Hello, everyone. Thank you for attending the call. I am delighted to inform you that, as you have seen, we are presenting the record numbers in a number of different directions. First is the strength of the franchise. Regardless of the fact that we are already covering a very large portion of our population, we grew our monthly active users of retail application by almost 14%. In fact, just a week ago, we passed 2 million users, monthly active users of our retail app in a country of 3.9 million. What is even more notable is that the daily active is growing faster than that, so you see better engagement basically. On a daily basis, more than 1 million people in Georgia open our application. In Armenia, growth is more impressive. We have seen almost 37% growth in monthly active users, reaching 417,000.
As you can see, there is still a very long way to go there. We can double or triple those numbers, and the growth and the trajectories are impressive. In both countries, we have seen the record NPS numbers. The Ameriabank is internal, so it is not directly comparable, but the trajectory is very good there. 78 in case of Georgia is also a record number. As a group, we have grown loans and deposits at very strong rates. As you can see, the constant currency was almost 25% in loans and 21% in deposits. That is well ahead of our midterm guidance of 15%. What makes me particularly happy is to see that this growth is happening while we maintain or slightly grow the net interest margin.
All in all, we have seen that happening, and on top of that, we have seen revenue growth numbers on a combined basis having almost 20%, 19.6%, while the costs have been growing at 9%, resulting in a pre-provision growth, which really shows how your business grows at 25%. The cost of risk is normalizing at 0.7%, but normal level, as we know, is between 0.8% and 1%, so it is within that range, well within that, or not quite there yet, in fact. But the growth rates are very good. The balance sheet growth rates are very good. It is happening while we are maintaining good profitability. Fee and commission income is growing very nicely with positive operating leverage. The franchise, in terms of the customer service, quality is very good.
The numbers are growing, and all of this is happening while we are being recognized as the best digital, sorry, best AI bank in the world by Global Finance for this year, well ahead of some of the major banks that are participants in that competition. I think with this, I would like to ask Akaki to summarize the macro environment, which is also very benign and which is the basis of our successful run. Thank you.
Thank you, Archil. Hello, everyone, and let me present the macroeconomic highlights of our core markets, Georgia and Armenia. Starting with growth performance, economic growth remains strong in both countries and in line with our expectations. Accordingly, we maintain our full-year real GDP growth forecast for 2026 at 7.5% in Georgia and 5.5% in Armenia. We see that growth remains resilient in both countries, supported by diversified external sector inflows. For next year, we expect growth in the range of 5.5%, 6%. Along with this strong growth momentum, we see steady increase in per capita income levels, as you can see on the right side, and steady continued convergence with Central and Eastern European benchmarks. Over the medium term, we see significant growth opportunities in both countries as planned and ongoing large-scale transformational projects are strengthening Georgia's and Armenia's positions in regional trade and connectivity.
As I mentioned, external inflows have been a major driver of growth and also currency stability. Georgian lari and Armenian dram continued to appreciate against the US dollar during the year despite geopolitical tensions in the broader region. In fact, GEL and AMD are among the best performing currencies in the broader region in terms of year-to-date performance, as you can see on the right side. The key factor behind the Georgian lari strength has been the steady narrowing of Georgia's current account deficit, as you can see on the left-hand side chart. This, along with stable capital inflows, has created room for large-scale reserve accumulation and supported the external improvement of external position of the country.
In Armenia, there is a relatively wider current account deficit, but at the same time, there is much stronger capital inflows, including FDI, which is sufficient to cover the deficit and also supports reserve accumulation. Inflation outlook remains uncertain globally, and we see elevated inflation rates in both countries, mostly driven by food and fuel prices. However, we see that underlying inflation remains more stable and the inflation expectations are anchored, as evidenced by lower service inflation. The central banks remain agile and maintain tight monetary policy stance to make sure inflation expectations remain close to the target and headline inflations come back to the target levels as food and fuel price base effects are eliminated. Just yesterday, the Central Bank of Armenia delivered another 25 basis point hike, bringing its policy rate to 7%.
In the following quarters, we expect the monetary policies to remain tight as global inflation environment remains uncertain. The central banks have been also very active in foreign exchange interventions, lifting international reserves to new record highs of $8.2 billion in Georgia and $ 6.7 billion in Armenia as of end September. Importantly, the reserve levels are within the adequacy metrics, and they have been the key factor behind recent improvements in sovereign credit outlook. Another key driver of macroeconomic stability is fiscal discipline. On the left side, you see that the Georgian authorities have been deleveraging public debt, and the ratio of government debt to GDP is expected to be below 32% at end 2026, and fiscal deficits are also expected to maintain below 3% of GDP.
In Armenia, the authorities have managed to maintain the public debt level stable despite elevated spending needs, and the fiscal deficits are also projected to decline to below 3% in the following years. Overall, the fiscal positions are expected to remain prudent, and the debt and deficit levels at healthy ranges. Meanwhile, the fiscal authorities reserve space to continue capital expenditure and support growth. Lastly, the financial sectors in Georgia and Armenia have remained sound, with solid growth, lower dollarization levels, and some of the highest capitalizations in the broader region. The recent acceleration in lending growth, particularly in Armenia, reflects stronger corporate lending amid increasing investment activity in the country, which improves the productive capacity and supports medium-term growth outlook. This concludes my part. Back to you, Sam.
Actually, if we now go to Archil, sorry, to Giorgi, should I say, to run through the Georgian business, followed by Hovhannes, who will run you through Armenia.
Thank you, Sam. Let me share the presentation. Thanks again. Let me start with the highlights for the Georgian financial services. We had another quarter of very strong financial performance. As you can see from the slide, our quarterly profit grew by 13.9% year-on-year, reaching GEL 494 million, and our nine-month profit grew by 13.7%, reaching GEL 1.4 billion. Very importantly, this happened on the back of growing loan book, growing market share, and even slightly increasing margins that we will discuss afterwards. Loan book grew by 18.6% in constant currency rate. Deposits grew by 14.5%. We had good continuous momentum on retail monthly active users and retail digital monthly active users growth, growing 10.5% and 13.9% year-on-year respectively. This slide is about our ecosystem in digital for retail and for SME, and several numbers really worth flagging and highlighting.
First of all, in our retail app, our CSAT was about 92%. We have up to 2 million digital monthly active users, and our digital daily active users are 1.08 million. 87% of our loans are granted from our digital channels. You can see how our customers are rating us with 4.6, both from App Store and Google Play ratings. Similarly, on business app, our CSAT was 93%. Our rating were 4.9 and 4.8 with App Store and Google Play respectively. We have digital monthly active users of 117,000. Turning on to this slide, we are particularly proud of what our teams have achieved this year. As you know, Global Finance has named us the world's best AI bank and the world's best consumer digital bank. This follows two consecutive years in which Global Finance named us as the world's best digital bank.
We would like to use this opportunity and thank all the teams involved across those areas. This slide is about payment business, and this is the area where we have the most frequent touchpoints with our customers. We have had very strong growth across all the boards here, 23.1% growth in acquiring volume and payment transactions year-on-year, and 14.3% growth quarter-over-quarter. Our market share was 56.8%, so more than every second transaction went through our network. We had strong growth in active merchants with 15.9%, reaching up to 30,000 POS terminals. Similarly, on the issuing and payment active payments monthly active users perspective, the growth maintained 12.5% year-on-year and 3.1% quarter-over-quarter, reaching 1.7 million monthly active users for September.
This slide is about net promoter score, and we are proud to say that we even increased it to 78%, which is nearly double of the number that we had five, six years ago. 78% is one of the best results among the universal banks, or among the best universal bank universe, if I may say so. This reflects our customer centricity approach, where we try to engage with the customers proactively, anticipating their needs and making respective changes and initiatives to meet the customers' increasing expectations. In terms of growth, all this resulted into the 18.6% growth at the constant currency, as I said, year-on-year, or 4.9% growth on constant currency quarter-over-quarter. The dollarization trend was broadly stable. The growth was across the board, even though the retail, in this case, retail, both mortgages and consumer, led the growth in loan book.
In deposits, our growth were 12.3% year-on-year. Here we had the initiative to continue decreasing costly, let's say, in some cases, corporate deposits on the back of a very strong liquidity that we continue operating on. This is the last slide from my part of the presentation. You can see that we continue operating on very strong buffers, both on capital and liquidity.
We had 2.6, 3.1, and 2 percentage point buffer on top of respective CET1, Tier 1, and total capital adequacy ratios. In terms of liquidity, we operated, we had up to 150% liquidity coverage ratio against the minimum required 100% or 132% net stable funding ratio, both more than enough above the respective minimum requirements. Again, we increased the margins in parallel of the strong growth and very strong liquidity. If we deploy this liquidity in the future, obviously this will have positive impact on the margins. Thank you, and back to you, Sam.
Thank you, Giorgi. Now we will move over to Hovhannes Toroyan, who is the CFO of Ameriabank, and he will present the highlights from our Armenian business.
Thank you, Sam, and good afternoon, everyone. Another spectacular quarter to report on. Our profits grew almost 45% year-over-year, and even if we take out the one-offs that were recorded in last quarter, then it would be more than 30%, which technically translated into 24.4% return on equity. That is above our midterm guidance. In terms of overall growth for the balance sheet, we had more than 38% growth in loan book in constant currency prices. At the same time, deposit grew slightly shy of 40% year-over-year. Remarkably, we continue to grow and improve our coverage of the customer base, entering new markets and segments, and our monthly active customers surpassed 500,000, currently standing at about 600,000. That is 25% growth year-over-year, and also our penetration improved from quarter-to-quarter and year-over-year.
Here, I want to focus on the fact that we continue to enjoy the network effect on our ecosystem. Just to remind you that it is built on three main pillars: A, exploring and understanding customer needs, improving our backbone architecture in terms of IT infrastructure, and third one is UI/UX to make it very user-friendly for our customers. Looking at these numbers, you can see that while our monthly active digital users grew 36.8% year-over-year. Our daily active users grew even faster. So penetration across all these products and propositions are growing every quarter that we report. In terms of our payments business, I want to highlight that this is a combination or result of a combined work due to very effective public policy of moving population towards cashless payments, as well as our ability to cover more segments.
In terms of acquiring business, we have more than 22% growth year-over-year. For the issuing business, you can see almost 50% year-over-year growth. As a result of that, we are currently the market leaders in terms of the volume of the issuing business in the country. In terms of loan portfolio, as already presented, the growth is again slightly more than 38% in constant currency basis and almost 40% for the deposits. Remarkably, while growing much faster than the market average, we are able also to improve slightly our net interest margin in Q3 2026. If we talk about the sectors where this growth is coming from, I can say it is almost evenly distributed amongst major segments where we operate in. In terms of market share, we also improved our market share of loans to 23%.
For the deposits, while it has been flat from December 2025, for retail term deposits, we have improved our market share by 0.9 percentage point, which resulted again our leadership in terms of time deposit for retail segment. As for the capital position, we continue to maintain very solid buffers, roughly 140 - 150 basis points over the CBA requirements, and we feel very comfortable with that. For the liquidity, LCR of more than 200% and NSFR stable at 125, again, give us relative comfort. Moreover, we currently assessed that we have excessive liquidity in local currency, and while Central Bank of Armenia is actually increasing, as Akaki presented, the policy rates, the local lending and borrowing rates in local currency are going down.
Meantime, we are also being able to optimize the rates, so the cost of liabilities in local currency will be going down slightly more than that of for the loans. This is going to be it for the Armenian business. Thank you.
Thank you very much, Hovhannes. Now back over to the number two ranked CEO in the whole of the FTSE 100, Archil Gachechiladze.
What a presentation, Sam. Thank you. Fantastic results in both markets, and this aggregates into these numbers that I'll present. Revenue number growing just under 20%, at 15% Bank of Georgia and 31% Ameriabank. In terms of the net interest income, that's similar number, [19.4%]. There too, it's 15.2% in Georgia and 30%+ in Armenia. Non-interest income is very similar number. It's in parallel basically, growing about 15% interest in Georgia and non-interest as well as in Armenia. Now, if you look under the hood there, what's going on, we see that although you see a strong improvement in the NIM, as we disclosed in the comments, this is primarily because of different type of accounting.
In comparable ways, like for like, it is flat to slightly increasing about 10 basis points, and you see the loan yield and deposit yield is more or less flattish, slight decrease in both, but flattish. What is interesting is that fee and commission income in Georgia in overall was just under 40%, which is a fantastic growth. In Georgia, it was 31.9%. Although when you adjust for the big negotiation that we had with Visa and Mastercard last year, there was subdued fee and commission income in the first three quarters that got reversed last quarter. We will have slightly higher base in the fourth quarter, but when you compare like for like, it is about 17.4% increase in Georgia and about, due to certain adjustment, and about just about 66% in Ameriabank, although the reported number is 94%.
Both reported as well as the adjusted numbers are quite strong and good. In terms of net FX gains, Georgia continued this flattish performance given the competition and some of the other changes on the market, while Ameriabank continued to deliver strong growth of just under 21%. All in all, net fee and commission numbers have come in quite strong. What is something to be highlighted is that after several quarters of talking about it, we started to deliver strong positive operating leverage. As you can see in the third quarter, our overall revenue grew at 19.6%, as I mentioned, and the cost grew 9%. This is the last quarter where you see the Armenian side benefiting from a higher base last year, but even on an adjusted basis, you are looking at about 17% growth, while Armenian revenue grew 30%+, yes, 31% effect.
There, too, we are seeing a very strong positive operating leverage, and as the franchise scales up, there is more to go there. Combined in the third quarter, we delivered the lowest cost income we have had historically, which is 32.1%, which we believe there is more to come. In terms of loans and deposits, we did mention already that almost 25% increase in constant currency and 21% in deposits, well above our mid-term guidance of 15%. Cost of credit was slightly up at 68 basis points in the quarter, although the NPL as well as the coverage remained very healthy. In fact, NPL was one of the lowest historically. If we dive in in more detail where this came from, you see that on the Georgian side, you see the retail banking slightly up at [1.2%]. CIB and SME are nothing to comment on.
On the retail side, that level we believe is normal, and in fact, we stopped benefiting from the ECL adjustments. From the way ECL is determined, as you know, as the default rate were decreasing, we were benefiting from negative adjustments. Historically, that has stopped because we have leveled out, but the good thing is that the trend is basically stable. In Ameriabank, we had slightly larger RB. Here, RB includes the retail banking and SME, and CIB, we had negative cost of risk. In the RB there, last two quarters, we had slightly higher cost of risk, but we believe that we should come down to about [1%-1.2%] over the next quarter or two.
So there, too, we dive into the details, and there were a couple things we tightened, but we don't believe there's anything to worry about or any issue there to look in terms of the rest of the portfolio. In terms of profit, all in all, as we said, the pre-provision level grew at 25%. Post-provision, given the risk that we defined, was 21%. And there, too, our Ameriabank franchise has delivered stellar growth. Return on equity, 27.2%, and return on asset just shy of 4%. So we are continuing to deliver very strong numbers on an unlevered basis as well. All in all, resulting in very good return on equity, even with very low leverage on the overall balance sheet. So, in a combined, these results for the shareholders in terms of the capital distribution on a nine-month basis, we are increasing at 17.6%.
But something to highlight is that the dividend on a third quarter year-over-year is increasing by 23.6%, and that's happening while we are growing the balance sheet at almost 25%. So we are growing, that is deploying the capital for growth, and are able to also distribute money and continue the share buyback. All in all, the results have been very healthy, and as I noted in the CEO statement, our book value per share year-over-year increased in dollar terms 31.5% on top. We are paying dividends.
So I think overall, it's pretty strong fundamentals. Obviously, all of this is happening because of strong growth, strong macro story in Georgia and Armenia, and stellar delivery by both teams in both countries. With this, I would like to thank our management for this fantastic job, and I would like to thank our customers for choosing us. With this, I will stop, Sam, and open it for the Q&A.
Yeah. Thanks, Archil. Ladies and gentlemen, over to you now. If you would like to ask a question, please raise your hand, or if you would prefer, type a question into the Q&A box. We'll take live questions first, and as you come on, please announce your name and organization. First, Sheel, would you like to go ahead?
Great. Hopefully you can hear me.
Yes.
Yes, very well.
Great. A couple of questions, if you can help, please. First, I can see good progress on the operating leverage front, and on the cost-to-income ratio, you said that there is more to come. How should we think about the, let's say, the end point in terms of the cost-to-income ratio on a group basis? That's nearing 34% today. It's on its way down if that operating leverage continues. What's the end state for the cost-to-income ratio, please?
Sheel, f irst of all, hello, and thank you for highlighting something that I'm proud of, because over the last couple of years, we were tightening the bolts to make sure that we focus on this number. Over the last couple quarters, we started to deliver. This quarter was particularly strong on that front, so we may not have that every quarter, but we expect neutral to positive operating jaws or operating leverage. We don't have any guidance in terms of either the target on the cost income side or the quarterly basis. We believe that anything below 35% is pretty healthy. I don't want to promise anything aggressive there, because sometimes there are growth opportunities in businesses that, in fact, are deteriorating the cost income.
So, for example, if you are investing $1 and you are getting $2, that would deteriorate the cost income, and I do not want to discourage that for the businesses as they look for growth opportunities in different directions. Anything below 35% we believe is good, but on a q-o-q and yearly basis, we target neutral to positive operating leverage. Having said that, we started to deploy automation and AI capability at different parts of the business, namely on the operating side, the transaction processing, AML, and chatbot/call center is a major deployment. We have been replacing some capability with automation. That has resulted in some cost savings, which will deliver over the next quarters. In terms of how much more is there to come, remains to be seen, because these technologies are very new.
We believe we are at the forefront of that, although we are hearing that some bigger names have done miracles, like JP Morgan and others. But we are up there with at least in with the top 20 banks in that capability. We would be if we were ranked. Only top 50 largest banks are being ranked by Evident, but we would be there in top 20, I believe. We will see what are the capabilities that we are able to deploy. It is not only the cost saving, but also on the revenue side.
As that technology unfolds and we are able to see more in details, and we will be able to see that. I apologize for not giving you an exact target, but there is a lot of excitement on the technology side there, as well as scaling up in Armenia. We are in a good place, and we think we will be flat to decreasing cost income from here.
Great. Thank you. And one more question. The dividend was quite a healthy increase year-on-year, as you have said. How are you thinking about the bank that is generating a lot of capital, in terms of where you are planning on deploying this? The dividend is quite high. How are you comparing that versus a buyback? How are you comparing that versus continuing to build maybe a war chest for further acquisitions? Thanks.
We have the capital distribution policy, which is between 30% and 50% of our earnings. And we have been on the lower side, given the fact that we're growing much faster than our midterm guidance of 15%. That requires more capital, as well as we want to have strong buffers to be able to deploy it in our home market or to deploy it in another market if the opportunity arises. That's why we have very strong buffers there. But we are committed to capital distribution, like we have stated to our shareholders. Here, we have been on the low side there, but the overall denominator, which is our earnings, has been increasing so well that we are able to, alongside, proportionally increase the dividends. That's the only thing we've been doing.
In this time, we're distributing about 20% of our earnings as dividends and deploying about 10% in terms of the buybacks. In terms of going forward, we stay committed to capital distribution, especially to dividends. If we need more capital flexibility because of M&A in the future, we may consider altering the buyback, but I don't think we'll be touching dividends.
Yeah. Thank you.
Sam, you're on mute.
Yes. Apologies. Thanks, Sheel. Jens, over to you.
Cool. Thanks, Sam. Hi, guys. Jens here from Cavendish. Just two quick questions for me, if that's all right. Firstly, just on the loan book growth, appreciate we're sort of looking at that 15% medium-term guidance, and you just continuously deliver a lot more than that. How should we think about sort of the momentum into the remainder of the year and into the next year, and yeah, how you actually trail down the loan book growth to that 15% over time?
Secondly, got to ask one for Hovhannes as well. It's great to see further progress in Armenia and everything you guys have done there. I appreciate you won't give me a specific target, but just thinking about sort of the improvements in cost-income ratio and sort of the improvements in returns there. Is there any more color in terms of where that might get to? Appreciate that's hard to do that without giving a specific number. Just looking that you're sort of getting closer and closer to Bank of Georgia in that sense. Thank you.
You're pushing us for more guidance, but we don't like to provide guidance. We like to deliver, but we don't like guidance. We like to deliver the numbers. In terms of growth, as the two countries continue to perform ahead of its mid-growth targets, we are able to grow above our mid-target. So, in a medium term, when things stabilize and Georgia grows not at 8% or so, but more like mid-term guidance by IMF of about 5%, then we think that we'll be growing about 10% +, circa 10% in Georgia and circa 20% in Armenia. That's how we expect to blend it to have close to 15%. But that's in a more stable environment. Prior to that, as you can see, we've been growing mostly about 20%, and this quarter, year-over-year, we're seeing 25%.
As I said previously, I am particularly glad to see that this is not happening on the expense of NIM pressure, but in fact, maintaining a slightly growing trend. We cannot tell you more than that. Hovhannes, please, but I urge you not to provide specific numbers.
I mean, I am going to be mostly repeating whatever Archil said because we are very hopeful that with the emergence of AI capabilities in Ameriabank, we are going to see further improvement of cost-to-income ratio. We are very happy to deliver the positive jaws ratio for the last two years. But again, to give a very concrete guidance on that, it is going to be very difficult because we are in a very early stage of the exploration of what the capabilities of this new technology are, in essence, for the business. But as many other institutions, we are very hopeful that we are going to be able to get some significant results and improve our cost-to-income ratio further.
Got it. Thank you. If I may just try one brief follow-up, and then you can freely tell me to shut up, because I appreciate I will not get any specific numbers. I suppose, just would there be anything structural in the business that you would see that theoretically could prevent you from sort of getting to the Bank of Georgia level, or theoretically, there wouldn't be any obstacle in that sense? I promise then I will leave it there.
Well, in theory, I don't really see many obstacles. Obviously, I mean, the size also matters. There is still a significant difference between the sizes of two institutions. As I said, the technological advancement is also very important. Clearly, as I said, we are doing our best efforts to improve it as much as possible. But at the same time, we clearly see that AI and digital capabilities require also significant investments into this capability buildup, both on the human resources, technology, and so on. But as of today, we are confident and hopeful that we are going to get it right and improve it further, but no very specific guidance, sorry.
No, that is fine. Thank you so much. That is helpful.
Thanks very much.
There is no structural barrier to achieve that. Having said that, it is a fine art to do the execution at a multifaceted way. But we are getting there. You see the numbers. I mean, Armenian team is doing a fantastic job.
Yes. Thank you, Jens. Now over to you, Ben.
Hi. It's Ben from KBW. I just got two questions, please. The first is, if I look at your loan-to-deposit ratios in Georgia and Armenia, you compare it to this period last year, obviously, it's ticked up a bit in Georgia, and it's actually come down slightly in Armenia. But in Armenia, it's above 100%. So I'm just interested in your thoughts on local liquidity, how comfortable you are with ratios being above 100%, especially in some of these markets. That's just my first question, particularly if loan growth continues to be strong, which as the results should say, it does seem to be.
My second question is, again, in Armenia, looking at the cost of funding, I think you mentioned some optimization on the liability side that saw that tick down. Is there scope for these costs to come down further in the coming quarters? Thank you.
I will let the CFOs take this one. All I know is we are flush with liquidity.
Yeah.
But please, with your—
But continue in business.
Indeed, we have in both banks very strong liquidity, and that, I mean, Hovhannes said more than 200% in Georgia, it is up to 150%. We also look to loan-to-deposit plus IFI funding ratio. The reason we look to it with the IFI funding is that IFI funding is diversified, accessible, long-term, usually with the annuity payment. This is not very dependent on the market trends. So it is kind of very decent to look through this. Considering these two, I think we are in a very good shape to continue growth. In Georgia, for example, we deliberately decreased the pricing on certain deposits and made them leave the bank because of our high liquidity and access to funding.
I will add that the IFI funding, the international financial institutions, the likes of EBRD and FMO and DEG and different DFC and so forth, are countercyclical, in fact, which came very handy in last crisis, let us say in 2008, when we had plenty of capital, but liquidity was an issue. They stood up and provided liquidity for the whole system, which was very much needed. So, that is even more stable than other types of funding and countercyclical, which is even more important. Please, Hovhannes.
Yeah, we have exactly the same situation in Armenia. I mean, we are very proud to have a long-term collaboration with more than a dozen of DFIs from across different parts of the world. As all of the colleagues mentioned, we also find it a very stable and countercyclical and very important part of our liability base. As of today, we consider at 200 %+ LCR to have significant over-liquidity. As I briefly mentioned, we will be deploying it in the coming quarters to enhance our lending, especially on the retail side of the business.
Great. Thank you. And just on the cost of deposit funding optimization you mentioned, I think, earlier in the call in Armenia.
I think it would be really fair to expect further optimization in terms of the main revisions were done in Q3 for the rates, and it is going to take some time before the portfolio will be repriced. Just for your information, in local currency, the deposit rates on average have gone down about 150 basis points. And throughout taking into account that most of deposits have roughly one year of tenor, over the next 9-12 months, the current portfolio will be repricing, and the growth of the new portfolio will be at lower rates in local currency.
Great. Thank you.
Thanks, Ben. Dmitry, would you like to go ahead?
Yes. Thank you very much, and congrats on a strong set of results. The first question is on the real estate market in Armenia. There were some statements from Central Bank of Armenia. They raised some concerns about possible renewed overheating in the real estate market. Given Ameriabank's strong mortgage growth, how do you basically assess those risk? Do you see any signs of excessive property valuations, maybe some speculative demand? How do you see that in general? The second question also about Armenia and growth in general. I mean, I've been asking that during the last quarter, but would be good to get some update. I mean, the growth has been absolutely spectacular, and the corporate lending is doing very well. Just curious, like, if you would see some normalization in 2027, and to what extent maybe. Thank you.
Thanks for the questions. In terms of real estate market, you're absolutely right. Central Bank of Armenia has been talking about potential heating in the real estate market for the last four or five years. But up until now, we see that the market is still on the positive move. Obviously, as you mentioned, I mean, given the significant chunk of our portfolio also invested into mortgages, we are looking very closely and analyzing the market developments. But given the current LTV levels of the mortgages that we issue, and most predominant part of these mortgages are, A, from the primary market, and B, they're part of this tax rebate program where the borrowers are getting the interest rebate from their income personal taxes. So, our assessed risk on that sector is very moderate.
If you look at the numbers, cost of credit risk historically in this sub-sector has been lower than [0.5%]. In terms of normalization of the growth, I think it's a fair expectation for the midterm. I'm not sure it's absolutely correct for 2027. Obviously, with the base growing up, I mean, it would not be very smart to expect 40% growth every single year for many years. We are the largest lender in local economy. I mean, and growing the largest loan book by almost like 40% now, it's very challenging. So in the coming years, as Archil mentioned, our midterm guidance is much lower. But just based on the current economic situation, I would not really expect to have very sharp decline of the economic activity, but it's going to be moderating every single year in the coming years.
Dmitry, I would like to add here that in Armenia, you have seen an economy that was relatively more closed and has opened up over the last three, five years. You see this wave of new investments coming in, and that's why there's increase of corporate lending. There are several large investments that have materialized, that have been talked about over the year or two.
I don't know, Hovhannes, if you can name several. I don't know if we're allowed to name several that have been public, and others that have not. But there's a big wave of investments that's being implemented in this stuff happening in mining. There's very large data center in cooperation with NVIDIA that has opened. Those are some of the very large. I mean, we're talking about hundreds of millions of dollars that is, you know, have second stages, which are talked in billions, which is hard to believe, but it's happening little by little.
Thank you very much. That's very clear.
Thank you, Dmitry. Would anybody else like to raise their hand to ask a question? Olga, go ahead.
Thank you. Good to see you, management team and Sam. I wanted to check what was behind the increase in cost of risk in Georgia in the third quarter QoQ. I know it's not a big increase, but still, I do not see any deterioration in asset quality or decline in coverage. Just wanted to understand what has happened. Thank you.
Hi, Olga. It's very well noted. Absolutely, there's no deterioration in the quality. It's just normalizing the level. We are no longer benefiting from the positive charges of decreased ECL, given the trend has normalized. That's basically it.
Okay, perfect. Thank you.
Thanks, Olga. Anybody else for a live question before we check if there is any written Q&A? We'll go to the written Q&A. There's currently just one question from Yelena Rosenfeld. The question is, how much of Armenia's corporate book depends on trade with Russia or re-exports, and what would a sharper break in trade mean for asset quality and growth?
Before Hovhannes will kick off, that was one of the biggest focus areas for our risk committee, on the board level, on the holdco as well as on Ameriabank. There's been a deep dive, and we believe we are in good shape. But Hovhannes, please.
I do not have exact number for the loans to businesses that have any relationship or association of trade with Russia. We do not do financing or support anyhow re-export from Armenia to Russia, given the sanctions. I mean, we are making sure that any operation where any of our customer has a trade or other type of relationship with Russia, it is in compliance with all the sanctions that are in place. As Archil mentioned, I mean, the share of the portfolio that could be indirectly exposed to the potential crisis in Russia, or worsening relationship with Russia, is very limited, high single digits of the loan book. We have done several scenario analysis, stress tests by our risk team.
Yes, in case there will be any sharp deterioration of the economic situation in Russia, obviously that is going to have some impact on our balance sheet and P&L, but it is not going to be very, very big, let us keep it that way.
I will give one example. Just recently, there has been limitations on exporting of agricultural goods and flowers from Armenia to Russia. We were slightly concerned because there is some exposure there. In every single case, the entrepreneurs have been able to redirect the fruits and vegetables to different markets, including to Europe and Middle East, with slightly lower margin. Things have been good. There has been slight also help from the government side, for one or two months of subsidies, just to help the smaller farmers. All in all, we were slightly scared, but it worked out without any whatsoever increase on the cost of risk side there. There are other exposure there too, but all in all, a very detailed analysis has shown that we are in a good shape. Overall, there should be minimal impact.
There is some exposure on the energy side, but there, meaning Russia is exporting gas to Armenia, and they are discussing increasing the price. That too should be well weathered within the economy. If there is any impact, it would be on the GDP and secondary impact on us rather than direct impact, but should not be significant. Thank you, Olga.
We have got another written question from John Yan. Given there are many foreign buyers of property in Georgia, do we lend to them, issue mortgages to them?
We do, but it is an automatic lending if it is up to 50% or 60% of the value. Then, the person needs to satisfy the sources of funds, screening, and everything else. We do, but it is much stricter loan-to-value criteria.
Another question in the written Q&A, Archil. It is about a deceleration of deposit growth in Georgia, or I think particularly market share. It seems that retail deposits continue to compound, so have we seen outflows from corporates or the ministry?
Yes, and that was by design. We have been talking about this for the last three quarters, that the regulator has been pointing out that if we go above 40%, there would be extra capital charges. We went above 40% but promised to keep focusing on going below 40% in terms of deposits. We have been particularly focused on corporate deposits because these are easy come, easy go, so to say. That is why it has been by design to go below 40%, and excluding the Ministry of Finance deposits, which are not counting in market share, in fact, we have gone below 40%. That was by design. There is nothing to worry about.
Excellent. We actually have another live question from Sheel Shah at JP Morgan. Go ahead, Sheel.
Great, thanks. Just one on the net interest margin in Armenia. So, one for Hovhannes. We saw a + 10 basis points move this quarter. You spoke about the cost of local funding going down relative to loans. We saw a rate hike yesterday as well. So, does the NIM trajectory look a little more positive for Armenia going forward?
Well, we have mentioned about this during the Q1 and Q2 that we expect towards the end of the year to have some slight improvement in our NIM. Also in our release, we have mentioned that there is some one-off effect in this increase in NIM, but there is also this natural increase, improvement of NIM due to the improvement of the cost part slightly better than the loan. I would say if we take out this one-off effect from Q3, there will probably be slightly further improvement in NIM, but in terms of levels, it's going to be somewhere in between 6.3% roughly.
Sheel, what I would like to highlight is that these are very healthy levels, and we are taking market share. I would not count on significant improvement, you know. Good net margin, slightly improving is good.
That is clear. Thank you.
Thanks, Sheel. Archil, we have one final written Q&A. It is about M&A, whether it is still on the table or whether all capital is funding growth in Armenia, and organically in general.
M&A is on the table for the last three years, but it does not mean that it is happening, right? We need to be focused on this and be open to opportunities. Having said that, you do know our targets, which are that we only focus on the systemic banks. We focus on the very specific geographies, and given evaluations, they are not very easy at this point to create, to have targets that are value-accretive, and we would not do anything that is not value-accretive.
So yes, we are looking at different things like we have been over the last couple of years, and this thing will continue, and if and when there is a right opportunity, we will move, and otherwise, we will continue our life because our life is exciting enough, I think, as we are, given our profitability and growth. If there is a little bit more excitement and more value creation opportunities, we are ready to move. Otherwise, we will continue as we are.
Okay. No further questions, Archil.
Thank you. On this bright note, thank you very much for listening. The number of people listening to this call has been record, in fact, well above 200, and it means that more and more people are interested in our results, and the results are very good. Our franchise is in the best position it has ever been in terms of the customer satisfaction scores, in terms of the number of people that are using our services. More and more people are choosing us. More and more people are depositing money, doing transactions, and borrowing from us, and all of this is happening while we are maintaining or increasing our profitability and growing at about 25% blended, with Ameriabank doing some stellar numbers there.
All of this is happening while we do implement the cost discipline, and all of this is resulting in pre-provision growth of 25% year-on-year, and book value per share growing in dollar terms because of currency also in both markets getting stronger at 31%, and plus we are paying dividends. On this, thank you very much, and talk to you when we do the summary of the year. Thank you.
Thank you.