TBC Bank posts sharp jump in profits, hails strong economy

Georgia-focused lender TBC Bank posted a sharp improvement in its profits after tax for the second quarter of 2018, thanks to a to big reduction in its cost base, even as it positioned itself for potential upside from a recovery in the economy of neighbouring Azerbaijan.

Commenting on the lender's results for the period, TBC General Director, Vakhtang Butskhrikidze, highlighted the strong performance of the local economy during the first half of 2018, which saw the rate of GDP growth reach 5.7%, forcing the central bank to revise its own projections for the year higher, even as it cut interest rates in response to inflation being under-target.

"Given the strong momentum in 2017 and in the first half of 2018, as well as strong performance in export and tourism, we expect that the economic growth will still outperform the initial GDP forecast despite the recent development in Turkey and the region and its potential impact on Georgian Economy," he said.

Underlying net profits improved by 38.9% to reach 119.9m Geogian lira over the three months ending on 30 June, alongside a sharp improvement in the group's cost-to-income ratio to 35.6%.

To take note of, the Georgian lira had weakened just a tad of late against both Sterling and the US dollar and versus the former it remained near the middle of the trading range seen over the past five years, albeit with a bit of a weakening bias.

TBC also recorded an improvement in its net interest margin, from 6.8% in the year ago period to 7.1%, on the back of higher yields on local currency loans and a tick lower in its cost of funding.

The lender's improved profits were despite the one-off 17.4m lira expense booked during the period associated with the reversal of a deferred tax gain recognised in 2016 after the country's authorities decided, in June, to postpone the tax relief for reinvested profits which had been scheduled to kick-in on 1 January, 2019.

For the front half of its financial year overall, net profits were 17.8% higher to 217.4m lira.

Signficantly, during the reporting period TBC entered into an agreement to merge its subsidiary in neighbouring Azerbaijan, TBC Kredit, with Nikoil Bank.

Upon regulatory approval, TBC will take a stake of as much as 10% in the combined entity, with an option to raise it to 50% plus one, at its own discretion, one over the next three years.

Management of TBC highlighted that the move would allow up to keep all its options open to benefit from potential upside to the Azeri economy without needing to plump up additional investment at th initial stage.

As of 0818 BST, shares of TBC Bank were rising by 1.75% to 1,630.0p.