Lion Finance Group PLC

Welcome, everybody, to Bank of Georgia Group PLC's fourth quarter and full year of 2020 Preliminary Financial Results Conference call. My name is Natia Galandarishvili. I'm Head of Investor Relations at Bank of Georgia, and today I'll be moderating the call. Please be advised that today's call is being recorded. The call will be organized in two parts. During the first part are two gaja chivadze. Bank of Georgia CEO will be presenting financial results overview. And during the second part, you'll be able to ask questions. Now I'll hand over to Archie. Archie, please go ahead.

Welcome, everybody, to the fourth quarter and a full year earnings call for Bank of Georgia. I will start with a couple of words on a high level, mention a couple of words about the macroeconomy, and then I can dive in and go through some of the details for the fourth quarter results. So the fourth quarter was economy went into a lockdown due to the second wave. In fact, we skipped the first wave, although we had the lockdown first time. second wave many countries experienced and we experienced it as well where the COVID numbers picked up significantly and the country went into a lockdown in November and overall and it was until just recently and we have good news that the opening of the economy has been announced yesterday but until then basically the economy was impacted by the lockdown. So all in all, the GDP contraction in the fourth quarter was 6.5%. And for the full year, that amounted to 6.1%. And at the same time, the good news was that the overall virus numbers have declined significantly. And last few weeks, we have seen the virus numbers, the COVID-19 positive numbers being around between 200 and 300 per day, which is relatively low for Georgia. And that's hence the decision to open up the economy step by step. So over the next two weeks, most of the limitations will be lifted and there will be a great boost for the economy. Now, what it meant for the fourth quarter is that we saw exports declining by 11.6%, imports by 17%. So all in all, the trade balance declined by 21%. The good news was that the transfers, which is an important part of the overall hard cash income in the country, have been pretty strong. and have been up 15.7% for the quarter and that has provided much needed hard currency for the country. On top, the country supported by the IFI and money also provided the hard currency as well. As a result of it, the National Bank reserves achieved a new record of 3.9 billion by the end of 2020, while keeping a relative stability in the currency exchange in the last quarter of 2020. Although in 2020, obviously, we have had around 14% devaluation of the currency, but the last quarter was relatively stable. Stable and on top the reserves have been growing. So the government has provided number of supporting programs for the economy in the first lockdown as well as the last one. All in all that resulted in the budget deficit of 9.1% for last year and this year the plan is that the deficit will be 7.6%. and then declining sharply from 2022, from next year. So overall, I think the economic contraction was a bit higher than we all expected. Having said that, the banking asset quality has remained better than we expected, and we'll revisit this in more detail later on. So now a few words about the banking performance. As you may have seen already, we delivered, regardless of this relatively difficult macro environment in the fourth quarter, we delivered a very strong return of 21.3% return on equity, which for the full year amounted to 13%. And obviously, 2020 was an unprecedented year. We were relatively happy with the results. The operating income for the fourth quarter was down 3%, but what it's noteworthy is that net fee and commission income has held up regardless of the macro challenges. And in the fourth quarter, it was up by 0.9%. And FX year on year was down significantly, but what's important is that quarter on quarter versus the third quarter, it was up by almost 38%, which was just good news. And it shows that the economy has remained relatively strong regardless of the challenging environment. As we promised, we had a, Radek Machan, Strong control over the operating expenses so all in all, in the in the fourth quarter was down 2.2% well for the full year was slightly up at 3%. Radek Machan, And the pre provision overall amounted to minus 3.3 point 5%. Radek Machan, So all of this resulted in the net profit of hundred and 31.88 million which year on year was was somewhat down but. we have to keep in mind that in the base effect in the fourth quarter of 2019, we had the return on equity of 29.9%. So although our net profit in the fourth quarter was somewhat down, we still delivered a very strong 21.3% return on equity. Our loans have during this year of 2020 have grown. I will mention in terms of the currency adjusted numbers by 10.2%, retail growing at 11% and corporate growing by 10.4. We have had and held a stable market share of roughly 35% in loans and 39% with slight gain in deposits. So a few words on net interest income because I wanted to address it because it declined somewhat and we need to dive into the details. So it was down from the third quarter of 4.8% down to 4.4%, largely reflecting a slowdown in the economy. which is usually how it happens. If it's a slowdown, we have a new contraction because the refinancing of the loans, and usually these loans are consuming microcredit, don't go as fast as it does when the economy is growing strongly. In a way, it was expected and natural when the economy is contracting like this to see that kind of slowdown in the new issuances. So when we saw the, although the overall increase of the loans was still healthy, partly due to the growth in mortgages, the higher yield products, which are consumer and microcredit, those have slowed down significantly in the fourth quarter. So all of that have resulted in the contraction of NIEM from 4.8 to 4.4. Having said that, we believe that going forward, we should be looking at relatively stable margins, with a slight uptick expected in the next few quarters. In terms of the NPLs, we had a stable NPL ratio at 3.7%, slightly down from the previous quarter of 3.8%. but when we see the details of it, the retail NPLs have picked up slightly from, not slightly, in fact, I mean, they've picked up from 2.8 to 3.5, while we had a decrease of corporate NPLs from 5.7 down to 3.9 due to some recoveries that we have had there. All in all, I have to say that we have been able to go through the case by case of each and every case of the corporate as well as SME loans. So we have covered that fully and have gone through the retail and MSME loans thoroughly in terms of systematic review. So we feel pretty confident that the current current estimates and the current numbers reflect our expectations pretty well. Overall, I have to say that we are somewhat underrepresented in some of the areas that got hit pretty hard. More specifically, we have very limited exposure to mortgages to non-residents in the resort areas like the seaside and and the ski resorts like less than $10 million equivalent. So that I guess is helping our numbers and our quality of the assets to be stronger. That pretty much it and provides a summary of our numbers and our results. I wanted to mention few things before we close and go to the next, sorry, go to the session of Q&A. One is that I was particularly happy with the fact that end of November, in fact, closer to the end of the year, we registered net promoter score, which is a very quick measure, NPS measure of our customer satisfaction at 46%. which was all-time high. The previous all-time high was in November of 2019, which was 42%. And since then, we dipped a bit and went up again to 46%. And that was done in the middle of the lockdown. So that is quite an achievement of all the staff of Bank of Georgia who came together and rigorously have focused on the improvements of the quality of our services which have resulted in this all-time high number. Also something that is noteworthy is that we also measure the EMPS, which is the employee satisfaction score, very quick one. And that also registered by the end of 2020 at the all-time high of 58%, which was a significant increase from last year's number that also shows the health of the organization. And that also makes us happy. So, And last but not least, I almost forgot in fact, is the digitalization, which has been going very well in fact. So for the full year, our mobile application users are up by 40% and the number of transactions are up by 74%. So that is partly due to the fact that we have been increasing the quality, but also we have been launching new offerings and new products like money request and bill split that we launched a couple of months ago. In fact, in the fourth quarter and still are the only financial institution that offers it locally here and it's very popular with the young people. Now the restaurant's opening, I hope that the bill split will be even more popular with the students and with the younger population. All in all, we have 96% of all our transactions in the fourth quarter going through digital channels. And that percentage has been picking up from the last years of 93, as you remember. So when you when you 93 to 96 does not sound very big change, but it is when you look at the reminder. So the remaining percentage is decreasing and the overall percentage. the number of transactions done physically is increasing. Obviously, our next challenge is to do more sales digitally, which is on an uptick, but we would like to see more and more of it to be done. Overall, 2021 promises to be a year where with the open economy and with the tourism starting to pick up, we'll see some positive numbers. We expect that the economy will grow by 5% and that compares to IMF and the government expectations of four and 4.2. Nevertheless, we think given the very, very low base that we think that the economy, our calculations show that should grow by 5%. Having said that the risk factor is the tourism So if the tourist does not open up or there's again a lockdown, obviously this will have a negative impact and the downside scenario that we have is 3.6% growth. So with that, I would like to go to a Q&A session and I will be joined by the CFO and CRO during the Q&A session. So if there are more technical questions, I will ask for help as well. With that, Natia.

Thank you, Archil. Now let's move to the Q&A session. Just a reminder, those of you who are joined by a webinar, you can use the raise hand function at the bottom of the screen. And those of you who are joined by the phone, you can dial star 9 to ask the question. And please remember to unmute yourself once you are allowed to talk. First question comes from the phone. unmute yourself and ask the question. Hello?