TBC Bank creates extra loan buffer amid Covid crisis
By Josh White
Date: Friday 03 Apr 2020
(Sharecast News) - TBC Bank Group said on Friday that the measures it had implemented in the last three weeks had allowed it to alter its day-to-day operations, in a bid to adapt to the current "unprecedented" operating environment, while maintaining the health, safety and wellbeing of its staff and customers.
The FTSE 250 company said that 95% of its head office and back office staff, including those in its call centre, were now working from home, adding that its digital banking platform was allowing customers to continue with "almost all" of their banking transactions from their own homes.
It described the global, and thus Georgian, economic environment as "difficult and uncertain" amid the Covid-19 coronavirus pandemic.
The bank said the latest analysis forecasts from iits economist saw the Georgian economy contracting in 2020, which would have a negative impact on many businesses and individuals in the country.
"Therefore, in close coordination with the National Bank of Georgia (NBG), we have decided to create an extra loan loss provision buffer to prepare for the potential impact of the Covid-19 pandemic on the Georgian economy," the board said in its statement.
As at 31 March, TBC Bank said it had decided to book additional provisions in accordance with local standards, at between 3% and 3.3% of the loan book, and resulting in an estimated up to 2.44% decrease in its CET1 capital adequacy ratio.
"NBG is implementing countercyclical measures to support financial stability of the banking system and to ensure provision of financial support to sectors of the economy affected by the current turmoil."
In relation to capital adequacy requirements, TBC said it was postponing the phasing in of additional capital requirements planned for March, with an 0.44 percentage point effect on its CET1 ratio.
NBG was also allowing banks to use their conservation buffer, which was currently at 2.5 percentage points on CET1, and two thirds of their CICR buffer, resulting in the release of between 1.0% and 2.0% of capital across its CET1, tier 1 and total CAR.
It was also leaving open the possibility of releasing all pillar two buffers, being the remaining one third of CICR, HHI and net grape buffers, in the range of 1.0% to 4.0% of capital across its CET1, tier 1 and total CAR.
In relation to liquidity requirements, if necessary TBC Bank said it would decrease LCR limits, decrease its mandatory foreign exchange reserve requirements, and update its criteria for security or repo pledging to support GEL liquidity.
As a result of the provision made, and also the significant depreciation of the Georgian lari during the course of March, TBC said CET1, tier 1 and total CAR as at 31 March was estimated at 8.7%, 11.5% and 16.1%, respectively.
The final numbers would be published on 30 April.
Those ratios remained well above the NBG's revised estimated minimum requirements of 7.0%, 8.8% and 13.4%, respectively, which the board said allowed for the utilisation of the full conservation buffer and two thirds of the currency induced credit risk buffer.
It said its estimated liquidity coverage ratio of 109% and net stable funding ratio of 125% also remained above the minimum requirements as at 31 March.
Only in the last week, TBC Bank had attracted $133m in new borrowings from international financial organisations, which had further increased its liquidity.
"We are currently in the process of preparing our IFRS financial statements for the first quarter of 2020 and expect to publish them in mid May, in line with previous years," it said.
"Loan loss provisions are calculated in our IFRS financial statements differently from the methodology used by the NBG."
It said that based on information available to the bank today, the provision to be set aside as of 31 March in its IFRS financial statements for the first quarter of 2020 was expected to be about 2.0% of the loan book.
"We are focusing on optimising our cost structure, rearranging many processes and prioritising expenses, and are targeting TBC Bank's cost to income ratio for the full year ending 31 December to be broadly that achieved during 2019."
At 1332 BST, shares in TBC Bank Group were down 3.79% at 685p.
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