Bank Of Ga Group Plc Ord

Welcome, everybody, to Bank of Georgia Group PLC's second quarter and the first half of 2021 Financial Results Conference call. My name is Natia Galanderishvili. 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 reported. Our call today will be organized in two parts. During the first part, our Chilgachi Chiladze, Bank of Georgia's CEO, will be presenting financial results overview for the second quarter. and during the second half, you'll be able to ask questions as part of Q&A session. With that, I'll hand over to Archil. Archil, please go ahead.

Hello and welcome to our second quarter call and half-year results call as well. I will be going through a presentation this time, and we will go through a few slides on macro, then a few slides of our operating performance Stoyan Bumbalov – UKRI BAS, versus our strategy and then we'll discuss some of the numbers and after that we'll go into Q amp a. Stoyan Bumbalov – UKRI BAS, So we start in fact with with the pandemic, because that is. Stoyan Bumbalov – UKRI BAS, Something that is on our minds and the whole world is looking at it, and in fact we are experiencing a significant wave on in. similar to the way that we experience at the end of the year, with one difference though, that although the numbers are as high, the vaccine availability is good. And in fact, our citizens have a choice of getting vaccinated with Pfizer or different types of vaccines. And the vaccination pickup is significant. And if it continues this way, and this has been over the last couple of weeks, in fact, we should have about half of our adult population vaccinated by the end of September. 46%, in fact, at least one dose. And then by the end of the year, the government is targeting 60 plus percent vaccination rate, which should be achievable. So while we are going through this and there are some limitations, in fact, so restaurants are closing at 11 p.m. instead of midnight. There's two weeks of public transportation limitations. There are some limitations, but the government is committed not to close the economy down as the vaccines are widely available. And there are some some rules to work with it. In terms of the economic rebound, we have really been seeing a significant rebound versus the 2020. But given the fact that 2020 was a difficult year in the low base, we also are competing the numbers to 2019. And as you can see on the slide here, the GDP growth was 12.7% in first half of the year, which was mostly in fact in the, or all of it in the second half of that half, so the second quarter, versus 2019 for the half year period, that was up by 5.7%. And that is reflected in many other things that will follow after that. So this is predominantly driven by good numbers in remittances as well as other things, but remittances have stayed strong throughout of 2020. And also 21 has surprised as well, as you can see the monthly numbers are very impressive. I mean, the current numbers versus last year, but also versus 2019, the numbers are up by 30 to 40%. in US dollar terms that is so this is a significant growth. Exports have also overcome the 2019 level and are growing strongly in July numbers that came in also the exports were up by 20%. And versus last year, it's up by 40 or so. imports have picked up from last year, but versus 2019, they're flattish, with June number being slightly up. overall basically the trade deficit this is closer to 2019 levels uh and the tourists started to pick up significantly and we measure it as a percentage in terms of the uh in terms of the income that the country is getting versus uh versus the 2019 level which was a peak um and it's a month by month uh trajectory but july was a very encouraging number where where 51 the estimates by the stats bureau was that uh geostat was that um it's about 50 of uh of the income that we we got two years ago in july that will be somewhat affected short term by kovit but uh but the trajectory is a pretty fast recovery which is very encouraging in fact um georgia is experiencing a relatively high inflation similar to a lot of international peers and there's an inflation wave georgia has it slightly higher than some of the other other countries in the region but that to curb the inflation the national bank has raised the refinancing rate three times now over the last few months, up to 10%, which is very high for Georgian reality. But there was definitely a welcome news to curb the inflation, which is running at 11.9%. That has caused some strengthening of Georgian Lari, an appreciation which we were expecting, in fact, because Georgian Lari was oversold over the last few years. consistently when you look at the real effective exchange rate. So that is also welcome news. The gross international reserves are at their peak levels over the last few quarters at close to $4 billion. And National Bank has not really been selling the reserves because large has been strengthening and did not require any intervention. Alongside all the positives that I described, a lot of international players, including the IMF and World Bank and then locally the National Bank of Georgia, have all upgraded the forecasts for 2021 real economic growth that we are expecting. As a reminder, it used to be around 5%, so let's say 4% to 5.5% for most of the predictors, and the IMF have upgraded that to 7.7%. but the National Bank of Georgia is more positive with 8.5%, and Algonquin Taggart agrees with National Bank and has our prediction slightly higher at 8.6%. And let us remind you that our expectation was 7% earlier on, which seemed much more positive than most of the people expected. And that 8.6% takes into account the current risks, and we believe there's some upside there as well. And let's see how that all unfolds. Now, a few words on the operational performance alongside our strategy. So we, as a bank, we can, in terms of the overview, we are two-thirds retail bank, basically one-third corporate bank. And retail is comprising of our mass retail franchise, as well as our premium retail, which is Solo and MSME. Our payment business is living on the market, and we have more than 50% acquiring business in our POS terminals when you measure it by all the payments done in the POS terminals in Georgia. We have 8.5 million transactions going per month through our mobile app, and through all the transactions that we have, more than 96% are done digitally. And in terms of the strength of our retail banking franchise, we have good deposit market share around 40%, 38% market chain in terms of the loans to individuals. And we are ranked as the most trusted and top of mind bank in Georgia with consistent good growth in our MPS numbers. And I'll dive into it later on. And we are doing it all by and at the same time focused on profitability with 20 plus percent guidance that we provide and I'll cover that. This is just a reminder of what our strategy is focused on mobile app payments and loyalty is strengthened by customers, especially employee empowerment that drive and strong franchise. All of this is being done as we are delivering very good profitability. So a few words on some of the measures according to our strategy, or at least some of the things that we are describing here are our focus. So how are we doing on our strategic initiatives? We have in the mobile bank and iBank active users, we have grown by 19.3% during the year. And what's more important is that people are using our mobile bank more actively. So the current users are using it even more. So that's why the number of transactions have grown, have gone up by 84% year over year. 40% of our active users are using our application on a daily basis, which gives you an idea of a very strong engagement that our customers have with our digital channel. Um, so we had a 61% uptake in the overall number of transactions, uh, excluding POS transactions that is, uh, from the last year, but that kind of overestimates the overall picture because last year we had a, uh, strong break, uh, lockdown and, and the number of transactions was lower. Uh, but when you compare it to, let's say two years ago is up by 20%. But what's more important is that during two years ago, our. in terms of the split, how our number of transactions was, we had about 20% of our transactions being done via mobile phone. And currently, as the denominator has grown, but also disproportionate growth has been happening with our mobile transactions. So it's 46% now of the total transactions. And when you look at it, it went from 9.5 million to 26.3 million And this really highlights the stress and dynamic development of that channel, which we believe, and the whole market believes, is the channel of the future, in fact. So what happens next in our mobile channel is that we are expecting a significant uptake in offloading, and there have been different types of initiatives happening. They are currently the offloading rate is still around in low 20s, but the nominal number has been going up as the economy rebounded. And we expect that number to go up from the low 20s to mid 30s over the next 12 months. As more and more people get comfortable using different banking products, not just transfers and bill splits and the likes. through on our mobile. And one example here is our remittances. As you know, remittances is a very important part of the Georgian economy. There are a lot of Georgians working outside of Georgia sending money to their families. And until recently, in fact, all of the cashing in of that remittance was happening in the branches. So you had to go to the branch to deposit that money. on your bank account or cash it out. And when we introduced the digital way of doing it, and you might say, why was it complicated? Because there are a lot of different intermediaries, Western Union and the likes that are enrolled in, so doing an integration is what I'm referring to. So over the last one and a half years, it has gone from basically all physical to about 44% in the second quarter of 2021 being digital. And as we speak, end of July numbers came in, it's more than 50% now. And that is happening while we're gaining market share in overall remittances from about 32% to 35% over the last, let's say, one and a half years. I think shows some strengths on dynamic of development of the types of things that we're doing. Also important in terms of the payments, although the different types of payments is our POS and merchant payment franchise. There we have about 50% market, 51% in numbers and 49% in terms of the volume of market share. And as you can see, the growth there is significant and we expect those numbers to grow significantly going in the future as well. So year on year, we grew by around 72% and in terms of the volume by about 90%. And those numbers we believe will continue, and our position there is very strong. In terms of the mobile bank, but now we're talking about the business, the business pickup is significant. The large corporates have been digital for a long period of time. SMEs have been mixed, and micro has been more physical. And that trend is becoming more and more digital, and there also, I think, Radek Machan, Investment is is very good, and the first quarter we launched a mobile business back has seen a lot of pickups, especially on the on the micro business users. Radek Machan, So you can see that the number of users of our mobile and Internet back in business side has grown by 28.9% and number of transactions going by almost 40%. Roozbeh Gharakhloo, All of this is being done by us, focusing on customer satisfaction rigorously on many different things measuring on channel. Roozbeh Gharakhloo, Product what people are happy about what they're not happy about it's all summed up in one number, which is nps but there's a lot happening behind it, and, as you can see, over the last let's say few years. We have seen our MPS numbers growing on a very good trend, in fact, from 27% to a peak of last quarter, which was 49. We had a slight dip, and that dip was when we asked our customers, were predominantly coming from a growing interest rate, coming from the refi increase, because there was several times done in a short period of time, but that is temporary. uh what what people are uh paying a lot of attention to is is is the comfort of uh that they are experiencing in each and every channel as well as there's the easiness of of uh product usage uh we've also started to to use salesforce uh that we announced last year in fact and and the effects of that uh will will be visible in the quarters to come A lot of things are backed by our very strong data capability, which is getting stronger. In fact, we had all of our middle management go through an online training done by US schools, in fact. And more and more models will be used in every day to save costs as well as sell better. Rene Valladares- So now few words I hope that was not too long, so a few words on our numbers that we've delivered. Rene Valladares- Our revenue numbers were based on almost 40% growth year on year and 10.3% growth quarter over quarter. versus first quarter. Something that made me very happy, in fact, was that our net fee and commission numbers year over year was up by 73.9%. And our Q over Q was 17.6%. And when you look into it, what's driving it, one of the strongest drivers was our retail net fee and commission income, which was up by 99%. Arieh Iserles- Other parts of the business also performed very well in fact corporate has done very well, but that is something to note that our retail Commission income has basically doubled year over year. Arieh Iserles- In terms of. Arieh Iserles- cost of risk. Arieh Iserles- We have benefited from very good macro environment with the economy rebounding very strongly from the low start. Obviously, that has resulted in a low cost of risk, and we have benefited from some recoveries in corporate banking. Overall, there was negative cost of risk that contributed to our very, very strong profitability. Our profitability, in fact, for the quarter was 29.4% return on equity, reaching 202 million lari, which was all-time high. And just in this quarter, in fact, we delivered about one pound of profit per share, which, versus our stock price, gives you an idea how significant the profitability was. Now, obviously, that profitability, we have had some help from the strong economy and some recoveries, but when you look at the And we are in your pre provision numbers they they are strong as well, so 29% is definitely our return on equity is not an arm and we don't expect to produce them. But 20 plus percentage is what we have been guiding and we are looking at sustained levels of that profitability our. Capital ratios have gone up very strongly in first half of the year, reaching quarter one of 12.5% with a minimum requirement without using any buffer studies of 11.1. And liquidity is strong, well above the 100% minimum requirement and 124.5. So more specifically, last year we had a significant charge in the first quarter of last year. upfront charge, which was slightly unusual versus some of the European peers. Let's say they've not done that, but in Georgia, we had an upfront charge of 400 million Lari expected loss for the full cycle. And since then we have delivered 20 plus return on equity on each and every quarter. Our operating income, we described it, as I already mentioned, was up 40% and 10% quarter over the last quarter. And as I said, the non-interest income had an even stronger performance, which is very good. Also, something that was, I think, an achievement of our team was that we had a stronger net interest income going up by 50 basis points over the last year and 20 basis points over the last quarter. Our cost income ratio was 36.4%. just significantly down versus the last year, which was a bit of a one-off at 43.9%, but 36.4% was in second quarter and for the first half of the year was 35.9%. So we are guiding a midterm guidance of 35%, which should be achievable over the next few years. We had our costs growing at 15.8%. which is slightly high, but at the same time, when you have a significant uptick in the economic activity, you have much stronger revenue growth, and that also has some effect on our costs. But overall, I think our net operating income has grown significantly. In terms of cost of credit, as you can see from 2017 onwards, our cost of credit was reducing consistently as we were coming out of the 2015-16 crisis, oil crisis, as well as entering into a more conservative regulatory environment. 2020 obviously was reflective of the COVID charge. This year, 0.1% first half of the year cost of risk is not sustainable. We are guiding about 1 to 1.2% into the medium term, but obviously this year we are experiencing very good recoveries. Our NPL ratio improved slightly to 3.5%, and coverage ratio is 73. With the collateral discount, we are looking at 122% coverage, which we believe is a very good reflection of the strength of our coverage. In terms of low portfolio growth, in fact, we had a very healthy growth. As the economy rebounded, we saw good demand coming from the micro and SME as well as consumer. That is reflected in the growth that we have seen here. On the nominal basis, that was 4.2%. And when you look at the cost and currency basis, that was 7.2% from the start of the year. on an annual basis that 17.4 and constant currency, which is usually what we are focused on is 13.7. In terms of deposits, the state largely flat with this year growing by in constant currency basis by almost 2%. And what we have seen is that in 2020, we had a significant, very significant growth in deposits growing from 10 billion to 14 billion in Larry, as you can see. And that has largely stayed flat this year because as the economy opened up, people started to spend all the money that they've saved. But we are still having a very strong coverage in terms of net loans to customer funds and the development financial institutions, which is very stable long-term lending. is all very healthy levels. Now a few words on capital. Last year, as the National Bank guided us to provision for the full cycle, it also released the buffers to whether the crisis, COVID crisis, or rather the economic crisis caused by it. Those buffers are still available and some banks are using it, but we're no longer using it from the beginning of the first, second quarter. And as you can see, our ratios are 12.5 and 14.4, as well as 19.1, well above the minimum requirements, which is 11.1, 13.4, and 17.7. Those are without the buffers, as I said. So when we look at it, the Basel III capital requirements are fully loading by the end of December 23, and those are the numbers to expect given the current buffers required for our bank. Those numbers are annually reviewed, but our current expectation is this. And as you can see, we had in the first half of the year a very strong buildup of our Radek Machan, Capital starting with quarter one of 10.4 and going to 12 and a half, while funding. Radek Machan, very, very healthy girls, so that that was good and we believe that this is why we are going into a new environment where we will be focused on dividends. Radek Machan, quite a bit in terms of something to to keep in mind is also that our national bank requirements are more strict than the IRS. And as we are moving to IFRS, it's good to remember that there's difference of around 2.5% on a core tier one level, which IFRS accounts would see. So if you looked through IFRS glasses, you would see not 12.5% in fact of core tier one, but 15%. So that is good to keep in mind and underlines the strength of our capital. So in terms of our strategic initiatives, we have been delivering more than 20% over the many, many years. But last year, which was 13% return on equity. And the growth numbers were also above our 15% guidance. Now, that number we have lowered to 10% going forward. And medium term, we expect our loan growth to be around 10%. This year, as we said in the previous discussions, we may expect a slightly higher given the high economic growth and the inflation in the environment and the economic rebound, but medium term is 10% is what we expect. The current dividend payout ratio range is 25 to 40%, although that will be formally reviewed on the next board meeting. And we'll be communicating to you with dividends remaining is very important part of our return to shareholders. Some buybacks may be in the cards as well, but they will be formally reviewed and approved and communicated to the shareholders after the September board meeting. So with this, we are announcing an interim dividend of 70 million on the back of our first half, very strong profitability numbers. And going forward, we will see what we do on a full year. So with that, thank you very much for listening. And I will open up for Q&A now, which is a very exciting part, usually, of every call that we have.

Yes, and just a reminder, those who are connected via the webinar, you can use the raise hand function at the bottom of the screen to request asking the question. And those of you who are joined via the phone, you can press star nine to ask the question. And please introduce yourself and unmute yourself when asking the question. First question comes from the phone. Please unmute and introduce yourself.

We cannot hear you. You are in mute, so there's something to press there. Natia, can you guide us?

Okay, I think I'm unmuted now. Yes. Can you hear me? Great. Hi, it's Andrew from Spurbank CRB. Hi, Archul. Thanks very much for the for the presentation. I have a few questions. First of all, just interested to get a bit more detail on why you've reduced your medium-term loan growth target from 15% to 10%. It seems like the economy is growing pretty well, and probably there's a reasonably good outlook for the next few years to come. Just kind of wondering, you know, are you kind of concerned about, I mean, is it a case of, you know, some segments of the credit market look, you know, relatively saturated? I mean, are there segments that you've kind of turned less optimistic on perhaps than others? Would be good just to get a bit more color on that. And I can ask another question afterwards.

Yes, so we believe that Georgia's development, the Georgian banking development, is not at the 2003, 2004 levels. And we expect that growing and focusing on profitability, in fact, rather than pushing growth, is the right thing to do. So 10% is more or less what we expect, slightly higher or at the levels of the nominal growth of the economy. And that, I think, will all the time be sustainable. Now, there will be moments where we can have higher, like this year, I believe. But medium term, the growth of 5%, 5.5% real is what we expect in Georgia. And then inflation of, let's say, 3% to 5%. And that would deliver a nominal growth of around 10%. And that's what we believe is sustainable.

Okay. But, but, but, I mean, I, I, you know, are there kind of parts of the best segments where you, you feel that the growth is not going to be as strong as perhaps you'd previously thought? I mean, is that kind of corporate parts of the retail market and SME or kind of nothing, none of those in particular?

None of those in particular. I mean, it also depends on the environment. So last year, what we saw is that, uh, There was a very weak demand given the lockdown, et cetera, in micro and consumer, obviously, and some slowdown in SME, but then helped by the government support, the mortgages were very strong. And this year, what we see is that whatever suffered last year is recovering stronger than the rest of the book, which is micro. We have a leading position by far, as well as consumer and SME. So those, I think, are benefiting us disproportionately versus the overall market. But there's no particular sub-segment, which I would say is discouraging anyway. OK.

OK, fair enough. I saw that there was, I think, a $4 million or so, Larry, loss from associates in the second quarter. Can you tell us what that was? And do you expect more of that or not?

yes we don't expect i mean the biggest associate that we have really is is a credit bureau in the country um and and we reviewed their their profitability and we do the assessment uh on a on an annual basis and we saw that there was a reduction so when we looked at it the underlying reduction there is that as the payday loan business has it was by largely died off or or you know reduced by 90 percent their their revenue reduced that is you know at a new base so when you look at it you know that's that's where the revaluation is coming from uh other than that we don't expect anything else i mean if we expect it it would be in the numbers it's not like okay fair enough um and obviously your your fee income growth was very strong in the the second quarter um just wondering i mean do you think that in kind of

Nominal terms, you can actually see kind of further growth from here in the second half of the year, or are we going to see a bit of a slowdown, particularly given the kind of, you know, resumption of some restrictions around the COVID pandemic in the third quarter.

Yes, my expectations are good, in fact. I mean, I cannot give real guidance there. But the limitations or restrictions of COVID are very limited, in fact. So unlike last year, when we did not know what to expect from this virus, that's one. And the second thing is that the vaccination was not available. The government, basically to protect the population, enacted a very strict lockdown. uh in in the first quarter of last year and that lasted for big part of second quarter now this year vaccination is widely available and georgian population was a bit slow on picking that up but with the virus numbers picking up now is a very encouraging science that people are signing up and the number of vaccinations per day has uh has been very strong, well above 20,000 per day, which for a country is a very good number. So with that, we don't expect a significant slowdown in business. And numbers are good, yes. I mean, they are reflective of our very strong retail franchise. Retail and payments, I mean, we are very good at it.

OK. Thanks very much. Thank you.

Next question also comes from phone. Hello, please unmute yourself.

Thank you. You've spoken a lot about non-interest income, and this is clearly much less of a balance sheet encumbrance. I'm wondering, A, What sort of share of your income do you think can get to being non-interest income? And as it increases, will you be conventionally increasing your bottom end of your ROE target range? And if not, why not?

So very good questions. I don't have the answers to that right now. I think what we are focused on is making it easier for our customers and focusing on it and market share as a result rather than a goal of what we do. And in terms of the pickup, I think these are good so far. Whatever we have focused on in terms of delivery is happening. More than the share, what is the biggest biggest competitor in our payments business is not is not another bank but it's really the cash economy so we are we are basically uh fighting uh for uh to to to gain the non-cash payments from from the customers because we believe um these payments are are are more comfortable and that focus has resulted in in the growth numbers that you are seeing so What is there to grow in the future? There's a lot to still replace in terms of the cash economy. And we believe that, you know, it's a continuous development of our product. And it's not focused on one particular thing. It's bill split. It's money request. It's POS terminals and the innovations there. It's all kinds of different improvements. And there's a lot to go. It's not just how the economy is growing, but really replacing the cash, and there's a lot of cash in the economy.

I have a second on capital and your strategy. Assuming we stick with 20% plus ROE, clearly a reduction to 10% loan growth, even without risk weight density coming down, which it naturally does as mortgages become a greater share of your book, clearly you know, the 25 to 45% payout ratio would see a permanent increase in capital every single year, ad infinitum. I'm assuming that isn't the case, but I'm also assuming, like, we also see that obviously your min cap requirement obviously goes up out to 2023, as you highlighted in the presentation. So the question is, you said you're reviewing the dividend distribution policy at the year end. In the context of the short term,

increase in in min cap requirement uh are we likely to see a much more significant review when that is out the uh the other side or are we just going to get a review as far as you're aware this year all very logical uh arguments but you are asking me what we are going to do in three years time and uh it's difficult for me to comment um i would say your arguments are very logical so beyond that i cannot say in three years time how it's going to look. But absolutely, we are right now building out the capital to comply with the Basel III requirements. And in fact, what you're looking at in December numbers, the Basel III numbers, there's only one part that we are currently not meeting, which is the tier one. You look at the June number, it's slightly short. You look at the mid-August number, we are looking at it on a daily basis. We're already meeting that number. the December capital requirement number in 2023 that is. So, you know, yes, there will be building up of buffers as well as financing the growth, which we have reduced slightly and focused on returning the capital. And obviously that last part is very important because, you know, shareholders have been our focus and value growth for always.

Thank you.

Thank you.

Latia, should we go through some of the questions that have been... Yes, we can and then we also have... Can you read them out and I'll try to respond.

So we have a question from Andre Mikhailo. Part of this has already been answered, but let me read it. Thank you very much for the call. Could you please comment on what drove the loss from associates? This we already talked about. And the second question is, should we also expect further gains from realization of real estate and securities in second half, as well as further legal fees related to provisions?

Yeah. In terms of associates, I think I mentioned it. In fact, that's the only significant associate that we have, and that was the significant revalue. We don't have many associates, so not much to expect there, but whatever will be, we will reflect in the numbers. In terms of real estate, to expect gains or not, is a difficult question to answer so we are valuing the real estate uh life we are valuing which is the market uh and then the market has has been uh improving and we have been able to to to to to have some uh some some gains there so um as you know we are in an inflationary environment we may have that going up but on a longer period of time we don't have short-term expectations of of that are focused on that. And in terms of the further legal fee related provisions, over the last couple of years, we had significant legal fees related to one of the larger legal case, which has been ended with Bank of Georgia winning it in London. So those fees we do not expect. Otherwise, there's always some legal fees and they will be there, but they should not be significant.

From Shaheen Barwani, we also talked in part, but what does the competitive environment look like with regard to your payments business? Who are the number two and number three players and what percent of Georgians would you estimate use a payment service?

Um, so there are two large banks in Georgia, as you know, and they are the ones also dominating in the payments business. Uh, number three is, is largely, uh, insignificant compared to those three, but there are, you know, other, other payment services, uh, providers, but those are, are the main ones. Um, and, um, so basically, you know, it's, we operate for bank of Georgia only. Our company operates for all the other banks as well. So they have host to host for the other banks. But our market share, I believe, is what it is just for Bank of Georgia. So that represents the strength of our franchise. So those are the players. In terms of what percentage of Georgians are using the payment service, There are two types of payment services. One is something to do with our application, and the other one is something to do with the merchant pays, right? So the merchant, our application is used by 800,000 people. So there's good upside there. But I think the growth there is becoming more and more challenging because people that have not been using mobile uh, bank, um, older generations and, uh, and others, uh, are slower to adopt it, but they are adopting it. Um, and, and there, I think our leading position is, is good. Uh, and the other one is, is the POS terminal, which the usage, uh, is higher. I don't have the number of top of my head, but, uh, we will, uh, disclose it going forward.

We have one more question.

More people have cards, obviously, and we also are operating, yeah. national transport system, not national, sorry, TLC transport system and metro payment system. Thank you very much for the answers. Yes, Natia.

We have one more question and then we can move to the live dial-ins. Could you please comment on the current state of dollarization in Georgia and how hard currency inflows and outflows are currently occurring?

State of dollarization, you mean?

Yes.

The dollarization is coming down. In fact, we are at the new lows. I believe on the loan side, it's 52%, which is historic low. And on the deposit side, it's about 60%. And National Bank has recently, a few months ago, in fact, enacted a new regulation, which which encourages us to accept the large deposits. So more large deposits we have, less dollar liquidity requirements we have on our dollar deposits. So it's a marginal attraction of our deposit is becoming more important and that has contributed to an environment where we have a very strong, very good, very good difference between the dollar and a lot of deposit, which is 1% and 9%. So 8% difference there for the retail customers, which is little by little starting to have an effect. And I think policies focused on de-dollarizing the liability side is very healthy and is not, let's say, is not causing a new Lari supply to the market and is not inflationary. So it's de-risking the overall economy and encouraging people to save in Lari, which little by little and with stability of Lari, longer it lasts, more and more people will switch to Lari saving. So it's 52% now on the Lari side and on the asset side and on retail it's even higher, even lower in terms of

in terms of uh dollarization i believe it's below 40. uh move to the right we have simon nellis on simon please go ahead oh hi thanks thanks very much for the call um i'm intrigued by the very impressive revenue growth and just wondering you know how confident are you that you can kind of sequentially see further Michael Boucher- increase in core net interest income and fees, what needs to happen to be able to see that and what what are the key downside risks and then just on the dividend. Michael Boucher- I think it's pretty clear what the regulator wants to see, but can you just walk us through the potential regulatory hurdles to to capital distribution.

Dimitrie Hoekstra- yeah. Dimitrie Hoekstra- On the first side I mean it's in terms of the net interest income we. We had some widening of that, but we don't expect that to be sustainable, obviously. I mean, NIEM guidance we have stable. In terms of growth this year, we should have slightly higher than 10%, but going forward is around 10% that we are guiding in terms of the balance sheet line. Now, net fee and commission income, yes, that was strong, but... I think on the retail side there, we should have strong growth, depending how successful we will be to push out cash in the economy. And this is a long process and we'll be doing it. So we are, by many different measures, very fintech-like bank in that, in terms of our product development and the speed of rolling out different products in our mobile app and payments business. Kaveh Khoshnood, Difficult to comment on right now, but you know we we are seeing some of the results of our focus that has been there for for the last two years so it's not like we are we're super successful this quarter and we expect something. Kaveh Khoshnood, Different next quarter, so these are some of the results that we've been talking about over the last two years in terms of new product in the agile infrastructure and so forth. Kaveh Khoshnood, In terms of the. I think that was the question, right? That was the first question. And the second one, could you repeat it, sorry?

Yeah, just on the dividends, what are the regulatory requirements, I guess, to pay out dividends? And do you see any tightening or loosening of those?

Yes. I believe the regulator is very... supportive of the market economy as well as as well as respecting the shareholder rights. So we believe that regulators, you know, what we are seeing at least is that regulators are fine with the dividends and so far has been very supportive. So we don't see a particular hurdles with that. Obviously, the regulator would like to see more capital and less risk in this structure, which which is happening. So that is, we have a map of capital, increased capital requirements we need to comply with over the next three years. And we'll be growing our capital ratios, obviously, to have a buffer and comply with the requirements as well as pay dividends. So there's no other, let's say, additional requirement or barrier versus the dividends that we are aware of.

Jack Coldrick, Okay, and actually maybe just one last question, if I could on the risk cost. Jack Coldrick, I can you just confirm that you didn't release any of the. Jack Coldrick, kind of macro related ECL for looking overlay provisions right.

Correct we're not.

Jack Coldrick, Okay, and how much to those how much of those and under what conditions would you potentially release some of those. Jack Coldrick, regulators quite involved in that right.

Yeah, we're very careful with that. So basically, there's some related to this 400 million that has been allocated. There's a little bit left, and we may be reversing that. But that's not IFRS. That's local standards. So when you look at the capital buildup, and in fact, the first half of the year, on one of the slides, I presented 26% increase in the core tier one. that is abnormally high, right? And that is partly due to some of the NBG provision reversals that have happened in the first half of the year, because I think we were slightly over provisioned on the NBG standard last year. So you are seeing some of the capital build up stronger than you would expect just from, let's say, 29% return on equity or 25% for the first half. uh in terms of the in terms of the overall macro uh macro um expectations and and based on that we expect the provisioning to be we have not changed it although we have upgraded the macro environment so we will we'll be we'll be slow there and wait until the uh coveted environment stabilizes although we don't expect a significant macroeconomic impact, we still want to see it go and stabilize, and then we'll review. Okay, thanks very much.

Thanks, Simon. Next question comes from Ronak Gadyan. Ronak, please.

Good afternoon, Arshul. Thanks for the presentation and taking the questions. My first question is just on your margin expectations for the second half of the year. given the recent rate hikes by the NBG. That's first one. And the second one, I guess, you know, you've answered it in bits and bobs because a number of people have asked it. But just on your payments business, you know, you mentioned your significant competitor is cash transactions. Could you share some data in terms of what proportion of uh transactions are cash based in the georgian economy um and and and and related to that uh regarding your your own payments business you know on the subscribers that you currently have could you share some data in terms of how many transactions they are doing you know per month or you know per week basis and and how you expect that to to evolve there are very specific questions that i don't have

Rameen Mohammadi, answers to right now on top of my head, but I understand, given the interest of investors will be disclosing more information there, the growth that we are seeing let's say in the in the payments business has been significant. Rameen Mohammadi, And, and we believe that should be sustainable, but in terms of the shares and what we're looking at, I think we will need to report back. Okay.

And just in terms of your margin outlook for the second half?

In terms of margin outlook, we are expecting a constant margin, not constant, but stable margin. So we don't expect that to move in any significant way.

Okay. So the rate IX shouldn't have any significant impact on your LARI funding?

Hamed Nademi- No, I mean there are other things happening as well, so a lot of funding that we throw on in terms of refinancing rate margin is largely for our mortgage financing. Hamed Nademi- And mortgage financing has a variable rate linked to that so. Hamed Nademi- By and large, other than the first year or so. of introductory rate, which is stable at the same levels, but stable, and then it becomes variable. So that is passed through to the customers. And in terms of our consumer financing, that's short term, and that's basically passed through as well. So we don't expect a significant impact there. So there are other things at play here as well, but they more or less balance each other out. For me, it's more so largely stable and more difficult to comment on a more specifics is the answer. We don't expect significant movement because of that.

Okay, thank you.

Thanks, Ronak. We have Demir on the line. John, please.

Yes, thanks. Thanks very much, Archul, for the comprehensive presentation. I just want to ask you about the board's decision to remove 200 pips management buffer on CET1. Because if you look at a lot of the banks in the region that are in investment-grade countries, less dollarized balance sheet, they do maintain significant buffers in most of the times, much more than 200 pips over the regulator thresholds. So how do you see that as the management? That's the first question. Second question is on non-interest income. And I guess a part of the growth year on year has to do with the real estate gains. But maybe you could break it down for us a little bit further. That's OK.

Yes, the first one. So basically, I think last year when we So in terms of the management buffer, not the management buffer, yeah, the management buffer 200 basis points, which the board removed, the board, as well as we, we believe that we are very, very strongly capitalized. In fact, our regulator, I believe, is super conservative in terms of the capital requirements. And the numbers that you see do not fully reflect the full capital position. And one example is the difference between the MBG requirements and IFRS, and there are others. There are different capital pockets, let's say, in many different areas, like Rameen Mohammadi, Our dollar mandatory reserves that seat with national banks are weighted at hundred percent risk weighting. Rameen Mohammadi, In dollars that are sitting with the national bank are weighted as if those were the loans right because that's that's by law and and so forth, so that there there's plenty of capital there. Having a 200 basis point guidance, we thought, and the board thought, was not needed, especially to provide more flexibility in terms of managing the capital position. Nevertheless, we will be looking at some buffer. Obviously, we will not be driving that close to the requirement. We are not comfortable crossing the requirement at any point. we will be uh having some buffer but uh we believe that from the macroeconomic point of view our regulators requirements are uh are very very conservative so in terms of having a management being more conservative there we don't need to be we will just comply with that and have a buffer that will be comfortable enough given the environment not to cross that requirement that's that's one on the other one in terms of the in terms of the real estate gains obviously you know there was a question there and do we think it's sustainable no it's not a recurring recurring line I mean there will be real estate gains or real estate losses whenever there will be and overall I think the price environment on real estate has not been suffering at all and along the term we don't expect that to be the case either so Stoyan Bumbalov – SRA22 Panellist – Macro economy improves, we will have more of this, the real estate improves, prices, we will have more of it, but we cannot provide any guidance for the recurring nature of such a line.

Stoyan Bumbalov – SRA22 Panellist – And what's the breakdown of non-interest revenues in the Court review that we did in front of you?

Stoyan Bumbalov – SRA22 Panellist – Non-interest Stoyan Bumbalov – SRA22 Panellist – Breakdown I mean you see the net fee and commission income and net for your currency game and net other income is what. Stoyan Bumbalov – SRA22 Panellist – And there was. Stoyan Bumbalov – SRA22 Panellist – Income from operating lease of roughly 2 million net gain loss net gain from the sale of real estate properties of 10 and a half. Stoyan Bumbalov – SRA22 Panellist – Net gain on sale of investment securities of around 13 million. Then there were some small ups and downs, roughly that. And loss on buyback of securities. So when we buy back our bonds, which is about one and a half million, which is, you know, it's traded at lower yields than our coupon. So we have losses there. Got it.

Thanks, John.

It's a pleasure in reporting good numbers to you because you're always very, very conservative on us.

One has to be, you know, in our business.

That's your niche. That's your niche.

Yeah, yeah. Thanks for the answers, though. Thanks very much.

Thank you, John. At this point, we don't have any more questions.

Well, with that, thank you very much. I think second quarter was historically one of the strongest quarters. And as I said, we delivered the profitability of per share of about one pound per share. Obviously, that is extraordinary given the cost recoveries and reversals in cost of risk. But even on a revenue line, as well as pre-provision lines, I think we had a very strong growth. And I think something that made us very optimistic also was the net fee and commission income on retail side doubling year on year. And some of the operationally very good performance numbers on the payment side. So with that, thank you very much. And I wish you to enjoy your vacation if you are on one or if you're planning to take one. Thank you very much and bye-bye.