Lion Finance Group PLC

Hi, everyone, and welcome to Bank of Georgia Group PLC's conference call. My name is Ninia Arshagonia. I'm head of investor relations. Today, we'll present and discuss the group's financial results for the second quarter and the first half of 2022. Group CEO Archil Gachichiladze will start with an overview of the group's performance, and then we'll take your questions. Please be aware that this call is being recorded. And if you'd like to ask questions, you can use the raise hand feature in Zoom or the Q&A chat. And if you're dialing in, you can press star nine to raise your hand and then you'll be able to ask your questions. And now I'm handing over to Archil.

Thank you very much, Nini. Welcome to our second quarter results call. I think you may have seen already that it is... and extraordinary numbers that we've had in our second quarter, which is a record by many different lines, and as well as a combined net profit of roughly $100 million in the second quarter. So with that, let me dive in and touch on a number of things regarding the macro performance, because I think a great deal of this performance and increases is also due to macroeconomic strong performance. And then after that, we'll go into discussing some of the numbers of the company. So on the macroeconomic side, the second quarter real economic growth has been estimated at 7.2, which brought the first half real growth to 10.5. With that, we... which is way ahead of some of the predictions early in the year. The beginning third quarter performance of 14.9 was due to a low base last year because of the lockdown in 2021 first quarter, but overall 10.5 is a very good number. It's driven by very strong remittances and tourists and immigration flows, as you know, from the neighboring countries. But also exports have performed very well as well. So overall, very strong performance all around. So what that has caused is that we have updated our estimate for 2022 to 9.2%. And in fact, Fitch has just published an estimate for 2022 number of 10.9%. The World Bank and other IFIs are still projecting a 5.5, but I think that number will be updated to a high single digit, if not low double digit number for real growth for this year. Next year, we estimate growth, real growth of 5%, which is reflected what you see there on the chart. Overall, very strong performance versus the region and other peer countries. Georgia is experiencing high inflation like most of the world. June number was 12.8 and July number was 11.5, so slightly lower. But the core inflation was 5.08 and 7.1. So overall, I think there's still inflation and pressures are high. And that's why the tight monetary policy that the National Bank is implementing right now, as you can see, the refinancing rate is at 11%. We'll probably stay longer than we originally anticipated. And at the end of the year, our estimate of inflation is 9.5. which we estimate will bring the average inflation for the year of 11.7%. So all in all, I think this year we are experiencing a nominal growth of above 20%, which is really an extraordinary performance for the Georgian economy. Lari has been strengthening over this period of time, over the last few months. From the beginning of the year, Lari has strengthened by 12%. You may recall that we have been talking about Lari being oversold last year. And that has stabilized now. And as you can see, it's in fact a little bit stronger than the long-term trend. but it's only to reflect some of the shifts that have been happening in the economy as a result of geopolitical turbulence in the region. And you see that there's also some logistical and transport corridors are being rerouted towards southern Caucasus, which will have a long-term positive impact for Georgia. So there will be investments going into transport corridor of different types of logistical um, um, ports and, uh, logistical centers and so forth, because right now, uh, as this corridor was underutilized, in fact, right now it's, it's grossly overutilized and we are experiencing delays, uh, on this corridor because there's so much demand for, uh, for the cargo to go through this, uh, corridor, Southern Caucasian corridor, I mean, so, uh, this will have a positive impact on, um, for medium term because there will be investment going in that way now let's discuss some of the numbers company specific numbers as you know we the retail bank is composed of mass retail premium and MSME and there I think our leadership is strengthened and I'll touch on different numbers as we go forward The strategic focus is presented here, and let me go one by one what our progress has been. The mobile bank and iBank for individuals, our number of monthly active users is up by 31% year-on-year, and it's getting close to 1 million number. And as a proportion of our monthly active users, but not digital, the overall monthly active users that do business with us, which is not presented here, but it's also up by more than 10% to 1.5 million. Our digitally active, monthly active users to total clients, total active clients is 64%, which is a significant growth of 8% versus last year. And that makes us quite happy that we see that trend of our customers becoming more and more digitally active. In terms of number of transactions, the mobile and iBank, and it's predominantly mobile, is up by 57%, which is also quite strong growth. And in terms of the amount to DAO, the monthly active users to daily and vice versa, daily active users to monthly active users, that's almost 46% for any financial app, in fact, to have so much daily interaction. is a very good number, 46%. And that is important for us to have daily interaction with our customers so that the stickiness and the franchise value is stronger that way. The overall number of transactions was up by almost 33%, but as we described previously, our mobile and internet bank users were up by 57%. So that basically means that more and more people are doing banking with their mobile phones, and that has become 54% of total transactions. So you see that other channels are not growing as fast as mobile, which is very good for us. That shows that mobile is very comfortable. way of doing it, and people are finding it easier and easier to do more of their banking using their mobile phones. In terms of product offloading, we were at 33.8%, which is slightly short of our guidance of 36%, which was for June 2022. In fact, in July, we're slightly above 36%. Hamed Nademiya, There was due to the fact that we tightened the consumer loan underwriting as we as we were seeing high inflation, especially on the on the subprime segment. Hamed Nademiya, And that is highly digital product so as that was limited slightly that that we do slightly the automation but overall very close to the target. Our business internet bank and mobile bank has shown a significant increase in quality. So customer satisfaction score of our internet bank for our business customers has gone from 64%. It's an internal measure, but when you're doing it versus the previous time, it showed the progress. And it shows the progress that we have achieved integrated a lot of feedback that we get from our customers into the product development. And over the last one year, we've seen a significant increase in the quality of our product. We are also seeing addition of monthly active users to our internet and mobile plan for business, which is 31% and 39.5% according, which is very strong numbers, as you can see. Something which is very significant in my opinion and really reflects the strength of our franchise is also our payments franchise, which in the volume terms, we have seen 63% increase in our POS terminals and in physical POS terminals, our market share is 52. When you combine it with the e-commerce is roughly about 50%. which I think by any measure is a very strong position and the overall volume is growing very well. And in fact, I think we are contributing to making the economy more digital and cashless with our new products and the good coverage of our POS terminals throughout Georgia with merchants. Our NPS was broadly stable, but slightly down from 55, 54, 52. But overall, as you can see, the long-term trend is up. The slightly down was due to increased volume of flow in the branches due to more activity of remittances and immigration from the neighboring countries. we have taken measures to make sure that the flows are smoother and it's fine now. So we should see that trend restarts to grow again. Now, regarding some of the monetary numbers, because most of what we've described now is what is the basement for some of these figures that we will talk about. So here are some good numbers that we've been fortunate to have in the second quarter and first half of 2022. Something that I believe is noteworthy is it's the first quarter where we have seen return on equity higher than cost income, as one of the analysts have highlighted. And I hope that this will now be the last quarter to see those things. So we'll see. In terms of the operating income, in the quote, it's up year-on-year 47.7%, and on a half-year basis, almost 40%. Non-interest income, which was even higher by roughly 100%, and for the first half of the year, 70%. Expenses were also grew 32%. So it's not a small number, but still way lower than the overall revenue number and half year basis was 30%. Some of it was due to acceleration of expenses when we have done basically two senior directors have left us as we have announced to the market. And the way IFRS is done is basically that all the uninvested shares are expensed in the quarter when that kind of change happens. Partly that and partly some of the other changes. Overall, I think the expenses still grew strong, but I think given the inflationary environment, it was nothing unusual. Court income ratio has gone down to... 32.5%, well below our medium-term target of 35%. And for the first half of the year, it was 33.6%. And in fact, some of you may recall that when we were discussing the yearly results, last year results, we were predicting this year to have negative operating jobs given the inflationary environment. but obviously the revenue performance has been even stronger than the cost increases. So this is what we are seeing. And in terms of before going to balance sheet items, in fact, something that we closely monitor, and maybe we should put this in the presentation, is our performance of a pre-provision level, which for the half of the year was 46%, I think. Yes, 40%. 46%, but then for, yes, 46%. But for the quarter, the pre-provision was up by 60%. That shows a very significant growth of the business, as you can see. And this is in Lari terms. And obviously, because Lari has performed better in dollar terms, it's even stronger. Now, in terms of the balance sheet item growth, so the loan portfolio grew by 10%, but to show you the business release in constant currency basis is probably a better measure. It's 17.8%, Q over Q is 4.3, which is higher than our medium-term guidance, but given the strong nominal growth in the economy, that's still economy is still leveraging, in fact, because it's still lower than the nominal growth of the economy. Deposits had a very decent growth of 16% year-on-year and 9.1%, again, in total currency terms. In terms of net interest margin, we were flat QOQ and up by 60 base points year-over-year. And happy to dive in if there are any questions there. And loan yields and deposits you can see. In terms of cost of credit risk ratio, we registered 60 basis points for second quarter 2022. And for first half year, it was 0.7, which is closer. It's getting closer to long-term guidance of roughly 1% that we have, especially on the retail side. In corporates, we are seeing some recovery, and we'll see how that goes. But we may see some more recoveries, in fact. in corporate, but overall, I think we are getting closer to the normalized level as the time is progressing. We are seeing on the NPL level, largely flat, as well as coverage ratios slightly down, but overall, I think similar in terms of the long-term trend, what we have. So all in all, in the summary, the net profit was up by 36% versus last year. Also, we benefited from negative cost of risk, if you remember, in the second quarter 2021. And to show the overall business on a pre-provision level has grown by 60%. Return on equity, 32.8% and 31.8% for the first half year. Now, what's interesting is that this performance has been done with very strong capital ratios. In fact, core T01 is 14% above, 2.3% above the minimum requirement. They have similar kind of buffers on other requirements. And when we look at Basel III fully loading estimates that we have, which will happen end of next year, it's not much left. Let's say it's another 30, 40 basis points. So we are still already with the fully loading ratios. We have significant buffers above that. So what's interesting also, which some of the investors may not pay attention to is that our reported national bank standards right now is... is stricter than the IFRS. And National Bank has announced and has taken steps to make these numbers close. And in fact, we may have one reporting very soon. And from next year, we'll start reporting both numbers. And at some point, we'll just switch to IFRS, which NBG will do. And we will see roughly 2% higher core tier one ratios, which MBG has guided that they'll introduce additional buffers to absorb that. So it will not be a source of additional capital, but it will still be very positive because the investors, you will see that the bank's core tier one ratio is more like 16 to 17% instead of the current 14%. which by any IFRS comparison, in fact, by peer comparison, is very healthy capital position. And our return on equity is even more pleasant to see that it's done on a very healthy capital position. Liquidity remains strong, and we have very strong liquidity. Last year, we had too much, in fact, too much, which we've normalized, but still very high equity overall, very healthy, very healthy numbers there. So the long-term Long-term targets that we have of delivering through the cycle above 20% return on equity, we are performing very comfortably well above that target, as well as roughly 10% cost and currency growth, 10% portfolio growth, also delivering a bit more than that there. And regarding the capital distribution, as you've noted, we have announced the interim capital distribution of 1.85 Lari per share, as well as continuing the buyback of stock. So it's a combination of dividends and buyback, and it's only for the first half of the year. So it's an interim. And then... as the year progresses or in the beginning of next year, we'll discuss the full year dividend on top of the interim obviously. So that's about it. Thank you very much. And I don't want to take more of your time. And in fact, I'm happy to answer questions.

Nini, would you like to open?