Thank you, everybody, for joining our first quarter results call this afternoon. As usual, I'm joined on the call by our CEO, Vakhtang Butskhrikidze, and our CFO, Giorgi Megrelishvili. We'll also be joined today by our Head of International, Oliver Hughes, who will join for the Q&A part of the call. As usual, we'll have a presentation, first of all, and then we'll move to Q&A. With that, I'll hand over to Vakhtang. Thank you.
Thank you, Andrew. Good afternoon, everyone, and thanks for joining our first quarter financial results conference call. I'm happy to start our call with some good news. Our board has approved quarterly dividend distributions to enhance shareholder value through more regular terms. As a result, the board has declared an interim dividend of GEL 1.5 per share for the first quarter of 2025. Moving to our quarterly results, slides board presents some of the key financial and operation highlights from the first quarter of this year. I am pleased to report a strong start of 2025, which is particularly welcome given the uncertain global backdrop. Our net profit reached GEL 319 million, up by 7% year on year. At the same time, the group's return on equity in the first quarter was about 23%, in line with our medium-term guidance.
In Georgia, we maintained a high profitability with an excellent return on equity of 23.3%. Double-digit growth in our loan book was to maintain a solid capital position during the volatile times. Over the same period, Uzbekistan's loans and operating income both more than doubled year on year, and I'm delighted to report that as of April, we have more than 20 million unique registered users there, which is more than half of Uzbekistan's population. In the first quarter, TBC Uzbekistan recorded a non-recurring impairment charge of GEL 24.6 million, related to a market-wide data integrity issue affecting our borrower income verification processes. Without this, Uzbekistan's profit and return on equity would have been GEL 42 million and 26.6%, respectively.
I think it is important to say that we spotted this issue quickly, have adjusted our underwriting and anti-fraud processes, and move on, and we are expecting a stronger second quarter. I also want to highlight that we are very pleased with our robust new digital product pipeline in both geographies, with very strong issuance of TBC cards in Georgia and Salom and Osmon cards in Uzbekistan, as well as the recent launch of MSME lending in Uzbekistan. Now, shifting focus on Georgia, let's examine the broader macroeconomic environment. Georgia's economy remains extremely robust at 9.3% real GDP growth in the first quarter, with inflation at 3.5%, slightly above the target of 3%. International organizations such as the World Bank and Monetary Fund expect economic outlook for this year around 6%, which is broadly in line with our in-house projections provided by our macro team in TBC Capital.
On the next slide, we can see our solid balance sheet growth in Georgia in the first quarter. Our gross loans increased by 13%. In the retail space, we have been re-engineering all aspects of our fast consumer loan offerings, and we have seen a 52% year-on-year increase in the first quarter. Over the same period, our total customer deposits grew by 9%. Next slide shows the growing trend of our digital engagement within our retail customer base in Georgia. As of March, our digital monthly users reached 1.1 million. At the same time, our daily active users to monthly active users ratios to that 47%, up by 3 percentage points year-on-year. I'm also pleased to highlight the ongoing long-term trend of increasing digitalization within our Georgian business.
Our customers are highly engaged with our digital channels, as evidenced by the growing share of fully digitally issued consumer loans and retail deposits, which stood at 79% and 68%, respectively, both continuing to show a strong upward trajectory. Next slide gives an update on our new TBC card launched in the last quarter of the last year. With the help of this new flagship daily banking product, our number of issued debit cards almost tripled year-on-year, and it helped to add 100,000 new debit card holders in our user base in the first quarter. Now, let's move to our Uzbekistan business and its economy. The Uzbek economy also remains very strong, with a real GDP growth of 6.8% in the first quarter, and international organizations forecasting around 6% GDP growth in this year.
Inflation remains elevated at 10.3% as of March, and it will take time to reduce this to the target level of 5%. Next slide shows our performance in Uzbekistan. As I mentioned earlier, we now have 20 million unique registered users, of which more than 6 million are monthly active users, adding an incredible 1.4 million monthly active users year-on-year. Our loan book more than doubled year-on-year, reaching more than $770 million, while our deposit increased by 85%, totaling $440 million. Our operating income grew exceptionally strongly, reaching $57 million in the first quarter, which represents a 118% year-on-year increase. Net profit came in at $8 million, or $15 million adjusted for the one-off charge. Now, let's turn to the new products.
Our Salom card daily banking product and Osmon credit card have both seen strong early success that has exceeded our expectations, with more than 220,000 Salom and up to 50,000 Osmon credit cards issued by the end of the first quarter. We have also recently extended our MSME digital banking offering as we took to develop the huge untapped opportunity within the MSME sector in the country. I'd like to add that at the end of April, the Central Bank of Uzbekistan announced plans to phase in until 2029 regulatory changes that will limit the respective share of microloans, credit cards, and car loans in the bank's credit portfolios to 25% for each segment. We do not see this impacting either our this-year guidance or our long-term growth and profitability plans.
We now have a diversified loan product offering, including our core instant cash loans, credit cards, QOL and BNPL loans, and MSME lending, and we remain excited about the huge growth opportunities ahead in Uzbekistan. The next slide shows how we continue to gain market share. By the end of the first quarter, we held more than 17% market share in unsecured consumer lending, and over the same period, our market share in the retail deposits reached 4%. The next slide shows how TBC Uzbekistan is becoming a more and more material contributor to the group, in particular contributing over 20% of the group's operating income in the first quarter. I'd also like to highlight another important milestone achieved in the first quarter with the creation of the new holdco in Uzbekistan, TBC Digitel, in which TBC Group owns 80% and our IFI partners 20%.
Through this process, we folded our two businesses, TBC UZ and PayMe, into a single shareholding structure, enabling us to more effectively unlock synergies and increase shareholder value in Uzbekistan. With that, I pass the floor over to Giorgi.
Thank you, Vakhtang, and thanks all for joining our call today. Let's now move to the financial results for the first quarter 2025. I'm pleased to report that we delivered another quarter of consistent extra profitability. Our net profit for the first quarter reached GEL 319 million, up by 7% year-on-year, while the, let's say, net profit, if we adjust for the one-off charge, was GEL 330 million, with growth of 14% year-on-year. As you can see, it rose to that strong level over 23%. Even given the stabilization in cost of risk and Georgian NIM, and after the one-off charge, it still remains aligned with our group's mid-term target of maintaining it above 23%. For the same period, the, let's say, underlying ROE would have been 24.2%. Now, let's look at our income streamless performance.
Our total operating income grew by an excellent 25% year-on-year, reaching GEL 774 million, with a very strong growth in both interest and non-interest income. In the first quarter, our net, let's say, net interest income stood at a record high level of GEL 500-600 million, up by 20% year-on-year. Over the same period, our non-interest income reached GEL 240 million, up by 38% year-on-year, including 42% growth in net fee and commission income. That is actually driven by our payment business in both Georgia and TBC Uzbekistan. Now, let's have a look at our margin dynamics. Also, in Georgia, we saw a bit of NIM sliding down, mainly due to the higher GEL funding costs. We successfully maintained a stable NIM of 6.7% during Q1 2025. Going forward, we would target to maintain NIM in Georgia around the current level for the next few quarters.
Now, let's move to the next slide that actually outlines our cost management approach. We are committed to maintaining disciplined cost control, while also we would like to invest in a sustainable growth of our businesses in both countries. Our cost grew by 25% year-on-year in Q1, driven by the continued growth of our businesses. Meanwhile, cost growth in Georgia was only 11% year-on-year, even with newly introduced resolution fund charge of around GEL 4.5 million in Q1. Without this charge, the cost growth in Georgia was 9%. As a result, the group's cost-to-income ratio stood at 37.2% in Q1, flat year-on-year. Georgia's cost-to-income ratio was 31.8%. Now, let's have a look at our credit quality. As already mentioned, in the first quarter, we had a non-recurring impairment charge of GEL 25 million.
This was actually related, as Vakhtang already mentioned, to an issue that had an effect on the number of lenders and banks in the market, and it was driven by the borrower salary verification process. It is important for me to highlight that we spotted the problem quickly, adjusted our credit and anti-fraud processes quickly, put measures in place to ensure that it doesn't repeat. We believe now we have closed the loophole, learned from it, and we can move on. The underlying risk cost in Uzbekistan also slightly ticked up on strong loan growth, which, as you know, would require upfront loading, IFRS, as well as our strategy of testing some riskier but more profitable new segments. As a result, the, let's say, the core without this charge would have been 8%, which is at the higher end of 7%-8% range we broadly expected.
I'd like to highlight that underlying credit quality for both countries remains very healthy. Now, moving to our balance sheet, growth year remains strong. As of March 25, our gross loans grew by 18% year-on-year on a constant currency basis, and total customer funding grew by 12% over the same period on the same basis. Now, let's turn again to our Uzbekistan business. Aside from the one-off charge, it was a great quarter on all other fronts. Adjusted net profit for the business reached GEL 15 million, more than double year-on-year, with ROE 26.6%. This was powered by 118% year-on-year growth in the operating income, with an excellent contribution from NII and fees. Now, let's look at our Uzbekistan financials in more detail. We continue to maintain high margins, with NIM up by around 50 basis points and stands at 24.7% in Q1.
As already mentioned, the asset quality remained healthy, with an adjusted core of 8%, and the NPL stood at 2.1%. Now, let's have a look at our capital position. I'm pleased to say that even post the final dividends, our capital positions remained very solid, and we continue to maintain strong capital buffers comfortably above the regulatory requirements in both countries. Now, finally, I would like to reiterate that we do remain committed to returning capital to our shareholders. We have decided to move to quarterly dividends to provide more timely capital return to our shareholders, confirming the good visibility we have on the business and strong capital discipline. The board has approved a quarterly dividend of GEL 1.5 per share for the first quarter 2025, and we continue to expect to pay out dividends at the top of our guided range for 2025, it means 35%.
Thank you to all of you, and I will hand back to Vakhtang for some final comments before we open for Q&A.
Thank you, Giorgi. To summarize this part of the call, I'd like to revisit our strategy targets, and I'm confident the group is well positioned to build on the solid start of the year to deliver strong results for our shareholders in 2025, and that we remain firmly on a track to achieve all our strategic targets for this year. Many thanks for your attention, and we are happy to answer your questions.
Thank you. Please use the raise hand button or the Q&A box to register a written question if you have joined on Zoom. If you joined us on the telephone line, please press star followed by one on your telephone keypad.
Okay, thanks very much. Our first question comes from Stephen Payne of Peel Hunt. Stephen, please go ahead.
Thank you very much for the presentation. Three questions if I may. First one with regard to the non-recurring impairment charge in Uzbekistan. Could you just give us a little bit more color around exactly sort of what did happen there, just to help sort of reassure investors that this is an isolated incident and it's sort of completely closed out?
Yes, hello everybody. I think I'll take this one. You can hear me okay? Yeah, good. Just to give you a bit more color, and then if you want me to take you in different directions so we can drill down then, please feel free to do so. The high-level description of the situation. Firstly, this is a one-off, so we discovered it quickly. As soon as we understood exactly what was happening, we closed it quickly. This happened in, it was localized to January and February. It was actually localized more or less to three regions in Uzbekistan. We have a good handle on exactly what happened, and we've implemented measures. I can give you some color on those measures to make sure this does not happen again. This is something which is now done and dusted and provisioned.
Just to give you a few high-level numbers so you can get a better feel for what it was. We've discovered around $11.4 million of fraud. Some of that is in a question mark zone. It could or could not be fraud, and that will develop over time, but we've taken a conservative number. We think it is $11.4 million. It was just shy of 5,000 customers. To put this in context straight away, that is around 1.3% of our total gross loan book. It is a number, but it is small. Every day, we disburse 9,000-10,000 cash loans. The total number was less than 5,000, so it is less than half a day's disbursement. It is a number, but it is very manageable and not material to our yearly figures in any way.
$11.4 million of what we believe to be fraudulent loans, it's now down to $10.4 million. We've already recovered $1 million, so around 9%, and we're recovering every day. These customers are contactable because most of them are legitimate customers, and I'll explain exactly how this scheme works in a second. We provisioned 80%. As I said, we've recovered 10%. We think we can recover more. If we need to provision a little bit more, then obviously we'll do that. We took the hit in quarter one for the 80%. What exactly was this fraud scheme? All banks in Uzbekistan use the tax registry database in order to verify income. We have different categories of customers. We have customers whose income we can verify.
We have customers' income we can't verify because it's not in the tax database, and that's actually quite a large part of the population of Uzbekistan. We can find them in the credit bureau. We can use transaction data. We have lots of different data sources. One of the important ones is obviously the tax registry. There's a fraudulent ring, so it's professional fraudsters on an industrial level who went around Uzbekistan, focused in three regions, but it wasn't localized entirely to those three regions, and basically recruited people on the street or in companies, cultivated them over quite a long period of time, and by, through a variety of means, compromised the data in the tax registry for these people. There's a few ways that this happened. It's a bit of a hygiene, unfortunately, which is what made this one of the rather difficult to detect earlier on.
I'll just describe a few. These individuals received fictitious salaries, which were loaded to the tax database, but the companies were not real companies. Non-operating, so they're real companies, but these people were not employees, so these are fictitious employees. Non-operational companies that still have the ability to upload data to the tax registry. Legitimate companies where people actually worked, but a person on the inside was colluding with the fraudsters to upload fraudulent information to the tax database. In some cases, for example, a chief accountant's account was hacked, and fraudulent information was uploaded to the tax registry that way. Legitimate employees of legitimate companies whose income data was inflated. As you can see, a variety of different ways done over a long period of time.
It may sound strange, this particular scheme, because you would imagine that this would trigger a tax liability in the tax registry. This is actually a legitimate tool or feature that legitimate companies use because things change. Sometimes mistakes are being made in reporting, so there is a feature which allows companies to go into the tax registry and change income data for their employees. It was this loophole that was exploited by the fraudsters, as I say, often with people on the inside in some of the employers. It was not just a case of there has been a change to a tax record, therefore it is a bad customer because the overwhelming use case is legitimate. I was saying that this sounds a little bit strange because it creates a tax liability, that the actual change does not create a new tax burden.
In these cases, the fraudsters will then go back and change the information in the tax registry after the event. We discovered this not when we saw a spike in our first payment default, but earlier. We have some offline locations, actually quite a few of them, over 200. We saw some unusual people coming to these, we call them customer acquisition points. They are often in retail centers or busy areas. This signal went up to the fraud investigation team who started investigating and started discovering these patterns, and we started implementing measures to make sure that this did not occur. As soon as we understood the pattern. What are the measures that we have implemented to make sure this does not occur? As I say, just to reiterate, we have understood the pattern.
We isolated this within our portfolio to understand the quantum. It's now done and dusted. It's closed. To make sure that this doesn't happen in the future, and also even if it morphs, because obviously fraudsters adapt to make sure it doesn't happen in the future, I'm going to explain what we've done. We've implemented a bunch of rules to make sure that when we're using tax agency data, we can identify fraudulent information that's been uploaded to the bureau, and we look at reasoning to make sure that that gets a higher weight in the fraud scoring. We're implementing a new anti-fraud in-house service, which looks at employer velocity. It looks at behavioral patterns and analysis of employers themselves. Basically, it's employer scoring. Within the income fraud portfolio, we've identified some demographics and some regions which are higher risk.
As I mentioned a couple of times, this was mainly concentrated in three regions. They get special treatment in terms of fraud monitoring and scoring. We're just about to implement cross-checks with a pension database. We have stepped up our verification. We had a minimal manual verification process, but now as soon as some trigger or some threshold is reached, we'll be routing that to manual verification. We believe that this will make sure that we never have a repeat of this kind of fraud in the future, industrial-level fraud. Maybe I should also say on the collection side that we're working hard on collecting as much of this as possible. A lot of these, because they were legitimate customers who worked in collusion with the fraudsters, took a cut from the loan that they received.
These were customers who had verifiable income, but as it turns out, income that had been tampered with or fraudulently uploaded, but they did not have a credit bureau history. We are working with these people. We have launched mass litigation. We have launched special collections processes, and we are still collecting, as you can see from the recovery rates of around 10% and growing. We will continue to work very hard on that front to make sure we recover as much as possible. Andrew, Giorgi, I am not sure if you wanted to add anything to that, but that is basically a fairly detailed description of the situation.
You covered it fully, Oliver.
Stephen, do you have any follow-ups or other questions?
Yeah, thank you very much for a very detailed explanation. Okay, I think that gives us a lot more clarity. I mean, maybe the second question, maybe I should just touch on the, again, in Uzbekistan, the regulatory change that we've seen come through from the Central Bank, which I know sort of Moody's actually welcomed in terms of limiting the micro loans for individuals to 25% of the total loan portfolio. Just trying to understand what sort of proportion of the portfolio they account for currently and how you see that sort of panning out through to the dates in 2029.
Sure. This is something which has been on the agenda, the discussion agenda for a few months. The central bank has been talking to the banking sector, including themselves, obviously, as a leading consumer lender. The reason why they've done this is, firstly, to rebalance, as I say, the national loan book, and they want to put a lot more emphasis on the growth of MSME. They would like to see, over time, banks putting effort into growing SME lending. The second reason is there's absolutely no signs of distress in the national loan book or in our loan book. There's no cycle in Uzbekistan. It's still a very low level of credit to GDP, so it's around 12%-13%. Micro loans is an even smaller share of that, obviously, so it's 3%-4%.
They want to make sure that nothing gets out of shape in terms of the national loan book. There are no distortions in the market, no overheating and overstension of credit. They want to slow it down over time and gradual change, hence the long adaptation period to make sure that there is no bubble created and problems down the road. Those are two reasons why they have been discussing why they made this change. As Vakhtang said, it applies to micro loans, which is unsecured personal loans. That is what they call it in Uzbekistan, to credit cards. Auto loans have already been capped at 25% for a couple of years now. The cap is introduced from 1st January , 2029 at 25%. Right now, we are obviously mainly, well, used to be called the monoline.
On the asset side, 90% or so of our loan book is micro loans. We have a very well-communicated product development roadmap. We were obviously medium-term planning to diversify our loan book and launch new products, which we have been doing, as you know, very actively recently. We launched credit cards in the autumn of last year, and that is growing nicely. We were due to launch MSME loans a little bit later this year, but we accelerated this in the light of our conversations with the regulator and knowing what was probably coming down the tubes, which has now been published. If you think about our business, we will still be growing our consumer loans, micro loans, up quite a trot, but that will be growing over time at a lower rate than other products that will be launching in our product development roadmap.
Credit cards, which are capped separately, so they don't come with the micro loan cap. They've got their own separate cap of 25% in the portfolio. That will be a large part of our business going forward. Point-of-sale loans or installment lending, that is not capped, and that doesn't come with the credit card or the micro loan cap. That is already 10% of our business if you look at a group level, and that will continue to grow. We have big plans for that, as we've talked to investors about many times. SME will be a material part of our loan book by the end of this year. Obviously, over time, we'll become a very big number in terms of our loan book if you think four years out. The CB has given us a long adaptation period.
The whole of the market is a long adaptation period, but it overlays nicely on what we were planning to do anyway. We have had to rejig things a little bit in terms of sequencing, but it makes no difference towards the longer run. We have reiterated that we will deliver on our guidance this year. In the longer run, we have been explaining to the market how we think in terms of the opportunity set in Uzbekistan, say, $2.5 billion worth of loan book. That is something we stand by as well. This is all achievable with all of the different products that we will be launching. Just to finish this off, we will be moving into secured lending as well. Auto loans is something we have been thinking a lot about. Maybe other forms of secured lending are certainly on the MSME side.
This will all be something that will come into the loan book over time, change the loan mix, and will help us achieve these longer-term soft guidance we've been talking about.
Good. What is Oliver saying? Hopefully, these regulations are in line with our long-term strategy in Uzbekistan, as Oliver said already, because to remember you from the middle of the last year, we already began to work on the credit cards, and we launched already the first quarter. We mentioned in our presentation today that we launched already MSME. We said the long-term business plan, which we had already just exactly approximately the same. We made very tiny changes in our existing long-term plan, but it's exactly the same what we want to achieve in 2027 to 2028.
If I could just maybe add just one of the thoughts here. Regulation obviously always requires a bit of adaptation, I guess, without saying. Smart players and good quality players know how to adapt. The more regulation there is in consumer lending, the safer the market for everybody. It means we have PTI, which is rigorously enforced in Uzbekistan. We have rate caps. We have now portfolio caps with this long adaptation period. We have a ban on FX lending to consumer. We have risk weights, which are actively managed up and down. This makes it a well-regulated market with a lot of the regulation you would expect to come at a later stage, given the level of development of the market at an early stage.
It means that the likelihood that someone is going to overextend credit or compete irresponsibly and extend credit to our customers and blow our customers up in our portfolio is drastically reduced. Obviously, it makes it a much healthier environment to work in, which is great.
Stephen, that's answered your questions, yeah? Stephen, I think you're on mute.
Sorry. Yes, that's brilliant. Thank you. Maybe just one quick last one on Georgia. I mean, clearly, the economy was very strong in the first quarter, and that's where the bulk of the operations are. Just in terms of the momentum that you're seeing in the business sort of moving into the second quarter?
Yeah, just one question. What can you go ahead?
Yeah. Sorry, the previous quarter. I think this momentum, which we had in the first quarter, will be continued also in the second quarter. We more or less know what happened already in April. Probably the growth will be on approximately the same level. We know already in April, and it will be approximately on the same level as what was in the first quarter. Our internal forecast for the economy is that growth will be in the range, just a minimum of the range. Just today, I was meeting with the Minister of Economy, and they forecast that the minimum of the forecast in GDP growth is 6.65%. I mentioned in my presentation that the Monetary Fund and the World Bank are forecasting a minimum 6.56%. This is the realistic assumption.
We believe that also for the second quarter has to be very strong for TBC Bank Georgian operations.
Okay, great. Thank you very much.
Thanks very much, Stephen. The next question comes from Augusto Uribe. Augusto, please go ahead. I think you're on mute, Augusto. You need to unmute. Hello?
Maybe try changing secure and go back to Augusto later on.
Yeah.
Thank you. We do have a question on the telephone line from Rahim Karim with Investec. Rahim, your line is open. Please go ahead.
I mean, I'm quite done. Ask a question on cost of risk. I appreciate some of the comments that were made on an underlying basis around the move in Uzbekistan, about 8% in the quarter. It'd be helpful just to get a bit more color on how you see that evolving. I appreciate the impact from product innovation and the desire to try and broaden the product mix out. If you could just help us think about how that evolves for the rest of 2025 and possibly into the medium term. The second question was just around the outlook for NIM in Georgia into the next couple of quarters. It feels like base rates might be coming down. I don't know if it'd be useful to get your sense on that, but how we should think that evolved. It felt pretty solid in the first quarter.
How you think that might evolve would be helpful. Finally, just any comments you might have around cost income ratios for 2025 across both businesses, if possible. Thank you.
I'll start with cost of risk in Uzbekistan. Thanks for the question, Rahim. We, as you quite rightly say, adjusted for the fraud, which happened in quarter one. We came out around 8%, which is the kind of higher end of where we've been soft guiding to. We've been saying we're going to tick up our risk to the 7-8% area. I'll explain why that's happening. We've been doing, obviously, a lot of growth, as you know. We've been doing a lot of testing. We've been testing new segments to understand, well, basically, you have to test to gather data, build your models. We also have to test to understand where the interesting segments are in terms of MPV. Tests have a cost because they have a risk associated with them. That's one of the reasons.
The second reason for the cost of risk going up is front-loading from high growth under IFRS 9. We grew by 24% quarter on quarter in the first quarter of 2025. Some very strong growth continuing. The third reason is that we have some operational stuff going on. Some of it is seasonal. This means that our cost of risk has been drifting up a little bit. It may go up a little bit more as we go into quarter two. The underlying credit quality and the underlying portfolio metrics that we see, also NPLs and first payment default, they are more or less where we would expect them to see. We expect to finish the year probably in the same corridor of around 7-8%. Fundamentally, nothing changing. There is certainly no cycle. There are no signs of any stress in the portfolio.
This is all planned stuff as we look for the various segments that we can enter. If you just think of, for example, one of the big tests is thin file customers. We started our lines in Uzbekistan, tackling more of the income segments and segments with credit histories. Then we expanded into other segments. We used telco data to do that. We used transactional data to do that. Some of them are not just thin file, but no file customers in order to gather data on them to understand where we can do business there and what happens with our models to gather the data to build those models. We have to move into them. Obviously, it is higher risk in those no file segments. Another area is in point-of-sale lending. PayMe Nasir. We have been going to long-tail merchants.
We started with the top merchants, then moved to the next level of the top 20 merchants. Then we moved into long-tail where the risks are a lot higher. We gather the data and build our models. We will switch them off. We will continue to work with some. This is absolutely normal growth stuff. As I say, we are very happy with the underlying credit quality, apart from the fraud hit that we had in the first quarter. You should still think of the 7-8% range going towards the end of this year and then probably moving into next year.
Okay. Thanks. I'll take the rest of the questions. Just one thing to add to what Oliver also mentioned is just if you look at our NIM because testing all these customers about higher risk also translates into higher NIM and profitability. For example, as I mentioned, NIM ticked up by 50 basis points. CR4, that is, I would say, net profit and royalty is accretive over long term. So that's got one of those inputs into our profitability. Now, coming to your questions, one was on NIM, the second one on cost to income. I'll start with cost to income, continuing with our TBC Uzbekistan business. In TBC Uzbekistan at the moment, we do expect cost to income ratio to go down, but that's not our major focus at the moment because business is growing. We are developing new products, technological capabilities.
The key focus on us is to create very strong ground for future growth and to hit our targets. Ultimately, what we are committed to is that we will deliver profitability. We will deliver the targets we communicated to the market. We are going to communicate new targets for the kind of around November this year at our capital markets day that we will communicate in due course. Ultimately, the review cost is the support, how to drive the business profitability and growth. Again, we do expect cost to income to slightly start coming down. On Georgia, as I mentioned, the cost growth normalized. We had 11% growth even with the newly introduced fund, the resolution fund that now actually exists in all other countries. It was 11%, we dropped it to 9%. In Georgia, we are also growing.
We are also putting new products, what I mentioned, supercard, doing many other things. We need to invest. However, the growth will be much lower, maybe kind of low teens and around that level. We expect our income to grow at a higher pace. At a group level to translate it, we are going to stay more or less this year where we are, like around that level, maybe to some changes. We do not really like kind of anything below like mid to high 30%. We view as absolutely normal for our business. Now, moving to our NIM, net interest margin. At the moment, we landed quarter 5.5%. That is probably the range we have been talking about.
Mid 5s is something we will stay in a medium term, maybe some quarters a bit higher, less likely to be lower, but it may happen, but not highly. Probably somewhere mid 5s. As I mentioned, in Q1, we also had higher large funding costs that was due to kind of large shortages on the markets. We also have higher, let's say, liquidity position because during this situation, we prefer to have high buffers. Now it's kind of at the moment we are going to actually deploy those buffers. In Q2, we definitely do not expect to go down, maybe higher, but over, let's say, medium term, as I mentioned, mid 5 is the right level to think about.
That's very helpful. Thank you, Meg.
Thanks, Rahim. Do we have any other questions on the phone line?
We have no other questions on the phone line at the moment, but please press star followed by one if you would like to.
Okay. Augusto is back with us. Augusto, please go ahead and unmute yourself.
Yes. Thank you. Sorry for the technical difficulties earlier. I just have one quick question. Can you give us some color in the oil and gas exposure and export exposure of your loan book, both in Georgia and Uzbekistan, please? Thank you.
Maybe I'll take it. In Uzbekistan, we have consumer loans at the moment. It's zero. At the moment, I don't know if any customers are to work with oil companies, that's it. We can consider zero. In Georgia, also Georgia is not oil, let's say, production country. We don't have any, maybe some petrol importers. We can consider that we don't have much exposure from this perspective.
Closer to zero.
Closer to zero, yeah.
Yes. Generally, for other sectors, we have very strict mandated scale policy. We manage our concentration risk just generally. Here it is zero, but in all other segments, we do not kind of overload any particular, let's say, either sector or a segment. That is part of our risk. Thank you.
Thanks, Augusto. Next question is from Dan Mikhailov. Dan, please go ahead. Can you open Dan's line?
So probably.
Sorry, Dan. Here we go.
Hi. First of all, thank you for the call. Congratulations on the results. I just had one question on the cost of risk in Georgia and how we should think about it going forward. We saw a sequential spike in retail cost of risk and CIB cost of risk, as well as SMEs. What do you think is a sustainable level of cost of risk in Georgia going forward?
Thank you very much. We have been guiding our normalized cost of risk around 1% through the cycle. 80 basis points is a very healthy level for our business. There is some factor of seasonality as well in Q1. For example, if you compare to Q1 last year, it was 70 basis points. You mentioned CIB cost uptick. CIB cost of risk has been zero for a very long time. It cannot be zero forever. We are doing business. We are in bank. We are kind of lending. There is some cost of risk, but it is a very healthy level. We saw some small upticks, but again, it is well below our kind of normalized risk profile. Generally, we do expect around 80-100 basis points on, let's say, normalized basis. We do not expect to go beyond that in Georgia.
Certain quarters may be lower, for example, but that is a right level to think about. As I mentioned, particularly in SME segments, the seasonality Q1 also kind of impacts if you look at the, let's say, statistics. Again, all credit parameters are very healthy, very strong in Georgia. We don't have any concerns whatsoever. Did I answer your question?
Yes. Thank you. No more questions from me.
Thanks, Dan. Next, it's Path. Path, please go ahead.
Wonderful. Thanks, Andrew. Just one question for Oliver. I think many have spoken past on a couple of occasions. We have this expectation setting that you want to hit 10% market share in Uzbekistan in the medium term beyond 2025. Now we have seen this portfolio weight regulation. Is it fair to presume that you would still hit that market share, but on an overall loan portfolio basis? Number one, and number two, is the profitability profile in the medium term less attractive than what it was a couple of quarters ago? Because now you have more fixed that is potentially NIM diluted, and your expectation of normalized cost of risk has gone up because I think ever since Uzbekistan business started gaining steam, the understanding was the normalized cost of risk of 600 basis points, which has now gradually moved up to 800 basis points.
Directionally, it seems like profitability seems like a headwind, of course, relative to what we expected a few quarters ago. If you can unpack these couple of topics. Thank you.
There you are. Thanks for the question, Path. On the market share, we do not want to think in terms of market shares. It is just a way of helping you get to some of the numbers that we were thinking about in terms of the opportunity setting in Uzbekistan. We do not have market share targets, and it is 5% or 15%. It is kind of less important than what we actually have in terms of our loan book and the economics of that loan book, yeah? Obviously, the rest of the business alongside it.
The rate that we jump today in microloans, we have 17%, and the total retail loans are more than 4%.
Exactly. We are more interested in having a loan book irrespective of the composition of $2.5 billion plus three-four years down the line. That is how we think about this.
There was never a plan to do $2.5 billion or $3 billion worth of microloans because that's probably not sustainable in the market. We were always going to roll out other products and services which would help us to get that. As I mentioned earlier, that's point-of-sale loans or installment finance. It's credit cards. It's probably going to be auto loans down the line, and it's definitely SME lending. SME lending, we started with unsecured, but we'll also go down into secured over time as we learn this business. Who knows, maybe some other loan types which we'll start looking at. For example, BNPL, we're starting to dabble in that actually rather successfully given the early signs at the moment. The loan book mix, we have a rough idea to be communicated over time.
Just to remind you that we'll have our CMD later this year towards the end of the year, and we'll be giving three-year guidance, and we'll be able to give you a little bit more detail about that in terms of how we think this mix will pan out. We'd like to give you a bit of flexibility. Market share is not the name of the game. As Rachel says, we're already at 17% in microloans and growing, but we're thinking of the other opportunities which will be driving the loan growth as well as we go along. That feeds into probably my answer to the second question, which is that the loan book mix will change, and you'll see it changing by the end of this year.
It'll be a dynamic thing as we go along over the next three or four years with different slices of different products contributing to the loan mix. That changing loan mix will change the overall shape of our NIM. I would expect, and you'll be seeing that playing out this year, the gross yield starting to come down. That's as we move into different products, but also as we move into better quality segments. What does that mean? That means that we're going to be issuing loans to more affluent or mass affluent customers so they have bigger tickets, lower risk, lower margin. That's already going to be changing the shape of our portfolio economics. The gross yield will tick down. Our funding costs will be ticking down. Medium term, we expect our NIMs still to be around 20%.
Our ROEs, we've always said longer term, we believe we can get to 30% plus. I think if you look at the adjusted numbers for this first quarter, you can already see that we're definitely still moving in that direction. As we achieve more economies of scale, obviously, that helps propel us in that direction. Lastly, on the cost of risk, we've been ticking it up because we were taking too little risk. We needed to look into different areas based on our NPV-based approach to understand where we can do business in new segments, new products, new channels. That meant we were going to be ticking up to where we are now, around 8% adjusted for the first quarter.
Longer term, going back to the first point I made, as the loan mix changes, we'll be moving into better quality customers in our existing product lines and moving into lower margin products as well, particularly secured when we get there. That means that our blended cost of risk will move down over time as well. Just to wrap that up, it doesn't change the economics of our business and our predictions as to where this will take us in terms of ROE and ROA. The yields will come down as the loan mix changes, the deposit, our funding costs will come down, and our risk should tick down as well over time.
Yeah, it does answer my question. I think my understanding was a couple of quarters ago with the credit cards mix going up in the portfolio, the gross fees were presumed to go up in the medium term, but it looks like you are now shifting much more faster towards secure and other products, which could potentially bring it back to the current levels. No, this is helpful. That's what I'm alluding to.
We're not doing any secured lending at the moment. That's probably we're waiting. We're moving into MSME loans. We're moving into a different type of borrow on the cash loan business.
No, wonderful. That is helpful. I think we will have more stuff to talk about later this year. Thank you.
Thanks very much, Path. Are there any other questions on the phone line?
We have no questions on the phone line.
Okay. Doesn't look like we have any more questions on the call. Yep. Okay. I think no further questions. Just to say thank you, everybody, for joining this call. We very much look forward to hosting you again in August when we publish our second quarter results. Please feel free to keep in touch and hope to speak to you all soon. Thank you.
Thank you.
Thank you.
This concludes today's call. Thank you very much for joining. Your line will now be disconnected.