Bank Of Ga Group Plc Ord

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?

Sorry, hello, can you hear me?

Yes.

OK, can I have two questions, please? The first is just in terms of so that I've got clarity on the margin guidance. When you're talking about stability for 2021, is that relative to the full year margin of 4.6% or is it relative to the fourth quarter margin of 4.4%? The second question I've got is that it looks to have been a very good performance in mortgages in the fourth quarter. And I was I'm wondering whether you could talk a little bit about that, where you see this going perhaps in 2021 and what your sort of ambitions are in this particular product set.

Um, thank you for the question. Um, I don't know your name, but, um, but I still thank you for the question. Um, so regarding the, regarding the margin, we, we say broadly stable. So we expect somewhere between four and a half and 5%. It's, it's difficult to say exactly 10 buoyancy points this way or that way. Uh, so it's 4.4, 4.6. It's, it's tough to say we don't guide like this, uh, in terms of, uh, uh, very strict guidance, but, uh, we expect it largely to be stable. Of a fourth quarter, I would say, but looking at it, we believe there will be a slight pickup in the margin. So it may very well be towards 4.6, but the environment obviously has an effect on it. Now, regarding the growth in the mortgage loans, I totally agree that we had a surprisingly high mortgage growth in the fourth quarter given the economic environment. It was partly due to the fact that the government has offered until the end of 2020 a partial subsidy of the interest rate on large mortgages. So that lottery interest subsidy goes on for five years for loans that originated until the end of 2020. So that provided an extra incentive for people to expedite their purchases of small apartments for their homes. And that would also mean that there could be a bit of a slow start in mortgage growth in the first quarter, but I think that will very soon will pick up because as the economy picks up, I think there's a fundamental demand in the economy for smaller apartments because the size of the family is still one of the highest by Eastern European capital comparisons.

Thank you.

Thank you. Next question comes from . Ivan, please.

Hi, good afternoon. Thanks for the presentation. Akshil, just a couple of questions, also some historical, I guess, some forward looking. First, in terms of the history, there was a charge in the fourth quarter expected credit loss, 23 and a half million, Larry. It wasn't in the impairment charge, it was outside it. It related to non-core assets, assets held for sale. Can you shed a little bit of light on that?

Hi, Lance. So, yes, we had a relatively large charge there, but it breaks down into many different lines, which I will just go through them and you'll get an idea what the numbers come from. These are any provision on the operating lease receivables, which I explained in second quarter, but basically those are some of the assets that we foreclosed and are rented to the old owners. If they cannot pay, then we provision it, but they'll have to pay it on a buyback option. If not, then we sell it and we cover money by... by selling the asset because usually it's worth much more. Those are the provisions on the financial guarantees. Also, they are the legal fees related to the impairment of assets. It could be the impairment charge on the assets held for sale. There's a technicality there that assets held for sale are accounted at the minimum of the cost and the market value. So if there's a certain pool of assets and they are valued on an annual basis, they never get an increase, but they do get a decrease. If there's certain assets that got decreased and certain assets got an increase, you only get the decrease. So you don't get the uptick there. So that usually is part of that. That's basically it. And also, if there are any frauds and similar, also that is charged there and operational risk expense and impairment charge on other assets that there's repayments. So it's a list of this. And in the fourth quarter, we had it slightly higher than usually, but it was, you know, it's part of the, usual business in the extraordinary economic environment. Okay. Thanks for that.

I want to ask you about the lending going forward. Perhaps if you could shed a bit of light into what your expectations are. You spoke a little bit about mortgages. What do you think about consumer loans? What's happening on the corporate side? Where do you see that going?

Very much depends on the economic recovery. I am very encouraged by the opening of the economy that was announced yesterday. Having said that, we have to see it happen. The risks, the upside is in the economy, the downside is in the economy as well related to further lockdown if the virus picks up again. uh but hopefully it does not um and and georgian government has announced a gradual opening of winter resorts it announced the opening of of tourism for for number of countries including the four countries that are bordering georgia uh armenia azerbaijan russia turkey as well as uh ukraine and belarus and i just saw a news on a Russian site saying that the announcement has enticed the Russian tourists to basically book out a lot of hotels already in just one day in the winter tourist areas. So, you know, let's see how that goes, but there's plenty of upside there and hopefully little by little we can realize that upside. So to go back to your question, we remain committed to 15% growth target, especially in this environment of expected higher growth, because Georgia is expected to grow higher than the region in the medium term by IMF estimates. And that is why we see that they should be there should be stronger growth happening. Now, obviously, we believe that the growth will be coming from not just mortgages and corporate, but also from a consumer in microlending, which have been slow this year overall, because micro, you have a lot of small self-employed or trade, non-food trade, which has been shut down for most of the year and has had a jittery year overall. And we are leaders in that sector. So when the economy picks up, I think they will benefit from our support and we will benefit from more business from them, as well as I think consumer will pick up as well.

Hopefully consumer makes up for a little bit of a slowdown in mortgages post the subsidy. Last question I wanted to ask you was on OPEX growth. Obviously, there's pretty good OPEX control, particularly in the fourth quarter. How do you see that panning out for 2021?

We will have an uptick there, obviously, because in 2020, we tightened up the expenses. But as the as the development of the organization goes so that a lot of digital developments are happening, we will be investing in further development. And so there will be growth, but we will make sure that there's a positive operating leverage and we remain committed to 35% cost income ratio in the medium term. So we realize that while our cost income is slightly below 40%, has to improve towards 35 over the next few years. So we'll be committed to that. And while it will be increasing, it has to increase less than the revenue so that we achieve the 35 very soon. Understood. Very good. Thank you very much. Appreciate it. Thank you.

Our next question comes from the phone. Please introduce yourself and ask the question. You need to unmute yourself.

We cannot hear you. You're on mute still.

OK, let's move to another question. Please, it's also from the phone and please introduce yourself.

Still on mute, I guess. Hello, can you hear me? Yes, we can.

Hi, sorry, my name wasn't called. I didn't know it was me. Hi, it's Andrew Keely from Sperbank. I guess a couple of questions. One of them coming back to the net interest margin. Just trying to understand when you had the strategy day back in mid-November, I think it was, you were broadly talking about a stable NIM and then obviously we saw a 40-bit drop in the quarter. I guess I'm not sure whether the kind of second lockdown had started at that time. But if I kind of look at how the kind of dynamics between yourselves and TBC, I mean, what's notable is, you know, obviously both of your cost of funding came down a bit, but your retail load yields came down, I think, by about 50 bps. And TBCs went up by about 50 bps, even though if you look at the kind of breakdown of loan growth by segment, they were pretty similar, really. So I'm just trying to understand, do you have any more kind of thoughts on that kind of quite strong divergence? Were there any particular drivers in terms of kind of promotional loan rates, discounted loan rates, et cetera? Just any thoughts on that would be good. And then I'll ask another question after. Thank you.

Yeah. Hi, Andrew. On the first part, you're absolutely right. So the master day, we did not have an idea of the severity of the lockdown or the lockdown that there was. So there are some limitations, but not lockdown. And since then, basically the country went into a partial lockdown, not a full one, but partial, but it did have a significant effect. on the economy. So just as we say that the fourth quarter of the, I mean, fourth quarter construction was 6.5, but when you look month by month, October was very, very good number, like slightly positive. And then we had 7.3 and 7.9, November and December respectively. So it was a significant slowdown in year on year numbers, which was unfortunate, but that was the other side of the pickup of the COVID cases. So, you know, that did have a significant impact. And when the economy slows down like this, we have a slowdown in lending. And predominantly, that was in consumer and micro, which are higher margin. And obviously, when you do not have the turnover, not only you don't have the same number, but you don't have the prepayments and you don't have the recoveries from some of the older ones either. So it's natural that it happens like this, that if the economy slows down significantly and the turnover slows down, then the NIM suffers because of that. Now, to see a competitor doing something completely different is surprising to me, and I was somewhat surprised to see those numbers, and maybe you can ask them how they can explain it, because on a competitive environment, we have not seen such moves at all.

Okay, thanks, Arthur. Yeah, okay, I think I'll do that. Sorry. And just a second question on the cost of risk. Again, there's quite a divergence between you guys and your competitor, TBC. Given that there was the second lockdown and quite a lot of uncertainty, it's a bit surprising to see a pretty low cost of risk on the loan book, 0.4%. Yeah, just any thoughts on... on why that kind of came in so low, given how tough the fourth quarter was, as you said, in terms of the kind of economic data that was coming through.

I think we, given the high provisioning that was done in the end of first quarter, we have been going through the portfolio, as I said, on the larger side, one by one, and on the retail side, as the analyzing the pools of portfolio. And that we've gone through very deep analysis, basically, and thorough analysis of the portfolio and seeing that the portfolio behaved better than we initially expected. So although the reduction of the overall economy turned out to be 6.1, which was on the low side, let's say, of our expectation, the portfolio performance was better. than we thought. So all in all, I think you saw that there was a slight pickup in the NPL numbers in retail. But we were lucky with the recoveries of corporate bank. I mean, you can call it luck or whatever. But I think some of the other banks did not have that. So I think because we have had good recoveries in corporate and overall a reduction of MPL from 5.7 to 3.9, You know, we did have a pickup in retail, but all in all, that resulted in the constant or slightly declining NPL number. Now, if the economy did not contract like this, we would probably have had much better numbers in risk and potentially negative cost of risk in the fourth quarter.

Okay, that's helpful. Thanks, Sachin.

Now, I also mentioned during the call that we are somewhat underrepresented in some of the products than the overall market, specifically on the non-resident mortgages in resort areas. Our number in Batumi is just 13 million lari, for example, which is one destination where a lot of non-residents are buying apartments. You know, so that could also be a factor, but I cannot say for sure.

Understood. Thank you.

Our next question comes from Ronak.

Ronak, please. Good afternoon, Archil. Thanks for the presentation and taking my questions. I've got about three or four calls, questions rather. Um, my first one, I think is just a follow-up and I think you've, you've partly, uh, answered that as well. Um, but if I look at your macro assumptions, they seem quite bullish. You're estimating about 5%, whereas consensus seems to be settling into around three and a half, uh, 4%. Um, so is there a risk through the year that, um, uh, you know, you might have to reduce downgrade your macro assumptions and that could lead to additional ECL stage one, stage two provisions.

Um, three and a half is on the low side. And quite frankly, only EBRD has mentioned that. And, you know, the IMF and the MBG are talking about four, 4.2, 4.3. Uh, we think it's going to be more like five or the chances of being five is, is higher. Um, and we see the upside in, in those numbers, basically. Um, is there a chance they could be less? Yes, of course. There's, there's a chance. So. But having said that, our risk models are taking into account the MBG number, not our expectation. So all of our risk models are based on 4.0, but then, you know, our budgets are based on five. If that answers your question about the additional charge that you were referring to.

No, it does, it does, thank you. Second question.

The national bank of Georgia number, which is 4.0. IMF is slightly higher. We are a bit more bullish. And let me remind you that on 2020, we were a bit less bullish than MBG, for example. We were saying it was going to be minus 5.1. It turned out to be a bit worse because of the second lockdown, et cetera, but we were very close to it. closer than some of the other numbers. Now let's see in 2021, you know, this is the case where I would hope that we are right. But hope is not the best strategy. So we plan for the worst and prepare for the best.

Understood. Thank you. My second question is on your deposits. Deposit growth last year was very, very strong in particular you gain significant market share on the retail side. Any particular reason for that substantial growth?

I cannot say for sure, but for us, in the beginning of the year, you may remember that end of May, we had to repay the Lari deposits. And so we were hit by a perfect storm, basically. We entered the second quarter with lot of deposit rates flying high and a larger payment coming by the end of May. So we got squeezed from both sides and we had to overpay for the deposits at that time. Now, since then, it has normalized, obviously, but it could have contributed to that as well. um otherwise you know we have been named uh again in 2021 as the most trusted bank by an independent market research um and uh top of my bank as well so that does help um in terms of the deposit pickup okay on the back of that could could we see the bank

maybe de-emphasizing its deposit growth this year just to maybe improve the funding on the balance sheet?

We are trying as hard as possible. We have reduced the rates second time already, but the deposits are growing. But, you know, we don't want to upset the deposit gathering franchise, so we don't want to overdo it. But little by little, we are reducing our rates because obviously the liquidity is... is above 135% LCR ratio, which is very high. And that is one of the sources of improving NIM.

Okay. And just finally on your capital and dividends, I saw there's some announcement yesterday by the NBG on the reintroduction of capital buffers. Could you just touch upon what that means from your perspective in terms of when dividends could be reinstated.

Yeah, so National Bank announced it was yesterday that they announced that the capital increase schedule will be considered on the next next meeting, which will be happening on the 2nd of June. So we look forward to that. And once that is announced, we will know when and how much dividend we can we can announce we would like to resume dividend paying as soon as possible, but more practically off of 21 probably.

Okay. And on that same announcement, I think the NBG was suggesting that credit growth is faster than what they were expecting, especially when they're compared to other regional markets. Is there a chance here that the NBG could introduce measures to try and decelerate the same?

It could be. I would be surprised to see this year, for sure, because the economy is coming out from a relatively unhappy place, I would say. So as the businesses open up, the non-food retail opens up, the small traders start resuming their work, et cetera, they all will need some kind of credit to wake up and increase the working capital and so forth and so forth. And especially if the tourist comes back, you know, CapEx will pick up again. So with all of this, if National Bank decides to limit the credit growth, is there a chance? There's always a chance, but I would be surprised. So longer term, maybe, but longer term, I think National Bank has introduced measures to limit the high margin consumer lending. And those are already in the numbers, so to say. To further limit the

uh credit growth uh this year would be surprising let's say understood thank you next question comes from uh comes from phone uh please introduce yourself and ask the question you you are on mute we don't hear you Let's move to another attendee. Please unmute yourself and ask the question. I think there is some technical problem. Yes. Yes, so there are no further attendees with questions for now. I think Ronak has another question.

Yes, Ronak, please. Sorry, just two quick ones. What percentage of your loan book is currently restructured?

So part of the portfolio that is restructured due to the lockdown, which is in retail, so it's solo and mass retail together, is 4.3% by the end of the year.

4.3% of the retail on book? Yes. Okay. And nothing else in the other segments?

No, there's some restrictions, but it's a bit more difficult to separate it out. For problem ones, the ones that are problem restructuring, you see it in stage three. The ones that are not problem, you see it in stage two, and some, in fact, in stage one. For example, we had one very large mold that asked for two months restructuring. We don't move it to stage two because they are undelivered, in fact. So they are in stage one. But something that we very closely watch is retail and making sure that it's not a very high number. Everything else will go one by one.

Understood. And finally, other income. There's a pretty significant increase year on year, and I think on a Q&Q basis as well. If we just talk about the drivers of that.

Yes, out of 25 million, 18 million, if I'm not mistaken, was the revaluation. And it's partly due to the fact that the lottery devaluation was higher than the changes in prices. There was a slight decrease of dollar prices on real estate, commercial real estate, but it was slightly less. So we revalued it by the end of the year as part of the annual check. of asset prices.

Okay, understood. Thank you.

It's just to be more precise there, it's only done by the mid-year and end of the year. So that's why, you know, although there was no devaluation in fourth quarter, it's done by the end of the year on an annual basis. and strongly advised by the auditors that it's being done like this.

Understood, thank you.

Okay, and there is next question. I don't see the name, but please introduce yourself.

Hello, here's Svetlana Slanov from VTB Capital. I have a couple of follow-up questions. First of all, on cost of risk, could you please remind, are there any state support measures or any kind of support programs that will still be in place in this year? um that will uh basically uh keep the asset quality uh at a decent level and um do you expect uh or probably you expect uh that the asset quality has um already crystallized uh in these quarters and the reason why i'm asking is um do you expect uh any significant um provision releases in the coming quarters, should we accept that economic growth will be along with your base case scenario? And the second question is also what

level of interest rates uh interest rate movements basically along with monetary policy of nbg do you expect uh in the next quarters thank you yeah um hi so regarding the uh regarding the uh government support measures um they will be largely phased out other than uh some of the support that will be there on the retail side for the non-employed so forth. Hence, the budget deficit of 7.6% in 2021. But the business support will largely phase out. Hopefully, if there's no comeback of the virus again, which in our base case, we don't think there will be. And So our provisioning reflects that. Now we see plenty of upside as well. So there's a chance that tourism may pick up sooner rather than later because our base case assumes that 30% of 2019 numbers in tourism this year. So if it's more than that, and it could be depending on how the opening's gonna be in this region, then there could be some releases of provisioning and so forth. But given the expectations, and as I said, our risk models are assuming a lower than lower economic growth of 4.0. Our real expectation is 5.0. So we see upside there as well. And your second question was referring to what again?

Interest rates movement.

Do you expect any- On the monetary side. Yeah. We see a relative stability in there. Initially, we had expected lowering of refinancing rate, but we no longer expect it given that the inflation, if we look at the headline, inflation is more like 2.4, but that is reduced by the utility subsidy for the low energy consumers. So if you take that into account, it's closer to four and a half and the target is three. So, you know, we think there will be stability and no reduction.

Okay, thank you very much.

Yeah, thank you.

Next question comes from Jandamir. Please go ahead.

Yes. Thanks for taking my questions. Just one quick one, please. Could you tell us what the NBG announcement on capital could entail? Would it be specifically on dividend distribution or do you think there's going to be something more comprehensive on the reinstatement of coffers as well?

Yeah, I think the later. So basically there has been a consultation and discussion how to resume the capital loading on the Basel III. Obviously, the main consultation is what is going to be the delay of the schedule that was previously announced. We hope that there will be some delay to allow for the economy to recover to the same point which it was at when the pandemic was introduced. Let's see what the National Bank decides. That's the discussion, basically. And above that, if we are above those rates, then we'll be allowed to issue the dividends. Super. Thank you very much.

We have one question in the Q&A section from for the macro assumptions in your model. Does that assume tourism comes back this summer season, which may not happen given delay in vaccine rollouts in Georgia? And what's your cost of risk guidance for this year based on the MBG growth assumptions of 4%?

Our models are based on the MBG 4% guidance. And if... the economy performs at that level or around that level, we expect our cost of risk to be between one and 1.2%. So around one slightly more. In terms of the no tourism, yes, we think there's a risk of that. That's why we In our statement, we say that we expect 5% growth, but if tourism does not come back this year, then we will be looking closer to 3.5%, 3.6%. I hope that answers your question. If not, please happy to answer follow-on questions.

Thank you.

I think John has another question. John Demir.

Not really. I think I might have mistakenly raised my hand. I'm sorry about that. No. Sorry, I should.

Sorry. Well, now that's it. We don't have any questions.

Well, that wraps up our fourth quarter results and annual 2020. It has been a relatively tough year with ups and downs, but overall, I would say that 13% return on equity was a relatively good result. Something that we do not highlight much, but something that is pleasant for us is that the comprehensive income or the change in the equity has been more like 18.6%. So some kickers have gone directly to the equity, but overall I think it is a benefit for the shareholders. Also something that brings us a lot of energy is the fact that our customers choose Bank of Georgia more and more and are happy with the services more so than ever in fact, than of last, let's say years that we've been measuring NPS, which is a very good sign that some of the improvements in customer satisfaction and the digitalization and the improvements in the quality of our product are working very well. And all of this is resulting in 20 plus return on equity, which we have been delivering in fact, last three quarters in a row since the first quarter where we provided for the full cycle. We hope and we plan to deliver that going forward. And we believe that 21 will bring a lot of good upsides as well. And we should be rolling out new products and increasing the quality of the service and keeping our customers happy and our investors happy. So with that, thank you very much.

Thank you. Now disconnect and in case of any questions, just let us know. Bye.