Lion Finance Group Q1 2026 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2026

Key Takeaways

  • Positive Sentiment: Strong quarterly earnings: Group profit rose ~14% YoY with operating income up 15% and net interest income up ~18%, delivering a 27.4% return on equity.
  • Positive Sentiment: Robust balance-sheet growth: Loans grew 23.3% YoY (Armenia +34.6% in constant currency; Georgia +17.8%) and deposits rose ~17.5% group‑wide, supporting revenue momentum.
  • Positive Sentiment: Very healthy asset quality: NPL ratio is low at 2.1% and cost of risk is only 0.3%, well below the bank’s mid‑term guidance of 80–100 bps.
  • Positive Sentiment: Strong capital, liquidity and shareholder actions: Comfortable CET1 and liquidity buffers, completed/announced AT1 issuance, and a GEL 177m capital distribution (GEL 122m dividend + GEL 55m buyback).
  • Negative Sentiment: Margin and cost headwinds: FX income is under pressure and Armenian margins are hit by higher local‑currency funding and AT1/sub‑debt costs, while Georgian operating costs are rising faster than inflation, which could compress near‑term NIM and expense ratios.
AI Generated. May Contain Errors.
Earnings Conference Call
Lion Finance Group Q1 2026
00:00 / 00:00

There are 9 speakers on the call.

Speaker 1

Hello, everyone. Thank you for joining the call. We had a very interesting quarter this time, 20 years after we joined the London Stock Exchange in 2006, we went public, in fact, in form of GDRs. In 2026, we joined FTSE 100, as many of you may know. That is a very special moment for all of us because it kind of summarizes the achievement over the last 20 years, but it's only a new beginning for more to come. As you remember, who we are, we are two-thirds Georgia, roughly one-third Armenia. It's not quite there, Armenia is increasing very rapidly.

Speaker 1

We're serving about 2.7 million retail customers and delivering close to 30% return on equity over the last five years on average. We have a very strong market share in Georgia of 38, and number 1 position in Armenia, with growing market share. Could you go to the next slide? Yes. In terms of the quarter, we had a very solid quarter. We had 14% year-on-year increase in our return on equity in our profitability and 27.4% return on equity, slightly down with more capital, in fact. Our risk remained at a very low level with 2.1 NPL ratio and 0.3% cost of risk, which is well below our midterm guidance of 80 to 100 basis points.

Speaker 1

I'm particularly happy about balance sheet growth. We saw 23.3% growth of our loans, very strong in Armenia and also quite good in Georgia with deposits growing at 17.5%. Also on the revenue side, we saw strong growth in the net interest income and fee and commission income, not so strong in terms of the FX income where we see the pressures. Costs are in line more or less with the revenue, they remain the focus, especially in an environment where the incomes are growing double-digit, which is very good for our consumer franchise in both countries. Remains a focus there.

Speaker 1

The franchise, talking of franchise quality in both countries, the NPS scores remain very high, and that underlines that our retail franchise is very strong and corporate as well. With this, all of this is in fact based on very strong economic performance and that's why we would like to cover a few slides on the economy and Akaki Liqokeli will do that on the next few slides. Thank you.

Operator

Thank you, Archil. Let me provide a quick update on the macroeconomic developments in our core markets, Georgia and Armenia. Let me start with growth performance. The macroeconomic backdrop has continued to be favorable, and both countries, Georgia and Armenia, have entered 2026 on a strong footing. Preliminary Q1 growth numbers are quite strong, 9.1% year-on-year GDP growth in Georgia, 7.1% growth in Armenia, and services continue to be the key growth drivers in both countries. This stronger than expected performance in the first quarter, together with demonstrated resilience of the economies, have led us to revise our full year real GDP growth forecast for 2026 to 7% for Georgia and to 6% for Armenia.

Operator

As you can see on the right-hand side, the sustained strong performance of these two economies, combined with a positive medium-term outlook, have positioned Georgia and Armenia among the top performing economies in the broader region, and distinguished by significant advantage in compared capital levels compared to our intermediate peers. The recent escalation in the Middle East have introduced downside risks, mainly through higher energy prices and transport disruptions. However, the impacts on Georgia and Armenia have so far been muted, due to limited direct macroeconomic exposure to the region, also resilient and diversified external inflows and sound macroeconomic policies. Furthermore, we, in the scenario of prolonged conflict, we see upsides in terms of increased strategic relevance of the middle corridor, as well as, possible redirection of tourism and capital to South Caucasus.

Operator

Currency performance have been also very strong despite regional geopolitical tensions. As you see on the left-hand side, in contrast with previous episodes of stress, Georgian lari and Armenian dram have remained broadly stable, underpinned by strong macroeconomic fundamentals and prudent policies. We expect the currency stability will persist in the future, as the economies remain resilient and policies remain agile. The main area where we have seen the impact of the Middle East escalation is inflation. Higher fuel prices have added to existing food price pressures and have pushed inflation higher in both countries. We expect the headline inflation numbers will remain elevated throughout the year before returning to the central bank's 3% targets gradually as the supply side pressures ease. The monetary policies remain prudent in both countries.

Operator

Yesterday, National Bank of Georgia raised the refinancing rate by 25 basis points, reinforcing its commitment to keeping inflation expectations in check. We expect the monetary policy in Georgia will remain moderately tight throughout the year. In Armenia, the central bank has kept the refinancing rate unchanged at 6.5% since the beginning of the year. However, recently, their communication has become more hawkish, so we do not rule out the possibility that we may see some modest tightening over the year. The central banks have been also very active in reserve accumulation, also in the beginning of 2026. The gross international reserves had reached $6.3 billion in Georgia and $5.5 billion in Armenia by the end of March.

Operator

In both countries, the reserves remain above the International Monetary Fund's minimum adequacy thresholds, reinforcing macroeconomic resilience in both countries. Another key pillar for macroeconomic stability is fiscal discipline, and Georgia and Armenia have been very consistent in this area. The government debt to GDP ratio continues to come down in Georgia, as fiscal deficits are kept at 2.5% of GDP. In Armenia, the government have been very successful in balancing elevated spending needs with fiscal sustainability objectives, and despite elevated fiscal deficits, they have kept the public debt to GDP ratio more or less stable. This year, we expect the fiscal policy will remain growth supportive, mostly through sustained capital expenditure.

Operator

Lastly, the financial sectors, banking sectors in both countries remain sound, supported by strong lending expansion, historically low levels of loan dollarization, and solid capital buffers. That's all on my side. Back to you, Nini.

Speaker 7

Thank you. Thank you, Akaki. We'll now have Giorgi Shagidze cover the main developments at the Georgian Financial Services. Giorgi, you're on mute, so please unmute yourself.

Speaker 4

Apologies for this. Good afternoon, everyone, and I'm very pleased to join my first Lion Finance Group result call, and I look forward to seeing many of you on the future occasions. Let me start with the summary of GFS. It was another quarter of very strong results. You can see from the slide that profit grew by 11.6%, reaching GEL 452 million, with the return on equity of 31.5%. The loan book year-over-year grew by 17.8%. This happened on the back of 0.54% cost of risk and 2% NPLs. Deposit book grew by 13%, and retail monthly active customers and retail digital monthly active users reached 2.2 million and 1.9 million, respectively.

Speaker 4

This slide summarizes our award-winning financial super app. Maybe what I can summarize or highlight here is 52.7% digital daily active users and 88% of all loans granted from our digital channels. Both results are one of the best in the industry. On the bottom left-hand side, what we have here is how our customers are giving us the ratings with the CSAT being at 93%, with the very prestigious awards from Global Finance naming us World's Best Digital Bank in the 2nd consecutive year, along with another prestigious award in innovation in AI in the region. The next slide summarizes our digital ecosystem in business.

Speaker 4

Just like in our retail, here too the numbers are quite impressive with 108,000 digital monthly active users and 83.5 digital monthly active users as a percentage of the monthly active customers. Here too, on the bottom left-hand side, we see the Apple Store and Google Play customer ratings being as high as they actually get. In terms of the payment business, our acquiring volume of payment transactions grew by 19.7% year-on-year. The quarter-over-quarter decrease is mostly seasonal. Now we are enjoying the market share of 56.9%. We have 26.7 thousand POS terminals, which is about 17% year-on-year growth. In terms of issuing, our year-on-year number grew by 12.2%.

Speaker 4

In terms of NPS, the NPS reached 75%, which again, is one of the best in the industry, and this is the reflection of the bank's customer-centric culture, as well as investment in people and in technology. Loan book during the period grew by 17.5%. The growth was across the board, more, but then the higher growths were in consumer loans and in corporate loans. The de-dollarization of loan book broadly remained this remains stable. Quarter-over-quarter growth was 3.6%, and that happened with our margins also growing by about 30 basis point.

Speaker 4

In terms of deposit portfolio, it grew by 12.6% year on year, mostly in retail and in corporate deposits, and that also supported de-dollarization of the deposit book. This is last slide from my part. It's about capital and liquidity position. In both metrics, we enjoy very comfortable buffers with the CET capital buffer being at 2.5 percentage point, and in liquidity position, our LCR stood at 140% with our NSFRS being at 130%. Thank you, Nini.

Speaker 7

Thank you, Giorgi. Now we would like to ask Hovhannes to continue with the review of the Armenian financial services performance for the quarter.

Speaker 5

Thank you, Nini. Good afternoon, everyone. I am very much delighted to present you the results of our operations for the Q1. As already mentioned, we have had a very strong performance for the first quarter. As you can see, our profit grew 35% year-over-year to reach 129 million Georgian lari. Return on equity was 21.8%. Particularly, as Archil mentioned, the growth of loan book and deposit base was very positive. Indeed, we had 34.6% growth in constant currency basis for loan book and almost 30% for deposit base. At the same time, we continue to improve our positioning in terms of coverage of the market.

Speaker 5

We have grown our number of customers, monthly active users by more than 33%, and digital MAU has grown more than 47% to reach 362,000. Indeed, while the growth pace is very, very impressive, we're still less than half a million, so there is still much bigger opportunities for growth in this area, and we're gonna be continuing this expansion as well. Just like BoG, we continue to invest heavily into our digital propositions. Our applications are being enhanced with a lot of new functionalities and products, and a number of improvements based on the analysis of the customer usage are being done.

Speaker 5

I want to highlight our loyalty program that we launched last quarter, and we see very positive traction with our loyalty program and beyond banking propositions that are integrating into our mobile application. Both of the applications for adults and for kids are very important tools for us, also in terms of financial education and financial literacy improvement in the country. As you can see from the bottom numbers, not only we are able to grow our customer base by more than one-third every year, but also the depth and digital usage of these customers is growing up. Our online banking penetration has reached 83.7%. That is almost 5 percentage point increase year-over-year. Digital MAU to MAU ratio has increased by 7.2 percentage point to reach 73%.

Speaker 5

MAU/DAU ratio, DAU/MAU ratio is at 44%, again, with 2.5 percentage point improvement. In terms of growth of our portfolios, as mentioned, our loans grew more than 34% year-over-year and 6.2% during the first quarter. While both segments have been very active and positive in terms of growth, the corporate sector grew a bit faster, and that's where we see that the share of FX-denominated loans has slightly increased during the Q1. On the deposit side, again, very high loyalty to our franchise, almost 30% growth of the deposit year-over-year and almost 6% growth for the Q1. Here we see further increase of the share of AMD-denominated deposits, and that has to do with increased number of the customer base.

Speaker 5

Naturally, we continue to improve our market share. Our market share by loans has reached 22%. That is 1.7 percentage point growth for year-over-year. For deposits, we have improved our market position by 1 percentage point year-over-year to reach 19.5%. In terms of capital position, as many of you have probably heard, we have issued our first ever AT1 notes, locally, worth $50 million with 8.5% coupon, in, within 6 days, actually, in February. That has improved our capital position. As you can see, we have roughly 1.1% headroom over the CBA requirements.

Speaker 5

At the same time, we have also announced the second tranche of AT1 notes, again, $50 million USD at 8% coupon that are supposed to be allocated locally as well. This will enhance our capital structure and give us more flexibility in terms of being able to nurture further growth. In terms of liquidity, we continue to be positively well above the regulatory requirements. LCR stands above 200% and NSFR is above 125%. Both of these figures are giving us relevant comfort for our operations. This is on the Armenian side of the business.

Speaker 7

Thank you, Hovhannes. Now we'll hand over to Archil for a few group financial highlights and also the wrap-up.

Speaker 1

Well, it's a hard act to follow when you're talking about 35% increase of loan book and 40-plus% increase in retail number of monthly active users. I'll try. I'll try my best. Here we go. Those are some of the numbers that we already discussed, but our operating income was up by 15%. Net interest income showed the strong trends, uptick of about 18.4%. Non-interest income was slightly subdued, when you look at the details, we had pretty strong net fee and commission income growth year-over-year in both markets, in fact.

Speaker 1

In Georgia, that was partly due to the fact of our new deal with the system operators. In Armenia, we had 1 M&A transaction, but it was not a major one. It was GEL 5 million out of GEL 30, as you can see there. In the net effects, it remained low, like we guided previously that we don't have much volatility in both markets. In fact, all other markets don't have much volatility, as well as slight uptick in the competition as well. We see pressures on the effects, but all the other parts of the business have been doing very well. Operating expenses, as I mentioned, were less than the revenue growth. We had positive operating jaws.

Speaker 1

In Georgia, it was slightly higher, 16.6%. In Armenia, it was lower, but it was partly due to the fact that in the base effect, we had the amortization of the sign-up bonus previously, which we no longer do. That, that is helping the numbers. Cost-income ratio remained just below 35%, where it belongs. Going forward, let's see, but that's the objective. In terms of the loan growth, as we said in detail already, 23% growth and 17.5% in deposits, Armenia really stood out with very strong numbers, as you can see. Georgia also, I mean, when the market grows about 14%, we grow 17.8%. We're happy with that.

Speaker 1

What we saw in terms of the net margin, although it was flat, we had the slower margin in Armenia and higher margin in Georgia. In Armenia, we had slight uptick in the cost of funding, as well as lower yields on the overall portfolio, mainly due to the fact that the first part, which is funding, we increased the proportion of the Armenian dram, which is almost by default, more expensive than U.S. dollars, as well as issuance of Tier 1. All of this is Tier 1 is marginal here because it was at the end of this second quarter. There are other debt issuances on the sub-debt side that also affected.

Speaker 1

In terms of the loan yield, there was several large issuances of corporate loans, which put a little bit of a pressure on that. Going forward, we believe it should be flattish in Armenia. In Georgia, we did what we promised, which was push down the deposit price, and that was about 10 basis points and deployed more liquidity, which we are flushed with, and that was another 20 basis points. That's the 30 basis points that you see there. All in all, as a group, we're flat. In terms of the loan yields, not much to say there. Cost of risk remain at low levels of 0.3%, and you see the distribution of where it's coming from.

Speaker 1

Not much to add there, other than the fact that our midterm guidance is 80 to 100 basis points. We are happy to see that for a number of years, we'll be remaining at very low levels due to higher than medium-term expectation of growth in both markets, in fact. I mean, it's remarkable that the last five years we've been growing about 9%, more or less, the real growth plus nominal growth and plus local currency getting stronger versus U.S. dollar. Loan quality remains very solid with low number of NPL at 2.1% and solid coverage. All of this resulted in profit growing by 14% year-over-year.

Speaker 1

Return on equity of 27.4% and return on average assets, which is something we closely watch, at almost 4%. Wrap up. Yes, there are a couple slides. I apologize. In the wrap up, I would like to say that we are announcing a capital distribution, GEL 177 million of that. GEL 122 million will be distributed as dividends, and about GEL 55 million will be invested in our own stock. That means GEL 2.85 per share for the first quarter only. Last year, we moved to this quarterly dividends from the third quarter onwards, so there's no direct comparison.

Speaker 1

We're definitely, in our own inside comparison, we are increasing the dividends on the mid-teens level, roughly. You see number of shares declining over the last few years as we deploy about one-third, roughly, of our usual distribution in share buybacks. We guide 15% annual book growth. As you can see, over the last 5 years, we've mostly other than 2022, remained well above that. And we're continuing that. In fact, growth accelerated here. Return on equity is at 27% and with higher and higher capital ratios, in fact. In terms of distribution, we're on the low side of our range that we guide, 30 and 50.

Speaker 1

That is to build up the capital buffers and finance higher than expected growth, in fact. That's how it's going. With this, let me pass it back to Nini.

Speaker 7

Thank you, Archil.

Speaker 7

Announce the Q&A, which is usually the most interesting part of our quarterly.

Speaker 7

Yes. We're ready to take questions. I see a few raised hands already from our analysts. The first raised hand is from Shil Shah from JPMorgan. Hi, Shil.

Speaker 8

Hi. Thanks a lot, guys, for the presentation. Two questions from my side. Firstly, on the margins, I know that you said Armenia to be flattish from here on. It would be good to get an understanding of the moving parts, because it looks like there is maybe some increased competition or maybe a increase in the local currency deposits, which could continue to maybe weigh on the NIM going forward. On the Georgian side as well, clearly we have the rate hike from 2 days ago, and your previous guidance of flattish NIM with 2 rate cuts, as you previously said. It'd be interesting to get your outlook on the Georgian NIM as well. Secondly, on costs.

Speaker 8

Georgian costs are running at 17%, you know, much higher than inflation. I know that you've been running at that same, a very similar level last year as well. It would be interesting to get an understanding of where you're using these costs. You know, what, why are the costs so high? What are you investing in? And should we expect that to normalize lower going forward, or is this the run rate we should expect going forward? Thanks.

Speaker 1

Why don't I start with the, with the Georgian side, and then I'll pass over to Hovhannes to talk about NIM in Armenia. In Georgia, NIM should remain around, you know, flattish, I would say. When the movements in the refinancing rate, obviously higher refinancing rate is marginally better for us, we could have a little bit of a backwind there, and see where we go to. I would not expect a major change in there. 1 thing which is clear for us is that we've announced that we want to stay under 40% market share in terms of deposits. There's an extra capital requirement of 50 basis points associated with being above that ratio, and we would like to get capital efficiency there, obviously.

Speaker 1

As well as, you know, it's, it's a guidance from the regulator not to go above that, above 40% for too long. In terms of the, in terms of the cost, you're absolutely right that the inflation is lower. One thing we should, we should pay more attention to, I guess, is the average income levels in the country. Although inflation in terms of the cost of, you know, this, the, the inflation definition is one thing, but mostly what our costs are is, is people. The inflation of labor costs have remained double-digit in Georgia, single-digit in Armenia, in fact. I think that's what's waiting on the cost side.

Speaker 1

On, on the Georgian side, we can definitely say that we'll be looking at neutral to positive operating jaws going forward, and that's all I can say. I do not expect a major change in that unless we see the environment changing, i.e., the growth of the economy and the average incomes coming down. It's, it's bad there, but it's really good on the consumer credit side where we're a dominant bank and we've been benefiting from substantial increases there without having any uptick in the, in the cost of risk. It's, it's the two sides of the same coin, but overall very positive there. Hovhannes, any words on NIM?

Speaker 5

Sure. On the Armenia side of the NIM, I think it would be fair to say that we shall expect slight recovery of NIM, and there are, as Archil mentioned, a few factors. One, the proportion of local currency and foreign currency, that is a factor that we presume will be there. With the dram being very, very stable and strong, we see more and more depositors and customers leaning towards Armenian dram. At the same time, two of other effects, indeed, the distribution of AT1 notes, that are in essence capital instruments and they are not leveraged yet, and they have higher impact on the cost side will be leveled out closer to the end of the year.

Speaker 5

Second is attractions of funds from DFIs and subordinated debt that we borrowed end of Q4, 2025. Technically, especially in January and February, we have been very over-liquid, and we have increased our capital buffer significantly with subordinated debt. Over time, with the growth pace that we have already shown in Q1, this is gonna be utilized, so in terms of efficiency it's gonna come down, it's gonna improve our NIM slightly. I would say towards the Q3 and 4, there should be some partial recovery of NIM on the Armenia business.

Speaker 7

Shil Shah, I guess you don't have any further questions. We'll move to the next question. Sorry, the next question is from Jens Ehrenberg. I'll let him speak.

Speaker 6

Cool, thanks, Nini. Can you hear me all right or? Yeah, perfect. Cool. Thank you very much, guys, for the presentation, congrats on a quite outstanding quarter, obviously, with the performance and the FTSE 100 inclusion. Great to see. Just a couple from my side. Firstly on the outlook for the sort of FX revenue line, I appreciate it's a tricky one to forecast. If we look at the quarter, we'll see there's been a lot less FX volatility than we've seen previously. Is that sort of GEL 130 million level that you've delivered in the quarter, is that a level you would assume normally if there's not too much FX volatility?

Speaker 6

Secondly, taking into account of your persistent overall loan book growth, coupled with what is still really, really good credit quality and very low cost of risk, how do we think about that going forward? Do you think that sort of credit quality will eventually see a bit of an impact from that strong growth? Last one is probably for Hovhannes, if that's all right. I appreciate he'll give me a very diplomatic answer, no doubt. Just on the digital uptake in Armenia, appreciate we got lots of headroom to grow here. Again, this quarter, impressive growth rate in terms of the uptake there.

Speaker 6

How much longer do you think those growth rates will be sustained until there's some sort of normalization or do you think, well, this It's that successful you'll see that persist for the near future? Sorry, there's a couple of things in there, but thank you very much.

Speaker 1

In terms of FX and loan on Georgian side, let me take it. On the FX side, you asked on the overall numbers and probably it's fair to assume that those are the numbers of low volatility, and unless anything changes strongly, then those are the numbers that we would expect. Having said that, it's an environment where, you know, there are many things that affect our numbers. In terms of the loan growth versus quality, yes, we've been growing, and the quality of the loans have remained benign.

Speaker 1

One thing that affects it is high growth and over the last 5 years, our two, both of the countries have benefited from a very strong growth, high inflation at some point as well, but now it's more moderated, but still above the target. Until we have that, I think we will enjoy good quality of the loan book because we have not changed the underwriting standards in any way, in fact. All the growth that you see there is not because we've become more tolerant to the risk, but rather because of the economy's going well and because of us increasing the quality of interaction with the clients.

Speaker 1

In terms of the midterm guidance on the cost of risk, you know, that's about double of what we see in terms of cost of risk right now over the last few years. There we don't expect that until the economy slow down. Now, will the economy slow down depends on many different things, but we have this idea of the Middle Corridor, which is actually becoming very real more and more. There's conflicts on the north side, south side, more and more Europe and Central Asia, in fact, and increasingly China is interested in this corridor. Being there and being real is an alternative to some of the other corridors that exist.

Speaker 1

Not that we'll replace all the others, that would not be realistic, but rather as an alternative to exist to all the other transportation routes. That means that there will be a lot of investment going in the infrastructure and then supporting businesses as well. That could in fact provide a medium to long-term good growth numbers for both countries, you know, for 2 decades, but definitely 5, 10 years. That's says something. With Armenian growth maybe, Hovhannes?

Speaker 5

Yeah, sure. I want to take off from the point that Archil made. I mean, indeed, our economies are performing pretty good. As you remember last year we were saying that especially in Armenia, there are several large projects that could really have significant impact on the overall macroeconomic performance of the country. Likewise, few days ago in Armenia, we had a huge first ever Armenia EU summit, where maybe you've heard most of the EU leaders have arrived and a number of mutual agreements and declarations have been signed. That could be another significant boost to the economy. Events happening around the country possess significant positive upside risk or potential for macroeconomic development, and that's potentially going to fuel our growth further.

Speaker 5

In terms of digital uptake and increase of the number of customers, indeed, we were able to grow our customer base by on average 34% for the last few years. At the same time, we do expect to continue this extensive growth for the next 2, 3 years at least. Where we're gonna end up, I think, we are looking at our partners in Georgia. We are still far behind in terms of utilization of the local potential. We believe and hope that we're gonna be able to at least match the achievements that Georgian peers have in their respective market. Again, the traction speaks for itself.

Speaker 5

Loans and dollars are growing from 45%-55% every year for the last three years, and we expect a similar pace. I mean, it's gonna be very difficult to continue 50% growth every year, but it's, we expect to have similar growth in the next two, three years.

Speaker 1

Well, the monthly active users, yes, but on the balance sheet it will probably moderate. I mean, you can't grow for 35%.

Speaker 5

Yeah. On balance, on balance sheet, yes. I mean, it's gonna be much lower. We have been growing again slightly more than 30% for the last couple of years and, we would expect to have some moderation there.

Speaker 6

Super. No, that's understood. Thank you very much.

Speaker 7

Thank you. Thank you, Jens. The next question comes from Dmitri Vlasov from VympelCom. Hi, Dmitri.

Speaker 3

Hi. Thank you very much. Congrats on strong quarter. I have a follow-up question on costs and specifically for Armenia. Could you remind me what the potential here in terms of the cost to income? It's interesting you say that the costs in Armenia, specifically in labor, grow slower. Maybe I'm just wondering if there is a risk that they could accelerate at some point. Yeah. Thank you.

Speaker 5

In reality, I do not think we are gonna have acceleration of the labor costs in Armenia. Indeed, as Archil mentioned during the presentation, these costs are moderate also due to the signing or bonus arrangement that were there up until last year and it's not there anymore. Indeed, when we look at our Cost-income ratio, we have declared it earlier that eventually we also wanna push our Cost-income ratio down. Our target is to keep it below 40% in the midterm. If you look at 2025, 2026 have been years where we have been investing significantly into our infrastructure development. While having the largest loan portfolio in the country, for more than 10 years, our footprint branch network is very limited.

Speaker 5

Last year we opened 4 additional branches. This year we are opening 5 new branches that will offload some of the branches that we have and improve the service quality within the branches. While, as I mentioned, our online banking penetration is more than 87%, our branches serve less than 1% of all the operations that we do. We feel that slightly more branches will improve overall to meet our customer needs. Other than that, other than this investment into infrastructure development, there should not be any unforeseen increases in labor costs whatsoever. Hopefully, 2027, 2028, we'll see a cost-income ratio coming down.

Speaker 3

Thank you very much. That's clear.

Speaker 7

Thank you, Dmitri. The next raised hand is from Ben Meyer. Hi, Ben

Speaker 2

Hi, can you hear me?

Speaker 7

Yes. Go ahead.

Speaker 2

I just have two quick ones. The first one is, again, on asset quality. Obviously, it's another quarter of good performance in that area, but I appreciate the tensions in the Middle East can have a bit of a lagging effect on credit quality. Just interested on how the metrics have performed in April and the first week of May. Then my second question is just on M&A. You know, you delivered a 27% return on tangible equity during the quarter. Obviously, sets a very high bar in terms of potential M&A targets you can look for and if you know, if you're benchmarking that against the ROI of a potential acquisition. I'm just wondering if you're seeing any targets that offer those kind of returns, or are you still quite happy just to redeploy everything back into the business?

Speaker 2

Thank you.

Speaker 1

I'll take those. In terms of the some negative signs on the credit quality side, we don't see any major. We don't expect any major changes, in fact. It's definitely we are seeing slightly higher inflation, and that may have some effect. Overall, the first quarter, including March numbers in Georgia, came very strong. In fact, in Armenia as well. We increased the economic prediction for the full year for the real growth. We don't expect any change in terms of the credit quality of our portfolio. In terms of, What was the second question again?

Speaker 2

It was just on M&A.

Speaker 1

Yeah

Speaker 2

The business is delivering very good profitability.

Speaker 1

Yeah. In terms of M&A there, that's very difficult to find a combination of a case where you have a real growth of 8%, 9% and a stable currency and the corporate governance that we have in both countries. It's that it will be difficult to repeat. Having said that, there are some very interesting markets in Southeastern Europe and Central Asia, and we are looking for acquisition targets. Having said that, we'll be always deciding in terms of what's better, how to deploy the capital. Is it with the acquisition or buying our own stock? That's the benchmark that we'll be using to decide to go or not to go in different markets.

Speaker 1

Yes, there are not many markets that are delivering, similar kind of, returns with stable currency.

Speaker 2

Great. Thank you.

Speaker 7

Thank you, Ben. I don't see any further questions at this point.

Speaker 1

Very good then. Thank you very much for joining this results call. Another strong quarter for all of us. More importantly, I think, looking ahead, we are looking at a strong growth or at least we are expecting a strong growth in both of the economies. As quality of the franchise remains at the highest level we've ever been historically, we are there to benefit from all of this and contribute to it in ways that we can. Thank you for your support and interest and stay tuned for more news and the second quarterly results call in one quarter. Thank you.

Speaker 7

Thank you everyone and take care. Bye-bye.

Speaker 2

Bye

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