Yahoo Finance Why TBC Bank Group PLC’s (LON:TBCG) Risk Control Makes It Attractive
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Post-GFC recovery has led to improving credit quality and a strong growth environment for the banking sector. TBC Bank Group PLC (LON:TBCG) is a small-cap bank with a market capitalisation of UK£835m. Its profit and value are directly impacted by its borrowers’ ability to pay which is driven by the level of economic growth. This is because growth determines the stability of a borrower’s salary as well as the level of interest rates. Risk associated with repayment is measured by bad debt which is written off as an expense, impacting TBC Bank Group’s bottom line. Today I will take you through some bad debt and liability measures to analyse the level of risky assets held by the bank. Looking through a risk-lens is a useful way to assess the attractiveness of TBC Bank Group's a stock investment.
View our latest analysis for TBC Bank Group
How Good Is TBC Bank Group At Forecasting Its Risks?
TBC Bank Group’s ability to forecast and provision for its bad loans indicates it has a good understanding of the level of risk it is taking on. If the bank provisions for more than 100% of the bad debt it actually writes off, then could be considered to be relatively prudent and accurate in its bad debt provisioning. Given its high non-performing loan allowance to non-performing loan ratio of 102.49% TBC Bank Group has cautiously over-provisioned 2.49% above its current level of non-performing loans. This could indicate a prudent forecasting methodology, or indicate that further bad loans are expected.
How Much Risk Is Too Much?
If TBC Bank Group’s total loans are made up of more than 3% of bad debt, it may be engaging in risky lending practices above the judicious level. Bad loans are those that cannot be recovered and are directly expensed from the bank’s bottom line. Bad debt makes up 3.08% of the bank's total assets which is above the ideal level of 3%. Given that most banks are generally well below this threshold, TBC Bank Group may have taken on a greater amount of risk.
Is There Enough Safe Form Of Borrowing?
TBC Bank Group profits from lending out its various forms of borrowings and charging interest rates. Deposits from customers tend to carry the lowest risk due to the relatively stable interest rate and amount available. The general rule is the higher level of deposits a bank holds, the less risky it is considered to be. Since TBC Bank Group’s total deposit to total liabilities is within the sensible margin at 70% compared to other banks' level of 50%, it shows a prudent level of the bank's safer form of borrowing and an appropriate level of risk.
Next Steps:
The recent acquisition is expected to bring more opportunities for TBCG, which in turn should lead to stronger growth. I would stay up-to-date on how this decision will affect the future of the business in terms of earnings growth and financial health. Below, I've listed three fundamental areas on Simply Wall St's dashboard for a quick visualization on current trends for TBCG. I've also used this site as a source of data for my article.
Future Outlook: What are well-informed industry analysts predicting for TBCG’s future growth? Take a look at our free research report of analyst consensus for TBCG’s outlook.
Valuation: What is TBCG worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether TBCG is currently mispriced by the market.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
