Bank of Georgia Group Q1 2025 Earnings Report

Bank of Georgia Group EPS Results

• Actual EPS: GBX 329.89
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Bank of Georgia Group Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Bank of Georgia Group Announcement Details

• Quarter: Q1 2025
• Date: 5/15/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, May 15, 2025
• Conference Call Time: 9:00AM ET

Lion Finance Group PLC (formerly Bank of Georgia Group (LON:BGEO)) is a FTSE 250 holding company whose main subsidiaries provide banking and financial services focused in the high-growth Georgian and Armenian markets through leading, customer-centric, universal banks – Bank of Georgia in Georgia and Ameriabank in Armenia. By building on our competitive strengths, we are committed to driving business growth, sustaining high profitability, and generating strong returns, while creating opportunities for our stakeholders and making a positive contribution in the communities where we operate.

Bank of Georgia Group Q1 2025 Earnings Call Transcript

Key Takeaways

• Strong macroeconomic backdrop in Georgia (9.3% YoY Q1 GDP, full-year forecast raised to 6.8%) and Armenia (4.1% Q1, projected 4.5%), with stable currencies, prudent monetary policies and controlled inflation.
• Rapid digital adoption with Georgia’s monthly active digital users up 17% to 1.65 million and digital product sales rising to 67%, while Armenia’s mobile app MAUs surged 53%, underpinned by being named world’s best digital bank in CEE.
• Robust Q1 financial performance: loan book growth of 18% in Georgia and 30.9% in Armenia, deposits up 18%/15.3%, operating income +52% (including Ameriabank), and a record net profit of GEL 513 million delivering a 28.7% ROE.
• Strong capital and liquidity position with Common Equity Tier 1 and total capital buffers ~1 percentage point above requirements, liquidity coverage and stable funding ratios above 26–30%, and a GEL 17.6 million annual contribution to Georgia’s new deposit resolution fund.
• Continued prudent risk management keeps cost of credit below 0.3% (vs 1% target), nonperforming loans at ~2% with ~60% collateral coverage, reflecting disciplined underwriting and high collateralisation.

Presentation

[Nini Arshakuni, Head of IR at Lion Finance Group]

Hello, everyone. Welcome to LINE Finance Group plc's, first quarter results call. My name is Ninyar Shaguni. I'm head of IR, and today I'll be moderating this call. I will be joined on this call by the group chief executive officer, Arshil Gaczykilade, who will provide a detailed overview of the group's performance and financials across our key business divisions in Georgia and Armenia.

[Nini Arshakuni, Head of IR at Lion Finance Group]

But before that, I would like to invite our economist, Akakili Kokeli, to discuss the macroeconomic developments affecting our core markets. I would also like to remind you that this call is being recorded. And with that, I'll let in. He will join in a second. Hi, Akaki.

[Nini Arshakuni, Head of IR at Lion Finance Group]

You're on the line, and you can share the presentation.

[Akaki Liqokeli, Chief Economist at Bank of Georgia Group]

Hello, everyone. Let me quickly share my screen. Okay. I hope you see it now. So I will be presenting the macroeconomic update for Georgia and Armenia, Two main markets of the group.

[Akaki Liqokeli, Chief Economist at Bank of Georgia Group]

Let me start with growth highlights. So in quarter one, Georgian economy surpassed expectations posting 9.3% year on year growth on top of 9.4% real GDP expansion in 2024. This once again demonstrates the resilience of the Georgian economy amid uncertainty. So given the stronger than expected performance in quarter one, we have revised our full year real GDP growth forecast to 6.8%. We anticipate the Georgian economy activity will remain broad based, primarily driven by consumption spending.

[Akaki Liqokeli, Chief Economist at Bank of Georgia Group]

Meanwhile, the Armenian economy continued to moderate in line with expectations amid weaker external demand. Quarter one, the Armenian growth was 4.1% and we project 4.5% for the full year. This is after 5.9% growth in 2024. We also expect that the Armenian recent concentration sectoral concentration of the Armenian economy will ease in the following periods, leading to more balanced and sustainable growth profile. Downside risks remain elevated for the whole region.

[Akaki Liqokeli, Chief Economist at Bank of Georgia Group]

However, Georgia and Armenia maintained their leading positions according to the latest IMF forecast for the next five year growth, as you can see on the right hand side chart. So external sector inflows have been historically one of the main drivers of growth and currency values in Georgia and Armenia. However, in recent periods, we have seen these inflows normalizing. So on the left hand side, in the case of Georgia, the inflows remain more resilient, including export proceeds, tourism revenues and remittances,

[Akaki Liqokeli, Chief Economist at Lion Finance Group PLC]

and it

[Akaki Liqokeli, Chief Economist at Bank of Georgia Group]

registered modest year on year increase in Q1. However, in the case of Armenia, we see more larger adjustment. This is due to significantly higher base of the previous year. Overall, we expect this adjustment to be somehow partially offset by other inflows, nontraditional inflows for those two countries, particularly service export revenues, including IT and transportation services, which have which have shown more resilience and have become one of the main sources of hard currency inflows and productivity gains for Georgia and Armenia. Overall, this resilient external sector inflows also support local currency values in Armenia and Georgia.

[Akaki Liqokeli, Chief Economist at Bank of Georgia Group]

And as you can see on the left hand side, most of the regional currencies, including the GEL and AMD, have appreciated versus the U. S. Dollar in the first four months of this year. This is due to the global weakening of USD. However, if we take a longer term perspective and also look at 2024, we see that currencies that currencies in the region that appreciated more this year, they had weaker starting points from 2024, while Georgian lari and Armenian drum are relatively more stable.

[Akaki Liqokeli, Chief Economist at Bank of Georgia Group]

So in the medium term, we expect those two currencies will remain stable supported by resilient external sector inflows and sound macroeconomic policies. This stable exchange rates and prudent monetary policy have been a key in maintaining low below the target inflation in both countries during 2023 and 2024. However, in lately, have seen inflation picking up in both countries. This is mostly due to the low base of the previous year as well as some modest increases in global food prices as well as increasing some service costs, which reflects strength, continued strength of domestic demand conditions. So both central banks have maintained their interest rates unchanged over the recent months.

[Akaki Liqokeli, Chief Economist at Bank of Georgia Group]

They are carefully monitoring the recent inflation developments. We expect inflation will remain above the 3% target levels in both countries during this year, and then they will go back to the targets as inflation expectations remain well anchored and demand supply conditions appear broadly balanced. We don't anticipate any interest rate cuts this year either in Georgia and Armenia as the central banks are careful regarding the latest increased uncertainty in the global inflation environment. Low apart from low and stable inflation, robust and sound policy buffers are essential for overall macroeconomic stability. And in this regard, we have positive developments in both countries after some deterioration in international reserves in previous years.

[Akaki Liqokeli, Chief Economist at Bank of Georgia Group]

We have seen that the central banks have been replenishing the reserve levels. In Georgia, the National Bank of Georgia started part resumed purchasing the USD, while on the Armenian side, the recent issuance of sovereign Eurobond also helped in this regard. Another key policy buffer is this low and sustainable level of government debt. In the case of Georgia, government debt to GDP has been below 40%, which is a very comfortable level in international standards, and this is expected to decrease further in the coming years. In the case of Armenia, the government debt to GDP level is a little bit higher, around 50%, and it is set to increase additionally due to the ongoing spending needs of the government on public infrastructure and social welfare programs.

[Akaki Liqokeli, Chief Economist at Bank of Georgia Group]

However, we expect the Armenian authorities will maintain fiscal discipline supported by IMF's ongoing standby arrangements. So in addition to improvements in policy buffers, Georgia and Armenia have also enhanced their resilience against external shocks by significantly reducing their external debt to GDP ratios in recent years, as you can see on these charts. This was primarily driven by strong growth and local currency appreciation. Although the external debt to GDP ratios remain above peer median in both countries, this significant decrease compared to the historical levels provides policy flexibility and also enhances investor sentiment, which contributes to the broader macroeconomic stability. And lastly, let me briefly cover the recent developments in the banking sectors, which have remained strong, delivering strong results.

[Akaki Liqokeli, Chief Economist at Bank of Georgia Group]

So growth has remained quite elevated in both countries. Year on year loan book growth in Georgia was steady at 16.6% in q one, while it accelerated further in Armenia to 30.2%. This is partially explained by the anticipated phase out of the state mortgage subsidy program. Dollarization loan dollarization has remained broadly flat in quarter one after significant reductions in previous years. And lastly, the asset quality is also sound with Armenia and Georgia recording one of the lowest nonperforming loans ratios compared to the regional peers.

[Akaki Liqokeli, Chief Economist at Bank of Georgia Group]

So this concludes my part of the presentation. Now I will hand it back to Nini.

[Nini Arshakuni, Head of IR at Lion Finance Group]

Thank you very much, Akaki. With that, I'll hand over now to Arshil who will continue with the discussion of our results. Arshil, you can start. You're on the line. Arshil, we can't hear you, and also your slides are again showing this, like, boxes.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

Really? So you can you cannot see my slides?

[Nini Arshakuni, Head of IR at Lion Finance Group]

Oh, yeah. We see the black the black boxes in on on the I can share the screen. I can share the presentation.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

This is interesting.

[Nini Arshakuni, Head of IR at Lion Finance Group]

This is

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

Please do please share the presentation.

[Nini Arshakuni, Head of IR at Lion Finance Group]

Oh, let me do it now.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

Apologies for a bit of a technical holdup.

[Nini Arshakuni, Head of IR at Lion Finance Group]

Do you see the screen?

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

Not yet. Yes.

[Nini Arshakuni, Head of IR at Lion Finance Group]

Okay. Great. Let me move.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

Yes. This is fine. Hello. Thank you for joining the call. First quarter call, as as Akaki mentioned, the macro has been has been quite positive in Georgia and in Armenia, and that created an environment where we had a very strong growth of our balance sheet on on the loan side.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

Deposits were already high in any case, but we've not been we have kept the high liquidity in in in the first quarter, but we'll be looking at deploying it. So the constant currency growth of our loan book was was 18%. But before we go into into that, so just just to remind everybody that our strategy is to be the main bank in in our core markets by focusing on excellent customer experience. We are focused on profitability, and and our enablers are the customer centricity, data and models that we deploy our people, brand strength, and effective risk management. And it's important to remind this because I'll I'll be talking about some of the progress that we've made on each and every one of them, and and the progress is is quite impressive before we get to the the final result, which is which is in numbers, which are on a quarterly basis, but the strength of this franchise is is really demonstrated by some of the measures that are describing our enablers.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

Now we are above the loan book growth, mid mid target of 15% and and well above the mid target return on equity as our cost of risk is lower, but also the macro economy is pretty supportive. And on the capital distribution side, we are on the lower side of that. So, please, Vinny. So on the previous presentation, we did talk about the fact that Global Finance named us as the best installed bank in the world. It really put us I think it it created a little bit of more recognition of our technology and of our excellence, especially on the retail banking side.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

And it's not just the application. It's the way we do the underwriting, the way we do the chatbots, the way we do the collection, and what kind of models are underlying it and so forth. So there are many subcategories. And overall, there's only one central Eastern Europe. We were the winners there.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

And then after that, we were chosen as as the as the world's best digital. Thank you. And and and the main part of of that, obviously, is is the distribution, which is the mobile application is the dominant one over this this web application as well for the computers as as well as some other other ways of digitally reaching our customers. But, basically, our mobile application retail is is a place where people can do many things, including low cost low cost share trading, money, some multiple currency attached to one card and so forth. So I'm not gonna go on this.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

Our number of monthly active customers is up by 11%, and monthly active users, digital users, is up by 17%. So now it's 1,650,000 people in in Georgia are using our services actively, which is quite quite interesting that this this number continues growing above 15% year over year. And and just as a reminder, six years ago, we had 300,000, and now it's 1,650,000. So it's it's becoming the the main the main daily bank. It is already the main main main bank in in the country.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

On the on the number of legal users, that's mainly the MSME, it's flattened out. On the first quarter, was was relatively slow, and we had a very, very dramatic increase over the last two years. So there'll be growth there, but not not as high as as we are changing the critical penetration of our MSME clients in terms of our digital usage. One of the key focus areas is is is selling digitally. So on the transaction side, there's more than 99% as as you know, the is done digitally now over the last few years already.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

But selling our products, and and then it's not just deposit on loans, but the cards and and other services, FX, and so forth. Selling more of our services digitally is is the key key area. And for that, a lot of redesign of the products and so forth are happening. So you see the trend is is is up over the last two years from 44 to 67. And everything to point of that allows us to grow the business without really growing the our physical presence or in some cases, they are reducing it.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

So on the loan side, we are already up to 85% and deposit 74, and and a key focus will be to to increase those numbers going forward. But I'm I'm very happy with the progress there. Also, very strong growth in in in payments acquiring business with 31.9% volume growth. And on the issuing side, the monthly active users of of our so individuals holding Bank of Georgia cards is close to 1,500,000 now, which represents 15.9% growth year over year. So, again, I mean, from a dominant position to be growing at this rate is is is quite good.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

So very happy with the retail franchise that we have. Something to underline is that we in in March 2025, we were recognized we achieved the highest NPS score again, so 73, which recognizes the quality of our service and focus on on products, on on channels. And so overall focus on on customer satisfaction is the key part of how we do it and what we do it. So so it's congratulations to to our colleagues that have contributed to to such an incredible score NPS score. Now in Armenia, we are continuing to grow the monthly active customers.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

As you can see, the overall retail customers have grown by 25.9% year over year, and and the monthly active users of the application have grown by 53%, so slightly above the beginning of the year. First quarter is usually slow, but the but the growth still still remain there, and the engagement is pretty good. Now few words about the figures. On the operating income side, we're 52% up, but mainly, I mean, as we as we integrated AmeriBank in at the March year. So the income statement does not include the the the February income statement.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

It does not include the numbers AmeriBank numbers, but the balance sheet does. So I just want to highlight that. So when when you look at it, for comparison reasons, probably, it's best to compare the first quarter results with GFS and then AFS or or a stand alone basis for Ameriabank. So for for the Georgian operations, our revenue was up by 10.8%, And then it's probably best to to break it down into two, net interest income and non net non net noninterest income. On the net interest income, the growth was 14.1%.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

But what's what's worth highlighting is that the gross interest income was was higher. It was 21.6%, and the interest expense was 31.5%. But that was caused by the fact that we were carrying a much higher liquidity than usual, and that that was carried on in the first quarter. So there's a bit of upside there as we deploy that liquidity to to grow the number. I think the fact that interest income gross interest income was up by 21.6% shows and reflects our strength of our balance sheet growth that we've experienced.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

Net fee and commission income grew in Georgia by 6.2%. There, too, the gross gross growth of gross fee and commission income was stronger than but the expenses were a bit higher, and we're focused on on on managing those expenses and renegotiating couple of contracts. Net effects was also I think it's it's best to do it on a country by country basis. And in Georgia, it was it was up by only 1.3%. What's worth noting is that the client flow fee and commission income, which is more than 80% of of of the overall FX income, was very strong.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

In fact, it was more than 20% growth year on year. So that that makes me happy. But the revaluation in the first quarter last year was positive, and it was negative in first quarter this year. So overall, the number came out flattish. But strength of of the client client effects flow search is still there, which makes me which makes me feel good about that.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

Cost cost controls on the operating expense side, it was slightly higher, 18.2%. There were two things that affected that. One was the contribution to the to the state fund, which is for the for the guaranteeing of the of the deposits up to 30,000 lari. So there's a fund that is being set up, so we will be contributing it. So from January 1 was the first time that we contributed to that going forward.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

We are going to have that expense line. For the full year, it is going to be 17.6%, million based on the estimate of the overall system wide deposits that are being assured, and that that is going to happen over the eight eight years. So for every year, that expense line will be there. And and, also, we had two senior managers that will be leaving us, and and the expenses of unlisted shares were also expensed there. So if we did not have those two, then the expense growth would be more like 12.4% or 12%.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

I apologize. Which still means that we we should be focused on it than we are. But, otherwise, you know, things are as as usual. Loan portfolio growth remained very strong in in both home markets, 18% constant currency in Georgia and then 30.9% in in in Armenia. Deposit growth was similar in in Georgia, Eighteen Percent, then slightly less in Armenia, Fifteen Point Three Percent, which is more than enough liquidity to to finance the the strong growth.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

We will be focusing on growing deposits a bit slower going forward given the fact that we would like to keep our deposit market share just below 40, and it's we are at forty two seven point something now. Net interest margin is something that a lot of people are asking about. So that too, the the combined is 5.9%, which we we we believe that it will broadly be stable. In Georgia, there's a slight upside as we deploy liquidity because the loan margin is is strong as as if you look at the loan yield separately for Larian dollars. There's a slight uptick in the dollar loan yield, which has been fully consumed by higher liquidity cost at this stage.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

But as that comes down, I think we should we should look forward to either slight increase in in in the margin in Georgia and and broadly stable in Armenia. So that's that's our expectation for the for the NIM going forward. Cost of credit risk was low in both markets, zero point two and zero point three in Georgia and Armenia accordingly. Our coverage is just below 60, which basically reflects the high collateralization of our portfolio on the NPL side. Yes.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

The NPL is at at, you know, 2%, but the coverage is determined as a result of of the collateralization. So it's that's the reason why it's it's slightly dropped, but so the collateralization is is pretty high, especially on the SME and corporate side. Profitability wise, as a as a result, all of this of all of this, the return on equity is 28.7. The profit number was the record 513,000,000 lari, and our return on average assets of of just under 4%. On the on the capital buffer side, as you can see in Georgia and and Armenia separately, we have about 1% in in most cases other than in Armenia where the total is 0.3, which is above the 0.1 that we had last quarter.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

And that number will be we expect will be above 0.5 in July and then above 1% closer to the end of the year. There's an upside there in Armenia because we the regulator is working on issuing a tier one framework, which took a bit longer than we thought, but we we know that the work is ongoing there. And once that is out, I think that will allow us to consider raising tier one instrument in Armenia, which would create substantial buffers for tier one as well as total. In case of Georgia, the total is also 1%, and our management target is one and a half, so we're slightly below. But that is because we retired part of the tier two instrument, and we are replacing it with some something else, but and and you won, basically.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

But that's an ongoing capital management structure, and nothing special going on there. More importantly, CET one and t one are are are strong. As we mentioned, liquidity remains above the historical leverages at above 30% on the on the Georgian side. And in Armenia, it's it's 26% in that stable funding ratio, which both are very strong. And Georgia is slightly more than we would like to see.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

It's just a slide on capital returns. We are well aware of it. But just to highlight that over the last three and a half years, we have reduced our share count from 49 to 44, and that is on top of the fact that 90% of top management compensation is in shares. But those shares are are being bought on top of the buyback and and cancellation program that we have. And and regardless of all the shares that we issued there, not issue, but we we buy from the market, the overall number through the buyback and cancellation, which continues, has come down to 44,000,000 now.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

Thank you very much, Nini. I think you yes. So let's open up for q and a, which is usually the most lively part of the of the presentation. Thank you.

[Nini Arshakuni, Head of IR at Lion Finance Group]

Let me look at the so we have the first raised hand from our analyst, Jeffries Priya.

[Priya Rathod, Equity Associate at Jefferies]

Hi there. Can you hear me?

[Nini Arshakuni, Head of IR at Lion Finance Group]

Hi, Priya. Yes. We can hear you.

[Priya Rathod, Equity Associate at Jefferies]

Hi. Thanks for taking my question. Just two from me, please. So the first is on the resolution fund contribution. I know you mentioned the 10,000,000 figure, but would you be able to quantify how much the cost of just the contribution was this quarter?

[Priya Rathod, Equity Associate at Jefferies]

And going forward, how should we think about this contribution? And I mean this in context of like the total contribution and how that will be spread out over the eight years? And my second question is on the excess liquidity. Again, how should we think about its deployment going forward? And are there any areas of focus that you're looking

[Priya Rathod, Equity Associate at Jefferies]

to

[Priya Rathod, Equity Associate at Jefferies]

deploy this liquidity? Thank you.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

Thank you, Priya, for for good questions on the contribution side. So so the idea is that there's deposits that are guaranteed under this program, which is for the system wide is about 13,600,000,000.0. So so the law, the regulation says that there should be enough money, which would be 33% of that amount should be set out as a resolution fund. And so the banks contributing proportion of whatever amounts that they have that are insured by the government, and that is spread over eight years. So the current estimate is that this year, our contribution will be 17,600,000.0 lari.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

And in the first quarter, I think it was four point something, four four point four. So exactly one quarter of that. So that's what you should expect over the next few quarters in the estimate of the power deposit changes that that number may change. But, otherwise, that's what you should expect. And same goes over the next years.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

As this number grows, it may grow a little bit, but not substantially. And and the second one was maybe what was the second question about?

[Nini Arshakuni, Head of IR at Lion Finance Group]

The liquidity as well.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

Yes. On the liquidity side, there's no particular plan of of deploying it one way or the other. Most of the extra liquidity is still still in dollar terms, although a lot of liquidity is pretty strong as well now. So the dollar liquidity usually is deployed in in corporate and some in s SME. Lot is mostly deployed everywhere.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

But, basically, there's no particular plan regarding that, and it doesn't need to be deployed. Not all of extra liquidity may get deployed in the loss, but we may we may start reducing our rates on on the on the deposits so that we don't we don't we don't pay for the most expensive deposits, basically, and let allow the others to do that. So we may either push it out or deploy it depending on on the on the possibilities that will be opportunistic Thank

[Priya Rathod, Equity Associate at Jefferies]

you.

[Nini Arshakuni, Head of IR at Lion Finance Group]

Thank you, Priya. The next question comes from Steven Payne from Peel Hunt. Hi, Steven.

[Stephen Payne, Research Analyst at Peel Hunt]

Hi. Good afternoon. Thanks for the questions. Two questions, if I may. First one, obviously, cost of risk still remains very low at 0.2% in both Georgia and Armenia.

[Stephen Payne, Research Analyst at Peel Hunt]

If you just sort of remind us your view on what more sort of normalized levels would be, and I feel for any potential timing on when that normalization might come through.

[Priya Rathod, Equity Associate at Jefferies]

And Yes.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

Let's take one by one. Yeah. Sure. So the normalized cost of risk for us is 1%, and we are continuing to benefit from the benign economic environment. And until that that that continues, I don't I I believe that the cost of risk will remain under the under the guidance.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

So far, you know, 0.2, obviously, is is is, like, super low. But it is what it is, and and and we don't complain. But, obviously, as as you know, when when the cycle hits, it will be one or even higher. But the medium target is is 1%. The I don't I mean, I I given that last few years, we've been upgrading our guidance for growth every single quarter.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

Until that continues, I think the cost of risk will remain well under the medium term guidance. The first quarter numbers, we expect a bit lower. They came higher and and and activity continues in Georgia. In a way, there's slightly less growth now than it used to be still very strong. So I think it it very much depends on the on the macroeconomic environment, but 1% is is the midterm guidance.

[Stephen Payne, Research Analyst at Peel Hunt]

Okay, great. And maybe just touching on Armenia. I mean, obviously, you're seeing very strong loan growth coming through there, and you're already sort of number one market share position. Is there any sort of ceiling on where that sort of market share can go to? And is there anything you can share on what you're doing in terms of developments on the apps to further drive that digital penetration?

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

As you rightly said, so the main focus is on on increasing the capability of our digital offering there to target the mass retail, and and the rest will will happen by itself. Although we are number one there in terms of loans, we we still believe that the position there can be strengthened significantly as as we increase the monthly active users from the current 250 ish thousand to about 1,000,000. So that needs time, and that needs the capabilities to be added to our retail offering, not just on the application side, but the way the underwriting is done and and all the rest of it, call center, the the collection, and everything else that needs the higher higher volume and higher setup so that it can service hundreds of thousands of customers that will be added. That's where the most of the growth will come. I mean, growth will come from other places as well, like it used to in the in the in the in the past.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

But I agree. I mean, above 30% is is slightly high and that may not continue. But above 20%, we we definitely think that we will continue.

[Stephen Payne, Research Analyst at Peel Hunt]

Okay. Excellent. Thank you.

[Nini Arshakuni, Head of IR at Lion Finance Group]

Thank you, Stan. The next question comes from Rona Katia.

[Ronak Gadhia, Equity Analyst at EFG Hermes Holding]

Good afternoon, Arcel, and congratulations on the results. Maybe two or three questions. Maybe just staying with Armenia and the growth question. Your economist mentioned that the state subsidy program on mortgages is about to end. Could you maybe just give us just tell us what that state subsidy program was and what happens there afterwards.

[Ronak Gadhia, Equity Analyst at EFG Hermes Holding]

The the program is taken off. What happens to your growth, maybe margins, cost of risk?

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

It has already ended in in year one, at the end of the year. And I need to get back to you with all the details of it, but my understanding was that it was for the first time homeowners some kind of cashback or deductibility of the income tax that that would go into the interest expense. That was the idea. But the details of it, we we can get back to you and provide. It is still applicable in other other places other than Yerevan.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

But in Yerevan, it has ended because the city is experiencing real estate a very strong real estate market. You feel it. When when you go to Yerevan, you feel it. I mean, there's a wheelbarrow, and there's a lot of construction going on and and a and a very high quality construction as well. So there's demand for high quality housing nowadays.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

So it's I'd say it's a good site.

[Ronak Gadhia, Equity Analyst at EFG Hermes Holding]

That actually was my follow-up question. You know, the loan growth for Amiria and Armenian banks in general has been driven by real estate loans in the last few years. And I just I was just wondering what happens to the real estate segment once this subsidy is is taken off. Do we see a correction? And on the back of that, do you see some weakness in asset quality?

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

I I don't expect that at this stage, quite frankly. I mean, it probably would be slightly less demand, but the demand overall is so strong that I I don't see the subsidy as as being the main driver of that. The main driver was the economic growth that we saw over the last three, four years, which was very significant as well as a lot of IT specialists relocating to Yerevan and Yerevan or or Armenia in general becoming a very strong place to to to move your IT ops or outsource if you want the outsourcing to be done from for a lot of Californian companies, the Armenian connection is very strong, and and that helps as a breach. And then there's fundamentally very high quality IT specialists in the country. Homegrown because of excellent program, two more program that they have for the high school digital training schools throughout the whole country as well as then a lot of migrants that have come in to to join the IT force.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

So that's the main driver of of the real estate demand.

[Ronak Gadhia, Equity Analyst at EFG Hermes Holding]

Thank you. Just moving quickly to Georgia. You you highlighted, you know, the fee income growth. It was in single digits, the net fee income growth, and that was partly because of the expenses you're paying. But we saw a bit of a slowdown last year as well.

[Ronak Gadhia, Equity Analyst at EFG Hermes Holding]

Is this just an indication that the payments market in Georgia is starting to reach maturity because it's been, you know, growing quite rapidly the last few years?

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

Absolutely. We went from 70% growth to 32% growth. There's still some way to go, but still high growth. I mean, payments acquiring business growing at let's call it 20 to 30% is is what we're looking at in terms of the volume growth. Well, I think it's it's very important to keep the margins there, but that's not the only fee and commission income.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

There's some other stuff as well, but that is the main one. And we want to make sure that we don't get squeezed. And I think given the fact that we are on the issuing as well as acquiring sites, a dominant bank, that puts us in a unique position to to negotiate with some of the service providers.

[Ronak Gadhia, Equity Analyst at EFG Hermes Holding]

Are you seeing increased competition pressure on take rates because of increased competition?

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

It's definitely increased competition from from one of the competitor. It is trying to regain the ground, but we've been able to hold the ground and and and the gross income at the at the level that it used to be for our part of the business. And we are spending a little bit of loyalty points to to promote some of the some of the more interest with our clients, but it's relatively small part of the overall overall situation. Okay. Thank

[Ronak Gadhia, Equity Analyst at EFG Hermes Holding]

you. And just last one, dividend policy. I I guess the policy is 30 to 50%, but any guidance on the short term dividend payout target given the capital constraints in Armenia and to some extent in Georgia as well?

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

We'll be sticking. I think we announced the we announced we announced the dividend for the full year dividend of nine, which is 31%, was it? 31% payout ratio. And that's more or less what we what we are going to stick to. So we don't expect much dividends from Armenia because we expect higher growth.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

So we will finance self finance the growth and and build up the capital buffers. And from Georgia, there'll be more dividends. And all of this will result in in closer to 30% payout ratio. Two thirds roughly expected to be in in cash and about one third in in in buybacks and buyback in cancellation, which is more or less what we've done previous last few years.

[Ronak Gadhia, Equity Analyst at EFG Hermes Holding]

Understood. Thank you very much.

[Nini Arshakuni, Head of IR at Lion Finance Group]

Thank you, Ronak. So at this point, we don't have raised hands, but we have couple of questions in the q and a chat. The first question so Bruce Packard is asking about the consumer loan growth in Georgia. They're growing at more than 30% and faster than mortgages. And, also, they take a higher proportion of the loan book as compared to SME loans or mortgages.

[Nini Arshakuni, Head of IR at Lion Finance Group]

So what are these consumer loans, and are they secondhand car loans? And, presumably, they're higher higher margin than mortgages. So, basically, if you can elaborate on the consumer consumer loan mix.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

Consumer loan side, we have built a pretty sophisticated underwriting collection, like phone call, phone center, etcetera, etcetera. So we we are pretty good at it. And as the income levels are are growing double digit now, three, four years in a row in Georgia, that is that is creating an environment where the consumer loan base based on which we do provide that is pretty strong and growing. That's the reason why we are able to provide such consumer loans. There's not much more to say there.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

There's what was the question? Does it is it linked to cars, you said? It's not linked to cars particularly.

[Nini Arshakuni, Head of IR at Lion Finance Group]

Is it secondhand car loans, but no.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

It's consumer loans. It's not secondhand car loans. We do have car loans, but it's not it's not the main product, and it's not it's not super popular either because it's easier to to get the consumer loan, which is based on the income that that you get over the last six months. And it's easily checkable because we are the main daily bank, and we have that access to to the customer on a daily basis. And that allows us to to offer in the right moment the right loans.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

Yes. The yield is high on those, but the yields vary from, I don't know, 17 17% in lottery all the way up to thirty, thirty plus, but it depends on the risk group as well as the use and so forth. So there's a there's a very detailed and sophisticated models that run this thing on the pricing as well as underwriting as well as the phone reminders on the payments as well as the collection and so forth and so forth. So it's that's that's the one why we got recognized as as the best digital. One of the reasons as well as innovative payment systems and and and the application appearance and so forth.

[Nini Arshakuni, Head of IR at Lion Finance Group]

I have two questions. One from Bruce, another one from anonymous attendee regarding the liquidity. Basically, they're asking that last last quarter, we talked about excess liquidity, and it looks like you haven't deployed this excess liquidity because cash was up q or q by 35%, whereas loans were up 3%. And if you can elaborate on that excess liquidity. We already, in a way, touched on this.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

Not much more to say there. You know, we we we did we did keep liquidity for longer than than we expected because the elections were in October, as you know, but then there was protests and so forth. And we kept that liquidity until, I don't know, mid mid February, end of February. But then we started to deploy it, but it takes time. It's not so easy.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

So that's what we the the exercise will be that over the next few months, and, you know, it will continue. But it's a it's a good problem to have.

[Nini Arshakuni, Head of IR at Lion Finance Group]

One question from Samuel. He's asking about basically how the political landscape in Georgia and Armenia affects our portfolio risk appetite as well as liquidity planning and capital allocation decisions between the two markets.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

Liquidity allocation. We don't do liquidity allocations. So those two banks are run separately with their own funding, own local funding and own local deployment. Just to be clear, so if we lend from Georgian balance sheet to an Armenian client, on the risk weighting side, they would be prohibitive. So it would be so there's there's no banking union between two countries.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

So they're separate events. So there's no liquidity allocation per se. We do believe that given the fact that we want to build out a mass retail franchise in Armenia already on the on the on the best banking franchise in the country, the the the top of mind and and most trusted bank. We believe that the growth prospects of our franchise in Armenia longer term over the next three to five years are a bit stronger than in Georgia where we already are at close to 39% market share. So there, we'll be growing with the market.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

In Armenia, we we can grow ahead of the market. So those are the growth prospects. In terms of geopolitics, I think we're very careful with the fact that our most of our book has a pretty fast maturity, pretty short maturity, and and rotates very quickly, be it in consumer and corporate or or SME other than mortgage space. And even mortgages have relatively on average, short short life. That allows us to be very flexible and adjust to the new realities very well.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

So volatility we are no stranger to volatility, and we are all all always cognizant and and ready for for changes. Other than that, the economy has done very well and has continued to do very well. And and and those create opportunities to deploy capital profitably, and that's what we've been doing.

[Nini Arshakuni, Head of IR at Lion Finance Group]

Another question is from Ben Yu regarding the capital buffers. If they've come down hundred basis points suddenly, can we know why why they dropped q over q? What is the target buffer that the bank wishes to maintain? And he's also asking about the 81 coupon payment. If 81 coupon payment cancellation trigger references consolidated capital numbers or both Georgia and Armenia capital ratios, and how should bond investors think about this risk?

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

So we we have kept servicing tier one instrument even in COVID times when there was we provisioned upfront 400,000,000 lari, which is the only regulator that did it was Georgia, which was on the edge of being crazy, I think. But in any case, even then, tier one instrument coupon was paid. Our target of the buffer is is one and a half percent management buffer. Sometimes we'll go just under and sometimes above. In Georgia, think we're very close to that, so there's no no issue there.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

In Armenia, we would like to build up the the buffers on on tier one and and total capital. As I did mention, if we do issue tier one instrument, it will increase it automatically almost on on those. And if not, then the earnings will will will finance that creation of those buffers. But previously, it was higher than than it should have been, if you ask me. I mean, buffers are good, but when you you look at the overall capital ratios, they're one of the highest by any European standard.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

Because the capital requirements in in Georgia are about 30 to 40% higher than than most of the countries in Europe. And above that, we have some healthy buffers about that. I think we are in a very good shape.

[Nini Arshakuni, Head of IR at Lion Finance Group]

Thank you. And this last question in the q and a chat is from David. David is saying, apologies. We're new to the business. Thank you for the presentation.

[Nini Arshakuni, Head of IR at Lion Finance Group]

From the numbers, it looks like you're being conservative around risk, low cost of risk, and excess liquidity. And what is your thinking about why you're not increasing assets more? Are you concerned about a normalization in the cycle? That's the first question.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

Yeah. And then the So so I I think we are very prudent in underwriting, given the fact that we have been growing about 20% over the last few years, year over year. We don't want to overdo it. Having said that, there are certain pockets where we think that the capital deployment is such that we we believe there's there's more potential. So for example, the last two years, we've been growing stronger in self employed smaller businesses or self employed has been a big focus, and and we've been able to to automate a lot of offering there because it's very hard to distribute to to to reach such customers if you don't have very good digital products or it's very expensive.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

Let's call it that. So in in Georgia, we've done that. In Armenia, there was there was a good push for mortgages because the mortgage penetration was very low in in corporate because of very benign environment. A lot of deleveraging happens, so a lot of corporates have built up very good equity to to invest in new projects. So we've been doing that over the last two years in Georgia.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

So we look at different pockets of of opportunities, but we don't want to loosen up the the credit underwriting because, of course, the cycle will turn. Of course, it will. The question is when. And and when it happens, that's when you see who has been swimming naked to to to to to mention Warren Buffett's Warren Buffett's face. So, you know, we we are very prudent.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

We've we've been we've gone through a number of crisis, including 02/2008 without registering a loss in Georgia for two years, and we didn't need recapitalization, etcetera. So we have yeah. It's an old guard still look overlooking the the the risk side, and and we've seen ups and downs. And good economic growth is good, but we, you know, we're we're happy with the growth that we see. Plus, we we don't want to be pushing the market share, so we are very prudent and focused on profitable growth.

[Nini Arshakuni, Head of IR at Lion Finance Group]

And the second question is more technical. How much of the strong collateralization which affects coverage over the recent past has been due to currency appreciation?

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

I don't have the number off the top of my head. It's not huge. It's a small number. It it it's it's not a major one, but we'll get back to you. Is it anonymous, or do we know who's asking?

[Nini Arshakuni, Head of IR at Lion Finance Group]

No. We know who is asking. It's David Eberle. We'll get back

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

to That's David, we'll get we'll we'll come back to you.

[Nini Arshakuni, Head of IR at Lion Finance Group]

David, thank so much. Any further questions, Archul.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

Well, thank you very much for your attention and for your time. I have to say that this was a quarter where we continued to grow very, very strongly. Our balance sheet growth on in both markets was very strong. The macro economy has been supportive. Our franchise in terms of strength of customer satisfaction being it with the Net Promoter Score or all the other measures, we've delivered strongest results, which which built the foundation for the for the long term strength of our franchise.

[Archil Gachechiladze, CEO & Executive Director at Lion Finance Group]

We are keeping a very strong and and good profitability in both markets, slightly higher in in Georgia, obviously. Growth remains strong, and the franchise is strong. So thank you for your support and for your trust, and and we will continue delivering good results. Again, first quarter was a was a record net profit, which given the low seasonality is is not bad, and we'll look forward to doing more as we go forward. Thank you very much.

[Nini Arshakuni, Head of IR at Lion Finance Group]

Thank you. See you next time. Bye.

Participants

Executives

• Akaki Liqokeli, Chief Economist

Analysts

• Nini Arshakuni, Head of IR at Lion Finance Group
• Akaki Liqokeli, Chief Economist at Lion Finance Group PLC
• Archil Gachechiladze, CEO & Executive Director at Lion Finance Group
• Priya Rathod, Equity Associate at Jefferies
• Stephen Payne, Research Analyst at Peel Hunt
• Ronak Gadhia, Equity Analyst at EFG Hermes Holding