Welcome, everyone, to the TBC Third Quarter and Nine Months Financial Results conference call. If you would like to ask a question, please press the raise hand icon on your screen or use the Q&A chatbot to submit a question if you've joined the call via Zoom. If you've joined us on the phone, please press star one on your telephone keypad. I will now hand you over to Andrew Keeley, Director of Investor Relations, to begin. Andrew, please go ahead.
Thanks very much, Maxine, and welcome, everyone, to TBC's Third Quarter and Nine Months Results call. As usual, I'm joined today by Vakhtang Butskhrikidze, our CEO, and Giorgi Megrelishvili, our CFO. So, as usual, we will start with a presentation, and then we'll have time for Q&A. And with that, I'll hand over to Vakhtang. Thank you.
Thank you, Andrew. Good afternoon, everyone, and thank you for joining our Third Quarter and Nine Months Financial Results conference call. Before I move on to our results, I'd like to briefly comment on the recent parliamentary elections held in Georgia. As you have seen, according to the official results, the current government party won a majority of votes and seats, although the main opposition parties are disputing the results. Here at TBC, we see no change at all to our operating environment, and we continue to focus on serving our 1.7 million customers in Georgia. We also see no impact on the Georgian economy, which continues to perform very strongly. I am pleased to announce that the third quarter has been another highly successful period of our group. As seen on this slide, it has been a very strong performance across the board.
Our net profit for this quarter reached a record GEL 347 million, with a return on equity exceeding 26%. We continue to grow our digital customer base, now approaching 6 million digital monthly active users. Yes, our business in Georgia remains the source of strongest stable growth and profitability, while our digital banking ecosystem in Uzbekistan goes from strength to strength and now contributing 9% of the group's earnings. I won't stay too long on the next slide, and I have discussed this slide before, but just to reiterate, it nicely highlights our journey over the past decade as a public company, delivering consistently strong growth and returns for our stakeholders. The next slide provides an overview of our group's third quarter performance.
Our group's net profit increased by 16% year-on-year and stands to nearly GEL 350 million, with a strong return on equity of 26.6%. At the same time, our gross loan portfolio grew by an excellent 20% year-on-year growth. Our digital user base continues to grow, with almost six million monthly digital active users across the group, as previously mentioned. Now, moving to Georgia, this slide summarizes the macro environment, which continues to be very supportive to our business. Economic growth in Georgia remains very strong, with real GDP increasing by 9.9% in the first nine months of this year. As a result, we have revised our 2024 GDP growth forecast to 9.4%, up from 7.4% as of the second quarter.
I think you are all familiar with our dominant market position in Georgia, which is outlined on the slide deck, and we continue to strive to maintain a leading market share across all segments of Georgian financial services. The next slide shows the growing digital engagement of our retail customer base. In the third quarter, our digital monthly users in Georgia reached 1 million, with a digital monthly active user penetration of 60%. I'm also pleased to highlight the continuing long-term trend of growth in the share of consumer loans issued fully digitally, which now stands at an impressive 73%, as well as an increasing share of online retail transactions. The next slide provides an update on TNET, our digital lifestyle ecosystem.
TNET continues to be the leading online platform in Georgia for auto and real estate classifieds, as well as services such as online ticketing and coupons, with 1.6 million monthly users and greater than 50% market share in all these segments. We plan to further strengthen our dominant position in these areas while adding complementary services. In response to changes in the competitive dynamics within the e-commerce landscape, we have decided to focus on a model led by our market-leading C2C marketplace, with third parties providing all the core services, including merchandise, distribution, and logistics. By integrating TBC's financial expertise, we aim to embed the best-in-class payments and credit products within TNET, driving profitable growth in this business.
As a result, we have determined the growth in TNET GMV to GEL 500 million is no longer a core strategic financial target for the group, and we will discontinue providing specific guidance on this point. I'd like to reiterate that it does not have any impact on our remaining 2025 strategic targets, all of which we are fully confident of meeting. Now, moving to our Uzbekistan business, the Uzbekistan economy also remains strong, with real GDP growth of 6.6% for the first nine months of this year. We expect CPI inflation to fall below 10% next year, which would be supportive for the local currency and further boost economic stability. This slide 13 outlines the key elements of our digital ecosystem in Uzbekistan. We remain on track with scaling up our business in Uzbekistan and rolling out a new product and services.
I'm delighted to say that at the start of November, we launched Salom Card for TBC users, our new flagship daily banking product. We believe it will set a benchmark for daily banking services in the country, offering a range of benefits previously unavailable on the market and an easy-to-use, fully digital interface through the TBC mobile application. We are also in the process of rolling out credit cards and transactional MSME banking, both of which will be fully launched by the end of this year. I'm also excited to announce our long-term strategic partnerships with Visa and Mastercard, which will further enhance the quality of the products and services we can provide to our customers. On this slide 14, you can see how our Uzbek business continues to perform exceptionally well. We now have nearly 17 million unique registered users, with almost 5 million monthly active users.
Our loan book has doubled year-on-year to $460 million, while our deposits to date are $340 million. Importantly, both our revenues and profitability show very strong momentum, with net profit of $12 million and total operating income of $41 million in the third quarter of this year, both more than doubling year-on-year. And finally, on this slide 15, it shows the growing contribution of Uzbekistan to the group's overall performance. Uzbekistan already accounts for 44% of total unsecured loans, 10% of the group's retail deposit portfolio, 17% of the total operating income, and 8% of the net profits for the first nine months of this year. And we are also continuing to gain market share, with almost 15% of the macro loan market in September. And with that, now I'd like to hand over to Giorgi.
Thank you, Vakhtang, and thank you all for joining us today. Now, I'm going to take you through our third quarter and nine months results, and I'll start with slide 17. I'm very pleased to report that we had a very strong third quarter. Our net profit reached GEL 350 million, corresponding to a very healthy 16% year-on-year growth. This performance translated into a strong ROE of 26.6%, highlighting our consistent profitability. Now, I will move to slide 16. Let's take a look at the main drivers of our profitability. Total operating income grew up by a very nice 23% year-on-year, reaching GEL 754 million. Revenue growth was good across the board. Net interest income was up by 15% year-on-year, despite the margin pressure, while we also posted a 39% year-on-year increase in net fee and commission, driven by the strong performance of our payments business.
Next, I'll move to slide 19, where I would like to discuss our margins. I'm pleased to say that we are now more or less at the bottom of the NIM compression of the past few quarters, with Group NIM essentially flat at 6.4%. Georgian NIM was also stable at 5.6%, while Uzbek NIM is up to 25%. Now, turning to slide 20, that's our cost. And as you know, we do remain committed to controlling cost growth while supporting the sustainable growth of our businesses in both countries. Our OpEx is up by 29% compared to last year, due to our continuing scaling up our businesses, particularly in Uzbekistan, which is actually more than 40% of this increase. However, Georgian cost growth was actually around 15% year-on-year. As a result, our cost-to-income ratio stood at 37.2% for Q3, with the Georgian cost-to-income in low 30s%.
Now, let's have a look at slide 21. As you can see, our credit quality remains very solid. NPLs were stable at 2.1%, and our cost of risk remains low at 80 basis points. That actually reflects the very strong quality of our loan book. Georgia's cost of risk was 50 basis points, while in Uzbekistan, it stands at 5.7%. And also, if you look at slide 22, you will see that our balance sheet continues to actually expand at a very decent rate. Gross loans are up by 20% year-on-year on a constant currency basis, and total customer funding grew by 90% over the same period on the same basis. Now, let's move to slide 23 and have a look at our very solid capital positions across the group.
We remain very well capitalized in both countries, as you can see, with capital ratios comfortably above the minimum regulatory requirement. Not much to add here, a very nice place to be. Now, slide 24, where I would like to spotlight the super performance of our Uzbek business. In this third quarter, we generated $41 million in total operating income and $12 million in net profit, both more than doubling year-on-year, while ROE stood up at a very nice 28% plus. As mentioned previously, we saw another quarter of NIM actually going up, helped by higher loan yields, while our cost of risk was 5.7%, despite doubling our loan book year-on-year. As for nine months, total operating income surpassed $100 million, while net profit was $27 million, contributing to a very nice 13% and 8% of the group totals, respectively.
And finally, on slide 25, I would like to reiterate our commitment to achieving our strategic targets for 2025. And now, thanks for your support, and we are now ready to take any questions you may have.
Thanks very much, Giorgi. Okay, we can open the line to questions, please.
Thank you. If you would like to ask a question, please press the raise hand icon on your screen if you've joined the call via Zoom. If you've joined us on the phone, please press star one on your telephone keypad now. When preparing to ask your question, please ensure that your line is unmuted locally. Alternatively, you can use the Q&A chat box to submit a question.
Okay, thank you. First question is from Robert Sage from Peel Hunt. Robert, please go ahead. Your line should be open.
Yes, thank you, Andrew. Can you hear me okay?
Yes, loud and clear.
I've got two questions, if I may. The first one concerns lending growth, where you've clearly done some extremely strong numbers for the 12 months up to the end of September. There seemed to be a little bit of a down in Q3, and I was just wondering whether you could comment on that. But what I'm really sort of more interested in is that sort of having seen the outcome of the Georgian elections, looking at the very strong macro outlook with GDP running sort of above 9% in real terms. Now, what do you feel is a sort of a reasonable outlook in terms of lending growth, perhaps for 4Q, but also moving into 2025? And I guess that's more directed towards the Georgian business than the Uzbek business. The second question, if I may, is specifically with respect to Uzbekistan, where clearly you've had an exceptional performance.
You yourself sort of draw attention to the fact that a lot of the group cost growth actually sort of stems from the investments that you're actually making in Uzbekistan. I can see the Uzbek cost basis going up sort of GEL 7 million-GEL 8 million per quarter, obviously revenue growing by more than that, and you've now come below 50% cost income ratio. I was wondering whether we should expect to see a sort of a stabilization in that cost trend moving into 2025, or whether we should expect to see cost growth running at sort of broadly the same type of rate.
Okay, thank you. I'll take both questions. As you rightly mentioned, the lending growth was very strong. It's driven by exceptional performance of Georgian macro, and as Vakhtang mentioned, we see no changes. So macro is performing really well. Everything going well. Therefore, we do expect also strong growth in Q4. It's difficult to say, but year-on-year basis will be probably like very low 15%, if not closer to 20%. Therefore, we should expect again continuation of very strong growth. And for next year, probably we should also have quite strong growth. Again, I would say around 15% or 15% +. That's what we expect, given our strong macro, let's say, situation. So Georgia is not a stale business. It's growing still very, very strongly, just to highlight this point. And moving into Uzbekistan, Uzbekistan's cost growth is high, so the revenue grows as well.
Vakhtang mentioned we launched Salom Card. We are launching MSME. We are launching credit cards. There are the new product pipelines. We are scaling up businesses. We're hiring more people for telesales for sales. Therefore, the cost growth will continue because we have very ambitious plans in 2025. We are going to surpass one billion loan, let's say, target that we set on the market. We have no doubt about this. However, that also requires some more projects, more scaling up, and cost will go up. However, the main point is that that is money well spent. The income will go at a much faster rate, as you will see. Again, we are going to achieve our GEL 200 million profitability target. Our cost-to-income ratio will go down. However, at the moment, cost-to-income ratio is not our key focus. Our key focus is scaling up business, profitability, and ROE.
So on stabilization, probably I can't promise in 2025, but I can promise very high profitability and growth into Uzbekistan.
Thank you very much.
Thank you, Robert. Next up, we have a question from Rahim at Investec. Rahim, please go ahead. Rahim, are you there, or have you dropped off? I think you need to unmute.
Yeah, I've got that. Yeah, apologies. So good afternoon, and thanks for taking my questions too, if I may. Just first, with respect to cost of risk, Giorgi, you talked a little bit about the growth in Uzbekistan. I was wondering if you could perhaps help us think about how the cost of risk both in the Uzbek operations evolves, given the new products in the fourth quarter and into 2025, and possibly also at the group level as well. And then secondly, I see very strong cost control, I think, in the Georgian business, given the rates of growth that's been delivered there. What should we kind of pencil in for 2025 in terms of cost-to-income ratios in Georgia? If you can give us any indication, that would be super helpful. Thank you.
Thank you. I'll start with Georgia to cover both points. First of all, cost of risk. We are again guiding the market on the normalized cost of risk through the cycle 1%. We haven't been there for the last few quarters. Probably next few quarters, we expect to be lower than that. But again, to maintain impact on profits in the medium term, that's the right level, but probably we expect to be lower than that basically for the next quarters. That's probably our expectation. On the cost side, yes, in Georgia, it's very much under control. However, Georgian business is also growing, growing significantly. And as I mentioned, it was 15% cost growth, but it's kind of lower than our kind of, let's say, revenue growth. Next year, to stabilize even more, probably we still have double- digit, but lower than this year, lower kind of 15%.
So you can kind of infer somewhere in between will be the right place to think of. And on Uzbekistan cost of risk, we have been below 6% for the last two or three quarters, but probably that is not sustainable. First of all, I would like to highlight we have 25% NIM. So it's a very highly profitable business, but it's also an unsecured consumer loan business. Therefore, as you gauge the market, probably somewhere between 7%-8% is a kind of more normalized level cost of risk for Uzbekistan. We can think in these terms for 2025. And also one thing I would like to mention is that generally, it's a small business. We have some statistical data, but from time to time, we review the statistical data, our kind of credit risk as inputs, and we do actually, let's say, recalibrate it.
This may happen in Q4 that we expect, so we don't know outcome. We may expect some slight pick-up of the cost of risk in Uzbekistan in Q4 because of the inputs update. Also, business is growing significantly. We have significant growth into the business that also, as you know, if I referred initially, it may kind of have a bit higher cost of risk. And we do explore other different segments. For example, we do different pilots to find very profitable, let's say, segments. So for us, key point is not cost of risk, but the risk-adjusted NIM. That is very high. Having said that, so to summarize, probably some up-tick in Q4 is real kind of will happen, but generally, on our full year guidance, we'll be around 7% level. We don't expect that next year, somewhere 7%-8%. That's kind of what we expect.
However, if you see the opportunity for the better lending with a bit higher cost of risk, we are also happy to do so.
In addition, as Giorgi said, yeah, on the Uzbek operation, the cost of risk, we are looking in Uzbekistan separately. It's part of the business, and we are looking at profitability of our Uzbek operations. And as we presented today, we generated 28%, and we have ambitions next year even to grow up our profitability. So this is a part of the business, and it could be worth 6%-8%, even go up or go down, but we are looking. So the business is growing up, cost of risk goes down or goes up or goes down, but profitability for us is key important every year, every quarter to show that the profitability of the business is growing up, return on equity is growing up.
That's extremely helpful, and congratulations on the record performance.
Thanks very much, Rahim. Can Demir, you're next up. Please unmute yourself.
Yes, thank you very much, Andrew, and thank you for the presentation. Vakhtang, I think you talked about new BNPL products in Uzbekistan, and I guess one of them is an e-commerce BNPL product. May I ask which e-commerce platform the product will be plugged into? That's the first question. On the trading income, I remember you talking about the bank would probably retain two-thirds of the 2023 numbers going forward because 2023 was a high base. So far, trading income has evolved much more positively than that guidance. I was wondering what would be a good run rate for trading income going forward and whether there is a change in terms of how you think about trading income for the medium term.
The third question, if I may, is we talked a bit about the capital ratios, but I was wondering if there is any cash at the group level that's not incorporated in the Georgian banks or Uzbek banks' capital ratios. So that's the third question. Thank you very much.
Yeah, thank you, Can, for these questions. I will take the 1st one, and the 2nd and the 3rd will be answered by Giorgi. So in our presentation, I mentioned for Uzbekistan, we are bringing in November, we launched already the daily banking product. This is a new type of the product, but as a new product, we are bringing as a credit new type of the loan is a credit card, not a BNPL, but credit card, which we just for the friends and family, we are bringing in December, and more massive launch of this product will be probably the first quarter of 2025. This is a new type of the product will be not only for by TBC Uzbekistan, but it will be a new type of the product for the Uzbek reality for the countries.
And we think that it will be very important for us and also for the market. Could you answer this second question?
I just want to comment on the Payme, the small one, Can, because that will be like a Payme product that will be 10-day and will be launched like somewhere next year. But now if I go to trading income, so FX was like it was 22% that actually guided, not 23%. 23% significantly increased. We also have increased this year. And another point is that we are kind of over-delivering as usual and in many areas. What we are seeing is this Q3 was strong because we saw some FX volatility. However, we do consider it our new normal, and the next year we do expect FX income to grow faster, like maybe actually double- digits. That will be our expectation and our target and ambition. Therefore, it's nothing one-off. It's nothing unusual. It's business as usual.
We are kind of beefing up our trading business, our FX, and you should expect some nice growth there as well. So that's on the FX side. And on capital ratios, yes, both are strong. We don't have like massive significant cash at hold level, but we do have some because in case of unforeseen circumstances or in case some things, we do maintain a certain level of cash there.
Super. Thank you very much.
Thanks, Can. Next up, we have a question from Lisa Hackman. Lisa, please go ahead. Your line should be open. Thank you.
Thank you. My question is actually just what you think the Trump win in the elections today might mean for your business going forward. You've obviously had very strong growth in both Uzbekistan and probably Georgia because of a very weak Ukraine, people fleeing Ukraine for your countries. What do you think Trump's election today might mean for the outlook going forward?
Yeah, thank you, Lisa, for this question. So you know that the U.S. is the strategic partner to Georgia, and we believe that this strategic partnership will be continued. So this is the extra upside to Georgia's stability and more and more partnership will be continued.
Any impact for the Uzbekistan business? Do you see any impact there?
I think the business will be continued on the same level as it is in the basic scenario.
Okay. All right. Thank you.
Thanks, Lisa. We have a question from Dmitry Ivanov. Dmitry, please go ahead. Your line should be open.
Thank you. Thank you, Andrew. Can you hear me?
Yes. Yeah. All good.
Yes. Thank you again for the presentation. I have three quick questions, if I may. Maybe the first one on FX composition of loans and deposits. You have this nice slide. I think it's number 60, showing composition of GEL versus USD, Euro when it comes to gross loans and deposits. Maybe could you comment on your expectation when it comes to the 2025? How do you see this mix evolving, maybe more like GEL funding and more loans in GEL? Basically, that would be helpful to understand your view on managing FX loans and deposits exposure. This is my first question. The second question may be related to Uzbekistan. I apologize again. There are so many questions, but maybe if you could comment on the funding strategy of Uzbekistan operations. Basically, the growth is quite impressive.
How much do you expect equity injections into this business from the parent level next year? Or maybe you would try just to do something from the capital markets. Just curious how you see funding of this growth? And the last question, probably also you have this nice slide, number 62, saying that IFI funding is around 7% of the total liabilities. If you could unpack this 7% of total liabilities, are there material maturities in the next, let's say, 12 months when it comes to IFI loans? And you need just to refinance this IFI funding. So that's my three questions. Thank you.
Thank you very much. Looks like all questions is for me, so I'll start forward going step by step, so FX composition. The first thing I would like to mention is that our FX composition improved significantly. It was before times, but there was a time when FX was 70% of the group. We are kind of about half and half. This is a very nice journey. This continues. This is supported by our regulatory measures, by our different internal standards. We do expect it to continue actually. And what I want to mention, it won't be a sprint. It's a marathon. It will be a slow process, maybe a few percentage points each year, but we do expect it next year to kind of improve. One thing also I want to mention is that we can't expect this to be zero because Georgia is a kind of open country.
We have a lot of exports, imports. Therefore, somewhere we would consider 35% is a natural level of, let's say, dollarization, and we are not that far. And from credit risk perspective, I also would like to highlight this doesn't create any material additional credit risk because of our underwriting standards, regulatory measures. I won't go into, let's say, details, but ultimately, there's not much difference between Lari and FX books for credit risk perspective. So that's on this side. If you go now to the Uzbekistan funding, first of all, I would like to mention that Uzbekistan, we already have more than 3% of the retail funding share. So customers trust us. They bring their money with us. So we do expect the, let's say, deposits to grow. That's the first point. Again, we are going to reach $1 billion loan book and surpass it.
Therefore, probably we would need some additional funding, and we are well on the track. We have a very solid and structured pipeline how we approach it. First thing you mentioned on the sort of question onto, let's say, DFIs and IFIs. We are working with almost kind of every DFI and IFI in Georgia, and we are leveraging this actually that kind of relationship in Uzbekistan as well. We already have quite a few direct lending from IFIs that continues. We have quite a few in pipeline. Therefore, it's a very good source of funding. IFIs already like our business, trust us. Second is generally second pipeline is that we are already working on the local private placement bonds. That will be issued maybe this year, and that is also a nice way to continue funding, and third way, you have capital markets. Let's say we don't exclude anything.
We think Uzbekistan business generally is very well positioned. It actually depends on the scale. We think it's a very good business to go for it. Once we get the scale, and it may be even next year or maybe early 2026, we will see but you probably should expect Uzbekistan to appear on capital market at some point, not in a very distant future so it's, I would say, a very robust sort of funding pipeline. We don't expect any issues from the side and we are again on track to deliver our $1+ billion portfolio at the end of next year so now, if we go to IFI, probably we have some maturing lines. We get new so we generally get hundreds of millions lines per year from our IFIs. We have pipelines, and we don't have anything that's material.
Probably you have seen our, let's say, press releases. We signed $150 million just a few months ago with one of our largest IFIs. We have few in pipeline. Therefore, from funding perspective, Georgia business is very, very strong. So nothing big here.
That is very clear. And thank you for the answers. And congratulations on the results.
Thank you.
Thanks, Dmitry. Next up, we have a question from Ronak Gadhia. Ronak, please go ahead. Your line should be open.
Vakhtang and Giorgi. Thanks for the presentation and congratulations on the very good results. Just two questions from my side. Firstly, when I look at the Georgian business, it seems like the aggregate NPL cover has dropped quite significantly from the first quarter of last year. By my estimate, it's dropped from around the 90% level to around 65%. So if you could just talk to us in terms of why that decline and if you think that level of NPL cover is adequate or maybe you need to beef up the provisions, and the second question is on maybe dividend policy. I guess your medium-term dividend policy is quite clear, 30%-50%.
But given the improvement in capital ratios in Uzbekistan and given that the Georgia capital ratio is also quite robust, is there scope to increase the payout ratio for this year compared to what it was last year? Thank you.
Okay. Thanks, Ronak. First of all, I start with NPL ratio in Georgia. Nothing to worry here, to start with. It's just portfolio structure and composition. If you look by, I would say, product by product basis, nothing has changed. It's just product composition. So at the moment, it's secured versus, let's say, FCL loans, nothing else. And we are very comfortable with this ratio. So no need of kind of, you should not expect any provision pickup. So that's the first point. On dividend policy, I think we are already at a higher end of our dividend payout ratio, 35%. It's kind of, and there is no reason why we should not remain there, given we did that last year. And we always go into our capital position, what is the best use of capital, and how useful.
For example, we declared GEL 50 million dividend in May, so like this year. And what I can say, I can't comment more, but what will ensure that all our surplus capital, if we have any, is efficiently used.
Yeah. To what is being said, we are discussing any options internally.
Understood. Thank you. Just one more question from my side. When I look at the asset allocation during the third quarter, it seems there was a pretty significant increase in cash holdings and a corresponding decrease in investment securities. Is this just a temporary situation that will reverse through the rest of the year and into next year, or what's going on there?
It's nothing. It's just the treasury management. So nothing is going here. At the moment, we thought it's more profitable to hold cash going to what's going on, the elections in the U.S., etc. But what I can assure you, our treasury manages liquidity in the best and profitable way.
Understood. Thank you once again, and congrats.
Thank you.
Thank you.
Thanks very much, Ronak. I don't think we have any further questions for the moment. Maxine, do we have anything on the phone lines?
We have no further questions.
Okay. Yeah, it looks like we're done with the questions. So I guess it just remains to say thank you, everybody, for tuning in for our third quarter presentation. And please keep in touch. We're always around to answer any questions. And yeah, we look forward to seeing you again in February for the full year numbers. So thanks very much for joining. Thank you. Have a good day.
Thank you.
Bye-bye.
Thank you.
Thank you, everyone. This concludes today's webinar. You may now disconnect from the call.