Earnings call transcript: Lion Finance Q2 2025 beats profit expectations

Lion Finance Group PLC, with a market capitalization of $4.37 billion, reported strong financial results for the second quarter of 2025, surpassing earnings expectations and showcasing robust growth in key areas. The company achieved an earnings per share (EPS) of 11.75, with revenues reaching 1.04 billion USD. Trading at an attractive P/E ratio of 6.04, according to InvestingPro data, the stock saw a slight decline of 1.31% in pre-market trading, closing at 7,640, following the announcement.

Key Takeaways

• Lion Finance Group’s Q2 profit increased by 19% year-over-year.
• Digital transformation initiatives led to nearly 70% of sales being digital.
• The company announced a 98 million GEL share buyback.
• The stock experienced a 1.31% decline in pre-market trading.

Company Performance

Lion Finance Group demonstrated significant growth in the second quarter of 2025, with profits reaching 513 million GEL, a 19% increase from the previous year. The company’s focus on digital transformation has resulted in nearly 70% of sales being conducted digitally, enhancing operational efficiency. The group’s return on equity stood at an impressive 27.28% for the quarter. InvestingPro data reveals the company has achieved remarkable year-to-date returns of 65.83%, with revenue growth reaching 48.64% in the last twelve months.

Financial Highlights

• Revenue: 1.04 billion USD, reflecting strong market demand.
• Earnings per share: 11.75, surpassing market expectations.
• Net interest margin: 6.4%, indicating effective interest income management.
• Operating income growth: 9.5% year-over-year.

Earnings vs. Forecast

Lion Finance Group’s actual EPS of 11.75 exceeded market forecasts, showcasing the company’s ability to leverage its digital platforms and expand its market presence. This performance marks a continuation of the company’s positive trend in recent quarters, driven by strategic initiatives and strong market demand.

Market Reaction

Despite the positive earnings report, Lion Finance Group’s stock fell by 1.31% in pre-market trading, closing at 7,640. This decline may be attributed to broader market trends or investor profit-taking following the stock’s recent performance near its 52-week high of 8,100.

Outlook & Guidance

Looking ahead, Lion Finance Group remains optimistic about future growth, with medium-term targets set at 15% growth and a return on equity of over 20%. The company plans to continue its focus on digital innovation and regional expansion, particularly in Armenia, where it aims to capture a 30% market share. Analysts tracked by InvestingPro maintain a strong buy consensus, with price targets ranging from $107.15 to $126.31, suggesting potential upside. The company also offers an attractive dividend yield of 4.4%, with dividend growth of 44.28% in the last twelve months.

Executive Commentary

"We are delivering strong results and continuing to deliver," said Arshil Gacechiladze, Group CEO. He emphasized the robust macroeconomic development in Georgia and Armenia, positioning the company well for future growth. "We are very well positioned to capitalize on it," he added.

Risks and Challenges

• Regional Geopolitical Changes: Potential instability could impact market conditions.
• Cost of Risk: Increasing operational expenses may affect profitability.
• Currency Fluctuations: Changes in currency values could impact financial results.
• Competitive Pressure: The need to maintain a competitive edge in digital services.

Q&A

During the earnings call, analysts inquired about the potential impact of regional geopolitical changes and the company’s strategy around potential acquisitions. The management addressed concerns about operational expenses and elaborated on their strategy to mitigate risks while pursuing growth opportunities.

Full transcript - Lion Finance Group PLC (BGEO) Q2 2025:

Nini, Moderator/Host, Bank of Georgia Group: Results for the second quarter, which, you can also see on this slide. So we’re we have a very solid set of results with our profit reaching 513,000,000 GEL in the second quarter, up 19% year on year, resulting in the cumulative half year profit of just north of 1,000,000,000 GEL, up 28% year on year with return on equity standing at a very strong 2728% in q two and half the ’25 respectively. And these results are underpinned by robust customer franchise and portfolio growth across our core operations in Georgia and Armenia. I am joined today on this call by, as usual, by the group CEO, Arcel Gacechiladze, who will share his perspectives on the group’s performance. And, for the first time, we’re delighted to have, Johannes Doroyan on this call.

Johannes is the chief financial officer of Ameriabank, the group’s banking subsidiary in Armenia. And also, Akili Kokeli, our macroeconomist, who will walk through the recent macroeconomic developments across our core markets of Georgia and Armenia. Following the presentation, we’ll open the floor for your questions. And as a reminder, this call is being recorded. With that, we’ll first, start with the macro highlights, so I’m handing it over to Akaki to kick off this webinar.

Akaki, you can go ahead.

Akaki, Macroeconomist, Bank of Georgia Group: Hello, everyone. I will be presenting the macroeconomic update for our core markets, Georgia and Armenia. Let me start with the growth performance. Georgia continues to benefit from a balanced mix of strong external inflows and resilient domestic demand. In Armenia, growth momentum has shifted more towards domestic drivers supported by fiscal stimulus and credit expansion while external demand continues to normalize.

Preliminary numbers show that both countries performed better than expected in the first half of the year. In Georgia, real GDP growth was 8.3% year on year in the first six months, while Armenia posted 6.3% growth. So given these strong numbers and an improved outlook, especially following the recent signing of Armenia Azerbaijan peace framework, has enabled us to revise our full year real GDP growth forecast upward to 7.5% in Georgia and to 5% in Armenia. So this sustained strong growth performance in recent years has led to sustained increase in per capita income levels in both countries as you can see on the right hand side of the slide. However, this average income levels are still below Central and Eastern European peers, which leaves significant room for further catch up growth in the years to come.

Now let me move on to drivers of growth. In Georgia, external demand continues to play a major role with traditional inflows from exports, tourists, and remittances increasing steadily. In Armenia, exports continue to normalize from one off spikes from the last year while other inflows and particularly remittances remained solid. Beyond these traditional inflows, we see strong performance in nontravel service exports and particularly IT services, which support hard currency inflows and also generate productivity gains for the wider economy. So all these inflows taken together have also contributed to strengthening local currencies.

Georgian lari and Armenian drum continued to appreciate in the second quarter even after the US dollar stabilized against other major currencies. Notably, real exchange rates of Armenian drum and Georgian lari are adjusting after significant appreciations in previous years, as you can see on the right hand side chart. This adjustment is taking place through lower inflation relative to trading partners with no pressures on nominal exchange rates. We expect both currencies to remain stable in the medium term underpinned by healthy macroeconomic fundamentals and prudent monetary policies. Now strong exchange rates also supported low and stable inflation in Georgia and Armenia, And these recent upticks that you see in the headline numbers are mostly attributed to food price increases, while core inflations remain well aligned to central bank targets.

We therefore expect these food related pressures to be short lived. Still, given the globally uncertain inflation environment, central banks of Georgia and Armenia maintain cautious stance, keeping interest rates unchanged. And we don’t expect any cuts in the remainder of the year. So beyond price stability, two additional pillars to overall macroeconomic stability are adequate levels of international reserves and prudent fiscal fiscal management. And in this regard, we have very positive developments in both countries.

Particularly in Georgia, the central bank has been actively replenishing international reserves, which reached 5,000,000,000 US dollar end July, which is the highest number since 2023. And the interventions that foreign currency purchases were particularly high in recent months. So there is also positive developments on the Armenian side where reserves are also increasing, and we expect this trend to continue improving the resilience of Georgian and Armenian economies. On the fiscal side, we also see both countries maintain discipline. However, the public debts have taken different trajectories.

The Georgian government continues to decrease external debt, and this has brought the total government debt to 60 below 36% in mid twenty twenty five, which is a significant decline if you compare it to almost 60% back in 2020. On the Armenian side, the government is carefully balancing the current spending needs with longer term fiscal sustainability objectives. The total government debt to GDP is expected to stabilize at around 56% in the following years, and the fiscal discipline is also supported by ongoing IMF programs. And lastly, the financial sectors in Georgia and Armenia have benefited from favorable macroeconomic conditions while also supporting growth. We continue to observe robust lending expansion in both countries while loan dollarizations have decreased significantly in previous years, reducing exposure to exchange rate risk.

And the balance sheets remain strong with nonperforming loans at one of the lowest levels among the peer countries. So this concludes my part. Back to you, Nini.

Nini, Moderator/Host, Bank of Georgia Group: Thank you, Arkaki. And now we can move to the group’s results, and I would like to ask Arshil to share his highlights.

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: It was a pleasure. So first of all, thank you very much for joining the call. I understand that a lot of you a lot of our investors may be on location, and nevertheless, I think, attendance is one of the highest that we have seen. So as as Nini has mentioned, we have a very solid solid numbers. I think what’s important is that the is the macro economy is is doing better than we expected in the beginning of the year.

We also see very strong demand in loss. So on the balance sheet side, we’ll we’ll cover the next slides. Growth is very good in Georgia and and phenomenal in Armenia. The first formation is very strong as well, and overall numbers are are quite solid. So operating income grew nine and a half percent year over year in the second quarter.

Notable that Georgia increased 11.4% and Armenia 8.67, of which then when we dissect it to interest and noninterest, most of it came from the most of the growth came from the interest income this time. With Georgia delivering 17 and a half percent, Armenia 16.3, and combined that resulted in 15.8% year over year increase in interest. In terms of the non interest income, it was minus 2.2%, and I’ll go into details over the next two slides. Net interest margin, we as we said on the results call last last one on the first first quarter, we said that there was slight risk on the upside. So increased to six four 6% net interest margin, of which there was a bit of increase from Georgia, mainly coming from the fact that we had extra liquidity deployed.

And there was a slight decline in our many of our revenue to be high base. You do see that we had a slight uptick on the loan yield side, but also it was a slight uptick on the cost of client deposit and notes, mainly coming from the digitalization, especially in our menu where the attraction of drawn deposit is slightly higher, more expensive than in in the hot guys. Let’s see in commission income. The the AFS was 17 minus 17.7%. What’s interesting is that last year’s second quarter, we had a relatively large item, which was starting from investment banking fees of about 10,000,000 laurel to 29.

So if you normalize it for that one large item, and this this this quarter, we didn’t have large in some banking fees. This had a lot of bumpy. If you didn’t have that, you would have 24% increase in net paying commission income in Almenia. In Georgia, it was relatively small, but partly due to some some adjustments. But even in that case, it would be low double digit if you normalize it for that.

And that’s partly due to the due to increased competition slightly, but also there’s the Visa, Mastercard fees that we’ve seen a little bit uptick there, and we negotiated. I don’t want to go into details, but going forward, things will be better. Net net effects, we we had a rather flattish performance where we had we had the Georgian operations delivering minus 8%, predominantly based based on the fact that it was the client’s flow or revenue from client flow was was flattish, and there was slight decline in terms of reevaluation gain. In Armenia, it was was minus 1.9%. Also, mainly due to the fact that there was a bit less volatility issue in the second quarter in Armenian than than previously last year.

Operating expenses increased 12.1% of which Georgian operation was 15.7% and Armenia’s three points 3.1%. We like Armenia cost discipline, and in Georgia, we are taking into we’re taking certain actions. As we get closer to the end of the year, we’ll see some of it coming into the numbers. Cost income ratio summed up to 36.5% for the quarter. And and now regarding the balance sheet growth, we had 22.5 constant currency growth, which is very strong.

We’re well ahead of our guidance of around 15%. We had 17% constant currency growth in Georgia and 37.6% in our menu, which is a phenomenal number. What’s even more important, I believe, is the q o q number, which is 10.2%. And and how long is we’ll we’ll dissect it into where this growth is coming from. We also had 4.7% in Georgia q o q.

It’s also a very strong performance. And there, most of the growth is coming from corporate and mass retail including consumer, slightly less demand on mortgages and SME, but overall very strong performance. Deposit portfolio, we had 26.1% growth constant currency in Armenia and 10.9% in Georgia. And in Georgia, we are trying to decrease our market share, as we indicated to the to the market, which which we did slightly. Cost of credit risk, had 0.5%, which is slightly higher than last quarter, but it’s well well below our normalized level of 80 to 100% that we got, which still is very good performance.

And I think this performance will continue like this as as the macro economy is doing very well, 15 in a row already. And you can see it in the NPL numbers, the overall 1.9%, which is also very strong show. Profitability year over year increased 19.4% without the one offs, which was partly due to the fact that in the second quarter of last year, we had a strong reserve associated with the acquisition in Armenia. But overall, it’s a very, very good number. And the return on equity is 27.2%.

And for the half year, it’s 27.9%. GFS, I think we mostly covered, but if you take on a standalone basis, return on equity was 31.1%. Profitability was 409,000,000, which was up by 7.6%. Loan book growth, 17%, as I said, and deposit growth of 10%. What makes me quite happy is how our retail monthly active users still growing at 15.5% year over year, achieving 1,700,000 customers in a country of 3,800,000 people.

This I’m not going to discuss more here. We’re also enjoying very strong growth of our business mobile users, growing 22% year over year and achieving 100,000 users. We are also growing our digital sales very well. As you can see, we achieved almost 70%, which is very good achievement and and now also 86% of all loans are fully we should fully digitally and 73% of all deposits. And and that number is growing very, very well year over year.

NPS, we our customers instruction, as you know, is a is a big focus for our for all of us for at at line of finance group. In in Beckham, Georgia, the NPS was we utilized seventy seventy three, which is a very strong showing for any universal bank. Acquiring volume was growing by 27%, which is also a very strong showing. And also, number of people using using our cards increased by 14.3% to go above 1,500,000 people in Georgia. Loan portfolio, we covered already in deposit when we were discussing the overall numbers.

Capital position is very strong as you can see, and liquidity is very strong as well. On this break note, may I ask Johannes, our CFO from Ameriabank, to to join? Let me turn this off because I think he can share the presentation. Johannes, tell us

Johannes Doroyan, CFO, Ameriabank: Yeah.

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: How are things going in Armenia? We see phenomenal growth. Please please tell us more about it.

Johannes Doroyan, CFO, Ameriabank: Thank you. Thank you, Arjun, and thank you everyone for joining the call. I am actually pleased to announce our results for q two. And before I go in there, I wanna just add a couple of words on the very positive environment macroeconomic environment that Akagi presented in details figures. I’m sure most of you have already heard about the recent US brokered transaction that is expected to deescalate the geopolitical tensions in the region and so called trip corridor to be established that will assume opening the borders as well and technically will result into their regional integration with the greater economic results potential for the country and the region in general.

So in addition to that, I wanna note that this has been very positively received both locally in Armenia as well as internationally by investors. I’m sure you’ve seen the Armenian euro bonds yield going down sixty, seventy basis points over the last one month period. And moreover, over the last couple of month and over the couple of following month, we do anticipate to have several very important and significant developments in Armenia, namely, if I name a few of them, NVIDIA that has established an office in Armenia more than two years ago has announced that it’s gonna be partnering with Firebird and government of Armenia to launch a $500,000,000 worth of project building AI supercomputer that will really transform not only the overall IT infrastructure in Armenia, but overall the region. And it’s gonna have a 100 megawatt of data center as well. And given also the quality of engineers locally, we anticipate it’s gonna have a significant chain effect on the IT sector and not only in Armenia.

Another large project that was announced a couple of months ago was on natural resources, one of the larger natural resources to be activated and operated soon. That is estimated to have from 0.6 to 1.5 percentage point impact on GDP in the medium term and add another 100 to 120,000,000 US dollars of tax revenues to for the government. We do anticipate to have another significant transaction in the natural resources sector that will also have positive impact on our development from the baseline scenario that we were discussing. And, obviously, a number of infrastructural projects, South North Corridor, the Trip corridor related infrastructure investments. So I would say, overall, there is a very positive sentiment and expectation on the economic developments in the country.

As for the key results of Ameriabank, we did register 95,800,000.0 GEL profit in during the q two. And if we take out the from year, year over year, this would yield into 17.7% growth. Our return on equity in consolidated report is 20.1%. But if we look also at this stand alone report, it’s gonna be 24.1%. The loan growth and deposit growth figures speak for themselves, 37.6% in constant currency basis for the loan portfolio and 26.1% for deposits.

I’ll talk about these figures a bit later. And, obviously, huge impact and result on increasing our monthly active users and DAU MAU that actually grew more than 50% year over year. And, again, we’ll have another slide on that later. This is to emphasize the importance of our digital transformation. And, also, here here, I wanna just mention that year over year, the volume of transactions through our MyMerry application have gone up more than 68%.

Our cash offloading ratio is more than 91%, at the end of the q two. So you can see a number of features that are available in our super app and also beyond banking part as well. I’m very happy to mention that we actually launched a kids app, My AmeriStar. This was a project that was designed and implemented over a course of three months, and I wanna thank all the peer colleagues engaged in that. And this will give our, younger generation not only opportunity to cover their basic needs in terms of their finance, but also more importantly, this will cover educational aspect.

And we really wanna emphasize that, not only for Kids App, but also in my invest where we actually have, I think, one in a kind in app build academy where we educate our customers to take advantage of wider financial services offered by Ameriabank locally. And there, again, I just wanna mark that our both transactions, numbers, and volumes have more than doubled year over year. And, we are very happy to see that 73% of the IMX corporate bond trades are done, through our platform. This is to note that our customer base has actually surpassed 700,000, of which 408,000 are monthly active customers. That’s 35.8% year over year growth.

And, MAU and DAO grew 54.552.2% respectively. Very impressive, for us, but, actually, we wanna note that there is still a huge opportunity for further growth, and we aim to improve the absolute number of MAU and DAO significantly through, increasing our customer base, over 1,000,000,000, and also improving our digital uptake and engagement ratios, over time. Loan portfolio growth and deposits, speak for themselves. Again, 37.6% in constant currency basis, a growth year over year and 10.2%, for the quarter. This is actually very diversified in both sectors, retail and corporate.

It’s actually driven, by a very, good economic environment and very healthy demand locally as well as very positive, brand positioning, risk management, and also digital transformation. Just for your information, 94 96% actually of, consumer loans were issued through our digital platforms, enabling wider coverage and minimizing our underwriting costs, of course. Deposits, again, very strong year, 22.3%, year over year. And, here, I just wanna mention that we have also restarted collaboration with DFIs. And given the the change over the information rates that are more compatible with local rates now, I’m sure most of you have seen several transactions that we have announced last year, end of last year, and beginning of this year.

200,000,000 with IFC, €105,000,000, with EIB, 15,000,000 with EBRD, and there are a couple of more to come, hopefully, still this year. And this is to show our, very positive trend on the market share. Over the course of the last twelve months, we were able to improve it by 1.3 basis points and 0.9 basis points for the quarter itself for the loans and 1.2% year over year and 0.6% for deposits. Again, we are very happy with the organic growth, that we’re able to achieve, but our ambition here is to hit 30% market share over time. And while we see the trajectory going there, we’ve also also based on the questions that we got previous quarter, I also wanna mention that our baseline scenario is organic growth, but at the same time, we will seize any nonorganic growth opportunities in local market.

Our capital position has stood strong. CET one had 2.9 percentage point buffer. For total capital, we have 0.1 percentage point buffer. I wanna highlight that this has been a managerial decision to unleash the local growth opportunities. And especially given the fact that we had already signed a subordinated debt that would improve our capital position that was engaged included into our regulatory equity during the last few days of June, hence, did not have much impact on the average capital adequacy ratio presented in here.

For July, our buffer was 0.3 percentage point. Now it’s even higher. We have actually attracted two more smaller sum debts in July and August. Another one is coming up by the end of the year, and we are actually looking forward to finalization of the regulatory changes, whereas Central Bank of Armenia will be enriching the capital instruments for Armenian banks. And we will be looking into improving our tier one capital with that as well.

Liquidity positions are, again, very strong. LCR at 173.8% and NSFR at 170 117.2%. This is it for the Armenian operations. Thank you.

Nini, Moderator/Host, Bank of Georgia Group: Thank you, Johannes. And now back to Arshil for the wrap up before we move to the questions. Arshil, you’re on mute. So if you can please unmute yourself.

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: Thank you, Mimi. Thank you, Very impressive results, especially balance sheet growth is very impressive. Now just to wrap it up, we have announced 5.1 lari per share dividend, which is for the first half of the year. Also, we announced that we’ll be going to quarterly quarterly dividend announcements. So this 5.1 line is for first and second quarter, and then every quarter we’ll be announcing announcing dividends on a quarterly basis going forward.

Also, something to note is that we are approving the board has recommended and approved 98,000,000 buyback for the first half of the year, which will be happening as well. As we speak, and it’s a buyback and cancellation. Now over the last few years, we have gone from 49,200,000.0 shares to 39 4 43.9, canceling more than 10% of our shares. Just to reiterate, we are medium term targets are 15%, which is 15% growth, which we are over performing right now. Return on equity of 20 plus percent, which we are over performing with a large margin.

Dividend and share buyback payout of 30 to 50%, and and and we told we told our investors that we’ll be on the low side of that as we are deploying all of all of the profitability that we generate in Armenia there to to fund the growth. And as you can see there, we are looking forward to the regulator pooling the framework, which will allow us to issue the additional instruments, maybe tier one instrument, which is a good problem to have because if if the franchise is growing at 50 plus percent, 37 in this particular case, it’s a it’s a good problem to have. And and we’ll be dealing with that to deploy more of the capital while the franchise is generating 20 plus percent return on equity. And there are plenty of good news to look out look out for in Armenia overall on the MAPR side, which is resulting in in many different good news. I think one is the question, but the media has a back office in Armenia employing about six, seven people in the country.

But recently, they announced a large data center, which will be more than half a billion dollar projects together with number of different investors. That will be a joint venture where the the media will be provider of the chips and and and additional know how. And they’ll be regionally, it will be a very, very strong, and it’s it’s a good project because it will generate more and more data capability and processing power for the whole region. So such projects and and and and there are new new very significant and exciting things happening in Armenia, which we look out for. And Georgia numbers, as you can see, were very strong.

I’ll reiterate, as Akhaki said, that seven months of this year, National Bank has bought about $1,200,000,000 on the on the market, which is about the same as in 02/2023, which was the highest net buying that we have seen historically. So just in seven months, almost the same as the highest ever in 02/2023, which not only recouped all the spending, which was done last year to stabilize the lighting, the political turbulence, but also added to it, which is is a very good management overall for the national bank. So all all all work from that start. On this right note, should we open for q and a?

Nini, Moderator/Host, Bank of Georgia Group: Let’s now move to the q and a, and we already have few raised hands from from our analysts. And the first on the line is Priya Rathot from Jefferies.

Priya Rathot, Analyst, Jefferies: Hey there. Can you

Nini, Moderator/Host, Bank of Georgia Group: hear Priya. Hi. Yes. We can hear you.

Priya Rathot, Analyst, Jefferies: Perfect. Thanks for taking my question, and congrats on a strong set of results. I have two areas just to focus on, please. So the first is on the net other income. There was a notable increase quarter on quarter, especially in GFS.

Could you just speak to what the drivers were there for the increase, please? And the second topic is on the HSBC Motor potential acquisition. A couple of questions here, please. So I guess the first is what synergies or benefits are you seeing from this acquisition? And I guess I’m asking products or offerings there’s more to offer, which you don’t currently have, or where do you see it as enhancing your current offering?

And are there any regulatory hurdles or pushbacks you envision envisage in the process? Because there’s quite a lot of news flow suggesting that there’s a preference for a European buyer. So just any thoughts around that. And finally, just generally on the timing of this acquisition because, you know, the the EmeraBank acquisition only recently closed and So think

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: Can you hear me? Yeah. Multi is HSBC has announced that the the the there’s a preferred video, which is a European one. A good fast track. So it’s no longer relevant at this stage.

Priya Rathot, Analyst, Jefferies: Okay. So I guess my only question is the net other income question, please.

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: Yes. On the net other income, why do you say it’s significant? It’s just 2,000,000, 3,000,000 more in Georgian case for the GFS. So it’s not a significant uptick, and net of income includes number of different things including one off gains on real estate sales and and and such. So it’s not a significant number for for operating income.

There was 746 almost million in Lave. It was less than 15,000,000 in Lave. So it’s not a significant number. Nini, can you help me what what what did gold

Nini, Moderator/Host, Bank of Georgia Group: It it it include a sale of one of the one of the assets. So

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: Yeah. But it’s not it’s not so But it’s not significant. 15,000,000 in ladders is not a significant number, definitely.

Priya Rathot, Analyst, Jefferies: Right. Thank you.

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: So if you look on a half year basis on page nine of the results, you can see that last year was 19 and a half million allotted for first half, and this year is about 22,000,000 lari. So it’s only 12.8% increase. And this this number is usually bumpier than this, but it’s not it’s not nothing particularly significant this quarter. It looks yeah. But regarding multi, yes, it’s unfortunate that we we we definitely were much less aggressive apparently than some of the other buyers, interested buyers.

And in this particular case, it was formerly Ateca Bank of of Greece that was announced as a as a preferred bidder. We would rather be more disciplined than in terms of the buying, and then sometimes that means that we’ll miss out on on opportunities, which is unfortunate, but what can we do? Makes sense. Thank you. Thank you.

Nini, Moderator/Host, Bank of Georgia Group: Thank you, Priya. Sorry. The next raised hand is from, Sergei, but I don’t see the last name. So let’s see who the person is. Hello?

Can you hear us?

Sergey Belozarov, Analyst, Greyhound Capital: Yes. Hi. Can you hear me?

Nini, Moderator/Host, Bank of Georgia Group: Yes. Hi, Sergey.

Sergey Belozarov, Analyst, Greyhound Capital: Perfect. Sergey Belozarov from Greyhound Capital. Thank you for giving me the opportunity to ask the question. Very impressive results. You’ve been growing very impressively as a country and as a bank over the last four years.

My question goes, you you show you have shown that the remittances and GDP has has have grown over the last four years. So, from my understanding, there were over a 100,000 immigrants coming from Russia and Belarus over the last four years, which and and a lot of them are operating in in IT services, hence generating probably 10 times the GDP, average. So, how much do you think has that impacted overall your performance over the last four years? And and how do you think that could reverse now with potentially, the end of the conflict?

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: Thank you. I will I will ask Katak to to to go into the details. But all in all, I can say that in 02/2022, the inflow was stronger. Some of the people have established themselves here opening. It’s it’s IT, but not only.

There there are different there are families that have moved, opened all kinds of businesses, bars, restaurants, pet pet care shops, and I don’t know, all kinds of different studios and so forth. So but it’s it’s people have have moved to different countries including Georgia and have established themselves. Some of them have moved on. So as as in the beginning, I think Europe was was rather closed for this IT specialist, but then Portugal, Spain, and others have rolled out different kinds of programs for IT specialists, including for the Russian, PetroRussians, and so forth. And some of them moved on.

So I think you you had an uptick in 02/2223, but it has normalized much more. Akaky, could you could you comment on this?

Akaki, Macroeconomist, Bank of Georgia Group: Yes. So the significant inflow that we saw after 2022, we see some stabilization. We see some normalization in these inflows. Some people, some freelancers have moved on to other destinations. And this IT sector benefited not only by the inflow of migrants, but also by relocation of several international companies from the region.

And we expect those businesses to stay in the country even after the situation stabilizes, so we do not expect any abrupt or sudden outflow as we see these businesses are growing. They are expanding their operations in the country and generating significant export revenues as well as productivity gains for the wider economy. So we we can say that those one offs have already stabilized, and we do not expect any significant or sudden outflows. Interesting.

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: I don’t also say that in terms of the from from Russia, it’s it’s less than 20% now and it’s decreasing. So in terms of hard currency transfers, other countries are increasing significantly including including The US, which is becoming stronger and stronger source of remittances, for Georgia. And also just to reiterate what I have to said, all of these large international outsourcing companies that moved their offices to Georgia and Armenia, they started to hire locally, which created a significant competition for our IT resource. And we have seen very strong inflation of of IT resource over the last four years. So on the cost side, we we saw that, but on the on the revenue side, obviously, it contributed to the overall GDP.

So all in all, resulted over the last few years. We we basically increased our our profitability more than four times. So all in all, it’s not just this, but it affects all stats, revenue as well as costs. But it’s it’s not only the people that migrated, but it’s rather the companies that know how to do the outsourcing service for the rest of the world that had to look for new home. And once they found it, they are here to stay like a in video with 600 people in Armenia.

I don’t think they’ll be going anywhere regardless of of the peace that we all expect to come in the region.

Sergey Belozarov, Analyst, Greyhound Capital: Interesting. Thank you very much.

Nini, Moderator/Host, Bank of Georgia Group: Thank you, Sergei. So we don’t have raised hands at this point, but we have a few questions in the q and a chat from anonymous attendee.

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: I I would suggest, meaning, maybe this is the last time we should answer anonymous.

Nini, Moderator/Host, Bank of Georgia Group: Oh, the person is telling us thank you for keeping the anonymous line open with but we just

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: At least one thing we can do is know know who’s asking the question. We’re probably answering. But yes.

Nini, Moderator/Host, Bank of Georgia Group: So the first question the first question is if we can clarify which group expenses are allocated to the Armenian segment during consolidation because there is a difference in the expenses between stand alone and IFS? So that’s the first question. Maybe, Archul, will you just quickly

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: So it’s it’s it’s mainly group functions, which includes CEO, CFO, couple other things. There’s also a sign up bonus for the management that we had initially that is being amortized, and it’s almost done. So that’s about it. And another question is, are we going to have a Investor Day? Probably spring of next year, we’ll be having one.

Nini, Moderator/Host, Bank of Georgia Group: And then there was a question, like, what was the rationale for considering the acquisition of HSBC Malta? And do you still consider an entry into the banking sector in Malta now that the other bidder has been the preferred bidder has been announced? It’s a acquisition.

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: Okay. So maybe I’ll I’ll take that that question. So our strategy is is to do a main bank for our customers, and we like larger scale. So that means that we we like to look at acquisition targets, which are top three in larger countries, maybe top five. So in most of the acquisition target was number two with about 20% market share.

We thought that it was a franchise that would benefit with the digital offerings that we have significantly, I would say, because HSBC was was looks like was thinking about exiting the country for a long number of years, then have underinvested in in franchise. So we thought there was still some franchise in a small country, but could benefit significantly with the refreshment of the product offering. We would not be interested in in looking at the small player in a small country, let alone we will not be interested in a small player in any country, let alone a small country. So in in other words, no. We would not be interested in entering, but we’d opportunistically be looking at all of Eastern Europe.

Malta was a bit of a stretch, but it was a could have been an interesting opportunity. But we’re looking at top three, maybe top five if it’s a larger country because we believe scale matters, and we like the types of acquisition targets where we feel that we can bring value with with our ability of bringing the customer care approach, and that approach includes a lot of details in it, not just the philosophy but the processes as well as the digital offering. So all of this together does not happen very often, so don’t expect too too too much activity on our side there.

Nini, Moderator/Host, Bank of Georgia Group: And there was also another question in the chat if there is any current or upcoming debt capital markets initiatives that we’re working on or planning.

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: Well, I think in no uncertain times where we we said that we are we are looking forward to the framework of tier one for Armenia, and it’s for a reason. I’ll say that. Other than that, probably not.

Nini, Moderator/Host, Bank of Georgia Group: So we have a raise here from Bruno Katia, so let me allow him to talk. Hi, Bruno.

Bruno Katia, Analyst, Unknown: Hi, Nini. Hi, Arjun. Congratulations on the results and and taking my question. Maybe two or three questions. Firstly, on cost of risk.

In Georgia, we saw a sequential pickup Q on Q to 0.7%, still below historical levels. So should we gradually see a convergence towards the historical range of 1%, 1.2% in the next few quarters? Or was that just a one off pickup in 2Q? Likewise, staying with Georgia, the OpEx run rate, you explained some of the one off factors driving that. But even excluding that, the run rate, the growth rate is quite strong.

Should we expect that growth rate to continue at that level? Or are you at a point where you’ve made all the upfront heavy investments on digitization and we should start to see some leveling off? And the final question on

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: And take one, Luna, because Sure. Sure.

Bruno Katia, Analyst, Unknown: Yeah. Yeah. Sorry. My bad.

John Osguzov, Analyst, Franklin and Templeton: Yeah.

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: So the first one is is cost of risk. They’re slightly higher. It was partly due to the fact that there’s a lot that’s slightly weaker versus euro. So there’s a small part of euro portfolio which contributed about 14 basis points. But other than that, it would have been 0.5.

Now 0.5 still is well below our midterm expectations of 80 to 100, but we don’t expect to get close to 100 until we see this above until we see such a strong macro development. Having said that, so so so as the macro is developing well above the potential long term 5% that Georgia has, I think, you know, we are at seven, eight, 9%. And, you know, we we we feel that the credit quality that we look at is very strong overall. So underlying cost underlying cost of risk, we should not not expect getting close to one percent in the short term. We’ll see what happens on the market.

So we’ll we’ll it will depend on that. What was the second question? Was The

Bruno Katia, Analyst, Unknown: OpEx growth outlook in Georgia.

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: There, I we what we pay attention to is the operating jaws, and we don’t enjoy that they’re being negative. So I think from the fourth quarter fourth quarter, it should which will rise at least, and then we’ll see where we get to from there. One thing that is not helpful is is that the overall in the country, the the salary income levels have been still growing at double digit, 40 in a row. So that’s not helpful. But having said that, I think the overall franchise has been growing, and and that should be more than enough to absorb it.

So we normalize the costs. Now it has been slightly higher, but we should we should it will be under control, let’s say. It is under control, but it should translate into a neutral, maybe positive very soon. If not in the third quarter, then in fourth quarter onwards.

Bruno Katia, Analyst, Unknown: And same question on Armenia. The OpEx growth Q on Q was flattish. Is that just some synergy benefits that have been realized? Or because I was expecting growth to be slightly stronger as you’re starting to make some more digitization investments there. What what what can we expect in Armenia?

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: I’ll just say one and then maybe Homana says the rest. We don’t have much synergies there in terms of costs because it’s run completely as a separate bank because it’s the regulatory environment is different. There’s almost, like, requirement to run it separately through the board, etcetera, etcetera. So on the backside, there there are no synergies at this point, at least. So please go ahead.

Johannes Doroyan, CFO, Ameriabank: And just to add on that, while the year over year growth on the OpEx was 2.6% only, there is some so called seasonality issue because some of the costs were not evenly distributed previous year, and we’re gonna have this situation change towards the end of the year. So the natural growth would be somewhere around 9%, and so slightly short of 10% for the year most probably. I mean, if we continue with the same run rate, it’s gonna be slightly short of 10%.

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: Understood.

Bruno Katia, Analyst, Unknown: Now that that that was it from from my side. Thanks.

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: Thank you, Ronak.

Nini, Moderator/Host, Bank of Georgia Group: Thank you, Ronak. So another raised hand is from John Osguzov from Franklin and Templeton.

John Osguzov, Analyst, Franklin and Templeton: Hi. Thank you very much for the, yeah, presentation, and congrats on the results. I have one macro or maybe question regarding Azerbaijan and Armenia trade. The the question is, do you expect in the future on or when, if possible, to expect trade barriers of Armenia between Azerbaijan and Turkey to be removed? And in such a scenario, what will what do you think the impact will be in Armenia’s economy?

Do you think it will be a game changing development? Or, yeah, initial thoughts maybe on that will be great? Thank you.

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: Oh, what is why why don’t you start? Since you’re closest close

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

John Osguzov, Analyst, Franklin and Templeton: Yeah. Understood. Thank you.

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: Agaf, anything to add there to to have more insight there?

Akaki, Macroeconomist, Bank of Georgia Group: Well, I would just add that opening up this corridor would definitely change the overall situation in the region because that will be beneficial from the diversification perspective, and, also, that will definitely improve increase the trade flows, the overall region. So I don’t have any estimates either. But, overall, yeah, we expect this to have a significantly positive impact on the whole region and particularly on Armenia and Georgia. Thank

John Osguzov, Analyst, Franklin and Templeton: you.

Nini, Moderator/Host, Bank of Georgia Group: Thank you, John. Another raise hand is from Alex. I also don’t see the last name.

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: Hello? Can you hear me?

Nini, Moderator/Host, Bank of Georgia Group: Hello? Yes. We can hear you.

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: Okay. Great. Hello,

Alex, Analyst, Unknown: Archel and, Nini and, the rest of the team. Thank you very much for the call. I have a question, on the fees and commission revenue dynamics. You mentioned, that, you have some increased competition in the fees, business as part of the reason for the softness of the fee revenue dynamics. Can you elaborate a little bit on that?

What’s what’s driving this and how you see the outlook?

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: So what we see on the on one side is is several system providers like Visa and others trying to increase the fees. And on the other side, we see that with gain market share over the last four years going from 38% to 57%. Not all companies competitors are happy about it, and they’re spending heavily, I can say, to to somehow recoup some of that lost market share. And that’s that’s part of the part of it. One the first one is absolutely curable, and we have addressed it.

And the second one will hurt the attacker much more than the dependent. So what to expect? I think we we said in the in the results that we’ll be expecting high single digit in the third quarter and low double digit in the in in the fourth quarter in net fee income, is slightly less than the overall business growth, but that’s that’s that’s what we expect. In terms of that’s on the Georgia side. On the Armenian side, what we are saying is that, in fact, when you remove the one large item, which was one year ago, you see 24% year on year increase in fee income, so we are quite happy on on that one.

Okay. Understood. Thank you so much.

Nini, Moderator/Host, Bank of Georgia Group: Thank you, Alex. So I see Sergei’s hand, but maybe he forgot to put it down. But let me make sure just to double check. Sergei, do you have further questions or no? Well, so I guess not.

So I don’t see any other raised hands at this point.

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: So since we we allowed the exception of anonymous attendees questions to be answered, let me take that. So anonymous attendee, third question is how do you see regional geopolitical risks affecting cross border flows and banking sector stability? Well, one thing we can say is that there has been decrease of political risk happening. So if anything, there there are plenty of upsides. And I think I wanna still mention that as the as there’s a peace deal between the between the Azerbaijan and Armenian side, there’s plenty of opportunities there in terms of border opening and in terms of perception of stability and the longer term ability to for a long term planning for a lot of private investors.

And we, as the leading bank in both countries, we are there to provide provide credit and services to to such private investors. So if anything, it should be all positive and a good upside. Same goes for a wider, larger problems that we have, especially the war going on in Ukraine. If there’s a peace deal, there will be plenty of additional economic activity of the construction of Ukraine and so forth that will, I think, benefit the whole region, which will be very positive as well. There’s there’s some some trade trade and and some of the other services that are being provided from Georgia, and we’ve done a detailed analysis of that, how it will affect, which is unclear.

At some point, one thing we can say is that from one side, we do see that it will be negative over the last couple of years. Let’s say it could be cumulative about 2%, but then the additional economic activity that will result from the reconstruction will more than most probably could sit out fully, and in fact, most of it as well. So those are the overall assessment. The next one is, please, could you elaborate on the guidance? Are there any changes?

There are no changes to the guidance, and the guidance is provided on the last stage of our investor presentation. It’s 15% growth, roughly, so 2015% growth. Capital distribution of 30 to 50%. And what’s the third one? Amy?

Nini, Moderator/Host, Bank of Georgia Group: The third one is if we have any guidance on the cost of risk for the next three years.

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: No. The third part of the guidance is 20 plus percent of time in equity. We don’t provide guidance on the cost of risk, but up to 1% probably since what we’ve seen historically. Historically, we’ve seen slightly higher, but I I I have to say that in 2000 2018, when the National Bank introduced the introduced additional population in terms of the responsible lending and so forth. This systemically decreases the cost of risk, especially on the consumer and the and the mortgages.

So I think going forward, it’s it’s safe to assume that we’ll we’ll be 30% lower than historic averages. Thirty, forty bps lower.

Nini, Moderator/Host, Bank of Georgia Group: In the yeah. Do we have any exposure to iGaming?

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: Not really. Not much, but that was not why we’re looking at Malta. And I think I explained it in in one of the questions that people asked. We would like major players in smaller markets, especially where we see that we can improve the offering for the day to day clients, which we thought that we could do there.

Nini, Moderator/Host, Bank of Georgia Group: And a question from Nikolay Dimitrov. Do you see a combined Liberty business bond becoming a more formidable competitor in Georgia?

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: It will be a larger player. We’ll still be about a third of where where we are. So I think it’ll take a long time until we consolidate and so forth. So I don’t know what to answer more than that. Thank you.

Anything else? Mimi, are there any raised hands?

Nini, Moderator/Host, Bank of Georgia Group: We have one raised hand from a person named Valeri.

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: So okay. Hello?

Nini, Moderator/Host, Bank of Georgia Group: Maybe it’s not a raised hand or it’s an accidentally raised hand, which could

Johannes Doroyan, CFO, Ameriabank: be the case.

Arshil Gacechiladze, Group CEO, Bank of Georgia Group: Well, in this case, that some of our colleagues are not asking a question. I thought it’s, like, pushing a button. So on this breakout, thank you very much for attending this call. We to summarize, we are delivering strong results and continuing to deliver so. And where we can what we can say is that the growth opportunities, which are coming from the fact that the macroeconomic development in both countries has been very strong, that is providing opportunities for leading banks like on the back of world to provide to provide services, to provide credit and resource to the private entrepreneurs and businesses to deploy to deploy these resources and capitalize on the opportunities that the strong model presents.

And that’s what we expect going forward, especially that we are seeing very positive moves in terms of Armenia, Azerbaijan peace agreement, in terms of de escalating Saudi tensions that have been there for decades. And and all of this presents very, very significant economic opportunities. While on the Georgia side, the macro economy continues to deliver very strong results. We see deleveraging happening there and the and the policy reserves growing very strongly. So all around are very strong numbers, and and we are very well positioned to capitalize on it.

So thank you very much for for for your attention, and and let’s look forward to this third quarter results.

Nini, Moderator/Host, Bank of Georgia Group: Thank you everyone for joining. See you next time. Bye bye. Bye bye.

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