Lion Finance Group PLC

Hello, everyone. Welcome to Lime Finance Group PLC's second quarter results call. My name is Ninia Archagouni. I'm Head of Investor Relations and I'll be moderating today's session. We are pleased to present our results for the second quarter, which you can also see on this slide. So, we have a very solid set of results with our profits reaching 513 million gel in the second quarter, up 19% year-on-year, resulting in a cumulative half-year profit of just north of 1 billion GEL, up 28% year-on-year, with return on equity standing at a very strong 27 and 28% in Q2 and the first half of 25 respectively. And these results are underpinned by robust customer franchise and portfolio growth across our core operations in Georgia and Armenia. I am joined today on this call, as usual, by the Group CEO, Arshil Gaceciladze, who will share his perspectives on the Group's performance. For the first time, we're delighted to have Hovhannes Doroyan on this call. Hovhannes is the Chief Financial Officer of Ameriabank, the group's banking subsidiary in Armenia. We also have Akakeli Kokeli, our macroeconomist, who will walk through the recent macroeconomic developments across our core markets of Georgia and Armenia. Following the presentation, we'll open the floor for your questions. As a reminder, this call is being recorded. With that, we'll first start with the macro highlights, so I'm handing it over to Agaki to kick off this webinar. Agaki, you can go ahead.

Hello, everyone. I will be presenting the macroeconomic update for our core markets, Georgia and Armenia. Let me start with the growth performance. Georgia continues to benefit from a balanced mix of strong external inflows and resilient domestic demand. In Armenia, growth momentum has shifted more towards domestic drivers, supported by fiscal stimulus and credit expansion, while external demand continues to normalize. Preliminary numbers show that both countries performed better than expected in the first half of the year. In Georgia, our EU GDP growth was 8.3% year-on-year in the first six months, while Armenia posted 6.3% growth. So given these strong numbers and an improved outlook, especially following the recent signing of Armenia-Azerbaijan peace framework, has enabled us to revise our full year real GDP growth forecast upward to 7.5% in Georgia and to 5% in Armenia. So, this sustained strong growth performance in recent years has led to sustained increase in per capita income levels in both countries, as you can see on the right-hand side of the slide. However, these average income levels are still below Central and Eastern European peers, which leaves significant room for further catch-up growth in the years to come. Now, let me move on to drivers of growth. In Georgia, external demand continues to play a major role, with traditional inflows from exports, tourism, and remittances increasing steadily. In Armenia, exports continue to normalize from one of spikes from the last year, while other inflows and particularly remittances remain solid. Beyond these traditional inflows, we see strong performance in non-travel service exports and particularly IT services, which support hard currency inflows and also generate productivity gains for the wider economy. So all these inflows taken together have also contributed to strengthening local currencies Georgian lari and Armenian dram continued to appreciate in the second quarter, even after the U.S. dollar stabilized against other major currencies. Notably, real exchange rates of Armenian dram and Georgian lari are adjusting after significant appreciation in previous years, as you can see on the right-hand side chart. This adjustment is taking place through lower inflation relative to trading partners with no pressures on nominal exchange rates. We expect both currencies to remain stable in the medium term, underpinned by healthy macroeconomic fundamentals and prudent monetary policies. Now, strong exchange rates also supported low and stable inflation in Georgia and Armenia, and these recent upticks that you see in the headline numbers are mostly attributed to food price increases, while core inflations remain well aligned to central bank targets. We, therefore, expect these food-related pressures to be short-lived. Still, given the globally uncertain inflation environment, central banks of Georgia and Armenia maintain cautious stance, keeping interest rates unchanged. And we don't expect any cuts in the remainder of the year. So, beyond price stability, two additional pillars to overall macroeconomic stability are adequate levels of international reserves and prudent fiscal management. And in this regard, we have very positive developments in both countries. Particularly in Georgia, the central bank has been actively replenishing international reserves, which reached 5 billion U.S. dollar at the end of July, which is the highest number since 2023, and the interventions, the foreign currency purchases were particularly high in recent months. So, there is also positive developments on the Armenian side. Reserves are also increasing, and we expect this trend to continue, improving the resilience of Georgian and Armenian economies. On the fiscal side, we also see both countries maintain discipline. However, the public debts have taken different trajectories. The Georgian government continues to decrease external debts, and this has brought the total government debt to below 36% in mid-2025, which is a significant decline if you compare it to almost 60% back in 2020. On the Armenian side, the government is carefully balancing the current spending needs with longer-term fiscal sustainability objectives. The total government debt to GDP is expected to stabilize at around 56% in the following years, and the fiscal discipline is also supported by ongoing IMF programs. And lastly, the financial sectors in Georgia and Armenia have benefited from favorable macroeconomic conditions while also supporting growth. We continue to observe robust lending expansion in both countries, while loan dollarization had decreased significantly in previous years, reducing exposure to exchange rate risk, and the balance sheets remain strong with non-performing loans at one of the lowest levels among the peer countries. So, this concludes my part. Back to you, Nini.

Thank you, Agati. And now we can move to the group's results and I'd like to ask Archil to share his highlights.

With pleasure.

So, first of all, thank you very much for joining the call. I understand that a lot of our investors may be on location, and nevertheless, I think attendance is one of the highest that we've seen. So as Nini has mentioned, we have very solid numbers. I think what's important is that as the macroeconomy is doing better than we expected in the beginning of the year, we also see very strong demand in loans. So on the balance sheet side, we'll cover in the next slides. Growth is very good in Georgia and phenomenal in Armenia. Deposit formation is very strong as well. And overall numbers are quite solid. So operating income grew 9.5% year over year in the second quarter. Notable that Georgia increased 11.4% and Armenia 8.67%. of which then when we dissected to interest and non-interest, most of the growth came from the interest income this time, with Georgia delivering 17.5%, Armenia 16.3%, and combined that resulted in 15.8% year-over-year increase in interest. In terms of the non-interest income, it was minus 2.2%, and I'll go into details over the next two slides. Net interest margin, as we said on the results of the last one, on the first quarter, we said that there was slight risk on the upside. So increased to 6% net interest margin, of which there was a bit of increase from Georgia, mainly coming from the fact that we had extra liquidity deployed. and there was a slight decline in Armenia from a relatively high base. You do see that we had a slight uptick on the low-yield side, but also it was a slight uptick on the cost of client deposits and notes, mainly coming from the de-dollarization, especially in Armenia, where the attraction of drone deposit is slightly higher, more expensive than in the hard guns. Nets being commission income, the AFS was minus 17.7%. What's interesting is that last year, second quarter, we had a relatively large item, which was starting from investment banking fees of about $10 million, out to $29 million. So if you normalize it for that one large item, and this quarter we didn't have large investment banking fees, which is another bump here. If you're going to have that, you will have 24% increase in net paying commission in Armenia. In Georgia, it was relatively small number, probably due to some adjustments. But even in that case, it would be low double digit if you normalize it for that. And that's partly due to increased competition slightly, but also there's the Visa MasterCard fees that we have seen a little bit uptick there, and we negotiated, I don't want to go into detail, but going forward, things will be better. Net effects, we had a rather flattish performance, where we had the Georgian operation still running minus 8%, predominantly based on the fact that it was... The revenue from Clyde's flow was flattish and there was a slight decline in terms of revaluation gain. In Armenia, it was minus 1.9%. Also, mainly due to the fact that there was a bit less volatility in the second quarter in Armenia than previously last year. Operating expenses increased 2.1%, of which Georgian operation was 15.7%, and Armenia 3.1%. We like Armenian cost discipline, and in Georgia we are taking certain actions. As we get closer to the end of the year, we'll see some of it coming into the numbers. Cost income ratio summed up to 36.5% for the quarter. And now regarding the balance sheet growth, we had 22.5% constant currency growth, which is very strong and well ahead of our guidance of Iraq, 15%. We had 17% constant currency growth in Georgia and 37.6% in Armenia, which is a phenomenal number. What's even more important, I believe, is the key of the key number, which is 10.3%. um and uh and how much we'll dissect it into where this growth is coming from uh we also have four points out in georgia qlq it's also very strong performance uh and there most of the growth is coming from corporate uh and must be talent clothing consumer slightly less demand of mortgages and sme uh but overall very strong uh performance proposed portfolio we had 26.1 growth constant currency in armenia and 10.9 in georgia and in georgia we are trying to uh decrease our market share as we indicated to the to the market which which would be slightly Cost of credit risk, we had 0.5%, which is slightly higher than last quarter, but it's well below our normal level of 80 to 100% that we got, which still is a very good performance. And I think this performance will continue like this as the macro economy is doing very well, 50 in a row already. And you can see it in the NPL numbers, the overall 1.9%, which is also a very strong show. Profitability year-over-year increased 19.4% without the one-offs, which was probably due to the fact that In the second quarter of last year, we had a strong reserve associated with our position in Armenia. But overall, a very good number. And the return on equity is 27.2%. And for the half year, it's 27.9%. GFS, I think we mostly covered, but if you take on a standalone basis, return on equity was 31.1%. Profitability was $409 million, which was up by 7.6%. Loan book growth, 17%, as I said, and deposit growth at 10%. What makes me quite happy is how our retail digital marketing is still growing at 15.5% year-over-year, achieving 1.7 million customers in a country of 3.8 million people. I'm not going to discuss more here. We're also enjoying a very strong growth of our business mobile users. growing 22% year over year and achieving 100,000 users. We are also growing our digital sales very well. As you can see, we achieved almost 70%, which is uh very good achievement and and now also 86 percent of all loans uh are fully uh issued fully digitally and 73 percent of all deposits and and that number is growing very very well year over year um nps uh we uh customer satisfaction as you know is a big focus for our For all of us at Lani Finance Group, in Bank of Georgia, the NPS was reiterated in 73, which is a very strong showing in the universal math. Acquiring volume was growing by 27%, which is also a very strong showing. uh and also number of people using uh using our cards increased by 14.3 percent uh to go above 1.5 million people in the ocean uh long portfolio we covered already in deposit when we were discussing the overall numbers um capital position is very strong um as you can see and liquidity is very strong as well On this bright note, may I ask Joannes, our CFO from Ameria Bank, to join. Let me turn this off because I think he can share the presentation. Joannes, tell us how are things going in Armenia. We see phenomenal growth. Please tell us more about it.

Thank you. Thank you, Archil, and thank you, everyone, for joining the call. I am actually pleased to announce our results for Q2. And before I go in there, I want to just add a couple of words on the very positive environment, macroeconomic environment that Akaki presented in details, figures. I'm sure most of you have already heard about the recent U.S.-brokered transaction that is expected to de-escalate the geopolitical tensions in the region. and so-called trip corridor to be established that will assume opening the borders as well and technically will result into their regional integration with greater economic results potential for the country and the region in general. So in addition to that, I want to note that this has been very positively received both locally in Armenia as well as internationally by investors. I'm sure you've seen the Armenian Euro bonds yield going down 60-70 basis points over the last one month period. Moreover, over the last couple of months and over the couple of following months, we do anticipate to have several very important and significant developments in Armenia, namely, if I name a few of them, NVIDIA that has established an office in Armenia more than two years ago, has announced that it's going to be partnering with Firebird and Government of Armenia to launch a $500 billion worth of project building an AI supercomputer that will really transform not only the overall IT infrastructure in Armenia, but overall the region. And it's going to have 100 megawatts of data center as well, and even also the quality of engineers locally. We anticipate it's going to have a significant chain effect on the IT sector and not only in Armenia. Another large project that was announced a couple of months ago was on natural resources. One of the larger natural resources to be activated and operated soon. That is estimated to have from 0.6 to 1.5 percentage point impact on GDP in the medium term. And add another 120 million US dollars of tax revenues to support the government. We do anticipate to have another significant transaction in the natural resources sector that will also have positive impact on our development from the baseline scenario that we were discussing. And obviously, a number of infrastructural projects, South North Corridor, the TRIP, corridor-related infrastructure investments. So I would say overall, there is a very positive sentiment and expectation on the economic developments in the country. As for the Q results of Ameriabank, we did register a 95.8 million gel profit during the Q2. And if we take out the monos from previous year, year over year, this would yield into 17.7% growth. Our return on equity in consultative report is 20.1%. But if we look also at the stand-alone report, it's going to be 24.1%. The loan growth and deposit growth figures speak for themselves, 37.6% in cost and currency basis for the loan portfolio and 26.1% for deposits. I will talk about these figures a bit later. And huge impact and result on increasing our monthly active users and that actually grew more than 50% year over year. And again, we'll have another slide on that later. This is to emphasize the importance of our digital transformation. And also here I want to just mention that year over year, the volume of transactions to our My Ameri application have gone up more than 68%. Our cash offloading ratio is more than 91% at the end of the Q2. So you can see a number of features that are available in our super app and also beyond banking part as well. i'm very happy to mention that we actually launched a kids app miami star this was a project that was designed and implemented over a course of three months and i want to thank all the peer colleagues engaged in that and this will give our younger generation not only opportunity to cover their basic needs in terms of their finance but also more importantly this will cover educational aspect. And we really want to emphasize that not only for KISA, but also in MyInvest, where we actually have, I think, one-in-a-kind in-app build academy, where we educate our customers to take advantage of wider financial services offered by Ameriabank locally. And there, again, I just want to mark that our transactions numbers and volumes have more than doubled year over year. And we are very happy to see that 73% of the IMX corporate bond trades are done through our platform. This is to note that our customer base has actually surpassed 700,000, of which 408,000 are monthly active customers. That's 35.8% year-over-year growth. And Mao and Dow grew 54.5% and 52.2% respectively. Very impressive for us, but actually we want to note that There is still a huge opportunity for further growth, and we aim to improve the absolute number of Mao and Dao significantly through increasing our customer base over 1 million and also improving our digital uptake and engagement ratios over time. Non-portfolio growth and deposits speak for themselves. Again, 37.6% in constant currency basis growth year-over-year and 10.2% for the quarter. This is actually very diversified in both sectors, retail and corporate. It's actually driven by a very good economic environment and very healthy demand locally, as well as very positive brand positioning. risk management, and also digital transformation. Just for your information, 96% actually of consumer loans were issued through our digital platforms, enabling wider coverage and minimizing our underwriting costs, of course. Deposits, again, very strong year, 22.3% year over year. And here I just want to mention that We have also restarted collaboration with DFIs and given the change over the international rates that are more compatible with local rates now. I'm sure most of you have seen several transactions that we have announced last year, end of last year and beginning of this year. 20 million with IFC, 105 million euros with EIB, 15 billion with EBRD, and there are a couple of more to come. hopefully still this year. This is to show our very positive trend on the market share. Over the course of the last 12 months, we were able to improve it by 1.3 basis points and 0.9 basis points for the quarter itself, for the loans, and 1.2% year-over-year and 0.6% for deposits. Again, we are very happy with the organic growth that we're able to achieve, but our ambition here is to hit 30% market share over time. And while we see the trajectory going there, we've also, based on the questions that we got previous quarter, I also want to mention that our baseline scenario is organic growth, but at the same time we will and seize any non-organic growth opportunities in the local market. Our capital position stood strong. CET1 had 2.9 percentage point buffer. For total capital, we have 0.1 percentage point buffer. I want to highlight that this has been a managerial decision to unleash the local growth opportunities. and especially given the fact that we had already signed a subordinate debt that would improve our capital position that was engaged, included into our regulatory equity during the last few days of June, hence did not have much impact on the average capital adequacy ratio presented in here. For July, our buffer was 0.3 percentage point. Now it's even higher, and we have actually attracted two more smaller sub-bets in end of July and beginning of August. Another one is coming up by the end of the year, and we are actually looking forward to finalization of the regulatory changes, whereas Central Bank of Armenia will be enriching the capital instruments for Armenian banks, and we will be looking into improving our Tier 1 capital with that as well. Liquidity positions are again very strong. LCR at 173.8% and MSFR at 117.2%. This is it for the Armenian operations. Thank you.

Thank you, Kovanes. And now back to Arshil for the wrap-up before we move to the questions. Artur, you are on mute, so if you can please unmute yourself.

Thank you, Nadia. Thank you, Alanis. Very impressive results, especially knowledge of growth is very impressive. Now, just to wrap it up, we have announced 5.1 lot per share dividend, which is for the first half of the year. Also, we announced that we'll be going to quarterly quarterly dividend announcements. So this 5.1 lie is for first and second quarter, and then every quarter we will be announcing dividends on a quarterly basis going forward. Also, something to note is that we are approving the board has recommended and approved 98 million buyback for the first half of the year, which will be happening as well. As we speak, it's a buyback and cancellation. Over the last few years, we've gone from 49.2 million shares to 43.9, canceling more than 10% of our shares. Just to reiterate, we are um medium uh term targets uh are fifteen percent uh which is fifteen percent growth which we're over performing right now return on equity of 20 plus percent which we have or performing with a large margin, and a dividend and share buyback payout of 30% to 50%. And we told our investors that we'll be on the low side of that as we are deploying all of the profitability that we generate in Armenia there to fund the growth. And as you can see there, we are looking forward to the regulatory framework, which will allow us to issue the additional instruments, maybe tier one instrument, which is a good problem to have because if the franchise is growing at 30 plus percent, 37 in this particular case, It's a good problem to have, and we'll be dealing with that to deploy more of the capital while the franchise is generating 20-plus percent return on equity. And there are plenty of good news to look out for in Armenia overall on the MAPR side, which is resulting in many different problems. good news um i think one is big national but the media has a back office in armenia employing about 600 people uh in the country but recently they announced uh a large data center which will be more than half a billion dollar uh projects together with number of different investors that will be a joint financial where the media will be provider of speed uh chips and and innovation or know-how uh and there will be uh regionally it will be a very very strong and uh uh it's a good project because it will uh generate more and more uh data capability and processing power for the whole region so such projects and and and they are new new very significant and exciting things happening in armenia which you look out for and Georgian numbers, as you can see, were very strong. I will reiterate, as Akati said, that seven months of this year, the National Bank has bought about $1.2 billion on the market, which is about the same as in 2023, which was the highest net buying that we have seen historically. So just in seven months, almost the same as the highest net ever in 2023, which not only recouped all the spending, which was done last year to stabilize the life in the political turbulence, but also added to it, which is a very good management overall for the National Bank. So, overall, that's fine. On this very note, should we open for Q&A?

Let's now move to the Q&A, and we already have a few raised hands from our analysts, and the first on the line is Priya Rathod from Jefferies. Hi there. Can you hear me? Yes, we can hear you.

Perfect. Thanks for taking my question and congrats on a strong set of results. I have two areas just to focus on, please. So the first is on the net other income. There was a noticeable increase quarter on quarter, especially in GFS. Could you just speak to what the drivers were there for the increase, please? And the second topic is on the HSBC Malta potential acquisition. A couple of questions here, please. So I guess the first is what synergies or benefits are you seeing from this acquisition? And I guess I'm asking which products or offerings does Malta offer which you don't currently have? Or where do you see it as enhancing your current offering? And are there any regulatory hurdles or pushbacks you envisage in the process? Because there's quite a lot of news flow suggesting that there's a preference for a European buyer. So just any thoughts around that? And finally, just generally on the timing of this acquisition, because the Emeria Bank acquisition only recently closed.

Can you hear me? Yes. HHBC has announced that there's a preferred beta, which is a European one. So it's no longer relevant for this state.

Okay. So I guess my only question is the net other income question, please.

Yes. On the net other income, why do you say it's significant? It's just 2 million, 3 million more in Georgian case for the GFS. So it's not a significant uptick. And net of income includes a number of different things, including one of gains on real estate sales and such. So it's not a significant number. For operating income, there was 746 almost million. A lot of it was less than 15 million a lot of it. So it's not a significant number. Nina, can you help me with what is going on?

It includes a sale of one of the... one of the assets sold.

But it's not significant.

Thank you.

So if you look on a half-year basis on page 9 of the results, you can see that last year it was $19.5 million allotted for the first half, and this year it's about $22 million allotted. So it's only a 12.8% increase And this is not an easily bumpier than this, but it's nothing particularly significant from this quarter. But regarding Mota, yes, it's unfortunate that we definitely were much less aggressive apparently than some of the other buyers, interesting buyers. In this particular case, it was formerly Attica Bank of of Greece that was announced as a preferred bidder. We would rather be more disciplined in terms of the buying and sometimes that means that we miss out on opportunities, which is unfortunate, but what can we do?

Thank you.

Thank you, Priya. Sorry. The next raised hand is from Sergey, but I don't see the last name, so let's see who the person is. Hello, can you hear us?

Yes. Hi, can you hear me? Yes. Hi, Sergey. Perfect. Sergey Belozar from Greyhound Capital. Thank you for... giving me the opportunity to ask the question. Very impressive results. You've been growing very impressively as a country and as a bank for the last four years. um my question goes um you you show you have shown that um the um remittances and um gdp has has have grown over the last four years so um from my understanding there were over a hundred thousand um immigrants coming from russia and belarus over the last four years which And a lot of them are operating in IT services, hence generating probably 10 times the GDP average. So how much do you think has that impacted overall your performance over the last four years? And how do you think that could reverse now with potentially the end of the conflict?

Thank you. I will ask Akake to go into the details, but all in all, I can say that in 2022, the inflow was stronger. Some of the people have established themselves here. It's IT, but not only. There are different families that have moved, opened all kinds of businesses, bars, restaurants, pet care shops, and all kinds of different studios and so forth. But people have moved to different countries, including Georgia, and have established themselves. Some of them have moved on. So, as in the beginning, I think, Europe was rather closed for this IT specialist, but then Portugal, Spain, and others have rolled out different kinds of programs for IT specialists, including for the Russians, for the Russians, and so forth, and some of them have moved on. So I think you had an uptick in 2022-23, but it has normalized much more. Akaki, could you comment on this?

Yes, so the significant inflow that we saw after 2022, we see some stabilization, we see some normalization in these inflows. Some people, some freelancers have moved on to other destinations, and this IT sector benefited not only by the inflow of migrants, but also by relocation of several international companies from the region. And we expect those businesses to stay in the country even after the situation stabilizes. So we do not expect any abrupt or sudden outflow. As we see, these businesses are growing. They are expanding their operations in the country and generating significant export revenues as well as productivity gains for the wider economy. We can say that those one-offs have already stabilized and we do not expect any significant or sudden outflows.

In terms of the transfers from Russia, it's less than 20% now and it's decreasing. So in terms of hard currency transfers, other countries are increasing significantly, including the U.S., which is becoming stronger and stronger source of remittances for Georgia. And also just to reiterate what Akash said, all of these large international outsourcing companies that move their offices to Georgia and Armenia, they started to hire locally, which created a significant competition for our IT resource. And we have seen very strong inflation of of IT resource over the last four years. So on the cost side, we saw that, but on the revenue side, obviously, it contributed to the overall GDP. So all in all, it resulted over the last few years, we basically increased our profitability more than four times. So all in all, it's not just this, but it affects all sides, revenue as well as costs. But it's not only the people that migrated, but it's rather the companies that know how to do the outsourcing service for the rest of the world that had to look for new hope. And once they found it, they are here to stay, like NVIDIA with 600 people in Armenia. I don't think they'll be going anywhere, regardless of the peace that we all expect to come in the region.

Interesting. Thank you very much.

Thank you, Sergey. So, we don't have raised hands at this point, but we have a few questions in the Q&A chat from anonymous at ND.

I would suggest, Mimi, maybe this is the last time we should answer anonymous. Well, the person is telling us thank you for keeping the anonymous line open, but... One thing we can do is know who's asking the question we're publicly answering, but yes.

So the first question is if we can clarify which group expenses are allocated to the Armenian segment during consolidation, because there is a difference in the expenses between standalone and IFS. So that's the first question. Maybe, Archil, will you just quickly...

So it's mainly group functions, which includes CEO, CFO, a couple other things. There's also a sign-up bonus for the management that we had initially that is being amortized, and it's almost done. So that's about it. Another question is, are we going to have a investor day? Probably spring of next year we'll be having one.

And then there was a question like, what was the rationale for considering the acquisition of HSBC Malta? And do you still consider an entry into the banking sector in Malta now that the other bidder has been, the preferred bidder has been announced? So a different acquisition.

Okay, so maybe I'll take that question. So our strategy is to do a main bank for our customers, and we like larger scale. So that means that we like to look at acquisition targets, which are top three in larger countries, maybe top five. So in Malta, the acquisition target was number two with about 20% market share. We thought that it was a franchise that would benefit with the digital offerings that we have. Significantly, I would say, because HSBC was... looks like was thinking about exiting the country for a long number of years and had funding in the franchise. So we thought it was still some franchise in a small country, but could benefit significantly with the refreshment of the product offering. We would not be interested in looking at a small player in a small country let alone. We would not be interested in a small player in any country, let alone a small country. So, in other words, no, we would not be interested in terrain, but we would opportunistically be looking at all of Eastern Europe. Malta was a bit of a stretch, but it could have been an interesting opportunity. But we're looking at top three, maybe top five, if it's a larger country, because we believe scale matters. and we like the types of acquisition targets where we feel that we can bring value with our ability of bringing the customer care approach, and that approach includes a lot of details in it, not just the philosophy but the processes, as well as the digital offering. So all of this together doesn't happen very often, so don't expect too much activity on our side there.

And there was also another question in the chat, if there is any current or upcoming debt capital markets initiatives that we're working on or planning.

Well, I think in no uncertain terms, we said that we are looking forward to the framework of Tier 1 for Armenia, and it's for a reason. I'll say that. Other than that, probably not.

So we have a raise hand from Ronak Gadia, so let me allow him to talk. Hi, Ronak.

Hi, Nini. Hi, Archil. Congratulations on the results and taking my question. Maybe two or three questions. Firstly, on cost of risk, in Georgia, we saw a sequential pickup, Q and Q to 0.7%, still below historical levels. So, should we gradually see a convergence towards the historical range of 1.2% in the next few quarters or Was that just a one-off pickup in 2Q? Likewise, staying with Georgia, the OPEX run rate, you explained some of the one-off factors driving that, but even excluding that, the run rate, the growth rate is quite strong. Should we expect that growth rate to continue at that level or are you at a point where, you know, you've made all the upfront heavy investments in digitization and we should start to see some leveling off? And the final question on... Can you take one minute on that? Sure, sure. Yeah, sorry, my bad.

So the first one is cost of risk. You're slightly higher... That's partly due to the fact that there's a lot that's slightly weaker versus euros. So there's a small part of euro portfolio which contributes to about 14 basis points. But other than that, it would have been 0.5. Now, 0.5 still is well below our midterm expectations of 80 to 100. But we don't expect to get close to 100. until we see this above, until we see such a strong macro development. Having said that, so as the macro is developing well above the potential long-term 5% that Georgia has, I think, you know, we are at 7, 8, 9%, you know, we feel that the credit The quality that we look at is very strong overall, so underlying cost of risk, we should not expect getting close to 1% in the short term. We'll see what happens on the market, so it will depend on that. What was the second question?

the OPEC's growth outlook in Georgia.

There, what we pay attention to is the operating goals, and we don't enjoy that they've been negative. So I think from the fourth quarter, fourth quarter, it should neutralize at least, and then we'll see where we get to from there. One thing that is not helpful is that the overall in the country, the the salary income levels have been still growing a double digit, 40 in a row. So that's not helpful. But having said that, I think the overall franchise has been growing, and that should be more than enough to absorb it. So we normalized the costs. Now it has been slightly higher, but we should – It will be under control, let's say, it is under control, but it should translate into a neutral, maybe positive relation. If not in the third quarter, then in the fourth quarter onwards.

And same question on Armenia. The OPEX growth Q&Q was flattish. Is that just some synergy benefits that have been realized? Because I was expecting growth to be slightly stronger as you're starting to make some more digitization investments there. What can we expect in Armenia?

I'll just say one, and then maybe Joana says the rest. We don't have much synergies there in terms of costs, because it's run completely as a separate bank, because the regulatory environment is different. There's almost a requirement to run it separately through the board, et cetera, et cetera. So on the back side, there are no synergies at this point, at least from this point.

Yeah, just to end on that, while the year-over-year growth on the OPEX was 2.6% only, there is some so-called seasonality issue because some of the costs were not evenly distributed previous year, and we are going to have this situation change towards the end of the year. So the natural growth would be somewhere around 8%, 9%, so slightly short of 10% for the year most probably. I mean, if we continue with the same round rate, it's going to be slightly short of 10%.

Understood. Now, that was it from my side. Thanks. Thank you, Ronak.

Thank you, Ronak. So, another raised hand is from John Osgozal from Franklin and Templeton.

hi thank you very much for the presentation and congrats on the results I have one macro or maybe question regarding Azerbaijan and Armenia trade the question is do you expect in the future or when if possible to expect the trade barriers of Armenia between Azerbaijan and Turkey to be removed. And in such a scenario, what do you think the impact will be on Armenia's economy? Do you think it will be a game-changing development or, yeah, initial thoughts maybe on that would be great. Thank you.

For one, why don't you start? You're closest to that.

Of course it's still a bit early to say what's going to happen, but there are clear talks already that the borders with both neighbors will be opened in a matter of time actually. And there are already some preliminary assessments that are rather positive actually for the economy of Armenia, but also for the regional economies as well. There is no very concrete assessment how much additional impact on GDP or international trade it will have. But there have been a couple of articles, like Forbes had another one yesterday actually, giving some estimates how much trade could flow through those borders. And overall we anticipate that whenever those borders will be opened, of course, It may take some time, but it's going to be really a change of the dynamics of the trade in the region and having significant positive impact on the economy overall of Armenia.

Yeah, thank you.

I've got anything to add there, to have more insight there?

Well, I would just add that opening up this corridor would definitely change the overall situation in the region because that will be beneficial from the diversification perspective and also that will definitely increase the trade flows. the overall region. So I don't have any estimates either, but overall, yeah, we expect this to have a significantly positive impact on the whole region, and particularly on Armenia and Georgia. Thank you.

Thank you, John. Another raise hand is from Alex. I also don't see the last name.

Hello, can you hear me?

Hello. Yes, we can hear you.

Okay, great. Hello, Archil and Nini and the rest of the team. Thank you very much for the call. I have a question on the fees and commission revenue dynamics. You mentioned that you have some increased competition in the fees business as part of the reason for the softness of the fee revenue dynamics. Can you elaborate a little bit on that? What's driving this and how you see the outlook?

So what we see on one side is several system providers like Visa and others trying to increase the fees. And on the other side, we see that with paying mortgage over the last four years going from 38% to 57%. Not all competitors are happy about it, and they're spending heavily, I can say, to somehow recoup some of that lost market share. And that's part of it. The first one is absolutely curable. And we have addressed it. And the second one will hurt the attacker much more than the defender. So what to expect? I think we said in the in the results that we'll be expecting high single digit and in the third quarter and we will double digit in the fourth quarter in net fee and commission income, which is slightly less than the overall business growth, but that's what we expect. In terms of that's on the Georgian side. On the Armenian side, what we are saying is that, in fact, when you remove the one large item, which was one year ago, you see 24% year-on-year increase in fee and commissioning income. So we are quite happy on that one.

Okay, understood. Thank you so much.

Thank you, Alex. I see Sergey's hand, but maybe he forgot to put it down, but let me just to double check. Sergey, do you have further questions or? No. Well, so I guess not. So I don't see any other raised hands at this point.

So since we allowed the exception of anonymous S&B's questions to be answered, let me take them. So anonymous S&B's third question is how do you see regional geopolitical risks affecting cross-border flows and banking sector stability? Well, one thing we can say is that there has been decrease of political risk happening. So, if anything, there are plenty of upsides, and I think Juan has mentioned that as there's a peace deal between the between the azerbaijan and armenian side there's plenty of opportunities there in terms of border opening in terms of perception of stability and along the term ability to for a long-term planning for a lot of parallel disasters and we as the leading bank in both countries we are there to uh provide um provide the credit and services to to such private investors so if anything it should be all positive and a good upside uh same goes for wider larger uh problems that we have especially the war going on in ukraine if there's a peace deal there will be plenty of additional economic activity, reconstruction of Ukraine, and so forth, that will, I think, benefit the whole region, which will be very positive as well. There's some trade and some of the other services that have been provided from Georgia, and we've done a detailed analysis of that, how it will affect, which is unclear at some point, One thing we can say is that from one side we do see that it will be negative over the last couple of years, let's say it could be cumulative about 2%, but then the additional autonomic activity that will result from the reconstruction will be more than most probably could balance it out fully and in fact add more to it as well. Those are the overall assessment. The next one is, please, could you elaborate on the guidance? Are there any changes? There are no changes to the guidance, and the guidance is provided on the last page of our master presentation. It's 15% growth, roughly, so 15% growth after distribution of 30% to 50%. And what's the third one? Any?

The third one is if we have any guidance on the cost of risk for the next three years.

No, the third part of the guidance is 20 plus percent is on an applicant. We don't provide guidance on the cost of risk, but up to one percent probably is what we have seen historically. Historically, we have seen slightly higher, but I have to say that end of 2018, when the National Bank introduced the additional regulation in terms of the responsible lending and so forth, this systemically decreases the cost of risk, especially on the anymore, because I think going forward it's safe to assume there will be 20-30% lower than historic averages. 30-40 pips lower.

Do we have any exposure to iGaming?

Not really, not much, but that was not why we were looking at MOTA and I think I explained it in one of the questions that people asked. We would like major players, even in smaller markets, especially where we see that we can improve the offering for the day-to-day clients, which we thought that we could do there.

And a question from Nikolai Dimitrov. Do you see a combined Liberty Basis Bank becoming a more formidable competitor in Georgia?

It will be a larger player. It will still be about a third of where we are. So, I think it will take a long time until we consolidate and so forth. So, I don't know what to answer more than that. Thank you. Anything else? Mimi, are there any raised hands?

We have one raised hand from a person named Valery Kozishvili. Hello? Maybe it's not a raised hand. Or it's an accidentally raised hand.

Could be the case.

Okay. Well, in this case... that somehow colleagues are not asking a question. I would absolutely appreciate it. So, on this bright note, thank you very much for attending this call. To summarize, we are delivering strong results and continuing to deliver so. What we can say is that the growth opportunities, which are coming from the fact that the macroeconomic development in both countries has been very strong, that is providing opportunities for leading banks, like Omnia Banking, that will be able to provide services, to provide credit and resource to the private entrepreneurs and businesses, to deploy these resources and capitalize on the opportunities that the strong macro represents. And that's what we expect going forward, especially that we are seeing very positive moves in terms of Armenia-Azerbaijan peace agreement, in terms of de-escalating some of the tensions that have been there for decades. And all of this presents very, very significant economic opportunities. While on the Georgian side, the macroeconomy continues to deliver very strong results, We see deleveraging happening there, and the policy reserves growing very strongly. So all around are very strong numbers, and we are very well positioned to capitalize on it. So thank you very much for your attention, and let's look forward to the third quarter results.

Thank you, everyone, for joining. See you next time. Bye-bye. Bye-bye.