The FINANCIAL -- After successfully listing its shares on the Premium Segment of the London Stock Exchange, TBC Bank is now aiming to become a constituent of the FTSE 250, Giorgi Shagidze, Deputy CEO and Chief Financial Officer of TBC Bank told The FINANCIAL.
He cites the key factors for attracting investors to TBC Bank as a strong track record of growth and profitability, a focused strategy, and best-in-class multi-channel distribution and customer experience. In addition, TBC Bank recently acquired third-placed player Bank Republic, to become the largest bank in the Georgian market in all its key segments.
Q. What was the long-term goal behind your move to the Premium Listing of London Stock Exchange?
A. The Premium Listing was a natural progression for TBC Bank, after listing originally on the London Stock Exchange International List in June 2014.Through the Premium Listing we expect to broaden our investor base, and give our investment case wider exposure and a higher profile among international investors. Wider interaction with a full range of market participants is very important for the continued development of the company. In the near future we are also targeting inclusion in the FTSE 250 Index. We expect that this will further increase liquidity and create additional value for shareholders.
Q. Has the move to the Premium List met your expectations?
A. Since the move to the Premium Listing on August 10th, we have seen a significant improvement in the liquidity of our shares. If we compare the period since the listing to the same period last year, We can see a roughly tenfold increase in average daily volume which equates to around $1.5 million. The increase in liquidity can also be said to have also significantly contributed to a positive move in the share price. We listed the shares at a price of 11 pounds and have seen them rise to over 13 pounds today.
Q. TBC Bank is a growing financial institution. By acquiring Bank Republic, you have become the market leader in the Georgian market. You have also recently made an acquisition in the insurance sector. Are these developments connected to Premium Listing?
A. Both acquisitions are fully aligned with our stated strategy. Bank Republic was a very attractive target, as a financially strong, well-run bank, delivering high returns with healthy assets. The acquisition created the largest bank in Georgia, strengthened the key segments of TBC Bank, most particularly creating the indisputable leader in retail banking, especially in medium and high-income segment. The acquisition creates good synergy potential, as well as optimal capital deployment opportunities. The acquisition of Kopenbur, the insurance company, will enhance our product offering to customers of our bancassurance products. The Premium Listing is an enabler of this clear and focused strategy.
Q. Which are the key factors that you think convinces investors to invest money in Georgia and specifically into TBC Bank?
A. We try to deliver to investors a clear message on our differentiated investment case. We have leading positions in all segments of the Georgian banking market, as well as consistently strong financial performance. We continue to offer the best customer experience in Georgia and we test this by comparing ourselves not only to other banks but also to other leading companies in the country. One of our key differentiators is our market-leading multi-channel platform. This includes internet banking, mobile banking, a call centre, and the most effective branch network in the market. We have set ambitious targets for our digital channels, and we have gone outside Georgia to compare ourselves to best-in-class Turkish and Polish Banks.
The strong Georgian growth story, is also a key factor for investors. Georgia continues to be a popular destination for investors looking to deploy capital in the broader region. The forecast for GDP growth in 2017, according to the International Monetary Fund, is 5.2%, which is the highest in this region. We have very transparent economy with high standards of corporate governance. Georgia also enjoys a very competitive tax regime and the recent government initiative to make reinvested profit tax-free, further enhances that reputation.
Q. What is your approach specifically towards UK funds? Does BREXIT impact their interest in Georgia?
A. We approach London-based funds as an international community of investors, rather than as a specifically UK entity. We focus on the strong Georgian growth story and the opportunity for TBC Bank within that context to deliver superior returns to investors.
We maintain a strong commitment to the London market, however, with a full time management representative in London, as well as regular investor days and quarterly roadshow programmes. Through this, we seek to gain maximum leverage from our UK listing for the benefit of all our stakeholders.
Georgia’s links with the UK economy from a trading perspective are very limited. Therefore, BREXIT is not expected to have any material effect on the Georgian Economy, even assuming that it has a negative effect on UK Economy. So, from that perspective, Georgia is quite well-positioned. After BREXIT, we believe, London will remain as the leading international financial centre that it is currently, so we do not anticipate any material changes or impacts.
Q. What has changed within corporate governance at TBC Bank, after becoming moving to the Premium List?
A. Prior to the move to the Premium Segment, our corporate governance was already consistent with the requirements of Premium Listing so very little change was necessary. We are confident that we have one of the most experienced boards in the region, with a combination of business experience in Georgia and international financial experience around the world.
Stefano Marsaglia serves as Executive Chairman of Corporate and Investment Banking at Mediobanca, London.
Nicholas Haag, our Audit Committee Chairman, has broad experience in financial services with RBS, having served as a Managing Director, and currently sits on the board of three banks.
Eric J. Rajendra is an IFC Senior Adviser on emerging markets and a partner of McKinsey.
Nikoloz Enukidze, our Senior Independent Director, is a former chairman of Bank of Georgia times and he recently founded UK based Nine Oaks Advisors.
The most recent addition to the Board, Stephan Wilcke, was previously Executive Chairman of OneSavings Bank in London.
In addition to the five independent members, we also have Mamuka Khazaradze and Badri Japaridze on the board. Mamuka and Badri are the founders of the bank, and fulfill the role of non-executive members. Finally, our CEO Vakhtang Butskhrikidze and our CFO, Giorgi Shagidze fulfill the role of executive board members.
Q. Who are the large shareholders of TBC Bank and what is the size of their holding?
A. The two founders between them own 22%, International Financial Institutions (IFIs), own a further 21% and more than 52% is owned by international institutional and retail investors. The balance is made up of management of TBC Bank. 100% of the shares in the plc are listed on the London Stock Exchange.
Q. What is your plan for becoming constituent of FTSE-250 Index and what benefits do you expect?
A. Entry into the FTSE 250 is a function of our market capitalization, and so is dependent on market conditions. We are focused on delivering a successful strategy and we believe that this will ultimately result in a higher value for the company, and thus index inclusion. FTSE 250 inclusion will bring incremental demand for the shares from passive as well as active investors, thus helping to improve our liquidity.
Q. What are the impacts of currency devaluation and the financial crisis on the banking system, and specifically on the loan portfolio of TBC Bank?
A. During the currency volatility of 2015, the Georgian Banking Sector once again shown its resilience. Despite the sharp depreciation, we did not see a material impact on the Bank’s growth performance or to a significant extent, on asset quality.
Q. One of the reasons cited for the recent fluctuation of the currency has been the purchase of Bank Republic by TBC Bank. Would you agree with the opinion and what other impacts will this deal have on Georgian banking sector?
A. The acquisition was initiated in the middle of October and the related currency transaction completed also in the middle of October. We tried to do it smoothly and we also tried to align it with the market interventions by NBG. We are now in the middle of November so it should be noted that the effect, if any, was very short-lived. I would also like to highlight that the current account balance, which is a fundamental factor in explaining short term currency fluctuations, is improving and it gives no reason to worry about a sharp adjustment to the currency. Having said that, we see the Turkish Lira depreciating as well as some volatility in Ruble and Manat, and it is reasonable to say that these developments can have a negative impact on USD/GEL exchange rate.
As we grow larger, the advantages of increased scale becomes more apparent. Increased scale allows us to invest more heavily than or competitors in technology, in service quality and customer experience – our key differentiating drivers - as well as driving an advantage in cost of funding.
Q. The capital market is still developing in Georgia but is still at a fairly basic level. How do you see potential opportunities for development and where does TBC bank sees its role here?
A. We should see the capital market developing gradually in parallel with the pension reform. Banks have very important role to play, especially those large banks that have already established a brokerage function. We are co-operating with other banks to invest heavily in an infrastructure upgrade and want to make sure that this infrastructure meets the best international standards.
Q. The main recommendation of IMF is dedollarization. Which is directly connected to banks and long term loans, which are mostly nominated into Dollar. How would you evaluate this recommendation?
A. Dedollarization is obviously a very important point and I think this is maybe the most important point from risk perspective for the Georgian Banking Sector. It is, however, a long term process and it is not realistic to expect rapid changes. We are currently seeing a positive trend to de-dollarization but we see this as a gradual process.. The principle reason for continued high levels of dollarisation is that people prefer to deposit in Dollars and therefore banks are forced to lend in Dollars. It will take time for people to start preferring to make deposits in Lari instead of Dollar.
There are a number of initiatives from the Central Bank to support Dedollarization: One of which is the incentive on capital and liquidity, which makes it much more profitable for banks to lend in Lari instead of Dollar, if they have the Lari funding. There are direct incentives as well, for example being able to pledge the mortgage loans in Lari.
In the long term, low and stable inflation is the major factor which will help to de-dollarize the economy, as the experience of many successful de-dollarization cases shows. The NBG’s inflation targeting framework is considered to be very effective tool to achieve low and stable inflation and thus help to restore confidence in GEL’s store of value function. Another key factor that helps de-dollarization of the economy in the long run is the free-float currency rate.