Bank Of Ga Group Plc Ord

Welcome everybody to Bank of Georgia Group PLC's second quarter and the first half of 2020 Financial Results Conference call. My name is Natia Kalandari-Svili. I'm Head of Investor Relations at Bank of Georgia and today I'll be moderating the call. Please be advised that the call is being recorded. Today our call will be organized in two parts. During the first part, Archil Gajiciladze, Bank of Georgia's CEO, will be presenting financial results for the second quarter. And during the second part, you'll be able to ask questions. Now I'll hand over to Artil. Artil, please go ahead.

Thank you, Natia. Welcome everybody to our first half earnings call. Perhaps I would like to touch on high level what is going on in terms of our COVID-19 impact on the country and overall on the bank and then nation, few of the facts on the results. So in terms of the global pandemic, as you all know, it has affected everybody quite significantly and had a significant impact on Georgia as well. But I have to say that the Georgian government has handled this pandemic extremely Um, uh, well, um, they, they've started with a lockdown early on with, uh, with flights with China being banned by end of February. And then later on, um, uh, have taken, um, measures, uh, in terms of the travel and then limiting some of the. some of the movement and so forth. So with that, it did have a significant impact on the economy, especially April was a lockdown month and that in our numbers, we saw significant reduction of the economic activity. But because the government has taken early actions, it was able to reopen the economy early on and really the The amount of infected as well as the deceased numbers are extremely low and we are one of the countries, probably in top 20 countries in terms of the best management of this pandemic. And it continues in a similar way, although the lockdown is no longer in force. Having said that, the international travel remains rather limited. and therefore we don't expect much international tourists for the end of the year. The government has taken significant actions in terms of supporting the economy. The comprehensive list is included in our presentation, is offered there, and I'm ready to answer any questions on that side. What I can say is that as a result of this early lockdown and the recovery that we have been seeing, and the opening of the economy earlier than some of the other countries in the region, as well as actions taken by the government in terms of the economic package that has been put in place, as well as the National Bank's swift movement in terms of reducing the capital requirements and providing Georgian lottery to the Georgian economies through the banks. all of that has resulted in a pretty rapid recovery. And that recovery is a bit faster than we expected, although it's not the full recovery yet. So in terms of macroeconomic environment, what we are seeing is that the April, as mentioned, has been a low point of the economic activity. Although May and June we have seen a significant recovery in terms of the economic activity. So some of the metrics that we are looking at are the VAT turnover that is published by the Minister of Finance, as well as the payments that we see in our network and our net fee and commission. income business that led fee and commission as well, which shows an economic activity. And in all of those, we have seen a significant recovery from the low point of in the fee business, minus 48% in April, but minus 10% in June and similar type of recoveries have happened in the VAT turnover as well and the GDP numbers as well. In July, these numbers in terms of the economic activity are not yet published by the Ministry of Finance, but we expect and what we are seeing on our business, we expect further improvement in July versus June. and that should remain for the rest of the year. What we have seen also is that tourism, as we mentioned, international tourism is limited, although the second most important source of foreign currency, which is remittances, have held up remarkably well. In fact, June year-on-year was up 17%, And July number, which was just published, is up 20%, which is remarkable. In fact, July numbers are all-time high for the remittances, and that is definitely supporting the overall economy as well as the currency. And talking of currency, in the second quarter, we saw appreciation by 7% of lottery versus U.S. dollar. And that was partly due to the strong remittances, but also supported by the National Bank of Georgia, which interfered in a number of times to reduce the perception of risk that the local market had in terms of the currency. Now, I would like to touch on a number of points in terms of the Bank of Georgia specifically. The balance sheet has remained very strong, broadly stable for the second quarter. We saw a slight reduction in terms of nominal terms, but that was predominantly due to the strengthening of LARI. When you take that out, you're looking at a flat long book in the second quarter. In terms of the operating income, we saw some reduction in net and interest income, net interest income, as well as net fee and commission income. But on a six-month basis, it's probably stable. What's interesting is that our net fee and commission declined significantly in April. more than the overall market. The reason for that is that a significant part of our franchise, the branches, which are express branches, and some of them are present at the entrances of Metro Station, about 60 of those. Given the full lockdown, the transport was fully closed, including those branches. And the other express branches that we had outside also were not meant, but only the electronic part with the ATMs and the express pay terminals were available. So we could say that half of our branches, roughly speaking, or half of our capacity was shut down in April. The good news there is that after opening it up, we had a strong comeback and we are seeing it in may and june as as i mentioned already but also july and and current trading is is reflective of that uh strong comeback vis-a-vis our our retail presence there um in terms of the um operating expenses uh we were uh for the half year we were up by uh by 10.9 percent uh and for the second quarter we were up by six point uh seven percent The increase is predominantly due to the investments that we have kept in the IT as well as somewhat in marketing as well. But more importantly, some of the cost cutting and optimization measures that we have taken in the second quarter will be fully reflected in the third and fourth quarter. So all in all, that will result roughly to flat cost structure on the operating expense side for the year. So let me reiterate that one. So what we are seeing for first half, we are seeing the operating expenses increasing by 10.9%. For the full year, we are expecting roughly flat cost structure vis-a-vis the last year. So you'll see some of the cost saving coming in into the third and fourth quarter. In terms of the net interest margin, we saw a significant reduction. That significant reduction was basically due to what some call a perfect storm, basically. I will list some of the things that have affected it. On one side, we saw large costs increasing significantly in the beginning of the lockdown period. That has been normalized since. And we are net borrowers of Lari from the National Bank. At the same time, US LIBOR dropping significantly is a negative for us because we are the net savers of US dollars and we get less interest income on mandatory reserves. That's there to stay problem. High liquidity, we were running extremely high liquidity for the quarter. Um, and that was partly due to, uh, two things. One is that, uh, we had to re, uh, we repaid, uh, a 500 million lottery, uh, bond on the 1st of June. And the second is, is the conservative approach. So as we, uh, we are entering and in fact, experiencing or going through uncertain times, we chose to, to run higher liquidity than otherwise we would. So those two combined meant that, uh, what you saw by the end of june uh the lcr ratio uh running at 135 percent is is really uh the the um the lower point throughout the quarter we were actually running uh much higher liquidity throughout the quarter including the repayment of 500 million larry bond and last but not least uh is that whenever there's less lending, less lending activity, there's less turnover in the consumer and shorter-term loans, and that means less net interest margin as some of the fees that are spread over the life of the period do not get amortized earlier than the reminder of the loan. So all of this combined makes that our net interest margin For the second quarter was 4.2, which was quite low. We are currently running at 30 basis points higher than that. In fact, a little bit higher than that. So four and a half or a little higher than that. And we expect that to increase further a bit early to say, but 20 plus basis points probably going closer to the end of the year. On that side, in terms of the quality of the loan book, we saw that our NPL ratios increased from 2.1% to 2.7%, and that decreased the coverage ratios, but the coverage ratios were artificially increased because we saw large provisioning that we made in the first quarter of this year, but the MPLs have not been fully reflected yet by the end of the first quarter since you saw that natural development. Basically, there'll probably be some uptick further on, on the retail side, and that remains to be seen how that will develop. All in all, when we reviewed and some of the processes ongoing in terms of the corporate credit, in terms of the SME and solo, all of these portfolios are demonstrating stronger than expected credit quality. On the retail side, the work is ongoing and a lot will be shown closer to the end of the year. But so far, there are some encouraging signs. So all in all, I would say that we are adequately provisioned so that ECL provision that we put in place in the first quarter seems to be well covering the expected losses so far. A lot will probably also depend on the next year and how tourism comes back next year, which we expect to kick in from the end of spring, beginning of summer. Regardless of how COVID develops, there will probably be some comeback in tourism. If we overcome COVID-19 stronger, then obviously there will be a strong rebound in tourists. we are basically expecting some comeback of tourists from the spring of next year. So all in all, I would, yes, on a couple other points. So we are running the capital ratios. There were a lot of questions in the first quarter, partly due to the strengthening of Lari and partly due to the internal capital generation. Quarter one moved from 8.3 to 9.9. And other ratios are strong as well, 12.7 and 17.4. So total capital ratios and the core tier one and tier one ratios are all strong. And unless there's significant changes that happen in the environment, we expect that to continue in terms of internal generation, building up the capital that we need. So the quarter ended with the return on equity of 21.8%, which is closer to our normal levels, although I have to say that it was partly due to our operating income being less than our normal times, but our cost... cost of risk compensating that, again due to the fact that we have provisioned adequately in the first quarter of this year. Going forward, we see increased concentration on our digitalization. Our quarter has demonstrated that we had even further increase of the ratio of number of mobile transactions, uh, nominally increasing, but as a ratio of total increasing, uh, even more dramatically. We have been, uh, named by the global finance, uh, just, uh, global finance magazine just one week ago is the best consumer digital bank, um, in Georgia. Um, overall we are, um, also the, the independent third party, uh, market research have, have reconfirmed our, uh, most trusted, um, uh, bank. in Georgia in June and we are also the leading retail depositor in the country. All in all, 96% of our transactions are digital. It used to be 93% about a year ago. We are investing a lot in terms of digital capability and we intend to maintain our cutting cutting edge on that side to maintain the technological development and further at all times. So with that, I will end the first part and open up for the questions. Just one last note is that the strategic objectives and the guidance of 20 plus percent return on equity and 15% loan growth medium term remains intact. And I think we believe that with the worst being over, we will very soon, if not already, come back to these targets. So with that, I would like to open for questions. Natia, could you please?

Thank you, Archil. Now we can move to Q&A session. Those participants who are connected via webinar can use the raise hand feature at the bottom of the screen to ask question. And those who are connected via phone, you can press star nine to ask question. We already have one question from the phone. Please introduce yourself and ask the question.

You are muted, I think. Natia should be unmuted.

Hi, can you hear me? Yes. Hi, it's Andrew Keady from Sperbank. I have a few questions. First of all, on asset quality, Can you tell us, give us a bit more color on what the 18 million, Larry, kind of provisions on other assets related to, and should we see this as kind of more or less a one-off, or do you expect kind of further provisions on those to come in the second half of the year? And given kind of the comments you made about the feeling fairly comfortable that the substantial first quarter provisions that you took seem sufficient. And obviously in the second quarter, you basically had a net release on your loan book. Should we expect that kind of assuming the economy more or less remains on the kind of current trajectory that the cost of risk on the kind of credit side should be pretty close to zero in the second half of the year as well? And have you made any kind of macro input changes in the second quarter? And then I'll ask the other questions afterwards.

Okay. So regarding the, regarding, so I will start with the second question. So you asked in terms of the reversal in the credit reserves and should we expect that, et cetera, et cetera. We have not changed the ECL level. The reason why you saw some of the reversal was mainly due to lottery strengthening and that reduced the amount of the portfolio and thus the reserves as well as some of the repayments in corporate and therefore the reduction of the loan portfolio. We systemically did not change the view so far. What we are seeing is that our initial model was relying on somewhat resumption of tourism in the fourth quarter. So now we don't expect much tourism. So in fact, although IMF expects 4% reduction in the economy, we actually expect 5.1%. Nevertheless, the book is behaving better than we expected and there are less of people that are restructuring in the second wave especially. on the retail side than we expected. So all in all, although the tourism is not resuming, remittances being stronger and overall economy being stronger as well as the loan book doing better, we think that we are adequately provisioned. Now, in terms of the outlook on the risk is a bit too early to really start talking about releases. I think just saying that we are adequately provisioned is probably the best reflective of the reality. What I could say is that there's a detailed work. So there are some portfolios that you could cover one by one, like corporate, for example, and we have done that job and it looks pretty strong. in terms of the credit quality. There's about three quarters of SME that we thought we should review, et cetera, and that work has been done as well. On solo and mass retail, et cetera, some of that, there's need much more work to be done, which we will finish in the third quarter and we will have better idea. But so far, what we are seeing is that the loan book is pretty strong. A lot will still depend on the overall economic activity. So far we are positively surprised, let's say, in terms of the number of people getting salaries almost back to pre-COVID levels, only a few percentage points lower, in terms of the total number of people getting salary for the data that we get from the Ministry of Finance, but also what we are seeing within the bank, because we are a big chunk of the overall system. So that and overall other activity gives us a relatively positive outlook, although I would not rush in terms of releasing the reserves and so forth. Now regarding some of the non-credit charges, other charges that you saw in the provision, some of it is more recurring, others are not. There are provisions on not received not received rents on some of the assets that we have taken from the borrowers that have the option to buy it back. But since they have not paid the interest, though it has been fully provisioned, having said that, the buyback option is at a much lower price. So it's too much detail. But whenever they buy back, they have to pay the rent. So unless they do that, otherwise we'll get the asset depreciation. So we believe that it's provisioned here, but we're not going to lose that money. There are some other cases where there's some legal costs associated with some of the provisioning in corporate portfolio. That's partly put there as well. So mostly it's that. So actually, every quarter we have some credit and some non-credit provisioning that goes in that line, 18 million maybe on the high side, but other times you could be looking at half of that or so in terms of recurring nature. But it's in the past as well, so it's not actually extraordinary one way or the other. Did I answer all your questions, Andrew?

Yeah, that's very thorough, thank you. I have another question on your cost growth. So, you know, you basically said you're targeting planished costs this year, even after 11% cost growth in the first half of the year. And I'm just wondering, you know, to what extent this means that you're going to be putting the brake on kind of quite heavily in terms of your kind of digital and IT spending plans. And, you know, the extent to which that's going to kind of, you know, hinder the further kind of, you know, digitalization of the business? Or, you know, will those costs basically be kind of rolled over to 2021? And then maybe I can ask my last question. In terms of your dividend, do you have any comment, you're back up to kind of close to 10% or tier one now, and that should keep on improving as your profitability kind of recovers. Do you have any kind of comments or thoughts on where you see a kind of minimum core tier one in terms of the ability to start paying dividends again.

Thank you. So I will start with the dividend one. So we are currently using the released buffers that the National Bank released. as part of this entering into the pandemic and asking us to provide 400 million Lari in terms of the MBG provisioning and so forth. We are almost 10% of core tier one, and I agree that is a very strong performance. The pre-provision core tier one requirement was 10.4, if I remember right. So we, we have to stop using those, those buffers and build up a certain buffer, uh, to, to start discussing the dividend. So that's, you know, you can, you can quickly run the numbers, but you know, we are generating a strong, strong amount of capital. A lot also depends on, uh, a lot of performance as well as growth. So, you know, I will not hold my breath, uh, for, for the dividend this year, obviously. Uh, but I, you know, I, I see us, uh, coming back to those, um, those discussions, uh, very soon, uh, next year, probably, but a lot, there's a lot of uncertainties out there, but you know, if, if all goes like it's going right now, we see rebuilding our capital above the pre-COVID minimum requirements by the MBG and then, uh, having those discussions. But, uh, right now I wouldn't rush too much. Although I see that some of the regional banks have been able to have strong dividends, I think there the provisioning is not at the same level. I think the approach that the national bank has taken, asking the sector to fully provide for the expected cycle is rather is different from some of the other countries, but at the same time, it's more conservative. So that means that we are well provided for the full cycle where others may not be. What was the first question, Andrew?

It was on cost, basically. It just doesn't mean that you're really putting the brake on that.

Yeah, I remember. So the digital capability and investment in that side is one area where we're not cutting anything. Because if anything, what we have seen is that the COVID pandemic has accelerated this digital drive. And our leading position there, I think, serves us very well. And we intend to, in fact, further develop that leadership and continue investing in it. and their significant, uh, uh, novelties that will be rolling out on, on the mobile bank predominantly, but some of the other things as well, um, like mobile, um, other offerings of other products and so forth. So, uh, on that front, no, we are not cutting, um, uh, much there. Uh, but all the other lines we have, uh, basically tightened up our belt, but all in all, I would not say that it, uh, it affects the functioning of the organization in any negative way. We just understand that when times are tough, we all need to tighten up a little bit. So all in all, I think what you are seeing, almost 11% increase in the first half. For the end of the year, you will probably be around zero plus minus couple percentage points, probably closer to zero, basically. Great. Okay. Thanks, Arjun.

Thank you, Andrew. Our next question comes from Rona Gatia. Rona, please go ahead.

Thank you. Thanks, Arjun, for the presentation and taking the questions. My first one is just really maybe follow up. or on what Andrew was asking on dividend payment. I'm just looking at it from a slightly different, I guess, trigger point. So if I look at your total capital and DPC ratio, it was at around 17.4% in the first half. At that run rate, I think you should end up at around 18.5% for the full year. I think your pre-COVID requirement was around 17.3%. So in that sense, you're already above the regulatory requirement. But internally, I think you wanted to maintain a buffer of around 200 basis points. So by that calculation, you would be below your internal threshold capital threshold, would that influence your dividend payment decision next year?

I think the buffer that we are guiding the market of 200 basis points is a buffer that is there in terms of overall times. So in tough times that buffer can go down, in other times we can build up. we don't always have to keep 200 base points, at least this is my understanding. So if by issuing dividends, we somehow decrease that buffer, that should be weighted in terms of the costs and interests of the shareholders. So in other words, we will consider that one, but it should not be a limiting factor. As long as medium term, we see that we can maintain that buffer, It should not affect the dividend decision. Although there are other factors that we are considering before resuming the dividends, including not using the buffers by the MBJ, building somewhat some buffer, as well as seeing the normalization of the economic activity. And the signs are very, very good. In fact, the economy has come back stronger than we expected. but we want to see another six months or so and how it all goes and restart all the tourism, if not full, at least partial. And with all of that, I think we will have a strong performance.

Thank you. Just a couple of other follow-ups. What percentage of your loan book has been restructured and or provided holiday payments?

So we had two waves. In fact, the first wave and second wave of three months restructuring. I will give you numbers, which is on the first wave, our corporate restructuring that used that offer was only 11%. And that was way lower than the overall market. In the MSME segment, it was 41%. which was also strongly below the market of the overall market and the retail 71%. In the second wave, only 12% of MSME used the restructuring offer and 22% of the retail. So those numbers are lower than the sector overall. And that's why we think that our risk risk profile should be strong. But that remains to be seen. We have to see that over the next 12 months or so.

Okay, understood. And just a final one. I mean, I guess the indications are positive when we look at what you're doing in terms of the macro assumptions you're making, the probability waiting for all these assumptions. But by my estimate, and I'm willing to share this calculation with you, but although Michael does know about this, how I got all this, but by my estimates, if I look at the excess provisions you hold and what the historical normalized levels are, I estimate that your NPL ratio would have to increase by about two to three percentage points for the excess provisions to be fully absorbed. So based on what you're seeing, in your view, could your NPL ratio increase by that level in 2021? I know the risk of that happening this year seems quite low. But looking into 2021, you think, is that the scenario that could materialize?

So the uncertainties are still high, but I see where you're going. So basically, some of the detailed review that we have done suggests that the chances of that are rather slim. So on the corporate side and SME, et cetera. But on the retail side, a lot will depend on the macroeconomic situation and what happens next year. So I think... I will stop there. So, you know, if the macroeconomic prediction of an increase next year of 5% or so of GDP happen, I think there are some upsides for us.

Okay.

Thank you. There's a question, Natia, there's a question that came through a comment. Should I take that one?

Yes. Would you comment on the drivers behind your increasing deposit market share?

Yes. So as, as, as mentioned we had, we had the target of keeping high liquidity on the background of having a large repayment of a lottery bond in June. So basically we, uh, we increased the market share by, uh, by knocking on the corporate, uh, depositors stores and basically, you know, offering good rates. Uh, so that's why the, what we are really looking in terms of the corporate market share is not a significant, you can use it.

Hello. Yeah. So,

So on that front, you can use it as a liquidity lever. And in this case, we used it to keep high liquidity, hence the grab of the market share. But for longer term, what we are looking at is the retail deposit market share, which is constantly increasing. So should I take, let me take some of the questions that have come in through the comments. So anonymous attendee has asked, hello, are there any plans to delist Bank of Georgia from stock market as it was in the case of Georgia Healthcare Group recently when the Georgia capital basically took GHG private? Wow, that is anonymous. Not in any way is the answer. No, not in any way, really. I mean, we are owned 80% institutionally, 19% by the Georgia capital with the non-voting shares until they decrease it below 10%. And the ownership is widely spread through institutional ownership, and there are no plans whatsoever to delist. In fact, we are committed to this structure, and we'll probably see, you know, for a long time. Archil, what are your thoughts on Georgia Capital? Why are we seeing such a drastic dislocation between stock price and net asset value? Afto Shubitidze is asking. Afto, I think there is a call in a couple hours of Georgia Capital, and you will have a chance to ask the CEO of Georgia Capital. I am in no position to comment on that one. Anonymous, at the end of the moratorium, can you provide some color, customer behavior, ability, and willingness to repay the principal and interest? Looking at the customer cash flow and the cash balance evolution, what percentage of loan should move to stage two, three, wrote off in a nominal circumstance? Very good question. In fact, it's unfortunate that it's anonymous. In fact, whenever there's anonymous and you're typing a question, could you please type a name so that we can thank you personally for good questions like this? For this one particularly, I can say that the second wave and the uptake in the second wave was so much less in terms of the restructuring that that is a very good sign and encouraging. So just to reiterate the numbers, the MSME, the medium and small and medium businesses in the first wave, 41%. wanted to have this payment holiday. In the second wave, which was extra three months, only 12% expressed the willingness to do that. In the second wave, so the first wave on the mass retail side, we had 71% taken, so it was an opt-out. So we asked the clients to opt-out actively from the restructuring, otherwise we restructured. Second one was the same, but it was only 22%. So the first one, 71%. Second one, 22%. So there's a significant reduction in the second wave as we come out from the lockdown. People want less of the restructuring. And on the portfolio that we saw restructured, there's a significant part of the restructured portfolio that our data, because we see the turnover and the salary that they receive, et cetera, there's a significant part in that that did not actually need to be restructured from the cash flow that they have, but I guess they were conservative given the development of the pandemic. So I'm cautiously optimistic in terms of how it all will develop. In terms of the move to stage two, you saw that there's a significant increase in stage two that we have introduced given the restructuring or the second wave and so forth. And as we will see as they come out of the restructuring, there's one thing is payments and the other thing is the ability to pay. Now, given the fact that we are a large retail bank and we see the turnover, their salaries, their rents and so forth, we can We have all kinds of measures to see their ability to pay. And based on that, we will allocate part of that into the stage three. And that will be happening closer to the end of the year. So anonymous, do you expect to restart loan origination? That has been restarted already for right after April, in fact. So there was a very short period of time that we limited the origination. but the demand is not strong. Obviously, also we tightened the underwriting standard, but the loan availability is there. So the standards are a bit higher, but the availability is there. And as we see that the country is exiting the COVID pandemic and we see the full openness, et cetera, obviously we will review on the underwriting standards and loosen it more normal levels. Right now, they are a bit tighter. Assuming a worst-case scenario, what is the maximum possible cash loss from Belarus? Worst case of Belarus, you know, Belarus, we are, so our equity is roughly 110 million lari there. It's a smallish bank, but it's performing very well, in fact, and it's well-functioning, good bank with extremely good management. and good book. So I don't know what you mean by worst case. So touch wood, everything's being peaceful. We don't expect much impact there. But the equity position is what I described. Ronak, a follow-up question from me, please. Is the cost of corporate deposits more expensive than the cost of the corporate gel bond yield that was paid down. Also, would management seek to pay down the corporate deposits and raise long-term GL funding in order to optimize NIEM? So right now, the deposit rates are lower than they used to be in terms of deposit, but there was some period in April when there was a significant hike. on the corporate LARI deposits, but after the national bank took an action and provided liquidity to the market, those rates came down to the normal levels. What you're asking would probably make sense, not in terms of the optimization of the cost, but rather by lengthening the maturity of LARI availability. and we will be opportunistic and look at the markets and at what the appetite will be for that. There's no immediate plans of doing right now going to the market. Florian is, I'm a shy analyst. Steven Gorlick, clarification on the second wave versus the first wave. Is everyone in the second wave included in the first wave or it's new customers that ask for restructuring? Does it mean that everyone else from wave one is now performing as normal? What is BGO's market share and MSME and so forth? Steven, let me answer your first question first. So second wave, it's not necessary that everyone that took the second wave was participating in the first wave because we offered that second wave. And if somebody didn't take the first wave, they still had an option of taking the second wave or if they lost the job or income and so forth. But whoever is not, yes, so basically the first wave is over. So whoever didn't take the second wave is either performing or in MPLs. So you saw the MPL numbers, what they are, 2.7%. And you saw in the second wave, I don't have the aggregate number, but MSME was 12%, retail was 22%. Everybody else is, yes, they're paying. Next question is, what is BGO's market share in MSME this year and how it changed since beginning of the year? I don't have it off the top of my head because there's certain definitions there. It didn't significantly change from the beginning of the year. Last year, we had significant changes gains in the SME segment in terms of the market share. This year is probably flattish or so. On the micro side, I think we are the strong market leader and that remains the fact. Where's the results? Can we see the benefit of having the best digital solution in the market? Steven, where you sit, I would I would say that you are seeing in the overall performance and you are seeing it in stronger return on equity that we have, market leading one. Longer term I think is super important and probably everybody agrees with it and the rest time will show basically. Akhil Taib, Akhil Taib, Jefferies Equity Research, on the payment holidays, was the opt-out just for retail individuals or was it also opt-out for MSME and corporate? Please, only for the retail was it opt-out. Everybody else had to opt-in. In the first way, it was opt-out for MSME as well, but in the second one, it was for retail only. With that, I think the retail written questions are fully addressed.

I have one now from the line from Andrey Mikhailov. Andrey, please go ahead. You need to unmute yourself. Yes, yes.

Thank you very much for this. Thank you very much for the presentation. I have a question on investment properties. which are accounted for at fair value, but their fair value in the accounts has not changed since the end of 2019. And basically what you stated in the accounts is that you don't see prices falling in the real estate market but rather you see the number of transactions being much lower than before and my question would be how would you expect this to develop towards the end of the year so would you expect the prices to fall because sellers would be more willing to give discounts in order to sell their property or if the prices don't fall maybe the number of transactions will remain very low. And in this case, would you still be willing to make any adjustment to the FABIO layer? So essentially my question is, would you expect to have any negative charge on your investment properties book by the end of the year? Thank you very much.

Andre, we don't know. So it all depends on how the market and the prices will develop. So right now, so far, Unlike the 2008 and 2009 crisis, we have not seen much movement in the prices. Yes, the number of transaction liquidity has decreased, and you can argue that that's the first step to see the prices drop, but we have not really seen the prices change much. That is, I wouldn't say a global phenomenon, but you see it in other places as well. As the liquidity in this crisis has been ample and the interest rates declined, We have not seen significant movement in the real estate prices. So should we expect it or not? We don't know. Probably if the economic impact, negative impact worsens, you could say that you couldn't have it. But so far we have seen encouraging signs of the recovery. So a lot depends on 21 as well. I hope I answered your question. Yes, thank you very much for this option.

Thank you.

We have three additional questions. What does the rate cut of 75 basis points mean on loan deposit repricing? Could you remind us margin sensitivity?

Can you repeat this, Natia? I apologize.

What does the rate cut of 75 basis points mean on the loan deposit repricing? They are asking about the margin sensitivity.

I don't know off the top of my head if Sul-Khan wants to chime in, but Sul-Khan, please let us know if you remember this by heart. Otherwise, it probably is best for us to come back to you on that. Yeah, Sul-Khan just wrote in a group here that he doesn't remember it off the top of his head. Please, if Natia, you know whose question is coming from, we can come back to you. Yes, it's Moon Capital, yes. We'll come back to you on that.

Next question. I might have missed this, but do you continue to accrue interest on the restructured loans?

Yes, we do. So the only thing is that for the retail clients, what we offered in the first wave, was that although the interest was accrued, it was not capitalized. So there was no interest on interest. So that accrued interest was spread over the remainder of the loan. And therefore, the NPV of that loan decreased. And that's the charge that you saw in the numbers, roughly 38 million lari. And the second wave, that was minimal. It was for retail only. So that's hopefully that answers your question. The interest continued accrued, but it didn't get capitalized, but rather spread over the remainder of the loan. Therefore, the NPV of that decreased. That's the special charge that you saw on the books. In the first quarter, the second one, it was minimal, $1 million. The first one was $38 million.

The last question for now. Hello, Archil. Given the current recovery path in net fee and commission income, what year over year performance do we expect for 2020?

It's difficult to say. On a monthly basis, we have seen a very strong recovery. That's what I can say. So you saw April being down almost by half. and June being down by 10%, we are continuing that trend in a strong way. So all in all, for the year, I can't say right now, and it will probably be too much to provide guidance on that one.

All I can say is a very strong recovery. We don't have any more questions for now.

Well, with this, it was one of the longer calls. I guess the Zoom provides a more comfortable way of asking questions, sometimes in writing and sometimes via the call. And we will probably continue using this technology for further quarterly announcements. Thank you very much for joining this call. As we said, we see a very strong comeback in the numbers and in the economy, and the book quality looks very encouraging. And all in all, we remain quite optimistic that we will be returning to our strategic targets soon, or we have already returned and think that that is sustainable going forward. Thank you very much and talk to you in the next quarter.