Lion Finance Group Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 12, 2024

There are 5 speakers on the call.

Operator

Group CEO, Arshilga Chichilaza, and we'll start with our presentation, discuss the key developments as well as the highlights of the quarter, and then we'll open the floor for questions. Please be aware that this call is being recorded and Arshil, you can go ahead now.

Speaker 1

Thank you, Nyni. Hello, everyone. Thank you for joining this call. We had a record profit in the Q3 of this year, NOK509 million, which is up 42.5% versus last year, although this year obviously includes, Ameriabank Ameriabank from Armenia, which is a leading bank in Armenia and is progressing very well. Return on equity was 32% with a very low cost of risk of 0.2% and cost income of just shy of 35%, which we feel comfortable with.

Speaker 1

So with this, there's one other small good news that I wanted to share, which is that we have been named by Global Finance Magazine as the best digital bank in the world. So Global Finance runs a lot of different prices, but best digital is their top price And the regional winners were Citibank in North America, Santander in Western Europe and DBS in Southeast Asia and several others, but those are very prominent global banks. And in Central and Eastern Europe, it was Bank of Georgia, obviously. And then we became the choice of the committee that chose the best digital bank in the world, which is recognizing the capabilities, the user experience and sales mechanics and all the rest of it that we have in our digital bank, which I think I would like to congratulate all of our staff members and team members with this achievement. And it's recognizing that even in a small country like Georgia, we can make a product that is the best in the world.

Speaker 1

So with this, I would like to go into I would like to invite Akaki, who is our macroeconomist, to cover a few slides on the Georgian and Armenian macro. I'll stop sharing and ask Akaki to share the presentation.

Operator

So, Ankathe will be joining us right now.

Speaker 2

Hello, everyone. I will be providing an overview of recent macroeconomic developments. In Georgia and Armenia, we continue to observe sound macroeconomic environment distinguished by robust growth, low inflation and stable local currencies. In quarter 3, economic growth in Georgia accelerated farther, while the Armenian economy started to normalize after export related one off spikes in previous periods. Both economies are expected to maintain the growth momentum underpinned by solid fundamentals.

Speaker 2

Downside risks persist. However, prudent macroeconomic policies are in place to shield the economies from possible shocks. External sector inflows are key for small open economies such as Georgia and Armenia to sustain growth and the major sources of inflows including export proceeds, tourism revenues and money transfers grow steadily and show resilience. Moreover, new sources of inflows, including export revenues from IT and transport services continue to expand. They create diversification benefits as well as productivity gains for the overall economy.

Speaker 2

Resilient external sector inflows are also key for sustaining the values of local currencies. Georgian lorry remains close to the beginning of year levels after short lived volatility episodes in previous periods. As we see in the preliminary data, the National Bank of Georgia has sold substantial amount of reserves to stabilize the currency amid pre election sell off. However, as external sector inflows remain robust, we believe that MBG will be able to replenish reserves once the sentiments improve, and we already see some signs of improvement. Meanwhile, the Armenian drum stands out as one of the best performing currencies in the region.

Speaker 2

Inflation remains subdued in both geographies due to stable exchange rates and delayed effects of previously tight monetary policies. Both countries maintained solid international reserves and a track record of fiscal discipline. In Georgia, strong economic growth is accompanied by tightly managed fiscal balance, while in Armenia, the ongoing fiscal expansion is expected to temporarily widen the budget deficit. However, this should not provide any negative adverse consequences for fiscal sustainability, which is backed by ongoing IMF standby arrangements and international donor support. The banking sectors in Armenia and Georgia demonstrate healthy and profitable growth.

Speaker 2

Dollarization levels are declining amid weather aligned regulatory incentives and balance sheets remain sound. Overall, the environment is supportive for healthy credit expansion.

Operator

Thank you, Agaki. I think, Arceo, you can pick it up from here, I guess.

Speaker 1

Thank you, Agaki. Thank you, Nini. If there are questions later on, we may ask Agaki to join as well. We're so happy to answer some of your questions. Apologies for just a second.

Speaker 1

Yes, so I'll continue from here. So our promises, so as we are very happy to report that some of the key numbers that we watch are the monthly after users of our retail application, which is continuing to grow by 20% year on year, which is quite incredible and we are above 1,500,000 users monthly active users of our application. Engagement, which is the daily usage of our monthly active users, is also quite high and just shy of 50%, which, as I never get tired to mention, is just shy of the social applications. Activities of the engagement is pretty high for any financial. The monthly active users of our application for the legal entity is also up by 26% year on year and the overall monthly active users of our legal users of our services is up by 19.7%.

Speaker 1

So this is to highlight that although our usage, we have a pretty good coverage in the country, we still continue to grow our coverage. That is partly due to the fact that some of the customers have become double users, double and triple users. But it's good to have that growth so that we cover a big majority of the population and the legal entities so that hopefully everybody would have our account being in the company or individual. In terms of share of products sold digitally, we monitor that ratio quite closely. We are at 58%.

Speaker 1

In terms of the consumer loans being sold through digital channels, we are up to 82%, which is 11 points higher than last year, same time last year. In terms of non branch transactions, almost all the transactions are done digitally. It's 99.2% of which 72% is done through the digital channels and 27% is done through ATMs and the self-service terminals that we have laid out throughout the country, more than 3,000 of those. In terms of the payments acquiring business, the volumes are continuing to grow above 30%, so 31.2% and the market share acquiring business was 57%. And in terms of people using our cards, monthly active users using our cards are growing by 18.5%, which is also quite substantial given the coverage that we have in the country.

Speaker 1

So we are almost at 1,400,000 people using our cards regularly. Our net promoter score was 67%, slightly less than the previous record showing, which is very high and very good for any universal bank. In Armenia, we are seeing continuous growth of our retail coverage, where we see the monthly active users of our retail application growing by 39%, which I would like to congratulate our Armenian colleagues on this good speed of execution and growth. And we see the engagement is pretty substantial as well. So there, about 60% of all retail customers are monthly active users of our application.

Speaker 1

This can easily grow to 70 80 as we add more and more capabilities to the retail application. And the engagement is above 40%, which is quite impressive as well. Now in terms of the numbers, you can see the operating income is growing by 45% and 0.9% and you can see the separation of Armenian business separately here. And in terms of 9 months, that's 35%. Obviously, here, it's not a direct comparison because we in the base year, we are missing Ameriabank on one side, but on the 2024 number, we only have Ameriabank for 2 quarters.

Speaker 1

So the Q1, we did the acquisition at the end of the Q1. More detailed comparison of Georgian Financial Services and Armenian Financial Services are available in our publication. Net interest income grew by 52.6% and non interest income by 33.3%. In more details, what we saw was that we had in 3rd quarter, we had a slight decrease in net fee and commission income Q over Q in Georgia as well as in Armenia. In both cases, there were types of one offs.

Speaker 1

And in Armenia, there was a significant advisory fee in the 2nd quarter on a large corporate client. In Georgia, we had a number of charges, specifically those what we call plus points birthdays. So we have a special shopping day where we doubled the points that people are using our cards in that one day. And that one day has become more popular than we expected in 510. There was an extra charge of SEK10 million.

Speaker 1

From one side, it was bad that it was a charge, but on the other side, it's very good news because it's the basis why more and more people are using our cards. Net effects was flattish Q over Q and a significant growth year on year in Georgia as well as in Armenia and combined, obviously. In operating expenses, we had a slight decline Q over Q. The year over year obviously reflects the addition of Armenia. So what we have here in terms of cost income ratio, you can see the combined entity, which is just shy of 35% with Georgia being just below 30% and Armenia being just below 50%.

Speaker 1

On a standalone basis, Armenian numbers are slightly better. You can see in our numbers, but there's some allocation that happens there as well. In terms of loan portfolio, we saw very solid good growth in both geographies. We saw year on year 21.7% growth, that's constant currency growth. And in the quarter, that was 4.3%, which was quite impressive.

Speaker 1

And Armenian was even better with 6.1% Q over Q. And we don't do the yearly comparison because the numbers are not exactly comparable on a standalone basis. You can see the numbers separately, which we disclose as well. Deposits, we had a significant growth of 7.3% in the quarter. Some of this we may lose because we were specifically wanted to have high liquidity for the volatility and for the uncertainty that we had related to elections.

Speaker 1

And in Armenia, the growth was just a little bit less than 3 percent Q over Q in deposits. Net interest margin was 10 basis points lower, almost flattish, and you can see the breakdown of the yields as well. Cost of risk was low, 0.2 percent in both geographies. It was about that. We are seeing significant good performance in the economy in both geographies and that is reflected in the cost of risk where we are below significantly below the mid term target of 1% that we guide.

Speaker 1

Also worth noting is that if you applied 1% cost of risk, which would be high in this environment obviously, you would be looking at 28% return on equity instead of 32 percent, because some investors asked us what would it be if the cost of risk was higher. We had NPL ratio coming down to a record low, which is 1.8% with 71% coverage. And the profits were, as we mentioned, record of NOK509 1,000,000 that represented 32% return on equity and for 9 months, that's 30%. In terms of the capital ratios, we have very healthy, in fact, slightly more than our midterm guidance buffers in Georgia as well as in Armenia on the core Tier 1. But there's some room to add a little bit more buffers and be ready for more growth on Tier 1 and total capital in Ameriabank.

Speaker 1

For that, we would entertain a Tier 1 instrument in 1st or Q2 of next year. That would depend on some of the legislative changes that the National Bank Central Bank in Armenia is working on. Liquidity was very healthy and you can see that all of the above basically have resulted in the fact that post COVID, we have been very disciplined returning the capital to our shareholders through dividends as well as buybacks. So this is buyback and cancellation. As you can see, over the last 3 years, we have reduced our share count from SEK 49,000,000 to SEK 44,500,000 and we announced previously the interim dividend, which was slight growth over the last year.

Speaker 1

So all in all, while we did all of this, we also with our own capital, as you know, acquired Ameriabank, so that was on top, which enlarged the overall business as a group. So with this, we I will stop this and mention a couple of things regarding the development in Georgia. As you know, we had elections just recently. We have seen volatility in lari as well as in our share price and we understand a lot of people were nervous about it. And what we have seen is that this some of this volatility is coming down.

Speaker 1

We have seen demand for lari effect increase. So some of the switch from dollar to lari that happened pre election, we are seeing that being unwell. So as Agape said, we expect that the National Bank will be collecting the reserves over the next few months and that should be relatively easy because this shortage of lottery in the country, you can feel it and we believe that there will be significant demand for it because the economy continues to deliver pretty impressive growth numbers. So that's we believe that the volatility and noise will come down, although a lot will also depend on some of these discussions that will be happening with the United States, which will take a little bit of time as well. So that's where we are and I'm happy to answer your questions.

Operator

Thank you, Arcel. Now we're moving to the Q and A part of this call, and we have the raise hand feature in Zoom to ask questions or if you prefer to type, we also have the Q and A chat.

Speaker 1

Yes. So I see Mark Webster is asking, are there any other regions, countries where you would like to be represented? We would like to be top 3 player in a lot of geographies, but we would like to do such transaction if we can afford it and if we feel that we can add value to that operation and if the country and macro situation is attractive. So all of this above and at the same time to have some competitiveness in terms of the cost of capital has limited us significantly in the past. So it has taken us more than a decade to move.

Speaker 1

I would assume that our first move was Aryabank, but we are not a player where we would be going with a product strategy in a small there's a small player in big markets and trying to disrupt. We don't do that. It's a different strategy. We are a universal bank. And if we believe that these markets where customer is underserved and there's an ability to require a top player in that market and the quality of the management, the culture and the organization quality of the book and the macro is attractive, then and we can afford it because we are a small player, regionally speaking, then it could be interesting.

Speaker 1

So I will not exclude any at this stage, but I would also say that we are not at a stage where we can single out 1 or 2 markets, which would be of interest to us.

Operator

We have a raised hand from Henrietta Seligman. Henrietta Seligman. I just had a question. You mentioned that there's some new legislation in Armenia next year. What is the nature of that legislation?

Operator

And what are the potential sort of risks or opportunities from it, please?

Speaker 1

Hi, Henrietta. So the regulation is concerning so laying out a framework for Tier 1 instrument. So currently, Armenia has sub debt instruments and it has some preferred equity instruments, but it doesn't have a legislative framework for Tier 1 instrument. And ourselves as well as some of the other players on the local market are expecting that structure to be put in place so that we could issue Tier 1 for Ameriabank. And that basically means that there's a way to attract more capital and enhance the capital position of Ameriabank and be able to grow organically or inorganically or do dividends because so far, we don't plan to do any dividends over the next couple of years because we see there's a significant growth opportunity.

Speaker 1

So we are basically pulling back the profitability of the company in the growth opportunities that Ameriabank has. With Tier 1 instrument, we could either grow more, acquire or close dividends.

Operator

Thank you. Thank you, Henriette. We have a few questions in the Q and A chat.

Speaker 1

Do you want to read it out and then I'll be happy to ask.

Operator

So the first one is from anonymous SMD. The question is about Armenia. So the first question is that it appears that Emeria Bank has been increasing its headcount with an average of over 350, 400 new hires per year since 2022 as well as the salary per headcount at Emeria seems to be approximately double that of Georgia Financial Services. Could you please elaborate on the factors driving this trend? And what accounts for the salary discrepancy between Ameria and Georgia Financial Services?

Operator

And lastly, should we anticipate a decline in Ameria's cost to income ratio due to potential operational leverage resulting from this hiring expansion?

Speaker 1

Yes. So although it's a neighboring country, a lot of realities are somewhat different. So there's some differences in the pay structures there because the market is local, it's not regional. Having said that, what we see in both countries in Georgia as well as in Armenia is a significant growth over the last few years, which has increased the competition for talent. Also the fact that Ameria Bank has a different structure, it's a top corporate and top premium retail bank, while we are more of a DNA in us in Bancorp Georgia is more mass retail.

Speaker 1

So we have still 185 branches and Ameriabank has 26 branches. So obviously, the branch employee per head is on average, the compensation is lower than some of the back office functions. So when you average it out that could also have some impact. Do we expect for cost income to come down? Probably, it will be a balance of the developing cost consciously on one side, but on the other side, investing in some of the digital and IT capabilities and other type of capabilities because we would like to grow significantly in Armenia.

Speaker 1

So in balance, I would say that, yes, there will be a we would expect slight decline in cost income, but not a significant one at this stage. Mimi, should I take this second question or do you want to weigh the dots?

Operator

So the second question is from Brad Werbiedski. Does it make sense to increase the NPL coverage ratio or put aside some capital for a rainy day given how strongly profitable you are at the moment?

Speaker 1

Brett, we provision based on the policies that we have and that reflects the true nature of our expected losses. Over providing or under providing would be misrepresenting the reality. So we cannot do that. But believe me, overall, I think our policies are relatively conservative. And it's not only regarding the provisioning, but also how we treat the capitalization of costs, how we do all the other policies.

Speaker 1

We are quite conservative and we stick to our policies. So all we're providing would be a missile presentation, so you cannot do that.

Operator

Thank you. The next raise hand from Ronak Adia.

Speaker 3

Good afternoon, Arshil. Congratulations on the results and thanks for taking my questions. I have asked about 3 questions. Firstly, maybe you can just take them sequentially. Firstly, on NIMs, I noticed that the NIM for Georgia FS was higher on a Q on Q basis.

Speaker 3

Could you just maybe help us understand how you're able to achieve that given the general declining rate environment in Georgia?

Speaker 1

Yes. So you may remember from the last call that we said that we expected 10 to 20 basis points uptick and that was basically because we retired Tier 1 instrument. We had double cost in the 2nd quarter. So it's mainly that. So it could have been slightly higher, in fact, 20 basis points, just the effect of that, but there was pressure on the cost of deposit side.

Speaker 1

We couldn't so the refinancing rate on LARI decreased, but we couldn't decrease the deposit rate deposits as much because it was already low. So we only had 10% pickup. While we are happy about it, we wanted more. Does that make sense?

Speaker 3

Yes. Should we even expect maybe NIM to be remain a bit more resilient in 4Q and then, maybe start declining from next year?

Speaker 1

Probably.

Speaker 3

Okay. Maybe just sorry.

Speaker 1

It's difficult to say. It's difficult to say, but all I can say at this stage is that liquidity is high, but the loan demand is also quite strong. So I think we are going back to normalization times, although politically there's a lot of noise. We still see a lot of people going back to investing and development like usual days. So there's a lot of demand.

Speaker 1

There's a lot of liquidity as well. So how that will translate into the margins, we'll see. But we don't expect major changes, could be small ones.

Speaker 3

I guess my second question is more a follow-up of what you've just been saying. Like you mentioned, you have a lot of liquidity on your balance sheet. One thing I've noticed is the investment securities to deposits ratio is quite high relative to where it used to be maybe 2 years ago. So as like you said, as things are normalizing, do you see your deposit portfolio deposit growth maybe starting to moderate, you start to run off some of the investment securities and make the balance sheet more efficient?

Speaker 1

So short answer, yes. So they're basically, when you approach major elections like we did this time, we always like to have extra liquidity, which we did. Also, we are at slightly more than 42% market chain in deposits and I think we are paying 50 basis points more in capital requirements as we go above 40%. So we would like to be just shy of 40%. And so some of the deposits we'll try to replace with wholesale funding or just push it out of the doors.

Speaker 1

So there will be one correction. The other correction will be deploying extra liquidity with loans. So we'll be doing both. So on one side, we'll be pushing down on the deposit costs of our corporate clients because that's the similar to wholesale funding, so I'd say. And on the other side, we'll be looking at optimizing the liquidity like we do for long term planning.

Speaker 3

And finally, just on your dividend policy, like you mentioned, our EMEA Bank is not going to be paying deposits dividends rather in the short term, given that it contributes roughly about 18% to 20% of group profits. To sustain a payout ratio of, let's say, 35%, 37%, it means Georgia Bank of Georgia would have to increase its payout ratio to around the 43%, 45% range. Is that something you'd be comfortable with or do you think you might have to reduce the overall group payout ratio?

Speaker 1

So you introduced something which we never said. So you said 35% to 50% and I think we guide 30 to 50 and we'll be in that range. And I guess that answer gives you so we'll be on the lower side of that range.

Speaker 3

So I guess technically you should see a slightly lower payout ratio because because you're not getting any dividends out of Armenia.

Speaker 1

So it will be slightly or could be slightly lower payout ratio versus historical couple of years, but it will be within the range that we guide. So 30 to 50, so we'll be on the lower end of that range given the fact that we expect Ameriabank to deploy its profitability and growth. Having said that, there are some variables there. So if we put Tier 1 instrument in there, that could help. If that doesn't happen, if that happens, but then this capacity to do a bolt on acquisition, that could be different.

Speaker 1

If there's and so forth, right? So there are a number of variables, but we're comfortable with the range that we have. Although, as we mentioned previously, given the growth opportunities in Armenia, we'll probably be on the lower end of that pay operation.

Speaker 3

Understood. Thank you so much.

Operator

Thank you, Lonnava. So we have 2 raised hands and one follow-up question. Maybe I'll read the follow-up question from Mark Webster. With the election complete, are there any future specific political or macro events that you're monitoring more closely that may impact your business?

Speaker 1

Yes, my answer will be rather obvious, but it's Ukraine and Israel that we're monitoring because it has a wider impact on a wider whole European and Central European and Middle Eastern region in both cases. So yes, so we are monitoring with the outcome of the U. S. Elections. We are monitoring how it will unfold in our wider region.

Speaker 1

I mean, yes, Ukraine but as well as what happens with Israel and Iran and the deals that are made there between the West and the players in the region being Russia and Iran?

Operator

So we have to raise hands. 1 is from a person named Zorz Ben Deliani. I don't see the full name, but I'll let the person speak. Hello? Maybe this person doesn't have a raised hand.

Speaker 1

Interesting to get a question from our competitor.

Operator

From the CVC. But, yeah, I guess I'll let, John Demir ask the question then.

Speaker 4

Hi. Hi. Good afternoon. Thank you for taking my question. I actually wanted to, ask about, the plan to reinvest our, our Marriott's earnings back into the business and play the devil's advocate a bit.

Speaker 4

And I just wonder, wouldn't it make sense to do more buybacks than keeping the capital in our area because it does feel like the Georgian bank's earnings power is much stronger than our areas relative to its cost of capital. So wouldn't it make more sense to pull the capital from Armenia and maybe do more buybacks? Just maybe it doesn't work that linear, but I think it's an interesting question to ask and maybe also interesting to answer. So that's the first one. Yes.

Speaker 4

And the second one.

Speaker 1

Should we take 1 by 1?

Speaker 4

Yeah, of course, of course. Go ahead, Arshad.

Speaker 1

So it's an interesting question, by the way, yes. But at the same time, what we see in Armenia is that there's a significant growth opportunities there and we would like to achieve a minimum size where the cost effectiveness becomes an advantage for Ameriabank. So there, as you know, where the market share of in loans is slightly shy of 20%, And we will not mind achieving more than that obviously. So in a way, strategically over the next few years, we would like to grow more unless it becomes unprofitable. But given the profitability, which we believe is attractive, we would like to have a position where we have we are among the, let's say, top 2 or 3 institutions having an advantage versus some of the other players, which I believe we're not that far from, but there's some capabilities that we would like to develop.

Speaker 1

But doesn't

Speaker 4

it feel like actually there seems to be a slight cost issue in Armenia and only an acquisition could fix that. I mean, what is it fair to say? That is I

Speaker 1

don't say that growth can fix it one way or the other. I wouldn't say that it's only an acquisition. Acquisition is not our default scenario. It's the organic growth, which is our default scenario. That will be opportunistic, but we are looking at organic growth and developing capabilities, digital underwriting, some of the other coverage payments business.

Speaker 1

It's an interesting market and a lot can be done there. And it's a fantastic team that is doing. There's a lot of experience sharing work streams that have started to unfold. So it's a good dynamic. So I would say that I would not take the fuel off on that dynamic.

Speaker 1

Strategically, I believe, and from long term perspective and the value of the Group, I think it's a very good investment. In terms of returning capital to our shareholders, yes, I believe that the overall share price is quite attractive. In fact, when we look at historical analysis, when you look at 20 years of our public life from 2023, well, in fact, it was 2026, we went public in London with GDRs. So it's slightly less than 20 years. We have never been on such a low PE multiple.

Speaker 1

So when you have, let's say, less than 4x PE, 3.5x PE, this is the lowest historically we've ever been on. Lowest historically over the last 2 decades, while we are the strongest historically in terms of market share, in terms of brand structure, in terms of the digital development, in terms of just overall being on the front foot in terms of development and customer service and profitability, cost of risk, just you name it, we are in the strongest position we've ever been. While we are seeing the lowest PE multiples, that's why we like buybacks. We started to do it a couple of years ago and we'll continue doing it. And if we believe there's more to be done, we'll do more.

Speaker 1

But at this stage, there's no reason to expect something like this at this stage. We'll be doing the dividend return as well as some buybacks as some of our investors prefer.

Speaker 4

Fair enough. Fair enough. And maybe secondly on fees and I think I've asked a similar question before, but in Georgia, it does feel like despite the one off and everything, there seems to be a slowdown in terms of fee growth, which is 8% year on year and maybe call it 10% after one offs. I'm not sure what the adjusted number is, but No,

Speaker 1

with the one off, I think we'll be close to 20%, 21%. I think we disclosed it in the results. Okay, Armin, can you help me with this?

Operator

Yes. Result is SEK25 1,000,000 one off last year in 3Q, we will be looking at 21% year on year growth.

Speaker 4

Okay, got it. So there is another one off in the Q3 last year, okay, I thought that In

Operator

the Q3 is one off, yes, adjustments.

Speaker 4

Okay. Thanks, Nina. Okay. Got it. That's all for me.

Speaker 4

Thank you very much.

Speaker 1

So in 3rd quarter, we don't have any one offs to speak of. On the income side, there were a couple strong charges on the expense side, especially consulting and couple other ones. But it's a pretty sustainable number. The only thing that is low is the cost of risk, which is unusually low, but it's only reflective of very strong macroeconomic.

Speaker 4

Thank you.

Operator

Thank you, John. Henrietta has kept her hand raised, but she might just have forgotten to. I'll try just to make sure she doesn't have any other questions. Henrietta, do you have any other questions? Sorry, I forgot to lower it.

Operator

No worries. Thank you. Then I don't see any further questions at this point. I'm

Speaker 1

surprised there are not many questions today. But my guess is that the numbers are not bad, I guess, and the rest we disclosed in our numbers. We remain available for your questions. You can directly contact Nimi or myself and we be happy to provide more explanation and answers if there's more. But with that, thank you very much and we look forward to strong growth going forward.

Speaker 1

I'm a big believer in the story of the middle corridor because this regardless of some of the outcomes as one of the participants have answered what we are looking at and what we are monitoring. Yes, we are monitoring Ukrainian Russia war as well as the Israeli and Iran situation. But basically, what we see there is regardless of the outcome, we believe that risk regarding Russia for the Western world will remain high, which means that Central Asian countries as well as the West trying to access Central Asian countries and resources will be looking at developing the alternative corridors around alternative ways. So to avoid Iran and Russia and somehow get to Central Asian region, the only way is through the Southern Caucasus. So that has been a theme over the last couple of years.

Speaker 1

We've seen many investors coming in and making regional centers in Georgia with the PepsiCo and Red Bull and Heineken all making regional centers in Georgia to supply wider region, some of them being relocated from either Russia or Ukraine, others just making that thing. Plus there's a lot of logistical investment coming in in and so forth. And what we hear from the government is that the government wants to continue pro business policies and basically be disciplined regarding the budget. Even in the election year, the budget deficit will be closer to 2.5% this year. And basically, big progress in terms of the economy.

Speaker 1

So that has over the last 4 years resulted in a significant growth opportunities and that could very much continue over the next few years. So we are very positive on the macro story. Obviously, this assumes that there will be some of the normalization on number of outcomes that the negotiations that are currently ongoing. So regardless of the outcome and I hope that there will be a positive outcome on these conflicts and there will be no more bloodshed. There will be something that people can live with.

Speaker 1

But basically, regardless of this, I think the Middle Corridor importance of Middle Corridor will remain as an alternative and strong and safe alternative to Russia and Iran to access the Central Asian region and resources. So that I think is a big opportunity for Georgia and we should work on making it happen. There's an anonymous attendee asking, do you think resolution of Ukraine war will lead to decreased capital inflows to the region, especially Armenia? I don't think so, no. In fact, Armenian economy is quite impressive.

Speaker 1

In fact, now that I've spent a little bit more time going there and meeting business people, it's very impressive how entrepreneurial Armenian business people are and how, let's say, regional and global the ambitions are. So it's you see many players that are utilizing the good connection that Armenia has with California regarding the IT sector. There's some of the NVIDIA has 600 people in the back office sitting in Armenia, just as one example. And then there are many other interesting ideas, not only on the digital side, but others. So I'm a believer that Armenia can grow and grow for a long period of time.

Operator

Actually, there was one question raised hand actually from Jim Kempster and let's see.

Speaker 1

Please, Jim. Jim lowered his hand. Hello, Jim. Do you have a question?

Operator

No. No.

Speaker 1

No. Well, on this positive note, I would say that, thank you very much for joining, and the next result announcement will be next year. And I hope that we'll be looking forward to good growth in our both of our main markets, and there's more to look forward to. Thank you very much.

Operator

Thank you for joining. Take care. Bye bye.

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Key Takeaways

  • Bank of Georgia delivered a record profit of NOK 509 M in Q3 (+42.5% YoY) with return on equity of 32%, a cost/income ratio just under 35%, and a cost of risk of 0.2%.
  • The bank was named Best Digital Bank in the World by Global Finance and saw its retail app monthly active users grow 20% to 1.5 M, engagement near 50%, digital consumer loans at 82%, and 99.2% of transactions outside branches.
  • Both Georgia and Armenia maintained a sound macro environment with robust growth, low inflation, stable currencies, and resilient external inflows (exports, tourism, remittances), supporting healthy credit expansion.
  • The loan portfolio expanded 21.7% YoY and 4.3% QoQ, deposits rose 7.3% in Q3, while the NPL ratio fell to a record low of 1.8% (71% coverage) and net interest margin remained flat after a 10 bp decrease.
  • Capital buffers remain healthy with plans to issue Tier 1 instruments in Armenia next year, and the group has been disciplined in capital returns by cutting share count from 49 M to 44.5 M and targeting a 30–50% payout ratio via dividends and buybacks.
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Earnings Conference Call
Lion Finance Group Q3 2024
00:00 / 00:00