Lion Finance Group PLC

Thank you for joining our call. Sorry, please, Nini.

Welcome to Bank of Georgia Group PLC's fourth quarter and full year 23 results call. My name is Nini and I'm head of IR and I'm joined by Archil, the group CEO. And we'll start as usual with Archil's presentation and he will discuss macro as well as the highlights of the results and then we'll open the floor for questions. This call is being recorded also for your information.

Hello. Thank you for joining the call. I just realized that I need to update my profile picture on Zoom because it's quite outdated and we'll do so. Now on more important issues, thank you for joining on the presentation of our fourth quarter and annual results. Let me start the presentation. I hope you can see this. So as you can see, I'll discuss the results and then we can talk a little bit about Armenian acquisition as well. So regarding the results, we announced the fourth quarter profit of 329 million, which was flat on last year's net profit without a one-off, obviously. and return on equity of 26.7% and cost income of 34.3, which is slightly higher than we would like to see, and I'll talk about that later on. Our annual numbers are return on equity of just shy of 30% and cost income also shyer than 30%, so slightly more than now. Return on equity slightly higher than cost income, which I would like to see. On the NPS, We have 59, which is pretty good showing for any universal bank. And monthly active user of 1.4 million of our retail up, and that's up year by year, year on year of 21%, which is very big progress that we have to see. So few words about the macro. Georgia continues to grow and grow ahead of our expectations. So the statistics department just recently upgraded the previous two years of the numbers. So now it seems like in the previous two years, we grew a little bit more than we thought. So 2021 of 10.6% and then 11% in 2022 and 23% of 7.5%. Our expectation is that this year we will grow 6% and the year after that 5% to 5.5%. These are very good numbers, and I can talk a little bit about what's driving it, especially going forward, which predominantly is investment, just to cut the long story short. You see flattening in terms of the exports and imports, and on the remittances going back to the trend. So you see that this positive inflow, which was One in nature has flattened out, but we are back to the positive trend and we see the US and European share of the permit is growing substantially. The tourism revenue was okay and overall the annual number was good. The fourth quarter was slightly down. All in all, we are seeing that the inflation is close to zero. And just yesterday, the National Bank of Georgia reduced the refinancing rate by 75 basis points, which was one of the highest reduction that we have seen for a long period of time. And that was very logical to stimulate the economy, given the fact that the real interest rates were about 9%, which was very high, obviously. And there's potential to do more here going forward as well. You can see that the real effective exchange rate has come down slightly over the last few months, although lottery has slightly strengthened versus US dollar. This is predominantly due to the inflation differential with the trading partners, which is a nice way to correct that real effective exchange rate. And we may have some of that going forward as well. You can see that the net reserves have been up. We don't have the net reserves for the fourth quarter yet. We will soon have that as more detailed reports come out from the National Bank. One thing we can say is that that gross reserve reduction is partly due to the fact that in the fourth quarter, the National Bank reduced the mandatory US dollar reserves for our hard currency deposits From the maximum of 25 to 20, it depends on the dollarization component, how much you hold of that. Due to the fact that our dollarization is one of the lowest in the sector, we hold about 14.5, if I'm not mistaken. But nevertheless, this is just gross. On a net basis, it's flattish, and we are waiting for the latest numbers. All in all, we are seeing very strong inflows continue, not as much in the second quarter and third quarter or early quarters, but still very healthy. You can see that the bank credit growth year on year was about 17%. I'll talk about our own growth of close to 20%, so slightly above the market, but broadly in line. And in terms of the bank loan dollarization is about 45%. As you can see, it's down from the highs of 65. So it's It's pretty good, and that risk has significantly been reduced over the last few years. In terms of the NPL and the overall banking sector, Georgia is one of the lowest among the peer countries, and overall the quality of credit remains very good. In terms of the banking sector loans to GDP growth, it started to resume over the last three years. As you know, we've been deleveraging as the size of the economy has grown substantially. Loan growth last year was slightly higher, but still at very healthy levels of 65%, and there's more to grow basically in terms of the trend as the country develops and the overall risk profile of the country is reduced as GDP per capita grows. In terms of the national debt to GDP, we're under 40%, which is very healthy level, and that is a compliment to the Ministry of Finance and the government, obviously. And you can see the local component in that 40% or 39% is growing, and foreign currency is getting smaller, although it's still a substantial part. Now, a few words about Bank of Georgia and our results. So we remain on top of Mindvac and most trusted bank in the country, which then translates a number of advantages that we have. I'm not going to dwell on those slides. Here we have number of monthly active users, which has grown by more than 10% year on year. We are continuing that growth and it's a pretty good number given as a proportion of the population is becoming larger and larger. And in terms of our monthly after users of our retail application, the mobile application and the internet bank, it's grown by 21%, as I said, which is a very good number, and the daily usage by 29%. So on a daily basis, almost 700,000 people open our application. And it's really, we have become a dominant daily bank in the market, which is nice. 75% of all of our clients are also our monthly users of our application, and 50% of them use it daily. This is just a list of many different things that we have in our application, so it's not just a banking app, but probably a financial application with many different products, including insurance, marketplace, and many other things. So in terms of the The transactions we have, 68% are done in digital channels. So let's say the ATM is not digital or part of the pay terminals. Some of the transactions are digital, but others involve cash. So when you exclude those, it's 68%. Only less than 1% of transactions are done within the branch. You see the product sales has jumped significantly because we had a very interesting trivia game that we launched in our mobile application and that educated our customers regarding our products. So very innovative way that our marketing and digital channel department came up with, and it was a very successful one. So the idea is that it was a three-way game with some prizes, et cetera, but some of the questions were about finding different products and ways of doing it in the financial application. So it was an innovative, gamified way of educating our customers about the abilities of our financial app. It was very cool. In terms of our application and the internet application and the mobile application for legal entities, the usage is up by 28% year-on-year and on multi-base 7.4, which is an incredible growth given our presence on the local market. Predominantly, those are small businesses, but it's good to maintain that kind of growth, and we like to see that. This is an internal measure in terms of the customer satisfaction score, so it's hard to compare to worldwide things like NTS would be that, but this is just comparing to ourselves, but it does show that we are improving the quality of our digital offering for the businesses as well. In terms of the acquiring Volume, we increased the volume year on year by 38%. The Q over Q is somewhat seasonal because it was up 10%, which is really strong. 54.9%, 3.6% up in terms of the market share of all the client transactions. And also something which is significant is that 20% more users are using our cards than one year ago. It's an incredible number, given our position in the market, and we are very happy about that. NPS, as you know, is part of our DNA and religion now, and is about 60% for the last three quarters, 59% to be exact, and we like that showing. And as you can see, over the last years, it has come from the low 30s to these levels, and we like it that way. Now, a few words about our results, which I already mentioned regarding a retail equity of 26.7%. For the annual number is 29.9. Cost of risk was very nice at 0.4% as cost of retail risk was very low. And we continue to be well capitalized at 18.3%. for the CET1 ratio, well above the 14 and a half. And in terms of our loan growth, it was just shy of 20%. Our deposits grew 12.2%. I have said that our liquidity rate is at very healthy levels. Operating income year over year grew 12.4%. And on an annual basis, 26.4. Non-interest income grew decreased by 8.3% on a manual basis. That's for the quarter. You can see here that this is due to the fact that our FX income was larger than historically has been in 2022. But we have normalized it at the level of about 100 million, which is a very good showing at that. So on an annual basis, our non-interest income was up 11.6%, although we had a substantial decrease in effects, but other net gain commission income had a very healthy increase. Operating expenses were up by 24.4%, which we are cognizant of, and we don't like to see such large increases. About 6% of that came from the transaction expenses and one project that we're going focused on some growth ideas. But regardless, I think it's a high number and going forward, we'll have a lot of focus on cost control to make sure that it remains or reduces in terms of the cost income from the current levels. I mean, the quarterly one, not the annual one, because annual one was outstanding just below 80%. Loan portfolio, as I said, was very healthy, 20%, and because growth of 12.4, so I'm not that well on that. Net interest margin reduced somewhat to 6.3%. There were a couple of questions that came in already today from some of the investors regarding this, what is our expectation? And we expect to have a flattish in the first quarter from 6.3%. So probably the same, maybe 10 base points less, but probably the same. And we'll probably see somewhat decline over the next 18 months to between 5.5% to 6%. Cost of risk we already touched on was outstanding and pretty low at 0.4%, which meant that for 2023, we are at 0.7%. And that pretty much summarizes overall results. I will also like to add that for the annual number, net profit is 1.37 billion lari, and slightly down for the reported one without the one-offs, but we basically had a very large profit in 2022, which were normalized in this year by increasing In terms of the capital ratios, they are very healthy capital ratios. The total capital is 2.5, but total capital is something we can attract very easily. And in terms of core tier 1 and tier 1 is 3.7 and 3.3. We have already communicated to the market that when we close the Armenian transaction, which will have about 100 basis point impact on these ratios, which would still leave us at very comfortable levels. In terms of the liquidity ratios, you can see it's 125 and 130, and those are very healthy levels, and net loss to customer funds at under 100, which is also a very healthy level, given also the fact that we have a lot of different IFI financing and as well as ability to draw down on public markets. Because you may remember that last year we retired our Eurobonds without renewing it because we didn't have the need for it. And that's what's reflected here. And in terms of the Growth, historically, when you look at the growth in terms of profit from half a billion to 1.4 billion over the last four years, we have had a very nice ride. And that, coincidentally, it goes alongside the our active mobile application users, retail application users. Obviously, there's not a direct relationship, but we think it shows the franchise strength alongside profitability. In terms of the dividends, you may have seen our announcement today that we announced a dividend of 4.94 Lari per share, bringing the overall annual dividend to 8 Lari. which is a 5% increase over the last year's dividend. And as a reminder, the last year dividend obviously was boosted by the fact that the last year income was boosted by a strong one-off. So we've normalized and slightly increased the dividend from a high last year base. And also the board will recommend to the AGM an approval of the dividend as well as the increase of the buyback program of 100 million Lari. That 100 million Lari obviously will start now, and it will be on top of the 62 million that was announced previously, of which only 24 has been spent, and we've been in a close bid, so this will resume. So 38 million of the previous tranche left and on top 100 million, a lot of going forward. So with that, I think this was the record of 18 minutes. And we can open up to the most interesting part, which are questions.