Dear ladies and gentlemen, thank you for joining our fourth quarter and full year 2022 financial results conference call. I am Anna Romelashvili, Head of Investor Relations at TBC Bank. The presenters today are Vakhtang Butskhrikidze, the CEO of the group, and Giorgi Megrelishvili, the CFO. We will start today's call with a short presentation and provide an update about our financial and business performance. We'll also briefly discuss the recent macroeconomic developments in the country. After the presentation, you'll have the opportunity to ask questions. Now, I would like to hand over to Vakhtang.
Thank you, Ana. Dear all, thank you for joining our call to review our fourth quarter and 2022 full year results. Despite regional challenges, it has been an exceptionally successful year for our group, and I'd like to walk you through our main achievements. As already announced, in the first quarter, we incurred one-off tax charge in the amount of GEL 117 million related to changes in the Georgian taxation model. I'd like to highlight that during the presentation, I will refer to our underlying performance adjusted for this given tax charge. I will start my presentation from slide three, which summarizes our key achievements for the year. Last year, the group generated an excellent return of equity of 29.9%. Our CET1 ratio also remained very strong at 15.5%, which is around 3.7 percentage points.
Minimum required level. We also continued to be the most well-capitalized systemic bank in Georgia. At the same time, our balance sheet growth was impressive, with loans increasing by 16% and deposits rising 31%, both on the constant currency basis. I am also delighted with the performance of our Uzbek operations, which generated positive returns on the back of the high growth. The net profit amounted of GEL 8 million in 2022. It is important to highlight that return of equity of our Uzbek operations reached 27% in a seasonality strong first quarter, while it stood at 6.5% for the full year of 2022. For this year, we expect it to be around 20%, which would mark a great year-on-year progress. Also, share of TBC UZ Bank in our total retail non-mortgage loan book already reached 12%.
This gives us a great platform to build from this year and beyond. Meanwhile, our digital user base continues to grow, with digital daily active users reaching 1.4 million by end year and digital monthly active users at 3.8 million. Before I review our performance in more details, let me provide you with a brief update on the recent market developments in Georgia. In 2022, GDP growth reached double digits in Georgia, despite the adverse impact of the war in Ukraine. Also, inflation started moderating in the second half of the year, dropping below 10% by year-end. At the same time, the lari appreciated by almost 15% against the dollar, making it one of the world's best performing currencies throughout the last year. Finally, last year, we saw an accumulation of the central bank reserves and improved fiscal positioning.
The next slide further show Georgia's solid economic fundamentals. In contrast to sluggish growth in the region, the Georgian economy had grown over 10% last year, and for this year, we expect a modest slowdown to 5%. It's also important to note that there has been further improvement in the net balance of the trading goods, as well as increased inflows from tourists and remittances. These inflows remain well diversified across different regions with the European Union as the largest contributor. The next slide show the how Georgia's robust economic performance has been reinforced by easing inflation and growing monetary and fiscal buffers. As already mentioned, inflation ended the year below 10% and we expect it to fall further in this year.
In 2022, we also saw a strengthening of our international reserves and a positive dynamics in the both fiscal deficit and debt-to-GDP ratio. The former narrowed to 3.1% in 2022, while the public debt-to-GDP ratio fell to 40%. Now, let's move to the next slide, and I'm proud to reiterate our leading position in Georgia and once again to emphasize our huge growth potential. Our strong market position in Georgian financial service sector gives us a solid base of a steady growth and solid profitability. At the same time, our digital ecosystem, TNET, is helping us build customer loyalty and engagement. Finally, we see huge potential in expanding our Uzbek operations through our banking and payment subsidiaries.
By the end of this year, the number of our registered users in both geographies reached a sizable 13.6 million, out of which 4.4 million were monthly active users. Moving to slide nine, you can see our leadership positioning across all the major segments in Georgia. The main point here is that in 2022, our loan book growth was mainly driven by retail and MSME loans, while deposits grew across all segments. Next, on the slide 10, I'd like to briefly summarize our fourth quarter and full year financial results. In first quarter, our net profit increased by 70% year-on-year, reaching GEL 336 million, while the full year earnings grew by 38% to record GEL 1.1 billion. This earnings growth was driven by strong income generation across the board with a large contribution from non-interest income.
Our return of equity in the quarter stood at 33.6%, while for the full year it was 29.9%. On the next slide, I'd like to highlight some of the positive developments in our digital ecosystem, TNET. As already mentioned, we have the largest digital ecosystem in Georgia, consisting of four verticals: lifestyle, housing, auto, and e-commerce. Last year, we had 1.9 million unique annual visitors across all verticals, equivalent to 67% of the adult population of country, which accounted for around 40% of the internet traffic among the Georgian websites. The next slide dives into a bit more detail on our digital ecosystem. Last year, all our key operating metrics grew very nicely. Total gross merchandise volume increased 4x , reaching GEL 103 million.
At the same time, the synergies with our core financial services are growing. The number of leads more than doubled to over 300,000, and 5% of TBC's retail loan disperses last year we generated from TNET leads, a result we are very pleased with. As our ecosystem business continues to grow, we expect it to generate an increasingly meaningful contribution to our fee and commission income, as well as supporting our loan book growth. Next slide highlight the excellent growth of our payment business in Georgia, which is a significant driver of our net fee and commission income. Last year, the number of POS, transactions, and transactions with TBC cards increased by around 30%. According to the latest update from the VisaNet, Georgian banks ranks number one in contactless payment penetration globally, and we're proud of our substantial contribution to these outstanding achievements.
Slide 14 highlight the increasing digital engagement of our customers. Last year, our group's digital daily active users grew by more than 60% year-over-year to 1.4 million, while the number of monthly active users rose by almost 50% to 3.8 million. Our transaction offloading ratio of 99% mean that only 1% of all transactions are conducted in branches. In addition, the share of consumer loans and deposits also sold remotely remains high and stood at around 70% by the end of the last year. Now it's my pleasure to provide some more color on the rapid growth and significant milestones achieved in our Uzbek banking operations.
By the end of December, the number of registered users for our TBC UZ Bank application reached 2.4 million, while monthly active users were 400,000, both substantially up compared to the previous year. Our retail loan and deposit books continued to grow strongly accounting for 1.4 and 2.2 market shares at year-end. I'd like to draw your attention to the top right chart, which for the first time will show the key quarterly financial metrics of TBC UZ Bank. As you can see, revenues are growing well, and the business is close to the break-even point. Finally, on the slide 16, I'd like to highlight the excellent performance of our payment subsidiary, Payme, which is the second largest payment provider in Uzbekistan. Last year was a great year for Payme, as these numbers show.
The number of daily active users and monthly active users grew by 150% and 56% respectively, with the former hitting 1 million customers. The number of merchants also increased by 22% year-over-year. I'd like to highlight that in the first quarter, net profit more than doubled year on year, to almost GEL 13 million. I'd like to hand over to Giorgi. Giorgi, please.
Okay. Thank you, Vakhtang. Now, I would like to present our very strong financial performance for Q4 in 2022. As Vakhtang already mentioned, I will discuss our performance on an underlying basis, adjusted for one-off tax change. Before I go through our excellent financial results, I would like to briefly address the updated treatment for our options for Uzbekistan subsidiaries. I think a few key points are worth mentioning. The first of all, we reassessed this treatment in light of the upcoming call option on Payme due in Q2 2023. We have very standard put and call options in our shareholder contracts with Payme's founders and EBRD and IFC, who are our bank's partners, as we previously said to the market. According to IAS 32, we are required to recognize the put options for non-controlling interests, NCI, as liabilities.
The standard actually assumes that they will definitely be exercised in full. That treatment applies just because we control both Payme and TBC UZ Bank for consolidation purposes. We should only recognize this effect at the holding company level, as the counterparty is the holdco, not the Georgian JSC. In effect, the Georgian standalone bank is not part of these deals. As you can see from the results, there is no impact on its capital and already has a capital position and ratios. I want to highlight that what is booked is not fair value of the option. The put option, for example, for Payme is out of the money and call option in the money. The standard actually requires recognition of the discounted exercise price as a potential liability, which is not fair value of the options, I want to reiterate again.
Given the options relate to NCI, their fair value can't be booked in P&L. Otherwise, the group would have actually already recognized a gain on its PayMe call option, for example. In case of PayMe, as mentioned, the put option is heavily out of the money, meaning that it is almost certain not to be exercised, while our call option is heavily in the money. When we acquire the remaining 49% that we intend in Q2 2023, the put liability on the PayMe transaction will unwind. There will be no material faster equity impact as we already booked for the equity impact of this acquisition now. I would like to highlight, just because PayMe is a consolidated company, we are booking to less equity. Otherwise, if it were an external company, the treatment would be just booking goodwill on the books.
A critical point to bear in mind is that we fully expect the purchase of the remaining 49% stake in Payme to be value positive from really day one. The market value of the business is materially higher than the option exercise price, and as the result shows, the business is performing extremely well. In the case of TBC UZ Bank, the earliest possible exercise date in 2027. That portion of the put liability will remain on the balance sheet up until then, being revalued on a quarterly basis. Probably, we don't expect material impact. If it increases, it means that business doing greater. If the put option is not exercised, it will reverse. If we exercise, the treatment will follow exactly the same logic as I just described for Payme.
I would also like to stress that this treatment has absolutely no impact whatsoever on our group P&L, nor on our TBC Bank capital or capital ratios. In addition, there is no impact on group's ability to pay dividends or pursue its current growth plans. Indeed, we intend, of course, subject to Board and AGM approval, to increase our dividend payout ratio for 2022 relative to last year's 25% to be communicated in due course. I hope that this clears up some potential questions, and of course, I am more than happy to take any further questions later in Q&A. I will go back to show our fantastic achievements for 2022, and I'll start with slide 18. First of all, I would like to say that we are very proud of what we achieved for this year.
It has been yet another very successful one for us. Our ROE remained stable quarter-on-quarter at very solid 33.6%. Net profit was up by 5% to around GEL 337 million. For the full year 2022, net profit increased by 38% year-on-year to a record just over GEL 1.1 billion, while our full-year ROE stood at 29.9%. I would like to move to slide 19 and discuss the main drivers of our profitability. In Q4, both NII and non-interest income have continued to perform extremely well. Our NIM stayed stable quarter-on-quarter at very robust 6.3% in Q4 and was up by 95 basis points year-on-year.
This strong growth was mainly driven by loan yields, composition effects, and very disciplined balance sheet management, with TBC Uzbekistan contributing now 20 basis points, as you can see on this slide, which we are really very pleased to see. Our non-interest income was broadly stable quarter on quarter, while net fee and commission income was up by 11%. Non-interest income on annual basis more than doubled, with 118% growth. Key drivers being strong FX gains and very strong 34% increase in our net fee and commission income, driven by growth of our payment business. Let's move to slide 20 to review our costs.
In Q, cost our cost went up by 40% on quarterly basis just to a general, let's say, seasonality that we see every year, while year-on-year increase was related to the overall expansion of our business as we remain in growth mode in a number of areas. The most important fact is that our income continues to grow at much faster rate, resulting in a decrease of our cost to income ratio to 33.2% in Q4 2022 compared to just above 40% last year. For the full year 2022, our cost to income ratio stood around the same rate, 33.4%, an impressive 4.2 percentage points decrease year-on-year. Moving on to slide 21 that underlies our strong asset quality.
NPL decrease was quarter-on-quarter and year-on-year across all segments and stood at 2.2% at year-end. Total provision coverage stood also at very robust 156%. In Q4, cost of risk decreased to 0.6%, mainly driven by better macro assumptions and strong performance of the portfolio. Consequently, the full year 2022, the cost of risk landed at 70 basis points. On the following slide 22, I'd like to show very briefly performance of our portfolios because Vakhtang already covered them. Our loan book grew by 16% year-on-year on a constant currency basis, mainly attributable to retail and MSME. Over the same period, our deposits grew by 31%, spread more or less across the segments. Now let's move to slide 23, where you can see our very solid capital positions.
Our capital ratios remained at very prudent level at December 2022, well above the minimum regulatory requirements for all tiers. Our CET1 ratio increased by 20 basis points quarter-on-quarter, mainly driven by net profit. That shows the strength of our, let's say, franchise to generate capital through its organic growth. On slide 24, I would like to talk about the transition to the IFRS-based capital compliance that many of you asked before. Starting from the 1st of January, per NBG's new regulation, the banks need to comply with IFRS-based capital requirements. The technical details are on this slide, I won't go into there. However, it's important to highlight that the transition was broadly capital neutral. Positive for CET1 and Tier 1 capital, with slightly decreasing total capital.
The good side also, one of the less good side is that going forward, we won't need to explain to you the differences for our capital ratios between local and IFRS regulatory basis. This will clearly show our capital strengths at comparable basis with other banks globally. The bank retains very strong capital ratios, as I mentioned, even on IFRS basis, well above the reg requirements. For example, our CET1 ratio is 18% +. On slide 25 that shows our liquidity and funding position. The share of customer deposits in total liabilities stood at 72%, more or less constant compared to previous quarter. IFI funding, including senior and sub loans, was 8% of total liabilities. Our liquidity ratios, both LCR and SFR continue to be well above the regulatory requirements.
Slide 26, where I would like to highlight the financial, I would say, fantastic financial performance of our Uzbek business. I'm very delighted to reiterate Uzbek operations is profitable for 2022, as Vakhtang already highlighted, generating GEL 8 million in net profit, while ROE reached 27% in Q4. This quarter was a bit elevated by Q4, let's say, seasonality. We expect to generate around 20% ROE this year, meaning that we are well on track to hit our 30%+ ROE target sooner rather than later. Vakhtang already mentioned, our Uzbekistan bank approached break even in Q4, but I'm also very pleased to add actually it was profitable in January already. We are on track for this as well.
In terms of financial measures of TBC UZ Bank, TBC Uzbekistan Bank, NIM stood at 17.2% for Q4. Cost of risk was 7.6%. As Uzbekistan bank was in startup mode in H1 2022, Q4 numbers are a better assessment of what we can expect going forward for NIM and cost of risk. I would like to mention also, both have some upside potential. I would also like to reiterate the midterm targets of our Uzbek business. 30%+ ROE, probably a few pluses, not only just one. 5 million monthly active users, and 10%-15% share in group's net income. On this note, I will conclude my part and hand over back to Vakhtang. Thank you.
Thank you. Now I'd like to wrap up today's presentation by reiterating our new and existing medium-term targets and comparing our performance in 2022 against those targets. Our monthly active users stood at 4.4 million compared to our 7 million target. Our Uzbek banking and payment business, as Giorgi mentioned, generated positive results in 2022, and we have a plan to grow it to 10%-15% in our total Group's profits in the medium term. Our loan book grew by 16% year on year on constant currency basis against our target of 10%-15%. Our return of equity was 29.9%, meaningfully above our medium-term target of 20%+. Our cost to income ratio was 33.4%, lower than our medium-term target of below 35%.
Finally, our dividend payout ratio, as you know, is targeted 25%-35%. Last year we already paid an interim dividend of GEL 2.5 per share and launched a share buyback program with the value of GEL 50 million. Now it's the last part of our presentation. Now I'd like to invite you to ask the questions.
Thank you, Vakhtang. Just to remind you, if you are using your Zoom application, please use the Raise Your Hand function at the bottom of the screen. If you are calling from your phone, please press star nine and raise your hand. I will unmute the participants in the chronological order and invite to ask questions. The first question comes from Robert Sage.
Yes. Hi there. Can you hear me?
Yes, we can.
Thank you. I have two questions, if I may. The first question relates to capital, when I'm really looking at the new IFRS sort of based, sort of capital ratios that you've shown us, where the headroom, as you say, has remained, you know, very high, over and above your minimum requirements. I was just wondering at this stage, 'cause my modeling sense does suggest that you continue to generate, sort of excess capital. At what sort of type of level we should expect to see you moving into capital distribution mode? Is there a particular level of CET1, a target level perhaps, where we might be able to begin to calibrate when, say, buybacks or enhanced dividends might be, sort of come into the frame?
The second question, entirely unrelated, is just in terms of the net interest margin. I was quite struck by the fact that the Uzbek operation contributed 20 basis points to your group margin in 2022. Sort of looking forwards into 2023, given the fact that your Q4 margin was stable on Q3, do you think that there's potential for this to move higher given the impact of Uzbekistan as that sort of grows in materiality terms within the group?
Thank you, Rob. I'll take both questions. Our capital position is indeed very strong. As I highlighted during my presentation, our intention to move up higher from 25% that we paid last year, subject to Board and AGM approval. At the moment, as I highlighted a few times, we have few capital directions. It's to support our robust loan growth in Georgia, to support our Uzbekistan business, and we have upcoming payment deal in Q2 that we intend to exercise, and Uzbekistan bank needs to grow as well. In addition, we are going to increase our dividend payout, as I highlighted. Going forward, of course, we generate sufficient amount of capital. We've always been looking how to best distribute those capitals back to our shareholders. As Vakhtang mentioned, we last year completed buyback.
This year it's not part of our official capital distribution policy. During the year, we will reassess what's the best use of the capital, whether it be dividends, putting growth modes. What I can promise, our shareholders will be happy with the, let's say, returns they will get. On the other part of this question is that what buffers do we intend? Currently it's quite a significant uncertainty around the region, we are keeping a bit higher buffer. Usually we intend somewhere like maybe, depends on the current, around 1.5%, maybe somewhere 1.5%-2% of the buffer over the minimum. That will be our target, depending on the situation in the medium term. Hopefully that covers first part of the question.
On net interest margin, indeed, we saw our margin to stay stable. Going forward, we expect loan composition to contribute faster. We continue our disciplined balance sheet management, and our Uzbekistan to contribute more. There may be some headwinds for reference rates coming down that probably will be slower than we initially expected. Despite that, we probably see some upsides here, to be honest, like maybe 10 or 20 basis points more. We should be, like, seeing that. It's not at all if kind of from our side, 6.3.
Thank you very much.
Thank you, Robert. Just to remind you, if you have any questions, please raise your hand. We have a question coming from Simon Nellis.
Hi. Hi, thanks very much for the opportunity. I guess two things. Could you just give a bit of a, an outlook for each of the key P&L line items and loan growth? That would be helpful. I guess just, you know, fees, outlook for FX operations, given that that's kind of uncertain, OpEx and risk costs and loans. Then second, just on the buyback, so can you just run through exactly how much you've bought back, if there's anything else left? It doesn't sound like there is. I was looking at your share count. It doesn't seem to have changed much despite the buyback. Why is that?
Let me start with the second question, because the second, the first one is a bit wider. We almost completed GEL 50 million, maybe GEL few hundred thousands are remaining. And on the shareages, I'm not certain because we have the cancel exempt, probably we can come back, but it should be adjusted at the moment. We definitely bought and canceled, I can assure. On the key P&L alliance, I already provided our expectation for the NIM.
Mm-hmm.
The second component of the NII is loan book growth. Probably this year was a bit at higher end with the GDP growth. We expect GDP to slow down given the very strong increase for the last 2 years, 10%+. Therefore, probably we should be lend between our 10%-15% of loan growth, maybe somewhere in middle. That will be our expectation for Georgia. However, we are going to increase our loan book in Uzbekistan as well, and therefore we target to lend at a higher end overall for the group, if not surpassing that. That is on the NII side. On FX, really it was certain one-offs, but I would like also to reiterate that it's not only one-off. Our strength of our treasury FX business has increased significantly.
I would say that what we saw probably in 2022, 65%-70% may remain as a business, as a BAU mode. We should expect still quite a good support from FX income going forward. It's not all one-off, maybe around 30%. On net fee and commission income, we always provide guidance that we would like to grow at least 20%-25%, but we always surpass that. We hopefully our guidance remain 30%-25%, but we do hope that we again overachieve this target. On cost side, probably we, as I mentioned, we remain in a growth mode. The inflation was there last year as well. We increased our TNET, increased Uzbekistan. Probably somewhere around 20% we should still expect our cost growth.
However, we need to note that we do target to increase income at like around same level, and our cost-to-income ratio should be around our targeted level, like 35%. We, that's what we kind of at the moment target. Cost of risk, our guidance remains unchanged. We have very strong loan book, so it's very strong book. It's around 100 basis points in Georgia that will remain, maybe Uzbekistan adding a bit up to 10 basis points. Overall, I would say that including Uzbekistan and its materiality around 100 with 10% for the group and for Georgia around 90%-100%. That would be our expectation for 2023.
Super. Very clear. Thank you.
Thank you, Simon. We are waiting for more questions. Here comes the question from Can Demir.
Yes, good afternoon. Thank you for taking some questions. I wanted to ask two questions on Uzbekistan. You mentioned Uzbekistan could contribute 10%-15% of net income. Is that based on TBC owning 60% of the bank in Uzbekistan or 100%? I just want to understand that. Maybe you could also disclose how much equity there is in Payme, just so that we understand how much capital is deployed there in Uzbekistan. Maybe also talk a bit about the cost of capital there, so we can gauge it. We can get a sense of it against your ROE.
Okay.
Thank you very much.
I think cost of equity for Uzbekistan is not much high. Is not higher than for Georgia. If you look IFRS and all this, they are more or less equivalent. At the moment, I think that's like around 20%, if I remember correctly. I need to check, but don't want to mislead you. The Payme capital is actually not much. I would say, it is even much like it's a capital light, let's say, business. We should expect to generate quite high ROE. At the moment, I don't have exact number at the top of my head, but we will publish it for everyone to see, not to mislead you. For 10%-15%, initially, actually we expect it's the entire Uzbekistan to generate.
We need to keep in mind that Payme, we are going to acquire Payme entirely. Again, we are targeting to usually oversurpass our target going forward. Vakhtang, is there anything you want to add?
No. Just to add that yes, it's a medium term, medium term we mean in 2025, in 2 years period. Also just, when we bought Payme 3 years ago it was existing business. As a bank, we began our operation 2 years ago. As we mentioned already, we are, in January, we became profitable already after 2 years of the operation. This year our Uzbek bank will be profitable, and probably in 2024 it's already generating enough, profits just to give more profitability to our group's level. 10%-15% is realistic. As Giorgi is saying, all time we outperform our targets, so we believe that we will do much more into businesses in Uzbekistan than we have in the past.
Yes. I, Giorgi, I actually meant to ask about the banking business in Uzbekistan rather than Payme, because I know you will acquire probably 100% of it.
Okay.
I was wondering if you're assuming you would own 60% of it in 2025 or 100% of it when you say, the Uzbek operation will account to 10%-15% of net income?
In the banking, we indeed own at the moment 60%. It's around GEL 80 million capital. And the option will be like the exercise date is 27. But again, these things change and we need to kind of see and observe how the situation goes. At the moment, 60% is basic assumption.
Okay. Okay, understood. Can I ask one last question about this redemption liability.
Of course.
I think ruffled the feathers a bit in the market. Just so that I understand clearly, so if you bought Payme today outright 100%, obviously that would have caused a goodwill, which we would have deducted from tangible equity, and we would have said, "Okay, this is the return on tangible equity of the bank, and this is the tangible equity." We would do the math in accordance with that. Now, because you cannot book goodwill, you just deducted the amount that you would pay over the book. As a result, nothing actually changes at the bottom line for you, right? I mean.
That's very good summary indeed. Because we have non-controlling interest minority shareholders, per IFRS standards, all the impact should go through equity remeasurement. If Payme were external company and we would have bought, we would have booked goodwill. At the moment, book value of Payme is small, exercise price is much higher, therefore there comes goodwill. One key point, the fair market value of the Payme is much higher than the exercise price. Therefore, it will generate even more benefit for the group. You can see from the numbers, its performance.
Of course. Of course. I was just focusing on the, you know, immediate accounting impact and how.
Yes.
How we would have gone about it if, you know, you acquired 100%. I'm just trying to.
That's correct.
Yeah. Yeah.
For example, if we acquire any external company that we pay over book value, we will just book it as a goodwill. Given we already have controlling interest, we just need to follow what standards require. Well, from RoTE perspective, nothing changed. You are right.
Okay, understood. Very clear. Thank you very much.
Thank you, Can. Let's wait if there are any more questions. Just a reminder, please raise your hand if you have questions. It seems that we have covered all the questions. Thank you very much once again for joining our call.
Ana, there are one more questions. On the funding need of Payme, you can probably show our surplus capital that we have. It's more than enough to exercise Payme business, so.
Yes. Maybe I will summarize. Thank you very much for all the participants. Once more, I will reiterate that 2022 was very successful year for TBC Group. As we mentioned already, our profitability was around 30%. It will be continued this year. I think it was also very successful year and we are continuing our strategy, diversifying our portfolio. 3, 4 years ago, we had business in Georgia, and today, at the end of the last year, as I mentioned in my part of the presentation, daily active users in December we hit 1.4 million. Monthly active users around three point. How much? 3.8 million. It's more than the population of the country. We will continue to work in that direction, and I believe that in 2023 when we will have better results.
Thank you once more.
Thank you again.