Bank Of Ga Group Plc Ord

Hello, everyone. Welcome to Lime Finance Group PLC's second quarter results call. My name is Ninia Arshakouni. I'm head of investor relations and I'll be moderating today's session. We are pleased to present our results for the second quarter, which you can also see on this slide. So we have a very solid set of results with our profit reaching $513 million. million gel in the second quarter up 19% year on year, resulting in the cumulative half year profit of just north of 1 billion gel up 28% year on year with return on equity standing at a very strong 27 and 28% in Q2 and the first half of 25 respectively. And these results are underpinned by robust customer franchise and portfolio growth across our core operations in Georgia and Armenia. I am joined today on this call by, as usual, by the Group CEO, Archil Gaceciladze, who will share his perspectives on the Group's performance. And for the first time, we're delighted to have Hovhannes Doroyan on this call. Hovhannes is the Chief Financial Officer of Ameriabank, the Group's banking subsidiary in Armenia. And we also have Akakeli Kokeli, our macroeconomist, who will walk through the recent macroeconomic developments across our core markets of Georgia and Armenia. Following the presentation, we'll open the floor for your questions. And as a reminder, this call is being recorded. With that, we'll first start with the macro highlights. So I'm handing it over to Akake to kick off this webinar. Akake, you can go ahead.

Hello everyone. I will be presenting the macroeconomic update for our core markets, Georgia and Armenia. Let me start with the growth performance. Georgia continues to benefit from a balanced mix of strong external inflows and resilient domestic demand. In Armenia, growth momentum has shifted more towards domestic drivers supported by fiscal stimulus and credit expansion while external demand continues to normalize. Preliminary numbers show that both countries performed better than expected in the first half of the year. In Georgia, real GDP growth was 8.3% year-on-year in the first six months. while Armenia posted 6.3% growth. So given these strong numbers and an improved outlook, especially following the recent signing of Armenia-Azerbaijan peace framework, has enabled us to revise our full year real GDP growth forecast upward to 7.5% in Georgia and to 5% in Armenia. So this sustained strong growth performance in recent years has led to sustained increase in per capita income levels in both countries, as you can see on the right hand side of the slide. However, this average income levels are still below Central and Eastern European peers, which leaves significant room for further catch up growth in the years to come. Now let me move on to drivers of growth. In Georgia, external demand continues to play a major role, with traditional inflows from exports, tourism, and remittances increasing steadily. In Armenia, exports continue to normalize from one of spikes from the last year, while other inflows, and particularly remittances, remain solid. Beyond these traditional inflows, we see strong performance in non-travel service exports and particularly IT services, which support hard currency inflows and also generate productivity gains. for the wider economy. So all these inflows taken together have also contributed to strengthening local currencies. Georgian lari and Armenian dram continued to appreciate in the second quarter, even after the US dollar stabilized against other major currencies. Notably, real exchange rates of Armenian DRAM and Georgian LARI are adjusting after significant appreciation in previous years, as you can see on the right hand side chart. This adjustment is taking place through lower inflation relative to trading partners with no pressures on nominal exchange rates. We expect both currencies to remain stable in the medium term, underpinned by healthy macroeconomic fundamentals and prudent monetary policies. Now, strong exchange rates also supported low and stable inflation in Georgia and Armenia, and these recent upticks that you see in the headline numbers are mostly attributed to food price increases, while core inflations remain well aligned to central bank targets. We therefore expect these food-related pressures to be short-lived. Still, given the globally uncertain inflation environment, central banks of Georgia and Armenia maintain cautious stance, keeping interest rates unchanged. And we don't expect any cuts in the remainder of the year. So beyond price stability, two additional pillars to overall macroeconomic stability are adequate levels of international reserves and prudent fiscal management. And in this regard, we have very positive developments in both countries. Particularly in Georgia, the central bank has been actively replenishing international reserves, which reached uh five billion us dollar and at the end of july which is the highest number since 2023 and the interventions the foreign currency purchases were particularly high in recent months so there is also positive development on the armenian side where reserves are also increasing and we expect this trend to continue uh improving the resilience of georgian and armenian economies On the fiscal side, we also see both countries maintain discipline. However, the public debts have taken different trajectories. The Georgian government continues to decrease external debt, and this has brought the total government debt to below 36% in mid-2025, which is a significant decline if you compare it to almost 60% back in 2020. On the Armenian side, the government is carefully balancing the current spending needs with longer-term fiscal sustainability objectives. The total government debt to GDP is expected to stabilize at around 56% in the following years, and the fiscal discipline is also supported by ongoing IMF programs. And lastly, the financial sectors in Georgia and Armenia have benefited from favorable macroeconomic conditions while also supporting growth. We continue to observe robust lending expansion in both countries, while loan dollarizations have decreased significantly in previous years. reducing exposure to exchange rate risk, and the balance sheets remain strong with non-performing loans at one of the lowest levels among the peer countries. So this concludes my part. Back to you, Nini.

Thank you, Akaki. And now we can move to the group's results and I would like to ask Archil to share his highlights.

With pleasure. So first of all, thank you very much for joining the call. I understand that a lot of our investors may be on vacation, and nevertheless, I think attendance is one of the highest that we've seen. So as Nini has mentioned, we have very solid numbers. I think what's important is that as the macro economy is doing better than we expected in the beginning of the year, we also see very strong demand in loans. So on the balance sheet side, we'll cover the next slides. Growth is very good in Georgia and phenomenal in Armenia. Deposit formation is very strong as well. And overall numbers are quite solid. So operating income grew 9.5% year over year in the second quarter. Notable where Georgia increased 11.4% and Armenia 8.67%. of which then when we dissected to interest and non-interest, most of the growth came from the interest income this time, with Georgia delivering 17.5%, Armenia 16.3%, and combined that resulted in 15.8% year-over-year increase in interest. In terms of the non-interest income, it was minus 2.2%, and I'll go into details over the next two slides. Net interest margin, as we said on the results called last one on the first quarter, we said that there was slight risk on the upside. So increased to 6% net interest margin, of which there was a bit of increase from Georgia, merely coming from the fact that we had extra liquidity deployed. and there was a slight decline in Armenia from their relatively high base. You do see that we had a slight uptick on the low-yield side, but also it was a slight uptick on the cost of client deposit and notes, mainly coming from the de-dollarization, especially in Armenia, where the attraction of drone deposit is slightly higher, more expensive than in the hard gas. Net fee and commission income, the AFS was minus 17.7%. What's interesting is that last year, second quarter, we had a relatively large item, which was found from investment banking fees of about 10 million lari out of 29. So if you normalize it for that one large item, and this quarter, we didn't have large investment banking fees. We saw another bump here. If you didn't have that, you would have 24% increase in net paying commission income in Armenia. In Georgia, it was relatively small number, partly due to some adjustments. But even in that case, it would be low double digit if you normalize it for that. And that's partly due to increased competition slightly, but also there's the Visa MasterCard fees that we've seen a little bit uptick there and we negotiated. I don't want to go into details, but going forward, things will be better. Net effects, we had a rather flattish performance where we had Georgian operations delivering minus 8%, predominantly based on the fact that it was the revenue from client flow was splitted and there was a slight decline in terms of revaluation gain. In Armenia, it was minus 1.9%. Also, mainly due to the fact that there was a bit less volatility in the second quarter in Armenia than previously last year. Operating expenses increased 12.1%, of which Georgian operation was 15.7%, and Armenia's 3.31%. We like Armenian cost discipline, and Georgia, we are taking certain actions. As we get closer to the end of the year, we'll see some of it coming into the numbers. Cost-income ratio summed up to 36.5% for the quarter. And now regarding the balance sheet growth, we had 22.5% constant currency growth, which is very strong, well ahead of our guidance of Iran, 15%. We had 17% constant currency growth in Georgia and 37.6% in Armenia, which is a phenomenal number. What's even more important, I believe, is the key of the key number, which is 10.3%. and HoloLens were dissected into where this growth is coming from. We also had 4.7% in Georgia QOQ, which is also a very strong performance. And there, most of the growth is coming from corporate and mass retail, including consumer, slightly less demand of mortgages and SME, but overall very strong performance. Deposit portfolio, we had 26.1% growth cost and currency in Armonia, and 10.9% in Georgia. And in Georgia, we are trying to decrease our market share as we indicated to the market, which we did slightly. Cost of credit risk, we had 0.5%, which is slightly higher than last quarter, but it's well below our normal level of 80 to 100% that we got, which still is... very good performance, and I think this performance will continue like this as the macro economy is doing very well, 15 in a row already. And you can see it in the NPL numbers, the overall 1.9%, which is also a very strong show. Profitability year-over-year increased 19.4% without the one-offs, which was partly due to the fact that In the second quarter of last year, we had a strong reserve associated with the acquisition in Armenia. But overall, the pool number in the return on equity is 27.2%. And for the half year, it's 27.9%. GFS, I think we mostly covered, but if you take on a standalone basis, return on equity was 31.1%. Profitability was $409 million, which was up by 7.6%. Loan book growth, 17%, as I said, and deposit growth of 10%. What makes me quite happy is how our retail digital monthly active users still growing at 15.5% year over year. achieving 1.7 million customers in a country of 3.8 million people. I'm not going to discuss more here. We're also enjoying very strong growth of our business mobile users, growing 22% year-over-year and achieving 100,000 users. We are also growing our digital sales very well. As you can see, we achieved almost 70%, which is very good achievement. And now also 86% of all loans are issued fully digitally and 73% of all deposits. And that number is growing very, very well year-on-year. NPS, customer satisfaction, as you know, is a big focus for all of us at Line Finance Group. In Bank of Georgia, the NPS was reiterated in 73, which is a very strong showing for any universal bank. Acquiring volume was growing by 27%, which is also a very strong showing. and also number of people using our cards increased by 14.3% to go above 1.5 million people in Georgia. Loan portfolio we covered already in deposit when we were discussing the overall numbers. Capital position is very strong, as you can see, and liquidity is very strong as well. On this bright note, may I ask Hovhannes, our CFO from Ameriabank, to join. Let me turn this off because I think he can share the presentation. Hovhannes, tell us how are things going in Armenia? We see phenomenal growth. Please tell us more about it.

Thank you. Thank you, Archil, and thank you everyone for joining the call. I am actually pleased to announce our results for Q2. And before I go in there, I want to just add a couple of words on the very positive environment, macroeconomic environment that Akaki presented in details figures. I'm sure most of you have already heard about the recent U.S. brokered transaction that is expected to deescalate the geopolitical tensions in the region. And so-called trip corridor to be established that will assume opening the borders as well. And technically it will result into better regional integration with greater economic results potential for the country and the region in general. So in addition to that, I want to note that this has been very positively received both locally in Armenia, as well as internationally by investors. I'm sure you've seen the Armenian Euro bonds yield going down 60, 70 basis points over the last one month period. And moreover, over the last couple of months and over the couple of following months, we do anticipate to have several very important and significant developments in Armenia, namely, if I name a few of them, NVIDIA that has established an office in Armenia more than two years ago, has announced that it's going to be partnering with Firebird and Government of Armenia to launch a $500 million worth of project building AI supercomputer that will really transform not only the overall IT infrastructure in Armenia, but overall the region. And it's going to have a hundred megabytes of data center as well. And given also the quality of engineers locally, we anticipate it's going to have a significant chain effect on the IT sector and not only in Armenia. Another large project that was announced a couple of months ago was on natural resources. One of the larger natural resources to be activated and operated soon that is estimated to have from 0.6 to 1.5 percentage point impact on GDP in the medium term and add another 120 million US dollars of tax revenues to support the government. We do anticipate to have another significant transaction in the natural resources sector that will also have positive impact on our development from the baseline scenario that we were discussing. And obviously, a number of infrastructural projects, South-North Corridor, the TRIP, corridor-related infrastructure investments. So I would say overall, there is a very positive sentiment and expectation on the economic developments in the country. As for the Q results of Ameriabank, we did register a 95.8 million gel profit during the Q2. And if we take out the one else from previous year, year over year, this would yield into 17.7% growth. Our return on equity in consultation report is 20.1%. But if we look also at the standalone report, it's going to be 24.1%. The loan growth and deposit growth figures speak for themselves. 37.6% in cost and currency basis for the loan portfolio and 26.1% for deposits. I'll talk about these figures a bit later. And obviously, huge impact and result on increasing our monthly active users and down well, that actually grew more than 50% year over year. And again, we'll have another slide on that later. This is to emphasize the importance of our digital transformation. And also I hear here, I want to just mention that year over year, the volume of transactions to our Miami area application have gone up more than 68%. Our cash offloading ratio is more than 91% at the end of the Q2. So you can see a number of features that are available in our super app and also beyond banking part as well. I'm very happy to mention that we actually launched a kids app, Miami Red Star. This was a project that was designed and implemented over a course of three months. And I want to thank all the peer colleagues engaged in that. And this will give our younger generation, not only opportunity to cover their basic needs in terms of their finance, but also more importantly, this will cover educational aspect. And we really want to emphasize that, um, not only for kids, but also in my invest where we actually have, I think, uh, one in a kind, um, in app build academy. where we educate our customers to take advantage of wider financial services offered by AmeriBank locally. And there again, I just want to mark that our both transactions numbers and volumes have more than doubled year over year. And we are very happy to see that 73% of the IMX corporate bond trades are done through our platform. This is to note that our customer base has actually surpassed 700,000, of which 408,000 are monthly active customers. That's 35.8% year-over-year growth. And Mao and Dao grew 54.5% and 52.2% respectively. Very impressive for us, but actually we want to note that There is still a huge opportunity for further growth, and we aim to improve the absolute number of Mao and Dao significantly through increasing our customer base over 1 million and also improving our digital uptake and engagement ratios over time. Long portfolio growth and deposits speak for themselves. Again, 37.6% in constant currency basis growth year over year and 10.2% for the quarter. This is actually very diversified in both sectors, retail and corporate. It's actually driven by a very good economic environment and very healthy demand locally, as well as very positive brand positioning. risk management, and also digital transformation. Just for your information, 96% actually of consumer loans were issued through our digital platforms, enabling wider coverage and minimizing our underwriting costs, of course. Deposits, again, very strong year, 22.3% year over year. And here, I just want to mention that We have also restarted collaboration with DFIs, and given the change of the international rates that are more compatible with local rates now, I'm sure most of you have seen several transactions that we have announced last year, end of last year and beginning of this year. 20 million with IFC, 105 million euros with EIB, 15 million with EBRD, and there are a couple of more to come. hopefully still this year. This is to show our very positive trend on the market share. Over the course of the last 12 months, we were able to improve it by 1.3 basis points and 0.9 basis points for the quarter itself for the loans and 1.2% year-over-year and 0.6% for deposits. Again, we are very happy with the organic growth that we're able to achieve, but our ambition here is to hit 30% market share over time. And while we see the trajectory going there, we've also also, based on the questions that we got previous quarter, I also want to mention that our baseline scenario is organic growth, but at the same time, we will and seize any non-organic growth opportunities in the local market. Our capital position stood strong. CET1 had 2.9 percentage point buffer. For total capital, we have 0.1 percentage point buffer. I want to highlight that this has been a managerial decision to unleash the local growth opportunities. And especially given the fact that we had already signed a subordinated debt that would improve our capital position that was engaged, included into our regulatory equity during the last few days of June, hence did not have much impact on the average capital adequacy ratio presented in here. For July, our buffer was 0.3 percentage point. Now it's even higher. We have actually attracted two more smaller sub debts in end of July and beginning of August. Another one is coming up by the end of the year, and we are actually looking forward to finalization of the regulatory changes, whereas Central Bank of Armenia will be enriching the capital instruments for Armenian banks, and we will be looking into improving our tier one capital with that as well. Liquidity positions are again very strong. LCR at 173.8% and NSFR at 117.2%. This is it for the Armenian operations. Thank you.

Thank you, Hovhannes. And now back to Archil for the wrap up before we move to the questions. Archul, you are on mute, so if you can please unmute yourself.

Thank you, Nidhi. Thank you, Haranas. Very impressive results, especially balance sheet growth is very impressive. Now, just to wrap it up, we have announced 5.1 Lari per share dividend, which is for the first half of the year. Also, we announced that we'll be going to quarterly quarterly dividend announcements. So this 5.1 lot is for first and second quarter, and then every quarter we'll be announcing dividends on a quarterly basis going forward. Also, something to note is that we are approving, the board has recommended and approved 98 million buyback for the first half of the year, which will be happening as well. As we speak, it's a buyback and cancellation. Over the last few years, we have gone from 49.2 million shares to 43.9, canceling more than 10% of our shares. Just to reiterate, our medium-term targets are 15%, which is 15% growth, which we are overperforming right now. Return on equity of 20 plus percent, which we are overperforming with a large margin. Dividend and share buyback payout of 30 to 50%. And we told our investors that we'll be on the low side of that as we are deploying all of the profitability that we generate in Armenia there to fund the growth. And as you can see there, we are looking forward to the regulated ruling framework, which will allow us to issue the additional instruments, maybe tier one instrument, which is a good problem to have because if a franchise is growing at 50 plus percent, 37 in this particular case, it's a good problem to have and will be dealing with that to deploy more of the capital, while the franchise is generating 20 plus percent return on equity. And there are plenty of good news to look out for in Armenia overall on the MAPRO side, which is resulting in many different good news. I think one is denational, but the media has a back office in Armenia, employing about 6-7 people in the country, but Recently, they announced a large data center, which will be more than half a billion dollar projects together with a number of different investors. That will be a joint venture where the media will be provided of the tips and additional know-how. And there will be regionally, it will be a very, very strong and it's a good project because it will generate more and more data capability and processing power for the whole region. So such projects and there are new, very significant and exciting things happening in Armenia, which we look out for. And Georgian numbers, as you can see, were very strong. I'll reiterate, as Akaki said, that seven months of this year, the National Bank has bought about $1.2 billion on the market. which is about the same as in 2023, which was the highest net buying that we've seen historically. So just in seven months, almost the same as the highest ever in 2023, which not only and recouped all the spending which was done last year to stabilize the life during the political turbulence, but also added to it, which is a very good management overall for the National Bank. So, overall, and that's that. On this bright note, should we open for Q&A?

Let's now move to the Q&A, and we already have a few raised hands from our analysts, and the first on the line is Priya Rathod from Jefferies.

Hi there.

Yes, we can hear you.

Perfect. Thanks for taking my question and congrats on a strong set of results. I have two areas just to focus on, please. So the first is on the net other income. There was a noticeable increase quarter on quarter, especially in GFS. Could you just speak to what the drivers were there for the increase, please? And the second topic is on the HSBC Malta potential acquisition. A couple of questions here, please. So I guess the first is what synergies or benefits are you seeing from this acquisition? And I guess I'm asking which products or offerings does Malta offer which you don't currently have? Or where do you see it as enhancing your current offering? And are there any regulatory hurdles or pushbacks you envisage in the process? Because there's quite a lot of news flow suggesting that there's a preference for a European buyer. So just any thoughts around that? And finally, just generally on the timing of this acquisition, because, you know, the Emeria Bank acquisition only recently closed. Can you hear me?

Yes. Multi HSBC has announced that there's a preferred Vita, which is a European one. So it's no longer relevant for this state.

Okay. So I guess my only question is the net other income question, please.

Yes. On the net other income, why do you say it's significant? It's just 2 million, 3 million more in Georgian case for the GFS. So it's not a significant uptick. And net of income includes a number of different things, including one of gains on real estate sales and such. So it's not a significant number. For operating income, there was 746 almost million lot. It was less than 15 million lot. So it's not a significant number. Nina, can you help me?

It did include a sale of one of the properties. one of the assets.

But it's not significant. Thank you. So if you look on a half-year basis on page 9 of the results, you can see that last year it was 19.5 million lare for the first half, and this year it's about 22 million lare. So it's only a 12.8% increase. This number is usually bumpier than this, but it's nothing particularly significant in this quarter. But regarding Malta, yes, it's unfortunate that we definitely were much less aggressive apparently than some of the other buyers, interested buyers. In this particular case, it was formerly Attica Bank of of Greece that was announced as a preferred bidder. We would rather be more disciplined in terms of the buying and sometimes that means that we miss out on opportunities, which is unfortunate, but what can we do?

Make sense. Thank you. Thank you, Priya. Sorry. The next raised hand is from Sergey, but I don't see the last name. So let's see who the person is. Hello, can you hear us?

Yes. Hi, can you hear me?

Yes.

Hi, Sergey. Perfect. Sergey Belozar from Greyhound Capital. Thank you for giving me the opportunity to ask the question. Very impressive results. You've been growing very impressively as a country and as a bank for the last four years. My question goes, you have shown that... the remittances and GDP has grown over the last four years. So from my understanding, there were over 100,000 immigrants coming from Russia and Belarus over the last four years, which And a lot of them are operating in IT services, hence generating probably 10 times the GDP average. So how much do you think has that impacted overall your performance over the last four years? And how do you think that could reverse now with potentially the end of the conflict?

Thank you. I will ask Akaki to go into the details, but all in all, I can say that in 2022, the inflow was stronger. Some of the people have established themselves here. It's IT, but not only. There are different families that have moved, opened all kinds of businesses, bars, restaurants, pet care shops, and all kinds of different studios and so forth. But people have moved to different countries, including Georgia, and have established themselves. Some of them have moved on. So, as in the beginning, I think Europe was rather closed for its IT specialists, but then Portugal, Spain, and others have rolled out different kinds of programs for IT specialists. including Russian and so forth, and some of them have moved on. I think you had an uptick in 2022-23, but it has normalized much more. Akapi, could you comment on this?

Yes, so the significant inflow that we saw after 2022, we see some stabilization, we see some normalization in these inflows. Some people, some freelancers have moved on to other destinations. And this IT sector benefited not only by the inflow of migrants, but also by relocation of several international companies from the region. We expect those businesses to stay in the country even after the situation stabilizes, so we do not expect any abrupt or sudden outflow. As we see, these businesses are growing, they are expanding their operations in the country and generating significant export revenues as well as productivity gains for the wider economy. We can say that those one-offs have already stabilized and we do not expect any significant or sudden outflows.

Interesting. In terms of the transfers from Russia, it's less than 20% now and it's decreasing. So in terms of hard currency transfers, other countries are increasing significantly, including the U.S., which is becoming a stronger and stronger source of remittances for Georgia. And also, just to reiterate what Akash said, all of these large international outsourcing companies that moved their offices to Georgia and Armenia, they started to hire locally, which created a significant competition for our IT resource. And we have seen a very strong inflation of IT resource over the last four years. So on the cost side, we saw that, but on the revenue side, obviously, it contributed to the overall GDP. So all in all, it resulted over the last few years, we basically increased our profitability more than four times. So all in all, it's not just this, but it affects all sides, revenue as well as costs. But it's not only the people that migrated, but it's rather the companies that know how to do the outsourcing service for the rest of the world that had to look for new home. And once they found it, they are here to stay. Like NVIDIA with 600 people in Armenia. I don't think they'll be going anywhere regardless of the peace that we all expect to come in the region.

Interesting. Thank you very much.

Thank you, Sergey. So we don't have raised hands at this point, but we have a few questions in the Q&A chat from anonymous at ND.

I would suggest maybe this is the last time we should answer anonymous.

Well, the person is telling us thank you for keeping the anonymous line open.

One thing we can do is know who's asking the question we're publicly answering. But yes.

So the first question is if we can clarify which group expenses are allocated to the Armenian segment during consolidation, because there is a difference in the expenses between standalone and IFS. So that's the first question. Maybe, Archul, will you just quickly...

So it's mainly group functions, which includes CEO, CFO, a couple of other things. There's also a sign-up bonus for the management that we had initially that is being amortized and it's almost done. So that's about it. Another question is, are we going to have an investor day? Probably spring of next year we'll be having one.

And then there was a question like, what was the rationale for considering the acquisition of HSBC Malta? And do you still consider an entry into the banking sector in Malta now that the other bidder has been, the preferred bidder has been announced? So a different acquisition.

Okay, so maybe I'll take that question. So our strategy is to do a main bank for our customers and we like larger scale. So that means that we like to look at acquisition targets, which are top three in larger countries, maybe top five. So in Malta, the acquisition target was number two with about 20% market share. We thought that it was a franchise that would benefit with the digital offerings that we have. Significantly, I would say, because HSBC looks like it was thinking about exiting the country for a long number of years and have under-invested in the franchise. So we thought it was still some franchise in a small country, but could benefit significantly with the refreshment of the product offering. We would not be interested in looking at the small player in this country, let alone. We would not be interested in a small player in any country, let alone a small country. So in other words, no. We would not be interested in terrain, but we would opportunistically be looking at all of Eastern Europe. Malta was a bit of a stretch, but it could have been an interesting opportunity. But we're looking at top three, maybe top five, if it's a larger country, because we believe scale matters. And we like the types of acquisition targets where we feel that we can bring value with our ability of bringing the customer care approach and that approach includes a lot of details in it, not just the philosophy, but the processes as well as the digital offering. So all of this together does not happen very often. So don't expect too much activity on our side there.

And there was also another question in the chat, if there is any current or upcoming debt capital markets initiatives that we're working on or planning.

Well, I think in no uncertain terms, we said that we are looking forward to the framework of Tier 1 for Armenia, and it's for a reason. I'll say that. Other than that, probably not.

So we have a raise hand from Ronak Gadia, so let me allow him to talk. Hi, Ronak.

Hi, Nini. Hi, Archul. Congratulations on the results and taking my question. Maybe two or three questions. Firstly, on cost of risk, in Georgia, we saw a sequential pickup, Q&Q to 0.7%, still below historical levels. So should we gradually see a convergence towards the historical range of 1.2% in the next few quarters, or was that just a one-off pickup in 2Q? Likewise, staying with Georgia, the OPEX run rate, you explained some of the one-off factors driving that. But even excluding that, you know, the run rate, the growth rate is quite strong. Should we expect that growth rate to continue at that level? Or are you at a point where, you know, you've made all the upfront heavy investments on digitization and we should start to see some leveling off? And the final question on... Sure, sure. Yeah, sorry, my bad.

Yeah. So the first one is cost of risk. It was slightly higher. It was partly due to the fact that there was a lot that got slightly weaker versus euros. So there's a small part of euro portfolio which contributed about 14 basis points. But other than that, it would have been 0.5. Now 0.5 still is well below our midterm expectations of 80 to 100. but we don't expect to get close to 100 until we see this above, until we see such a strong macro development. Having said that, so as the macro is developing well above the potential long-term 5% that Georgia has, I think, you know, we are at 7, 8, 9%, you know, we feel But the credit quality that we look at is very strong overall. So underlying cost of risk, we should not expect getting close to 1% in the short term. We'll see what happens on the market. So it will depend on that. What was the second question?

The OPEC's growth outlook in Georgia.

There, what we pay attention to is the operating goals, and we don't enjoy that they're being negative. So I think from the fourth quarter, you should neutralize at least, and then we'll see where we get to from there. One thing that is not helpful is that overall in the country, the the salary income levels have been still growing at double digit, 40 in a row. So that's not helpful. But having said that, I think the overall franchise has been growing and that should be more than enough to absorb it. So we normalized the costs. Now it has been slightly higher, but we should... It will be under control, let's say. It is under control, but it should translate into a neutral, maybe positive, raise jump. If not in the third quarter, then in the fourth quarter almost.

And same question on Armenia. The OPEC's growth Q&Q was flattish. Is that just some synergy benefits that have been realized? Because I was expecting growth to be slightly stronger as you're starting to make some more digitization investments there. What can we expect in Armenia?

I'll just say one and then maybe Hohana says the rest. We don't have much synergies there in terms of costs because it's run... completely as a separate bank because it's the regulatory environment is different. There's almost like requirement to run it separately through the board, et cetera, et cetera. So on the backside, there are no synergies at this point, at least. So please tell us.

Yeah, and just to end on that, while the year-over-year growth on the OPEX was 2.6% only, there is some so-called seasonality issue because some of the costs were not evenly distributed previous year, and we are going to have this situation change towards the end of the year. So the natural growth would be somewhere around 8%, 9%, so slightly short of 10% for the year most probably. I mean, if we continue with the same round rate, it's going to be slightly short of 10%. Nice.

Understood. Now, that was it from my side. Thanks. Thank you, Ronak.

Thank you, Ronak. So another raised hand is from John Oskuzel from Franklin and Templeton.

Hi, thank you very much for the presentation and congrats on the results. I have one macro or maybe question regarding Azerbaijan and Armenia trade. The question is, do you expect in the future or when, if possible, to expect the trade barriers of Armenia between Azerbaijan and Turkey to be removed. And in such a scenario, what do you think the impact will be on Armenia's economy? Do you think it will be a game-changing development? Or, yeah, initial thoughts maybe on that will be great. Thank you.

Hovhannes, why don't you start since you're closest to that.

Of course, it's still a bit early to say what's going to happen, but there are clear talks already that the borders with both neighbors will be opened in a matter of time, actually. And there are already some preliminary assessments that are rather positive, actually, for the economy of Armenia, but also for the regional economies as well. There is no very concrete assessment how much additional impact on GDP or international trade it will have. But there have been a couple of articles, like Forbes had another one yesterday actually, giving some estimates how much trade could flow through those borders. And overall, we anticipate that whenever those borders will be opened, of course, It may take some time, but it's going to be really a change of the dynamics of the trade in the region and having significant positive impact on the economy overall of Armenia.

Yeah, thank you.

I've got anything to add there, to have more insight there?

Well, I would just add that opening up this corridor would definitely change the overall situation in the region because that will be beneficial from the diversification perspective and also that will definitely increase the trade flows. the overall region so i don't have any estimates either but overall yeah we expect this to have a significantly positive impact on the whole region and particularly on armenia and georgia thank you thank you john another raise hand is from alex i also don't see the last name

Hello, can you hear me?

Hello. Yes, we can hear you.

Okay, great. Hello, Archil and Nini and the rest of the team. Thank you very much for the call. I have a question on the fees and commission revenue dynamics. You mentioned... that you have some increased competition in the fees business as part of the reason for the softness of the fee revenue dynamics. Can you elaborate a little bit on that? What's driving this and how you see the outlook?

So what we see on one side is several system providers like Visa and others. trying to increase the fees. And on the other side, we see that with paying market share over the last four years going from 38% to 57%, not all competitors are happy about it and they're spending heavily, I can say, to somehow recoup some of that lost market share. and that's part of it. The first one is absolutely curable, and we have addressed it, and the second one will hurt the attacker much more than the defender. So what to expect? I think we said in the in the results that we'll be expecting high single-digit in the third quarter and low double-digit in the fourth quarter in net fee and commission income, which is slightly less than the overall business growth, but that's what we expect. In terms of that's on the Georgian side. On the Armenian side, what we are saying is that, in fact, When you remove the one large item, which was one year ago, you see 24% year-on-year increase in fee and commission income. So we are quite happy on that one.

Okay, understood. Thank you so much.

Thank you, Alex. I see Sergey's hand, but maybe he forgot to put it down, but let me just to double check. Sergey, do you have further questions or... No. Well, so I guess not. So I don't see any other raised hands at this point.

So since we allowed the exception of anonymous attendees questions to be answered, let me take that. So anonymous attendees, third question, is how do you see regional geopolitical risks affecting cross-border flows and banking sector stability? Well, one thing we can say is that there has been decrease of political risk happening. So if anything, there are plenty of upsides. And I think Havana is dignified that as there's a peace deal between the Azerbaijan and Armenian side, there's plenty of opportunities there in terms of border opening, in terms of perception of stability and a long-term ability for a long-term planning for a lot of private investors. And we, as the leading bank in both countries, we are there to provide credit and services to such private investors, so if anything, it should be all positive and a good upside. Same goes for wider, larger problems that we have, especially the war going on in Ukraine. If there's a peace deal, there will be plenty of additional economic activity of the construction of Ukraine and so forth that will, I think, benefit the whole region. which will be very positive as well. There's some trade and some of the other services that are being provided from Georgia, and we've done a detailed analysis of that, how it will affect, which is unclear at some point. One thing we can say is that from one side, we do see that it will be negative over the last couple of years, let's say it could be cumulative about 2%, but then the additional autonomic activity that will result from the reconstruction will be more than most probably could balance it out fully and in fact add more to it as well. So those are the overall assessment. The next one is, please, could you elaborate on the guidance? Are there any changes? There are no changes to the guidance, and the guidance is provided on the last stage of our investor presentation. It's 15% growth, roughly 15% growth, capital distribution of 30 to 50%. And what's the third one? Any?

The third one is if we have any guidance on the cost of risk for the next three years.

No, the third part of the guidance is 20 plus percent in time and equity. We don't provide guidance on the cost of risk, but up to 1% probably is what we've seen historically. Historically, we've seen slightly higher, but I have to say that in end of 2018, when the National Bank introduced additional regulation in terms of the responsible lending and so forth, this systemically decreases the cost of risk, especially on the consumer and the mortgages. I think going forward, it's safe to assume there will be 23% lower than historic averages. 30-40 bits lower.

Do we have any exposure to iGaming?

Not really, not much, but that was not why we were looking at Malta and I think I explained it in one of the questions that people asked. we like major players even in smaller markets especially where we see that we can improve the offering for the day-to-day clients which we thought that we could do there and the question from nikolai dimitrov do you see a combined liberty basis bank becoming a more formidable competitor in georgia it will be a larger player it will still be about a third of where we are um so I think it will take a long time until we consult that and so forth. So, I don't know what to answer more than that. Thank you. Anything else? Mimi, are there any raised hands?

We have one raised hand from a person named Valeriko. Hello? maybe it's not a raised hand or it's an accidentally raised hand, which could be the case. Okay.

Well, in this case, that somehow colleagues are not asking a question, but it's a pushing a button. So on this bright note, thank you very much for attending this call. We, to summarize, we are delivering strong results and continuing to deliver so and What we can say is that the growth opportunities, which are coming from the fact that the macroeconomic development in both countries has been very strong, that is providing opportunities for leading banks, like Amedia Bank and Macro Georgia, to provide services, to provide credit and resource to the private entrepreneurs and businesses. to deploy these resources and capitalize on the opportunities that this strong macro presents. And that's what we expect going forward, especially that we are seeing very positive moves in terms of Armenia-Azerbaijan peace agreement, in terms of de-escalating some of the tensions that have been there for decades. And all of this presents very significant economic opportunities While on the Georgian side, the macro economy continues to deliver very strong results. We see deleveraging happening there and the policy reserves growing very strongly. So all around are very strong numbers and we are very well positioned to capitalize on it. So thank you very much for your attention and let's look forward to these third quarter results.

Thank you everyone for joining. See you next time. Bye-bye.