Good day, and welcome, everyone, to Bank of Georgia Group PLC's 3Q 2023 financial results conference call. My name is Nini Arshakuni. I'm head of Investor Relations at Bank of Georgia, and I'll be moderating today's call. Today, I'll be joined by the group CEO, Archil Gachechiladze, and we'll start, as usual, with our presentation, and then we'll have the Q&A session. Please note that this call is being recorded, and we'll hand over to Archil now. Archil, you can go ahead. Please unmute yourself.
Hello, everyone. Thank you for being on the call. Let me share the presentation. Just a second. There you go. So we had a very strong quarter. Let me just jump into it. So as you saw the results already, probably, we delivered GEL 357 million, which was up 23% year-on-year. On a very, very strong quarter one year ago, in fact, third quarter last year was an exceptional one. Return on equity, we delivered above 30% and cost income below 30%. So it's another quarter of higher return on equity than cost income. On nine months, numbers are also similar and strong.
We delivered a Net Promoter Score of 59, broadly flat, slightly down from the previous quarter, which is an exceptional level for any universal bank, and monthly active users grew by 25%. Now, let me touch on the macro, how the Georgian macro is doing. Georgian macro is doing very well, much better than we expected one year ago. So far this year, the GDP estimate is 6.8%, inclusive of September, that is, and we expect a stronger quarter in the fourth quarter to also deliver around the same. So that's in target, our investment banking now expects 6.8% for the full year and 5%, 5% next year.
So as you remember, two years in a row, we delivered above 10%, although 2021 was on a, based on a lower, 2020. But still, 2022 was very strong, and, and 2023, a very high, high base, has been, has been ahead of expectations. So we see somewhat slowdown in growth in exports and imports, but at the same time, and remittances, balancing out because we have few quarters of high remittances last year. But then, while remittances from Russia have reduced, and normalized, we, we see that remittances from other countries, especially the U.S., has, has grown quite significantly. Tourism flows are growing as well, and nicely.
In terms of revenues, it's 128% in the third quarter versus the peak year, which was 2019. That's why we compared to 2019. High inflation was a challenge in Georgia, and now I think we have the inflation parameters have normalized, and we reduced below 3%. So headline inflation is 0.8%, as you can see in October, and core CPI is 2.1, and target is 3%, as you may remember. So we are seeing the monetary authority reducing the refinancing rate from 11% to 10% over the couple quarters.
And, we think that there will be further reductions going forward, towards 8%-8.5% end of next year, which should be supportive of the overall lending Lari, especially. We've seen broad stability in Lari terms, versus U.S. dollar from the beginning of the year, while we've seen Turkey, Russia, Belarus, and somewhat Uzbekistan weaken significantly versus the U.S. dollar. So, that, I think real effective exchange rate will further come down, not because of the exchange rate, but because of the inflation differential, which we are seeing in these countries that are listed by inflation.
You see the gross international reserves grew. They're stable, slightly down in September, but it basically is stable, and you see the net reserves at 2.9 billion and significantly higher over the last two years. So they've been buying significant amounts of reserves over the last two years, as you know. Somewhat slowed down because the last quarters were much more significant, but still, first nine months, the National Bank has bought $1.4 billion of hard currency on the market.
We have seen a slight pickup in growth of bank credit year-on-year to 13.9%, which is in constant currency 14.9, which is good, and it shows economic activity that is picking up, especially on the investment side, which we are very happy to see. Projects around Middle Corridor are emerging, and are becoming real in terms of starting to become real now. So it will take a couple of years for them to come online, but they're very specific projects, more and more like logistical hubs, dry ports, as well as port modernization, et cetera, that are emerging. We have seen de-dollarization continue, slightly flat, but still at 45% of the credit.
What's also notable is that over the last few quarters, we have seen significant reduction of dollar deposit, the dollarization in deposits as well, down to 50%, which provides the funding base for the loans, which is very good as well. Non-performing loans by the IMF standards, it's at the lowest by regional standards, and very low by world standards as well. You may remember from our previous presentations, talking about the potential that we have in terms of loan growth above the nominal, nominal because of deleveraging that happened over the last couple of years. We have seen that flat to slightly increasing, and that's what we were talking about. There's potential to leverage more businesses because deleveraging has happened, and it will probably continue going forward.
We have seen fiscal discipline as well as Lari getting stronger, resulting in national debt to GDP dropping below 40%, at 38.5, and 2024 budget is out, and there's further tightening next year, which is an election year, in fact. So we're going from down from 2.8% budget deficit to 2.4% predicted, which is a welcome news when you are in an election year. So it's very strong macro and we are very well positioned to capitalize on it. You know, this slide, this is our... This is who we are, let's say, in a nutshell.
We are top of mind and most trusted bank in Georgia, and a digital leader in the country as well, delivering with trust to beat it. How do we do it? Is being relevant in customers' daily lives. So it's not only about mortgages, but on a daily basis, and that's the digital channels as well as payments. We want to be leaders in that, increasing customer engagement, payments, as well as excellent customer experience. And we measure that. So in terms of the retail application, we are up by 25% year-on-year, which is an incredible number for the largest operator. So 1 million monthly active users last year, this time, and 1.26 now. We are about 1.3 now, in fact, as we speak.
Engagement on a daily monthly engagement is 46.8%, which is a very good showing for any financial app. Financial app, that is, we call it financial super app because it involves and it includes a lot of different products that are listed here. In terms of number of transactions, we have seen it grow, and the share of digital channels is 65%. We slightly changed the presentation here, which only includes the transactions and not the products sold, because let's say a card sale was included as a transaction here, and we changed that because that's more intuitive the way it is now.
But then at the same time, we'll be reporting and measuring the product sales in digital channels, and this is where we would like that number to be about 50 and closer to 60 and 70 in the medium term. And it's a nice growth from, let's say, 38% to 47% over one year. And we think we should be above 50% by the end of the year. In terms of our digital app and the computer application for the businesses, internet banking, we've increased the customer satisfaction, which is an internal measure, but still year-on-year, it's a significant increase. Above 80 is good, and 86 and 84 is incredibly good.
You can see it in the number of users as well. We have increased the number of business users of our application by 31.9% year-on-year, which is a very good showing, as well as number of transactions by 26%. And for Global Finance, which is a magazine that does the competitions, et cetera, named us the best in the world for what it's worth. It's becoming a real competition, in fact, so we're glad to hear that. So it's in terms of payment volumes in acquiring business, we were up by 46% year-on-year, and added 6.3% year-on-year in terms of market share.
So above 55%, incredible showing from where we started a few years ago, focusing on this. As well as on the issuing side. So our number of people that have used our card over the last 30 days is up by almost 25%, which is a very good growth, and we are happy about this. The number of merchants are up by 427% as well, in terms of acquiring POS terminals. That's our commitment. The Net Promoter Score, as you know, we are focused on this, and it's something that we focus on religiously, so to say. So these are the numbers that we covered in the beginning.
30% return on equity, 0.6% cost of risk in this quarter, which is below our medium-term expectation of 100-120 basis points. And cost income below 30%. And CET1 was 18.5%, well above the minimal requirement of 14.7. So in terms of some of the numbers, revenue numbers, we're up by 22% for nine months, up by 32%. Net non-interest income is down in fact by 3.9%. And slightly lower as well from last quarter because we had one-off in nature in terms of the gain that we had on the asset sale of about GEL 60 million, you may remember, last year.
But overall, we saw the effects normalize at this level. So you remember the incredibly high numbers that we had last year, second quarter, third and fourth quarter was pretty good as well, and they've normalized around GEL 100 million Lari. Operating expenses were up by 15%, so it was cost-to-income ratio below the revenue growth. And therefore, we had the improvement year-on-year to cost income ratios. Loan portfolio growth was very good at 17.6% year-on-year. In constant currency terms, that's 19%, which was very good. And similarly, Q over Q basis, that was 4%, and constant currency, 8.4%. Deposit growth was also strong at 26%. In constant currency terms, that's 29% year-on-year.
I would also like to highlight that it was predominantly the resident resident deposits that grew. In fact, all of the gain in terms of the market share that we had was based on the on the resident deposits and not the non-resident. In terms of the net interest margin, it was broadly flat at 6.6%, like last quarter, and year-on-year was significant, up 130 basis points. Loan yields were broadly stable as well, and while the cost of client deposits were slightly up, we had less pressure from the wholesale funding because we repaid some of the debts in the previous quarter. You can see the overall, let's say, cost of funds are flat or slightly down.
Cost of risk was, it was 0.6%, as I mentioned, and the coverage ratio is about 70%, and we feel quite confident about it. The NPL ratio is 2.4. And profit was up by 23%. Q-over-Q is slightly down because of the one-off nature of the asset sale that we had last quarter. And you can see that return on assets is just shy of 5%, which I think a lot of banks would be happy about. In terms of the capital ratios, they are significantly higher than the requirements, as you can see here. The total capital ratio is the lowest here in total buffer, and this is something that we can raise, and we're quite comfortable with 2.8, obviously.
Liquidity ratios are also quite strong at 130+, and our loans to deposit ratios are also very healthy, as you can see. These are not quite comparable because this is nine months, but you can see that this digital loan number is growing over the last four or five years significantly, from about 500,000 to above what we will have, let's say, by the end of the year, as well as the profits going from GEL 500,000 to whatever we will have at the end of the year, which could be a coincidence, but it's there's more to it than that. And strong is...
Growth is much stronger than the promised, above 10%, as well as the profitability is much above our medium-term guidance. We've been good in terms of returning the capital and will continue being good, and obviously, we cancel the shares that we buy for the buyback. And whatever we buy for the management, we don't call it buybacks, we call it for the management buying shares. That's that. I will wrap it up, and almost record of 17%... 17 minutes. So now I open it for the Q&A, and also I would say that our CFO as well as CRO are on the standby. If there are specific questions that they would have to...
That they will, they'll answer, I will refer to them. Nini, please open up.
Thank you, Archil. To ask questions, please use either the Raise Hand feature or the Q&A chat, and if you're dialing in from phone, please, press star nine, and we'll see you in the queue. And the first question is, I think I see the first hand from Robert Sage.
Yes. Hi there. Can you hear me?
Yes.
Yes.
Hi, Robert.
I've got two probably connected questions. The first of which concerns your deposit growth, which seemed to be very strong in the third quarter. I was wondering if you could perhaps provide more details about some of the drivers behind this. It looks as if your market share has moved very strongly up. Is this largely a function of pricing, or are there other drivers there that might explain it? The second question concerns the net interest, the net interest margin. I think previously you'd indicated in the second quarter you might have reached peak margins, but here we're looking at a stable margin. I hear what you say in terms of likely falls in interest rates, and I was wondering if you could sort of see how you see the margin developing over the course of the next year or so?
Is it still going down towards 6%, or should we think in terms of something a little bit higher?
Thank you, Robert. So first is the deposit growth. So it's a very strong growth. As you can see, it's not driven by the, by, let's say, higher prices, because, you know, we have lowest costs in the market of any major bank, let's say. So our yields on deposits are low, yields on loans are higher, cost of risk is contained, and hence the profitability is pretty good, and we control the operating costs as well. So all in all, I think pretty good franchise, you can say. So in terms of what is driving it, when we are highlighting the fact that we are the dominant daily bank for our customers, that results into a number of things, including ability to attract deposits and current accounts, and so forth.
So we have, 1.3 million customers that, on a monthly active users of our, our retail app, but also we have a pretty strong coverage in terms of the branches. And we are top of mind and most trusted bank, in the country. So all of this results in a very strong franchise, and, and that's resulting in, in that growth. Some of it came from the legal entities as well, which goes up and down, and this quarter was slightly stronger than in other quarters. But whatever you see in retail, and SME, et cetera, that's, that's more of a franchise growth, franchise strength.
In terms of the NIM, so as I said, our expectation is that the deposit rates will grow in line, let's say, with the international rates, and that's what's happening globally, I think. It's not happening very fast, but it's happening for sure. And that's where we are heading, let's say. So as we can see, it will come down. How much and how quickly, we'll see. Obviously, our interest is to somehow prolong this process, and we've been able to do it, slightly increasing quantity of deposits, but that's more than compensated by other income. Will we see it come down to 6% or below? Of course, we will. Of course we will.
It's, you know, it's a universal bank, and, you know, we'll be normalizing those levels as we go forward, but our objective is to hold it as high as possible for as long as possible, if we can, if the competition allows. Thank you, Robert.
Thank you.
Thank you.
Nini, I think there are three questions.
Yep.
Mark Webster is asking, "Can you please comment on the range of possible outcomes for the next general election in 2024?" I do not know, Mark, what do you mean in terms of the outcome for the general elections in 2000... Oh, you mean the... Okay. So general elections. I think after the announcement one week ago about the about Georgia being granted the not being granted the consultation or or recommendation of Georgia to be granted the candidacy of EU, which was great news for us. I think the ruling party feels much stronger, and and it's although it's early to judge, we would expect that there will not be any major change in terms of the political political party that governs the majority.
The next one is by James Hamilton: "Growth of 90% is very strong. What is the outlook for growth?" James, I think 19 is very good indeed. We think we will be above our medium-term guidance of 10%, next year as well, because I think there's needs to provide credit, especially for investment. But medium term, probably is 10+. Next year we don't have a specific guidance, but we should be comfortably above 10%. And then James says, another question: "Can you comment on the outlook for NIM, the impact of moving the lari assets, lower rates and mix?" This is too many comments, too many, how to say? Too much math for me to do online.
But I can say that there will be deposit rates going up. There's the Lari rates coming down because the refinancing rates are coming down, and I think all of that should result in us being able to de-dollarize slightly more, which carries slightly less NIM, but it's more capital efficient. So what we are looking at, in fact, is return on equity, and we should be able to sustain it at good levels. I cannot give you more guidance than that on some of the mix and more specific questions that we had. Nini, any more questions?
I don't see any raised hands so far.
Please feel free to ask questions. So let's wait for a minute, and then if there are no more questions, I'll wrap it up, which will be the shortest quarterly call we've ever had. But I don't want to beat the record this time. It's fine. Well, if there are no more questions, then I would like to wrap it up. This is the last call that we have for this year. This year is looking much better economically, speaking than we expected. The turbulence, obviously, is there, and it's not just the turbulence, but some human tragedy happening around the region, in Ukraine and in Israel. I really hope that this will end soon and in the right way.
One thing I can say is that we are the digital leaders on the market here, as well as the payments acquiring and issuing leader, as well as leaders in terms of top-of-mind and most trusted bank. And I think that's the strength of this franchise, which we have been highlighting, and that is based on the internal culture and the dedication to serving our customers, and measuring it religiously by channel and by product, and trying to improve it continuously. We will continue focusing on the strategic priorities, being active and being relevant in customers' lives, and being committed to the quality of our service and products that we provide to our customers, and we will build the future together.
Thank you very much, and we'll talk next year.
In the-
Excuse me.
In the list. Should I... from Lion Finance, I think. I can let it-
Anonymous attendee is asking: Why is the share price down? Sorry, maybe I'm naive, missing something. Maybe I'm also naive, so I don't know why it's down. Results are very strong, so that I cannot comment on the markets. Yes, Nini.
Well, one raise hand, and I'll try... I'll allow the person. Mm.
All right.
Hello?
Oh, hi. Can you hear me?
Yes.
Oh, yes. No, well, thank you for your answer, but yeah, maybe I'm naive, too, because I looked at everything, I looked at every number. They look great to me, so I can't, I can't understand. But if you can't understand either, it makes two of us.
Look, I can only say one thing, that we don't focus on daily trading or daily prices. What we focus on is building a strong franchise and value for our shareholders and our customers, and our employees and the management. That is going very well. As you can see from the numbers, not just financially, but from the strategic point of view. We will continue focusing on that and returning the capital and building the business. The rest is the markets, and markets, if I understood it very well, maybe I would be doing something else. But I know how to return deposits and do remittances and transfers and service the clients, so basically commercial banking, and that's what we do well, so we'll continue doing it.
Thank you.
Thank you.
Thank you.
That's all.
Very good. So it's a bit early, but I would still take the risk and wish you a Happy New Year and Merry Christmas in more than a month. Slightly early, but we'll talk next year. We'll present the annual results as well as the fourth quarter when it's there. So thank you very much. Thank you for record attendance, in fact. And have a great evening.
Thank you, and see you next time. Bye.