Welcome, everyone, to the TBC First Quarter 2024 Results Call webinar. My name is Emily, and I'll be your coordinator today. If you wish to ask a question during the webinar, please use the raise hand button if you have joined the call via Zoom. Alternatively, you can type your questions into the Q&A chat box at the bottom of your Zoom screen. If you have joined us on the telephone lines, please press star followed by the number one on your telephone keypad if you would like to ask a question. I will now hand over to Andrew Keeley, Director of Investor Relations, to begin. Please go ahead.
Thanks very much for the introduction, Emily, and thank you, everyone, for joining today's First Quarter Results Call. I'm joined on the call by our CEO, Vakhtang Butskhrikidze, and our CFO, Giorgi Megrelishvili. As usual, we'll start with a presentation, and then we'll move on to Q&A. And with that, I'll hand over to Vakhtang. Thank you.
Yeah. Thank you, Andrew. Dear all, thank you for joining our First Quarter Financial Results Conference Call. Before I discuss our First Quarter Results, I'd like to make a few brief comments about the current situation in Georgia. As many of you have seen in media reports over the past few weeks, there have been protests in response to the planned legislation relating to the disclosure of revenues from foreign sources by companies and organizations. We are, of course, monitoring this situation closely and very much hope a resolution can be found. In the meantime, I'd like to reassure our shareholders and interested investors that our bank is continuing its normal daily functions for our customers, and we have not seen any disruption to services or a broader impact on our operating environment. I'm happy to answer any further questions during our Q&A session.
Turning to our results, I am delighted that we can share with you another successful start to the year with almost GEL 300 million group's net profit and more than 25% return of equity for the first quarter. Additionally, our digital monthly active users have grown by GEL 1.2 million and reached GEL 5.6 million. Our business in Georgia continues to grow strongly with loans up by 18%, and we are the market leaders in both loans and deposits. This is almost 40% here. Meanwhile, in Uzbekistan, our business goes from strength to strength with gross loans more than doubling and net income contributing 6% of the group's total income. Slide four shows our journey over the past 10 years as a public company. We conducted our IPO in June 2014, and I think we have made great progress in the decade since.
You can see we have stayed very focused on consistent delivery through growth and profitability for our shareholders. Our track record speaks for itself: an average return of equity of around 22%, 25% annual growth in net profit with a consistent 25%-35% dividend payout ratio. We have also expanded our active customer base to nearly 6 million by strengthening our presence in Georgia and by building digital financial services in Uzbekistan's growing market. The next slide presents a high-level overview of the first quarter performance. Net profit reached nearly GEL 300 million, up by 16%. Our growth maintained an excellent return of equity of 25.1%. At the same time, our gross loan portfolio grew by 21%, reaching GEL 22.5 billion. Importantly, our digital user base keeps growing with GEL 5.6 million digital monthly active users across the group.
Moving to the Georgia business slide, I'd like to provide you with a brief update on the Georgian economy. Economic growth remains very strong in Georgia, with first quarter growth coming up at 7.8%, and we now expect 6.4% real GDP growth in 2024. Meanwhile, the inflation remains low, which has enabled the National Bank of Georgia to cut interest rates, with the refinance rate now at 8.25%, down by 1.25 percentage points year to date. The next slide shows how we are the dominant financial services provider of the Georgian market. As you can see, TBC Bank is the leading bank in Georgia by all key metrics, with approximately 40% of market share in total loans, deposits, and assets. We have more than 1.6 million customers who are using our banking services on a monthly basis.
Additionally, TBC Insurance dominates the retail non-health insurance market with over 75% market share, and TBC Leasing accounts for almost 90% of the leasing market. Now let's move to the next slide. This slide shows that our growing customer base is becoming more and more digitally engaged. Out of 1.6 million active monthly customers, almost 60% are digitally active. And as we see on this slide, more and more of our products are being issued online. The share of consumer loans issued fully digitally has increased by almost 20% over the past year to nearly 70%. The next slide introduces our leading digital lifestyle ecosystem, TNET, which consists of a wide range of products and services across four verticals. In the first quarter, GMV increased by approximately 20%, reaching GEL 76 million, out of which 55% comes from the lifestyle led by the ticketing.
Over the same period, the number of the transactions also grew by 20% and reached more than 4 million. Now moving to the Uzbekistan business, I'd like to provide you with a brief update on Uzbek economy. Real GDP has averaged almost 6% growth per year over the past decade, and we expect 5.6% growth in 2024. The country is opening up, modernizing, and attracting more and more investments. We expect GDP to almost double from $90 billion in 2023 to $160 billion in 2030, with alongside strong growth in financial services. This will bring huge opportunities to us. Next slide outlines the main parts of the digital ecosystem we are building in Uzbekistan. As you know, we have been operating in Uzbekistan for about five years, and I'd like to stress that all our businesses are profitable.
The focus over the 12- to 18-month period will be on a new product development and scaling up of our businesses. On the banking side, we plan to launch credit cards later this year, as well as daily and MSME banking. In Payme, we will roll out the travel services. While now a POS installment loan platform, Payme Nasiya, we will enhance our BNPL loan capabilities. On the next slide, you can see the performance of our Uzbek businesses. The results are quite impressive. We count around 14.6 million unique registered users, out of which 4.7 million are monthly active customers. Our loan book continues to grow at a tremendous pace, more than doubling year-on-year to $345 million, while our deposits to that are around $245 million.
In terms of profitability, we have been profitable for the last seven quarters, and we earned $7 million as net profits and $28 million in total operating income in 2024. Lastly, on this slide 15, we see that Uzbekistan is becoming more and more material contributor to the group. It already accounts for 42% in the total fast consumer loans, 8% in the retail deposit portfolio, 12% in the total operating income, and 6% in the net profits. These numbers will only grow. We are also gaining market share in every quarter. In our core product offerings, ICL Lending, we are one of the leading players on the market, and we have already 15.3% market share. In terms of the retail deposits, we have 3.4% market share, and there is much more upside to come here. Now I'd like to hand the interview over to you.
Thank you, Vakhtang. Thanks all for joining our quarterly call today. I'm going to take you through our first quarter results, and I will start from slide 17. I'm very pleased to report that we had a very strong start of the year. As Vakhtang already mentioned, in Q1, our net profit totaled nearly GEL 300 million and was up by 16% compared to last year. Our high profitability is translated into a very robust 25.1% return on equity. Now I will go into more details about the main drivers of this profitability. Slide 18, both net interest and non-interest income have continued to grow strongly. Net interest income was up by an excellent 21% year-on-year, driven by solid loan book growth of more than 20% and strong margins. During the same period, our net fee and commission income rose by 13%.
The quarterly decrease in fees is mainly related to the seasonally low businesses in the first quarter. Now I'll move to slide 19, where I will discuss our margins. NIM decreased by about 20 basis points quarter-on-quarter, but still stands at very decent 6.5%. This decrease was driven by higher funding costs, mainly at peaks, and declining refinance rates. Despite quite material rate cuts by the National Bank of Georgia so far this year, we hope we can keep our NIM around this level for the full year. Now I'll turn to the cost slide, slide 20. And first of all, I would like to highlight that we do remain committed to control the growth of our costs while simultaneously supporting business growth and long-term sustainability. Costs were up by 26% compared to last year.
Due to strong business growth, with our Uzbek operations contributing to around 40% of this growth. Consequently, our cost-to-income ratio stood at 37.2% in Q1, and the quarterly decrease in costs was due to seasonality. Now I will move to slide 21, which highlights our asset quality. You can see our NPL ratios, although it's slightly up from quarter-over-quarter, it remains at a very low 2.2%, the same level as it was Q1 last year. At the same time, total coverage was 140%, while the collateral coverage stood at 74%. As you can see, our cost of risk was just 0.8% for Q1, which again confirms the strong credit quality of our book. Meanwhile, our balance sheet continues to grow at a very good pace, as you can see from slide 22. Gross loans up at a very respectable 21% on a constant currency basis.
Over the same period, total customer funding are up by 18% also on the same basis, highlighting strong funding for the bank. Now let's have a look at our solid capital positions across the group. First, I would like to highlight that in April, TBC Bank successfully placed benchmark GEL 300 million AT1. The bonds were priced around 50 basis points below our current AT1 that is callable in October this year. The issuance has a pro forma positive impact of 3.3 percentage points on our CET1 and total capital ratios in Georgia. And as you can see from this slide, we continue to operate with strong capital positions well above the minimum regulatory requirements in both countries. Finally, slide 24, I'm very pleased to show the super financial performance of our Uzbek business, which continues to deliver great results.
In Q1 2024, Uzbekistan generated $28 million in total operating income and $7 million in net profit. That is 12% and 6% of the group's total, respectively. Over the same period, return of equity of Uzbek operations was 23.7%, great result, and that was supported by NIM of about 23%+. At the same time, despite very strong credit growth of 128% year-on-year, we remain very focused on strong underwriting, as reflected in our cost of risk 5.5%. On this note, I would like to thank you and hand it back to Vakhtang for some final remarks.
Thank you. Before coming to our 2025 targets, I am pleased to report that the board has approved the buyback program of up to GEL 75 million, out of which GEL 25 million would be used for our employees' benefit trust, and GEL 15 million would be canceled. Finally, I'd like to reiterate the targets that we have set ourselves through the end of 2025. We are confident that we are heading in the right direction to achieve these goals, but we recognize the importance of staying focused on providing the best possible services for our nearly six million monthly active customers. On that note, I'd like to thank you for your ongoing support, and we are now ready to answer any questions you may have.
Thanks very much, Vakhtang and Giorgi. You're welcome to ask questions. The first question is from Robert Sage. Robert, please go ahead. Your line is open.
Yes. Thanks very much for taking my questions. I've got two. The first one relates to the share buyback that I think was unexpected, certainly for me. And I was just sort of wondering whether you could sort of talk through the thought process behind this, what it means in terms of capital allocation. Is it entirely opportunistic given the fall in the share price recently and what we might expect going forward on that? The second one is entirely different, and it's really looking at the capital ratios in Uzbekistan, where there was quite a significant reduction in the quarter, 15.4% down to 12.7%, although still well above the minimum requirement, obviously. So I guess a couple of questions on this. First of all, could I assume there will be a capital injection taking place in the second quarter?
On a longer-term basis, what should we sort of try to be modeling in terms of an Uzbekistan CET1 ratio? Should it be around the same level as the group, or should it be below Georgia, or where should we be aiming for? Could you answer both questions?
Of course. Thanks, Robert. For buyback, generally, it's not part of our capital distribution policy. As you know, we have a very clear dividend payout ratio and dividend payout policy, and we also support our Uzbekistan growth. In this particular circumstances, we felt that it would be a good use of the capital, and it will be beneficial for the group given like current. And that also shows very strong capital position of the bank because we can continue paying the dividends, what we promised to the market. We can continue growth in Uzbekistan. And meanwhile, when the opportunity and when there is a good use of the capital, we can do the buyback. That's kind of a simple as that. And for Uzbekistan capital ratios, first of all, what I would like to highlight, it has a different capital requirement, different capital regime as Georgia.
For example, you can see that CET1 minimum rate requirement is 8%. We are still at more than 12%. It provides like 4%+ headroom. That is more than sufficient. And how Uzbekistan actually operates is that we inject capital, both in our partnerships with business growth. And whenever needed, we inject more capital. So what I can assure you is that when Uzbekistan needs capital, we have capital, and we will put it, whether it will be Q2 or Q3. But as you guided through the market for the next two years, Uzbekistan will require support, and we will support. So we have more than enough capital. And you can expect that it will maintain a robust capital headroom, not to go anywhere its requirements.
Probably around the current level for now will be more or less safe place to assume, but we will kind of update as, let's say, if our thinking changes. I think I covered all your questions, Robert.
Thank you.
Thanks very much, Robert. Next up, we've got Jan from Wood. Jan, please go ahead. Your line's open.
Thank you. Thank you. Thank you, Andrew. And thank you, Vakhtang, and Giorgi for the presentation. So I wanted to ask you about the fees growth. It seems to have slowed down to 13% levels from last year. For example, we didn't expect 40% to be recurring, and we didn't expect a lot from that previously, but I mean, 30%.
Sorry, Jan. I can't really see your question. [audio distortion]
Sorry. Can you hear me now?
It's always better. Yeah.
Yeah. Okay. So the question is, so can you explain the slowdown or elaborate at this point how it went from 40% last year in the first 13% in the first quarter of this year in fees?
The question, if I understood correctly, is the slowdown in fees compared to the year-over-year basis? Did that?
That's true. Yes. Yes. And slow.
So it's usually we can guide that out 20% to that group level we are going to hit, but there are certain timing differences, particularly with Visa and Mastercard cashback, for example. Sometimes they are booking for different quarters. So last year, it was in Q2. This year, it probably will be in Q like this. Last year, it was in Q1. Yeah, it will be in Q2. So that's like sticky driver.
Okay. Understood. If you're hearing me well, I'd like to ask another question. On the effects side of things, you mentioned that the funding costs have increased, which made an impact on the margin and explained part of the decline in the margin. It appears that the effects because of costs didn't really increase in the quarter. Was it more wholesale-driven, or does it have something to do with the AT1 issuance? Maybe you could expand on that as well.
For AT1, it was issued at a kind of lower price than our current AT1, and it was only issued just recently. So there are the two key drivers. One, we reflected decrease for the NIM compression. We went from 11%-8.25%, as you know. And on the funding costs, we also see increase into the deposit rates, not huge, but given our base, it still drives it. And also, let's say, on the wholesale fund, it also obviously increased because, for example, when we had funding, that cheaper costs maybe drove down that few years ago. Now it's a different price. And another driver was also last year. At the end of last year, we raised quite a substantial sub-debt, Tier 2. As you remember, when the NBG regulation changed and we went to IFRS, it released certain CET1 ratio.
However, we needed to compensate with Tier 2 at a total to ensure the total capital distribution adequacy tests. So therefore, what we did, we used CET1, and we financed Tier 2 start with sub-debt. And sub-debt was a bit more expensive side. That was the other driver for the adequacy costs.
Got it. Okay. Perfect. Thank you very much.
Thanks very much, Jan.
We do have a question on the telephone line, which comes from Rahim Karim within Investec. Rahim, please go ahead. Your line is now open.
Hi. Good afternoon. Hope you can hear me. Two questions, if I may. The first was just with respect to the Uzbek business, clearly firing very well. And as you've talked about, significant growth opportunities ahead. Could you just help us frame the key priorities. That business over the next 12 months? Obviously, lots of investment going in there. But from the outside, what is it that we should be looking for to measure success other than, obviously, the financial performance? And then secondly was just with respect to cost of risk and continues to track ahead of your medium term in Georgia, and I think particularly low in Uzbekistan in the period. Could you help us with some thoughts of how we should see that evolving over the course of the rest of the year? Thank you.
Yeah. I will try to answer your first question, and Giorgi will answer the second question. So on the Uzbek operations for the next 24 months, as I already mentioned in my part of the presentation, we are doing quite well today, but what we are targeting to increase our portfolio and our target annual growth have to be minimum 80%. We are bringing new products such as debit card, which will be new for the market. We're bringing credit cards also. And we want to begin before the end of this year daily banking for SME. So this is a new type of the products which we'll be implementing during this year. But to measure the success in Uzbekistan, once more, it's a portfolio growth, minimum 80%, growth of the local deposits, increase of the monthly active users, and profitability.
As you have seen already, last two quarters, our profitability was around 23%- 26%. In the medium term, our target will be just to increase our profitability and the profits.
Okay. I'll take the second part. I'll start with Georgia. As you know, we guide the market at normalized through the cycle cost of 1% and set to lower view through the cycle. It will remain. But for the last two quarters, we are below that, that we will buy strong portfolio quality, very strong macro. And to be realistic, this year, we would expect to be below our through the cycle. But over medium term, that's 1% is probably the safe place to assume. And on Uzbekistan, it's actually the same situation because Uzbekistan business is very high growth, high earnings, but high-risk business. And we do understand that very well. So managing the risk and actually underwriting is our key focus. So we have one of the best-in-class collection services, underwriting services, scoring our past NPL low level.
At the moment, we have the luxury also to go to the very good segment. As the business evolves, generally, we will target some other segments to some experiments. But anyway, 6-7, let's say, the 7% that we guide to the market is the level, let's say, we expect. At the moment, in Uzbekistan, we are a bit below our normalized level, we think. But I would say around 7% is safe to assume over time through the cycle cost of risk.
Thank you both very much.
Thanks very much, Rahim. We don't have any more questions on the Zoom. Do we have any further ones on the phone lines?
We do not currently have any further questions registered on the phone lines either.
Okay. I'll give it a few more seconds. But yeah. Okay. Doesn't look like we have any further questions today. So thank you, everybody, for joining the first quarter call. Please keep in touch, and we look forward to speaking to you again on the second quarter call in August. Thanks very much. Goodbye.
Thank you. Bye.
Thank you, everyone, for joining us today. This concludes today's webinar, and you may now disconnect.
Goodbye.