Sorry for technical difficulties here. Apparently I was on mute. On Georgian macroeconomic developments, it was pretty good quarter. We had 14.4% growth in the Q1 , which was driven by good growth in exports and remittances have stayed up regardless of a relative drop in March, obviously, given the regional issues and the war in Russia and Ukraine. The tourist numbers have gone up and have registered 68% of the 2019 number, which was peak on the record in terms of tourist earnings.
All in all, it was regardless of this regardless of the regional pressures that we are all facing. The Q1 was a very good one, economically speaking, partly due to the low base last year. Regardless, I think overall the performance has been good. Now, in terms of the tragedy that is happening in our neighborhood, it also has economic impact. The economic impact on one side is basically those are the different types of impact that we have from Russia and from Ukraine. We import different types of commodities, mainly from Russia, and export some commodities, some re-export and some agricultural goods as well as to Ukraine. Here are the numbers.
If we skip imports and go to export side. Together the two countries represent 4.9% of exports for Georgia, and 4.9% of Georgia's GDP is exported to these two countries. About half of that, slightly more than half, is Georgia-originated exports. The rest is either re-export or commodities that we export to these two countries which can be exported elsewhere. Remittances used to be, Russia used to represent 50%, and now it's significantly less. In combination, Russia represents about 2.2% and Ukraine 0.5%. In terms of tourism, you can see that there's 1.7% combined, these two countries. All in all, the impact is significant.
There are some other impact that is on the positive side, including the logistical corridor, Azerbaijani-Georgian logistical corridor becoming much more relevant for the whole region, because Kazakhstan and Turkmenistan and other countries can no longer export effectively through Russia or are facing different kind of challenges, logistical challenges. They are trying to put more and more goods through the South Caucasian corridor, and that has resulted in some positive impact on the Georgian economy, as well as some IT specialists also relocated to the region, including to Armenia and Georgia and Turkey. In total, when the war started, we thought our initial projection was that we expected the growth to decrease to 3%, for the country.
Later on, we upgraded that to 4.5%. The current expectation is that the country's economy will grow 4.5% in 2022, more or less in line with the longer term trend of around 5%. Inflation, though, remains a challenge like in the rest of the world, but here slightly higher. End of March, the inflation CPI registered 11.8%, which was down from 13.7%, which is high by historic. I mean, we have a target rate of 3%. That has caused the National Bank to raise the refinancing rate number of times, and the latest one was in March, and it was raised to 11%.
We believe that the National Bank of Georgia's reaction in terms of the rate hike was timely. We believe that the inflation will start to come down. A lot depends on the global commodity prices, obviously. Nevertheless, probably inflation will remain in high single digits, and it can be around between 8% and 9% on average for 2022, which represents a challenge, obviously. In terms of the currency stability, I think the Georgian lari has demonstrated a very good performance. Since the beginning of the year, it has been stable, slightly appreciated, as you can see, 1.3%. Although the appreciation has been short of the Armenian dram appreciation of around some percent, it was still pretty decent performance.
As you can see from the real effective exchange rate trend here, it is in line from the longer term trend of stable, let's say, currency vis-a-vis the trading partners. It was in fact, last year it was grossly oversold, and we have seen some of the appreciation that has happened. Right now it is around 100 or longer term trend where it used to be. One other thing that a lot of people overlook is that, the dollarization rate in the banking sector right now is its historic low of 50%. And probably can come down further given some of the incentives that the National Bank has created.
These incentives are working and have created basically a more expensive dollar financing for our borrowers. That more expensive borrowing is subsidizing, so to say, lari borrowing. If additional capital requirements are required from banks for any additional 1% of dollarization of the books. That is a price incentive to dedollarize the book further. I think as the inflation comes down, as the refinancing rates comes down and the lari normalizes, I think we will see more of that incentive working in real life and doing its job. Also what we can see is that the NPL ratio is one of the lowest in the region.
You may remember that over the last few years we have seen Georgian banking sector overall risk being reduced significantly due to stricter regulation and more capital requirements overall. I think that's something to keep in mind alongside good profitability. A few words on the strategy. As you know, retail banking and corporate are two main directions. In retail, we report mass retail, premium bank, premium retail and MSME. That in combination is about two-thirds of our business and our book as well. In payments, we are more than 50% in acquiring business in the country. Our mobile app is doing well and is a leading financial mobile app in the country. 97% of all transactions are done outside of the branch in digital channels.
We have a strong retail market share. We are most trusted bank and top of mind bank, have a NPS of 54, which is significantly up versus a few years ago of 27. We are delivering more than 20% return on equity and intend to do so in the foreseeable future. What we target and our main strategy is to make sure that we are leaders in daily banking, in mobile app and payments, and loyalty. How we do it is having a very strong franchise. That's why we highlight the top of mind bank and most trusted bank made by our customers.
We do a lot by first focusing rigorously on the customer satisfaction, and employee empowerment and deploy a lot of different data models and focus on profitability. On some of those measures on the strategy side before we get to the revenue numbers and profitability. You can see that we've continued increasing our mobile users, and mBank users have gone up. The monthly active users have gone up to close to 892,000, which is up 22% year-on-year. One additional measure that we are introducing, share of monthly active users, the digital monthly active users to total users. Something which we thought was not possible, in fact, was to significantly increase our monthly active users within the country.
Year-over-year, we have added more than 10%. Of which around 900,000 are using our mobile internet bank. In terms of transactions by almost 60% year-over-year, that is continuing, let's say. The growth, obviously, there is the seasonal component where quarter-over-quarter is flat, but that is understandable because Q4 is much more active. One other measure which we also are quite happy about is daily active users to monthly active users, DAU to MAU, which is almost 45, 44.6% for any financial app is a very good characteristic.
In terms of the total number of in our channels and mobile and internet bank and primarily it's mobile has become 53%, which is high. We intend to keep that number going up. In fact, we saw our branch transactions going up by 10%, which shows unprecedented activity overall in the country, and that was partly due to reflecting the economic growth. That's why we are pushing a lot the offloading of not only transactions but now also some of the products that we are selling through our electronic channels so that we can grow this business and scale it up based on digital primarily.
On that note, the product offloading ratio has gone up one year ago from 19%- 35%. In fact, we promised you to take it up to at least 36% by the Q2 , and let's see if we should be able to provide that. This is obviously very important, and there's plenty of upside here to sell more and more of the products through digital channels. In terms of our business mobile bank and business internet bank, our users have demonstrated a healthy growth. We've gone up to 43,000 in terms of active users, and a number of transactions is up by 56% year-on-year, and there's an uptick in transaction offloading as well, close to 98%.
In terms of our leadership in payments business, here the volume of payment business is up by 85% year-on-year. We still think that there's plenty of growth left in this part of the business. Obviously, there is a number of many different products that we are rolling out to make life easier for our merchants, including instant reflection on their accounts of the payments, to say it otherwise. When a customer pays in a shop or a restaurant, the amount will be reflected on the merchant's account instantaneously, and that will be rolled out very soon. It's very important to our merchants. They used to have to wait for three days.
Now they're waiting for 24 hours, but it will be instant. I think that will be a big positive for our merchants. On the Net Promoter Score, which reflects our focus on the customer satisfaction, a few years ago, it used to be a low point of 27%. Now it's about 54, down from 54.6, so more or less it's flat, which reflects our focus on customer satisfaction. It's a primary strategy for us to serve our customers and make sure they're happy. What does happy customer bring us is very good profitability of 30% return on equity. Net profit up by 73%. Revenue up by 30%.
Even quarter-over-quarter, which is not very often that it happens, that the Q1 number is higher than the Q4 , given the Q4 is a very active one. We had a 4.4% growth in revenue. Cost of risk was 0.8%, closer to our normal levels. Cost to income was 35%. In fact, slightly improved from last year Q1 . It is low seasonally, but still, it was good to see improvement there. Loan growth was 11.6%, but 19% on a constant currency basis. Deposits was also up by about 10.6% on a year-on-year constant currency basis.
We had strong capital, 13.7% core Tier 1, above 11.8%, which is our minimum requirement and a liquidity well above the minimum requirement. In slightly more on the detail side. Basically we had revenue growing by 30%, 30.3%, which we were happy with that growth as well as on a Q-over-Q of 4.4%. We have non-interest income representing 31% of our total revenue. In terms of the non-interest income itself, we had a growth of 36% year-on-year and the core revenue grew even more, where the other income we had close to zero this quarter.
We had a very, very strong growth and performance in FX, obviously given the very high volatility in the environment, especially in March. In terms of operating expenses, we had a significant growth there as well of 28.9%. It is a high inflationary environment, and we are facing inflationary pressures. Luckily enough, our revenue growth we have kept higher than cost growth. That has resulted in a cost income of 35%, which is our medium-term guidance. Loan portfolio we did mention already grew 11.6%, but the constant currency growth was higher at 19%.
Deposits grew also 3.7 and 10.6% on a constant currency basis. In terms of dollarization, we are at 54%, which is the lowest historically. As I described, I expect that number to come down further. The NIM was stable at 5.3%. You see the decomposition of NIM where we had a slight growth in loan yield. We had also cost of funds and cost of deposits growing slightly. That was due to the refinancing rate obviously going up. Cost of risk, as I said, was 0.8%, which was closer to our normal level.
In terms of NPL, we were flat-ish at 2.5%, and our coverage ratios increased here slightly. Profitability, as I described, was modest, 73% up. Return on equity was also pretty nice, above 30%. That was done on a strong capital basis of core Tier 1 of 13.7, almost 2% above the minimum requirement. Tier 1 at 15.4, which was, you see the minimum requirements here, as well as the total capital being slightly more than 2% above the minimum requirements.
What's also worth noting is that as the Basel III requirements are fully loaded, we expect December 2023 is the date when the ratios will be fully loaded. You see our expectations of well what capital requirements would be, assuming some of the things to be constant. We should be above those requirements even with today's numbers. In terms of the numbers that you are seeing, obviously they are based on the local standards. As the local standards move to IFRS, you should see higher capital requirements. The regulator has said that they'll probably introduce some buffers, where this additional capital that you will see will be absorbed, so you should not expect release of capital.
I think one thing is important to keep that when you are comparing these numbers in IFRS terms to other banks, you should probably add another 2%. Instead of 13.7, you should be probably thinking closer to 16% core Tier 1 ratio. And that is nice as well. Liquidity we did mention. We are above the minimum requirement and comfortable at that. All in all, I think, just to summarize, basically we are performing well above the promises that we have made of more than 20% return on equity, delivering in this case more than 30%. We are growing on a constant currency basis year-on-year at 19%.
We have in fact made an interim dividend last year after skipping one year during COVID times. We intend to pay the rest of it, bringing the payout ratio for dividends to 25%. We will observe the regional environment before we say anything about the buybacks. That's in short, and I will move to the Q&A. Nini, please let's move to the more interesting part because I think.
If you are. You participate.
go through all this.
Sure. So if you're using Zoom application, you can either raise hand or send us your questions in the Q&A chat. If you're calling in, please, press star nine and raise hand. I'll be waiting for the first question. The first question is from Ronak Gadhia.
Thank you, Archil, for the presentation and taking the time, and congrats on the earnings. I have two questions. Firstly, on your cost of risk, you mentioned, you know, 0.8% is more like a normalized level, but at the same time, during the Q1 , there were some recoveries, I think, on the corporate side. As those corporate recoveries start to ease up, should we maybe expect the cost of risk to normalize at a slightly higher level?
Yes. Yeah.
So-
Please go ahead.
Yeah. The second question is, you know, the loan growth on a year-on-year basis was pretty robust, but during the Q1 was relatively modest. Could you just maybe give some guidance for what we should expect for the full year? Thank you.
Yes. Thank you, Ronak, for congratulations. In fact, we were happy with the results, especially given the regional issues that we are facing. Overall, I think the numbers were good on not just the bottom-line returns, but also on the performance and market share and the rest. In terms of the cost of risk, you are absolutely right. I didn't say that we were at the normalized level. I said that we were closer to the normalized level, which we expect to be somewhere between 1% and 1.2%, depending on the loan mix. You know, we will probably get to around 1% at some point. In terms of growth, you're absolutely right.
Q1 was less growth, but we didn't feel like it was time to push, and we saw that as loans got more expensive for our customers, we had slowdown in mortgage demand as well as corporates were not eager to borrow. We have seen some of it come back in fact in April, but you know, it was slightly less growth. Nevertheless, I think consumer micro and SME still continued decent growth. All in all, I think sentiment was obviously negative in March, but some of that nervousness is going away, let's say, what we are seeing in April.
We probably will be looking at less than 19% that we have currently year-on-year, but well above 10% given the high inflation and the nominal growth expectation of mid-teens.
Thanks for that. If I can just squeeze in one quick question as well. On the cost of funding side, obviously, we're seeing very significant increase in rates globally. Could you maybe just share your thoughts on what's going on on your foreign currency funding and whether you're able to pass that through to your borrowers?
Yes. We are in fact. We have the lending in foreign currency mainly happens on variable rate, and we borrow at variable rate long term. Short term, we borrow deposits, which are fixed, but that's one year, deposits mainly. The mismatch there is not really there. We have bonds obviously that are maturing next year, but we've bought out a chunk of it. You know, most of it is on variable rate, so it shouldn't be a problem to pass it through. It will more have an impact on demand if it gets really expensive, then obviously it may impact the demand. But we're just in an inflationary environment overall, I guess.
Understood. Thank you.
Thank you, Ronak Gadhia. The next question is from James Hamilton.
Please, because what I'm interested in is you obviously revised up your GDP growth assumptions for this year. What I'm wondering is where you see the major sensitivities around that as we progress for further adjustments to that as we progress through the year. Secondly, assuming the 4.5 is right, how does that play out in terms of, you know, expectations for loan demand, particularly if you're also correct and inflation starts to come down to high single digits through the second half of the year?
Yes. Thank you, James. We believe that this will be the growth, but it is dependent on how this war plays out, right? If it gets worse, then it will have an impact on the rest of the world, including ourselves. And if it ends soon, there's upside there. More specifically, I think tourism numbers are sensitive. If regional tensions are really bad and, you know, if there are territorial sanctions and so forth, in that case, I think it will have an impact on visitors here as well and so forth. If we have more visitors then, these numbers could go up. If we have less visitors, I guess it can come down.
So far, we have seen a lot of visitors, and not just from the region, but people are coming back, basically, to Georgia in terms of visitors. That's good. In terms of the nominal growth, yes, I mean, we believe that when we are talking about 8-9% average inflation plus 4.5% of real growth, we're talking about, let's say, 12%-14% nominal growth, and that does have an impact on overall our loan demand. That's why I don't believe we'll be closer to 10%, which is medium-term guidance, but rather higher this year, probably mid-teens somewhere.
Thank you.
Archil, there is one question in the Q&A on Belarus. Yeah.
Yes. The question, I guess. Can you read the question?
The question is what in the P&L is a write down and what is the maximum exposure from the BOG shareholder perspective.
Yes
to Belarus.
The write-down that has happened is totaled up to GEL 50 million, and the current exposure is GEL 76 million total, remaining exposure to Belarus. It's 2.3% I believe of the equity. It's more or less a monthly net income that we generate. One month net income.
Another question in the Q&A is what is the expected impact on NPLs in case of long-term war scenario? We don't know who's asking the question, but that's the question.
We will answer the anonymous certainly. I mean, it depends what kind of war we're talking about. Whatever we have right now is more or less reflected there. I mean, it could be depending how this war plays out. It all depends on the severity of it. We don't know. Right now, whatever we see is reflected. I think we have plenty of capital with a diversified economy. We have a country that people would like to send their goods through because it represents an alternative corridor to the northern route. We have a place where people feel like they can work remotely on some of their Western customers. All of this is positive.
All of this so far has provided a cushion for some of the negative impact that we are seeing from lack of less exports to Russia or less remittances from Russia. You know, who knows what happens in the war? Tell me what happens in the war, and then maybe you can estimate what can happen in Georgia. Right now it's difficult to say. Your question is difficult to answer because it varies dramatically what can that mean. Not just from LGM, could you talk about deposit growth and funding considering that your loan to deposit ratio above 100%, this could impede your loan growth?
We don't feel that at all, in fact, because Georgia has historically and now as well enjoys long-term funding from IFIs. One of the ratio that we look at is deposits plus IFI funding because there's no hard money, so to say, or market dependence there. That money is long-term and usually, let's say five to ten years. We have had some drawdowns from IFIs that have provided financing post-COVID to provide financing for businesses that need long-term financing. You know, we are not concerned there at all, in fact. Last year, you remember that deposit growth was much higher, like almost 40%, while the loan growth was not.
Ronak has had his hand up all this time. I don't know if he has a question or not. Let me try just one more time. Ronak, do you have a question?
Sorry. This was from the previous time. I'll put this down.
Okay. The next question is from Can Ozguzel.
Yes. Hi. Thank you very much for the question. Hi, Archil. I wanted to ask you about the buyback. Can you talk a bit about the conditions you seek to initiate the buyback? Maybe we start with that question, and then I'll have two follow-ups, please.
Can, basically after the capital distribution that we'll complete now, which is the 25% payout ratio, we on one side would like to see the uncertainty given the war to be reduced. We don't know where it plays out, we don't want to be too aggressive. On the other side, it's growth prospects, right? You know, we are seeing a nominal growth of the country going up, mid-teens%, and that represents a chance for us to deploy capital and make more than 20% return on that. It's between those things. I would say the first one being more important, we would like to not rush there and wait for the uncertainty to be reduced before we start more capital distribution.
The dividends. Is it now official that you're distributing, I think it was GEL 110?
Correct. Yes.
Okay. That's official.
Yes. We put it, in fact, in the annual report. Maybe it was not a separate statement.
Mm-hmm.
We put it in the annual report that we released some week or 10 days ago, which basically reconfirmed our intention to distribute 25% of last year's earnings as cash dividends. It was GEL 110 million in this case, the second part.
Okay. Understood. On retail, cost of risk in the footnotes to the financial statements you mentioned or the bank mentioned, increased sales of unsecured consumer loans as the bank redesigned the lending process in digital channels in 2021.
Right.
Are you talking about the growth and the aging impact here or is there a different aspect to it that increased the cost of risk in retail?
Yes. We had slightly higher cost of retail than we expected in the Q4 as well as Q1 . We started tightening the risk issuance underwriting standards on the online consumer from October last year. I think they will normalize from next quarter onwards.
Okay. One last question on wholesale funding. The short-term borrowing costs are as high as, you know, 6%-7%, I think, for Georgian sovereign. If they were to issue a Eurobond today, I think that would be the rate that you know, the sovereign would get these days. Maybe it's potentially slightly higher for you. I know that there is the IFIs in that equation as well, which probably supply you with cheaper funding. I mean, does this mean that the normal bilateral wholesale funding channel is closed for you? Because if you borrow at 6%-7%, then you have to place at 10%-11%. Is there a buyer for dollars at 10%-11% yields these days?
Well, the answer is there are buyers at 9%-9.5%. Whatever we saw, let's say, one year ago, in fact, which was dollar borrowing rates for Georgian borrowers at around 6%-6.5%, currently is 9%-9.5%. The reason for that is that about 1%-1.5% is coming from the global hike of dollar rates. And another around 1.5% is coming from this incentive that the National Bank of Georgia introduced last year, which makes dollar borrowing more expensive. There's an equivalent pricing incentive on the lari one, which makes lari lending a bit cheaper.
Yes, I mean, the current lending to the corporates and SMEs and so forth are in some cases double-digit, and in other cases very close to it. If that continues further, then yes, I mean, you know, it would be at that rate. If you are surprised why there's demand for it, then, you know, look at the economic growth and inflation, and the currency stability. You know, as long as this inflation is global, I guess it's everywhere, and it's reflected in the revenue of these companies as well. The revenues are increasing, plus you have decent real growth, and that's where the demand is coming from.
Having said that, the Q1 there was a bit of slowdown, but the April showed that as the moment that the corporates start, okay, there's more stability now, they'd like to borrow and invest, especially in the inflationary environment, because sitting on cash equities is not easy for a long time.
Understood. That's all. Thank you.
Andrew Kelly has asked in the chat, Archil, if we've seen the impact on the business from inflows of people from Russia and Ukraine to Georgia.
Slight impact. I mean, it's not very significant. I mean, the numbers of people that have relocated here, although we have seen some of the Western outsourcing companies like EPAM and others move some of their staff, including their families, in fact. There's a couple American companies that had software engineers in Moscow, and they moved them here with their families. It's a few thousand people basically. You have seen office space go up price-wise. You have seen ready apartment prices go up in central Tbilisi. It's not significant. It's not very significant so far. You know, on an annual basis, you're probably looking at $200 million positive impact from that, because they're well-paid long-term individuals.
In fact, I was talking to this one American company that moved several hundred people from Moscow. I said, "You know, when that war is over, what is your plan?" They said, "No, no. You know, it's long-term for us. Regardless of the outcome of this war, we're not going back to Moscow for many years." You know, it looks like rather permanent, some of that move. Which I guess is economically speaking positive for the country.
I don't see any hands or questions. Yeah.
Well, these results speak for themselves. There's no need to ask. Let's wait a minute or two, and then, otherwise I can. We can wrap it up. Well, this was, I guess, the shortest call. At the same time, it was a call to describe record numbers by any measure. In terms of the revenue, I think it was a record revenue. In terms of profitability, this was a record profitability. We have had some one-off income, but we also had a significant write-down in our subsidiary. All in all, I think more than 30% return on equity, given very healthy growth on the revenue side and the core revenue side, as well as increased capital ratios and risk ratios being very decent.
I think it was a decent performance. We've had also registered very good numbers in terms of our digitalization drive. We have seen year-on-year, our number of customers growing by about 10%, which is a challenge in a country where we have retail market share of about 40%. This was a good quarter regardless of the war in the region and the human tragedy that is happening. There too, we've done maximum we could in terms of mobilizing funds and helping the refugees and so forth. We believe that April is showing a little bit less nervousness in our customers, and we have seen some of the mortgage demand and corporates coming back slightly.
We see inflation as a challenge, but overall, I think the economic expectations of economic growth are pretty decent at 4.5% for the year. With that, at what rate inflation will become an issue for growth was an answer. I'll wrap it up at that. If it's double digits, it will have an impact, which is this, whatever we have already is in the numbers. With that, I'll wrap up the call. Thank you for your interest, and stay tuned for more information and Q2 numbers. Thank you very much. Bye-bye.