Dear ladies and gentlemen, thank you for joining our first quarter 2022 financial results conference call. I am Anna Romelashvili, Head of Investor Relations at TBC Bank. The presenters today are Vakhtang Butskhrikidze, CEO of the group, and Giorgi Megrelishvili, CFO. We will start today's call with a short presentation and provide an update about our financial and business performance. We will also briefly discuss the recent macroeconomic developments in the country. After the presentation, you'll have an opportunity to ask questions. Now, I would like to hand over to Vakhtang.
Thank you, Anna. Dear all, thank you for joining our call. I'd like to start today's presentation with the good news for our shareholders. The board has recommended payment of a final dividend for 2021 of 2.16 GEL per share at the upcoming AGM. This, together with the interim dividend paid in September 2021, will equal a total dividend of 3.66 GEL per share. The dividend payout ratio for 2021 will be 25%, in line with our medium-term guidance of 25%-35%. Now, turning to our first quarter results, I'd like to highlight our key achievements during the quarter. We continue to be the market leader in Georgia with strong profitability and strong growth supported by solid capital. We also continue to rapidly grow our business in Uzbekistan.
In the first quarter, the group generated a return on equity of 24.3%, while our CET1 ratio increased to 14.6%. At the same time, our loan grew by 21% and the portfolio increased by 14%. In Uzbekistan, we continue to deliver outstanding results and our retail loan book reached GEL 160 million, while retail deposits amounted to GEL 190 million by the end of April. At the same time, our registered users reached 0.6 million. I'm also delighted to report that on the group's level, the number of digital daily active users almost reached 1 million in March, while the number of monthly active users stood at 2.8 million for the same period. Now, I'd like to review recent macro developments briefly on the slide number four.
In the first quarter, the Georgian economy maintained strong growth despite the adverse impact of the war in Ukraine. Real GDP growth reached 14.4% for the first quarter. Going forward, we expect the economy to grow by 5.5% in 2022, and the negative spillover from the war appears to be more limited than initially anticipated. Also on the positive side, the lari regained its value quarter on quarter after the short-term volatility and remains stable. The next slide shows the growth drivers in March mostly remained at strong levels. Tourist recovery strengthened in March supported by the migration effect and stood at around 70% of the 2020 levels. At the same time, remittances have slowed but still maintain the positive growth rate of 2.6%.
Remittances from Russia decreased by 16% year-on-year, while inflows from other countries increased by 6.5% over the same period. The outlook for lari is also broadly neutral. Slide shows the major drivers underlying our GDP forecast for 2022. In our baseline scenario, we expect the Georgian economy to grow by around 5.5% this year on the back of the tourism recovery and resilient exports compared to 7.5% GDP growth without the war impact. Bank credit is also expected to be supported, growing around 16% year-on-year in constant currency rate terms. Now, let's move to Slide eight. In this section, I'd like to reiterate the group's positioning and highlight our fast growth potential. First of all, we are the market leader in Georgia with diversified business across all market segments.
Second, we consistently deliver robust profitability and steady growth by strong capital. Third, we stand out with an omnichannel distribution and best-in-class digital customer proposition. In addition, we have a growing payment business in Georgia and Uzbekistan. Finally, our Uzbekistan operations give us a strategic advantage to deliver long-term growth and profitability. In line with our strong market position and growth strategy, we continue to increase the number of our customers every year, and at the end of the first quarter, we had 3.6 million active users. Moving on to slide nine, we show our leading position in Georgia. As you can see from this slide, we hold leading positions across all segments with steady growth levels. These leading positions indicate the resilience and diversity of our business model and allow us to extract significant cross-segment synergies and efficiencies.
On the next slide, I'd like to summarize our key financial results for first quarter, including strong profitability and a solid capital position. As I already mentioned, we delivered 24.3% return on equity, while return on assets stood at 3.7%. Net interest margin improved by 0.9 percentage point year-on-year and reached 5.6%. In addition, our cost-to-income ratio stood at 36.6%, down by 2.7 percentage point year-on-year. At the same time, our CET1 ratio increased to 14.6%. It is important to stress that this is above the minimum required level by 1.4, 2.4 percentage points. Let's move to the slide 11, which illustrates the solid growth in our Georgian payment biz. This quarter was successful for our payment business in Georgia as well.
As you see on this slide, we have solid increase in both transaction number and volume, which significantly contributed to the fee and commission income in the first quarter. It is important to highlight that our payment business is a significant contributor to our fee and commission income, accounting for around 30% of the total. On the slide 12, you can see our digitalization metrics both in Georgia and on the group's level. We have strong progress in expanding our digital footprint on the group's level. We have up to 1 million active digital users every day and 2.8 million active digital users every month. What is most important, our transaction offloading continues to be high at 99%. In consumer lending, we issue 62% of loans digitally.
Now, I'd like to update you about our continued progress in Uzbek bank operations in more details, starting on slide 13. By the end of April, the number of downloads of our TBC UZ application reached 2.1 million, while the number of registered users was 1.6 million. At the same time, we reached GEL 193 million in deposits and GEL 160 million in loans. Finally, on slide 14, I'd like to highlight the strong performance of our payment subsidiary, Payme, which is the second-largest payment provider in Uzbekistan. In the first quarter, Payme continued its rapid growth in all major metrics. The number of active users continued to grow, reaching 1.8 million at the end of March, while the number of active merchants also increased to around 3,000.
In terms of financial results, the revenue reached GEL 9.5 million, while the net profit almost doubled and reached GEL 5.8 million. Now, I'd like to hand over to Giorgi.
Thank you, Vakhtang. Now, I'll go over the financial performance of the first quarter in more details. I will start with slide 16 that shows another very strong financial performance for Q1 2022. Our net profit is up by 46%, but more importantly, it's up by 13% quarter-over-quarter basis, driven by strong income generation across the board, while our book quality remains strong, translating into a cost of risk 30 basis points. As a result, ROE stood at solid 24.3%, as Vakhtang already mentioned, for the first quarter, while our ROA was 3.7%. Now turning to slide 17, it shows our growing and diversified revenue streams. Our NIM continued a positive trend in Q1 and was 5.6%, up by 20 basis points quarter-over-quarter basis and by 90 basis points year-on-year.
The strong growth in NIM was mainly driven by growth in loan yields, accompanied by loan composition change as well as the liability management. We also recorded robust growth of 44% in non-interest income year-on-year, which was driven by a strong increase in net fee and commission income, and significant growth in FX gains due to increased volume and margins. Quarter-on-quarter, our non-interest income increased by 10% on the back of the higher FX gains. Now, let's move to slide 18. It shows our high efficiency levels. As you can see from the left-hand chart, in Q1, our total OpEx grew by 24% year-over-year or around GEL 29 million. Staff-cost growth was mainly due to the growth of business both locally and in Uzbekistan, while our admin cost increase is mainly driven due to Uzbekistan rollout.
On a quarterly basis, our operating cost actually decreased by 4%, and that's mainly driven by seasonally low or high base in Q4. However, the most important thing is that we continued our positive cost-to-income growth trend, and as a result, our cost-to-income ratio stood at 36.6%, down by 2.7% year-on-year. Now, I'd like to go to slide 19, that shows our strong asset quality. Our NPLs remains unchanged on quarterly basis at 2.4%. However, materially decreased year-on-year from its COVID highs, mainly driven by the resumed repayments of the restructured loans in the retail and MSME segments. Our cost of risk for the quarter consequently was 30 basis points as a result of the strong performance of loan book across all segments.
I also would like to mention here that in Q1, we sold the return of consumer loans portfolio that was around GEL 13 million, and without it, our cost of risk would have stood around 60 basis points. The impact was 30 basis points from this portfolio sale. Slide 20 provides a brief overview of loan and deposit portfolio growth. We maintained our leadership position in total loans by slightly outperforming the market growth of 21% year-on-year on a constant currency basis. At the same time, our deposit portfolio outperformed the market and grew by 13% year-on-year without currency effect. I'd like to highlight that we continue to hold the number one position in Georgia, both in terms of total loans and deposits. Now, let's go to Slide 22 that shows our solid capital positions.
CET1 ratio stood at 14.6% at the end of Q1, 2.4 percentage points above the minimum regulatory requirement. All other tiers were comfortably above all regulatory limits. As Vakhang mentioned, we plan to pay a final dividend for 2021 of 25%. After this payment, our pro forma CET1 ratio would have been 14.12% above our regulatory requirements by 1.8 percentage points, positioning the bank very well for its growth, both locally and in terms of Uzbekistan, and also withstanding any potential headwinds. Now moving to slide 22, where I will conclude my presentation with funding and liquidity summary. As you can see on this slide, we have a very well-balanced funding structure with high customer funding share of 71%. Also, our NSFR and LCR ratios were comfortably above the minimum regulatory limit of 100%.
I also would like to highlight that results applying Georgian banking specifics to LCR, the LCR ratio on Basel basis would have been 28%. Now, I would like to hand back to Vakhtang Butskhrikidze who will update you about our medium-term targets and future outlook. Vakhtang Butskhrikidze?
Now I'd like to reiterate our medium-term guidance and compare our performance in this quarter against these targets. Our loan book grew by 21% against our medium-term target of 10%-15%. Our return on equity was 24.3%, meaningfully above our medium-term target of 20%+. Our cost-to-income ratio was 36%, getting closer to our medium-term target of below 35%. Finally, as already mentioned, we expect our dividend payout ratio to be at 25% for 2021 within our guidance of 25%-35%.
Now I'd like to finish today's presentation by recapping our strategic priorities, which are, maintain robust profitability backed by solid capital, diversify and increase our fee and commission income, continue sustainable growth in Georgia, capture high growth potential for Uzbek market, and continue to deliver efficient growth by leveraging on our advanced digital capabilities. With that, I'd like to invite you to ask the questions.
Thank you, Vakhtang Butskhrikidze. Now I would like to open the floor for the Q&A. Just as a reminder, if you're using a Zoom application, please raise your hand icon function at the bottom of the screen. If you're dialing in from the phone, please press star nine to raise your hand. I will unmute the participant in the chronological order and invite you to ask questions. Please introduce yourself before asking a question. The first question comes from Andrew Keeley. Please ask your question. Can you hear us?
I think it's on mute, so participant needs to unmute to ask the question.
Unmute yourself.
Anna, can you do that?
Well, yes, I gave the permission to talk, but.
Okay.
Okay, maybe we can take another question, meanwhile.
Yes, please. We can get this question in the Q&A box as well, if there's a problem.
The next question comes from Ronak Gadia.
Hi, can you hear me?
Yes.
Yes.
Hi, Ronak.
Great. Thanks. Thanks, Vakhtang and Giorgi, for the presentation. Strong congratulations on the strong performance. I have three questions. Firstly, can you just maybe give some guidance on the loan growth for the rest of the year? On a year-over-year basis, growth was strong, but there was a slight deceleration during the quarter. It'd be interesting to hear what your thoughts are for the rest of the year. Secondly, related to that is your, the outlook for deposit growth. I see what has happened in the balance sheet over the last 12 or so months. Loan growth's been strong. At the same time, you optimized your balance sheet, reduced allocations to cash and investment securities. As a result, now the loans to deposits ratio seems relatively high.
Going forward, you know, are you seeking to grow deposits? If not, you know, how are you going to be funding your loan growth? The third question is on your margin expansion. Could you is it possible to share some thoughts in terms of what component of that margin expansion is being driven by cyclical factors because of the hiking NBG rates, and how much of it is being driven by structural factors? Because of the increasing exposure to lari-denominated loans. Thank you.
Thank you for this question. I will try to answer the first two questions, and the third questions, Giorgi will answer. To answer your question about the loan growth, for this year, for 2022, we are forecasting the growth in the range of 15%-18%, but the growth in the different segments will be probably different. The highest growth we are forecasting in the micro and the SME businesses, and probably the least growth we'll have in the corporate businesses. To answer the second question, about the deposit growth, we forecasted that annual growth for the loans and deposits could be approximately on the same level. The annualized growth for the deposits will be in the range of 15%-18%.
Can you answer this?
Yes. Thanks. Just to also continue on the deposit side, we don't expect any challenge on that side. Also, if you remember, we have a very strong relationships with our IFIs that also provide very strong ties, and we have a huge pipeline there. Therefore, we don't expect any challenges funding our portfolio growth. Now on NII side, if I move there, as you can see it, on year-on-year basis, it's actually increased by remarkable 90 basis points, I would say that. I highlighted these three major drivers. Loan yield effect, that was 25 basis points, and that potentially largely is driven by refinancing rate as well. Going forward, we also should expect USD rates going up. That will be one factor. That's the first point that we expect and that trend to continue.
All things ahead, we also had the increase of the lari funding costs. That was actually more than offset by our liability, let's say, management that we did, particularly deploying our excess funds, that we did on the liquidity side. Also, we optimized the funding structure. As you can see, our customer share increased significantly, and we continue, and we expect that trend to continue. Mainly one of the big drivers, as you probably see on the slide, is the loan composition change. It's twofold. The first is the increase of Larization. Our portfolio, our lari portfolio share increased by 5% year-on-year basis. We expect that trend to continue, maybe not such a pace. It will be a bit more kind of not a sprint, a marathon, as I used to say, as I say on this.
This trend is going to continue supporting our margins. In addition, we are also getting an increasing share slightly on the consumer funding side that has higher margin. It's not a huge shift that will change our portfolio structure or impact our cost of risk materially or things like this, but it supports our margins. Therefore, to summarize our guidance in the medium term for this year, probably next year at least, would be to remain at those levels, like 5.5%, 5.6%. We don't expect any material margin increase going forward on a medium-term basis. I think that covers all the questions.
Thanks for that. Just maybe a quick couple of follow-up questions on the margin side. So you mentioned, you know, going forward, USD rates are going and we're seeing that globally. What's the net impact of that on your margins? Obviously, there will be an increase in funding costs, but do you think you'll be able to offset that by achieving higher lending rates? Then the second question, you know, margins, you know, because of the increased Larization is increasing, but how does the cost of risk on the lari exposure compare to the USD exposure?
Yes. To start with USD, kind of our book is kind of quite a well-balanced and mixed because our big portion on a floating basis, therefore there may be some short term noise, but on a medium and longer term basis, we don't expect material impact from that perspective. Of course, funding costs will tend to increase gradually on USD side, but so that, our kind of, loan yields as well. It was historically low. It was up to 4 or 5%, that by Georgian standards is quite low, so there's a room there. On the kind of lari side, of course the increased refinancing rate increase the payments from customers, but we have a very strong credit underwriting standards. Therefore, when customers were assessed, such a potential was also assessed, so.
We have very strong PTI, and therefore, we don't expect any deterioration in our cost of risk or provisions because of this.
Thanks. Understood. Thank you very much.
Okay.
Thank you, Ronak. The next question comes from Otar Nadaraia, Morgan Stanley.
Hello. Good evening, everyone. Thanks for the presentation. My first question is about your progress in Uzbekistan. We saw that recently OTP Bank has kind of pulled out from their Ipak Yuli transaction, citing increased risks. Do you see any risks in this market? If you could share any medium-term targets in terms of market share or loan portfolio size or transaction volumes, size on the payment side business. Secondly, on a separate note, we saw that recently after the war in Ukraine and sanctions, VTB Bank Georgia (assets acquired by Basisbank and Liberty Bank) was forced to sell their assets and liabilities, which were acquired by some smaller Georgian banks. Were you not interested in acquiring those assets or liabilities, or was there any legal, regulatory or any other type of challenge in there?
Yeah, thank you, Otar, very much for this question. To answer the question about the Uzbek development, we are looking in the first half on the macro of the Uzbek, Uzbekistan macro development and the country is developing smoothly. Our internal forecast for the Uzbek, macro, GDP growth, real GDP growth forecast, our internal, which was minimum 5.5%-6%, approximately on the same levels as we are forecasting for the GEO or as Georgian economy grows. You see, we are a very small player in the banking sector in Uzbekistan. As we have already shown in our presentation, we are doing quite well, and we believe in the market, the Uzbek market.
This market is under-penetrating, and we believe that it's one of the strategic priorities for TBC Group operations. I think the growth will be continued within this year. In Uzbek market, we are the growth in both sides, I mean, on the loan side, on the deposits. We will have a very ambitious plans even within this 2022. To answer your question about the VTB Bank Georgia operations, yes, the decision had to be made in a very short time, and it was also regulatory decision to prefer for a medium-sized banks to make that deal. It was logical decision.
Thank you. Very clear.
Thank you, Otar Nadaraia. At this point, we don't have any more questions. Just as a reminder, if you have any questions, please use Raise Your Hand icon function. Here comes a question from Brad Gvozdetsky.
Hi. The growth in your Uzbekistan bank sort of dipped in Q1 and seems to have started accelerating again in April. I was wondering what caused that?
Yeah, I don't understand the question. Can you-
No, I could not get the question. Can you repeat, Brad, please?
The growth in your Uzbekistan bank slowed markedly in Q1, and I was wondering what the cause of that was?
If you mean the monthly growth, if the March or something like that, because I think the quarterly growth was quite high growth we had there. Can you show the presentation, Anna, and could we go to that slide?
Yes, just a second.
Yeah.
Probably Brad is referring to a drop in deposits in March, right?
Yeah. If you're referring, Brad, to on the deposit side, if you look on the loan side, it was just normal and steady growth. If your question is about the deposits, we have a very high liquidity, and we made a decrease rates on the deposits. As a result, in March, it showed some kind of a decrease, but from April, as you see here, we also show the growth there.
Okay. Thanks, that's helpful. Yeah, that's it from me. Thank you.
Thank you. At this point, we don't have any, you know, any more questions. It seems that we have answered all questions at this point. Thank you again for joining our call. If you have any additional questions, please feel free to contact IR team via phone or email. Thank you.
Thank you very much. Thank you.