Moody's affirms Georgian TBC Bank at Ba3 following acquisition of smaller lender

By bne IntelliNews October 28, 2016

Moody's has affirmed the local- and foreign-currency deposit ratings of Georgia's TBC Bank at Ba3 and B1, respectively with a stable outlook, the ratings agency said on October 27. Moody's justified its action by the fact that the reduction in TBC Bank's capital ratios following the acquisition of Bank Republic on October 20 would be counterbalanced by its enhanced market position.

TBC Bank bought full control of Bank Republic on October 18 after agreeing to acquire the remaining 6.36% stake in the country’s fourth largest bank from the EBRD in a GEL22mn (€8.4mn) deal. The acquisition will help TBC Bank become the country’s largest bank by loans and deposits overtaking Bank of Georgia.

TBC Bank has been in an expansionary mood after acquiring premium listing on the London Stock Exchange in August. Earlier this week, it agreed to buy local insurance company Kopenbur for $1.4mn. 

In affirming the lender's ratings, Moody's estimated that the acquisition of Bank Republic would erode TBC Bank's capital ratios by two to three percentage points. However, it expects the ratio of tangible common equity to risk-weighed assets to remain at 12%, similar to the ratio in recent years and in line with that of its peers.

The merger would enable TBC Bank to expand its assets by GEL1.7bn ($700mn), its clients by 330,000 out of a population of 3.7mn and its branch network by 41 new branches, boosting its market position. TBC Bank is expected to command a 35% share in overall bank deposits in the country post-merger, up from some 28% at the moment.

“Moody's expects that the transaction will not have a material impact on TBC's asset risk as it does not significantly change the bank's portfolio makeup, in which retail, micro and, small and medium enterprises loans will continue to account for roughly two-thirds of total lending, and adds a relatively seasoned and so far adequately performing portfolio. Bank Republic's credit costs in 2015 were 1.4% compared with 1.7% of gross loans for TBC, while problem loans at Bank Republic were adequately covered by provisions at 87% as of December 2015,” the ratings agency said in a statement.

Nevertheless, the merger with Bank Republic will not mitigate possible risks coming from TBC Bank's extensive lending in foreign currency, which accounted for two thirds of its total lending at end-June. 

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