Lion Finance Group PLC

Hi and welcome all to Bank of Georgia Group PLC's first quarter of 2023 results call. My name is Nina Arshagouni. I'm head of investor relations at Bank of Georgia and I'll moderate today's call. First, we'll start with our presentation and then we'll have the Q&A session during which you will be able to ask questions by either raising your hand here or typing them in the chat or pressing star nine if you're dialing in from phone. For your information, this call is being recorded. And now I'm joined by the group CEO, Archil Kachichiladze, who will discuss the business performance as well as the macroeconomic developments.

And Archil, you can go ahead now.

Thank you very much, Nini. I will jump into the presentation. Thank you very much for joining the call. And we'll go through the presentation very quickly so that we can have a bit more time for Q&A, which is usually the most interesting part of the call. So we had a very strong performance in the first quarter of this year, which continued to a strong last year's performance. So the profit was 300 million, up 25%, return on equity of just shy of 28%, cost income 29.1. So this is the first quarter after the three quarters where return on equity was higher than cost income that it unfortunately reversed, but only slightly. And NPS of 58% with digital monthly active users up 25%. on an annual basis of 31.6% to 1.2 million, which is extraordinary given the small size of the country. Now, a few words about the macro, because that has a very big effect on us as a large player here. After two years of above 10% real economic growth, we had the first quarter, which had a real growth of 7.2%. And there's some monthly numbers, but quarterly is what really matters. It was driven by the strong external flows and overall very good performance. So you see here that there's a healthy growth in exports as well as imports, healthy growth in remittances and the tourism, which is a very important part of our country's economy. is up by 38% versus the 2019 numbers, which were the peak before COVID, obviously. But in terms of the number of tourists, we're still at 80% versus the peak. And we expect very, very strong performance this year because we're just starting the year and that we'll have some good performance results uh for the country so apologies so going forward the uh next two years the projection for this year is to 5.8 percent uh which Carlton target our uh international market subsidiary is uh projecting 5.8 and and uh next year five percent um that is an upgrade from the initial four percent and the upgrade comes from um very strong start of the year uh so macro numbers are very strong in the beginning of the year. What's even more exciting is the fact that the inflation is under 3%, so 2.7% is the last reading at the end of April, although core inflation still remains slightly elevated at 4.7%, but this is much, much lower than some of the regional comparisons, and this allows the national bank to lower the refinancing rate, which has been lowered by 50 basis points just recently, a week ago. But that I think creates more room to lower it further by another 100 basis points that we have projected by the end of the year and further after that. Lari has got a strong up by 7.6% by end of April. from the beginning of the year. This is on top of about 12% strengthening versus US dollar last year. So overall, very strong performance by regional comparables. Obviously, the external flows have been helping to generally get stronger. And this has been happening regardless of the fact that the National Bank has been buying very strongly. You can see on the right chart here, all the buying that the national bank has been doing, and the reserves are at the all-time high at around $5 billion and have built up very good buffers for bedtimes. Also on the loan growth side, it has slightly picked up on an annual basis in the constant currency terms at 13.8%, slightly shy of the nominal growth of GDP, where it has been below nominal growth of GDP over the last two and a half years, and has resulted in deleveraging, and we'll see it in the next slide. Nominal terms, it's much less, it's 3.6, that's due to strengthening of lottery, because about 40%, 44% of GDP of bank loans are in US dollar terms, which is at the historic minimum. As you can see, it has come down strongly from the 60s level over the last, let's say, seven, eight years, down to 44%. The non-performing loans is low by regional standards, and the system is reported about 1.5. This is the leveraging that I mentioned. The economy had a very strong growth and a lot of gotten stronger. The bank loans to GDP came down to 60.7%, which is at roughly 2018 levels, and that creates more room for growth going forward. And also the national debt to GDP is below 40% at the end of 2022, and is projected to further decrease towards 36% over the next three years. So that's briefly about the Magro. Now, a few words about the bank. We are FTSE 250 company, as you know, strong leader in digital banking in the country and top of mind and most trusted bank, delivering more than 20% return on equity and high standards of corporate governance and strong focus on ESG. And we'll cover some points going forward. We have about 45% of our portfolio is retail. And then we have strong SME and corporate banking, which is distributed almost equally. We are focused on mobile payments, mobile application payments and loyalty going forward. And the main focus is being relevant for our customers on a daily basis. And that's through the mobile application and through payments. And we have achieved significant progress in those. And how we achieve it is by focusing on customer satisfaction and centricity, religiously almost, focusing on our people and the culture within the organization, the strength of our brand, use data and AI in decision-making increasingly, and focusing on risk culture on all levels, first line, second line, third line. We are delivering more than 20% return on equity with distributing 30 to 50% of our net income and with a growth of 10 plus percent, which we've been beating these ratios. Going forward, I think we've discussed briefly that our mobile application is a financial super app. It's not a super app in the sense that you cannot find all kinds of things on the application, but it's a financial super app where you find most of the things from a financial point of view that you can be looking for in this application and the number of products and abilities are increasing of this application constantly and we are also monitoring the user user experience on a constant basis and modifying it to increase the satisfaction of the clients. And these are the results. Over the last 12 months, our number of retail clients have grown by almost 70%, but the digital users have grown by 31.6%. So let me say how that is possible. That is possible by increasing the number of mobile application users in total customers from 62% to 70%. So while the number of customers increased from 1.4 million to 1.7 million, roughly rounding it, the number of mobile users increased from 900,000 to 1.2 million. And more importantly, more and more people are using it on a daily basis. 47% of our users are using it on a daily basis. So when you look at and think about our financial app, more than half a million people open it on a daily basis. This is probably, after Facebook, the most, let's say, popular and used application. um in in in Georgia definitely financial application but um in other ones not all stats are available but it's it's a very popular media um in terms of number of transactions uh mobile is becoming larger and larger with internal banking but it's predominantly mobile it's now sixty percent of all transactions uh as you can see in terms of product offloading we have come a long way but still 44 percent versus all the other products that are sold through branches or otherwise so there's still plenty of upside here and we are selling more and more to our mobile application in terms of our business offering monthly active users are up by 40 percent and that's And that's also underlies the basis of number of transactions also going up by almost 38%. So very strong growth here and very good customer satisfaction there that we strive to have more than 80% usually customer satisfaction score. And here we have very good progress. In terms of our merchant acquiring business, our volumes are up by 55% on an annual basis. That represents market share of 52% almost. And we have almost 1.1 million people using our cards to make payments. So monthly active users of our cards is up by 33% in one year. which is also significant. So this is less to do about digitalization and more to do with our integrated approach to payments and loyalty, and it's working very well. In terms of customer satisfaction, you're all used to this, that we are religiously focused on this. We are about in the range of 60%, 58% over the last few quarters, and we are focused on increasing the quality of our services, as well as removing some of the unhappiness with number of different services. And we'll do it channel by channel. And we will be striving to achieve more here. In terms of results now, in the numbers, return on equity just shy of 28%, cost of risk of 1%. And our range is 1 to 1.2. You may remember cost income of 29.1%. Very strong capital position, 500 basis points above the minimum requirement at 19.5%. And lows up in the cost and currency terms by 15.1% on an annual basis and 3% on QOQ, which is a good start for the first quarter. And similarly in deposits, our deposits are up by 3.3% QOQ, but on an annual basis, very strong lows of 42%. So in terms of income, our operating income is up by 42%. Net non-interest income is up by 54%. There you can see more normalization of effects, as you can see. In the net fee and commission income, we had a chunky advisory fee of $27 million in the first quarter. But without that, I think the growth was north of 50% even on all the other types of fees as well. So very strong growth. Overall, the operating expenses have grown by 18.7% on an annual basis, resulting in the improvement, significant improvement, I could say, of cost income ratio from 35% on an annual basis to 29.1%. Loan portfolio growth, I think I touched on 15% on an annual basis and 42% in deposits. very similar comparable numbers in loans of 3.3% and 3.3%. So very strong funding overall. As you can see, we have about 17 billion Lari of loans and 18.3 billion Lari of deposits. So very strong growth here. What's very interesting here is that we have managed to increase the loan yield given the high interest rate environment and in some cases repricing of loans because they're available. And we've managed to keep the deposits and notes at a relatively low rate and the uptick here is lower. Moreover, because we had strong growth in deposits, we've been able to replace the other wholesale funding with our deposits, and that has overall resulted in the cost of funding coming down to 4.5%. And the result is net interest margin, which is very strong growth, up to 6.4% year-on-year basis. It's 110 basis points. A lot of people may be asking, is this sustainable or not? Long term, probably not sustainable. Short to medium term looks pretty good. So as we go forward over the next few quarters, we expect this number to stay relatively flat. But at some point, it will probably come down as we will be paying more for our deposits in high interest rate environment. Cost of risk is at 1% on the lower end of our medium term guidance of 1 to 1.2%. We had improvement in the NPL ratios coming down to 2.4%, resulting in a slight improvement in the coverage at 73%. That was nearly in the corporate side. So we're pretty happy with the quality of the portfolio. So all in all, profit resulted in 25% uptick and what we are paying more and more attention to his return assets, which is roughly 4.4%, which is very strong by any standard for financial institutions. We have very strong capital ratios. And I think the next page here summarizes well the buffers that we have. on a core tier one is 5% and tier one is 4.6, slightly less on the total capital because we're gonna have to borrow that money, but we will as if need be, the risk weighting slight drop in risk weighting assets is caused by more dollarization, less dollarization, so dollarization happening in deposits as well as in loans. So very strong capital position. This capital position obviously will be reduced by about 200 basis points by the issuance of the dividends. And if I share buyback, that is ongoing. But nevertheless, capital generation is such that it will build up very strongly, very quickly. Liquidity ratios are also very high at around 135. basis points was 130%. And as I said, the funding of our loans with our deposits is also strong and below 100%. So all in all, to summarize, basically, you see that our profits over the last few years have gone from 514 million to 1.1 billion last year. And we have put some other numbers here, the qualitative numbers, which is digital monthly active users alongside. And you can see they're very close. And this is a coincidence, but there could be some causality there as well, as well as the net promoter score, which shows our customer satisfaction. So it's all interrelated, not a direct relationship, obviously, but it's interrelated. And over the last few years, our focus on Digitalization, the culture in the organization and the customer satisfaction have resulted in very strong numbers. Overall, the loan book growth, we have bid our 10% constant currency growth guidance. So the last couple of years, first quarter is stronger as well. We are returning more and more of our capital to our shareholders. because we are in a very strong position to do so. And we will continue going forward, being very diligent about our capital. We also wanted to show here the number of shares that due to the buyback and cancellation that is happening, we are reducing the number of shares. And you can see the numbers here and that's an ongoing process. Thank you very much. That was probably the shortest presentation I've ever had. So that's 20 minutes. So Lini, I am happy to answer the questions that our investors may have.