Dear ladies and gentlemen, thank you for joining our Q2 2022 financial results conference call. I'm 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, Ana. Dear all, thank you for joining our call. I'd like to start today's call with the announcement of an interim dividend of 2.5 GEL per share payable in October in accordance with our updated dividend policy to pay semi-annual payments as announced last year. I'd also like to inform you that the board of directors has approved a share buyback program of up to GEL 75 million, out of which GEL 50 million will be canceled and the rest will be transferred to the employee benefit trust in due course. We believe this is a good decision at the current price levels. Now turning to our second quarter results, let me highlight our key achievements during the quarter. We continue to be the market leader in Georgia with robust profitability and strong growth supported by the solid capital.
We also continue strong progress leveraging on our international growth potential. In the second quarter, the group generated return of equity of 24.1%, while our CET1 ratios stood at 15%, which is above the minimum required level by 2.9 percentage points, and we remain the best capitalized bank in the banking system in Georgia. Our portfolio growth in this quarter was 23%, which has strongly outperformed our normalized growth of 15%. In the second quarter, we continued to deliver impressive business growth in Uzbekistan. As a result, our retail loan book reached GEL 180 million, while retail deposits exceeded GEL 230 million. I'm also delighted to report that on the group's level, the number of digital daily active users reached 1 million in June, while the number of monthly active users amounted to 3 million for the same period.
Now I'd like to review the recent market developments briefly on the slide number five. In the first half of this year, GDP growth in Georgia reached 10.5% despite adverse impacts of the war in Ukraine. We expect the growth to stay at around the same level during the second half of the year, resulting in an estimated GDP growth of about 10% for the full year. Also, on a positive side, the lari continues to strengthen against the dollar. The next slide show the drivers behind the strong GDP growth. Recovery in the tourist arrivals strengthened during the second quarter and even exceeding 2019 levels in July, supported by the migration impact. Exports also remain strong on the back of countries other than Russia and Ukraine.
Importantly, in terms of trade, measured as exports priced over the import prices remains stable, indicating a reasonably balanced net effect of the highly volatile commodity prices. Though inflation remained elevated and stood at 12.8% in June, and it is expected to moderate on the back of the stronger lari and declining commodity prices. Now let's move to the slide eight. Here, 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 backed by the strong capital. Third, we stand out with advanced omni-channel distribution with best-in-class digital customer proposition and largest ecosystem network. In addition, we have 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's strong market position and growth strategy, we continue to increase the number of our customers every year. At the end of June, we had 3.7 million active users in two geographies. 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 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 the second quarter.
As already mentioned, we generated strong results in second quarter with return on equity standing at 24.1%, while return on assets amounted to 3.7%. The year-on-year decrease in net profit was related to high base a year ago due to the provision recoveries and one-off gain from the disposal of investment property. As expected, our cost of risk started to normalize and amounted to an annualized 0.9% in the second quarter. Over the same period, our cost-to-income ratio slightly improved and stood at 35.3%. On slide 11, I'd like to share with you an update on our digital ecosystem. We have the largest digital ecosystem in Georgia that consists of four digital verticals, lifestyle, housing, auto, and e-commerce.
We have 1.75 million unique visitors across all verticals, which is around 40% of the internet traffic among Georgian websites. Our ecosystems allow us to leverage our large customer base and data hub capabilities to, first, generate net fee and commission income, second, create leads for loans, third, strengthen customer loyalty and locking, and finally, increase customer engagement. The following slide gives more details on the results of our digital ecosystems. Total gross merchandise volume is growing rapidly as our users are becoming more engaged. Our main sales performance indicator, GMV and GMV per user, have increased by more than 3x year-on-year. At the same time, number of lead generation has more than doubled year-on-year, and loans conversion rate grew to 8%.
As a result, the loan disbursements reached GEL 22 million, accounting for 6% of our total retail loans disbursed during the quarter. Let's move to the slide 13, which illustrates the strong growth of our Georgian payment business. In the second quarter, the volume of POS transactions and transactions conducted by TBC Cards grew by around 30% year-on-year. 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 14, 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. As already mentioned, we have up to 3 million active digital users every month, while daily digital users exceeded 1 million in June of this year.
Most importantly, our transaction offloading continues to be high at 99%. In consumer lending, we issue 60% of loans digitally, while 70% of our deposits are issued outside the branches. Now I'd like to update you about our continued progress of Uzbek bank operations in more detail, starting on the slide 15. By the end of June, the number of downloads of our TBC UZ application increased to 2.4 million, while the number of registered users was 1.8 million. At the same time, we reached GEL 236 million in deposits and GEL 181 million in loans. As the business is growing successfully, we invested additional capital into TBC Bank Uzbekistan in the amount of $21 million, while our partners, IFC and EBRD, injected $7 million each to support our expansion plans.
Finally, on 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 second quarter, Payme continued its rapid growth in all major metrics. The number of monthly active users doubled year-on-year and reached 2 million at the end of June, while the total payment volume increased by more than 50% year-on-year. Over the same period, the revenue and the net profit continued impressive growth and reached GEL 12 million and GEL 7.1 million, respectively. Now I'd like to hand over to Giorgi.
Thank you, Vakhtang. Now, as usual, I'll go over the financial performance and start with our strong financial performance. This slide shows another set of very strong financial results. In Q2, our net profit is up by 5% quarter-on-quarter. On the back of stronger income generation, our ROE stood at solid 24.1% and ROA was 3.7%. On annual basis, our net profit decrease of 6% is due to high base a year ago related to the provision recoveries and gain from a disposal of a real estate profit. Now turning to slide 19, that shows our growing and diversified revenue stream. Our NIM continued a positive trend in Q2 and was 5.8%, up by 20 basis points on quarterly basis and by a remarkable 80 basis points year-on-year.
The strong growth in NIM was mainly driven by loan composition and loan yield effects. We also recorded 17% growth in non-interest income year-on-year and 29% increase quarter-over-quarter, which was mainly driven by strong FX gain and net fee and commission income. As you can see from slide 20, we maintained our high efficiency levels. The cost growth in absolute terms was GEL 29 million or 21%, out of which circa 30% was due to our Uzbekistan expansions. We continued our positive cost-to-income growth trend, and our cost-to-income ratio decreased both on annual and quarterly basis, and stood at 34.5%. Now onto slide 21, I would like to present our strong asset quality.
Our NPL decreased both on year-on-year and quarter-on-quarter basis and stood at 2.3%. NPLs improved significantly on year-on-year basis due to resumed repayments and restructured loans in retail and MSME. Also, our total NPL coverage ratio remains strong at 186%, comprising of 100% provision coverage and 68% collateral coverage. In Q2, cost of risk started to normalize after the recoveries in 2021, amounting to 0.9%. The largest increase was coming from the retail segment due to the acceleration of consumer loans. Now moving to slide 22, that provides a brief overview of our portfolio growth. We maintain our leadership position both in total loans and customer funding.
Our loan book grew by 23% year-on-year on constant currency basis, and our deposit portfolio increased by 30% year-on-year without currency effect. Slide 23 shows our solid capital positions. CET1 ratios stood at 15% at the end of Q2, 2.9 percentage points above the minimum regulatory requirement. All other tiers, we are also comfortably above all regulatory requirements. Based on those very strong capital positions, we are very happy to distribute interim dividend of GEL 2.5 per share and declare share buyback, as Vakhtang already mentioned. Now moving to slide 24, where I will conclude my presentation with funding and liquidity summary. As you can see on this slide, we have a well-balanced funding structure with high customer funding share of around 72%.
Our NSFR and LCR ratios, we are comfortably above the minimum regulatory limit of 100%. Our LCR ratio on Basel basis is around 223%. Now, I would like to hand back to Vakhtang, who will update you about our medium-term targets and future outlook. Thanks, and Vakhtang, now up to you.
Yeah, thank you. Now I'd like to reiterate our medium-term guidance and compare our performance in the second quarter against the targets. Our loan book grew by 23% against our medium-term target of 10%-15%. Our return on equity was 24.1%, meaningfully above our medium-term target of 20%+. Our cost income ratio was 35.3%, getting closer to our medium-term target of below 35%. Finally, I'd like to reiterate the board decision to declare an interim dividend of 2.5 GEL per share payable in October, which will be supplemented by the buyback program of up to 75 million GEL.
Now I'd like to finish today's presentation by recapping our strategic priorities going forward, which are maintain robust profitability backed by solid capital, diversify and increase our fee and commission income streams, continue steady growth in Georgia, harness high growth potential of the Uzbek market, and continue to leverage our advanced digital capabilities to achieve high efficiency. Finally, I'd like to inform you that we are planning to hold a capital market day in Uzbekistan on November 10th, and would be glad to see you all there. The details will be sent out in the near future. With that, I'd like to invite you to ask the questions.
Thank you, Vakhtang. Now I'd like to open floor for Q&A. Just a reminder, if you're using Zoom application, please use Raise Your Hand function at the bottom of the screen. If you are dialing in from your phone, please press star nine to raise your hand. I will unmute a participant in the chronological order and invite you to ask questions. Please introduce yourself before asking a question. The first question comes from Robert Sage.
Hello. Can you hear me okay?
Yes, we can.
We can.
Thank you. I'd like to ask you a question about your capital distribution. I certainly agree that buyback is a good idea, and I certainly believe you, that you do have surplus capital. My question is, though, how did you derive the particular sum of GEL 75 million for this? Just in terms of trying to sort of estimate what future capital returns could be. I do see that your capital headroom moved up very sharply in the second quarter. I was wondering whether we should be looking at that in terms of an indicator in terms of how much surplus you're gonna be buying back, or do you have a target CET1 ratio, or how should we think about the potential size of future buybacks in future years?
Thanks, Rob. I'll take that question. See, first of all, kind of our dividend payout ratio is from 25%-35%. At the moment, that remains unchanged. However, from our latest dividend payment amount, you may guess the direction where it's going, probably not a high rocket science, as we guided the market our target to increase it. This buyback is not part of our usual capital, let's say, distribution policy, because at the moment we think that we have a very huge growth potential in Uzbekistan or, like, maybe some other markets as well, but at the moment, Uzbekistan. Therefore, what we are thinking is, that this buyback is like a good move and efficient use of the capital with the current price levels.
As we go along, we need to see how the market absorbs what the positions will be. I would probably guide you to think more kind of about higher end of the, let's say, dividend policy. Meanwhile, we continue to grow in Georgia, invest into Uzbekistan, and grow there as well, and then we will see.
Okay, to be clear, we shouldn't necessarily assume there will be buybacks in future years.
Uh-
You'll sort of take those decisions on an annual basis.
Yeah. It's not part of our formal distribution policy at the moment, therefore, like again, it's very difficult to say, but our formal distribution policy remains again within our range.
Thank you.
Thank you, Robert. The next question comes from Otar Dgebuadze.
Good afternoon, everyone. Thanks for presentation and taking my questions. My question was about a bit more macro level on currency appreciation recently. What are your thoughts about the drivers? Do you somehow attribute it to increase of migrants from Russia, Ukraine? Secondly, maybe a bit more technical part of it, like your share buyback is announced in lari, but the shares are traded in pounds. Would that have any pressure on the currency in the short term when you will be executing this program?
Thank you Otar, first of all, very much for this question. I will try to answer the first question, and Giorgi probably will try to answer the second question. We agree with you that we have good trends on the lari, and we see that the last 6-8 months, lari continues to appreciate against euros, and there are a few drivers. First of all, you are right that we have immigration in the country that is very helpful, but not only that. We see the good trends on the remittances. We see the good trends on the export side, and also we see the very good trends on the tourism flows.
As we have already shown in our presentation, just in June and also, we are forecasting July also, and probably tourist arrivals will be a little bit higher than the same period of 2019. All of these together help the local currency, and the trends probably will be continued in the short term.
Otar, your voice was actually breaking. Can you repeat your question one sec?
When you will be executing the buyback program, you announced amounts in lari, and I guess your liquidity is in lari, but you will need to buy pounds then to buy shares in pounds.
Yeah.
Would that have any pressure on the currency market while you will be executing this program?
Yes, because it's GEL 75 million first. It will be spread over a certain period, and the volume at the moment is kind of so high that we don't see any significant pressure or any kind of impact from that amount. Because usually we do the higher level of the, let's say, dividends on semi-annual basis as well.
Market is much bigger, so it's not a material for market. For example, two days ago, National Bank of Georgia bought on the market $40 million. Market is much bigger, so it's not a material for the market. We will not do it for the one day, so it will be the program which will execute within the weeks.
Probably you are aware of some requirements that we can only trade 25% of the last 20 days. Let's say liquidity is there, going to be spread, per the guidelines all of the time.
Thank you. If I may ask another question. On your cost-to-income ratio, you've done a great job of improving it in last few years. But there is quite a big gap between the group level and the bank level ratio, and bank is like very big part of the group. I was wondering what drives the delta. Is it Uzbekistan or is it local Georgian subsidiaries?
It's a combination of both. At the moment, as we kind of are growing, we could say Uzbekistan, investing there, we have been building as a businesses, let's say, Tnet, as well as Bank of Georgia ecosystems, et cetera. Therefore, we do expect once those businesses catch up, particularly let's say Uzbekistan, our cost to income below 35% is a very achievable target.
Thank you very much.
Thank you, Otar. The next question comes from Konstantin Rozantsev.
Yes. Thanks a lot for the presentation, for taking my questions. I've got three short questions that I wanted to ask. The first one, could you please provide any guidance on the cost of risk for the full year 2022? The next one, I think it's been asked already, but could you please give some kind of a target level for the CET1 ratio, regulatory ratio with which we are going to operate prospectively? The last one in terms of the activity in the Eurobond market. You've got a senior bond maturing in 2024 and a perpetual bond callable in 2024.
What are you thinking in terms of refinancing those bonds in terms of the perp? Are you keen to, you know, I appreciate it's still quite distant from now, but is the call more likely, and are you kind of thinking about any replacement for that perpetual bond at the moment? What are your thoughts there as well? Thank you.
Thank you very much. On cost of risk, kind of it's actually unchanged, 80-100 basis points. Our guidance remains in play. On CET1, we also mentioned quite a few times that it's around 100 basis points, like, let's say management buffer, and depends on the market situations. That's probably the range we would target to stay above regulatory requirements. On the AT1 perpetuals, we do understand market sentiments. We appreciate that, kind of we will act according to that situation when the time comes. We do get what the market expects.
Okay, very clear. Thanks a lot. Appreciate a lot.
Thank you. The next question comes from Simon Nellis.
Oh, hi. Thanks very much for the opportunity to ask questions. Yeah, I guess my first question would just be on margin outlook, if you could elaborate on where you see margins. It's been going up nicely. And then also maybe just a bit more color on how you see cost growth, which I guess has been pretty elevated as well. Thank you.
Yes. Thanks. On margin side, we landed at 5.8%. I would not say it's top. Probably there is some upside as well, increase for the coming quarters. It's difficult to quantify, but probably at least 10, 15 basis points should be on cards. Watch this space positive surprises in there. Now on cost side, yes, we have absolute increase, but we need to understand a few points. There's, let's say, cost growing everywhere. Of course, that's reflected in our case as well. Also, we are growing business, so when we have such a high lease income, we need to pay bonuses, people, salary. When we increase business, we need to hire more people. Also, we are using this opportunity to invest into technology, digital, growing Uzbekistan.
Therefore, as we guided in the beginning of the year, around 20% cost increase in absolute terms probably still remains on cards. The key point is that we are going to use this spend as efficiently as possible, therefore driving our cost income ratio down. If anything goes south, we always have capacity to look at our, let's say, costs, as we have it is in 2020, and we are very kind of, I would say, on the watch for this area.
Very clear. Just on the NIM, what needs to happen to get that 10-15 basis point increase? How sensitive are you to kind of, I don't know, Euro rate moves or other US rate moves?
Yes. As you see, there's a key, one of the key drivers we are increasing of our loan composition, both in terms of portfolio structure and the currency mix. That is expected to continue. That's the first point. Second point is that we are also going and always looking at our balance sheet structure and management and optimizing from that area. Therefore, we still think there's a certain room it will help us. From interest rate increase, in the short term, they will also provide the positive, like help for us. In the medium term, it's more or less actually let's equalize and catch up, but in the short term, that also, I would say, is a tailwind for us.
Yeah. Okay. Thanks very much.
Thank you, Simon. At this point, we don't have any further questions. Just a reminder, please raise your hand if you have any questions.
Yes, it's so easy with such a good news. No more questions.
Thank you everybody once more for joining our call. If you have any further questions, please do not hesitate to contact us by email or phone. Thank you.
Thank you very much.