Bank Of Ga Group Plc Ord

Hello, welcome everybody to Lion Finance Group PLC's earnings call. Today we're presenting our results for the first quarter and the full year of 2024. My name is Ninia Arshagoni, I'm head of IR and I'll be joined on this call by the Group CEO, Arshil Gaceciladze. We are very pleased to report another strong set of results. driven by strong performance across our key business divisions in Georgia and Armenia, with Armenian financial services now accounting for 26% of the group's total assets. We have achieved a record adjusted profit for the full year of 1.8 billion gel. That's a 32% increase versus 2023, and we actually reported significant items on top of this figure in 2024. Our return on equity stands at 30%, cost to income ratio is below 35%, and our loan portfolio quality remains very healthy with cost of credit risk ratio at 0.5% for the full year. Our CEO, Arshil, will provide a deeper dive into this result, but before that, I would like to invite our chief economist who will review key macroeconomic developments impacting Georgia and Armenia, as well as the macro outlook moving forward. And with that, I'll just stop sharing my screen and get Akaki on the line. So now Akaki is on the line. Hi Akaki, you can go ahead.

Hi Nini, thank you. So I will be providing the macroeconomic update. Let me quickly share my screen. Okay, so last year, Georgian and Armenian economies continued to demonstrate strong performance despite geopolitical and domestic political headwinds. The Georgian economy increased by 9.5% year-on-year, while the Armenian economy expanded by 5.9%. Consumption spending has been a common growth driver amid improved labor market conditions, low inflation, and reducing local currency interest rates. From this year, we expect growth to stabilize at around 5% in both countries, and we believe this rate is sustainable over the medium term. As you can see on the right hand side chart, Per capita income levels in Armenia and Georgia has increased significantly over the past years. However, they remain well below the average level of Central and Eastern Europe. So there is plenty of room for catch-up growth going forward. Downside risks are elevated. However, we believe that both economies will continue to be resilient and prudent macroeconomic policies will remain in place. The preliminary data from January suggests that strong economic performance was sustained in Georgia, so we do not exclude the possibility that growth may surprise on the upside. As Georgia and Armenia are small open economies, external sector inflows are a key source of economic growth and local currency stability. As you can see, those inflows have remained quite resilient in both countries, despite some moderation in Armenia recently, which is which was after one of spike in re-exports. But more importantly, exports of Georgia and Armenia have become more diversified, particularly exports of non-travel services such as transportation and storage and IT services have been increasing steadily. So those services provide not only diversification benefits but also productivity gains to the overall economy. Resident external sector inflows are a key driver of exchange rates over the medium term. And in Armenia, last year was a record high in terms of inflows. So Armenian DRAM was one of very few currencies in the region which appreciated against the US dollar. These inflows were also strong in Georgia, however, Georgian Larry weakened slightly due to sentiment shifts amid elevated uncertainty. However, from early 2025, Georgian Larry recovered somewhat and volatility decreased. Over the medium term, we expect both gel and Armenian drown will be stable, underpinned by resilient fundamentals and prudent macroeconomic management. Stable exchange rates also contribute to low and stable inflation. And as you can see on this chart, headline inflation has decreased substantially from early 2023, both in Armenia and Georgia. And since then, the two countries have enjoyed favorable inflation environment with headline number below the central bank targets. However, the two central banks have chosen different paces of easing. In Armenia, the Central Bank of Armenia delivered consecutive rate cuts last year, so it left little room for reductions in 2025. In the case of Georgia, the National Bank of Georgia basically has kept the policy rate at 8% since May 2024. So here there is more room for reductions, but we do not expect any cuts this year as inflation risks are elevated amid the uncertainty, the ongoing uncertainty. Overall, we expect inflation rates in Georgia and Armenia to pick up slightly this year from their very low levels of 2024. However, they should remain close to the central bank targets. Apart from low and stable inflation, solid policy buffers are also essential for macroeconomic stability. In this regard, there has been some deterioration in reserve adequacy in Armenia and Georgia, which took place last year. In Armenia, the main reason was increased exposure to export inflows, which, as I mentioned, one-off transitory, so its impact should decrease in the following periods. While in Georgia, there was a decrease in the amount of international reserves amid central bank interventions to mitigate the impact of sentiment shifts on currency volatility. And also, the government of Georgia has paid down external debt and gradually substituting it with local currency debt. So the deterioration in reserves was not related to any issues in external balance. The Central Bank of Georgia has already started replenishing the reserves, and we expect this process to continue going forward. And lastly, the commercial banks in the two countries maintain strong performance, long book portfolio increasing by 17% in constant currency last year in Georgia. The growth was even higher, 25% in Armenia. At the same time, The dollarization has been going down in both countries, contributing to lower exposure to exchange rate risk. And asset quality has remained decent, with non-performing loans in these two countries being one of the lowest among the peers. So this concludes my part of the presentation, and now I will hand it back to Nini.

Thank you, Akaki. With that, I'm handing over to Arshu, who will provide more color on the group's results now.

Hello, everyone. Thank you for joining the call. Let me share the presentation. There we go. Excellent. I hope you can see it. So first I'll cover some strategic parameters, how we're doing with some of the numbers, like the user, the NPS and so forth. And then we'll go with the results.

Archul, I apologize. We see a black, slightly black screen on the top of the presentation. Maybe if you can. Still there.

Let me stop sharing and then we turn it again.

I still see it, but maybe I can try to share.

How is it? Do you see it now or not?

It covers the titles.

All right. So why don't you share it then?

I'll try.

So until Mimi shares it, I'll just mention that we had a record year. 2024 was a record by far in terms of profitability. Our profitability numbers are up by 33%. Just one second. 31.9% normalized, but then if you include the one of, obviously, it's much higher. One of is related to the acquisition of Ameribank. We consolidated Ameribank, number one bank in Armenia. So it was a major step for our group. We did promise the market at the time that we would change the holding name. to better reflect the fact that we are now focused on two main geographies, two home markets, let's call it that, Georgia and Armenia. In both markets, we have systemic banks that are focused on customer satisfaction, that are dedicated to the quality of their services, to the digital offering. And there we have significant achievements as well. We have been, yes, so our, yes, next slide, please. So we have been recognized in 2024 as the world's best digital bank by Global Finance. Global Finance has a lot of different prizes by region and by the product, but the best digital bank is the ultimate prize where the regional winners compete amongst each other and then one bank is chosen globally and we were against a number of regional winners in Western Europe it was Santander in Southeast Asia it was DBS and so forth so we were recognized as the best digital bank in the overall offering of our application but not just the application but the overall processes products and so forth which It's a great achievement and I would like to thank all the people, our staff that is contributing to the excellent products that we create in the bank. And that happens together with our customers whose feedback we seek all the time to understand what they are happy about, what they're unhappy about and what they would like to see. going forward. Besides this, we also track global market and global innovations in fintech industry and see what's happening, what is picking up traction, what would be relevant for Georgian customers and Armenian customers. include those in our application, like fractional trading, like money request, like bill split, and all the rest of it. This year also we added a number of different languages, Armenian, Azeri, and Turkish to our Georgian application alongside Georgian and English. There was to better cover some of the some of the villages where the ethnic minorities have a strong preference for Armenian and Azeri languages, as well as to cater some of the Turkish population, which is in the country . This has some commercial, some commercial aspects to this, but also has, has the financial access component to it. So we would like to make sure that all the entities, all our customers or potential customers have access to the best services that we offer so that they could get access to other facilities and financial resources that we offer as well. Also, our business mobile app is one of the best in the world. So you can see on the next page, slide 16, you can see some of the numbers. So you do remember that over the last few years, we have been priding ourselves with the fact that our growth in both of these mobile applications are significant. In individuals, monthly active customers, our numbers have grown from almost 1,400, so 1,357,000 to 1.6 million, which is a significant growth, 17.5% growth year on year. So when we think that the growth has slowed down, we still see high teens growth in monthly active users of mobile application and now achieving 1.6 million, which is significant. What's also significant is that engagement is very good, in fact, and And about 800,000 customers of retail customers daily access their banking through mobile application, which is significant and next only to social media. And in fact, ahead of some of the food delivery applications. Also significant growth we see in mobile business users, specifically on the 26% usage in terms of daily usage and 18.9% monthly active users. So on both of these aspects, our growth still remains significant and that basically shows you strengths of the franchise. So one thing is to see the numbers that are good, And the second thing is to see the quality of the franchise. And I can say that we're very happy with how the quality of the franchise is doing. And at the same time, our numbers are good. There's some causality there as well, but not necessarily at the same period sometimes. The next page, please. One of the biggest upsides that we see also is in terms of the product being sold to see what percentage of our products are being sold digitally. As you can see, over the last few years, we've gone from about 17% to now about 62%, which is significant. And this is the only way how our services could remain competitive and ahead of the market. And that's what we have committed to a couple years ago when it was 17%. We said that we would like to achieve 60, 70%. We are already above 60%, but there's still upside. And the more we do, the more we understand what the upsides are, and we will probably see more upsides towards 70% over the years too. As you can see, in terms of loans, 84% of all loans now are being issued fully digitally and 68% of deposits. Next page, please. Payments business and payments acquiring remains not just acquiring, but payments overall remains the main focus for us because not only it generates profitability, but it also generates and is a way of interacting with the customer on a daily basis. And as you can see on our acquiring business, we are seeing volume growth of 26% year on year, which is significant as you can see with a market share of 57%. And in terms of issuing, so that's the number of unique users using our cart on monthly active users, it's up by 16.2%, which is also significant. And we will continue focusing on this business as a key platform for our retail strength. Our customer satisfaction remains part of the DNA already. I used to say it was a religion, but now it has become a part of the DNA of the organization. Everybody's focused on this. internally and on the front lines as well as internally. And we want to make sure that more and more of our customers are happy with our products and services. As you can see, we've achieved 71% in summer of this year and now it's 67%, which is very high for any universal bank. And it's just shy of a love brand, really. And you cannot... hope to be a love brand when you're issuing loans and hoping to get repaid. So since we're doing that pretty well, we are happy with 67% MPS, 67 MPS, it's not percentage. And we will remain focused on customer satisfaction. Now, a few words on Armenia. As you may remember, consolidated Armenia at the end of March. So in 2024, it was only nine months. The overall standalone profitability of AmeriBank was 411 million lari, which basically gives you an idea of the size of the business. And we'll be seeing AmeriBank grow from that point. What we are also seeing is a very strong growth of loans as well as deposits. loans have grown above 30% year on year. And also what is very good to see is that the monthly active users that we are seeing at Ameriabank have overall retail customers have grown by 22.4%. On the digital side, the monthly active users have grown by 54.4% to about 232,000. So when you look at the potential that Armenia offers, we believe these numbers can grow by five, six times over the next few years. And this will create a very good coverage on the retail side. So a lot is ahead in Armenia. It's a top brand. It's a brand that speaks for quality, for customer service. for a very good culture. And it's capitalizing on that strength and good solid ground that it stands on to offer more and more retail products. And that's what we are seeing. And more will come because the fourth quarter pickup that you see there is a result of very small tweaks that the team did at the end of the third quarter. And more product development will be coming and we will be seeing more engagement from retail customers alongside the corporate and SME. Now, a few words regarding the numbers. As you can see, the operating income grew by 57% and year-on-year it has grown by 41%, 40.8%. But again, this doesn't include the first quarter because Ameriabank was a standalone bank at the time before being consolidated into the group. Same can be spoken for the net interest income, which year-on-year is 55%. So the quarterly number is up by 55% and the yearly number is 46%. Again, not including the first one. So I think an easier way to compare is to look at our results presentation, which offers you plenty of different ways to look at it. All in all, we can say that our Georgian financial services have grown significantly very well over the quarterly numbers. In terms of the operating income, we're up by 16.1%. And the profit year-on-year was up by 20.6%. So that was obviously strengthened by the Ameriabank acquisition. And right now, as Nini mentioned at the beginning of the presentation, Ameriabank's assets are 26% of the overall group's assets. And as we said three quarters ago, they didn't exist. And now in the consolidated meta, it's more than quarter of the business. And again, when the consolidation happened, we did not dilute our shareholders, so we did not issue any new shares there. What's interesting is that our business, the Georgian entity, has grown just shy of 20% on the balance sheet side, on the loan side, and Ameribank has grown by about 30%. So all in all, when you see the overall growth of 65.9%, It obviously is a matter of consolidation, but then individual parts have grown significantly as well, which was very nice to observe. So that lays a very solid ground for further growth in the future. And all of that has been happening while we are at the historic lows of the cost of risk as well. The NPL ratio was 2%, if I'm not mistaken. Yes. And the cost of risk was 0.5%. And there too, we had very good performance in retail and SME and slight pickup in corporate because of one single default. But even in that case, we remain at one of the lowest points of the NPL ratios of our our quality of our book is very good. And we have the same coverage with 63% without the collateral and 120 roughly with collateral. Please go ahead. I'm not going to dwell on the profitability numbers. All I will say is that the second year that we are delivering 30% return on equity, which is decent by most measures, we expect in 2025, we have all the reasons to expect high 20s number. somewhere between 25 and 30. Our guidance is about 20, but we have a very good track record of delivering between 25 and 30% of return on equity over the last many years, other than 2020, obviously, when we deal with 13%. Next page, please. Our capital buffers are very decent at Bank of Georgia and core tier one, very good at Ameribank. Now, the slim capital buffer on total capital is caused by opportunities to deploy capital and liquidity very profitably. And it was fine-tuned, let's say, in December to make sure that the deployment happened at the level that would be compliant. But at the same time, we've been working, we've been holding a policy dialogue with Central Bank of Armenia together with the Banking Association in Armenia, to support creating a legal framework for issuance of TR1 instruments. It is in a draft form, and we expect that over the next few months, we'll be able to, the regulator will be able to formalize it, and we should be able to then focus on issuing TR1 instruments for Amerian Bank. this will create additional buffers and more capital for it to grow. And as a reminder, over the last nine months, we have not taken out any dividends from Ameribank. And that was one of the reasons that it was able to grow because it was able to deploy all that capital into growth. It's basically what we guided in that position, that was what we were going to do. given the growth opportunities and Armenia is a buzzing place. There's a lot happening there. A lot of investment opportunities are being discussed and that is an excellent place for us to do more. Please, Nini. There was plenty of liquidity. We spoke about the fact that we were intending to keep very high liquidity at Georgia given the given the situation in the country, which we've all heard about and which we've been monitoring. So we're still holding very high liquidity, although this situation is becoming common. We'll probably be looking at deploying this liquidity or reducing somehow our deposit share as well, just below 40%. It's at 41 now. Please.

The final one.

Yes. We've also announced dividends, and this will bring our overall dividend per share to 9 Lari, and that would be a significant CAGR over the last few years, although 12.5% growth over the last year, but 33% CAGR over the last three years. Also, what we would like to highlight one more time is that when we do Buybacks, it's buyback and cancellation. As you can see, over the last three years, we have reduced our share count by almost 10% from 49.2 million to 44.4. We are announcing more buybacks of 107.7 million Lari, and that will happen over the next few months. In fact, this is not the announcement of dividend. This is a recommendation of the board to do dividend

and this will be formalized later on.

That's it for the presentation.

Yes, we'll stop here and enter the most interesting part of the calls usually is the Q&A. So please feel free to ask a question. A better one would be in person, but happy to answer some type of questions as well.

Actually, if you can see the question, I have slight trouble with stopping the presentation. So if you can see.

I think you can. No, I don't see any question in the chat. Nothing at this point in the meeting.

You don't see the right hand?

No, nothing in Q&A, nothing in chat. So I guess it should be in Q&A. Okay, so we have two questions now coming in. It's asked by anonymous. I don't even know if you should be answering anonymous questions. Hi, thanks for the presentation. One question from my side. Do you see the geopolitical tensions there? Is there any impact on the bank's operations? Thanks. At this point, we see that the tensions have subsided significantly. We saw some impact on the economy in December. So we had a slowdown in mortgage issuances. We also had some slow down in growth on the payment terminals. So we saw some impact in December. Having said that, we see almost full recovery in January in terms of economic activity. So while the tensions, some tensions remain and there's people protesting on a daily basis, those numbers have reduced somewhat. And on the economic front, we see that there's a full recovery of the economic activity from the lows of December. Thank you for strong performance. Should we expect the overall payout ratio to be at the lower end of the guidance in 2025? Is the capital distribution being constrained by the relatively low capital ratios in Armenia? The capital distribution, we should remain on the lower side, yes, and we guided that in the beginning of the year that over the next couple of years, we expect to see higher growth in Armenia, and that would mean no capital distribution from Armenia, but at the same time, that would mean higher growth. And if you recall, at the beginning of the year, we updated our guidance of growth, balance sheet growth, from about 10% to about 15%. So obviously, when there's growth that requires capital, and right now, while we expected significant growth of about 25% in Armenia that has been It has been more, so above 30% in 2024. And while we expected about 10%, 10% to 50% in Georgia, we had 19.3%. So in both geographies, we had significantly more growth that lays a very good foundation for the numbers forward. So obviously when we have growth, then that requires capital and we distribute less. Bruce Packard, no question, just congrats to say on missing your return on equity target by being too profitable, Bruce. Thank you, Bruce. Thank you for appreciating our efforts. AmeriBank, John Yan, AmeriBank will be Will there be a shift to focus on retail banking? NPS has been a key metric in guiding POG's operations for quite a while. Will there be a similar initiative at Ameribank? Absolutely. We are focused on NPS there. There were different types of slight differences in terms of measurement. That's why we've not been sharing those numbers. But in terms of the monthly active users, you've started to see significant growth. And this is just the beginning. When you look at Armenian population is about 3 million and Georgia is about 3.7, so about 20% less. And our monthly active user is digital monthly active user and retail is 1.6 million. So you could easily have 1.3 million directs. And so we can easily grow four or five times there. So it's a premium retail and corporate franchise that is now being scaled in terms of mass retail as well. And that is being done digitally and in a way without creating the large footprint that Bank of Georgia has. So it leapfrogs part of the development. Alex, can you please share your thoughts on potential income of Russia-Ukraine ceasefire and some sanctions potentially lift on Georgian economy, trade, or banking business? Thank you. Georgian economy is not sanctioned. There are several individuals that are sanctioned, but overall the economy, I would say, is not really sanctioned. In terms of the Russia-Ukraine ceasefire, it very much depends what kind of ceasefire and lifting of sanctions will happen. So they are significant. Russia is one of the most heavily sanctioned economies right now. And some people expect that there will be a full lifting of all sanctions, but US, EU and UK My expectation is different. It will probably be step by step and it will be tied to certain things, etc. So if that happens, I think there will be more economic activity in the region while logistically having an alternative for Central Asia while most of the cargo still goes to Russia, but the South Caucasian corridor, I think, will remain as a significant alternative to have a lower risk route, not just for the logistical part, but also for the energy as well as business and so forth. So I believe there will be more and more activity happening. Now, if there's a full normalization, then that activity may be in waves. And overall, I'm very bullish about the region, especially South Caucasus. Simon Nellis, why is minority interest so low? You made 111 million in Armenia, but own only 90% of the business, implying minority in fourth quarter should have been around 10 million, but they were just under 2 million. Simon, very good observation. You should know that we have a, put call option agreement with a prefix price at the hold call level, which basically means that we treat it as debt, but officially it's equity. So that's why you don't see it there. Andrea Wartberger, hi, congratulations on results. Thank you. Could you elaborate on what drove the impressive sequential interest revenue growth in Armenia? Well, you are seeing very profitable opportunities in Armenia because there's a lot of corporate activity in Armenia, and that's what we are seeing, and that's the main result of it. Armenia accounted for 22% of group profit in Q4. Where is it likely to go in the future? Well, we are still seeing that Georgia is still enjoying high profitability given our position in the market that will probably remain at this point like it is. Although we do believe that Armenia has a significant growth potential, especially given its ability to scale up its retail presence and more needs to be done there. Roman Fuzelov, Helios. Hi, comrades, on the great results and thank you for the call. Can you please talk about the expected introduction of new products in Armenia to complement Ameribank's product suite and how you expect customers' balance sheets and profit growth to evolve from business in 2025 and beyond? Robert, I cannot say more. There are a lot of details. Ameribank has a lot of products, so it's not like We need to invent the bicycle there. And it's just small tricks here and there to increase the engagement, to increase the way it's being offered to the customers, the way it's sold, as well as increasing the quality of the flows in a number of different things. So it's a lot of small details. There's no revolution. It's only an evolution. But you'll see. You'll see results will be coming because the small things end up in learning. a miracle happened. Simon Nellis, can you provide some outlook for risk cost in both of your key markets? What do you think is a normalized through the cycle cost of risk for each other market? We believe it's around 1%, but we are enjoying very high growth, benign economic environment overall. So high growth, low inflation, deleveraging overall. So Until that is happening, obviously, we are at 40, 50, 60 basis points. But when the economy slows down, inflation picks up, et cetera, et cetera, then we believe it will be around 1%. So on this bright note... So we have a few raised hands.

The first raised hand I see is from Robert Sage.

Yes, hi there. Yeah, can you hear me? Very well. Thank you very much. I would also like to say congratulations, Arjun. I thought they were a great set of results. And the bit that particularly surprised me and impressed me, which I want to ask about, is this great spurt of loan growth that we saw in Ameria Bank in the fourth quarter. Am I right in that you said you were expecting about 30% loan growth for 2025 because you've just done over 16% in the fourth quarter alone, which did surprise me. Anything you could give behind that and in terms of what we should be expecting on an ongoing basis, in particular for 2025, would be very interesting. And I'd also like to know when you sort of sense that that business could become self-funding from a capital perspective. Are we looking sort of in the medium term for this to happen, or do you think it might happen in 26 and 27? The second question I've got sort of goes back to an earlier question, actually, about the potential impact of the cessation of the Ukrainian war. And there are some people we get asked about it in terms of there are a lot of deposit inflows into Georgia following the outbreak of that war. And do you think there is a risk that some of your Georgian deposits in particular could flow back into Ukraine and Russia if there were to be a ceasefire?

Sure. Thank you for very good questions. So first is that, yes, in Armenia, we have seen significant growth, but not only on corporate side, but on retail side as well. In the retail side, not just on the monthly active users, but also on consumer side as well as corporate. We believe more will come there. We cannot guide in terms of the growth, but overall, let's say over the next few years, we expect roughly 25% give or take growth there for two, three years, let's say, and then we'll see. And more may happen. But basically what we are seeing there is that there's a lot of opportunities are in the market. The society is very entrepreneurial. The country is opening up to Europe. They've started now, they are discussing the visa-free travel. They've started to discuss the application for the membership. Now, there's a lot of geopolitical volatilities around, so it's difficult to say, but one thing is clear that while Russian relationship remains significant, the country has managed to start a strategic relationship with the United States and has significant conversations with Europe regarding deepening the relationship, as well as normalizing Turkey. And most difficult part remains obviously Azerbaijan, but even there, there are all the efforts made to normalize the relationship. So I don't know when, but if that, if that conflict is somehow resolved. A lot of trade opportunities will open up. So it's a country that is developing. There's a lot of business buzz and so forth when you go there, but also there are significant upsides there. Now, in terms of growth, you said 30%. We cannot guide 30% growth. Obviously, fourth quarter was significant, but we cannot... hope to have that every quarter, but let's say 20 to 30% growth is something that should be absolutely achievable there and 25 would be a middle number for us to pick. Now to add to that, you said, when will it be that it will be self-funded? It's very much self-funded. So the only thing that we are not doing is we're not taking the capital out because as the bank delivers mid twenties return on equity, as well as grows at mid 20s, it's absolutely able to fund its growth. Having said that, there are other capital instruments like TL1 that would like to introduce there to create more buffers on the TL1 capital ratio as well as total capital and will create more opportunities to grow if such opportunities present themselves. Now, to answer your question regarding the political developments, expected political developments, hopefully soon in terms of resolution of the conflict, of the war, we don't expect any major outflows. In fact, if there's been any normalization, we've already seen it. There was an influx of capital and people when the war started in 2022 and the beginning of 2023. It's basically abnormal. You see it in the transfers of funds from Russia and Ukraine. You've seen it normalized to the long-term trends. A lot of people have moved on to different countries, including Ukraine. Portugal and Spain for a lot of IT specialists as well as Southeast Asia and such. But you have not seen significant outflows in the deposits because people have either kept their accounts here or they've kept most of it here and took some out. But basically, we do believe that our balance sheet is absolutely normalized already vis-a-vis the regional board that you're talking about.

Thank you.

Thank you, Robert. Another question comes from Rona Kadia.

Hi, Rona. Hi. Hi, can you hear me? Yes, Rona, we hear you very well. Hi, congratulations for the results. Maybe three questions, all related to Amiria. Firstly, just looking at the loan breakdown for Ameria the last few years, consumer loan growth has been pretty strong. The exposure to individual loans has gone from less than 20% a few years ago to now 40%, so more than doubled. Could you talk about what type of loans they're providing within that individual loan segment? And maybe some thoughts around the sort of debt sustainability metrics for the consumers. So that's the first question.

Yeah, let me answer it before we move on to the next one. So it was a big jump in mortgages, in fact. So over the last few years, Armenia has enjoyed significant mortgage growth, a lot of growth. So mortgages, as the incomes have grown, mortgages have become more and more popular, and you have seen the development industry grow as well, prices pick up as well, and so forth. So predominantly, this retail loan book that you see is mainly mortgages, although consumer loan is picking up, and we hope it will pick up even more. In terms of sustainability, I don't have it on the top of my head right now, but you can see in the cost of risk, and we have done a number of due diligence, pre-acquisition as well as post. It's a very solid, good risk management structure that we see there. So we don't expect any major issues there.

Okay, understood. I mean, this growth in mortgage loans seems to be a sector-wide trend over the last four or five years. But from your point of view, you're not particularly concerned that there's some sort of a real estate bubble or any concerns about valuations of real estate?

Nothing major, quite frankly. I mean, price increases have been significant, but the demand has been significant as well. And what you see there is that it was supported by the government providing different types of funding for people that have relocated from the war region, as well as the first time buyers. Such products will probably weather out over the time. But nevertheless, we don't expect to see any major issues there because you had an economy with a GDP per capita of about $4,000 and become a GDP per capita of $9,000. And a lot of people want to have apartments, want to move out and so forth. So very similar to what you see in Georgia. So we have not seen bubbles. What we have seen in Georgia, for example, is that Over the last few years, the number of transactions and volume of transactions has not slowed down. It's relatively constant. Although three years ago, you had to buy an apartment two years before it was built. Now it's being built and before, you know, before basically it was sold before it was built. But now it's like 20, 30%. apartments are still there to be sold while it's being built. But we don't see the signs of any major bubbles and we have looked at many different ones. Thanks.

The second question is on margins for Ameria. There's been some pretty significant margin expansion the last two or three years. By my estimates, margins currently around 6.3%, 6.5%, more or less, almost double from the 3%, 3.5% four or five years ago. Maybe again, could you just talk about the drivers of this? How much of this is just a structural improvement and what's been driving that and how much of it is just cyclical because of maybe elevated rates that we've seen globally in the last two, three years?

You basically answered it yourself. So it's basically partly due to the interest rate environment, partly due to the structural changes of the banking sector that you see there, and partly due to very high economic growth over the last few years. So the question remains how they will normalize. I bet that they will not go back to what it used to be. Also depends on a number of different things, including overall economic activity, inflation, the overall debt in the society, how the structure of the industry will be, the capital requirements and the regulation and so forth. But so far, what we see is that You are seeing a number of banks developing a bit faster than others. So it's a small economy. So you will see more concentration. There's no question about that. There will be two or three other banks that will strengthen and become bigger players. And others will basically become less so long.

And final one from my point, and this maybe even applies partly to Bank of Georgia as well. Cost of risk last year, exceptionally low for both Ameria and Bank of Georgia. I guess that's partly just because of the strong macro environment. But going forward, what's the expectations? What's the, I guess, the normalized rate in the medium term?

So normalized, we think, is around 1%. It has been coming down over the last decade, let's say. But basically, we think it's about 1%. Having said that, over the last few years, we've been well below that and have invested heavily in the risk management capabilities overall throughout these sectors, including on retail. But there are a number of sophisticated models being deployed in underwriting as well as collection, as well as call centers, as well as different many things. So while we see that some of that capability will probably have a longer term impact, so far we cannot say that it will significantly reduce it. So basically we think there'll be around 1%. Having said that in 2025, we have all the reasons to expect that it'll be well below that. Okay. Understood. Thanks, Arshad.

Thank you, Ronak. One of the questions, another question I see is from Priya Rathod, and I'll let the person speak.

Hello? Hi, can you hear me? Yes, hi. Hi, thank you for taking my questions. Just two from me, one on costs and one on capital. So on costs, going forward, what do you see as a normalised level of cost growth? So we've seen a number of one-offs and obviously the Ameribank acquisitions skewed the cost growth numbers. So how should we be thinking about that going forward? and the second on capital it was great to see the extension of the buyback announced this quarter what are your capital priorities going forward so for example what mix of buyback and dividend should we expect in achieving your medium-term target thank you yes in terms of costs what what we have seen is it has been a very volatile environment over the last few years while there has been significant growth in the economy the inflation was very high as well and and and

also a lot is strengthened. So we had a very high income growth. And since the big part, and same in Armenia, and since big parts of our costs are human costs, salary costs, we've had slightly delayed cost increases. What we target is basically positive operating jobs or neutral at least. And that's what we target. Having said that, sometimes there will be more, slightly less. But what you should expect is we are getting close to on both sides consolidated entity level around 35% cost income ratio. We should look at that and then improve that going forward is what we should expect. So medium term, as we grow significantly, at least 15 plus percent, I would stick to those ratios. And then as the growth slows down, we'll probably we'll probably invest slightly less in the franchise and then cost should improve as we achieve higher scale in both markets. That's about that. And the second question was about capital. So we guide 30 to 50% capital distribution as we are growing higher than the long-term, medium to long-term expectation that we have. Those rates will be probably looking at lower end of that distribution part, so closer to 30%, and then we'll increase it further if we are going slightly lower. So we're a capital discipline. If we don't see profitable growth opportunities, then we distribute more. If we see there's a way to deploy more capital and grow 25%, 30% return on equity,

then we deploy more capital because such opportunities are to be taken care of.

Thank you. Thank you. The next question is from John Demir.

Hi, thank you for taking my question. So I don't mean to split hairs on this, but the Georgian margin in the third quarter, you mentioned it would be stable. And I understand in the fourth quarter, it came down by 30 bips, Q on Q. So I was wondering if you have any updates on that and what we should maybe expect for 2025.

Yes. John, I was wondering what you would find because it was pretty decent numbers, but well done. So John, you're absolutely right. In fact, while we thought that post-election we would reduce liquidity significantly faster. We've kept that extra liquidity, in fact, throughout Q4, in fact, all of January as well until today. And we'll start deploying it. So basically, we have set on much higher liquidity than usually we would given the environment. and the environment is being normalized right now, so we'll be deploying it. So we did not expect that in the beginning of the fourth quarter. In fact, we expected to deploy it rather quickly, but this uncertainty continued longer than we thought. And that's the cost that you are seeing it because we would rather be safe than sorry in terms of liquidity in such environments.

Yeah, fair enough, fair enough. And maybe one more question on Armenia. So I think there is a 50 million large of non-recurring fees in Armenia. So taking that into account, just for modeling purposes, what kind of fee growth would you think is plausible for next year?

Well, it's very difficult for me to say right now. AmeriBank franchise is top corporate franchise by far. And they have been able to generate very good investment banking fees from the number of deals that have been financing. There are all the reasons to believe they'll continue. But having said that, such fees have a certain volatility to it, not just in Armenia, but anywhere in the world. So it's more difficult for me to say, but overall, I believe that AmeriBank has good reasons to expect 20 plus percent growth in all the lines.

Right. Makes sense. And congrats on the results as well. Thank you very much.

Thank you, John. Thank you. So I think I see Ronak's hand, but I assume he just, I think he just didn't put it down. Who knows, Nini?

Maybe he wanted to ask.

No, he just removed it. So I see another hand from Roman Fuzailov. I'll see if he has more questions.

Yeah, thank you. Yeah, just thank you. Hi. Just one more from me. About Romania, I'm curious how you see the competitive environment developing over time. It seems like Ameria and Archon have been gaining market share. I'm curious if you think that the competitive environment, I guess the industry structure will begin to resemble Georgia's over time where two banks really begin to dominate the sector in the same way that we've seen in Georgia over the last decade now. or if you think it'll look different. Thank you.

I think most of the markets you see, I mean, most of the smaller markets and small, even large markets like Germany and France and UK, et cetera, you see three, four banks dominating. That's what I expect in Armenia, not necessarily two, because I've heard directly from the regulator that they don't like to see two main banks dominating because that They believe that could be a better structure for the customers. So there's three or more. Having said that, there's natural tendencies for this market to consolidate. And I expect that to happen unless somebody wants to stand there and not allow it, which will not be beneficial for the customer side. So there's some kind of balance between consolidation and competitiveness. And I believe it's somewhere between two and four. I do expect consolidation definitely happening there. You could argue that due to the consolidation in Georgia, you have seen significantly faster development in banking here. So there's definitely benefit to consolidation in smaller markets for the industry, for the customer, for everybody. If it's two, it's three or four, it's a question mark, but definitely consolidation.

Is there an opportunity for Emeria to grow inorganically or are you big enough now that you think from a regulatory standpoint, that will be difficult?

I don't think so, but it's difficult for me to judge, but I believe it should be possible to do an inorganic one. You said that this market, which has been developing very fast and growing very fast, with the margins involved, so it's difficult to get an opportunity to consolidate. But if such opportunity would come along, why not? Having said that, I'm a big believer in making sure that the culture and the quality of what you're integrating matters a lot. And since the bank is is organically growing very well. We have to balance between distorting such growth inorganically versus the benefits of such acquisition. But we definitely, we are opportunistic people overall, having said that. So yes, absolutely, it would be very interesting. but the crisis has to be right and the fit has to be right.

Yeah, of course. Okay, thank you. Thanks again.

Thank you, Roman. And with that, I don't see further questions, Archul, so I believe we can wrap it up.

Excellent. Well, thank you very much for joining the call, which lasted slightly more than an hour, which is unusually long for us. But that means that you had interest and that's very encouraging. And what I can say is that thank you for your trust and support. What we are saying is that in 2024, we had a record year by margin. In fact, we have become an international group. We have renamed the group, as you know, to Lion Finance Group to reflect the nature of focusing on two main markets. In both markets, we had significant growth. significant profitability in both markets. And what's even more is franchise has never been better in terms of the quality. So the quality of the franchise of services that we offer, the risk management of the operations of legal and so forth is getting better and better every day. And we are committed to making it better, to have prudent policies, prudent underwriting, and at the same time to be opportunistic in terms of deploying capital, in terms of growth. And whenever we see that there's slowdown on that side, obviously we'll be distributing capital. Having said that, we are being recognized more and more by our colleagues, by different competition, like global finance, recognizing us as the best digital in the world. And that's... That is happening alongside our commitment to best customer service. That by itself is not an objective. What is an objective is to make sure that more and more of our customers are happy and are choosing our products and are willing to pay for it. And then the rest just happens. So stay tuned. We are committed to growing the customer satisfaction and deploying capital in a profitable way. So talk to you soon.

Thank you for joining. Thank you. Bye.