Bank Of Ga Group Plc Ord

Hello, everyone. Welcome to Bank of Georgia Group PLC's conference call. My name is Ninia Arshagonia, and I'm head of investor relations at Bank of Georgia. I'm joined today on this call by the group CEO, Archil Kachechiladze, who will start today's call with a brief overview of the key macro developments, as well as the highlights of the group's performance of the second quarter. And afterwards, we'll be taking your questions. And please know that this call is being recorded, and Arshil, you can start now.

Thank you, Nini.

Thank you, everybody, for joining our call, 17th of August.

So a lot of people are on vacation, and the ones who are not on vacation, we appreciate your attention

and your time. So I'm happy to report that we have delivered the record results in this quarter.

So 387 million in lottery net profit, which stopped by 40% year-on-year, 34.6% return on equity, cost income of 26.9. And our monthly active users of our retail application are up by 27%. year on year above 1.2 million people, to 1.2 million persons. And our net promoter score, retail net promoter score is 61%, which is also all time high. So all of these results are record numbers, each and every one of them in fact, and we consider ourselves to be in a very good position. to capture the good macroeconomic situation that we have in the country, and also consider ourselves lucky to be able to deliver these numbers. We are also announcing dividends of three Lari and six Tetri, which will be an interim dividend. And on top, we are also announcing a buyback program of 62 million Lari. This is reflecting our, our, capital distribution policy of 30 to 50% of earnings. So a few words about the macro. Last two years, we've had, as you know, double-digit real economic growth. And this year, so far, first six months has been a real growth of 7.6%, which has been above the expectations. And we have upgraded our guidance or expectation for the full year economic growth by 6.8% and next year 5%. Having said that, I think our 6.8% has some risks on the upside. So we'll see if those numbers get upgraded further. Exports, imports, as well as tourists are growing. Remittances have stabilized, although in a very high last year space. So overall, I think all numbers are growing very robustly and pretty well. One concern that we had for the economy was high inflation. So we ended last year with 9.8%, if my memory is right, of CPI. Now CPI is down to 0.2%. and that's July numbers. And the core CPI is down to 3.2, which is almost same as the target rate of 3%. So that I think provides a very good basis for the national bank to start exiting the tight monetary policy that we've been in for the couple of years now. And they've reduced it twice already from 11 to 18. 10.5% and then from 10.5% to 10.25%. The National Bank of Georgia expects the rates to be around 9.5% by the end of the year. We think there's further room for reducing the financing rate above that expectation, i.e. maybe 9%, maybe 8.5%. And that will provide further boost to the economy. and will provide the support. Lari is doing well, has been stable around 2.6261 versus one US dollar. Overall, I think over the last two years, it has strengthened versus the trading partners, but those trading partners also include Russia and Turkey. and there's no need to gravitate towards the real effective exchange priority there because there are other considerations for the trade to gravitate one way or the other. Overall, I think the flows have been so strong that the national bank reserves are above $5 billion, which are record. In fact, this is end of second quarter. July numbers, there has been strong buying in July And now the reserves are at $5.4 billion, including the July buying. So all in all, this year, only the national bank in the first six months in fact has bought more than a billion dollars. And this one said more than a billion dollars. And in July, further 300. So it's $1.4 billion already, which is unprecedented. And it shows that not only the remittance and tourist flows are strong, but also investment is doing very well, which we'll see later on when the current account is done. The bank loan growth is moderate, but slightly lower. up in the second quarter to 8.4% in nominal terms. In constant currency terms, it's 13.5%, which is healthy, but still kind of not very high. And we'll see on the next slide that there's plenty of room to grow. De-dollarization has continued to come down other than the last one month, which is at 45%. And the deposits more, Significantly, deposits have also started to come down significantly. So more people are saving Lari after prolonged strength of Lari and also stability, as well as national bank buying unprecedented amounts of dollars. Loans, NPLs are healthy. This is IMF standard of 1.5. We report under the IFRS standard, which is slightly different, but to have comparison to other countries, that's why it's supposed to be under IMF standard. Talking of deleveraging, basically over the last two and a half years, we have delivered and now stabilized. So bank loans to GDP are at 62% of GDP, and national debt to GDP is under 40%, and we're continuing to deliver. The tax collection is ahead of the budget, and that provides further stability on the fiscal side as well. So in terms of some of the strategic updates on the results, so this is our profile, which you all know, so I'm not going to dwell on this, delivering about 10% real growth on the loan book and return equity above 20% and dividends 30% and those are some of these things that we rely on strategy. So first update, basically our Franchise, retail franchise is very strong. Number of monthly active users are up by 13.8%, the overall clients. In terms of the digital application users, monthly active user is up by 27.3% year on year, above 1.2 million customers, of which 71.9% use it daily. So overall, 582,000 people on a daily basis use our application. And that is a phenomenal number for any universal bank application. Dow tomorrow is 47.7%, which is also the highest we've seen. So this is some of the list of things that we are offering on our application, including the Dart mode, which is relatively new thing. But also what we launched now is a instant payment to other banks as well, because that used to take several hours and customers are demanding instant payments more and more now. So that has been launched. It is quite popular with our customers. Our number of transactions has almost hit almost 100 million. What's significant is that mobile application and internet banks, retail, has been now almost two-thirds now of all transactions. The other ones are BFG terminals and ATMs, and a small fraction is in our branches. In terms of the sale of digital products, slightly lower in the second quarter, but we have started to support some of the sales, digital processes, and in July, all this is already up significantly, about 46% of all products being sold digitally. We are aiming to go to 60% next year, so it's a significant effort being put there. What makes me quite happy, in fact, is how our mobile application, Intel Bank, is getting more and more popular with the legal entities. More and more people are using our application for business. And it's monthly active users are up by 38%, which we now are positioned to be growing on an annual basis. Those rates are incredible. Transactions are also up by 24%. Our merchant acquiring business has progressed very well. In fact, year on year, we have a market share gain of 6.6% and we achieved 53.7% market share. In a client business, you see the POS and e-commerce distribution and the volumes are up by 51%. On the issuing side, i.e. our customers using Bank of Georgia cards, we are up to 1.1 million people using our cards on a regular basis, so monthly active users. We stopped by 27% year on year, which is also an incredible progress. And here again, our main competitor here is cash. So we're trying to basically incentivize our customers, big loyalty points and so forth, to be spending more with cards rather than cash because cash is very expensive. We cannot charge as much for cash out as it is costly, transported cash back and forth to different, locations, ATMs, and so forth. So it's beneficial on not only on the revenue side, but also on the cost side to incentivize our customers to spend through electronic channels. Also, when people spend through electronic channels, then merchants also have more to record in our automated loan availabilities than possible for smaller merchants. And that's also a new product that we have launched into both Massagon. So this is the last but not least, in fact. You all know our commitment to customer satisfaction. We hit in June the new fresh high of 61%, which is for any universal branch is an incredible achievement. And I would like to thank all of the full team that is working to deliver the services with the satisfaction to the customers. So we are all, as an organization, dedicated to our customers and to servicing our customers with wholeheartedly, so to say, we dedicated ourselves to service. And this is what is a recognition of that. There's a lot of work that goes goes behind those easy small numbers. So I'd like to congratulate our staff with this achievement. Now, a few words on the numbers. So a lot of things that I just described and manifest themselves in the numbers. In terms of the numbers, so you've seen the return on equity on the cost of risk side, basically the Euro 0.8, and cost-to-income was incredible, 26.9. CET ratio was 18.7, well above 4% above the minimum requirement, CET1 ratio. So what also is very good this time around is our year-on-year growth of our loan book, which on a constant currency basis was 17.6%. And again, I think Growing at these levels is possible short to medium term, but not long-term, obviously. And that is possible because the economy has delivered significantly during the high growth in real and nominal terms over the last three years of the economy and not as much in loans. Deposits are up by 38% year-on-year, but what's But on a more kind of last quarter basis, it's about the same as the loans. So our loans and deposits are growing more or less in line here. Our net income grew by 34.8%, although it was helped by a real estate realization gain of about $8 billion or so. and non-interest income increased by 26.9%. So we had a slight reduction, in fact, normalization of our FX flows. There were a lot of questions last year because we had a very good FX income second quarter and third quarter, somewhat starting to come down in the third. And first quarter is slow in any case. So now we are seeing a more normalized level There was some volatility in the second quarter, so we benefited from it, but it's also normal to have that. So that's what we had. In terms of the operating expenses, we had 11.5% growth year on year, which is not bad for even the annual line growth. And that helped us to achieve 26.9% cost income. And for the first quarter, 27.9%. Again, we had other income, which helps that. But if you normalize for that, you'll still be under 30%. So it shows our discipline, cost discipline, while we are committed to growing our average numbers. Loan growth, I already mentioned, it's 17.6% constant currency for the year and then pretty strong 6.4% in the quarter. What makes me happy is that it's for all lines of business. So retail very nicely as well as SME and corporate. Those of you that remember last year, we basically were experiencing several quarters of slightly high cost of retail given some of the fine tuning that we had to do in our underwriting model that not only has been done nicely, but it provided the basis to really achieve incredible results on that side. So I would like to also thank the team for doing a good job there. So that is helping now us to be more active on that front. Deposits also grew by 5.9% over the last quarter, which was also nice given the increased competition for deposits now. Net interest margin at 6.6%, slight pickup. That has been helped by the loan yield. And in terms of the deposits, we are seeing slight pickup in costs, obviously, like everywhere in the world. On the cost of risk, I already discussed our loan portfolio quality. is well covered in terms of NPL coverage at about 70%, and will be collected at 126. So pretty good stability there. On the profit side, year-on-year, we are up by 40% on an adjusted basis, and we have a one-off there of $21 million. So if you put that into account, that's up by 48%. Return on equity is 34.6%. If you include the one-off, it's 36.5%. So it's a pretty incredible return on equity, return on asset as well, which I'm not going to mention. Very good capital ratios and significant buffers. And we will obviously remember that we have some buffers which are not included here on the hold for level still. So we have a strong liquidity at 111%, slightly lower from the, from the abnormally high liquidity a quarter before. I would like to mention that we retired Eurobond in July or June. In my case, we retired it and we had 80 million outstanding as well as we repaid some other VFI financing. drawing down some further lines because of increased liquidity requirements for the Russian current account holders, which is 80% now, starting from 1st of September. In terms of capital distribution, you see our discipline of capital distribution, and we have announced dividend as well as the buyback as i mentioned i would like to highlight one thing a lot of companies announce buybacks but then they don't cancel the shares so two years ago when we announced a new capital repatriation policy we said that we'll be doing some buybacks and some uh distribution of dividends so whatever you see here 7388 it has been bought back and cancelled So that's why it's 49.2 has been reduced to 45.9. Whatever you see here in gray, those are shares held by the management trust used for granting the shares to the management. So those are not, I mean, accounting-wise, it's treasury shares, but it's shares held for the management trust. Whatever we buy in our treasury, for the bank treasury, we cancel that away and we inform the market accordingly. It's an actual constellation and that's what we are going to do going forward. So on this great note, I will stop here and open it up for the questions.

So we'll take your questions now and you can use the raise hand button in Zoom to raise hand and ask your questions. Or we also have the Q&A chat if you prefer to type your questions. And if you're calling from phone, please press star nine. And we'll have a couple of hands already in the chat. So the first question is from Konstantin Rozantsev. Yes, hello.

Thank you very much for the presentation. Could you please confirm if you can hear me? Yes.

We can hear you.

Thank you. So I had three questions that I wanted to ask, all related to the Euro bonds. The first question is, so Bank of Georgia has a provisional Euro bond, which has a call option in 2024. So could you please comment, to an extent that you could comment on this issue, what should be our expectation, whether this perpetual bond is going to be closed or not? The second question, could you please comment on how the regulator, how the National Bank of Georgia on their willingness to see the legal banks calling their perpetual bonds. Is the consideration of investor interests on the agenda for the regulator does the regulator wants you know to meet investor expectations in that regard and prompting in a way banks to call the purpose so nothing concrete can be concluded on that respect and the last question could you please comment on the Eurobond activity that we should anticipate from the bank in the coming periods in the senior and subordinated space thank you

Thank you for your questions.

First is that we understand what the market expectations are. Having said that, I don't think we are in a position to comment on our intentions. Regarding the NBG's willingness to allow falling of tier one, the National Bank of Georgia, as well as the Georgia government, is very investor friendly and have been supporting of the investor interests even not only in good times, and I think Georgia is going through, economically speaking, very good times, good growth at least, but basically what we are seeing is that during the COVID times, the National Bank of Georgia allowed the coupon payments, and that basically allowed showed us their willingness to recognize the investor interests, even at that level of the capital structure in difficult times. So I have no reason to believe that anything has changed there. I've only seen and heard very investor supportive sentiment from the National Bank and the regulatory. In terms of the Eurobond activity, We don't see an immediate need for a large Eurobond senior note for our balance sheet at this point. Rates are quite high, and we are fine in terms of liquidity, and we have plenty of IFI facilities that we can throw on. On the subdebt side, we don't expect a public note at this point, but we are doing a number of different instruments with different IFIs. So that's where we are now. Having said that, I think next year may change and we may be back to the market, but we also have to see that the market rates are attractive because now fixing rates at this point we are not too excited about. Maybe we are right, maybe we are wrong, but overall, let's say we don't expect immediate activity on the public markets at this point.

Thank you very much. Thank you. Thank you. And so next question is from John Demir.

Yes, good afternoon. Thank you, Archil, thank you for the presentation. Just one, actually three questions, but let me start with the one-off. Can you maybe talk about the accounting logic behind the realization of valuation gains on foreclosed assets? So that's the first question, Archil. The second question is on sort of operating leverage in the business because you hired close to 1,000 new employees in the past 12 months, including around 170 new people in Belarus. And this is despite the closure of 20 branches in the past 12 months. So I was wondering in what areas do you do the hiring? and maybe how we should think about the pace of hiring maybe next year or in 2025, if you have any visibility on it. And third question, and... Maybe congratulations on the fee performance as well. I think it's phenomenal, 44% without help of inflation. And I was wondering what the take rates are in the payments business. And do you see any regulatory pressure or regulatory risk around those take rates? So those are my three questions. Thank you.

Sure.

In terms of the one-off, so basically how the accounting works is that whenever we foreclose on the asset, and in this particular case, those assets have been foreclosed through public auction, then we do, so basically whatever we buy it at, and in that particular case, nobody showed up there. And a few months later on, we got lucky in terms of selling it at a much higher rate. So basically when we buy it on a public auction, we're not allowed to re-evaluate it because it's a foreclosed asset and specifically because it was on a public auction.

So that's why we had a gain on the other income side.

I have to admit that it was a significant 30 to 40 million Lari write-down of remaining balance on the loan side. So it's not all rosy like that. But overall, those write-downs are already in the cost of risk and has been fully provided for. So all in all, that's the story of that. In terms of the cost income and hiring employees, so you're absolutely right that we are closing down some of the smaller branches, whatever we call the express at the time, because more and more people are doing digital transactions and those branches were there for bringing some first comers to the banks and now the push is towards the digital rather than increasing the penetration overall of the banking services in the population because almost everybody that could be backed is backed. I mean, there's slight increase possible there in the regions and that is socially also responsible and we are focusing on that in terms of of the ESG targets and so forth. But in terms of smaller branches, when we close down a smaller branch, basically there are only small number of employees that are not employed there. And I have to say that we don't lay off anybody because we are in a hiring mode and turnover in the frontline basically allows us to offer jobs to each and every one of those people that are in those branches. Where do we hire? We hire mainly in back office, all of it basically, but last year has been a significant hiring on the AML compliance and risk side for obvious reasons. We basically grew our AML office from about 15 people to more than 70 people. But that's just the MLM compliance and some risk department, all kinds of different. So overall, I think there's a lot of focus on there, as well as then on the digital and IT. So digital meaning the user experience and so forth, so forth in the app development. Everything is in-house, as you know. So we have our core systems in-house. We have our applications in-house, et cetera. That as well as the IT side, which is on the core architecture, et cetera, where we are also moving towards the microservices, chopping up our large IT system into smaller cloud-ready. So that's where most of the hiring is happening. On the payment side, what we are seeing basically is that a regulator is looking at that. But basically there's no need as long as there's competition. And we see that there's competition. And I think overall regulator would like to see that prices do not go up and the margins do not go up in terms of the acquiring fees and so forth. But the regulator also likes to see more non-cash. And we are focused on that. So there, I think there's a lot of similar kind of targets in terms of promoting the non-cash payments. And it's good for a lot of different things, including access to finance and inclusion for a lot of people that have not had access to different loan products and so forth. I mean, the small businesses, self-employed, et cetera. So there, so far, we see that it will be probably convergence towards the ECB type of regulation on the payment side. But not much else.

That's it. One last thing on the take rates on debit and credit cards.

What do you mean? Maybe it's a silly question, but what do you mean by take rate?

Yeah, how much do you charge if a customer swipes a debit card from the merchant or a credit card for that matter? I mean, give or take, just so that we can put it into context.

Something between 1% and 2% more or less.

So for larger chain, et cetera, where the competition is big, it's closer to 1% for debit cards, for credit cards, depending on the type of card. Visa MasterCard also has interchange fees that are quite different depending on the level of different cards. It goes from 1.8 to 2.5, something like this. So we don't see the incredible rates that you see in some other countries of 5% and 7% and so forth. we actually have a pretty reasonable rates that you've seen in a lot of different countries. Having said that, we are using our position to promote a cheaper way of financing so that we can then return the loyalty points to people to spend money with their cards rather than with cash. So when somebody has a card, let's say a salary card, and they withdraw money from the ATM account. ATM, we charge something there up to, within a package, it's up to free, and then about a certain level, we charge something. But it's loss-making. So all the cash handling that we have plus to the ATMs and et cetera is loss-making. So when they take that money out and they bring that money to a merchant, And that merchant spends it. And then that merchant, we cannot provide credit easily because we have to study. And so it's harder to finance cash merchants than to actually see the turnaround. And then cashing that out is also not quite profitable. I mean, it covers the cost, but we don't make money there. So handling cash is no fun, basically. So we're trying to promote cashless for many different reasons. And there, I think the objective of the regulator and ours, I think, are the same.

OK, super. Thank you so much. Thank you, John.

This next question is from James Hamilton.

Good afternoon and thank you for your time. It's very much appreciated. A couple of them. Firstly, given your outlook for potentially much lower interest rates, you mentioned maybe down to as low as eight and a half. Is there a consequent impact on your NIM given that that's exceptionally high? And secondly, Obviously, your cost income ratio has improved to 26.9% in Q2, which is obviously a very strong result. I'm just wondering two things. Firstly, how much is this being driven by your digitization process and how much further is there to go given for a full service bank, 26.9% is exceptionally low?

Regarding the margin, basically, all I can say is that, obviously, I mean, it's an incredible margin of 6.6% for a universal bank. We think that there was broad stability in the third quarter, and it will start coming down from the fourth quarter onwards, somewhere between five and six from next year, probably, you know, probably come down close at five. Basically, all of that will be caused by revaluation and repricing of deposits, which is happening, but it's a slow process. It's not immediate. A lot will depend how we'll price on the consumer side, on mortgages, if they'll be in the market, the MBS development at all or not, because mortgages are not super profitable, and so forth. But so far, so good. We've been able to play that pretty well. Regarding the cost income, 26.9% is helped with that other income part that we discussed at length. But let's say below 30%, I don't think there's much more to go there, quite frankly. So I wouldn't target 15% or 12% cost income. We want to be in a position where we can invest in new businesses that do not have that kind of... that kind of cost income or new products, but still are making money for our shareholders. So all in all, I think, you know, we are guiding 35%. Obviously we've been delivering much, much more than that. So that guidance is probably less relevant now. So we don't intend to waste money and we'll be disciplined and continue focusing on it. But yeah, it's where we are.

I think there's not much more to improve on that. Thank you. Thank you, James.

So actually, we have a couple of questions in the Q&A chat. Two questions from Steve Gorelick. One is about asking if the current profitability has been impacted by the extraordinary gains from currency flows or any other sources caused by the war. That's the first question. And the second question is regarding ROE medium term goal of 20%. the company's ROE goal is 20%, but it routinely delivers results much higher than that. Does it make sense to reset the ROE goal?

Yeah.

So the first one, basically, I think overall, all the economies in the periphery, including European economies, but certainly in Kazakhstan and Uzbekistan and Armenia and Azerbaijan and Georgia, all benefit from people running away from Russia. It's not only people, it's IT workers, it's investments, and anything, basically. But there's no immediate wave. Let's say we had those waves last year in the second quarter and probably end of the third quarter when Russia had further mobilization. So we don't see waves anymore. It all stabilized. Some people moved out, et cetera, et cetera. But basically, overall, I think that benefit is there and we still have plenty of IT workers that were located with families here and probably settled, although not officially, but they are working here. So there are a lot of US outsourcing companies that have moved and created bases in Georgia like EPAM and others. I think that's long term. It's not going to go away anytime soon, even if the war ends tomorrow. So there's that benefit, but I don't think it's temporary. The temporary benefits have all stabilized. In terms of the currency flows, I also said that we don't see that big volatility and craziness. I think that has stabilized there as well. In terms of return on equity, we like to under-promise and over-deliver. 20% return on equity is not bad, but I agree. As well as cost income, 35 that we had, doesn't make any sense anymore and 20% people don't pay any attention to. So I don't know if it makes sense to have ambitious targets. I mean, we're ambitious people and we are delivering results and good results. I don't know if setting more targets will do any good. Myself, as well as the management, have much higher KPIs for the return on equity targets. So that should give you some assurance that we're not happy with 20%. But I don't see much benefit in terms of updating and setting very ambitious targets, quite frankly. Because there are companies that don't have such public targets at all. I think given the consistency of results delivery, And the quality of the franchise is what really defines the value of this company. A lot of companies that don't have that have to set targets and assure the investors that they'll be doing something good about it. But you don't actually need to do it if you're a good franchise and you're consistently focusing on such things.

So we had another question on the ROE target, whether we're looking at this, especially in light of the continuous buyback program and noting that your peer has upgraded theirs, but I think we've answered this question already, right? So from Craig.

So anonymous people, I don't like to answer anonymous questions, but should we try to answer this one? Anonymous attendee, congratulations on the results considering the significant difference between the profitability between you and primary competitor. would you say that such performance is a one-off event? If not, what is the major fundamental difference for such outperformance? I don't think it's right for us to talk about some of the, I mean, we are very similar banks in terms of the amount of capital and the balance sheet, as well as the markets we operate on. So in terms of the, the nature of our results being one-off versus not one-off, I would encourage you to look at historical performance on a quarter-by-quarter basis, year-by-year basis, and in terms of what makes us special, I don't know, better be lucky than good, I guess.

We have a raised hand from Rona Kadia. Yes, Rona.

Good afternoon, Arjun. Congratulations on the results and also apologies. I just joined a bit late. So apologies if any of my questions are repeating. But just maybe to go on the question that the previous caller was asking about, you know, funds, you know, the stickiness of fund inflows. One thing I've noticed on your results for the last 12 or so months is there's been a huge inflow of FX denominated deposits. But those are largely being allocated to its government securities from outside of Georgia. So is this just an indication that there's still a big longer pipeline to come and the bank is holding back its capacity or just an indicator that the bank is a bit uncertain about the stickiness of those flows and the fact that they might eventually flow back out?

Um, we had, uh, inflow over the last one year, obviously. Uh, but at that inflow, uh, a lot of people ask, you know, is it Russians or not? It's around, um, less than one third of the growth on deposit was Russian, less than one third, less than 30%, in fact. Um, so more than two thirds came from the residents. Having said that, the residents are also, this liquidity flows in the, into the country. So if a Georgian sells an apartment to a Russian family, obviously, then, uh, they, Georgian resident deposits money. So it would be gross from residents. So overall, I think funds flow has benefited from this horrible situation there, but basically people running away from Russia. But it's more than 70% of the growth has been coming from the residents. The non-resident, the demand for loans was not there for the last one year. We had more growth in deposits than in loans. So it was, you know, what do you do with that money when the growth, when the demand is not there? Then you put it in treasuries, right? Maybe it's hard currency deposits, but that's what we have done. Now, just recently, the National Bank has raised the... liquidity requirement for the current and demand deposits of Russians to 80%. So basically, whatever can flow out, you have to keep in treasures. But we had it in any case, so that's what we're going to have. So I hope that answers your question. Do I think that they will flow out? No. I think it's an overly cautious and not particularly helpful regulation, if you ask me. but that's the view of the regulator. So we follow that.

Okay. And just, again, maybe as related or follow up to that, the other component of your deposit book is obviously the Lari deposit book. That's also grown quite aggressively. I think you mentioned the reason maybe for that, but what that has allowed you to do is maybe pay down your expensive funding from the NBG and maybe reduce your loan to deposit ratio on the lorry side. So is this, again, a structural change or are we just seeing something that's cyclical and then eventually that reverses as you start to grow your load?

Yeah. Really good question, in fact. A little bit of both is the answer and I'll explain. So basically, over the last two and a half years, the Georgian economy has grown much more than the loan portfolio. And Georgian economy growing also meant a lot of savings formation. And then on top, you have pension reform that is accumulating significant amounts, like up to 6 billion lot of deposits, mainly in deposits. They're in different instruments, but big chunk is in deposits. So overall, I think the country has gone through a deposit formation and less borrowing, and that creates more possibility for higher than nominal growth on the loan side, obviously. But it was first year, last year was the first time when we had in our history below 100% loan to deposit ratio. So historically, we used to borrow internationally and lend locally. That has reversed slightly. It's not that we are investing outside, but we are, in fact, investing in treasuries and other things. So there's much more savings and deposits in the country than the loans, and that I don't think will reverse in any dramatic way. So the country is maturing in that way, I can say. Having said that, when things stabilize and the rates come down, I think there's a possibility that the demand for loans will be higher than deposit formation. So again, we'll have possibility to borrow and top up our liabilities from the international sources. Having said that, I think we'll be nowhere close to the to the ratios of foreign funding that we used to have historically. I hope that answers your question, Roland.

No, it doesn't. And maybe again, to follow up, you've already answered the NIM question, but does this mean that as rates come down, you potentially got the opportunity, because of the liquidity and the balance, you got the opportunity to reprice your funding costs lower and maybe sustain your NIMs to some extent?

To some extent, yes. So basically, we're less dependent.

So when you look on a historic level, if you look at 10-year horizon on the bank, basically, there's much more equity in the mix, almost double in terms of ratios than we used to have 10 years ago. So that helps Neem as well. And much less reliant on wholesale financing. So, of course, that helps me. Both of that helps me. And in terms of the deposit franchise, I think we are on the retail side. We have 44% of retail deposits. It's a leading franchise. Most trusted bank and top of mind bank by repeatedly over the last few years. So that franchise, I think, is more and more valuable as we have entered the zero rate environment and that manifests itself in a good way.

Just a final one, you briefly touched on that. There's a lot of equity on the balance sheet, 300 million in the last quarter, a bit more coming through this quarter at the whole core level. You're clearly paying a lot of dividends, but can we expect an exceptional dividend given the profits you're generating in the next six, four months?

We basically are opportunistic about this extra capital. And then we want to see stabilization in the region. And obviously then, you know, if nothing happens, then we return it back to the shareholders. If not, we deploy it one way or the other. But basically... We don't intend to carry such buffers forever.

Thank you. Thank you. Thank you, Ronak.

We have one raised hand from Hugh, but I don't see the last name of the person, so I'll just let him in.

Thank you for this. Similar to the last question, could you say what you think now the trend is in the loan to deposit ratio? Is it stable in which case you've got too much capital? Is it down in which case you've got a lot too much capital or what?

In terms of the loan to deposit ratio, it's pretty much stable at this point. I mean, last quarter you saw that the loans and deposits grew about the same level. And as I said to the previous question, as I answered to the previous question, as the rates come down, I think my expectation is that the loans will grow a bit more than the deposits, but it will be It will not be substantial. It will not alter the structure or the balance sheet in any major way. In terms of the amount of capital, I agree. Our buffers are above our usual management buffer that we talk substantially about. As the volatility subsides in political and so forth in the region, obviously, we will either deploy or return that capital.

Thank you.

Victor from Redwell is congratulating us. And he said we already answered his question, but we can still read out the congratulations. The question was about the liquidity requirements, the new liquidity requirements on the Russian deposits. So there are some raised hands. from James and Konstantin, but they may have just forgotten to put it down, I think. Should we still try?

Try. Maybe they have other questions. No. James, do you have any other questions? Well, Nini, should we wrap it up? Yes, we don't have any other.

Ladies and gentlemen, thank you very much for joining this call. I hope it was interesting for you.

I would like to congratulate our team hitting record numbers in the last quarter. As in all measures, in fact, very low cost income ratio, very high return on equity, very decent growth of deposits as well as loans. Very good growth of our digital users on the retail as well as legal entities. Very good growth of our merchant acquiring business and the card users. So on all strategic directions, I think we have, and last but not least, the net promoter score hitting 61, which is also a record showing. So on this bright note, I would like to thank you again for joining this call and have a good weekend after a couple of days. Thank you.

Thank you. Bye. Thank you.