Lion Finance Group PLC

Hello everyone, welcome to Line Finance Group PLC's first quarter results call. My name is Ninia Shagoni, I'm Head of IR and today I'll be moderating this call. I will be joined on this call by the Group Chief Executive Officer, Arshil Gachachiladze, who will provide a detailed overview of the Group's performance and financials across our key business divisions in Georgia and Armenia. But before that, I would like to invite our economist Akakeli Kokeli to discuss the macroeconomic developments affecting our core markets. I would also like to remind you that this call is being recorded. With that, I'll let Akake in. He will join in a second. Hi Akaki, you're on the line and you can share the presentation.

Hello everyone. Let me quickly share my screen. Okay, I hope you see it now. So I will be presenting the macroeconomic update for Georgia and Armenia. two main markets of the group. Let me start with Grok Highlights. So in quarter one, Georgian economy surpassed expectations, posting 9.3% year-on-year growth on top of 9.4% real GDP expansion in 2024. This once again demonstrates the resilience of the Georgian economy amid uncertainty. So given this stronger-than-expected performance in quarter one, we have revised our full-year Real GDP growth forecast to 6.8%. We anticipate the Georgian economy activity will remain broad-based, primarily driven by consumption spending. Meanwhile, the Armenian economy continued to moderate in line with expectations amid weaker external demand. Quarter one, the Armenian growth was 4.1%. And we project 4.5% for the full year. This is after 5.9% growth in 2024. We also expect that the Armenian recent concentration, sectoral concentration of the Armenian economy will ease in the following periods, leading to more balanced and sustainable growth profile. Downside risks remain elevated for the whole region. However, Georgia and Armenia maintain their leading positions according to the latest IMF forecast for the next five-year growth, as you can see on the right-hand side chart. So, external sector inflows have been historically one of the main drivers of growth and currency values in Georgia and Armenia. However, in recent periods, we have seen these inflows normalizing. So, on the left-hand side, in the case of Georgia, the inflows remain more resilient, including export proceeds, tourism revenues, and remittances, and it registered modest year-on-year increase in Q1. However, in the case of Armenia, we see more larger adjustment. This is due to significantly higher base of the previous year. Overall, we expect this adjustment to be somehow partially offset by other inflows, non-traditional inflows for those two countries, particularly service export revenues, including IT and transportation services, which have shown more resilience and have become one of the main sources of hard currency inflows and productivity gains for Georgia and Armenia. Overall, this resilient external sector inflows also support local currency values in Armenia and Georgia. And as you can see on the left-hand side, most of the regional currencies, including the gel and AMD, have appreciated versus the U.S. dollar in the first four months of this year. This is due to the global weakening of USD. However, if we take a longer-term perspective and also look at 2024, we see that currencies in the region that appreciated more this year, they had weaker starting points from 2024, while Georgian lari and Armenian dram are relatively more stable. So, in the medium term, we expect those two currencies will remain stable, supported by resilient external sector inflows and sound macroeconomic policies. This stable exchange rates and prudent monetary policy have been a key in maintaining low below the target inflation in both countries during 2023 and 2024. However, lately we have seen inflation picking up in both countries. This is mostly due to the low base of the previous year as well as some modest increases in global food prices as well as increasing some service costs, which reflect strength, continued strength of domestic demand conditions. So both central banks have maintained their interest rates unchanged over the recent months. They are carefully monitoring the recent inflation developments. We expect inflation will remain above the 3% target levels in both countries during this year, and then they will go back to the targets as inflation expectations remain well anchored and demand-supply conditions appear broadly balanced. We don't anticipate any interest rate cuts this year, either in Georgia and Armenia, as the central banks are careful regarding the latest increased uncertainty in the global inflation environment. Apart from low and stable inflation, robust and sound policy buffers are essential for overall macroeconomic stability. And in this regard, we have positive developments in both countries. After some deterioration in international reserves in previous years, we have seen that the central banks have been replenishing the reserve levels. In Georgia, the National Bank of Georgia resumed purchasing the USD, while on the Armenian side, the recent issuance of sovereign Eurobond also helped in this regard. Another key policy buffer is the low and sustainable level of government debt. In the case of Georgia, government debt to GDP has been below 40%, which is a very comfortable level in international standards, and this is expected to decrease further in the coming years. In the case of Armenia, the government debt to GDP level is a little bit higher, around 50%, and it is set to increase additionally due to the ongoing spending needs of the government on public infrastructure and social welfare programs. However, we expect the Armenian authorities will maintain fiscal discipline supported by IMF's ongoing standby arrangements. So, in addition to improvements in policy buffers, Georgia and Armenia have also enhanced their resilience against external shocks by significantly reducing their external debt to GDP ratios in recent years, as you can see on these charts. This was primarily driven by strong growth and local currency appreciation. Although the external debt to GDP ratios remain above peer median in both countries, this significant decrease compared to the historical levels provides policy flexibility and also enhances investor sentiment, which contributes to broader macroeconomic stability. And lastly, let me briefly cover the recent developments in the banking sectors, which have remained strong, delivering strong results. So growth has remained quite strong. elevated in both countries. Year-on-year loan book growth in Georgia was steady at 16.6% in Q1, while it accelerated further in Armenia to 30.2%. This is partially explained by the anticipated phase-out of the state's mortgage subsidy program. Dollarization, loan dollarization has remained broadly flat in quarter one after significant reductions in previous years. And lastly, the asset quality is also sound, with Armenia and Georgia recording one of the lowest non-performing loans ratios compared to the regional peers. So this concludes my part of the presentation. Now I will hand it back to Nini.

Thank you very much, Akaki. With that, I'll hand over now to Archil, who will continue with the discussion of our results. Archil, you can start, you're on the line. Archil, we can't hear you and also your slides are again showing this like boxes.

Really? So you cannot see my slides?

Yeah, we see the black boxes on the... I can share the screen, I can share the presentation.

This is interesting. Please share the presentation. Apologies for a bit of a technical hold up.

Do you see the screen?

Not yet. Yes.

Okay, great.

Yes, this is fine. Hello, thank you for joining the call. First quarter call, as Akaki mentioned, the macro growth rate has been quite positive in Goje and in Armenia. And that created an environment where we had a very strong growth of our balance sheet on the long side. Deposits were already high in any case, but we've not been We have kept the high liquidity in the first quarter, but we will be looking at deploying it. So the constant currency growth of our loan book was 18%, but before we go into that, so just to remind everybody that our strategy is to be the main bank in our core markets by focusing on excellent customer experience. We are focused on profitability. And our enablers are the customer centricity data and models that we deploy. Our people, brand strength and effective risk management. And it's important to remind this because I'll be... talking about some of the progress that we've made on each and every one of them, and the progress is quite impressive, before we get to the final result, which is in numbers, which are on a quarterly basis, but the strength of the franchise is really demonstrated by some of the measures that are describing our enablers. We are above the loan growth mid-target of 15% and well above the mid-target return on equity as our cost of risk is lower, but also the macroeconomics pretty supportive. And on capital distribution side, we are on the lower side of that. So, please, Vinny. um so on the previous presentation we did talk about the fact that uh global finance named us as the best digital bank uh in the world um it uh really put us um it i think it created a little bit of more recognition of our technology and for our excellence uh especially on the retail banking side and it's not just the application it's the way we do the underwriting the way we do the chatbots, the way we do the collection and what kind of models are underlying it and so forth. So there are many subcategories and overall there's only one Central Eastern Europe. We were the winners there and then after that we were chosen as the world's best digital. Thank you. And the main part of that, obviously, is the distribution, which is the mobile application is the dominant one, although there's web applications as well for the computers as well as some other ways of digitally reaching our customers. But basically our mobile application, retail, is a place where people can do many things, including low-cost share trading, money, multiple currencies attached to one card, and so forth. So I'm not going to go on this. our number of monthly active customers is up by 11%, and monthly active users, digital users, is up by 17%. So now it's 1.65 million people in Georgia are using our services , which is quite interesting that this number continues growing about 15% year over year. And just as a reminder, six years ago we had 300,000 and now it's 1.65 million. So it's becoming the main daily bag. It is already the main bank in the country. On the number of legal users, that's mainly the MSME, it's flattened out on the first quarter. It was relatively slow, and we had a very dramatic increase over the last two years. So there will be growth there, but not as high as we are achieving the critical penetration of our MSME clients in terms of our digital usage. One of the key focus areas is selling digitally. So on the transaction side, there's more than 99%, as you know, is done digitally now over the last few years already. But selling our products, and it's not just because of the loans, but the cards and other services, effects and so forth, Selling more of our services digitally is the key area, and for that a lot of redesign of the products and so forth are happening. So you see the trend is up over the last two years from 44 to 67, and everything to the point of that allows us to grow the business without really growing our physical presence, or in some cases even reducing it. So on the loan side, we are already up to 85% and deposit 74%, and the key focus will be to increase those numbers going forward. But I'm very happy with the progress there. Also, very strong growth in payments acquiring business with 31.9% volume growth. And on the issuing side, the monthly active users of our individuals holding Bank of Georgia cards is close to 1.5 million now, which represents 15.9% growth year over year. So, again, I mean, from a dominant position, to be growing at this rate is quite a good sum. Very happy with the retail franchise that we have. Okay. Something to underline is that in March 2025, we achieved the highest NPS score again, so 73, which recognizes the quality of our service and focus on products, on channels, and so overall focus on customer satisfaction is the key part. of how we do it and what we do it so um so it's congratulations to to our colleagues that have contributed to to such an incredible uh score nps corner um Now, in Armenia, we are continuing to grow the monthly active customers. As you can see, the overall retail customers have grown by 25.9% year over year, and the monthly active users of the application have grown by 53%, so slightly above the beginning of the year. First quarter is usually slow, but the growth still remains there, and the engagement is pretty good. Now, a few words about the figures. On the operating income side, we're 52% up, but mainly, I mean, We integrated AmeriBank in the last day of March last year. So the income statement does not include the 2024 first quarter income statement, does not include the numbers, AmeriBank numbers, but the balance sheet does. So I just want to highlight that. So when you look at it for comparison reasons, probably it's best to, compare the first quarter results with GFS and then AFS or a standalone basis for a media bank. So for the Georgian operations, our revenue was up by 10.8%, and then it's probably best to break it down into two, net interest income and net non-interest income. On the net interest income, the growth was 14.1%. But what's worth highlighting is that the gross interest income was higher. It was 21.6%, and the interest expense was 31.5%. But that was caused by the fact that we were carrying a much higher liquidity than usual. And that was carried on in the first quarter. So there's a bit of upside there as we deploy that liquidity to grow the number. I think the fact that interest income, gross interest income was up by 21.6% shows and reflects our strength of our balance sheet growth that we've experienced. Net fee and commission income could be in Georgia by 6.2%. There, too, the gross fee and commission income was stronger, but the expenses were a bit higher, and we focused on managing those expenses and negotiating a couple of contracts. Net effects was also, I think, it's best to do it on a country-by-country basis, and in Georgia it was up by only 1.3%. So what's worth noting is that the client flow fee and commission income, which is more than 80% of the overall FX income, was very strong. In fact, it was more than 20% gross year-on-year. So that makes me happy. But the revaluation in the first quarter last year was positive, and it was negative in First quarter this year, so overall the number came out flattish. But strength of the client effects flows is still there, which makes me feel good about that. Cost controls on the operating expense side are slightly higher, 18.2%. There were two things that affected that. One was the contribution to the state fund, which is for the guaranteeing of the deposits up to 30,000 lives. So there's a fund that is being set up, so we will be contributing it. So from 1st of January was the first time that we contributed. To that, going forward, we are going to have that expense line for the full year. It is going to be 17.6 million Lari based on the estimate of the overall system-wide deposits that are being insured, and that is going to happen over the eight years. So for every year, that expense line will be there. And And also we had two senior managers that will be leaving us, and the expenses of unlisted chairs were also expensed there. So if we did not have those two, then the expense growth would be more like 12.4% or 12%. I apologize. Which still means that we should be focused on it, and we are. But otherwise, you know, things are as usual. Loan portfolio growth remained very strong in both home markets, 18% constant currency in Georgia and then 30.9% in Armenia. Deposit growth was similar in Georgia, 18%, and slightly less in Armenia, 15.3%, which is more than enough liquidity to finance the strong growth. We will be focusing on growing deposits a bit slower going forward, given the fact that we would like to keep our deposit market share just below 40, and if we add 40 to something now. Net interest margin is something that a lot of people are asking about. So that too, the combined line is 5.9%, which we believe that it will probably be stable. In Georgia, there's a slight upside as you deploy liquidity because the loan margin is strong. If you look at the loan yield separately for larry and dollars, there's a slight uptick in the dollar loan yield, which has been fully consumed by higher liquidity costs at this stage. But as that comes down, I think we should look forward to either slight increase in the margin in Georgia and broadly stable in Armenia. So that's our expectation for the mean going forward. Cost of credit risk was low in both markets, 0.2 and 0.3 in Georgia and Armenia, accordingly. Our coverage is just below 60, which basically reflects the high colonization of our portfolio. On the NPL side, yes, the NPL is at, you know, 2%, but the coverage is determined as a result of the collateralization. So that's the reason why it's slightly dropped. So the collateralization is pretty high, especially on the S&A incorporate side. Profitability-wise, as a result of all of this, the return on equity is 28.7%. The profit number was the record $513 million, and our return on average assets of just under 4%. On the crypto buffer side, as you can see in Georgia and Armenia separately, we have about 1% in most cases other than in Armenia where the total is 0.3, which is above the 0.1 that we had last quarter. And that number we expect will be above 0.5 in July and then above 1% closer to the end of the year. um there's an upside there in armenia because we uh the regulators working on uh issuing a tier one framework uh which uh took a bit longer than we thought but we know that the work is ongoing there and once that is out i think that will allow us to consider raising uh tier one instrument in armenia which would uh create substantial buffers for tier one as well as total In case of Georgia, the total is also 1%. Our management target is 1.5%, so we're slightly below, but that is because we retired um part of the uh tier two instrument and we are replacing you with some something else but uh a new one basically uh but that's an ongoing capital management uh structure and uh nothing special going on there uh more importantly ct1 and t1 are strong as we mentioned liquidity remains above the historical leverages at uh above 130 percent um on the on the georgian side and in armenia it's it's 126 percent in that stable funding ratio which both are very strong and georgia is slightly more than we would like to see um it's just a slide on capital returns we are well aware of it but uh just to highlight that over the last um three and a half years we have reduced our share count from 49 to 44. And that is on top of the fact that 90% of top management compensation is in shares, but those shares are being bought on top of the buyback and cancellation program that we have. And regardless of all the shares that we issue in there, not issue, but we buy from the market, the overall number through the buyback and cancellation, which continues, has come down to 44 million now. Thank you very much, Nini. I think, yes. So let's open up for Q&A, which is usually the most lively part of the presentation.

Thank you. Let me look at the – so we have the first raised hand from our analyst, Jeffrey Spriaf.

Hi, Beth, can you hear me?

Yes, we can hear you.

Hi, thanks for taking my question. Just two from me, please. So the first is on the resolution fund contribution. I know you mentioned the 10 million figure, but would you be able to quantify how much the cost of just the contribution was this quarter? And going forward, how should we think about this contribution? And I mean this in the context of like the total contribution and how that will be spread out over the eight years. And my second question is on the excess liquidity. Again, how should we think about its deployment going forward? And are there any areas of focus that you're looking to deploy this liquidity? Thank you.

Thank you, Priya, for good questions on the contribution side. So the idea is that there's deposits that are guaranteed under this program, which is for the system-wide is about $13.6 billion. So the law, the regulation says that there should be enough money, which would be 3% of that amount should be set out as a resolution fund. And so the banks contribute in proportion of whatever amounts that they have that are insured by the government. and that is spread over eight years. So the current estimate is that this year our contribution will be 17.6 million Lari, and in the first quarter I think it was 4.4 million. So exactly one quarter of that. So that's what you should expect over the next few quarters. If the estimate of the power deposit changes, that number may change. But otherwise, that's what you should expect. And the same goes over the next few years. As this number grows, it may grow a little bit, but not substantially. And the second one was, Mimi, what was the second question about?

the liquidity as well?

Yes, on the liquidity side, there's no particular plan of deploying it one way or the other. Most of the extra liquidity is still in dollar terms, although a lot of liquidity is pretty strong as well now. So the dollar liquidity usually is deployed in corporate and some in SME. A lot is mostly deployed everywhere. but basically there is no particular plan regarding that, and it doesn't need to be deployed. Not all of extra liquidity may get deployed in the laws, but we may start reducing our rates on the deposits so that we don't pay for the most expensive deposits, basically, and let a lot of the others to do that. So we may either push it out or deploy it, depending on the possibilities. There will be opportunities to do that.

Thank you. Thank you, Priya. The next question comes from Steven Payne from Blue Hunt. Hi, Steven.

Hi, good afternoon. Thanks for the questions. Two questions, if I may. First one, obviously, cost of risk still remains very low at 0.2% in both Georgia and Armenia. If you just sort of remind us your view on what more sort of normalized levels would be, and I feel for any potential timing on when that normalization might come through. Yes.

Let's take one by one. Yeah, sure. So the normalized cost of risk for us is 1%, and we are continuing to benefit from the benign economic environment. And until that continues, I believe that the cost of risk will remain under the guidance. um so far you know 0.2 obviously is like super low uh but it is what it is and and we don't complain uh but obviously as uh you know when the cycle hits it will be one or even higher but the medium target is one percent um i don't i mean i i given that last few years we've been upgrading our guidance for growth every single quarter. Until that continues, I think the cost of risk will remain well under the medium-term guidance. The first quarter numbers, we expected a bit lower. They came higher, and activity continues in Georgia. In Armenia, there's slightly less growth now. They used to be still very strong. So I think it very much depends on the macroeconomic environment, but 1% is the mid-term guidance.

Okay, great. Thank you. And maybe just touching on Armenia, I mean, obviously seeing very strong loan growth coming through there and you're already sort of number one market share position. Is there any sort of ceiling on where that sort of market share can go to? And is there anything you can share on what you're doing in terms of developments on the apps to further drive that digital penetration?

Well, As you rightly said, so the main focus is on increasing the capability of our digital offering there to target the mass retail. And the rest will happen by itself. Although we are number one there in terms of loans, we still believe that the position there can be strengthened significantly as we increase the monthly active users from the current 250,000 to about 1 million. So that needs time and that needs the capabilities to be added to our retail offering, not just on the application side, but the way the underwriting is done and all the rest of it, call center, the collection, and everything else that needs the higher volume and higher setup so that it can service hundreds of thousands of customers that will be added. That's where most of the growth will come. I mean, growth will come from other places as well, like it used to in the past. But I agree. I mean, above 30% is slightly high, and that may not continue. But above 20%, we definitely think that it will continue.

Okay, excellent. Thank you.

Thank you, Stan. The next question comes from Rona Kadia.

Congratulations on the results. Maybe two or three questions. Maybe just staying with Armenia and the growth question. Your economist mentioned that the state subsidy program on mortgages is about to end. Could you maybe just give us, just tell us what that state subsidy program was and What happens there afterwards? The program is taken off. What happens to your growth? Maybe margins, cost of risk?

It has already ended in year one at the end of the year. And I need to get back to you with all the details of it, but my understanding was that it was for the first-time homeowners some kind of cashback or deductibility of the income tax that would go into the interest expense. That was the idea, but the details of it we can get back to you and provide. It is still applicable in other places other than Yerevan, but in Yerevan it has ended because the city is experiencing a real estate, a very strong real estate market. You feel it. When you go to Yerevan, you feel it. I mean, there's a real buzz and there's a lot of construction going on and very high-quality construction as well. So there's demand for higher-quality housing nowadays. So it's a good site.

That actually was my follow-up question. You know, the loan growth for Ameria and Armenian banks in general has been driven by real estate loans in the last few years. And I was just wondering what happens to the real estate segment once this subsidy is taken off. Do we see a correction? And on the back of that, do you see some weakness in asset quality?

I don't expect that at this stage, quite frankly. I mean, there probably would be slightly less demand, but the demand overall is so strong that I don't see this subsidy as being the main driver of that. The main driver was the economic growth that we saw over the last three or four years, which was very significant, as well as a lot of IT specialists relocating to Yerevan and Yerevan or Armenia in general becoming a a very strong place to move your IT office or outsource if you want the outsourcing to be done for a lot of Californian companies. The Armenian connection is very strong, and that helps as a bridge, and then there's fundamentally very high-quality IT specialists in the country. Homegrown, because of excellent program, two more programs that I have for the high school digital training schools throughout the whole country, as well as then a lot of migrants that have come in to join the IT force. So that's the main driver of the real estate demand.

Thank you. Just moving quickly to Georgia, you highlighted the fee income growth. It was in single digits, the net fee income growth, and that was partly because of the expenses you were paying. But we saw a bit of a slowdown last year as well. Is this just an indication that the payments market in Georgia is starting to reach maturity because it's been growing quite rapidly the last few years?

Absolutely. We went from 70% growth to 32% growth. There's still some way to go, but still high growth. I mean, payments acquiring, business growing. Let's call it 20% to 30% is what we're looking at in terms of data. I think it's very important to keep the margins there, but that's not the only income. There's some other stuff as well, but that is the main one. And we want to make sure that we don't get squeezed. And I think given the fact that we are on the issuing as well as acquiring side, a dominant bank, that puts us in a unique position to negotiate with some of the service providers.

Are you seeing increased competition, pressure on take rates because of increased competition?

It's definitely increased competition from one other competitor is trying to regain the ground. But we've been able to hold the ground and the gross income at the level they used to be for our part of the business. and we are spending a little bit of loyalty points to promote some of the more interest with our clients, but it's a relatively small part of the overall situation.

Okay. Thank you. And just last one. Dividend policy, I guess the policy is 30 to 50%, but any guidance on the short-term dividend payout target given the capital constraints in Armenia and to some extent in Georgia as well?

We'll be sticking. I think we announced the dividend for the full year dividend of 9 Larek. which is 31% payout ratio. And that's more or less what we are going to stick to. So we don't expect much dividends from Armenia because we expect high growth. So we will self-finance the growth and build up the capital buffers. And from Georgia, there will be more dividends. And all of this will result in closer to 30% payout ratio. Two-thirds roughly expected to be in cash and about one-third in buybacks and buyback cancellation, which is more or less what we've done previous last few years.

Thank you very much.

Thank you, Ronak. So at this point, we don't have raised hands, but we have a couple of questions in the Q&A chat. The first question, so Bruce Packard is asking about the consumer loan growth in Georgia. They're growing at more than 30% and faster than mortgages, and also they take a higher proportion of the loan book. as compared to SME loans or mortgages. So what are these consumer loans and are they secondhand car loans? And presumably they're higher margin than mortgages. So basically if you can elaborate on the consumer loan mix.

Consumer loan side, we have built a pretty sophisticated underwriting collection, phone call, phone center, et cetera, et cetera. So we are... pretty good at it. And as the income levels are growing double-digit now three, four years in a row in Georgia, that is creating an environment where the consumer loan base based on which we do provide that is pretty strong and growing. That's the reason why we are able to provide such consumer loans. There's not much more to say there. What was the question? Does it's not linked to cars particularly is it second-hand car loans but um it's consumer loans it's not second hand car loans we do have car loans but it's not it's not the main product and it's not it's not a super popular idea because It's easier to get the consumer loan, which is based on the income that you get over the last six months, and it's easily checkable because we are the main daily bank and we have that access to the customer on a daily basis. And that allows us to offer in the right moment the right loans. Yes, the yield is high on those, but the yields vary from... i don't know 17 16 17 percent in larry all the way down up to safety safety plus but it depends on the risk group as well as uh the use and so forth so there's a there's a very detailed and sophisticated models that run this thing on the pricing as well as underwriting as well as the form reminders on the repayments as well as the collection and so forth and so forth so it's uh That's the one why we don't recognize this as the best pivot of one of the reasons, as well as innovative payment systems and the application experience and so forth.

I have two questions, one from Bruce, another one from anonymous F&D regarding the liquidity. Basically, they're asking that last quarter we talked about excess liquidity, and it looks like you haven't deployed this excess liquidity because cash was up to or killed by 35%, whereas loans were up 3%. And if you can elaborate on that excess liquidity. We already, in a way, touched on this.

Not much more to say there. We did keep liquidity for longer than we expected because the elections were in the end of October, but then there was protests and so forth, and we kept that liquidity until, I don't know, mid-February, end of February. But then we started to deploy it, but it takes time. It's not so easy. The exercise will be that over the next few months. And it will continue. But it's a good problem to have.

One question from Samuel. He's asking basically how the political landscape in Georgia and Armenia affects our portfolio risk appetite as well as liquidity planning and capital allocation decisions between the two markets.

Liquidity allocation. We don't do liquidity allocations. So those two banks are run separately. with their own funding, own local funding and own local deployment. Just to be clear, so if we lend from Georgian balance sheet to an Armenian client, on the risk-weighting side, it would be prohibitive. So there's no banking union between the two countries. So they're separately run, so there's no liquidity allocation per se. We do believe that given the fact that we want to build out a mass retail franchise in Armenia already on the best banking franchise in the country, the top of mind and most trusted bank. We believe that the growth prospects of our franchise in Armenia longer term, over the next three to five years, are a bit stronger than in Georgia, where we already are at close to 13% market share. So there we'll be growing with the market. In Armenia, we can't grow ahead of the market. So those are the growth prospects. In terms of geopolitics, I think we're very careful with the fact that most of our book has a pretty fast maturity, pretty short maturity, and rotates very quickly, be it in consumer, in corporate, or SME, other than mortgage-based cleaning, and mortgages have relatively, on the average, is short. short life, that allows us to be very flexible and adjust to the new realities very well. So volatility, we are no stranger to volatility, and we are always cognizant and ready for changes. Other than that, the economy has done very well and is continuing to do very well. And those create opportunities to deploy capital profitably, and that's what we've been doing.

Another question is from Ben Yu regarding the capital buffers. They've come down 100 basis points suddenly. Can we know why they dropped Q over Q? What is the target buffer that the bank wishes to maintain? And he's also asking about the 81 coupon payment. If 81 coupon payment cancellation trigger references consolidated capital numbers or both Georgia and Argentina capital ratios, and how should bond investors think about this risk?

So we have kept servicing TL1 instruments even in public times when there was the provision upfront for 100 million Lari, which is the only regulator that did it was Georgia, which was on the edge of being crazy, I think. But in any case, even then, a TL1 instrument coupon was paid. Our target of the buffer is 1.5% management buffer. Sometimes we'll go just under and sometimes above. In Georgia, I think we're very close to that, so there's no issue there. In Armenia, we would like to build up the buffers on tier 1 and Total capital, as I did mention, if we do issue tier 1 instruments, it will increase it automatically almost on those. And if not, then the earnings will finance that creation of those buffers. But previously it was higher than it should have been, if you ask me. I mean, buffers are good, but when you look at the overall capital ratios, they're one of the highest buffers. by any European standard because the capital requirements in Georgia are about 60% to 40% higher than most of the countries in Europe. And rather than getting healthy buffers about it, I think we are in a very good shape.

Thank you. And this last question in the Q&A chat is from David. David is saying, apologies, we're new to the business. Thank you for the presentation. From the numbers, it looks like you're being conservative around risk, low cost of risk and excess liquidity. And what is your thinking about why you're not increasing assets more? Are you concerned about a normalization in the cycle? That's the first question.

Yeah. And then there's... I... I think we are very prudent in underwriting, given the fact that we have been growing about 20% over the last few years, year over year. We don't want to overdo it. Having said that, there are certain pockets where we think that the capital deployment is such that we believe there's more potential. So, for example, the last two years we've been growing stronger in self-employed smaller businesses or self-employed has been a big focus and we've been able to automate a lot of offering there. because it's very hard to distribute to rich such customers if you don't have very good digital products, or it's very expensive, let's call it that. So in Georgia, we've done that. In Armenia, there was a good push for mortgages, because the mortgage penetration was very low in... In corporate, because of the environment, a lot of deleveraging happens. So a lot of corporates have built up very good equity to invest in new projects. So we've been doing that over the last two years in Georgia. So we look at different pockets of opportunities, but we don't want to loosen up the credit and the writing because, of course, the cycle will turn. Of course it will. The question is when. And when it happens... that's when you see who has been swimming naked to mention Warren Buffett's face. So, you know, we are very prudent. We've gone through... number of crises, including 2008, without registering any loss in Georgia for two years, and we didn't need recapitalization, etc. So it's an old guard still overlooking the risk side, and we have seen ups and downs, and good economic growth is good, but we're happy with the growth that we see. Plus, we don't want to be pushing the market share, so we are very prudent and focused on profitable growth.

And the second question is more technical. How much of the strong collateralization which affects coverage over the recent past has been due to currency appreciation?

I don't have the number off the top of my head. It's not huge. It's a small number. It's not a major one, but we'll get back to you. Is it anonymous, or do we know who's asking?

No, we know who's asking. It's David Everill. We'll get back to you.

Okay, David, we'll come back to you.

I don't see any further questions, Archie.

Well, thank you very much for your attention and for your time. I have to say that this was a quarter where we continued to grow very strongly. Our balance sheet growth in both markets was very strong. The macro economy has been supportive. Our franchise, in terms of strength of customer satisfaction, being it with the Netcom Motors score or all the other measures we have delivered, strongest results, which built the foundation for the long term strength of our franchise. We are keeping very strong and good profitability in both markets, slightly higher in Georgia, obviously. Growth remains strong and the franchise is strong. So thank you for your support and for your trust. And we will continue delivering good results. Again, first quarter was a record net profit, which given the low seasonality is not bad. And we'll look forward to doing more as we go forward. Thank you very much.

Thank you. See you next time. Bye.