Lion Finance Group PLC

Hello, everyone. Welcome to Bank of Georgia Group PLC's conference call. Today, we're presenting the consolidated results for the first quarter of 2024. My name is Ninia Arshagonia. I'm Head of Investor Relations, and I'll be moderating today's call. I'm joined on this call by the Group CEO, Archil Gaciciladze, and we'll start, as always, with a brief overview of the key developments and the results, and then you'll be able to ask questions. please know that this call is also being recorded. And I'm handing over to Archil.

Thank you, Nini. I'm glad to report very good numbers. Pretty good set, basically. This is the first quarter where we are... reporting our consolidated balance sheet, but I would like to highlight that this income statement is not consolidated. So this income that you see here is on a standalone basis, only the balance sheet end of March is consolidated with AmeriBank. Because as you know, we completed the transaction at the end of March. So our result was 369 million Lali, which was up 22.5%, delivering 27.7%. return on equity, and shy of 30% cost income. So a few words on the economy. The economy is doing pretty well. In fact, 2024 is forecasted to grow by 6%. The first quarter was 7.8%. So if not the political turmoil that we are experiencing right now, we'll probably be updating this number, the 6%. But right now, in fact, given the fact that probably tourism will experience some heat as well as maybe some other things like small investments, we're not increasing the expected growth. Having said that, the impact we don't think will be significant enough on the economy to decrease that, obviously, the risks we made. In terms of the refinancing rate, it has been lowered to 8% just recently. The last quarter percentage point was just three days ago. And the inflation remains under 3%, which is the target rate of 4.1.5% is the headline, with the co-inflation closer to the target rate. So we think that with this decrease, we don't expect for a decrease until the end of the year. and then we will see, given the volatility, a lot remains to be seen. Export of goods was lower by 9.3% from one year ago, which was pretty high base. Import of goods has decreased as well, and remittances have normalized. Having said that, I think the export of services have remained pretty strong, including tourists, Also on top of that is the IT export, IT services export, transport and logistics export, as well as the education services export. All of that remains pretty strong and that's what's driving alongside the investments, the growth in the economy. So in the first quarter, we've seen national methodology of buying the U.S. dollar from the market. So you see 214 net buying, although the net reserves slightly decreased because of the large repayments of the national debt. Having said that, buying that $214 million in the first quarter is pretty remarkable because the first quarter is the seasonal period of time when Georgia imports energy, gas, because of for heating, for household heating, as well as electricity production. So usually there's a little bit of pressure on the currency. And at least if not that, then it's not usually the time to buy hard currency because the tourist is relatively low at that point. It's a low season for tourists. And on the other side, you have this energy import. Nevertheless, I think National Bank has been buying above $200 million for the quarter. So that's why when we see Some people ask what is our expectation regarding the currency. We've seen a few percentage points weakness as a result of the demonstrations and the volatility on the market. We don't expect significant changes there unless there are other moves because of the overall pressure on appreciation that we've seen until now. So, We've seen the loan and deposit dollarization in Georgia basically stabilize about 15.45 roughly, and the bank credit growth in constant currency has been about 17, and we've grown slightly more than that. Non-performing loans are at a healthy level in both countries. Georgia is slightly better, 1.5%. So Armenian economy is doing very well, in fact, slightly in that. of Georgia at 9.2% estimate for GDP growth in the first quarter. The financing rate is very similar, 25 base points higher, and inflation is below 0%. So there's a little bit more room to cut rates here. And expected growth is similar to Georgia's at 6%. So it's a pretty strong economic situation in Armenia. In terms of the external exports and imports, we see strong growth. In fact, I spent a little bit of time at UBRB AGM in Armenia and stayed there and met a number of businesses there, and I was very impressed in terms of the energy, the technology, and mobilization of the main driving force behind the Armenian economy. I was pretty excited about the tenancies and the energy that I saw there. Bank loan growth is similar to Georgia's. In fact, it's 17.4%. And bank loan dollarization is at 33.9%, which is great health levels. You have seen overall stability, slight depreciation on Georgia's side, with about 3%, with about 4% strengthening of our memory and drum. Now, a few... few things about the bank and how we did. As you can see now, the bank comprises of the Georgian entity, which is about three-quarters of the assets, and about one-quarter is Armenian business and other businesses, about 3%, that includes Belarus. We think Armenian business will be growing faster, so you'll see more rebalancing of this split. But basically we are operating two leading banks in Georgia and Armenia in terms of top of mind, very strong brand in both countries and very good high-growth economies in both cases. So we are, as a result of this investment, you may have noticed that in April we raised our guidance for growth from 10% to 15%. That's constant currency balance sheet and income statement should be growing about the same. And in terms of the profitability, we guide 20 plus percent and the dividend and share buyback will be 30 to 50. So that's, we're not changing that. Having said that, again, the expected high growth in Armenia of 20 plus percent over the next few years We rely less on dividends from Armenia at this point, but are counting on profitable growth, and that's why we'll probably be on the lower end of this range over the next few years. In Georgia, we have seen our number of monthly active users grow by 10%. On the digital front, though, it has been just shy of 20%, which is very good. Right now, about 76% of all our users are also digital users. That's on retail side. And 49% of them use it daily. So almost 700,000 people open our retail application on a daily basis, which is a pretty remarkable engagement for any financial app. More than 70% of transactions are digital. And then most of the rest is basically ATMs and the BRG pay terminals. And about 1% of overall transactions is in the branches. We have had significant progress in terms of the digital sales. Now about 56% of all our sales are done through the digital channels. You may remember that over the last year or two, we have been talking about increasing this number to 60 plus at the sustainable level, maybe even at 70. Last quarter, we had a big one because we had a very big trivia game that included some encouraging people to learn how to do different operations on their venturing up, and that's hence the large network. But this has normalized now at about 56, which has been nice. On the internet and mobile app for our businesses, we're experiencing incredible growth of 29% year-on-year. So from 60,000 customers to 78,000 customers, that's monthly active digital users. Number of transactions up 25%. So this is seasonal in terms of transactions, but overall yearly growth is pretty nice. What we are seeing is our payments and client and business is growing nicely as well. It's 32% volume growth. We are at 55% market share, which is pretty nice. On the issuing side, number of people that use our cards, monthly active users, are up by 18%. These are incredible numbers in terms of the fundamental business growth. That's what's underpinning the strength of our franchise. And all of this is based on our customer satisfaction scores. The NPS is just one quick one that we measure. We measure many other things, including by channel and by product. And you can see that we are around 16, up from around 30 about five years ago. So that's what underpins the strength of the franchise. In Armenia, there's plenty of upside. So while the bank is the leading one on the corporate side, it has plenty of upside on the retail side. So we only have 180,000 monthly active digital users on the retail side, while the country has 80% of population of what Georgia has in all three of them. So if we were running about the same numbers, we should be looking at 1.1 million monthly active users for the digital. So there's plenty of upside there. In terms of the market position, we are number one in loans and number two in deposits. And as I said, on the corporate side, the leadership is pretty strong and there's plenty to do on the retail. In terms of the numbers, we've had an incredible growth of our net loans and deposits because of the acquisition and the consolidation, as we said, 63% and 50%. shy of 55%. Now, if you carve out that and you look at the cost and currency of Georgian operation, 20% and shy of 16%, so pretty strong growth. Cost of risk was pretty benign at 0.3%. Operating income we mentioned already. Operating income up by 14%. Non-interest income was up by only 7.6% because of high base in fees of around $27 million last year. But if you look at the fundamental growth of the Medicaid commission income, it's up by about 25%. Operating expenses up 14.5%, so cost income is less than 30. Loan portfolio up on a constant currency basis 20%, which is pretty nice. And deposit portfolio up by 16%, shy of 16%. We've been able to maintain the net interest margin at 6.4%. Having said that, next quarter will probably be impacted by the fact that we raised tier one, $300 million of tier one instrument, pretty strong interest from the investor side there. And we have seen a margin above the risk-free rate for five-year decrease from the previous time we raised it was 8.6 and this time was 5.6. So it shows the pretty big trust in the Georgian banking as well as Bank of Georgia franchise from the investors, which we appreciate. Cost of risk, we've seen very good performance, probably also caused by the fact that the economy is doing very well. We also have experienced a one-off gain from the difference between the fair value as assessed by the PwC and the price that we paid for the Armenian acquisition. Return on asset remained high at 4.7%. In terms of the capital ratios, you see this is end of March. You see the capital ratios here, which are slightly less than we've seen previously. Having said that, This does not include the tier one instrument that we raised in April. And we just also, we used the option to call the previous $100 million tier one, which will be redeemed in June. So as a result of this net of these two transactions, the increase on the tier one in total will be extra 2.3% plus the retained earnings and so forth. It's very healthy levels right now. It's close to 5% margins there. On AmeriBank, you see slightly less buffers, but you'll see that the business is generating strong earnings, and we will be deploying these earnings in building up the buffers and to deploy for the growth of the business. Liquidity is pretty strong in both banks, as you can see. And we discussed the dividends, and you know this knowledge very well. So I'll stop here. This has been 15, 16 minutes, so it's a new record. So on that, I'll open up for the questions. So we have the first question from Mark Webster. What do the opinion polls currently show for the elections in October? Do you have any additional comments? So we've not seen the latest opinion polls. We'll probably have those over the next few weeks. I think it's obvious that the Georgian Dream would experience lower popularity as a result of the recent developments. Having said that, we cannot assess at this point how large those will be. So everybody's waiting for the opinion polls. I think One thing I can say is that you've seen a lot of people on the streets, but right now everybody's getting ready for the elections. So that's the sentiment. So overall, I think that's one thing to look out for, which is in end of October.

This is the first time I'm not seeing raised hands now.