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Edited Transcript of TBCG.L earnings conference call or presentation 14-Nov-19 2:00pm GMT

Full Year 2019 TBC Bank Group PLC Earnings Call

LONDON Nov 28, 2019 (Thomson StreetEvents) -- Edited Transcript of TBC Bank Group PLC earnings conference call or presentation Thursday, November 14, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Giorgi Shagidze

TBC Bank Group PLC - CFO, Deputy CEO & Executive Director

* Vakhtang Butskhrikidze

TBC Bank Group PLC - CEO & Executive Director

* Zoltan Szalai

TBC Bank Group PLC - Director of International Media & IR

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Conference Call Participants

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* Andrew Keeley

Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst

* Andrey Mikhailov

Sova Capital Limited, Research Division - Research Analyst

* David Samuel Shapiro

Vanshap Capital, LLC - Chief Compliance Officer

* Mikhail Shlemov

VTB Capital, Research Division - Equities Analyst

* Ronak Gadhia

EFG Hermes Holding S.A.E., Research Division - Research Analyst

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Presentation

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Operator [1]

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Hello and welcome to the third quarter and 9-month 2019 quarterly results call. My name is Rosie, and I'll be your coordinator for today's event. Please note, this conference is being recorded. (Operator Instructions)

I will now hand you over to Zoltan Szalai to begin today's conference.

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Zoltan Szalai, TBC Bank Group PLC - Director of International Media & IR [2]

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Good afternoon, ladies and gentlemen. Thank you for joining our third quarter and 9 months 2019 financial results conference call. I'm Zoltan Szalai, Director of Investor Relations. Today with me are Vakhtang Butskhrikidzem, CEO of the bank; and Giorgi Shagidze, Deputy CEO and CFO.

Vakhtang will start with an overview of the main development during the quarter, followed by Giorgi discussing our financial results. We'll finish with a Q&A session. Our presentation is available on our IR website.

With that, I will hand over to Vakhtang to the start the presentation.

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Vakhtang Butskhrikidze, TBC Bank Group PLC - CEO & Executive Director [3]

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Thank you, Zoltan. I'd like to present another set of strong financial results for the third quarter as well as update on our progress of our ecosystem strategy and recent macro developments in Georgia. Our consolidated net profit for the third quarter of 2019 grew by 18.1% year-on-year and reached GEL 126.8 million. The growth in revenue was mainly driven by an increase in net fee and commission income and other operating income, which offset the decrease in net interest income.

As anticipated, net interest margin decreased by 0.4 percentage points quarter-on-quarter due to the continued effect of new regulations that was introduced in January of this year. A further decrease of 0.2 percentage point was related to excess liquidity and the repayment free of subordinated loan. As a result, our net interest margin stood at 5% or 5.2% without the above-mentioned effects, and we expect net interest margin to stabilize at this level.

The increase in net profit was further amplified by a decrease in credit loss allowance that was driven by the improved performance of the loan book. As a result, our cost of risk stood at 0.7% in the third quarter. Over the same period our operating expenses decreased by 7.3% year-on-year.

Finally, our return of equity was 20.4%, while return of assets stood at 2.8% in the third quarter, or 3% without excess liquidity and the prepayment fee of the subordinated loan.

Regarding balance sheet growth, our loan book expanded by 21.4% year-on-year or by 14.3% at a constant currency rate. As a result, our market share increased to 38.7% up by 0.3 percentage point year-on-year. Over the same period, customer account grew by 13.2% year-on-year or by 5.3% at a constant currency rate leading to market share of 39.3%, down by 1 percentage point year-on-year. The slight decline in market share is the result of decreased focus on customer deposit during the third quarter, due to high liquidity following the recent bond issuance.

Regarding the macro environment, the company expanded by 5.7% in the third quarter, however, mostly reflecting the low base effect. Growth is expected to be above 4% for 2019 and 2020, with a slower year-over-year increase in the fourth quarter 2019 and the first half of 2020. From the second half of 2020, the economy is expected to deliver close to 5% growth rate. The long-term growth is expected to reach 5.2% once again underlying strong growth fundamentals and resilience of the economy.

Now I'd like to briefly update you on our recent achievements in developing our ecosystem strategy. As presented in June, during our Capital Markets Day in line with our new mission statement to make life easier, we are enhancing our value proposition beyond financial services and are developing customer-focused digital ecosystems. This will allow us to better engage with our customers and become part of their daily lives.

In this regard, we have already launched payments, housing and e-commerce ecosystem and are also actively developing an auto ecosystem.

Payments. The number of volume of payments transactions continue to increase rapidly. At the same time, we are developing innovative payment options, such as Apple Pay and ATM QR withdrawal.

In addition, we increased our share in our associated company TKT.ge to 55% from 26%. TKT.ge is a leading online platform in Georgia, which allows people to buy ticket for various events such as cinema, theater as well as airplane and train tickets.

Furthermore, our Uzbek subsidiary, PayMe, continued to grow rapidly. Its number of customers increased by 10.4% quarter-on-quarter to reach 1.6 million, while its revenue increased by 12.4% over the same quarter, amounting to around GEL 2.2 million.

E-commerce. Our newly launched e-commerce platform, Vendoo, is expanding rapidly by adding new product types and attracting more visitors. At the end of September, Vendoo offered more than 20,000 different product items, with the number of unique monthly visitors reaching around 514,000.

Housing. Our housing ecosystem, Livo, which was launched in May, is gaining popularity quickly. It attracted around 281,000 monthly unique visitors and had 17,000 listings at the end of September. For the first 9 months of this year, its revenue stood at GEL 1.4 million.

In addition, in August of this year, we acquired 65% stake in My.ge, the leading classified e-commerce player in Georgia, trading under the My Group name. My Group operates in 4 online marketplace verticals: automotive, automotive spare parts, consumer-to-consumer and housing.

The acquisition of My Group is a big leap in the development of our ecosystem strategy as it is estimated to have the largest online traffic in Georgia with a combined 1.7 million unique monthly visitors across all platforms. For the first 9 months of this year, its revenue stood at GEL 4.2 million, while the EBITDA amounts to GEL 1.4 million.

I'd also like to highlight our strong performance in affluent subsegment. The number of TBC Status customers increased by 31.5% quarter-on-quarter and reached around 69,000 in the third quarter. The sharp increases in number of Status clients was driven by new digital service model that was introduced in March of this year. This service includes fully digital on-boarding, self-managing digital banking operations, financial advising, education tutorials and personalized digital offers.

Finally, I'm delighted that Eric Rajendra was reappointed as an Independent Non-Executive Director of the Board of Directors of TBC Bank Group PLC and as an Independent Non-Executive Member of the Supervisory Board of Joint Stock Company of TBC Back. Eric has a very good understanding of TBC Bank's strategy and operations, and his presence will enhance shareholder value by bringing expertise and stability to the Group.

Now I'd like to hand over to Giorgi.

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Giorgi Shagidze, TBC Bank Group PLC - CFO, Deputy CEO & Executive Director [4]

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Thank you, Vakhtang. I'll start my presentation from Slide 26, and we'll go over financial performance of the third quarter 2019 in detail.

Well, firstly, I'd like to reiterate that the regulation effect is fully reflected into our financials. Starting from here, we expect stabilization in the NIM. Furthermore, despite this effect, we continue delivering robust profitability.

As you can see from this slide, in quarter 3 2019, our net profit amounted to GEL 126.8 million, up by 18.1% year-on-year and by 5.5% quarter-over-quarter. The growth was driven by the increased fee and commission income and other operating income as well as in decreasing credit loss allowances. I'll elaborate more on these factors on the following slides.

As a result, in quarter 3 2019, our return on equity and return on assets stood at 20.4% and 2.8%, respectively. The decrease in our return on assets in the third quarter was also related to decrease in net increase margin as well as increase in assets due to high liquidity. Without excess liquidity and subordinated loan prepayment fees, return on assets would have stood at 3% in quarter 3 2019.

On the next slide, I'd like to present our net interest margin. Our NIM stood at 5%, as you can see from the slide, which was 40% quarter-over-quarter decline due to the regulations and further, 20 basis point decline related to the excess liquidity and, again, prepayment of the -- fee related to the prepayment of the subordinated loan. Without those one-offs, our NIM would have stood at 5.2% in quarter 3 2019.

Over the same period, yields on securities decreased by 90 basis points year-on-year and 80 basis points quarter-over-quarter. However, this is yield on blended -- currency blended securities due to increased AAA foreign government securities in the total portfolio as a result of our high liquidity. Our cost of funding increased by 30 basis points quarter-over-quarter, driven by, again, subordinated loan prepayment fees.

Moving on Slide #28, I'd like to present our performance in noninterest income. Net fee and commission income increased by 19.5% year-on-year and 8.3% quarter-over-quarter. The growth was mainly driven by settlement transactions and other net fee and commission income.

Total noninterest income, without fee and commission income, increased by 18.7% year-on-year and by 21.1% quarter-over-quarter. The increase was driven in the rise in net fee and commission from a currency operations, mainly related to the increased number and volume of FX transactions. Another driver was growth in net insurance premium and after claims and acquisitions, mainly related to the growth of the respective business.

Our net slide is about sound asset quality. In quarter 3 2019, our NPL ratio decreased by 20 basis points, both quarter-over-quarter and year-on-year basis. The decline was mainly attributable to the strong performance of the corporate loan book.

In quarter 3 2019, cost of risk stood at 0.7% and would have been broadly stable on quarter-over-quarter basis at constant currency rate. Significant improvements on year-on-year basis is driven by the product mix change and the strong performance across all segments. In terms of loan book concentration, top 20 and top 10 borrowers to gross loans stood at the 13% and 9%, respectively, while our related party-to-gross loan ratio remains low, standing at 0.1%.

Next slide is about operating expenses. As you can see, in the third quarter, our operating expenses grew by 7.3% year-on-year, mainly related to the increased staff cost and depreciation. Now with regards to staff cost, it is mainly due to accounting reasons as well as increase in the business scale.

With regard to the accounting reason of the old share-based payment, which was introduced in any 2015, expired, and we introduced new one. While there was no change in the total compensation, there is a difference in accounting charge because the value of the shares of the old system was at $11 as it was at the introduction of the then share-based payment system, and now it is at GBP 16.5, which was the value of the shares at the introduction of the new system.

Quarter-over-quarter, our operating expenses increased by 2.1% or by 7.6% without one-off consulting fees in the amount of GEL 5.6 million in quarter 2 2019. The increase was mainly driven here by uneven spending of administrative expenses across the year, depreciation of the currency and about GEL 1 million one-off costs.

As a result of our cost-to-income ratio stood at 39.9% or 37.9% without contribution of ecosystems. Hereto, again, the rebasing business means that income will continue outperforming costs in the future, and we are not changing our medium-term target of 35% for the cost to income.

Next slide, Slide 31, is about our solid capital levels. As of 30 September 2019, regulatory CET -- Tier 1 and total capital per Basel III stood at 11.9%, 14.7% and 19.4%, respectively, above the respective minimum requirements of 9.8%, 11.9% and 16.7%. Quarter-over-quarter increase in Tier 1 and in total capital adequacy ratio was mainly driven by issuance of AT1 bonds in the amount of $125 million, reflected in the capital in July 2019.

Slide 32 is about funding and liquidity position. We operate on very high liquidity due to the issued bonds and AT1 instrument. Our liquidity coverage ratio stood at 132% above the regulatory limit of 100% and net stable funding ratio stood at 138% compared to minimum 100%. This is, firstly, very strong position to be and also has an upside in NIM when we deploy this liquidity in the future.

Further on liquidity, as you can see from this slide, we have well-balanced funding structure. Our IFI funding stood at around GEL 2.1 billion for the quarter ending 30 September.

Finally, I'd like to review TBC Insurance performance. In quarter 3 2019, Insurance maintained its leading position in retail nonhealth insurance markets. The Insurance business entered the health care insurance with a focus on premium segment by leveraging strong brand name, leading digital capabilities as well as cross-selling opportunities with payroll customers of TBC.

In this regard, they, today, launched health care digital ecosystem set to change how the service is done in Georgia. This further establishes our strong position in ecosystems, which is becoming our strong competitive advantage today and a growth lever for the future.

With regards to the profit, insurance net profit increased by 13% year-on-year and net combined ratio stood at 77.8%.

Now I'd like to hand over to Vakhtang.

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Vakhtang Butskhrikidze, TBC Bank Group PLC - CEO & Executive Director [5]

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Yes. Thank you, Giorgi. Now I'd like to finish today's presentation by reiterating our medium-term targets: loan book growth in the range of 10% percent to 15%, return of equity of above 20%, cost to income ratio below 35% and dividend payout ratio of 25% to 35%.

With this, I'd like to invite you to ask your questions, please.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes with a line of Andrew Keeley from Sberbank.

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [2]

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I have a few questions. I'll take them one by one. First of all, on your net interest margin, I remember, I think, after the second quarter call, you said that you thought probably there'd be another 30 bps to 50 bps NIM compression. Obviously, we had a little bit more than that in the third quarter. I'm just wondering how kind of confident you are that the NIM is now finally kind of troughing out and stabilizing at 5%? And does this 5% level include the expected deployment of excess liquidity over the next few quarters as you mentioned you have high liquidity at the moment?

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Giorgi Shagidze, TBC Bank Group PLC - CFO, Deputy CEO & Executive Director [3]

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Andrew, thanks for the question. I think, yes, you are right. We said 30 to 50 basis points, and now we have 60. And partial of this 60 is driven by the prepayment fee related to the subordinated loans we prepaid after the issuance of AT1.

So we are there even though it is the upper end of the range. Starting from here, we expect it to be stable. I mean you can have little bit lower or a little bit higher. But overall, we expect it to be stable. There is a component of decreasing liquidity, but then there is a component of price competition as well. So I would say, broadly stable, starting from this level, taking everything into account.

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [4]

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Okay. Thank you, Giorgi. Second question is on costs. So can you give us a sense of how much this change in the accounting for the share payment scheme impacted staff costs? Maybe you mentioned it, but I might have missed it. So what would it -- and if this kind of a one-off thing that would have just been seen in third quarter. So what would the staff cost growth have been kind of without that?

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Giorgi Shagidze, TBC Bank Group PLC - CFO, Deputy CEO & Executive Director [5]

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I think it implies -- it would explain about 60% to 70% of the growth overall in the staff cost. And there is -- on this accounting, the currency rate is also important because currency rate is something that you accrue it in lari as well. There will be effect of it in the future as well. But assuming currency stabilizes, the effect will be lower than it is in quarter 3.

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [6]

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Okay. Do you have kind of thoughts on where you see your cost growth kind of settling out once you've kind of accounted for these kind of changes? And we've, obviously, had some one-offs as we saw in the second quarter. Are you kind of thinking around kind of the double-digit 10% mark? Is that a reasonable kind of expectation going forward?

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Giorgi Shagidze, TBC Bank Group PLC - CFO, Deputy CEO & Executive Director [7]

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Yes. It's around 10%, you are right. But again, I mean the rebate NIM and the stabilization in NIM means that the income will kind of get back to growing mold or -- and which will outperform the growth in staff -- the growth in operating expenses, now which means that we will continue decreasing the cost to income, and which -- and again, we are not changing the cost to income with the interim target of 35%. So the 10% in staff cost is not big if you grow income more than that.

There are many things that -- I mean, if he had to kind of cut costs, then obviously, we would have delivered different results, but there are many things we continue investing, and that's why we need to balance it from cost-to-income perspective.

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [8]

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Okay. And another question on your ecosystem. I see in Slide 15, you give a net profit figure for the ecosystems of GEL 25 million, I think, in 9 months. Just to clarify, I mean, does that include interchange and acquiring or not? And maybe, I don't know if you have the kind of contribution of TBC Pay within that GEL 25 million?

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Giorgi Shagidze, TBC Bank Group PLC - CFO, Deputy CEO & Executive Director [9]

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So TBC Bank drives about 25% of the ecosystem's revenue. I mean, overall, across all the ecosystems, the fees are -- that are driven by TBC Bank directly, I mean, not taking into account brands and so on. It is about 25%.

In terms of TBC Pay's contribution, we have a TBC Pay's specific slide, which is Slide #18 in the pack. So out of GEL 56 million revenue, TBC Pay contributes to GEL 24 million. So if you take revenue, TBC Pay contribution is GEL 24 million. If you take EBITDA, TBC Pay's EBITDA is about GEL 12 million, and we disclosed, the profit number here is about a net profit of being GEL 25 million.

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Operator [10]

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The next question come from the line of David Shapiro from Vanshap Capital.

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David Samuel Shapiro, Vanshap Capital, LLC - Chief Compliance Officer [11]

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I got cut off the line, so I apologize if you already answered this. On cost of risk, is there normalized figure that you would expect going forward, given now the regulations have fully matured and your portfolio is likely to be a bit more stable?

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Giorgi Shagidze, TBC Bank Group PLC - CFO, Deputy CEO & Executive Director [12]

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David, the normalized would be around 1% in the kind of the short-to-medium period. 0.7% is a little bit on the lower side, but it would be around 1%. And you correctly mentioned, the most important reason there is the effect of regulation and improved asset quality and so on.

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David Samuel Shapiro, Vanshap Capital, LLC - Chief Compliance Officer [13]

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And can you provide an update on your Azerbaijan entity? And how that is progressing?

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Giorgi Shagidze, TBC Bank Group PLC - CFO, Deputy CEO & Executive Director [14]

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Yes, yes, of course. I mean in Azerbaijan, what we are doing is, as you remember, is that despite the fact that we expect to have 8% after the merger is completed and approved, we started to contribute into the strategy, and we are having -- and there are many top management members that we sent from TBC.

There is re-branding planned this year, which will be perceived quite strongly on the local market. And I think in terms of disbursements, what we are seeing is that the disbursements of new healthy loans increased by about 23%.

Number-wise, in terms of contribution, it is not big in TBC because, firstly, the scale is small; and secondly, we have -- again, we expect to have 8% until we exercise the call option.

We do have progress in Uzbekistan though. We -- the first lease through PayMe, we are seeing very strong performance. So we launched the PayMe version 2. We have quite good products on the pipeline significantly supporting PayMe growth and positioning on the local market, and number of customers in PayMe reached 1.7 million. So super strong growth. I don't want to name the products that we will be launching, but you will see quite shortly new product.

Also, we have officially applied for the license after the delay in licensing process related to the developments around TBC during the year. So we've officially applied for the license, and we should -- we will be hearing back from the authorities soon. Again, we have other initiatives in Uzbekistan, which you will be hearing shortly.

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David Samuel Shapiro, Vanshap Capital, LLC - Chief Compliance Officer [15]

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And then another follow-up on the cost-to-income side. I know you talked about this previously, but it does seem that the company is still a long ways from its operating cost target and the staff cost do seem to be a decent share of that.

I'm wondering, I guess, why the staff costs on an ongoing basis wouldn't be held more to single-digit-type growth rates? Particularly because the technology component of the Bank is increasing so rapidly, and I can only imagine, over time, there should be less of a need for -- in banking transactions versus online transactions. So maybe you can give us the color?

And I'm wondering if there is any sort of restructuring efforts that can be done around how the Bank is being transformed or to a technology-oriented platform?

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Giorgi Shagidze, TBC Bank Group PLC - CFO, Deputy CEO & Executive Director [16]

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No. I think we are seeing significant effect of the technology and optimization and back offices. And unit costs per transaction per asset, I don't know, cost per assets, you can see from the slide has decreased by 50 basis points year-on-year and 20 basis points quarter-over-quarter, and that has been happening when we are just increasing the liquidity, which is a component there.

So we are seeing significant decrease in unit cost, and this is the result of our digital focus and optimization as well as to scale to some extent.

Now the reason the cost to income increased, it's perhaps 2: one is, that the income rebates, I mean, NIM decreased at least have a impact on the income, but I guess and this is more one-off and specific only for this year because the NIM is stabilizing and stable NIM means that income will continue growth. So even with the same growth of the cost, we will see cost to income decreasing.

And then there we also show the cost to income without ecosystems, which is 37.9%, and plus the one-off that I was explaining to Andrew related to the accounting treatment of the share-based bonuses. Again, we have not increased bonuses, as such. It's -- there is an accounting reason with share price you take for the expenses. As in 2015, our share -- when we introduced previous scheme, our share price was $11. And when we introduced the current one, it was about GBP 16.5. So that kind of increased the accounting charge.

So overall, we would consider this kind of the rebates, and from this perspective, we are not changing our target of 35% in cost to income.

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David Samuel Shapiro, Vanshap Capital, LLC - Chief Compliance Officer [17]

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Okay. And then lastly, on the dividend payout scheme, was there any consideration by management and the Board for that matter to potentially keep the payout ratio at the lower end of the target and maybe even allow to drift below target and to more gradually pay back the expensive Tier 1 financing? And does the Tier 1 financing allow for -- does it even allow for gradual paybacks as it is a very, obviously, expensive form of financing?

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Giorgi Shagidze, TBC Bank Group PLC - CFO, Deputy CEO & Executive Director [18]

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Well, actually Tier 1 -- AT1 is more favorable than the equity. So we pay there about 10.7%. Whereas in equity, we expect to deliver about 20% return on equity. So in this context, we have optimized our capital structure and have reduced the total capital cost.

That said, the question on dividends is fair. I think, this year, we target -- we most likely will distribute -- well, I mean, next year based on this year's results, we will most likely distribute dividends closer to lower end of our guidance of 25%. But over time, our range is 25% to 35% so that remains unchanged.

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Operator [19]

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The next question comes from the line of Andrey Mikhailov from Sova Capital.

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Andrey Mikhailov, Sova Capital Limited, Research Division - Research Analyst [20]

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I'd like to get some clarifications on Uzbekistan. In the presentation, you say that you expect pre-license to be received this year. So my questions will be, first, how different is the pre-license from the full license? And do you expect -- when do you expect to get the full banking license, if at all?

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Giorgi Shagidze, TBC Bank Group PLC - CFO, Deputy CEO & Executive Director [21]

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Thanks for the question. I think what we said is that, we have applied for the license officially to the Central Bank. And all the development was slowed down during the year before we applied for the license due to developments around TBC, and I'm sure that you're aware about that. But again, we have applied already, and there is about 3 months process during which we would hear their position.

I think the pre-license -- from pre-license to the license, there is a timeline of, it could be around 6 months, and that is more technical. So after you get the pre-license, then you need to show that you have core banking, you have the building, the cash center and so on. And we are in discussions with the Central Bank, showing all the details plus we've been preloading many works, including core banking implementation. So we won't lose much time after the pre-license.

But that said, I mean, I need to highlight here not to set too-aggressive expectation. This is a process which is not tested very well because Uzbekistan is now opening to the market, and it will be one of the very few and very rare cases when they are giving this -- when they are considering such application. So -- I mean and in subject to their authority's approval, and then they could come back with questions, and it could take some more time. So we need to take it into account as well.

The good news is that we don't lose time. We have PayMe, we are generating number of customers, launching quite good products and so on.

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Andrey Mikhailov, Sova Capital Limited, Research Division - Research Analyst [22]

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Thank you very much, Giorgi. Did I understand it correctly that you expect -- you even expect to get the full license sometime in the second half of 2020?

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Giorgi Shagidze, TBC Bank Group PLC - CFO, Deputy CEO & Executive Director [23]

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That would be reasonable to assume, yes.

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Operator [24]

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The next question comes from the line of Ronak Gadhia from EFG Hermes.

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Ronak Gadhia, EFG Hermes Holding S.A.E., Research Division - Research Analyst [25]

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My first question is on the Central Bank monetary policy. The Central Bank has been aggressively increasing rates over the last 2 or 3 events. What impact, if any, does that have on your performance?

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Giorgi Shagidze, TBC Bank Group PLC - CFO, Deputy CEO & Executive Director [26]

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Yes, thank you. Thanks for the question. Yes. I mean, the direct P&L impact is positive even though it's not very significant because we do try to hedge interest rate position, and -- but it's still positive.

In terms of indirect impact, it will decrease the growth in lari book. But then, in parallel, Central Bank has decreased the reserve requirement for -- the minimum reserve requirement for dollar book and that will incentivize dollar growth.

So overall, growth could be the same. But within the growth, you will see lower lari and higher dollar. Again, direct impact from interest rate hike is positive in our case.

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Ronak Gadhia, EFG Hermes Holding S.A.E., Research Division - Research Analyst [27]

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Second question is on your buyback program. Could you just update us on how many shares were bought back? And if that program remains open, given your strong capital and liquidity ratios?

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Giorgi Shagidze, TBC Bank Group PLC - CFO, Deputy CEO & Executive Director [28]

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Yes. Our program was going until the end of 31st October. So that basically closed then. It acquired roughly 460,000 shares. The impact is fully -- I mean, it's not material from capital adequacy ratio perspective, certainly, not super material from -- I'm sorry, it's 451,000. So it's not material at all from the perspective of liquidity. You'll see these numbers in December end, but it -- again, it doesn't have much impact.

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Ronak Gadhia, EFG Hermes Holding S.A.E., Research Division - Research Analyst [29]

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Okay. But do you think you can -- there might be another buyback program to follow this?

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Giorgi Shagidze, TBC Bank Group PLC - CFO, Deputy CEO & Executive Director [30]

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Yes. So we -- this year, we introduced new type of employee incentive plan based of share-based system. In the past, we would be issue new shares. Starting from this year, we are buying shares from the market. So each year, we would -- you could expect that we would be buying around similar number of shares. So yes, it will be there. We don't have a strict timeline there, but it unlikely during this year maybe it will be next year.

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Ronak Gadhia, EFG Hermes Holding S.A.E., Research Division - Research Analyst [31]

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Okay. And just finally, the impact of the FX devaluation on your book?

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Giorgi Shagidze, TBC Bank Group PLC - CFO, Deputy CEO & Executive Director [32]

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Yes. So we do have updated kind of sensitivity analysis for the FX devaluation. For the NIM, any 10% devaluation, and I assume it happens all the time -- I'm sorry, overnight and because if it happens over in increased period, then you offset it through growth and profitability and so on. So if it happens overnight, NIM impact is negative 15 basis points. Cost of risk is negative 10 basis points. The effect on capital is between 0.5% and 0.77%. So that would kind of be the sensitivity of it.

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Operator [33]

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(Operator Instructions) And the next question comes from the line of Mikhail Shlemov from VTB Capital.

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Mikhail Shlemov, VTB Capital, Research Division - Equities Analyst [34]

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I have actually a question on the capital risk. Just like I remember, and Giorgi has said, during the presentation that the underlying capital risk, excluding the FX effect in the second quarter, had stayed flat at roughly 70 basis points already second quarter in a row. Could you please elaborate where you stand in terms of mid-term (inaudible) guidance (inaudible) to remember then expectation on the 70 basis points as well below the previously guided 100 basis points plus?

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Giorgi Shagidze, TBC Bank Group PLC - CFO, Deputy CEO & Executive Director [35]

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Mikha, I think, in the kind of over 1-year period or horizon or like before the end of next year, our guidance would be around 1%. Now that assumes stability across every component, but around 1%.

If you take the guidance, like in the medium-term, it can a little bit increase when the consumer loans starts to generate again or grow again aligned with the overall income growth in the country and nominal GDP growth. But this increase will not be super material. I mean it will be quite small. So in a 1-year-plus horizon, around 1% seems reasonable guidance.

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Operator [36]

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We currently have no further questions coming through. (Operator Instructions) And we have a follow-up question from Andrew Keeley from Sberbank.

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [37]

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Just a quick question on your retail lending. See the -- basically, there has been, I think, it's about 5 quarters now of consumer loan contraction. And I'm just wondering, Giorgi, when you think that process is going to start turning and you're actually going to start seeing some growth in the consumer loan book?

And on the mortgage side, you mentioned that generally there is going to be a bit of a shift from lari to FX lending. How is that going to impact your thoughts on your mortgage growth, given the changes in regulation, et cetera?

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Giorgi Shagidze, TBC Bank Group PLC - CFO, Deputy CEO & Executive Director [38]

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Yes, sure. Yes, it is fifth quarter with 2 waves, like fifth quarter from the first introduction of the first time of the regulations even though when there was kind of beginning of January where the actual stricter regulation were imposed.

I think we will see already in quarter 4 stabilization and a little bit pickup. And then, we'll see -- then it will be fully there, starting from 1st January. But again, in quarter 4, we will already see stabilization and little bit pickup. So that's our expectation.

In terms of the dollar versus lari, I mean, given that there is a high liquidity, given the fact that Central Bank also decreased the minimum reserve requirement for the dollar funding, it kind of further incentivizes our potential dollar/euro foreign currency growth. So we should see, overall, broadly similar growth as we were growing in lari in the past. And not to say that there will be no growth in lari, there will be growth in lari as well.

One minor thing and specifically for quarter 4 is that the base for 2018 quarter 4 is very high because in anticipation of new regulation lots of people took loans in quarter 4 2018. So kind of the quarter 4 specifically might not be as high as we have, I think, in quarter 3 or quarter 2, but we still expect strong growth in mortgages.

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [39]

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And just a quick follow-up. Yourselves and the National Bank, I mean, you're not kind of concerned about some rise in risks, given it seems like there'll be a bit more FX lending relative to lari lending?

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Giorgi Shagidze, TBC Bank Group PLC - CFO, Deputy CEO & Executive Director [40]

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Not really. I mean you remember the buffers that you embed in the FX, they are quite decent. And I mean, historically, that has been quite decent as well and plus now with this -- in need of new regulation from the perspective of payment to income, it's super strong. So I wouldn't be -- and then there is a significant difference in interest rates as well and plus there is the fact that the currency seems quite undervalued as it stands right now even taking into account the quarter 4 usual weakness. So no, we would not be concerned.

And finally -- sorry, the fact that there are only 70,000 mortgages altogether, it's still there.

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Operator [41]

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We have no further questions coming through. So I'll now hand the call back to Zoltan for any concluding remarks.

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Zoltan Szalai, TBC Bank Group PLC - Director of International Media & IR [42]

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Thank you very much all for the question. We would like to thank you all for dialing into the results call. Thank you.

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Giorgi Shagidze, TBC Bank Group PLC - CFO, Deputy CEO & Executive Director [43]

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Thank you.

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Vakhtang Butskhrikidze, TBC Bank Group PLC - CEO & Executive Director [44]

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Thank you.

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Operator [45]

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Thank you for attending today's conference. You may now disconnect alive. Please stay connected and await further instructions.