December 2020. The bank employees statistical models to derive forward looking adjustment in all segments except for corporate. In corporate segment, due to the availability of comprehensive borrower-level financial information and insignificance of the statistical models, the Bank uses stress test approach instead. The baseline, upside and downside scenarios were remained unchanged from 31 December 2020 and assigned probability weighing of 60%, 10% and 30%, respectively. The conservative probability weighting was kept to account for the uncertainty caused by the global pandemic .

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 offshore 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.

   25     Financial and Other Risk Management (Continued) 

The table below presents the geographical concentration of the Group's assets and liabilities as at 30 June 2021:

 
In thousands of GEL                          Georgia       OECD          Non-OECD     Total 
 
Assets 
Cash and cash equivalents                     1,060,943     349,266       4,205        1,414,414 
Due from other banks                          45,920        13,394        -            59,314 
Mandatory cash balances with National 
 Bank of Georgia                              2,117,157     -             -            2,117,157 
Loans and advances to customers               14,359,764    111,137       326,067      14,796,968 
Investment securities measured 
 at fair value through other comprehensive 
 income                                       1,562,476     458,136       1,773        2,022,385 
Bonds carried at amortised cost               -             -             10,069       10,069 
Investments in leases                         243,223       -             2,038        245,261 
Other financial assets                        283,750       3,880         131          287,761 
 
 
Total financial assets                        19,673,233    935,813       344,283      20,953,329 
 
Non-financial assets                          1,133,823     338           4,051        1,138,212 
 
Total assets                                  20,807,056    936,151       348,334      22,091,541 
 
 
Liabilities 
Due to credit institutions                    1,882,998     1,572,069     27,763       3,482,830 
Customer accounts                              10,881,616   1,022,119      966,683     12,870,418 
Debt securities in issue                      1,445,614     -             -            1,445,614 
Other financial liabilities                   122,134       324           1,850        124,308 
Lease liabilities                             53,384        -             371          53,755 
Subordinated debt                             111,501       364,026       160,454      635,981 
 
 
Total financial liabilities                  14,497,247     2,958,538      1,157,121   18,612,906 
 
Non-financial liabilities                    139,041        -             2,769        141,810 
 
Total liabilities                              14,636,288    2,958,538     1,159,890   18,754,716 
 
 
Net balance sheet position                   6,170,768      (2,022,387)   (811,556)     3,336,825 
 
 
Performance guarantees                        656,898       723,172       242,453      1,622,523 
Credit related commitments                    1,877,652     3,638         6,992        1,888,282 
 
 
 
   25     Financial and Other Risk Management (Continued) 

The table below shows the geographical concentration of the Group's assets and liabilities as at 31 December 2020.

 
in thousands    Georgia                                   OECD                                               Non-OECD                       Total 
of GEL 
Assets 
Cash and cash 
 equivalents     940,076                                   686,110                                            9,219                          1,635,405 
Due from other 
 banks           37,753                                    13,052                                             -                              50,805 
Mandatory cash 
 balances 
 with National 
 Bank of 
 Georgia         2,098,506                                 -                                                  -                              2,098,506 
Loans and 
 advances to 
 customers       14,111,683                               131,066                                            351,525                        14,594,274 
Investment 
securities 
measured 
at fair value 
through OCI                                    1,206,673                                            318,682                          1,913   1,527,268 
Bonds carried 
 at amortised 
 cost            1,089,801                                 -                                                  -                              1,089,801 
Investments in 
 leases          271,314                                   -                                                 346                             271,660 
Other 
 financial 
 assets          167,163                                   3,978                                             161                             171,302 
Total 
 financial 
 assets         19,922,969                                1,152,888                                          363,164                        21,439,021 
Non-financial 
 assets          1,133,766                                396                                                 4,622                          1,138,784 
Total assets     21,056,735                                1,153,284                                          367,786                        22,577,805 
Liabilities 
Due to credit 
 institutions    2,363,147                                 2,110,307                                          12,919                         4,486,373 
Customer 
 accounts       10,647,808                                911,146                                            1,013,774                      12,572,728 
Debt 
 securities in 
 issue           1,496,497                                 -                                                  -                              1,496,497 
Other 
 financial 
 liabilities     227,063                                  356                                                13                              227,432 
Lease 
 liabilities     57,317                                    -                                                  1,666                          58,983 
Subordinated 
 debt            115,394                                   390,941                                            166,405                        672,740 
Total 
 financial 
 liabilities     14,907,226                                3,412,750                                          1,194,777                      19,514,753 
Non-financial 
 liabilities     122,684                                  63                                                  4,371                          127,118 
Total 
 liabilities     15,029,910                                3,412,813                                          1,199,148                      19,641,871 
Net balance 
 sheet 
 position        6,026,825                                 (2,259,529)                                        (831,362)                      2,935,934 
Performance 
 guarantees      745,511                                   746,871                                            258,659                        1,751,041 
Credit related 
 commitments     1,868,011                                 4,678                                              8,627                          1,881,316 
 

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. 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 ("open currency position") 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. As a result of COVID-19 pandemic, the NBG implemented countercyclical measure in relation to OCP requirements: suspended the phasing in of special reserved planned to be fully implemented by July 2022.

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 USD, Euro and other currencies. Gross amount of currency swap deposits is included in Derivatives. Therefore total financial assets and

   25     Financial and Other Risk Management (Continued) 

liabilities below are not traceable with either balance sheet or liquidity risk management tables, where net amount of gross currency swaps is presented.

 
As of 30 June 2021     Monetary     Monetary      Derivatives   Net position 
                        financial    financial 
 in thousands of GEL    assets       liabilities 
Georgian Lari           9,031,314    6,686,428     67,840        2,412,726 
US Dollar               7,507,337    10,421,811    2,893,009     (21,465) 
Euro                    4,304,743    1,374,259     (2,949,796)   (19,312) 
Other                   109,935      130,408       53,015        32,542 
Total                   20,953,329   18,612,906    64,068        2,404,491 
 
 
As of 31 December 2020   Monetary    Monetary      Derivatives   Net position 
                          financial   financial 
 in thousands of GEL      assets      liabilities 
Georgian Lari            8,756,581   7,115,738      159,241       1,800,084 
US Dollar                8,004,885   10,956,193     2,914,494     (36,814) 
Euro                     4,556,780   1,315,871      (3,227,918)   12,991 
Other                    120,775     126,951        61,164        54,988 
Total                    21,439,021   19,514,753    (93,019)     1,831,249 
 

US Dollar strengthening by 20% (weakening 20%) would decrease Group's profit or loss and equity in 2021 by GEL 3,181 thousand (increase by GEL 3,181 thousand). Euro strengthening by 20% (weakening 20%) would increase Group's profit or loss and equity in 2020 by GEL 8,623 thousand (decrease by GEL 8,623 thousand).

US Dollar strengthening by 20% (weakening 20%) would decrease Group's profit or loss and equity in 2020 by GEL 3,862 thousand (increase by GEL 3,862 thousand). Euro strengthening by 20% (weakening 20%) would increase Group's profit or loss and equity in 2020 by GEL 2,598 thousand (decrease by GEL 2,598 thousand).

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. In case of need, the Bank also applies for 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 Group employs an advanced framework for the management of interest rate risk by establishing appropriate Risk Appetite 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 and the Risk Committee.

   25     Financial and Other Risk Management (Continued) 

Following main assumptions under NBG IRR Regulation and EBA 2018 guidelines, at 30 June 2021, if interest rates had been 200 basis points higher, with all other variables held constant, profit would have been GEL 105,080 thousand higher, mainly as a result of higher interest income on variable interest assets. Other comprehensive income would have been GEL 39,200 thousand higher (30 June 2020: GEL 23,698 thousand, 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 at 30 June 2021 had been 200 basis points lower with all other variables held constant, profit for the year would have been GEL 31,641 thousand lower, mainly as a result of lower interest income on variable interest assets. Other comprehensive income would have been GEL 39,200 thousand lower (30 June 2020: GEL 24,600 thousand), as a result of decrease in the fair value of fixed rate financial assets measured at fair value through other comprehensive income.

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.

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 uses the Liquidity Coverage ratio and the Net Stable Funding ratio set, forth under Basel III, and defined further by the NBG. In addition the Bank performs stress tests and "what-if" scenario analysis. 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 are applied to the deposits' withdrawal rates depending on the clients group's concentration. From 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 bands and ensure that NBG LCR limits are met on a daily basis.

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.

   25     Financial and Other Risk Management (Continued) 

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 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.

Maturity analysis

The table below summarizes the maturity analysis of the Group's financial liabilities; based on remaining undiscounted contractual obligations as at 30 June 2021 Subject-to-notice repayments are treated as if notice were to be given immediately. However, the Group expects that many customers will not request repayment on the earliest date the Group could be required to pay and the table does not reflect the expected cash flows indicated by the Group's deposit retention history.

The maturity analysis of financial liabilities as at 30 June 2021 is as follows:

 
in thousands of GEL           Less than 3  From 3     From 1       Over       Total 
                               months       to 12      to 5 Years   5 years 
                                            months 
Due to credit institutions    1,809,247    624,139    1,226,301    22,609     3,682,296 
Customer accounts - 
 individuals                  4,425,301    1,699,304  1,412,607    61,632     7,598,844 
Customer accounts - 
 other                        4,129,370    495,061    760,440      427,291    5,812,162 
Other financial liabilities   109,461      5,567      29            -         115,057 
Lease liabilities             3,419        9,553      35,738       5,322      54,032 
Subordinated debt             5,593        45,942     328,970      546,760    927,265 
Debt securities in issue      885          100,711    1,644,237     -         1,745,833 
Gross settled forwards        2,556,190    2,043,951  87,267        -         4,687,408 
Performance guarantees        153,027      663,063    795,147      11,358     1,622,595 
Financial guarantees          324,073      -          -            -          324,073 
Letters of credit             17,574       41,642     64,783       -          123,999 
Other credit related 
 commitments                  1,440,210     -          -            -         1,440,210 
Total potential future 
 payments for financial 
 obligations                  14,974,350   5,728,933  6,355,519    1,074,972  28,133,774 
 

The maturity analysis of financial liabilities as 31 December 2020 is as follows:

 
in thousands of GEL                Less than   From        From 1       Over 5      Total 
                                    3 months    3 to        to 5 Years   years 
                                                12 months 
Due to credit institutions          2,138,399   1,156,117   2,678,130    146,205     6,118,851 
Customer accounts - individuals     4,275,412   1,828,748   1,282,427    53,445      7,440,032 
Customer accounts - other           4,077,900   502,224     619,298      492,887     5,692,309 
Other financial liabilities         208,111     10,236     537           -           218,884 
Lease liabilities                   3,098       9,029       35,298       5,849       53,274 
Subordinated debt                   13,998      75,845      1,441,419    1,635,831   3,167,093 
Debt securities in issue            1,230       59,356      1,451,263    -           1,511,849 
Gross settled forwards              3,561,859   484,099     90,172       -           4,136,130 
Performance guarantees              211,607     588,883     937,975      12,610      1,751,075 
Financial guarantees                318,935     -           -           -            318,935 
Letters of credit                  10,820       90,559      59,463       -           160,842 
Other credit related commitments    1,401,539   -           -            -           1,401,539 
Total potential future 
 payments for financial 
 obligations                       16,222,908  4,805,096   8,595,982    2,346,827   31,970,813 
 
   25     Financial and Other Risk Management (Continued) 

The undiscounted financial liability analysis 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 at 30 June 2021, the analysis by expected maturities may be as follows:

 
in thousands of            Less than   From 3 to   From 1 to   Over 5 years  Total 
 GEL                        3 months    12 months   5 Years 
Cash and cash 
 equivalents                1,413,640   774         -           -             1,414,414 
Due from other 
 banks                      18,696      9,661       16,905      14,052        59,314 
Mandatory cash 
 balances with 
 National Bank 
 of Georgia                 2,117,157   -           -           -             2,117,157 
Loans and advances 
 to customers               1,261,272   2,739,999   6,161,944   4,633,753     14,796,968 
Investment securities 
 measures at fair 
 value through 
 OCI                        2,022,385   -           -           -             2,022,385 
Bonds carried 
 at amortised cost          8,969       300         800         -             10,069 
Net investments 
 in leases                  30,585      66,383      144,358     3,935         245,261 
Insurance and 
 reinsurance Receivables    9,484       17,614      -           -             27,098 
Other financial 
 assets                     220,181     21,026      19,456      -             260,663 
Total financial 
 assets                     7,102,369   2,855,757   6,343,463   4,651,740     20,953,329 
Due to credit 
 institutions              1,788,506   551,600     1,120,971   21,753        3,482,830 
Customer accounts          979,438     57,917      -           11,833,063    12,870,418 
Debt securities 
 in issue                  132         92,372      1,353,110    -            1,445,614 
Other financial 
 liabilities               109,461     5,568       29           -            115,058 
Lease liabilities          3,114       8,923       34,661      7,057         53,755 
Insurance contract 
 liabilities               1,950       7,300        -           -            9,250 
Subordinated debt          2,419       3,474       162,694     467,394       635,981 
Total financial 
 liabilities               2,885,020   727,154     2,671,465   12,329,267    18,612,906 
Performance guarantees      3,012       -           -           -             3,012 
Financial guarantees        4,619       -           -           -             4,619 
Other credit related 
 commitments                100,214     -           -           -             100,214 
Credit related 
 commitments and 
 performance guarantees    107,845      -           -           -                  107,845 
Net liquidity 
 gap as of 30 June 
 2021                       4,109,504  2,128,603   3,671,998   (7,677,527)    2,232,578 
Cumulative gap 
 as of 30 June 
 2021                      4,109,504   6,238,107   9,910,105   2,232,578 
 
   25     Financial and Other Risk Management (Continued) 

As at 31 December 2020, the analysis by expected maturities may be as follows:

 
in thousands               Less than   From 3 to   From 1 to   Over 5 years  Total 
 of GEL                     3 months    12 months   5 Years 
Cash and cash 
 equivalents                1,634,585  820          -           -             1,635,405 
Due from other 
 banks                      11,736      14,600      24,469      -             50,805 
Mandatory cash 
 balances with 
 National Bank 
 of Georgia                 2,098,506   -           -           -             2,098,506 
Loans and advances 
 to customers               1,555,793   2,512,140   6,117,469   4,408,872     14,594,274 
Investment securities 
 measures at fair 
 value through 
 OCI                        1,527,268   -           -           -             1,527,268 
Bonds carried 
 at amortised 
 cost                       41,168      164,846     559,823     323,964       1,089,801 
Net investments 
 in leases                  23,675      73,284      168,447     6,254         271,660 
Insurance and 
 reinsurance Receivables    7,641       14,190      -           -             21,831 
Other financial 
 assets                     135,716     2,094       11,652     9              149,471 
Total financial 
 assets                     7,036,088   2,781,974   6,881,860   4,739,099     21,439,021 
Due to credit 
 institutions               2,116,391   1,007,235   1,322,468   40,279        4,486,373 
Customer accounts           1,267,458   380,992    -           10,924,278     12,572,728 
Debt securities 
 in issue                  121          56,031     1,440,345    -             1,496,497 
Other financial 
 liabilities                208,111     10,236     537          -             218,884 
Lease liabilities           4,061       9,061       35,281      10,580        58,983 
Insurance contract 
 liabilities                1,950       6,598       -           -             8,548 
Subordinated 
 debt                       11,747      16,369      258,110     386,514       672,740 
Total financial 
 liabilities                3,609,839  1,486,522   3,056,741   11,361,651     19,514,753 
Performance guarantees      4,427       -           -           -             4,427 
Financial guarantees        5,424       -           -           -             5,424 
Other credit 
 related commitments        100,214     -           -           -             100,214 
Credit related 
 commitments and 
 performance guarantees     110,065     -           -           -             110,065 
Net liquidity 
 gap as of 31 
 December 2020             3,316,184   1,295,452   3,825,119   (6,622,552)   1,814,203 
Cumulative gap 
 as of 31 December 
 2020                      3,316,184   4,611,636   8,436,755   1,814,203 
 

The management believes that the Group has sufficient liquidity to meet its current on- and off-balance sheet obligations.

   26     Contingencies and Commitments 

Legal proceedings

When determining the level of provision to be set up with regards to such claims, or the amount (not subject to provisioning) to be disclosed in the financial statements, the management seeks both internal and external professional advice. The management believes that the provision recorded in these condensed consolidated interim 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 , Azerbaijani and Uzbekistan 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.

   26     Contingencies and Commitments (Continued) 

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 30 June 2021 and 31 December 2020 no material 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. During 2020 and 2021, the bank renegotiated some of its lender covenants to reflect the changes in the operations as a result of the COVID -19. The Group was in compliance with all covenants as of 31 December 2020 and 30 June 2021.

Management of Capital

The Bank manages capital requirements under regulatory rules. The Bank complied with all its imposed capital requirements throughout the reporting period.

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.

As of 30 June 2021 Outstanding credit related commitments are as follows:

 
in thousands of GEL                        Stage 1     Stage    Stage 
                                                        2        3 
Undrawn credit lines                        1,374,620   57,553   8,037 
Letters of credit issued                    122,483     355      1,161 
Financial guarantees issued                 316,437     5,693    1,943 
Total credit related commitments (before 
 provision)                                 1,813,540   63,601   11,141 
Undrawn credit lines                        (3,138)     (650)    (3) 
Letters of credit issued                    (219)       (0)      - 
Financial guarantees issued                 (598)       (2)      (9) 
Credit loss allowance for credit related 
 commitments                                (3,955)     (652)    (12) 
Total credit related commitments            1,809,585   62,949   11,129 
 

As of 31 December 2020 Outstanding credit related commitments are as follows:

 
in thousands of GEL                        Stage       Stage     Stage 
                                            1           2         3 
Undrawn credit lines                        1,222,916   165,798   12,825 
Letters of credit issued                    158,131     1,464     1,247 
Financial guarantees issued                 303,046     14,571   1,318 
Total credit related commitments (before 
 provision)                                1,684,093   181,833   15,390 
Undrawn credit lines                       (3,246)     (986)     (15) 
Letters of credit issued                   (376)       -         - 
Financial guarantees issued                (795)       (4)       (2) 
Credit loss allowance for credit related 
 commitments                               (4,417)      (990)     (17) 
Total credit related commitments           1,679,676   180,843   15,373 
 
   26     Contingencies and Commitments (Continued) 

The credit quality of contingencies and commitments is as follows at 30 June 2021:

 
 
in thousands of GEL     Stage 1       Stage 2          Stage 3                 Total 
                          (12-months    (lifetime        (lifetime ECL 
                          ECL)          ECL for SICR)    for credit impaired) 
Undrawn credit lines 
 risk category 
- Very low               1,314,504     2,378             -                      1,316,882 
- Low                    58,194        43,697            -                      101,891 
- Moderate               1,922         10,724            -                      12,646 
- High                    -            754               -                      754 
- Default                 -             -               8,037                   8,037 
Gross carrying amount    1,374,620     57,553           8,037                   1,440,210 
Credit loss allowance    (3,138)       (650)            (3)                     (3,791) 
Carrying amount          1,371,482     56,903           8,034                   1,436,419 
Letters of credit                                                               - 
 issued risk category 
- Very low               122,483        -                -                      122,483 
- Low                     -            355               -                      355 
- Moderate                -             -                -                      - 
- High                    -             -                -                      - 
- Default                 -             -               1,161                   1,161 
Gross carrying amount    122,483       355              1,161                   123,999 
Credit loss allowance    (219)         -                -                       (219) 
Carrying amount          122,264       355              1,161                   123,780 
Financial guarantees                                                            - 
 issued risk category 
- Very low               314,538       93                -                      314,631 
- Low                    1,899         2,802             -                      4,701 
- Moderate                -            2,798             -                      2,798 
- High                    -             -                -                      - 
- Default                 -             -               1,943                   1,943 
Gross carrying amount    316,437       5,693            1,943                   324,073 
Credit loss allowance    (598)         (2)              (9)                     (609) 
Carrying amount          315,839       5,691            1,934                   323,464 
 
   26     Contingencies and Commitments (Continued) 

The credit quality of contingencies and commitments is as follows at 31 December 2020:

 
 
in thousands of GEL     Stage 1       Stage 2          Stage 3                 Total 
                          (12-months    (lifetime        (lifetime ECL 
                          ECL)          ECL for SICR)    for credit impaired) 
Undrawn credit lines 
 risk category 
- Very low               1,157,753     3,820            -                       1,161,573 
- Low                    62,193        146,114          -                       208,307 
- Moderate               2,963         14,723           -                       17,686 
- High                   7             1,141            -                       1,148 
- Default                -             -                12,825                  12,825 
Gross carrying amount    1,222,916     165,798          12,825                  1,401,539 
Credit loss allowance    (3,246)       (986)            (15)                    (4,247) 
Carrying amount          1,219,670     164,812          12,810                  1,397,292 
Letters of credit 
 issued risk category 
- Very low               157,992       -                -                       157,992 
- Low                    139           1,464            -                       1,603 
- Moderate               -             -                -                       - 
- High                   -             -                -                       - 
- Default                -             -                1,247                   1,247 
Gross carrying amount    158,131       1,464            1,247                   160,842 
Credit loss allowance    (376)         -                -                       (376) 
Carrying amount          157,755       1,464            1,247                   160,466 
Financial guarantees 
 issued risk category 
- Very low               268,333       100              -                       268,433 
- Low                    34,713        14,471           -                       49,184 
- Moderate               -             -                -                       - 
- High                   -             -                -                       - 
- Default                -             -                1,318                   1,318 
Gross carrying amount    303,046       14,571           1,318                   318,935 
Credit loss allowance    (795)         (4)              (2)                     (801) 
Carrying amount          302,251       14,567           1,316                   318,134 
 

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 at 30 June 2021 included in undrawn credit lines above were GEL 603,051 thousand (31 December 2020: GEL 579,915 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 at 30 June 2021 amounted to GEL 1,622,523 thousand and GEL 3,012 thousand (31 December 2020: GEL 1,751,041 thousand and GEL 4,427 thousand).

Fair value of credit related commitments and financial guarantees provisions was GEL 4,619 thousand as at 30 June 2021 (31 December 2020: GEL 5,424 thousand). Total credit related commitments and performance guarantees are denominated in currencies as follows:

   26     Contingencies and Commitments (Continued) 
 
In thousands of GEL    30 June 2021  31 December 2020 
 
Georgian Lari          1,227,196      1,208,199 
US Dollars              1,676,054     1,584,878 
Euro                   545,612        776,307 
Other                  61,943         62,973 
 
 
Total                  3,510,805     3,632,357 
 

Capital expenditure commitments . As at 30 June 2021, the Group has contractual capital expenditure commitments amounting to GEL 91,048 thousand (31 December 2020: GEL 14,631 thousand). Out of total amount contractual commitments related to the head office construction amounted GEL 57,124 thousand (31 December 2020: GEL 4,853 thousand).

   27     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:

 
                           30 June 2021              Total      31 December 2020          Total 
in thousands of            Level  Level      Level              Level  Level      Level 
 GEL                        1      2          3                  1      2          3 
 
  ASSETS CARRIED 
  AT FAIR VALUE 
FINANCIAL ASSETS 
Investment securities measured at fair value 
 through other comprehensive income 
- Certificates 
 of Deposits of 
 National Bank of 
 Georgia                   -      -          -       -           -      21,687     -       21,687 
- Corporate Bonds          -      667,299    -       667,299     -      664,563    -       664,563 
- Ministry of Finance 
 of Uzbekistan treasury 
 bills                     -      1,807      -       1,807       -      1,950      -       1,950 
- Ministry of Finance 
 of Georgia Treasury 
 Bills                     -      1,352,222  -       1,352,222   -      838,152    -       838,152 
- Corporate shares         -      -          1,056   1,056      -      -          916     916 
- Foreign exchange 
 forwards and gross 
 settled currency 
 swaps, included 
 in other financial 
 assets or due from 
 banks                     -      79,828     -       79,828      -      28,915     -       28,915 
- Investment held 
 at fair value through 
 profit or loss            -      -          11,528  11,528      -      -         17,239  17,239 
TOTAL ASSETS RECURRING 
 FAIR VALUE MEASUREMENTS   -      2,101,156  12,584  2,113,740  -      1,555,267  18,155  1,573,422 
 
  LIABILITIES CARRIED 
  AT FAIR VALUE 
FINANCIAL LIABILITIES 
Foreign exchange 
 forwards and gross 
 settled currency 
 swaps, included 
 in other financial 
 liabilities               -      15,759     -       15,759      -      121,934    -       121,934 
TOTAL LIABILITIES 
 RECURRING FAIR 
 VALUE MEASUREMENTS        -      15,759     -       15,759      -      121,934    -       121,934 
 

There were no transfers between levels during the six months ended 30 June 2021 (2020: none).

   27     Fair Value Disclosures (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                    30 June    31 December  Valuation 
                                        2021       2020         technique           Inputs used 
ASSETS CARRIED AT FAIR VALUE 
FINANCIAL ASSETS 
- Certificates of Deposits of 
NBG, Ministry of Finance Treasury                              Discounted           Government 
Bills, Government notes, Corporate                              cash flows           bonds yield 
bonds                                  2,021,328   1,526,352    ("DCF")              curve 
                                                               Forward              Official 
- Foreign exchange forwards                                     pricing              exchange 
 and gross settled currency swaps,                              using present        rate, risk-free 
 included in due from banks            79,828      28,915       value calculations   rate 
Total assets recurring fair 
 value measurements at level 
 2                                     2,101,156   1,555,267 
 
LIABILITIES CARRIED AT FAIR VALUE 
FINANCIAL LIABILITIES 
                                                               Forward              Official 
- Foreign exchange forwards                                     pricing              exchange 
 included in other financial                                    using present        rate, risk-free 
 liabilities                           15,759      121,934      value calculations   rate 
Total liabilities recurring 
 fair value measurements at level 
 2                                     15,759      121,934 
 
 

There were no changes in the valuation technique for the level 2 and level 3 recurring fair value measurements during the six month period ended 30 June 2021 (2020: none).

(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:

 
                30 June 2021                       31 December 2020 
in thousands    Level 1    Level 2     Level 3     Carrying       Level 1     Level 2     Level 3      Carrying 
of GEL                                             Value                                               Value 
 
FINANCIAL 
ASSETS 
Cash and cash 
 equivalents    832,304    582,110     -           1,414,414       755,686     879,719     -            1,635,405 
Due from other 
 banks          -          59,314      -           59,314          -           50,805      -            50,805 
Mandatory cash 
 balances with 
 the NBG        -          2,117,157   -           2,117,157       -           2,098,506   -            2,098,506 
Loans and advances to customers: 
- Corporate 
 loans          -          -           5,788,317   5,773,610       -           -           5,728,134   5,583,108 
- Consumer 
 loans          -          -           2,015,109   1,710,436       -           -           2,025,055   1,769,760 
- Mortgage 
 loans          -          -           4,125,803   3,708,022       -           -           4,032,243   3,845,232 
- Loans to 
 micro, small 
 and medium 
 enterprises    -          -           3,681,325   3,604,900       -           -           3,508,881    3,396,174 
Bonds carried 
 at amortised 
 cost           -          10,069      -           10,069          -           1,086,007   -            1,089,801 
Investments in 
 leases         -          -           244,691     245,261         -           -           274,402      271,660 
Other 
 financial 
 assets         -          -           196,405     196,405         -           -           125,148      125,148 
NON-FINANCIAL ASSETS 
Investment 
 properties, 
 at cost        -          -           42,649      33,407          -           -           105,628      68,689 
TOTAL ASSETS    832,304    2,768,650   16,094,299  18,872,995      755,686     4,115,037  15,799,49 1  19,934,28 8 
 
FINANCIAL LIABILITIES 
Customer 
 accounts       -          7,913,265   4,958,564   12,870,418      -           7,481,872   5,113,469   12,572,728 
Debt 
 securities in 
 issue          1,522,291  -           -           1,445,614       1,463,830   -           -            1,496,497 
Due to credit 
 institutions   -          3,485,963   -           3,482,830       -           4,490,963   -            4,486,373 
Other 
 financial 
 liabilities    -          162,304     -           162,304         -           164,479     -            164,479 
Subordinated 
 debt           -          640,268     -           635,981         -           677,246     -            672,740 
TOTAL 
 LIABILITIES    1,522,291  12,201,800  4,958,564   18,597,147     1,463,830   12,814,560  5,113,469    19,392,817 
 
 
   27     Fair Value Disclosures (Continued) 

The fair values of financial assets and liabilities 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. 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. Management assessed the prices per square meter and they have not changed significantly from the end of 2020.

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 six months ended 30 June 2021 (2020: none).

   28     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 5% of ownership stake in the TBCG or with representatives in the Board of Directors are considered as Significant Shareholders.

-- The key management personnel include members of TBCG's Board of Directors, the Management Board of the Bank and their close family members.

Transactions between TBC Bank Group PLC and its subsidiaries also meet the definition of related party transactions. Where these are eliminated on consolidation, they are not disclosed in the Group Financial Statements.

The definition of the related party is different per standards of National Bank of Georgia and is regulated by the published Decree N 26/04 of the Governor of the National Bank of Georgia (link to the document below in the footnote).

As of 30 June 2021, the outstanding balances with related parties were as follows:

 
in thousands of GEL                  Contractual     Significant    Key management 
                                      interest rate   shareholders   personnel 
Gross amount of loans and advances 
 to customers                        4%-33%          39             7,777 
Credit loss allowance for loans 
 and advances to customers                           -              3 
Customer accounts                    0.0%-12.5%      13,672         18,809 
 

As of 31 December 2020, the outstanding balances with related parties were as follows:

 
in thousands of GEL                  Contractual      Significant    Key management 
                                      interest rate    shareholders   personnel 
Gross amount of loans and advances 
 to customers                        6.6% - 36.0%     54             6,869 
Credit loss allowance for loans 
 and advances to customers                             -             4 
Customer accounts                    0.0% - 11.5%     16,574         16,555 
 
   28     Related Party Transactions (Continued) 

The income and expense items with related parties except from key management compensation during the period end 30 June 2021 were as follows:

 
                                              Significant    Key management 
In thousands of GEL                            shareholders   personnel 
 
Interest income                                3              153 
Interest expense                               -              1 
Fee and commission income                      14             28 
Administrative and other operating expenses 
 (excluding staff costs)                      -              177 
 
 

The income and expense items with related parties except from key management compensation during the period ended 30 June 2020 were as follows:

 
                                              Significant    Key management 
In thousands of GEL                            shareholders   personnel 
Interest income                               4              164 
Interest expense                               1              2 
Fee and commission income                      18             19 
Administrative and other operating expenses 
 (excluding staff costs)                      -              281 
 
 

The aggregate loan amounts advanced to, and repaid, by related parties during the period end 30 June 2021 were as follows:

 
                                             Significant    Key management 
In thousands of GEL                           shareholders   personnel 
 
Amounts advanced to related parties during 
 the period                                   41             4,056 
Amounts repaid by related parties during 
 the period                                   (55)           (2,453) 
 
 

Aggregate amounts of loans advanced to and repaid by related parties during the six months ended 30 June 2020 were as follows:

 
                                             Significant    Key management 
In thousands of GEL                           shareholders   personnel 
 
Amounts advanced to related parties during 
 the period                                   59             1,232 
Amounts repaid by related parties during 
 the period                                   (39)           (1,265) 
 
 

The compensation of the TBCG Board of Directors and the Bank's Management Board is presented below:

 
                                          Expense over the six 
                                           months ended 
In thousands of GEL                       30 June 2021  30 June 2020 
Salaries and bonuses                      4,972         4,753 
Equity-settled share-based compensation   5,805         4,945 
 
 
Total                                     10,777        9,698 
 
 

Included in salaries and bonuses for six months ended 30 June 2021 GEL 1,236 thousand relates to compensation for directors of TBCG paid by TBC Bank Group PLC (six months ended 30 June 2020: GEL 1,329 thousand).

   29     Events after Reporting Period 

Subsequent to the year end the Board of Directors of TBC Bank Group PLC has declared an interim dividend of GEL 1.5 per TBC PLC share (the "Interim Dividend"). The Interim Dividend will be payable in Pounds Sterling to ordinary shareholders of TBC Bank Group PLC on the register of members at the close of business on the record date of 20 August 2021. Dividend payment date will be 17 September 2021.

Appendix A - A full list of related undertakings and the country of incorporation is set out below.

 
 
Company Name                                           Country of incorporation 
 
JSC TBC Bank                                           7 Marjanishvili Street, 0102, Tbilisi, Georgia 
United Financial Corporation JSC                       154 Agmashenebeli Avenue, 0112, Tbilisi, Georgia 
TBC Capital LLC                                        11 Chavchavadze Avenue, 0179, Tbilisi, Georgia 
TBC Leasing JSC                                        76 Chavchavadze Avenue, 0162,, Tbilisi, Georgia 
TBC Kredit LLC                                         71-77, 28 May Street, AZ1010, Baku, Azerbaijan 
Banking System Service Company LLC                     7 Marjanishvili Street, 0102, Tbilisi, Georgia 
TBC Pay LLC                                            7 Marjanishvili Street, 0102, Tbilisi, Georgia 
TBC Invest LLC                                         7 Jabonitsky street, , 52520, Tel Aviv, Israel 
Index LLC                                              8 Tetelashvili,0102,, Tbilisi, Georgia 
JSC TBC Insurance                                      24B, Al. Kazbegi Avenue, 0160, Tbilisi, Georgia 
TBC Invest International Ltd                           7 Marjanishvili Street, 0102, Tbilisi, Georgia 
University Development Fund                            1 Chavchavadze Avenue, 0128 , Tbilisi, Georgia 
JSC CreditInfo Georgia                                 2 Tarkhnishvili street, 0179, Tbilisi, Georgia 
LTD Online Tickets                                     3 Irakli Abashidze street, 0179, Tbilisi, Georgia 
VOO LLC                                             44 Petre Kavtaradze street, 0128, Tbilisi, Georgia 
Swoop JSC                                              44 Petre Kavtaradze street, 0162, Tbilisi, Georgia 
Natural Products of Georgia LLC                        1 Chavchavadze Avenue, 0128 , Tbilisi, Georgia 
Mobi Plus JSC                                          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                                 5 Sulkhan Saba Street, 0105, Tbilisi, Georgia 
GRDC N.V                                               Utrechtseweg 95, 1213 TN Hilversum,Netherlands 
Banking and Finance Academy of Georgia                 123, Agmashenebeli Avenue, 0112, Tbilisi, Georgia 
Tbilisi's City JSC                                     15 Rustaveli Avenue, 0108, Tbilisi Georgia 
TBC Trade                                              11A Chavchavadze Ave, 0179, Tbilisi, Georgia 
TBC Support LLC                                        12 Rustaveli Avenue, 0108, Tbilisi Georgia 
Redmed LLC                                             25 Al. Kazbegi Avenue, 0160, Tbilisi, Georgia 
TBC Ecosystem companies LLC                             7 Marjanishvili st. Didube-chugureti District, 
                                                        Tbilisi,Georgia 
TKT UZ                                                 12, Shota Rustaveli, Yakkasaray district, Tashkent, 
                                                       Uzbekistan 
My.Ge LLC                                              129a Sh. Nutsubidze St. Vake,Tbilisi, Georgia 
Mypost LLC                                             129a Sh. Nutsubidze St. Vake,Tbilisi, Georgia 
Billing Solutions LLC                                  14 Khelovanta St. Isani, Tbilisi, Georgia 
Allproperty.ge LLC                                      4 Besiki St.Mtatsminda District, Tbilisi,Georgia 
F Solutions LLC                                        36, Kakheti Hwy, Isani-Samgori District, Tbilisi, Georgia 
TBC Connect                                             7 Marjanishvili st. Didube-chugureti District, 
                                                        Tbilisi,Georgia 
Inspired LLC                                           1, Chust, Mirzo Ulugbek district, Tashkent, Uzbekistan 
VOO LLC (UZ Leasing)                                10B, Fidokor, Yakkasaray, Tashkent, Uzbekistan 
TBC Concept LLC                                         7 Marjanishvili st. Didube-chugureti District, 
                                                        Tbilisi,Georgia 
TBC Bank UZ                                            118/1, Amir Temur avenue, Yunusobod district, Tashkent, 
                                                       Uzbekistan 
TBC Group Support LLC                                   7 Marjanishvili st. Didube-chugureti District, 
                                                        Tbilisi,Georgia 
Tbilisi Stock Exchange JSC                             floor 2th block 8, 71 Vazha Pshavela Ave, Tbilisi, Georgia 
Georgian Stock Exchange JSC                            74a chavchavadzis avenue, vake-saburtalo, Tbilisi, Georgia 
Kavkasreestri JSC                                      74a chavchavadzis avenue, vake-saburtalo, Tbilisi, Georgia 
Freeshop.ge LLC2                                       74 chavchavadzis avenue, vake-saburtalo, Tbilisi, Georgia 
The.ge LLC2                                            20 amaglebis st. old Tbilisi, Georgia 
SABA LLC                                               5, Gabashvili street, vake-saburtalo Tbilisi, Georgia 
Artarea.ge LLC                                         25 Al. Kazbegi Avenue, 0160, Tbilisi, Georgia 
TBC Art Gallery LLC                                    6, Tsimakuridze str, Tbilisi, Georgia 
TBC Capital Asset Management LLC                       7 Marjanishvili Street, 0102, Tbilisi, Georgia 
Swift                                                  1 Adele Avenue, B-1310, La Hulpe, Belgium 
Space International JSC                                7 Marjanishvili Street, 0102, Tbilisi, Georgia 
 
 

[1] Operating income includes net interest income, net fee and commission income and other non-interest income

[2] For the ratio calculation, all relevant group recurring costs are allocated to the Bank.

[3] Market share figures are based on data from the National Bank of Georgia (NBG), which includes interbank loans.

[4] Active digital users include unique users of TBC Bank internet and mobile banking, Space app and TBC Pay mobile app.

[5] Users with at least one visit on our internet or mobile banking application every day during the given period. Average DAU is an average number of daily active retail digital users for the given period.

[6] DAU/MAU equals daily active digital users divided by monthly active digital users. Figures are given for TBC

Bank   internet & mobile banking only 

[7] Including Space transactions

[8] Internet and mobile banking penetration equals the number of active digital users divided by the total number of active clients.

   [9]   National Statistics Office of Georgia 

[10] For the ratio calculation, all relevant group recurring costs are allocated to the Bank.

[11] Includes consumer loans issued via internet and mobile bank, call center, web platform tbccredit.ge and Space to total consumer loans issued

([12]) Includes deposits opened through internet and mobile banking, call center and Space to total deposits opened

   [13]   Tracking the recovery, July 23, 2021, TBC Capital 

[14] Macro Insights: Restart in action - only partially led by the tourism recovery, July 1, 2021, TBC Capital

[15] Other operating non-interest income includes net insurance premium earned after claims and acquisition costs.

   [16]     For the ratio calculation, all relevant group recurring costs are allocated to the Bank. 

[17] Net insurance premium earned after claims and acquisition costs can be reconciled to the standalone net insurance profit (as shown in Annex 3) 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.

[18] In 1Q 2021, we updated the calculation methodology of NPL collateral coverage; please refer to annex 5 for more details.

[19] In 1Q 2021, we updated the calculation methodology of NPL collateral coverage; please refer to annex 5 for more details.

[20] Secured loans are those that are secured with cash, gold, real estate and other PPE.

[21] Other financial assets and liabilities do not contain offset amounts of omnibus accounts for TBC Capital (nominee accounts, where TBC Capital acts as a fiduciary on client's behalf).

[22] Other operating non-interest income includes net insurance premium earned after claims and acquisition costs.

   [23]     For the ratio calculation, all relevant group recurring costs are allocated to the Bank. 

[24] Net insurance premium earned after claims and acquisition costs can be reconciled to the standalone net insurance profit (as shown in Annex 3) 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.

[25] Other financial assets and liabilities do not contain offset amounts of omnibus accounts for TBC Capital (nominee accounts, where TBC Capital acts as a fiduciary on client's behalf).

[26] TBC Bank Group PLC became the parent company of JSC TBC Bank on 10 August 2016.

[27] Market shares are based on internal estimates. Source is Insurance State Supervision Service of Georgia. Total non-health and retail market share in 2Q 2021 including MTPL stood at 16.2% and 29.6% respectively

([28]) Net earned premium equals earned premium minus the reinsurer's share of earned premium.

   [29]   World Bank, Global Economic Prospects, June 2021 

[30] Standalone figures of the Bank, calculated per NBG standards

   [31]   World Bank, Global Economic Prospects, June 2021 

[32] The company was renamed from TBC International LLC to TBC Ecosystem companies LLC in the end of 2020.

[33] Loan collateral secured/unsecured definition has changed since year end 2020. June 2021 schedules correspond to numbers after changes.

[34] Loan collateral secured/unsecured definition has changed since year end 2020. June 2021 schedules correspond to numbers after changes.

[35] refer to note 2 for detailed explanation of changes in business model

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END

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