Lion Finance Group PLC

Welcome, everybody, to Bank of Georgia's first quarter of 2021. My name is Natia Kalandarishvili. 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. Our call today will be organized in two parts. During the first part, Bank of Georgia Group's will be presenting financial results overview for the first quarter. And during the second part, you'll be able to ask questions during the Q&A session. With that, I'll hand over to Archil. Archil, please go ahead.

Hello. Thank you for your time. Thank you for being on this call. I am delighted to to share some good news on our financial performance. You have seen some of the numbers and I would like to cover it in more detail now and I'll see your questions later on. So I will kick off with the economy. So we are covering the Pavel Trubiner- Powering the last one quarter, I would like to remind you that we were in a second second wave lockdown from November onwards inclusive of including. Pavel Trubiner- January and part of February and so half of the first quarter was in a lockdown and then partially we started to open up March was a really real waking up of the economy. We saw the overall, the GDP contraction was 4.2% in first quarter year on year, but in March we had an increase of 4%. So that minus 4.2% for the full quarter included an expansion of 4% in March, which was welcome. And this is the first month that the GDP year on year expanded. since the COVID-19 pandemic has started. We had a sum. So when we consider the base effect last year, first quarter was still positive. And then from the second quarter onwards, the GDP started to contract. And the low base will really start kicking in from the second quarter. First quarter, we didn't have much of that. The remittances have held up significantly in a very positive way. They expanded 28.4% in the first quarter, which is remarkable in US dollar terms, that is. And April remittances were very good as well. We have started to see the reserves of the national bank to be on the high side of 4.1 billion, which is a historic high in fact. And nevertheless, we saw some inflationary pressure coming in from quality prices and some devaluation that happened of about 4% in the first quarter of Georgian lottery versus US dollar. So both of these combined resulted in In March, CPI of 7.2, and April was about the same. The National Bank raised the refinancing rate from 8 to 8.5 first, and then from 8.5 to 9.5 just recently percent, which makes us on the high side of the refinancing rate. But all of that has already created some expectations, and we saw just over the last few days a slight strengthening of LARI by a couple percentage points. We expect the vaccination is starting to pick up the rate to speed. Nevertheless, we are a couple months behind Europe. And we believe that by the end of the year, the government estimates that 60 to 70% of the population will be vaccinated. But there's a significant push to vaccinate as fast as possible the service industry that predominantly tourism and some of the other service, government service workers like policemen and others that have a high social interaction so that that reduces the risk of pandemic. We have seen some emergence of tourism in the streets of Tbilisi, which is a welcome Welcome news. Having said that, they're still well below the 2019 levels. And I think the key change here would be the opening of the land borders with Russia, with Azerbaijan, and with Armenia, as well as Turkey, from which we get a lot of tourists. And as vaccination kicks in in the region, people are eager to travel and then hang out in bars and restaurants of Tbilisi, and we hope that they will deliver hard currency income for the country in the coming months. But so far, the pickup is slow. With that, we expect 3.6% GDP growth this year, but I would say with substantial upside potential, because we see that There's a good potential that depending on how June and July will go, depending on the border, land border opening, as well as the government's ability to contain the virus spread at the current levels, which is moderate, low to moderate, there may be a significant upside to these numbers. Just recently, yesterday, in fact, the government announced that the 9 p.m. car view has been extended to 11 p.m., which is a sign of where things are going towards. We still have 11 p.m. to 5 a.m. car view in place, which is there, but it's not the best for the restaurants and bars and tourism overall. And I hope in a few months' time when that returns to the full scale, that will go away. Now, a few words about the politics. Last year, we had a wave of news to the world, and some of them were significant and others were less significant, but not many were positive. I am referring to the political standoff after the October election, 2020 October elections, and that has been largely resolved with the help of the, EU and US who mediated the talks between the ruling party, Georgian Dream, and the opposition, which were refusing to enter the parliament. And basically all the parties other than the UNM, which is the main opposition party, but there were many smaller parties, have decided to sign a certain type of agreement with the Georgian Dream and enter the parliament. the United UNM is still debating to enter or not the parliament, but currently the parliament has 115 out of 150 active members and it's fully functional. And this is moving along in terms of adopting new laws, et cetera, et cetera. So in terms of the expectations of standoff and resulting potential expectations of street protests and all of that, that has all but gone away. And that is welcome news for the economic participants in this country because there's stability now and that is what we like. Now, a few words about the company and our results. We are Very happy with the results. We delivered 21.5% return on equity in an environment which is still challenging. As I mentioned already, half of the first quarter was in a lockdown, so very slow January. And a starting of waking up in February and a very good March. So trajectory is very good. And all of that in combination have resulted in a quarter where we have delivered a very good revenue growth of about 10.6% year on year and slightly higher than the fourth quarter revenue, which is very seldom, in fact, to deliver the first quarter, which is quarter on quarter better than the previous fourth quarter, which is seasonally high. We have held a very good cost discipline. In fact, only growing our operating expenses at 1.3%. And all of that have resulted in that was year on year. And that in a relatively high inflationary environment, which I think is a good demonstration of our cost discipline. and operating income before cost of risk, which is a very important measure of continued franchise strength, year on year has increased by 16.4%. And as I said, that is particularly positive given the fact that the 2020 base effect in the first quarter was not that low. It was still normal, so to say, before we entered into the pandemic starting from 2020. beginning of April or end of March last year. So all in all, I think it was a very good top line performance. With the cost of risk, we had 0.8% overall, 1.4 for the retail and minus 0.2 for corporate. The NPL level fell slightly by 10 basis points to 3.6%. The coverage is more or less the same of roughly 80%, 77% I believe. And the coverage with collateral is 127% comfortably covering the NPL levels that we have. and all of that have resulted in the 138, 139 million lari of net income. The cost of risk of 44 million includes also a non-credit risk expense, which is a legal expense of about 21 million lari. which is related to a legal case in London that has progressed in favor of work of Georgia. And hopefully looking forward, we don't expect significant costs there at all. So with that, yes, a couple other points also that I would like to make is that on the balance sheet growth and on the loan growth, we had on a constant currency basis, a growth of year-on-year 7.1%, but more significantly, starting of some positive sign on a quarter-to-quarter basis, i.e. year-to-date until the end of March, we had a constant currency basis growth of 1.7%. In terms of the corporate versus the the constant currency basis corporate had a slight growth of 0.4%, while the retail long growth was 2.8. And the 2.8 is comprised of different products, but what we saw is that the micro and SMEs is starting to show a significant recovery, which is expected, in fact, as the economy warms up. because those are the sectors that experienced the biggest drop as the economy stopped. And now as the economy is starting to open up, the biggest growth is there, and our franchise is quite strong in micro especially. So what we had was the quarter-on-quarter growth of almost 5% in micro and SMA of 5.7%, which is significant, and a good growth of 2.7%. that is quarter on quarter in consumer. That's on the 13th page of our release. There's a breakdown of the retail growth. And I think that is significant because those are good indications of the health of the economy that the MSME business is waking up and also the consumption is picking up in terms of the consumer. We had some... some good product developments on the digital side, on the consumer, and we expect that line to remain strong for us. In terms of digitalization, we have had good progress. I mean, it is clear that our franchise and our mobile bank remains a leading one on the market and well ahead of our competition. We had... 5% pickup in terms of the new mBank users, as well as 40% increase in terms of the year-on-year. The volume of the transactions have almost doubled. And overall, we are very happy with the development and the significant new additions to the mobile bank capabilities every time. And we like how it's going and the quality of it being increased all the time. We also pay a lot of attention to our customer satisfaction and employee satisfaction. And there was a new number that came in on the NPS in March, I believe, and that was 49%. That is above the all-time high 46% that we had end of last year. It's a significant further increase, and we like it that way. In fact, that number 49% is already quite high for any large bank, in fact. That is a sign of how much attention and effort we put in customer care and making sure that our customers are satisfied with our services and products. More importantly, the biggest source of ideas are the unhappy customers. So the ones that are unhappy, we obviously collect a lot of information and pay a lot of attention to it. And there's a Medallia, which is a customer care software in the system that is helping us to systematize it and build into product development for us. EMPS numbers have also increased and achieved a new high in April of 60%, which also demonstrates the health of the of the overall culture and the organization. So all in all, I would say that we have had a good quarter regardless of relatively difficult macro environment. And I think it's very positive to see that March was the last month of the quarter seeing some very positive developments and that trend is continuing in April what we are seeing. and hopefully they will only accelerate, and that's our expectation. Over the last four quarters after the first quarter of last year, every quarter we have delivered more than 20% return on equity, which is something that we pay the most attention to. Profitability is the key for us. We like to have good market shares, but we don't care about it as much as the profitability, and that is number one thing that we are focused on. We are very conservative in terms of what we expense and what we capitalize, and all in all, how we do our accounting. Our shareholder equity over the last 12 months has gone up by 31.6%, 31.3%, I apologize. and that shows the overall value that we create for the shareholders and the conservatives of how we approach these numbers. And that is true also for the book value per share is also more than 30% up. In terms of our capital ratios, they have gone up very strongly in fact, and are comfortably above the minimum requirements, although the minimum requirements include the release of some of the buffers. So even mentioning it doesn't make any sense anymore because it's more than 350 base points higher than each of the requirements. But we are in the process of of discussion within National Bank of Georgia. And we believe over the next few weeks, we will know the exact schedule of the capital requirements as well as some of the other smaller details, which will determine our view in terms of the buffers that we have. And we are focused on resuming the dividend dividend flow to our shareholders as soon as it's logical and practical. And hopefully we can do it for this year, for the profit of 2021. With that, I will stop here and open the floor for questions. Natia.

Thank you, Archil. Q&A session. Just a reminder, for those of you who are joined via webinar, you can use raise hand function at the bottom of the screen. And those of you who are joined via phone dialing, you can press star 9 to ask the question. And please remember to introduce and unmute yourself once you get the permission to speak. First question comes from the phone. Please unmute and introduce yourself to ask the question.