Hello, everyone. Welcome to Bank of Georgia Group PLC's conference call. My name is Nini Arshakuni, and I'm Head of Investor Relations at Bank of Georgia. I'm joined today on this call by the Group CEO, Archil Gachechiladze, who will start today's call with a brief overview of the key macro developments, as well as the highlights of the group's performance of the second quarter. Afterwards, we'll be taking your questions. Please note that this call is being recorded, and Archil, you can start now.
Thank you, Nini. Thank you, everybody, for, for joining our call, 17th of August. A lot of people are on vacation, and the ones who are not on vacation, we appreciate your attention, and your time. I'm happy to report that we have delivered a record, record results in this quarter. GEL 387 million Lari in net profit, which is up by 40% year-on-year, 34.6% return on equity, cost-to-income ratio of 26.9. Our monthly active users of our retail application are up by 27% year-on-year, above 1.2 million people, 1 to 1.2 million persons. Our Net Promoter Score, retail Net Promoter Score, is 61, which is also all-time high.
All of these results are, are, are record numbers, each and every one of them, in fact, and we consider ourselves to be in a very good position to capture the good macroeconomic situation that we have in the country, and also consider ourselves lucky to be able to deliver these numbers. We are also announcing dividends of 3.06 Lari, which will be an interim dividend. On top, we are also announcing a buyback program of 62 million Lari. This is reflecting our capital distribution policy of 30%-50% of earnings. A few words about the macro.
Last two years, we have had, as you know, double-digit real economic growth, and this year, so far, first six months has been a real growth of 7.6%, which has been above the expectations, and we have upgraded our guidance or, or expectation for the full year economic growth by to 6.8%, and next year, 5%. Having said that, I think our 6.8% has some risks on the upside, so we'll, we'll see if those numbers get upgraded further. Exports, imports, as well as tourists are, are growing. Remittances have stabilized, although on a very high last year space. Overall, I think all numbers are growing very robustly and pretty well. One concern that we had for the economy was high inflation.
We ended last year with 9.8%, if my memory is right, of CPI. CPI is down to 0.3, and that's in July numbers, and the core CPI is down to 3.2, which is almost same as the target rate of 3%. That, I think, provides a very good basis for the National Bank to start real exiting the tight monetary policy that we have been in for the couple of years now, and they've reduced it twice already from 11 to 10.5, and then from 10.5- 10.25. The National Bank of Georgia expects the rates to be around 9.5% by the end of the year.
We think there's further room for, for reducing the refinancing rate above the, that expectation, i.e., maybe nine, maybe 8.5. That will provide further boosts to the economy, and, and will provide support. Lari is doing well, has been stable around 2.62, 61, versus 1 US dollar. Overall, I think over the last two years, it has strengthened versus the trading partners, those trading partners also include Russia and Turkey, and there's no need to gravitate towards the real effective exchange parity there, because there are other considerations for the, for the trade to, to gravitate one way or the other. Overall, I think the flows have been so strong that the National Bank reserves are above $5 billion, which are record.
In fact, this is end of second quarter. July numbers, there has been strong buying in July, and now the reserves are at $5.4 billion, including the July buying. All in all, this year only, the National Bank of Georgia, in the first six months, in fact, has bought more than $1 billion, and just one second. More than $1 billion, and in July, further $300 million, so it's $1.4 billion already, which is unprecedented, and it shows that not only the remittance and tourist flows are strong, but also investment is, is, is doing very well, which we'll see later on when, when the current account is done.
The bank loan growth is moderate, but slightly up in the second quarter to 8.4% in nominal terms. In constant currency terms, it's 13.5%, which is healthy, but still kind of not very high, we'll see on the next slide that there's plenty of room to grow. Dollarization has continued to come down other than the last one month, which is at 45%. The deposits more significantly, deposits have also started to come down significantly. More people are saving Lari after prolonged strength of Lari and also stability, as well as National Bank buying unprecedented amounts of US dollars. Loans, NPLs are healthy. This is IMF standard of 1.5%.
We report under, under the IFRS standard, which is slightly different, but to have comparison to other countries, that's why it's reported under IMF standard. Talking of deleveraging, basically over the last two and a half years, we have delevered and now stabilized, so bank loans to GDP are at 62% of GDP. National debt to GDP is under 40% and is continuing to delever. The tax collection is go ahead of the budget, and that provides further stability on the fiscal side as well. In terms of the in terms of some of the strategic updates on the results. This is our profile, which you all know, I'm not going to dwell on this.
Delivering about 10% real growth on the loan book and return on equity, about 20% and dividend 30%-30%. Those are some of the things that we rely on strategy. First update, basically, our franchise, retail franchise is very strong. Number of monthly active users are up by 13.8%, the overall clients. In terms of the digital application users, monthly active users is up by 27.3%, year-on-year above 1.2 million customers, of which 71.9% use it daily. Overall, 582,000 people on a daily basis use our application. That is a phenomenal number for any universal bank application. The DAU to MAU is 47.7%, which is also the highest we've seen.
This is some of the list of things that we are offering on our application, including the dark mode, which is relatively a new thing. Also, what we launched now is a instant payment to other banks as well, because that used to take several hours, and customers are demanding instant payments more and more now. So that has that has been launched. It is quite popular with, with our customers. Our number of transactions is, has almost hit almost 100 million. What's significant is that mobile application, and internet banks, retail, has has been now almost two-thirds now of all transactions. The other ones are POS terminals and ATMs, and a small fraction is in, in our branches.
In terms of the sale of digital products, slightly lower in the second quarter, but we have started to, to support some of the sales digital processes, and in, in July, August, it's already up significantly, about 46% of all products being sold digitally. We are aiming to, to, to go to 60% next year, so it's a significant effort being put there. What makes me quite happy, in fact, is, is how our mobile application in Business Banking is, is getting more and more popular with the legal entities. More and more people are using our application for business, and its monthly active users are up by 38%, which we now position to be growing on an annual basis at that-- those rates are incredible. Transactions are also up by 24%.
Our merchant acquiring business has progressed very well. In fact, year-on-year, we have a market share gain of 6.6%, and we achieved 53.7% market share in acquiring business. You see the POS and e-commerce distribution, and the volumes are up by 51%. On the issuing side, i.e., our customers using Bank of Georgia cards, we are up to 1.1 million people using our cards on a regular basis, so monthly active users, which is up by 27% year-on-year, which is also an incredible progress. Here again, our main competitor here is cash. We're trying to basically incentivize our customers with loyalty points and so forth, to be spending more with cards rather than cash, because cash is very expensive.
We cannot charge as much for cash, cash out as it is costly, transporting cash back and forth to different locations, ATMs and so forth. It's beneficial on, on not only on the revenue side, but also on the cost side to incentivize our customers to just spend through electronic channels. When, when people spend through electronic channels, then merchants also have more to record in our automated loan availabilities than, than possible for, for such smaller merchants. That's also a new product that we have launched in the course of last year. This is the last but not least in fact, you all know our commitment to customer satisfaction....
We hit in June the new fresh high of 61%, which is for any universal bank is an incredible achievement, and I would like to thank all of the full team that is working to deliver the services with the satisfaction to the customers. We are all, as an organization, dedicated to our customers and to servicing our customers with wholeheartedly, so to say, we dedicated ourselves to service, and this is what is the recognition of that. There's a lot of work that goes behind those easy, small numbers. I'd like to congratulate our staff for this achievement. Now, few words on the numbers. A lot of things that I just described then manifest themselves in the numbers.
In terms of the numbers, excuse me, you've seen the return on equity. On the cost of risk side, basically, we were 0.8%, and cost-to-income ratio was incredible, 26.9%. CET1 ratio was 18.7%, well above 4% above the minimum requirement, CET1 ratio. What also is very good this time around is our year-on-year growth of our loan book, which on a constant currency basis was 17.6%. Again, I think growing at this level is possible short to medium term, but not long term, obviously.
That is possible because the economy has delivered significantly given the high growth in real and nominal terms over the last 2 years of the economy, and not as much in loans. Deposits are up by 38% year-on-year, but what's, but on a more kind of last quarter basis, it's about the same as the loans. Our loans and deposits are growing more or less in line here. Our net income grew by 34.8%, although it was helped by real estate realization gain of about $80 million or so. Non-interest income grew by 26.9%. We had a slight reduction, in fact, normalization of our FX flows.
There were a lot of questions last year because we had a very good FX income, second quarter and third quarter, somewhat starting to come down in the third. First quarter is, is, is slow in any case. Now we are seeing a more normalized level. There was some volatility in the second quarter, so we benefited from it, but it's also normal to have that. That's, that's what we had. In terms of the operating expenses, we had, yeah, 11.5% growth year-over-year, which is not bad given the revenue line growth, and that helped us to achieve 26.9% cost-to-income ratio, and for the first quarter, 27.9%.
Again, we had other income which helped that, but if you normalize for that, it is still beyond the 30%. It's so shows our discipline, cost discipline, while we, we are committed to growing our average numbers. Loan growth, I already mentioned, it's 17.6% constant currency for the year and a pretty strong 6.4% in the quarter. What makes me happy is that it's for all, all, all lines of business, so retail very nicely, as well as SME and corporate.
Those of you that that remember, last year, we basically were experiencing several quarters of slightly high cost of retail, given the, given some of the fine-tuning that we had to do in our underwriting model, that not only has been done nicely, but has it provided a basis to really achieve incredible results on that side. So I would like to also thank the team for doing a good job there. So that is helping now us to be more more active on that front. Deposits also grew by 5.9% over the last quarter, which was also nice given the increased competition for deposits now. Net interest margin at 6.6%, slight pickup, that has been helped by the loan yield.
In terms of the deposits, we are, we are, we are seeing slight, pickup in costs, obviously, like everywhere in the world. On the cost of risk, I already discussed, our loan portfolio quality, is, well covered in terms of NPL coverage at about 70, 70%, and will be collected at 126. Pretty good stuff we enter there. On the profit side, year-on-year, we are at up by 40% on an adjusted basis, and we have a one-off there of $21 million. If you put that into account, that's up by 48%. Return on equity, 34.6. If you include the one-off, it's 36.5. It's a pretty incredible Return on equity, return on assets as well, which I'm not going to mention.
Very good capital ratios and significant buffers. We will obviously remember that we have some buffers which are not included here on the local level still. We have strong liquidity at 111%, slightly lower from the abnormally high liquidity a quarter before. I would like to mention that we retired Eurobond in July or June. In any case, we retired it, and we had $80 million outstanding as well as we paid some other IFI financing. We are drawing down some further lines because of increased liquidity requirements for the Russian card account holders, which is 80% now, starting from 1st of September.
In terms of capital distribution, you see our discipline of capital distribution, and we are, we have announced the dividend as well as the buyback as I mentioned. I would like to highlight one thing. A lot of companies announce buybacks, but then they, they don't cancel the shares. Two years ago, when we announced a new capital repatriation policy, we said that we'll be doing some buybacks and some, distribution of dividends. Whatever you see here, 73 and 188, it has been bought back and canceled, so that's why it's 49.2 has been reduced to 45.9. Whatever you see here in gray, those are shares held by the management trust and are used, for, for granting the shares to the management. Those are not-- it's tech...
Accounting-wise, it's treasury shares, but it's shares held by for the management trust. Whatever we buy in our treasury for the bank treasury, we cancel right away, and we inform the market accordingly. It's an actual cancellation, and that's what we are going to do going forward. On this great note, I will stop here and open it up for the questions.
We'll take your questions now, and you can use the Raise Hand button in Zoom to raise hand and ask your questions. We also have the Q&A chat if you prefer to type your questions, and if you're calling from phone, please press star nine. We have a couple of hands already in the list. The first question is from Konstantin Rozantsev, and I'll let him go.
Yes, hello. Thank you very much for the presentation. Could you please confirm if you can hear me?
Yes. We can hear you.
Thank you. I had, I had three questions that I wanted to ask, all related to the Eurobonds. The first question is, Bank of Georgia has a perpetual Eurobond, which has a call option in 2024. Could you please comment to an extent that, that you could comment on this issue, what should be our, our expectation, whether this perpetual bond is gonna be called or not? The second question, could you please comment on the how the regulator, how the National Bank of Georgia on their willingness to see the local banks calling their perpetual bonds? Is the consideration of investor interests kind of in, in the, on the agenda for the regulator?
Does the regulator wants, you know, to, to meet investor expectations, in that regard and, you know, prompting, in a way, banks to, to call the, the perp so nothing concrete can be concluded on that respect. The last question, could you please comment on, on, on the Eurobond activity that we should anticipate from the bank, in the coming periods, in the senior and subordinated space? Thank you.
Well, thank you for your questions. First is that, we understand what the market expectations are. Having said that, I don't think we are in a position to comment on our intentions. Regarding the NBG's willingness, to allow calling of, of Tier 1, the National Bank of Georgia, as well as the Georgian government, is very investor-friendly and have been supporting of the investor interests, even, not only in, in, in good times, and I think Georgia is going through, economically speaking, very, very good times, good growth, at least.
Basically, what we are seeing is that during the COVID times, the National Bank of Georgia allowed the coupon payments, and that basically showed us their willingness to recognize the investor interests even at that level of the capital structure in difficult times. I have no reason to believe that anything has changed there. I've only seen and heard very investor-supportive sentiment on the National Bank and the regulator. In terms of the Eurobond activity, we don't see an immediate need for a large Eurobond senior note for our balance sheet at this point. Rates are quite high. We are fine in terms of liquidity, and we have plenty of IFI facilities that we can draw on.
On the sub-debt side, we don't expect a public note at this point, but we are doing a number of different instruments with different IFIs. So that's where we are now. Having said that, I think. Next year may change and we may be back to the market, but we also have to see that the market rates are attractive, because now fixing rates at this point, we're not too excited about. Maybe we are right, maybe we are wrong, but overall, let's say we, we don't expect immediate activity on the public markets at this point.
Thank you very much. Thank you.
Thank you. Next question is from Can Demir.
Yes, good afternoon. Thank you, Archie, thank you, for the presentation. Just actually three questions, but let me start with the one-off. Can you maybe talk about the accounting logic behind the realization of valuation gains on foreclosed assets? That's, that's the first question, Archie. The second question is on sort of operating leverage in the business, because you hired close to 1,000 new employees in the past 12 months, including, you know, around 170 new people in Belarus, and this is despite the closure of, you know, 20 branches in the past 12 months. I, I was wondering, in what areas do you do the hiring?
Maybe how we should think about the pace of hiring, maybe next year or in 2025, if you have any visibility on it. Third question, and maybe, you know, congratulations on the fee performance as well. It's, I think it's phenomenal, 44% without help of inflation. I was wondering what the take rates are in, in the payments business, and do you see any regulatory pressure or regulatory risk around those take rates? Those are my three questions. Thank you.
Sure. In terms of the one-off, so, so basically, how the accounting works is that when, whenever, we foreclose on the asset, in this particular case, those assets have been foreclosed through public auction, then we do... So basically, whatever we buy tax, and, and in that particular case, nobody showed up there, and a few months later on, we got lucky in terms of selling it, so at a much higher rate. Basically, when we buy it on a public auction, we're not allowed to, to, to revaluate it, because it's a foreclosed asset and specifically because it was on a public auction. That's why, we had a gain on the other income side.
I have to admit that it was a significant 30 million-40 million Lari write down of remaining balance on the loan side. It's not all rosy like that. Overall, those write downs are already in the cost of risk, and it's been fully provided for. All in all, that's, that's the story of that.
In terms of the cost-to-income ratio and hiring employees, you're absolutely right that we are closing down some of these smaller branches, whatever we call the Express at the time, because more and more people are doing digital transactions, and those branches were there for bringing some first comers to the banks, and now, you know, the push is towards the digital rather than increasing the penetration overall of the banking services in the population, because almost everybody that could be banked is banked. I mean, there's slight, slight increase possible there in the regions, and, and that is socially also responsible, and we are focusing on that in terms of the ESG targets and so forth.
In terms of smaller branches, when we close down a smaller branch, basically there are only small number of employees that are not employed there. And I have to say that we don't lay off anybody because we, we are in a hiring mode, and, and turnover in the frontline basically allows us to offer jobs to each and every one of those people that are in those branches. Where do we hire? We, we hire in, in mainly in back office all over, basically, but it's, it's, it's... Last year has been a significant hiring on the AML compliance and risk side for obvious reasons. We basically grew our AML office from about 15 people to more, more than 70 people. But that's just AML and compliance and some risk department, all, all kind of different.
Overall, I think there's a lot of focus on there, as well as then on the digital and, and, and IT. Digital meaning the user experience and so forth, so forth, in the app development. Everything is in-house, as you know. We, we have our core systems in-house, we have our applications in-house, etc. That as well as the, as well as the IT side, which is on the, on the core architecture, et cetera, where we are also moving towards the microservices, chopping up our large IT system into smaller cloud delivery. That's where most of the, most of the hiring is happening. On the payment side, what we are seeing basically is that, the regulator, is looking at that, but basically there's no need as long as there's competition.
We see that there's competition, and I think overall, regulator would like to see that prices do not go up and the margins do not go up in terms of the acquiring fees and so forth. The regulator also likes to see more non-cash, and we are focused on that. There, I think there's a lot of similar kind of targets in terms of promoting the non-cash payments, and it's good for a lot of different things, including access to finance and inclusion for a lot of people that have not had access to different loan products and so forth. I mean, the small businesses, self-employed, et cetera.
There, so far, we see that, it'll be probably convergence towards the ECB type of regulation on the payment side, but, not much else. That's it.
Okay. maybe-
Actually, one last thing on the, on the take rates, on debit and credit cards. What do you mean? Maybe, maybe it's a silly question, but what do you mean by take rate of--?
Yeah, how much, how much do you charge if a customer swipes a debit card from the merchant or a credit card, for that matter? I mean, give or take, just so that we can put it into context.
Something between 1% and 2%, more or less. For larger, larger chain, et cetera, where the competition is big, it's closer to 1% for debit cards. For credit cards, depending on the type of card, Visa, Mastercard also has interchange fees that are quite different depending on the level of different cards. It goes from 1.8%-2.5%, something like this. We don't see, we don't see the incredible rates that you see some, some other countries of 5% and 7% and so forth. We actually have a pretty reasonable rates than you see in, in a lot of different countries.
Having said that, we are using our position to promote a cheaper way of financing so that we can then return the loyalty points to people to spend money with their cards rather than, rather than with cash. When somebody has a card, let's say a salary card, and they withdraw money from the ATM account, ATM, we charge something there up to within a package that's up to free, and then above a certain level, it's, we charge something, but it's loss making. All the cash handling that we have, plus to the ATMs and et cetera, is loss making.
When they take that money out and they bring that money to a, to a merchant, that merchant spends it, then that merchant, we cannot provide credit easily because we have to study, it's, it's, it's harder to finance cash, cash merchants than, than, than to actually see the turnaround. Then cashing that out is also not quite profitable. I mean, we, it, it covers the cost, but we don't make money there. So handling cash is, is no fun, basically. We're trying to promote cashless for many different reasons. There I think the, the objective of, of the regulator and ours, I think, are, are, the same.
Okay. Super. Thank you so much.
Thank you, John. The next question is from James Hamilton.
Good afternoon. Good afternoon, and thank you for your time. It's very much appreciated. A couple of them. Firstly, given your outlook for potentially much lower interest rates, you've mentioned maybe down to so as low as 8.5, is there a consequent impact on your NIM, given that that's exceptionally high? Secondly, obviously, your cost-to-income ratio has improved to 26.9% in Q2, which is obviously a very strong result. I'm just wondering, two things: firstly, how much is this being driven by your digitization process, and how much and how much further is there to go, given for a full service bank, 26.9 is exceptionally low?
Regarding the margin, basically, all I can say is that, obviously, it's an incredible margin of 6.6% for a universal bank. We think that there was broad stability in the third quarter, and it will start coming down from the fourth quarter onwards, somewhere between five and six, from next year, probably, and it'll probably come down closer to five. Basically, all of that will be caused by revaluation and, and repricing of deposits, which, which is happening, but it's got... It's, it's a slow process. It's not immediate. A lot will depend, you know, how we'll price on, on, on the consumer side, on mortgages. If there will be in the market, the MBS development at all or not, because mortgages are not super profitable, and so forth. So far, so good.
We've been able to, to play that pretty well. Regarding the cost-to-income ratio, 26.9 is helped with that other income part that we discussed at length, but let's say below 30. I don't think there's much more to go there, quite frankly. I wouldn't, I wouldn't target 15 or, or, or, or 12% cost-to-income ratio. You know, it's, you know, we, we want to be in a position where we can invest in new businesses that do not have that kind of that kind of cost-to-income ratio or new products, but still are, are, are making money for our shareholders. All in all, I think, you know, we are guiding 35%. Obviously, we've been delivering much, much more than that, so that guidance is probably less relevant now.
We don't intend to waste money, and we'll be disciplined and, and continue focusing on it. Yeah, it's, where we are, I think there's not much more to improve on it.
Thank you.
Thank you, James. Archie, we'll have a couple of questions in the Q&A chat. Two questions from Steve Gorelik. One is about asking if the current profitability has been impacted by the extraordinary gains from currency flows or any other sources caused by the war. That's the first question. The second question is regarding ROE, medium-term goal of 20%. The company's ROE goal is 20%, but it routinely delivers results much higher than that. Does it make sense to reset the ROE goal?
Yeah. So, the first one, basically, this, this, I think overall, all the economies in the periphery, including European economies, but certainly in Kazakhstan and Uzbekistan, and Armenia, and Azerbaijan, and Georgia, all benefit from, from people running away from Russia. It's not only people, it's, it's IT workers, it's investments, and anything, basically. There's no immediate wave. Let's say we had those waves last year in the second quarter and probably end of third quarter when, when Russia had further mobilization. We don't see waves anymore. It all stabilized. Some people moved out, et cetera, et cetera.
Basically, overall, I think that benefit is there, and we still have plenty of IT workers that were located with families here and pro-probably settled, although not, not officially, but, you know, they are working here. There are a lot of US outsourcing companies that have moved and, and, and created bases in Georgia, like EPAM and others. I think that's long-term. It's, it's not gonna go away anytime soon, even if the war ends tomorrow. There's that benefit, but I don't think it's, it's temporary. The temporary benefits have, have all, all stabilized. In terms of the currency flows, I also said that we don't see that big volatility and, and craziness. I think that has stabilized there as well. In terms of return on equity, we like to underpromise and overdeliver.
20% return on equity is not bad, but I agree, as, as well as cost-to-income ratio, 35% that we had, doesn't make any sense anymore, and 20%, people don't pay any attention to. I don't know if it makes sense to have ambitious targets. I mean, we're ambitious people, and we are delivering results and, and good results. I don't know if setting more targets will do any, any good. Myself, as well as the management, have much higher KPIs for the return on equity targets. That should give you some assurance that we're not happy with 10%. I don't see much, much, much benefit in terms of updating and setting very ambitious targets going forward. 'Cause we, we are, you know, there are companies that don't have such public targets at all.
I think given the consistency of results delivery, and the quality of the franchise is, is what really defines the value of this company. A lot of companies that are... that don't have that, have to set targets and, and assure the investors that they'll be doing something good about it. You, you don't actually need to do it if you're a good franchise and, and you are consistently focusing on, on, on such things.
We had another question on the ROE targets, whether we're, we'll be looking at this, especially in light of the continued buyback program, and noting that your peer has upgraded theirs. I think we've answered this question already, right? From Craig.
anonymous people, I don't like to answer anonymous questions, but should we, should we try to answer this one? Anonymous attendee, congratulations on the results. Considering the significant difference between the profitability between you and primary competitor, would you say that such performance is a one-off event? If not, what is the major fundamental difference for such outperformance? I don't think it's right for us to talk about. I mean, we are a very similar banks in terms of the amount of capital and the balance sheet, as well as the markets we operate on. In terms of the nature of our results being one-off versus not one-off, I would encourage you to look at historical performance on a quarter-by-quarter basis, year-by-year basis.
In terms of what makes us special, I don't know, better be lucky than good, I guess.
We have a raised hand from Ronak Gadhia.
Yes, Ronak.
Good afternoon, Archie. Congratulations on the results, and also apologies, I just joined a bit late, so apologies if any of my questions are, are repeating.
... Just maybe to go on the question of, that the previous caller was asking about, you know, funds, you know, the stickiness of fund inflows. One thing I've noticed on your results for the last 12 or so months is there's been a huge inflow of FX-denominated deposits. Those are largely being allocated towards, you know, government securities from outside of Georgia. Is this just an indication that, you know, there, there's still a big longer pipeline to come, and and the bank is holding back its capacity, or just an indicator that, you know, the bank is a bit uncertain about the stickiness of this flows and the fact that they might eventually flow, flow back out?
We had inflow over the last one year, obviously. With that inflow, a lot of people ask, you know, is it Russians or not, et cetera. Less than one-third of the growth on deposit was Russian. Less than one-third. Less than 30%, in fact. More than two-thirds came from the residents. Having said that, the residents are also, as liquidity flows into the country, so if a Georgian sells an apartment to a Russian family, obviously, then the Georgian resident deposits money, so it would be growth from residents. Overall, I think funds flow has benefited from, from the, from this horrible situation, there, but basically people running away from Russia. It's more than 70% of the growth has been coming from the residents.
The non-resident, the economy, the demand for loans was not there for the last one year, we had more growth in deposits than in loans. It was, you know, what do you do with that money when the growth, when the demand is not there? You put it in treasuries, right? If it's hard currency deposits. That's what we have done. Just recently, the National Bank has raised the liquidity requirement for the current and demand deposits of Russians to 80%. Basically, whatever can flow out, we have to keep in treasuries. We had it in any case, that's, that's what we're gonna have. I hope that answers your question. Do I think that it'll flow, flow out? No.
I think it's overly cautious and not particularly helpful regulation, if you ask me, but that's the view of the regulator, so we follow that.
Okay. Just, again, maybe related or a follow-up to that, the other component of your deposit book, as obviously is the Lari deposit book, that's also grown quite aggressively. I think you mentioned the reason maybe for, for that. What that has allowed you to do is maybe pay down your expensive funding from the NBG, and maybe reduce your loan deposit ratio on the Lari side. Is this, again, a structural change, or are we just seeing something that's cyclical and then eventually that reverses as you start to grow your loan book?
Yeah. Very good question, in fact. A little bit of both is the answer, and I'll explain. Basically, over the last two and a half years, the Georgian economy has grown much more than the loan portfolio. Georgian economy growing also meant a lot of savings formation. Then on top, you have a pension reform that is accumulating significant amounts, like up to Lari 6 billion of deposits. Mainly in deposits. They're in different instruments, but big chunk is in deposits. Overall, I think the country has gone through a deposit formation and less borrowing, and that creates more possibility for higher than nominal growth on the loan side, obviously.
It was first year, last year was the first time when we had, in our history, below 100% loan to deposit ratio. Historically, we used to borrow internationally and, and lend locally. That is, has reversed slightly. It's not that we are investing outside, but we are in fact investing in, in treasuries and other things. There's, there's much more savings and deposits in the country than, than the loans, and that, that I don't think will reverse in any dramatic way. Country is, is, is maturing in that way, I can say.
Okay.
aid that, you know, when, when, when things stabilize and the rates come down, I think there's a possibility that, that the demand for loans will be higher than, than deposit formation. So again, we'll have possibility to borrow and top up our liabilities from the international sources. Having said that, I think we'll be nowhere close to the ratios of foreign funding that we used to have historically. I hope that answers your question, Ronak." 2. **Language, Formatting and Name, Terms verification:** * "Ronak" is in the glossary and correctly spelled/capitalized. * No formal titles or other specific terms to check. * No starter conjunctions to remove. 3. **Currency, Numbers & Acronyms:** * No numbers or currencies in this excerpt. 4. **Paragraph & Punctuation Rules:** * Punctuation seems correct. 5. **Content Editing:** * No obvious spelling/capitalization errors beyond what was handled by filler removal. Final check: - Removed "Um," "uh," and other meaningless "uh"s. - Kept "you know" as it's a meaningful conversational filler. - "Ronak" is correctly capitalized per glossary. - No numbers or currencies to format. - Punctuation is fine. - Word-for-word accuracy maintained for meaningful words. The edited transcript will be: "Having said that, yo
No, it does. Maybe again, a follow-up. You've already answered the NIM question, but does this mean that, you know, when rates come down, you actually have the opportunity, you've got the opportunity to reprice your funding costs lower and maybe sustain your NIMs to, to some extent?
To some extent, yes. So, basically, we're less dependent. So, when you look on a, on a historic level, you know, if you look at 10-year horizon on, on, on the bank, basically there's much more equity in the mix. Almost double in terms of ratios, what we used to have 10 years ago. That helps NIM as well. And much less reliant on, on wholesale financing. Of course, that helps, helps NIM. Both of that helps, help, help NIM. In terms of the deposit franchise, I think, we are on the retail side, you know, we have 44% of retail deposits. It's, it's a leading franchise, most trusted bank, and, and, and, top of mind bank, by repeatedly over the last few years.
So that franchise, I think, is, is more and more valuable as, as we have exited the zero rate environment, and that manifests itself in a, in a, in a good NIM.
Just a final one, you briefly touched on that. There's a lot of equity on the balance sheet, GEL 300 million in the last quarter, a bit more coming through, this quarter at the whole core level. You're clearly paying a lot of dividends, but can we expect another, an exceptional dividend given the profit you're generating in the next 6, 12 months?
We, we basically are opportunistic about this extra capital, and then, we want to see stabilization in the, in the region. Obviously, then, you know, if, if nothing happens, then we return it back to, to the shareholders. If not, we deploy it one way or the other. Basically, this, we, we don't intend to carry such buffers forever.
Thank you. That's all. Thank you.
Thank you, Ronak. We have one raised hand from Hugh, but I don't see the last name of the person, so I'll just let him in.
Thank you for this.
You're welcome.
Similar to the last, the last question, could you, could you say, what do you think now the trend is in the loan-to-deposit ratio? Is it stable? In which case, you've got too much capital. Is it down? In which case, you've got a lot too much capital, or what?
In terms of the loan-to-deposit ratio, it's pretty much stable at this point. I mean, last quarter, you saw that the loans and deposits grew about the same level.
Yeah.
As I, as I said to the previous, previous question, as I answered to the previous question, if, if, if as, as the rates come down, I think, My expectation is that the loans will grow a bit more than the deposits, but it will be, it will not be substantial. It will not alter the, the structure of the balance sheet in any major way. In terms of the amount of, amount of capital, I agree, our buffers are above our usual management buffer, that we tell you substantially, about in fact. As the volatility subsides in political and, and, and so forth in the region, obviously, we'll, we'll either deploy or, or return that capital.
Thank you.
Victor from Redwheel is congratulating us, and he said we already answered his question, but we can still read out the congratulations. The question was about the liquidity requirements, the new liquidity requirements for the, on the Russian deposits. There are some raised hands from James and Konstantin, but they may have just forgotten to put it down, I think. Should we still try?
Try. Maybe they have other questions.
No. Hi, James, do you have any other questions? Okay. No, they don't. No, do they?
Well, Nini, should we wrap it up?
Yes. Well, we don't have any other.
Ladies and gentlemen, thank you very much for joining this call. I hope it was interesting for you. I would like to congratulate our team hitting record numbers in the last quarter, as in all measures, in fact. Very low cost-to-income ratio, very high return on equity, very decent growth of deposits as well as loans, very good growth in of our digital users on the retail, as well as legal entities. Very good growth of our merchant acquiring business and the card users. On all strategic directions, I think we've... Last but not least, the Net Promoter Score hitting 61, which is also a record showing.
On this bright note, I would like to thank you again for joining this call and, and, and have a, have a good weekend, after a couple of days. Thank you. Bye.
Thank you.