TBC Bank Deputy CEO on Consolidation Benefits and Competition

TBC Group and French Société Générale recently signed an agreement that allowed TBC Bank to acquire a 93.64 percent stake in JSC Bank Republic for GEL 315 million.

This deal will make TBC the largest Georgian bank in terms of both loans and deposits. At the same time, Société Générale is becoming one of TBC Bank’s major shareholders, with 5.4 percent shares. The parties also agreed that TBC Bank will become Société Générale’s main partner in Georgia.

TBC Bank has already entered into preliminary negotiations to acquire the remaining 6.36 percent of Société Générale, currently owned by the European Bank for Reconstruction and Development (EBRD).

TBC Bank is strengthening its position in all operational segments and, most importantly, in the strategic direction of retail banking.

GEORGIA TODAY spoke exclusively with George Tkhelidze, TBC Bank Deputy CEO, about the recent transaction and TBC Bank’s ambitious plans for development.

This acquisition is a gigantic strategic step in the Georgian banking sector. Tell us what led to this unprecedented decision

According to TBC Bank’s strategy, our principal goal was to transform and, at the same time, increase TBC Bank’s potential market reach. We wanted to strengthen our portfolio and client base, as well as our team. The negotiations with Société Générale started at the beginning of 2015, and were the most productive in August and September of 2106, when they successfully ended and we acquired a controlling stake of Société Générale.

Were there any problems during the negotiation process?

No, there were no problems in the actual negotiation process but, as you probably know, when a financial group as big as Société Générale makes a decision to sell its asset, it naturally discusses as many options as possible, making an assessment of all existing offers and, of course, this takes time.

As we know, TBC bank was not the only interested player. Nevertheless, we tried to make our offer most attractive for the Société Générale Group. Currently, together with the Bank Republic team, our team is working almost 24/7 in order to make the completion process as smooth and comfortable as possible for Bank Republic employees. We believe it is a unique chance for these high profile professionals to continue their careers at the number one financial institution in the country. At the same time, we’re doing our best to make sure that the clients of both banks will be primary beneficiaries from this transaction and able to take advantage of all the benefits a united bank can offer its customers.

Is there a risk of monopoly in the bank sector and how will the merger affect smaller banks in Georgia?

This is a very important question that must be answered. To put it simply, the answer is no - and there are two main reasons why. First, Bank Republic had a strong emphasis on the retail segment, where it has been facing strong competition with both larger and smaller banks operating in Georgia. That said, the competition landscape is not changing.

Another factor is also related to the retail segment, where TBC Bank overtook the leader’s position from Bank of Georgia. This means the two traditional competitors are entering a new phase of intense competition, which will naturally mean that the current number two will try its best to be ever more active and to improve its position. The second part of the answer is in the corporative segment: historically, the two largest banks were the key players and the competition was still fierce. Usually, strong competitions on the market create more benefits for our clients.

What is your counter-offer in this regard?

This new partnership between TBC Bank and Bank Republic has created a unique synthesis of experience that will make this union especially successful due to TBC Bank's deep insight in the local market and the French group's strong international experience.

These two strengths create endless possibilities to develop better innovations for our clients, which will make our services more accessible. These benefits and advantages will soon be available for our growing number of customers once the merger is completed. Société Générale remains our partner and shareholder. The group considers the alliance very positive, and believes in it, both as a strategic player in Georgia and as a major financial investor for us. Société Générale, as our partner in Georgia, will provide us with a considerable global outreach through their clientele and an opportunity for future collaboration through various product innovations.

There are many similarities between TBC and Bank Republic. We both started to operate in the early 1990s. Bank Republic had a unique history of success working as an independent Georgian bank for a decade; a strong and an ambitious player with an attractive client base, which was undoubtedly a decisive factor in Société Générale’s interest when it acquired a controlling stake in 2006. In its 22-year history, TBC Bank has transformed from a local Georgian bank into a strong financial institution with a large number of international clients and investors, an IPO on the London Stock Exchange (2014), and membership on the premium market (2016).

How will TBC Bank’s premium listing help its customers?

When a financial institution has scale and the opportunity to attract the required financial resources to the capital markets, it has endless opportunities to invest more in its continuous development to further respond to the needs of its private and corporate clients.

Is there a risk of TBC Bank becoming bureaucratic and inflexible through this transaction?

There is a huge transformation on the horizon and every organization is facing the risk of becoming less flexible as they grow, but we are well positioned to manage it.

It largely depends on the management team of the merged banks, who will have to avoid typical mistakes and make sure we stay flexible and focused on our employees and clients. Our management team has huge experience working in the Georgian and international banking. Also important, a year and a half ago we merged Bank Constanta into TBC Bank, which had 50 percent more branches than Bank Republic. The process of the Constanta acquisition and integration was quick and smooth −and we’ll most likely see the same with the Bank Republic merger.

What are the next steps of integration?

There will be an approximate two month period to complete the acquisition when TBC becomes 100 percent shareholder in Bank Republic, since we also plan to acquire the remaining 7 percent share from EBRD.

The next stage will consist of the actual integration that will take three to six months, after which Bank Republic will be fully integrated into the TBC system. The transaction process will be finalized in November 2016, and integration process will be completed in the first half of 2017.

Nino Gugunishvili