Tbilisi (GBC) - TBCU was loss-making during the first three years of its operations due to high operating costs related to establishing its business operations. In 2023, the bank reported its first annual net profit, with a return on average equity of 7%. High margins and economies of scale should boost TBCU's profitability in 2024-2025, although it will remain moderate in our base case due to still substantial operating expenses.

TBC UZ and Payme delivering a combined GEL 59 million profit in 2023, up sevenfold, with 26.0% ROE. TBC UZ became profitable and added 0.6 million digital MAU. Its loan book more than doubled in 2023 to GEL 797 million, driven by the popular instant cash loan product, ending the year with a meaningful contribution of 10% of total group retail loans. The deposit portfolio also saw strong growth, increasing by 76% to GEL 581 million, equivalent to 7% share of our total retail deposits.

The bank has relied on annual capital contributions from its shareholders to support its lending growth and comply with prudential requirements. While we expect TBCU to receive additional large-scale capital injections in 2024-2025, its Fitch Core Capital (FCC) ratio will moderate to 13%-14% during this period from 15% at end-2023 in our base case.

TBCU is largely funded by granular, albeit pricey, retail deposits (86% of end-2023 total liabilities). However, the bank has recently started to attract wholesale debt, including from the parent group, and we expect the share of external borrowings to increase in the medium term. The bank's liquidity position is modest, with total liquid assets covering around a quarter of customer deposits at end-2023.