Storm clouds are gathering over the global economy, shaped by Russia’s bloody invasion of Ukraine, inflation pressures, the cost-of-living crisis, and the slowdown in China. But skies are much clearer over Georgia, whose economy last year boasted one of the highest growth rates in the world. The country’s GDP grew by 10.2% in 2022, compared to 10.5% growth in the previous year, according to government figures. Also, Georgia’s national currency – the lari – was one of the few emerging markets currencies to gain value against a strong US dollar.
The economic boost came in part thanks to a continued recovery in tourism, which was badly hit during the pandemic. Double-digit growth was recorded in many other sectors too, including energy, transport, and manufacturing.
However, the key driver of growth was an enormous surge of money transfers from Russia. More than $2bn was moved into Georgia in 2022 as Moscow's invasion prompted scores of Russians to relocate to the South Caucasus country, bringing cash along with them.
At the centre of Georgia’s roaring economy last year was TBC Bank Group, Georgia’s largest commercial bank by assets and a premium-listed company on the London Stock Exchange. TBC’s net interest income in 2022 jumped 29% to GEL1.29bn from GEL1.0bn. The bank reported a pretax profit of GEL1.25bn, up 35% from GEL921.4mn in 2021.
At the bank’s headquarters in Tbilisi, CEO Vakhtang Butskhrikidze told bne IntelliNews that TBC is using the financial windfalls to invest in cutting-edge banking technologies.
“We are investing approximately 25 to 30 per cent of our net profits into digital financial technologies. And for 2023, we will probably invest more than GEL300mn in these technologies,” he said.
The 52-year-old joined TBC when it was founded in 1992, and since 1998 he has served as its CEO.
After Georgia regained its independence and the Soviet Union collapsed, TBC was just one of hundreds of banks to spring up in the country’s new free market economy.
“Back then, all of the banks in Georgia had armoured windows,” recalled Butskhrikidze. “But we thought to ourselves: we are branches and we are banks. We are serving our customers. We are kind of like a supermarket but serving banking products, and we have to be open to our customers.”
“It changed the culture,” he said. “We also started addressing the customers by their names. It was very difficult for our employees to say ‘Hello, Vakhtang’. So we changed that philosophy of our employees, just to say ‘Hello’ to the customers.”
Today, TBC is Georgia’s leading bank, with has a market share of total assets of 39.1%, up by 0.5pp y/y, putting the company slightly ahead of its main competitor Bank of Georgia. TBC says focusing on customer experience and embracing new technology has given it an edge over other banks. However, Georgia is a small country, and so the bank is looking further afield to international markets for growing its operations.
“Our medium-term target is about 15 per cent growth,” said Butskhrikidze. “About 10 to 12 percent of which is coming from our Georgian operations. Whereas much of the rest is international.”
Uzbekistan has been the focus of the bank’s expansion so far. TBC entered the market in 2020, around the time Uzbekistan’s president Shavkat Mirziyoyev launched ambitious market-oriented reforms to open up the country and attract foreign investors.
TBC Uzbekistan ranks 23rd in terms of assets among all banks, including state banks, while among private banks it comes in 12th place. It currently provides digital customer services for retail users and offers online services including money transfers, loans, car loans, deposits, installments, bank cards and bill payments. All services are available through a mobile app.
“Georgia looks very penetrated compared to Uzbekistan. And in terms of population size, Uzbekistan is eight to nine times bigger than the Georgian market,” said Butskhrikidze.
“So putting these two parameters together – penetration and population – the Uzbek market is very interesting for us. In the next three to four years we expect strong growth in the Uzbek market.”
He added that TBC was interested in entering other markets, but said that, as of now, it is difficult to say where exactly.
Analysts have generally been optimistic about Uzbekistan's banking market growth over the medium to long-term. They predict that the country's favourable regulatory environment will attract more foreign investment, leading to increased competition and innovation in the banking sector.
In particular, analysts highlight the potential for growth in retail banking, such as consumer loans, mortgages, and credit cards, as more Uzbeks become financially literate and seek to access these services. However, they also note that the country's banking sector still faces challenges, such as underdeveloped infrastructure, limited access to funding, and a high level of non-performing loans.
Butskhrikidze told bne IntelliNews that TBC was also considering launching another Eurobond somewhere in the medium-term.
“Bonds are very interesting for us. I don't think in the short-term there will be interest, but in the medium-term we are thinking that we will issue a bond,” he said.
TBC last issued $300mln worth of 5-year Eurobonds in 2019, with a fixed coupon rate of 5.75% (6% yield to maturity).
As the surge of money transfers from Russia winds down, economic growth in Georgia over the next year also looks set to slow. Already in the first two months of 2023, money transfers to Georgia began to fall after peaking in December.
"For 2023 we're forecasting less growth," said Butskhrikidze. "We're forecasting 6.4% growth, which means much less growth for Georgia's banking sector in nominal terms."