My name is Lucy. I'll be your moderator today. If you wish to ask a question during the webinar, please use the Raise Hand button if you've joined the call via Zoom. If you have joined us on the phone, please press star followed by one on your telephone keypad. Alternatively, you can use the Q&A chat box to submit a text question. It is now my pleasure to hand over to Andrew Keeley, Director of Investor Relations, to begin. Please go ahead.
Thanks very much, Lucy, thank you everybody for joining our Q1 results call today. As usual, I'm joined on the call by our Group CEO, Vakhtang Butskhrikidze, our Group CFO, Giorgi Megrelishvili, and our Head of International, Oliver Hughes. We'll start with a presentation, then we'll go to Q&A. With that, I'll hand over to Vakhtang. Thank you.
Thank you, Andrew. Hello, everyone, and thank you for joining us today. I am pleased to present our results for the Q1. We made a good start to the year, delivering gross net profit of GEL 365 million, up by 15% year-on-year, with return on equity of 23.4%. Georgia had another strong and consistent quarter with net profit of GEL 362 million, up by 14% year-on-year, and return on equity of 24.1%, helped by a decent start to the year in lending as loans rose by 12% year-on-year. In Uzbekistan, as we had previously guided, we continued to recalibrate our loan book in the Q1, which impacted our revenues and overall profitability, but net profit was still up by 14% year-on-year, with double-digit return on equity.
We continue to successfully diversify our loan book, including building out our business lending with more than $150 million portfolio, and we see a very good momentum across our core verticals and product pipeline. Overall, following the Q1, I believe our growth outlook for the full year remains on track. Turning now to Georgia. Georgia's economy continues to post dynamic growth with real GDP growth accelerating to 9.1% in the Q1. As elsewhere in the world, the Middle East conflict has impacted inflation, which has ticked up to 4.3% in March. In response to today, the National Bank of Georgia has raised the refinance rate by 25 basis points to 8.25%.
Reflecting the strong start to the year for the Georgian economy, we have revised upwards our GDP growth outlook to 7.4%. Slide seven simply highlight the consistently high profitability that our Georgian franchise generates, with many serial quarters of return of equity around the mid-20s. One additional observation is that you can see the Q1 is typically a bit softer than following quarters, which is something we expect to see this year as well. We continue to be a leading player across most key banking segments in Georgia, with 37% share of both loans and deposits. The Q1 saw decent growth, with gross loans up by 2% quarter-on-quarter and rising by 12% year-on-year. Cash loans continued to show strong growth, while we also had a very decent 15% year-on-year growth in CIB business.
Meanwhile, our customer deposits are up by 14% year-on-year. Slide nine shows how digital engagement among our retail customers in Georgia continues to grow. With digital monthly active users up by 19% year-on-year and our DAU-to-MAU ratio now standing at around 50%, a good achievement as more of our customers interact with us on a daily basis. We also continue to see the high share of unsecured consumer loans and retail deposits issued fully digitally. I'm pleased to share that we have been received increasing recognition from our innovation, technology, and digital customer experience, including recent awards from The Banker, Global Finance, Euromoney, and The Digital Banker. These awards reflect the efforts we have made to provide the best possible customer experience for our customers. Let's turn to our Uzbekistan business.
As with Georgia, Uzbekistan economy continues to post remarkable growth, with real GDP growth of 8.7% in the Q1. Inflation moderated to 7.1% also as of March. However, recent increases in global commodity prices are likely to push inflation in the near term. On the slide 13, we continue to see very strong traction across the businesses. Our daily banking product continues to scale, with Salom Card issuance now above 1 million, and Osmon credit card issuance above 180,000. We see high activation rates across the both products, and both are starting to become a more material contributors to our deposit and loan books.
Payments total value in the Q1 reached $2.6 billion, up by 40% year-on-year, as more customers use Payme and TBC for a range of daily payment activities. Indeed, we now have 1.1 million active customer subscriptions across TBC Plus and Payme Plus. On the lending side, our loan book is diversifying, and business lending is becoming a larger part of the portfolio, with over 185,000 business loans issued to date and business loans now representing 18% of the total loan book. We expect this year to continue growing, helped by the upcoming launch of collateralized loans in the next few months. On slide 14, we see that the strong momentum across our core verticals is supported by an active product development pipeline.
In the Q1, we launched TBC Business application. The slide also sets out several planned launches in the coming months, including collateralized loans and auto loans. We have also rolled out new features in Payme, including BNPL for Payme travel. We continue to build out a proprietary AI infrastructure with the recent launch of AI assistant Lola inside the TBC Bank mobile application. This launch laid the foundation for the faster development and intelligent financial services. There'll be more to come in the coming months as we expand Lola's capabilities. My final slide looks at some of the key core metrics of our Uzbek business over the past three years.
As you can see, while user numbers remain very impressive, loan growth and profitability have taken a hit over the past couple of quarters as we have adapted the business to regulatory changes around the consumer lending. While this process has not been easy, it is laying the foundation for a well-diversified business over the next few years, as we also expect to see loan growth recovering in the H2 of the year, which will be good to see. Thank you very much for your attention, I will now hand over to Giorgi.
Thanks, Vakhtang, and thanks all for joining our call today. I'll take you through the financial performance of the Q1, and then if we move to next slide, 17. It was a solid start of the year, as you can see. The net profit was GEL 365 million, up by 15% year-over-year. The quarterly decline is just normal, let's say, seasonality versus Q4, and return on equity was 23.4%, above our 23% target. Overall, I would like to reiterate Vakhtang's comment that we feel confident that this Q1 provides a very good foundation to meet our strong growth targets. Andrew, if we move to slide 18, to discuss the key drivers of our profitability.
Top line was up by more than 10%, as you can see, double digits to GEL 859 million. That was mainly fueled by net interest income of 17%. Non-interest income growth was a bit softer side, as we guided. It was slightly down year on year and it's mainly driven by Georgia business. As we continue to build our TBC Card, but with lower bonuses and cash backs from our schemes this year. We do expect Georgia fee and commission income to be flat this year with year on year growth to pick up latest from H2. Strong take-up of TBC Card is actually feeding into cross-sell, as you can see, such as consumer loans or CASA, let's say, accounts, and that drives our strong net interest income.
Overall, we do expect to have a double-digit top line growth this year. Also, I'm very pleased to see that group NIM actually remained at 7% level. Georgia NIM was up by 20 basis points quarter-on-quarter. That was driven by strong loan growth into consumer loans, as I mentioned already, and a robust balance sheet less management. Our Uzbekistan NIM ticked down slightly as we guided. That was only because of higher, let's say, liquidity, as we're still getting funds from our clients and their lower loan yields. If we move to slide 19, our cost growth. Our cost grew by 20% year-on-year. That was mainly driven by a lower cost base in Q1 last year, as you clearly see from the charts.
We had some new launching of the bonus schemes and the normal business growth. We do expect Georgia cost growth to actually stabilize to low teens, and that will translate into returning to our cost to income ratio that we have seen last few quarters, around 37%-38%. Please let's move to the next slide 20, to our asset quality. Our cost of risk was up by 10 basis points compared to last year. Georgia cost of risk actually remained very healthy at 60 basis points. We saw the pickup in to our TBC Uzbekistan business, as we also guided. That was mainly driven some seasonality, also some residual provisioning on the back book cash loans and the contraction of the loan book.
If we turn to the next slide 21, to have a look at our balance sheet growth. The portfolio growth was strong. We were up double digits both for customer funding and gross loans, and we do expect to continue strongly. Not much to say on this slide. If we move to slide 22. Again, I'm not going to spend too much time on this slide, as little has changed. We have a comfortable capital buffers, well above regulatory minimum requirements. If we move to slide 23. Our strong capital position, our profitability actually allows us to continue to pay dividend. This quarter, we will be paying GEL 1.75 per share. That will be paid in September. If we move to the last slide, 24.
Finally, I would like to reiterate our 3-year group financial targets that we laid out at our strategy day in late February. We remain committed to meet those targets. Those are to grow our loan book 15%+, deliver ROE 23%+, and our payout ratio to be between 25%-45%. On this note, I'd like to open for a Q&A. Thanks.
Thank you. If you would like to ask a question and have joined via Zoom, please press the raise hand icon on your screen. If you've joined the call on the phone, please press Star followed by one on your telephone keypad. Alternatively, you can use the Q&A chat box to submit a text question.
Thank you, Lucy. Our first question is from Alex Kantarovich of Roemer. Alex, please, go ahead.
I think you're muted, Alex. Can you hear me now? Yeah. All good. Yes. Seems like very robust performance in Georgia. That's great. In Uzbekistan, I'm looking at the quarterly loan intake numbers, and I'm seeing that in the business loans or SME loans, I presume these are the same, we have a sharp drop in new net loans in Q1 2026. If I took your split for gross loans, and it appears that in Q1, SME loans increased by just GEL 5.4 million, which is a massive drop from Q4. Credit cards also were just half of a new loan intake from Q4.
I would like to get some guidance, what should we expect in the remaining three quarters for the year, so I can do some number crunching? Thank you.
Sure. Hi, hi, Alex. We'd be happy to, you know, help you understand the numbers offline. Please feel free to reach out after this call. Just to give you the high level view, yeah? There are basically two parts to the business loan portfolio. You're right, the SME, we use the words SME and business lending interchangeably. There are business cash loans, BCL, which we disperse to self-employed people in Uzbekistan, and that loan book is very similar to the instant cash loan, ICL loan book that we've had for 5, 6 years, which is our most mature business. That's part of the sales funnel for the cash lending business.
When we basically slowed down to a trot, and actually stopped our cash lending business in December and January due to the regulatory changes, that meant that we had less leads coming in at the top of the funnel for business loans, the BCL side as well. That explains the slowdown in business cash loan lending, which has now resumed. The second part of our business loan book is MSME. There we have micro and small loans, and we have some larger, let's say medium sized SMEs. That's been growing nicely. It's obviously very early stage for us, but that's something that, as you know, we're putting a lot of emphasis on because that was something that was in our product development roadmap.
Also, we need to do a lot more of this in order to rebalance our portfolio for due to the regulatory changes. That explains a little bit about what's been going on in Q4 , Q 1, which are the dynamics that you picked up on. You should expect to see the business cash loan book increasing. As well as the SME, MSME lending book as well. In terms of the loan dynamics for the year, Vakhtang referred to this in his introductory presentation. We are seeing a contraction in the loan book in Q1. We believe that Q2 will bottom out, and we actually, if you look at the leading indicators, you can see that we are booking more customers now. In terms of numbers of customers, the loan book is growing.
In terms of balances, it's still declining a little bit. As I say, we expect it to bottom out towards the end of Q2, and then we'll go back into growth, cautious growth, in quarters three and four. That's where we expect to be. It's difficult to give numbers due to low visibility at the moment. By the time we get to Q3, when we're giving the Q2 results, we'll be able to give you a lot more clarity in terms of the loan growth outlook.
Okay, yes. I appreciate that we can discuss it offline. Just to second question I have. We before mentioned margin stabilization at near low 20s or 20%. Could you please confirm this?
Sure, yeah.
Net interest margin, yes.
Yep. Let me just explain a little bit more about what's happening to the NIMs. We had NIMs in the low 20s, a year or so ago. They ticked down as the loan book mix started to change, but more importantly, in Q3, Q4 and going into Q1, as we had to reduce our higher margin lending businesses due to the regulatory changes that I think everybody understands, but I can remind you just in case you need reminding. That meant that we were doing more business loans, which are lower yielding, and a lot less, in fact, virtually no cash loan business, which is the higher yielding numbers.
There was also a backdrop of, let's say, soft regulation where the regulator was talking down headline rates, and therefore the yields were going down on our loan book. That explains why we dipped down to 17%, thereabouts, for Q1. we now expect that trend, downward trend to stop. We expect it to pick up as we go into Q3 and Q4. The reason for that is because we have restarted our cash lending business on the MFO. As I mentioned earlier, we're now doing a lot more business cash loans, which is part of the overall cash loan funnel. We're obviously still doing SME loans, which is a business we want to grow, and that's lower margin. We also have credit cards, which are now a bigger part of the mix.
That's already 9% of our total loan book, and that's growing, and they're high margin as well. We expect the margins to recover, and just to reiterate, we believe that we can recover to the region of 20% NIM by the time we get to the end of the year.
Okay. Okay. That's very good. My last question, given this, somewhat uneven revenue dynamics, what should we expect in terms of operating costs for Uzbekistan? Will it be sort of, comparable to Q1? Is this the run rate? Or will you add capacity, people, what have you?
Sure. Again, it's very difficult to give you any, you know, meaningful short to medium term numbers because things are still moving around a little bit. As I say, we will have more clarity on in Q3 as we look back to Q2 and when we give those results to the market. We're obviously trying to keep very tight costs because the revenue's gone down as a result of the loan book rebalancing.
Yeah. Yeah.
Yeah. We're now investing in growth again. As I said, we think we're gonna bottom out in Q2 , and the loan book should resume growth as we go into Q3 , Q4 . To do that, we obviously have to invest in people and acquisition cost. Basically marketing. You should expect the run rate to be similar, but maybe go up a little bit.
Okay. Okay. That makes sense. Thank you, Oliver. That's all from me. Yeah.
Thanks, Alex. Next question from Piers. It's Investec. Piers, please go ahead. Piers, I think maybe you're muted. We still can't hear you. Okay. Maybe you can try again, Piers, 'cause we can't hear you. Okay, Lucy, can we go to the next question, which is coming from Dmitry from Wood.
Thank you very much and congrats on the results. I have a few questions, please. Just the first one on cost to income ratio, specifically in Georgia. Yes, we saw a bit of an uptick, and you mentioned during the conference call that on a group level, it will normalize in the coming quarters towards this 37% level. I'm just wondering, specifically in Georgia, like, did you see an inflation uptick? Like, how difficult would it be to reverse it in this region? That's the first question. The second one is on fees and commission. It's clear that it will be flattish in 2026. I was just wondering what sort of growth you expect later, maybe in 2027.
Just to finally follow up on what Alex was asking for the Uzbek business. Previously you mentioned that you expect around 20% growth year-over-year. Looking at the Q1 so far, do you still expect it or do you expect it to be a bit lower than that? Thank you.
Well, thank you, Oliver. I'll take first two. You can please cover Uzbekistan. On cost to income ratio, as I mentioned on the call for Georgia, we do expect low teen growth. It will stabilize. We don't expect massive growth.
Giorgi, could you speak louder? We could.
Yeah, s ure. The Georgia cost to income to be at the same level we have seen last few quarters. If you look at Q1, low 30s. We don't expect any pressure or any abnormality on the Georgia core site. It's just Q1 was a bit, let's say, outlier, I would say. Nothing to worry about. On fee and commission income, as I mentioned, on Q1, we expect to pick up from H2 at 2027 and 2028. We do think already to have a double-digit growth in fee and commission income as well. The growth will resume starting already H2 and double-digit 2027 and going forward.
Thank you, Giorgi.
Please.
The Uzbek question. Let me just take a step back from your question just for a second just to make sure that everybody's on the same page. The backdrop is that the regulator had basically took a different view to what was previously the case, the previous course regulation, and decided to reduce the money supply or control the money supply. One of the ways of doing that was through consumer lending and making sure that, A, they were able to meet their inflationary targets, B, control money supply by, let's say, reducing the growth rate of consumer lending, and C, managing the macro risk build-up over time. They, as a result of this, introduced two things.
The first were portfolio caps, which meant that different asset classes were capped at 25% effective from January 1st, 2029. Although the Central Bank wanted this to happen earlier. The second was the reintroduction, basically of risk weights for consumer lending, different asset classes. As a result of the agreement that we struck with the Central Bank, as a result of the introduction of much higher risk weights for unsecured consumer loans from July 1 this year, we had to climb into this new structure of our portfolio. In order to do that, there are two things. It's a function of two things. The first is the speed at which we can reduce our microloan book, which is cash loans. That's what it's called in Uzbekistan.
The second is the speed with which we can ramp up other businesses which sit in different portfolio caps, different buckets. Obviously we're ramping up credit cards, we're ramping up business loans. We're soon to launch auto loans, basically next month. We're actually testing at the moment. We'll be launching secured loans, collateralized loans for SMEs in mid-year. That means that we'll be speeding up the diversification of the balance sheet. On the other hand, we have to do something with our cash loans because they have to fall below basically 50% at the end of this year.
They already fell from 80%, of our loan book on the bank's balance sheet at the end of last year to Sorry, at the end of Q3 last year to 66% at the end of Q1 this year. You can see that progress is good on that front. This obviously means that the loan book dynamic is negative, and it's been continuing to fall as we went into Q2. As I said earlier, we believe that's now gonna bottom out because we resumed cash loans on the MFO balance sheet, the microfinance organization. We'll see where this all takes us. We said that we believe we can maybe get to 20% growth for the year in terms of the total balance sheet for Uzbekistan, TBC Uzbekistan's group.
We'll see. We're seeing things changing in Q2. We'll be able to give you much more clarity on that as we get into the results for Q2 when we give it in August.
Thank you, Oliver. That's very clear.
Thanks, Dima. Okay, Piers, should we try again?
Yeah. Hi, everybody. Can you hear me this time?
Yeah, all good.
Excellent. Great. Thanks for the questions. I've got just two strategy questions. The first one is just following on from what you were just talking about, Oliver, on the Uzbekistan pivot. I mean, could acquisitions be part of the solution here in terms of getting to a quicker rebalancing of the loan portfolio? That's the first question. The second question is just also on Uzbekistan. You mentioned a potential IPO of the Uzbekistan business at the strategy day. Has there been any further developments or thinking on that option? Thank you.
Sure. I'll take the first one. Vakhtang, I don't know if you wanna do the second. I'll do it. Okay. On acquisitions, this is a question which obviously we've been asked quite a few times. Our preference would be to do portfolio acquisitions. In Uzbekistan, there is nothing for sale, certainly not at the moment. You know, if we see portfolios of good quality with the right profile at the right price, then we will be acquisitive when it comes to acquiring portfolios which enable us to accelerate the rebalancing of our portfolio. That's not something which is available today as an option. In terms of other acquisitions of banking institutions, that's not something which we're currently looking at. You know, we're in the market.
We're obviously keeping our ear to the ground. We see what's around, but it doesn't look like something which is feasible for us. We believe in our ability to grow organically and to ramp up our business, diversify and build good product which customers want. That's what we do, and that's what we're continuing to do as we go through this period of adjustment and pivoting, as you said. However, as you know, we announced the OLX deal, and we're still working on that. We're making progress. There could be other small, let's say, incrementally, attributive deals which we look at in the market, which will enable us to build out our ecosystem.
We did the Billz deal, for example, last year, which brought in lots of SME customers to whom we can lend, as well as building payments and additional services 'cause it's a SaaS provider. There may be other things of that nature which enable us to accelerate our ecosystem development. That's something we're very much attuned to, but probably the answer to your question is no in terms of what you were asking about. On the IPO. This is a strategic option, which is something the group is thinking about. This is what we announced as an option during our strategy day in New York. There's nothing else to say.
That was only a few months ago, you know, we have to go through this period of readjustment in Uzbekistan, make sure we get everything back on track and executing really well. Diversifying and basically on track to achieve our ambition of $200 million or so, by the time we get to 2030. Once we're on track, the trajectory is going in that direction, then we can return to the strategic option. We're thinking about IPO. Right now it's just too early to talk about that.
Yeah. To add from my side on the second question, I agree fully with Oliver. In addition to that, this is one of the strategic options we are looking for our Uzbek business. To come to that, as Oliver said already, we need to grow our balance sheet, we need to grow our profitability, and we are looking at moving to that in the 2 to 3 years directly.
Okay. That's very clear. Thank you.
Thanks, Piers. There's a question maybe for Giorgi. Could we give some guidance on the tax rate trajectory through the year? What was the split between Uzbek tax credits and ECR-related deferred tax assets in driving lower effective tax rate in the Q1? What should we model as the full year 2026 run rate?
Yes. There's no change in run rate tax rate. It was one-off, so it was contained unless it was in Q1, maybe some very small term in Q2. You should consider normal ETR that we used to have both in Georgia and in Uzbekistan.
Okay. Thank you. I think, Lucy, you've got a question on the phone.
We do, yes. The question is from Rahim Karim of Cavendish Capital Markets Ltd.. Your line is now open. Please go ahead.
Hi. Good afternoon, and thanks for the chance to ask questions. Three if I may. The first was just to get your sense of the impact of the refi rate move in Georgia in terms of NIM guidance for 2026. The second was just to get a bit more color perhaps on the cost of risk in Uzbekistan and how you see that unfolding over the course of 2026 as the recalibration of the loan book unfolds and, you know, whether we, you know, can get to, I don't know, 8%, 9% as I think is your kind of medium-term target by the end of the year.
The third question was just looking at the trajectories of MAU and registered users in Uzbekistan. Obviously, registered users kind of tracking up very nicely, but MAU seems to have kind of been stuck at around 6 million or so for the last year or so. Is there anything in particular there that is driving that divergence? You know, how should we think about that growth and when growth might recover in terms of MAU for Uzbekistan? Thank you.
Yes, thanks. I'll start, kick off and hear what Oliver. On the NIM guidance, probably we expect to stay around the level we are now. We don't expect any decrease. There may be some small, say, upside given change today that you have just seen, the increase of the ref rate. Probably at least flat and probably some small, let's say, upside in the next few quarters.
Sure. Thanks for the questions, Rahim. On cost of risk in Uzbekistan. We came in around 10% in Q1. We believe we'll be around the same number broadly in Q2. Going through the rest of the year, this really depends on what happens next because all things being equal, our risks would have trended downwards as previously communicated. However, there's a few things moving around as usual. We're in a frontier market and things change. On the one hand, the vintages with higher risk, which we booked in 2024, particularly the H2 and going into the H1 of 2025, they're still running off.
They're going through the stages and coming out to write off, which is what you're seeing in Q1 and going into Q2. However, there is also a change which has been announced by the central bank at the request of the president of Uzbekistan, which is to auto collections. Just to remind you, auto collections is where they're using the open banking API infrastructure. The different banks in Uzbekistan can go and deduct funds from accounts. The president has requested the central bank to look at this, so they're doing some work on this basically to restrict it. What we have already seen is that the two main payment systems in Uzbekistan, Uzcard and HUMO, have already put in place restrictions on auto collections.
This may be the extent of it, we don't know, because the central bank is still working on this, they'll come out with their position before August, which is when the president has asked for this to be implemented. We'll see how this pans out. This will be a bit of a headwind in terms of cost of risk. We're obviously putting lots of mitigants in place. We'll be able to give you more clarity on that as we go into Q3 when we know what the impact is. We guided previously gave a corridor or a soft guidance for cost of risk of 7%-10%. We very much hope that we can still stay within that range, we'll see how it pans out.
In terms of MAU, we're sticking around 6 million MAU in Uzbekistan, and around 2 million down. There are two things which are impacting this number, and which is why it's been flattish basically over the last year, as you quite rightly pointed out. The first reason is that some of that is driven by lending, and we're in the mass market lending through cash loans. That slowed down, and then slowed to a stop basically at the end of last year, going into the beginning of this year. A lot of that is driven by, that drives the MAU in terms of customers who come in and do transactional activity once they receive the funds. That's part of the answer.
The other part of the answer is that a lot of this is obviously driven by Payme, which is our app for payments. This is mobile top up, it's transfers, P2P. That was impacted by regulation which came out in the spring of last year, which required all payment apps to identify all customers for all payment activity and for re-onboarding, basically. All of the payment apps had a dip, ourselves included. That recovered in the H2 of the year. That's part of the dynamic as there's been regulatory tightening on the payment side of the market. We now see MAU growth. We see very strong payments growth, so actually payment volumes have been growing very strongly by 40% year-on-year, as you can see.
The payment's healthy, payments business is very healthy, and we hope the MAU will follow that.
Too helpful. Thank you very much.
Thanks, Rahim. Last kind of chance for any further questions. Okay. It doesn't look like we have any further questions coming through. I'll just say thank you very much for everybody for your interest and for joining this call. You know, please feel free to reach out if you have any further questions. We will all meet again in August for the Q2 call. Thanks very much and goodbye.
Thank you.
Bye.
This concludes today's call. Thank you all for joining. You may now disconnect.