Good afternoon, and welcome to the TBC Bank Group PLC third quarter 2022 Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged, and can be submitted any time via the Q&A tab situated in the right-hand corner of your screen. Simply click on Q&A, scroll to the bottom, type your question, and press send. The company may not be in a position to answer every question received during the meeting itself, but the company review all questions submitted today will publish responses where appropriate to do so on the Investor Meet Company platform . Before we begin, we'd like to submit the following poll. I'd now like to hand you over to the executive management team for TBC Bank Group PLC. Good afternoon.
Good afternoon. Dear all, thank you very much joining our call. I'd like to start today's presentation with highlight of our key achievements during this third quarter. We continue with the market leader in Georgia with robust profitability and strong growth, supported by solid capital. We also continue strong progress in exploiting our international growth potential. In this third quarter, the group generated exceptional return on equity of 31.1%, while our CET1 ratios stood at 15.3%, which above the minimum required level by 3.5 percentage points. We remain the best capitalized system in Bank of Georgia. Our loan book portfolio growth was 19%, while our deposit portfolio grow by 29% on constant currency basis.
In the third quarter, we continued to expand our position in Uzbek market, and our loan book reached up to GEL 300 million and deposits around GEL 300 million. I'm also delighted to report. On the group's level, the number of digital daily active users reached 1.1 million in September, while the number of digital monthly active users amounted to 3.2 million for the same period. On the next slide, I am pleased to note that we are adding two new medium-term targets. Uzbek operations to account for 10%-15% of the group's net profit, and to achieve seven million monthly active users on the group's level. Now I'd like to review recent macro developments briefly on slide number five.
In the first nine months of this year, GDP growth in Georgia reached 10.2% despite adverse impacts of the war in Ukraine. We expect the growth to stay at around the same level during the remaining three months, resulting in an estimated GDP growth of about 10% for the full year. Also, on a positive side, the lari continued to align with its strong long-term trend against the dollar. The next slide shows the drivers behind the strong GDP growth. The current geopolitical crisis has once again proved the resilience of the Georgian economy. Exports have remained strong on the back of countries other than Russia and Ukraine. The recovery of tourism flows, partially supported by the immigration impact, contributed with strong export remittances, as well as recovering FDI inflows, supports above 10% GDP growth for the whole 2022 year.
Also, inflation remains elevated and stood at 11.5% in September, and it is expected to gradually moderate. Now, let's move to the next slide. Here I'd like to reiterate the group's positioning and highlight our huge, fast growth potential. First of all, we are the market leader in Georgia, with diversified business across all market segments. Secondly, we have consistently delivered robust profitability and steady growth backed by the strong capital. Third, we stand out with the advanced omnichannel distribution network, with the best-in-class digital consumer proposition and the largest ecosystem network. In addition, we have the fast growing payment business in Georgia and Uzbekistan. Finally, our Uzbek operations give us a strategic advantage to deliver long-term growth and profitability.
In line with our group strong market position and growth strategy, we continue to increase the number of our customers every year, and at the end of September, we had 3.9 million monthly active users in two geographies. Moving on to slide number nine, we show our leading position in Georgia. As you can see from this slide, we hold the leading position across all segments with steady growth levels. These leading positions indicate resilience and diversity of our business model, and allow us to extract significant cross-segment synergies and efficiency. On the next slide, I'd like to summarize our key financial results for this third quarter. On a year-on-year basis, our net profit increased by an exceptional 55% and stood at GEL 321 million.
This growth was related to the strong income generation across the board with substantial contribution from non-interest income. Our return of equity in the quarter reached 31.1%, while return of assets amounted to 4.8%. As expected, our cost of risk started to normalize and amounted to an annualized 1% in this third quarter. Over the same period, our cost-to-income ratio strongly improved to 5.5 percentage points and stood at a little bit less than 30%. Our capital position remains strong, with CET1 ratio at 15.3% as mentioned above. On the slide 11, I'd like to share with you on an update on our digital ecosystem, TNET. We have the largest digital ecosystem in Georgia that consists of four digital verticals, lifestyle, housing, automobile, and e-commerce.
We have 1.8 million unique annual visitors across all verticals, which is around 40% of the internet traffic among the Georgian websites. Our ecosystem allows us to leverage our large customer base on a data hub capabilities. First, to generate net fee and commission income. Second, create leads for loans. Third, strengthen our customer loyalty. Finally, increase our customer engagement. The following slide gives more details on the results of our digital ecosystem. Total gross merchandise volume is growing rapidly as our users are becoming more engaged. At the same time, the number of leads generated increased four times year-on-year, and the loan conversion rate grew by 9%. As a result, loans disbursed reached GEL 26 million, accounting around 8% of our total retail loans disbursed during the quarter.
Now let's move to slide 17, which illustrates the solid growth of our Georgian payment business. In the third quarter, the number of POS transactions and transactions with TBC cards increased by 28% and 30% respectively year-on-year. It's important to highlight that our payment business is a significant contributor of our fee and commission income. On slide 14, you can see our digitalization metrics both in Georgia and on the group's level. We have made strong progress in expanding our digital footprint on the group's level. As already mentioned, we have up to 3.2 million digital active users every month, while digital daily active users stood at 1.1 million in September.
Importantly, our transaction offloading continues to be high at 99%, and our consumer lending and deposit sales offloading ratio also remained high at 70% in the third quarter. Now I'd like to update you more details about continued growth progress and rapid growth on our Uzbek banking operations. By the end of quarter, the number of downloads of our TBC Uz application increased to 2.8 million, while the number of registered users was 2.1 million. At the same time, as mentioned already, we reached up to GEL 300 million in retail deposits and up to GEL 270 million in our retail loan portfolio. Finally, on the slide 16, I'd like to highlight the strong performance of our payment subsidiary, Payme, which is the second largest payment provider in Uzbekistan.
In the third quarter, Payme continued its rapid growth in all major metrics. The number of monthly active users increased by 62% year-on-year and reached 2.1 million at the end of September. Total payments volume increased by around 64%. Over the same period, both revenues and net profit continued their impressive growth and reached GEL 12 million and GEL 7.5 million respectively. Now I'd like to hand over to Giorgi. Giorgi, please.
Thanks, Vakhtang. Really great quarter. Great financials and results. I'll start with slide 19 that shows kind of our, I would say, outstanding financials and results. In Q3, our net profit, as Vakhtang already mentioned, increased by an actually impressive 55% year-on-year, and that's driven by continuation of our strong revenue trend that we have been delivering for the, like, since the bank, let's say, started. As Vakhtang mentioned, substantial contribution was from our non-interest income that I'm going to touch a bit later. As a result, we are looking at an ROI of 31.1% for the quarter, probably one of the best that we have seen so far. I'll now go to slide two, where I will deep dive a bit more into our profitability drivers.
As I mentioned, both actually interest and non-interest income streams performed extremely well. NIM, our NIM continued upward journey and increased both year-on-year, it's 100 basis points, and quarter-on-quarter basis, and landed at 6.2%. NIM increase is mainly driven by loan composition and loan yield actually affects. On non-interest sides, the contribution is twofold. The first one is the strong FX growth due to high volume of transactions, wider spreads, but also new treasury products. Net fee and commission income actually increased by higher payment transactions, as well as our new business, let's say, products that we put in place. All that actually resulted in a very robust and strong non-interest growth. I would like to move now to slide 21 to review our operating expenses.
In Q3, the increase was 34% year-on-year, and that was mainly driven by expansion of our business both locally, let's say, into Uzbekistan, that also resulted in higher staff and admin costs. We actually put money into technology. We continue to invest into our business to ensure its ongoing strength and growth. In addition, staff costs also increased due to performance costs driven by higher listed income. However, the key point is that consistent with the previous periods, our income grew at much faster rate and our cost-to-income ratio decreased in Q3 to 29.9%. It's not only below our target of 35%, but I think it's the first time it is below 30%. Now I would like to go to slide 22 that shows our very strong book quality.
As of 30th of September 2022, NPL remained stable quarter-on-quarter at very healthy 2.3%. Year-on-year trend actually is mainly driven by resumed payments from loans in retail and MSME segments. That was still like COVID tail last year. Since then, as we see customers start paying and our NPL is at 2.3%. Total provision coverage was very robust, 164%, sorry. In Q3, cost of risk actually continued to, I would say, within our normalized range that we anticipated and landed at 1%. I would like now to go to slide 23, as that shows performance of our loan and funding portfolios. Year-on-year, the loan book growth was very high at 90%. That's actually above our guidance, 10%-15% on a constant currency basis.
That was mainly driven by our MSME and, I would say, retail segments. However, on quarter-on-quarter basis, our loan portfolio remained more or less stable, up by 2%, and the driver was actually the repayment from one CIB client. That is also the reason why CIB portfolio actually decreased a bit. As for the customer funding side, the growth was more prominent. We actually outpaced the market, and that resulted in actually to increase our customer funding share. I will touch that point later on in one of the following slides. Now I would like to move to slide 24, where you can see our very solid capital position. Our capital ratios remain at very strong levels at quarter-end, and all of them are well above the minimum regulatory requirements.
Key point to mention here is that the ratios increased despite paying a generous dividend in September, and the majority of growth was delivered by our net profit. That also was supported by strong lari. Now I would like to move on slide 25. That shows our very strong liquidity and funding base. The share of customer funding in total liabilities, as I already mentioned, increased and reached 73%. It is up by two percentage points on year-on-year basis. IFI funding, that includes both senior and sub loans, is around GEL 1.9 billion. That is 8% of total liabilities. Our liquidity ratios, both LCR and NSFR, continue to be well above the regulatory requirements. Here, I also would like to highlight that our LCR on Basel basis is 351%.
I would like to conclude with slide 26, with our promised and long-awaited financials of our Uzbekistan business. To start with, I'm very pleased to announce that our Uzbekistan business, consisting of our fully digital consumer banking and payments subsidiaries, TBC Uz and Payme, turned profitable in Q3 2022. In addition, I also would like to highlight that we expect let's say, the Uzbekistan bank itself to be profitable for 2023 and throughout the year. For the third quarter, TBC Bank's Uz, like TBC Uz NIM was 60.2% and cost of risk was 7.4%. That provides us very, healthy risk actually, let's say, risk-based NIM. Here, I would like also to announce the midterm targets of our Uzbekistan business. First, it's 30%+ ROE. Second, 5 million MAU. And third, 10%-50% share in group net profit.
That concludes my part. Thank you. I would like to hand back now to Vakhtang. Vakhtang, please.
Yes. Thank you, Giorgi. Now I'd like to finish today's presentation by reiterating our new and existing medium-term targets and comparing our performance in this quarter against those targets on the slide number 27. Our monthly active users stood at 3.9 million, compared to our seven million new target. Our Uzbek banking and payment businesses generated positive results, as Giorgi mentioned, in this quarter, and we plan to grow to 10%-15% of the total group's profit in the medium- term. Our loan book grew by 19% year-on-year on constant currency basis against our target of 10%-15%. Our return on equity was 31%, meaningfully above our medium-term target of 20%+. Also, our cost-to-income ratio was 29.9%, meaningfully lower than our medium-term target of below 35%.
Finally, our dividend payout ratio was 25% in 2021, and we paid interim dividend of GEL 2.5 per share in 2022 compared to our target of 25%-35%. With that, I'd like to invite to ask the questions.
Fantastic. Thank you very much indeed for your presentation. Ladies and gentlemen, please do continue to submit your questions using the Q&A tab situated in the right-hand corner of your screen. Just while the team take a few moments to review those questions submitted today, I'd like to remind you the recording of the presentation along with a copy of the slides and the published Q&A can be accessed via Investor Dashboard. As you can see, we've had a number of questions come through throughout today's presentation. If I may, I'll just start off with reading the first one out. What risk do you face with such a large market share in Georgia? How do you manage this and any potentially bad debt risk?
Maybe I will try to answer this question. By the way, this year we have a 30 years anniversary in Georgia as a TBC Bank. We have a brand. We have a very strong brand, so everybody knows TBC in Georgia, and we built it, our brand, and the market shares in every segment year-over-year, so already for 30 years. For example, in the retail, as I have already mentioned, we have a very strong brand. We have a very customer-oriented products. We are doing very well in the technologies, in the digital products. If you go to the corporate and SME businesses, we are trying to be long-term partners to our medium-sized businesses, to our corporate customers. In every segment, we have a special
Strategies we are implementing in the long- term, and as a result, as we've seen expansion, we have market shares in the different ways from 35%-40%. Maybe I will cover on bad debt risk, Vakhtang. That's the second part of the question. One thing to add, what Vakhtang said, the Georgian market is a bit specific because two banks own 80% of the market, and third bank only has 6% share. Therefore, from market actual risk perspective, given the market structure, we don't foresee any change in future. That may be the Georgian market specifics. On bad debt risk side, we have very strong underwriting standards. We are quite, like, strong risk appetite, and we monitor our customers very carefully.
Even during COVID year, we, when we were very prudent and very conservative, the cost of risk was around 2%, like cost of risk. However, once COVID ended, that showed the resilience and strength of our portfolio. Customers actually paid the loans, and we had quite a large, I would say, recoveries last year. Therefore, given our portfolio structure, our like credit characteristics, that's why we say that for the bank, cost of risk is around, let's say 100 basis points that we are now, and we don't expect any material change from that level.
Fantastic. Thank you, Giorgi. Next question we've got here is how sustainable are the growth rates? Obviously, you mentioned 55% here, which is fantastic, but how sustainable are they?
Okay, thanks. That's a very good question. Probably this quarter and maybe next few will be something like a head, I would say headwinds, or it's like, let's say, supported by FX income because Georgia market has some solid volatility, both on wholesale side and retail side. That also helped us, and 55% might be difficult. However, despite that, we have very strong growth projections. As I mentioned, our targets are 10%-15% loan growth, probably in near future, at higher end, even higher. We mentioned 20%+ ROE. That would say that it will be probably 20% plus ROE. That's what we are going to target. And it will be supported by our strong NIM and non-interest income. Because on NIM side, we landed 6.3%.
In the near to medium- term future, we don't anticipate that to change much. We target to remain at least at 6% plus handle for the foreseeable future. Non-interest income, we expect to continue at least 20%-25% growth to continue. I already mentioned the cost of risk around 1%. Plus our Uzbekistan business is also going to fuel the growth. As I mentioned, next year the bank itself will also become a profitable business. Uzbekistan is also profitable, and that will support our growth and let's say profitability even further.
Thank you very much indeed. We touched on the digital bank. Obviously, it's been a huge success. Question here saying it's been a huge success. How do you replicate this in other country, other jurisdictions? The same applies for Payme. What's really driving that growth?
You see, first of all, the country, because Uzbekistan is very interesting for us, if you take only this population, the growth of the population, 2% every year, and the market is under-penetrated. The first driver is the under-penetrated market with the growth potential there. Also same as in TBC's very well-known brand in Georgia, Payme has a history in Uzbek market as a payment provider. Payme is very well-known on Uzbek market. We have a very strong brand there, and we are bringing new products. We are trying to be very customer-oriented there. By these new products, we are trying to grow. As we already made presentations here, it showed that year-over-year, we have very high growth, first in the number of the customers and also in the number of the transactions.
One other point, Vakhtang, I would like to add here is that we had our CMD last week. Hopefully, if you did not dial in, all the materials are on our website. That shows actually our detailed strategy, how we are going to succeed in Uzbekistan, including Payme. What plans do we have actually that it will scale up. I'm not going to a very, let's say, details here, but if you have a look at our website, that provides our detailed, let's say, strategy breakdown.
That's great. Thank you. I've got a question here from Tom, which is three questions, I think one of which we just covered off, asking, is this growth sustainable? Second part of that is, will you make increase in dividend payments? The third part, how are you actually growing those active users so quickly?
Okay. Maybe I'll start. Like if you think from our capital allocation perspective, we have three major pillars. One, to support our growth in Georgia. That will be probably more or less with the nominal GDP growth, but it will be about 10%, 10 to like that level. We need to support that, and we have sufficient capital to support. Second point, we need to support our Uzbekistan business growth. Here are two aspects. First, we need to support our Uzbekistan bank growth, that we have a kind of, I would say, very high plans for them. Second point for Uzbekistan is that at the moment in Payme, we have minority shareholders who own 49%. We have an option next year that we are going to exercise. For that.
It will happen not in the distant future, probably in Q1 next year. For that, we need capital, and we have capital. Third, we of course need to pay our shareholders back. We also have more than sufficient capital for that and to guide you how we are thinking about this. Currently, our dividend payout ratio is 25%-35%. Last year, we paid 25%. However, if you compare our interim dividend in September, that was materially higher than last year's interim dividend. That probably is indicative of the direction of the travel, that our dividend payout ratio most probably is actually intended to go above 25%, that was last year. We need to see, but from interim dividend, that was kind of the direction.
Like I would say, that with that range, probably the middle of the range that would result in a very healthy, like even with the current share price up to 9%-10% dividend yields. As the banks grow through, as we support our growth plans into Uzbekistan, of course, then we will look at our DPR, how it will evolve. But nowadays, I would say that we will pay very healthy dividends to our shareholders. It's like again, 9%-10% yield. We will grow not only in Georgia, but in other, let's say, countries and markets.
Fantastic. Thank you very much indeed. That actually concludes all the questions that we've had through. Thank you for that. Of course, any other further questions that do come through from investors today, the company will have the opportunity to review those questions, and we'll publish responses where appropriate to do so on the Investor Meet Company platform . Vakhtang, before redirecting investors to provide you with their feedback, which I know is particularly important to you and the team, if I could just ask you for some closing comments, please.
Yeah. From our side, thank you very much for participating and as Giorgi already mentioned, we have a very robust result in the third quarter, and we will continue to deliver it. As we already mentioned in our presentation today and on CMB, we updated our midterm targets. Now we have more ambitious plans to increase number of the monthly users. We have to do much more in Georgia, we have to do much more in Uzbekistan. I think as a management, we are ready to deliver much more.
Fantastic. Vakhtang, Giorgi, thank you again for updating investors today. Can I please ask investors now to close the session? You should be automatically redirected to provide your feedback in order the management team can better understand your views and expectations. This will only take a few moments to complete and I know is greatly valued by the company. On behalf of the management team of TBC Bank Group PLC, we'd like to thank you for attending today's presentation. Thank you and good afternoon to you all.
Thank you.