My name is Seb, and I will be the operator for your call today. At the end of the presentation, there will be a Q&A session. If you would like to ask a question, you can use the raise hand button on Zoom, or if you prefer to write your question, you can use the Q&A chat box. If you are on the telephone line, please press star one to ask your question. I will now hand you over to Andrew Keeley, Director of Investor Relations, to begin the call. Please go ahead.
Thanks very much, Seb, and welcome everybody to our third quarter results call. It is great to have you. As usual, today I am joined on the call by our Group CEO, Vakhtang Butskhrikidze, and our Group CFO, Guy Stevens. We will start with a presentation, and then we will go on to Q&A. With that, I will hand over to Vakhtang.
Thank you, Andrew. Hello, everyone, and thank you for joining us today. I am pleased to welcome you to our third quarter and nine months results presentation. I will start with the group performance and the progress we are making in Georgia and Uzbekistan before handing over to Guy to take you through the financial results in more detail. I am pleased to say that we delivered another strong quarter in the third quarter, with a record group net profit of GEL 404 million, up by 10% year-on-year, and a return of equity of 23.2%. This was driven by a top-line growth of 10% year-on-year, led by strong net interest income and further increase in net interest margin. Our core market in Georgia continued to perform very well, with 17% year-on-year growth in net profit and generating a return of equity of 24.8%.
Lending momentum remained robust, with the group's loans up by 16% year-on-year on a constant currency basis. This was led by 18% growth in Georgia, while Uzbekistan loan book increased by 3% quarter-on-quarter. In Uzbekistan, we are successfully delivering on a recalibration of our portfolio, as shown by a 13% increase in non-instant cash loans during the quarter. We also continue to attract more customers to our digital platforms. Group's digital monthly active users increased by more than 350,000 during the quarter to over 7.5 million, a reflection to the high quality and the convenient digital financial services that we are offering in both in Georgia and Uzbekistan. Asset quality remains stable quarter-on-quarter, with NPL ratio flat at 3.3% and cost of risk down by 0.3 percentage points to 1.3%.
Our robust earnings and prudent capital positions allow us to continue returning capital to our shareholders. As such, the board has approved a third-quarter dividend of GEL 1.75 per share, bringing the nine-month total to GEL 5.25, up by 5% year-on-year. We are also announcing a GEL 50 million share buyback and cancellation program. Finally, on this slide, as you see, the business is tracking well relative to our 2026 to 2028 financial targets. Slide four shows how our two businesses contribute to the group. Georgia remained the core driver of our balance sheet and earnings, representing 93% of our loans, 82% of operating income, and 96% of the net profits. That said, as we diversify our business in Uzbekistan and return to growth, we expect its contribution to the group to increase as we outlined earlier this year at our strategic day.
Now let's turn to Georgia, where we continue to strong momentum across the economy and our businesses. Georgia's economy grew by 7.4% in real terms in the first nine months of this year and by 6.8% in the third quarter. Reflecting the country's robust macroeconomic fundamentals, both S&P and Fitch have recently revised Georgia's sovereign credit rating outlook from stable to positive. TBC Capital continues to expect real GDP growth of 7.4% for the full year, supported by a resilient external sector and despite the ongoing tension in the Middle East. Inflation stood at 5.6% in September, above the National Bank of Georgia's 3% target, and is expected to remain broadly stable for the rest of the year. On slide seven, you can see that our Georgian loan portfolio increased by 18% year-on-year on a constant currency basis.
Retail lending increased by 21%, with unsecured consumer loans up by 36%, while lending to legal entities grew by 16%, led by 23% growth in the CIB segment. We remain the clear market leader. Over the same period, customer deposits, excluding Ministry of Finance deposits, increased by 15% on a constant currency basis. The quality of our digital banking services continues to bring more customers to TBC. Monthly active digital users in Georgia have reached almost 1.5 million, increasing by more than 70,000 during the quarter, while our DAU to MAU ratio remains high at 46%. We continue to expand the range of services available in our application. During the quarter, we added digital issuance of secured consumer and their cash-covered loans and access to investing on the London Stock Exchange. Our application continues to be very highly rated, with ratings of 4.9 from both App Store and Google Play.
Our convenient digital banking continues to grow. 83% of our retail deposits were issued digitally, and 87% of unsecured retail loans were issued fully digitally, with an average time of acceptance of 30 seconds. This shift toward digital engagement is also evident in the growing use of our in-application AI assistant, which handles more than 6,500 queries daily and fully resolves 60% of them. We are continuing to embed AI in all aspects of everyday banking across customer service, lending, sales, and internal workflow. Slide nine shows how we are expanding the range of convenient payment solutions available to our customers. This includes the recent launch of our partnership with American Express, which allows us to accept American Express card payments both at merchant locations and online.
In keeping with our track record of pioneering digital innovation in Georgia, this week we have become the first Georgian bank to launch palm payments. This allows our customers to make purchases simply by scanning their palm at participating merchant locations without need of a physical bank card, smartphone, or cash at the point of payment. We expect initiatives such as this to support further growth in payment and customer activity. We also continue to receive external recognition reflecting our ongoing efforts to improve our product, services, and overall customer experience. Let me now move to Uzbekistan, where we continue to adjust the composition of our loan book, whilst at the same time further extending our digital ecosystem in areas such as daily banking, payments, and business banking. Much like Georgia's, Uzbekistan's economy continues to grow strongly.
Real GDP increased by 8% in the third quarter and by 8.3% for the first nine months of this year. TBC Capital expects full-year GDP growth of 8.2%. Inflation stabilized during the third quarter and stood at 6.4% in September, with a broadly stable outlook for the final quarter of the year. Slide 12 shows that we are seeing continued progress in take-up of our core daily banking products. The number of Salom debit cards issued passed 1.5 million, with an activation rate of 83%. Osmon credit card issuance has reached almost a quarter of a million, and these cards now account for over 12% of the Uzbekistan loan portfolio. Payment volumes driven by our market-leading Payme franchise also remain very strong, increasing by 54% year on year in U.S. dollars terms during the quarter, which was also reflected in further positive progress in fee income.
As I mentioned earlier, our Uzbekistan loan book is gradually returning to growth, increasing by 3% during the third quarter. We continue to diversify the loan book. Excluding instant cash loans, the portfolio grew by 13% quarter on quarter. Business lending now represents 20% of the loans. POS and BNPL lending 14%, credit cards and other lending 13%, and instant cash loans 53%. Deposits also returned to growth, increasing by 3% quarter on quarter, while monthly active users exceeded 6 million, up by 5% during the quarter. Let's now move to slide 14 and walk you through some of our recent business developments. During the quarter, we launched a unified loyalty program that enables customers to earn and redeem rewards across TBC Uzbekistan, Payme, and other ecosystem products.
We also introduced SoftPOS through BILLZ, allowing small businesses to accept card payments directly on smartphones, making cashless payments more accessible and convenient for merchants. I am also delighted that TBC Uzbekistan was recognized among the world's top fintech companies for the second consecutive year, reflecting the strong execution of our strategy and the continued development of our ecosystems. Now, before handing over to Guy to take you through the financial performance, I would like to summarize the key takeaways for the quarter. Both economies in which we operate continue to grow strongly, providing a good backdrop for financial services. Our customer base is growing in both markets, with digital now above 7.5 million. Our Georgian business continues to perform well, with return of equity of almost 25% in the third quarter, driven by strong credit demand, resilient margins, and low risk costs.
In parallel, our loan book in Uzbekistan is returning to growth and diversifying, while we see a momentum in payments and daily banking. Now I'd like to hand over to Guy to walk you through our financial results in more detail.
Thank you, Vakhtang, and good afternoon, everyone, or good morning, depending on where you are. I'll now talk you through our financial performance for the third quarter and for the first nine months of 2026. First of all, starting with profitability. Our group net profits reached a record GEL 404 million for the quarter, and that's up 10% year-on-year, or 5% up on the previous quarter. This brought our net profit for the first nine months up 12% year-on-year. Return on equity remains above 23% to 23.2%. This is the 15th consecutive quarter where our return on equity has exceeded 23%. Georgia, in particular, delivered very strong returns, and we saw an improvement in the quarter in our return on equity, increasing from 24.3% to 24.8% in the quarter. Now turning to profitability drivers.
Total operating income increased by 10% year-on-year, driven by a 13% growth in our net interest income. This was supported by loan growth of 16% on a constant currency basis, and we also saw a further improvement in NIM. Group NIM increased by 10 basis points in the quarter to 7.4%, driven by Uzbekistan. Georgia, our NIM was stable at 6.4%, and that followed two prior consecutive quarters of NIM increase in Georgia. The increase in NIM in Uzbekistan was related to the loan portfolio growing, but also very proactive management in the cost of our deposits and funding in Uzbekistan. Now turning to costs. Operating expenses increased by 13% year-on-year, partly driven by preparations for a return to growth of our business in Uzbekistan. As a result, we did see a slight uptick in our cost-income ratio.
Our cost-income ratio increased to 38.7% in the quarter. Georgia, however, we saw positive operating jaws with the cost-income ratio improving to 32.7% in the quarter. We very much are focused in terms of managing our cost base across the group in both geographies. Turning now to asset quality. As a group, our asset quality remained robust. The NPL ratio remained stable, consistent quarter-on-quarter at 3.3%. Our cost-income ratio improved for the group to 1.3% for the quarter from 1.6% in the second quarter. In Georgia, we saw a small improvement in both the cost of risk and NPL ratio quarter-on-quarter, as asset quality in Georgia remains very resilient. In Uzbekistan, the NPL ratio increased due to the seasoning of older vintages.
Cost of risk, however, did improve quarter-on-quarter, and the cost of risk that we're reporting for Uzbekistan for the third quarter of 10.8% is lower than the levels that we indicated that we had expected when we spoke to you last for our second quarter results presentation in August. As we discussed at that point in time, we had expected new restrictions to come into effect in the third quarter in respects of auto collections. Just recapping in terms of auto collections, what this is, this is the mechanism in Uzbekistan where banks can automatically debit a borrower's linked bank account or card when a loan repayment is missed and can effectively just automatically draw the payment to repay the missed payment.
These restrictions, the restrictions that are going to come into effect or further restrictions in respect of auto collections, are now expected to come into effect in January of next year. We're in the process of assessing what this means. The regulator is also in the process of going through an exercise to look at the exact implementation from a technical perspective of these changes to auto collections. Excluding the potential impact of those changes and all else being equal, we expect the fourth quarter cost of risk in Uzbekistan to remain broadly consistent with what we've seen in the second and third quarter as the portfolio continues to season. One of the things you will be hearing from us more about, as we talk about our performance in Uzbekistan, is adjusted net interest margin.
That is how we are managing our business in Uzbekistan, with the business operating at a low double-digit risk-adjusted NIM. Turning to our balance sheet dynamics. As Vakhtang said, we continue to see good balance sheet momentum during the third quarter. Our gross loans increased across the group 16% year-on-year on a constant currency basis. Georgia remained the main driver of this, with an 18% year-on-year loan growth on a constant currency basis. In Uzbekistan, as Vakhtang outlined, we have seen growth in the third quarter, with outside of our instant cash loan products, good growth, 13% during the quarter. We expect this momentum to continue in the fourth quarter of the year, which is typically our strongest quarter seasonally. Customer deposits increased by 14% year-on-year on the same basis, reaching GEL 27.6 billion, which is a 15% year-on-year growth in Georgia.
Turning to our capital ratios. In terms of our regulated capital entities in the group, we have two regulated entities, our bank in Georgia and our bank in Uzbekistan. In Georgia, our core tier 1 ratio at the end of September was 200 basis points above the regulatory minimum. In Uzbekistan, we have four separate balance sheets where we write loan business. Our bank in Uzbekistan accounts for about 73% of our total loan book in Uzbekistan. I just put that into kind of context because it's important, because there is a changing dynamic as to where loans are written in Uzbekistan. But our Uzbek bank remains very well capitalized, almost 13 percentage points headroom to the regulatory minimum.
As we discussed during the second quarter results call in August, the Central Bank of the Republic of Uzbekistan has decided not to introduce the proposed changes to risk ratings for consumer loans. Those had been expected to come in effect on the 1st of July of this year. As such, we don't anticipate any material changes to capital requirements for our bank in Uzbekistan at the current time. Moving on. Given the strength of our capital and liquidity position across the group, as Vakhtang has outlined, the board has decided to declare a dividend for the third quarter of GEL 1.75 per share. This brings total dividends for the nine months to GEL 5.25 per share, with GEL 1.75 declared for each quarter. This represents a 5% year-on increase in our interim dividend payments.
This, of course, is complemented by the GEL 50 million share buyback and cancellation program that we announced this morning with our results. Finally, I would like to conclude the financial review with some key takeaways for the third quarter. We delivered solid earnings growth and record quarterly profit for the group, with a return on equity of 23.2%. We remain on track for our 2026 to 2028 financial targets. We maintained mid-teen growth of loans at constant currency basis, led particularly by strong momentum from our business in Georgia. In Uzbekistan, as we've demonstrated, we continue to recalibrate the business and are progressing with strong lending growth outside of instant cash loans, and we continue to see momentum in other areas of our business, such as cards and payments.
Finally, our earnings and prudent capital buffers continue to support business growth, but also shareholder distributions through both quarterly dividend payments and, as announced this morning, a share buyback. And I think with that, thank you for listening, and we will now be very happy to take your questions.
Thank you. As a reminder, to ask a question, you can use the raise hand button on Zoom. You can also write any written questions into the Q&A chat box. If you're on the telephone line, please press star one to ask a question.
Thanks very much, Seb. Okay, we have our first question from Ray at Peel Hunt. Ray, please go ahead. Thank you.
Good afternoon, gentlemen. Hopefully you can hear me. Can I start with a rather dull, rather spotty kind of question, Guy, which is unlike me. There's been some reclassifications of various line items in the P&L. Is there anything we need to bear in mind about those, or anything it means for guidance? Secondly, as well, I'll ask them all in one go.
Yeah.
Secondly, can you talk a bit about what's going on in the ground in Uzbekistan for the newer products that's driving that growth? Do we need to bear in mind that with the changing relationship between the bank balance sheet and other lending, that quarterly reporting from the bank will become ever more useless as a guide to what's going on on the ground? Then finally, obviously with the strength of the economy in Georgia, we've seen the strengthening in the currency. Are there any implications for the business of a strengthening currency that we need to take account of?
Okay. Thanks, Ray. First of all, on the reclassification, and we've got quite a lot of detailed disclosure on that in our report. To be very clear, it does not change the bottom line at all. It's a reclassification of the deposit insurance scheme expenses, which traditionally have been recognized in interest expense, but also resolution fund expenses, which previously have been recognized in administrative and other operating expenses. Now these are classified into a separate line item, so it's very clear in a sense what is driving the business expenses and what are regulatory-related expenses, industry-type expenses. In doing this, I think we were very much an outlier, if you look at the practice in European banks in terms of how we were recognizing the expense of deposit insurance.
And we've also, by doing this, we've brought ourselves into line with a number of our peers, including our Georgian peer. So it allows for an apples-to-apples comparison. In terms of actually all the numbers that you have seen today presented and the numbers that you see in all of the disclosures, they have all been restated and are presented on a like-for-like comparison basis, so it is comparing apples with apples. But just to give you a feel, had we not implemented these changes, there would have been some change in some of the ratios. So, for example, the NIM would have been 13 basis points higher, the cost income ratio would have been 30 basis points higher. So very much kind of immaterial. But I stress, as I said, this is a presentational issue.
It doesn't change the bottom line, and we feel it brings us into line with key peers and is consistent with industry practice.
Thank you.
Second point, Uzbekistan. As I described when talking about the capital of the Uzbek Bank, we have four balance sheets in Uzbekistan. We have the Uzbek Bank, we have the microfinance organization, which is a subsidiary of the Uzbek Bank, but it is not consolidated in the reporting from a regulatory capital perspective that you see, or you may be able to find in Uzbekistan, or indeed the financials that you will be able to find. We have our BNPL business, and we have our POS business. If you look at bank standalone, if you were to look 12 months ago, the bank standalone would have represented about 90% of our loans booked in Uzbekistan. Today, it's about 73, 74%. Why is that?
It's because we're recalibrating the composition of our loan book, and in particular, our microfinance organization is scaling up in terms of the proportion of loans that are being booked in Uzbekistan. The Uzbek bank has been accounting for a diminishing proportion of the book. The other bit I would say is I would encourage everybody to look at the TBC digital, the TBC consolidated Uzbekistan position that we presented today, because that represents all four balance sheets, and it's stated in IFRS. The complexity, if you then try and look at the individual components of this, is that you also have the kind of the fog of Uzbekistan, Uzbek accounting standards, as opposed to IFRS. We would very much direct everybody to look at the consolidated view for TBC in Uzbekistan, where our four lending balance sheets are all seen in one entity.
I think then the third question you had, Ray, was on the Georgian lari, and maybe Vakhtang can address that.
Yeah. Fundamentally, it's very good that the local currency lari is appreciating against the dollar because, as all of us we know, Georgia is a free economy. It's very important fundamentally for any businesses in Georgia operate. On TBC Bank side, if you say on the P&L statement, probably it will be less gross as part of the portfolio we have in FX. But fundamentally, we believe that also it helps our capital adequacy ratios because it has an effective effect on that side. In addition to that, also fundamentally, cost of risk will go down.
Great. Thank you very much, gentlemen.
Thanks very much, Ray. Next up is Dmitry from Wood. Dmitry, please go ahead.
Thank you very much for the opportunity to ask questions, and congrats on a solid set of results. All of my questions will be regarding Uzbekistan. The first one is on the NPL ratios. There was some additional increase in NPL ratios in the fourth quarter after the second one. If I remember correctly, last quarter, you explained it with extending the write-off period to 360 days, and I'm wondering how much of that further increase is related to this write-off period increase versus the actual deterioration of all the loan vintages, and when do you expect NPL ratio to actually peak? The second is just the follow-up on the loan growth. First of all, congrats on quarter-on-quarter increase in the loan book portfolio.
Since we're already in November, how are you seeing trends in October in Uzbekistan, and whether you expect to return to double-digit growth in 2027? The final is on the NIM. There was a pretty good improvement in NIM in Uzbekistan in the third quarter. Generally, since you're diversifying the portfolio and gradually moving away from high-yielding instant cash loans, do you think this 20% plus is a sustainable NIM going forward? Thank you very much.
Thanks, Dmitry, for that. First of all, loan portfolio NPL ratio in Uzbekistan. I mean, there are a number of different drivers there. You're entirely right in terms of to point out that the kind of mathematical effects of having changed the write-off policy has impacted in terms of the NPL ratio. Going as we announced in August for the second quarter, we changed that from 270 days to 360 days. That is a factor that has impacted on the NPL ratio. We continue to see a seasoning of the portfolio, in particular the older vintages, the vintages originated in early part of 2025. Those are the kind of core factors behind why the ratio is as it is.
In terms of when do we expect it to peak as well, I think there are many factors at play, but this is a business, it's important to remember that given the recalibration process that we're having to go through, this portfolio is still almost 11% down in terms of where it was in September 2025. We now reported two consecutive quarters of growth, very small growth in the second quarter, 0.2%. Small growth as well across the portfolio as a whole of 3% in the third quarter. That, just from a pure denominator factor, doesn't help us in terms of the NPL ratio. In terms of when do we expect it to peak, I mean, we're not specifically guiding on that. I've given some indication in terms of the cost of risk. As I said, I would kind of reference auto collections.
We've been talking about this for some period of time. Those are going to The changes and restrictions are going to come into effect in January. I think from that point in time as well, when we report the year-end numbers, we're going to have a much clearer view in terms of the effects of auto collections, in terms of what it's done to the portfolio. Going forwards, to kind of coming to your next question, which is in terms of loan growth, what do we see in loan growth kind of going forwards? I think, first of all, looking at what we see for the rest of this year is the fourth quarter tends historically to be the strongest quarter in both markets in terms of loan growth.
I think we expect to see more of the same in the fourth quarter, which is that you will see obviously a good growth outside of non-instant cash loan products. So things like our credit cards, our business cash loans. We've also, as we announced earlier in the year, we've launched auto loans. So we'll see good growth outside of instant cash loans, which hopefully then drives an overall increase in terms of the book. Then going forwards in 2027, it's too early to guide. But I think the way to think about 2027 is 2026, we've been through this very rapid process of recalibration to remind everybody we committed to the regulator that our instant cash loans would be no more than 50% of our bank's balance sheet by the end of this year. That's going to be achieved. We're about 53%.
Next year, we've committed to be at 25% of our bank's balance in terms of instant cash loans. The headwinds that we are facing in 2027, in terms of the recalibration, are less than what we've seen in 2026, because obviously these other products will have greater scale, more maturity, and we should see growth from that. The final point links in with that, which is in terms of, what do we expect to see in NIM? I think, again, it's too early to guide, and we don't want to guide, but actually it's a positive direction in travel, I think, overall, in terms of NIM. We're very much focusing in terms of managing our costs of funds. But of our products, our non-instant cash loan products, we have good margins in terms of our business cash loans, our credit cards as well.
They are doing very well indeed, growing nicely. And our other products, such as BNPL, POS, also have attractive margins. So, I think in terms of the NIM, I would be thinking more in terms of upside risk, as opposed to downside risk.
Very clear. Thank you very much.
Thank you, Dmitry. Next up, it is Rahim from Cavendish. Rahim, please go ahead.
Two questions from me. The first on Georgia and the retail business, Lasha. And I was just trying to get a sense of the significance of this American Express partnership that you have confirmed, and some of the other measures that you are taking in terms of the consumer business and how you look to try and regain share. And then the second question, Guy, perhaps, is on Uzbekistan. I appreciate your comments around not wanting to provide guidance for 2027 on cost and risk, but perhaps if you could allude a little bit around how you see the operating jaws moving as we move into next year. Obviously, understand the contraction that we have seen in the third quarter with the investment, but can we expect to see an improvement in that as we move forward to next year?
Yeah. I will answer the first question, and afterwards, you could answer the second question. As I already mentioned in my part of the presentation, finally, we launched the Amex acquiring business. What does it mean for us? That probably during next year, we will increase our business in acquiring business. It depends, but in the range of 1%-2%. In addition to that, by that, also there will be slight increase of fee and commission income on Georgian operations. But it is a beginning, and also we are having in mind that after decision, also we can begin to issue the Amex cards as they should be.
Then, in terms of operating jaws, as I said, the operating jaws in Uzbekistan did impact the overall cost income ratio for the group for the third quarter. We had positive operating jaws in Georgia. The reason for that is, as I said, we are now back into thinking about growing in Uzbekistan, and we have been very much kind of going through this difficult recalibration process. It has resulted in a contraction of our balance sheet on a year-on-year basis. Less dramatic now, as opposed to where it looked a few quarters ago. But we are feeling kind of more optimistic, hence our OpEx is increasing. I would expect that to continue in the near term. But as we progress through 2027, I would expect to see positive operating jaws coming from our business in Uzbekistan.
Extremely helpful. Thank you. Lasha, maybe if I could just ask about the unsecured consumer loan growth. It was extremely strong and very encouraging. Yeah, maybe if I could just ask around some color around that and how you see that progressing over the next 12 months.
Yeah. If you look the last two, three years, we are growing up our market shares in the consumer loan by around 1%-2 percentage points, and that trend could be continued. We are forecasting that in 2027, minimum, our growth will be minimum to increase market share by around 1.5%-2%.
Okay. Thank you both very much. Very helpful.
Thanks, Rahim. Next up, it's Roman. Roman, please go ahead. Line's open.
Hi, guys. Good morning. Thank you for the time. Congrats on the good results. I had a couple of questions. The first on Uzbekistan. I was wondering about the deposit growth. It looked like deposits relatively steady quarter on quarter, year on year. I think they were up in the low single digits. It's a little surprising to me. I would have thought with the continued growth in customers that even with the loan book not really growing year on year, there would have been just a kind of natural accumulation of deposits. Is it an active effort on your part to just hold back that part of the business, or why have deposits not grown?
I guess the other part of that question in Uzbekistan is, I wonder if you could give us a sense of, with the business having now stabilized in terms of balance sheet size and gradually starting to pick up again, what's the cost-to-income trajectory that you expect from here over the next couple of years? Is the general sort of path to the 2029 or 2030 targets, I can't remember which year it was that you issued at the investor day earlier this year, are we still broadly on track for that in Uzbekistan, or does the path now look a little different? Maybe might that guidance need to be adjusted somehow? Then the final question is in terms of where you find yourselves on the capital ratio front, so last year you were at 35% dividend payout ratio, up to 40%, I think, including buybacks.
Do we see that as broadly sustainable going forward? Do you think that number is going to change materially over the next couple of years as we try to get to our guidance that we issued at the investor day, or how does that look? Thank you.
Okay. Thanks, Raymond. First of all, Uzbekistan, it is important to take a step back in terms of where we had expected the business to be before the changes in regulations, the recalibration exercise. Effectively, there was some element of pre-funding future growth. So we have been open about this as well in terms of prior quarterly disclosures. We have been carrying excess liquidity in Uzbekistan in anticipation of stronger growth, which for the reasons in terms of the recalibration has not happened, intentionally as we recalibrate. So we have been very focused at the moment in terms of managing the cost of our deposits, bearing in mind, as I said, we have had and continue to have some excess liquidity.
So it is a constant decision that is being made, and then you have seen that in terms of our NIM returning to above 20% in Uzbekistan, and that is driven by very conscious cost of funding management. The second question in terms of the cost income trajectory for Uzbekistan, as I mentioned, we now feel a bit more confident in terms of the growth outlook. We are preparing for that. So you should not be surprised in terms of the operating jaws not being positive over the next couple of quarters. But going forward, as we see growth levels uptick, you should be seeing positive cost income trajectory, positive operating jaws. Ultimately, in terms of this business, again, we are not going to give guidance at this stage for a digital ecosystem.
You would expect to see, once that ecosystem has scaled up, a materially lower level of cost income. But as I said, I think today it is too early to indicate on that. I will come back to question three because I think Vakhtang can add to that, but maybe to address question four next. Question four in terms of the payout ratio. So we have our 2026 to 2028 targets. It is 25%-45% payout. Year to date on an interim basis, we have paid out 25% in dividends. We have announced the share buyback today. I think we are committed and on track to stay within that range. I do not think that range was communicated at the investor day in New York in February.
But it is important to, when you look in terms of our business today, we have got a very capital accretive, a very highly generative capital business in Georgia. Very simply, and you can see this in the disclosures and the appendix to our financials, you see that our earnings growth in the quarter, of course, some of that is consumed by RWA growth. But given that the pace of our return on equity is materially in excess of the growth of our RWAs, that supports us as a group in terms of our payout ratios. Then I think finally in terms of our ambition through to 2030 that was outlined in the investor day, and I will ask Vakho to add to this. I think the destination, I think, is clear where we want to get to.
How we get there, I think the pace of which we are doing it will be different because we obviously have been put back given the challenges of the recalibration. But I am right in saying the ambition remains. I do not know, Vakho, if you want to add to that.
Could you remember what was the third question?
Ambition in terms of Uzbekistan for 2030 in terms of contribution.
Okay. We want to keep the same ambitions as we announced in the beginning of this year on our investor day. We want to increase portion of our Uzbek businesses in our group's financials, I mean, as a portfolio. Uzbekistan, but key important also net profit to generate up to 20%-25% of our net profits of the group. It means that, as Guy has already mentioned, we will increase our net interest income as our portfolio continue higher growth in the next three to four years. Also, we have a good background on fee and commission income to grow up, and the cost-to-income ratio effectiveness will come. We believe that Uzbekistan has a potential to deliver minimum 20% of our profits in 2030.
Okay, understood. What sort of loan-to-deposit ratio should Uzbekistan have medium-term as we get to that 2030 number, that 2030 date?
I think, again, it's too early to guide. I mean, the loan-to-deposit ratio, I think, in itself is a little bit misleading today because I think we've obviously got quite a lot of IFI funding there. But over time, as the market matures, becomes more developed, you would expect deposits to kind of account for an increasing proportion of the funding. But again, it's too early, I think, to guide specifically on that.
All right. Thank you, guys.
Thank you.
Thank you.
Thanks, Roman. Next up, Patrick. Patrick, please go ahead.
All right. Hey, good afternoon, and again, great job on a fantastic quarter, Vakhtang and team. In the spirit of asking three questions all at once, I'll do that. I'd love to get a sense of team and how you feel about, I don't know, attrition rates, especially middle management, recruiting, how it's going building out that kind of middle layer of team, and instilling your culture. Hard to put in a report, so I'd love any color. I'd be interested in the competitive landscape, in particular, if you're seeing a lot of other sort of challenger banks come into both markets, or if it's the old guard or the new guard that you see as interesting competition and what you feel like they're doing well that we need to adopt. Then lastly, Vakhtang, you were just mentioning fee and commission income.
I was just curious about what is happening in the wealth management division, and is that a growth area? It is small relative to the rest of the group, but love the fee and commission focus here. Those are my three.
Yes. Thank you, Patrick, for this question. On the first question, middle management, in Georgia, we continue as we did last 30 years. If your question was about Uzbekistan, year by year, we are trying to, how to say, to bring more Uzbeks in a team, so to more localize our middle management, which will bring in the long term more stability. There are a lot of Uzbek professionals in the banking, in digital banking, and we are trying to expand especially by the locals, so in the Uzbek team in the middle management. Challenger players, in both markets, of course, there are fintechs coming to Georgia. Fintechs are beginning to operate in Uzbek market.
But I think the fundamentals which we have in our digital capabilities, especially in AI capabilities, allows us to compete today, and we are sure that also in the medium term, we can continue to compete with any player there. On the wealth management, you know that we have not that business in Uzbekistan. We have in Georgia, and quite good results we have in 2026, and probably after the end of this year, we will update investors on the numbers and the volumes.
Great. Thank you.
Thanks very much, Patrick. Next up, Olga Veselova. Olga, go ahead, please. I think you're muted, Olga.
Yes, good day. Thank you. Apologies for that. Thank you for the presentation, and thank you for taking my questions. My first question is on provisions related to restrictions on auto collections. What magnitude of cost of risk could you face? I understand it depends on the final form of regulation, which we don't know, but maybe you can give us a sense on range of this magnitude. If this happens, do you book everything in fourth quarter and you just move on with clean P&L into 2027? Or you gradually add provisions, looking at how NPL ratio will evolve in the first half of 2027? Thank you.
Olga, I think, to be transparent, it's too early to say on this. The new restrictions that are due to come into effect on the 9th of January, I think there's a process for the banking sector as a whole to clarify what actually this means, and also the regulator is going through a process of understanding the technical implementation of these changes. I think it's hard for us to be clear in terms of precise timings, effects. Of course, we're looking at all possible scenarios. I think, as you can say, we'll be in a position to be much clearer at the time of our year-end financials. Obviously, they will come after the 9th of January intended implementation. We will update you at that time.
I think that's probably best to say, but what I would say, all else being equal at the current point of time, assuming no unforeseen moves by the two card rails in Uzbekistan in terms of changing the restrictions that they may put in place on auto collections, the business as it is now, we would expect the cost of risk to be in line with what we saw in the fourth quarter. We'd expect it to be in line with what we saw in the third and second quarter of this year. But again, I think the topic of auto collections is something we will be in a position to be much, much clearer on once we've reached the end of the year, and also they have been put in place.
Mm-hmm. Thank you. My second question is on loan growth in Georgia. If I look at your loan growth versus your closest peer, quarter-over-quarter, year-to-date, year-over-year, you grow a little bit slower on all these metrics. Is this due to your different mix of loans? Is this due to risk appetite? Just some color on that one. Thank you.
Maybe I will answer this, and then Vakhtang can add to that. I think you have seen a different picture as the year has progressed, but third quarter, we are broadly in line with our key peer. We have actually grown as a group above that of the overall sector. We have net-net captured share. As you said, we have a very different business mix. We are much heavier in terms of corporate, but also on the retail side, we have a different mix in terms of, we have a stronger position in mass affluent retail, secured retail. Again, it is not comparing apples-to-apples. What we have seen, I think that is very encouraging that Vakhtang has talked about, is the growth of our unsecured consumer book up 36% year-on-year.
But it is very difficult to kind of make a like-for-like comparison when we have got different respective strengths in terms of our business mix.
But as I said, we have grown in excess of the market, and we are broadly in line with our peer for the third quarter.
Okay, thank you.
Thanks, Olga. Next up, Ronak. Please go ahead.
Good afternoon, team. Congratulations on the results, and thanks for taking my questions. Maybe we'll start from Uzbekistan. The deferral of this capital regulations, it's been deferred for yet another quarter. Any indication from the regulator in terms of why they constantly defer the implementation of that? Are they having some second thoughts regarding this issue? Second question, on the Georgian business, this is on the fee and commission income. Obviously, you'd indicated the weak growth is because of the transition to a subscription-based model. But what I noticed is, we're seeing a very strong increase in fee and commission expense. It seems to be growing on a quarter-on-quarter basis. Could you just provide some color in terms of what's driving that and when should we start to see that level off and maybe start to see some growth on net fees and commission income?
Finally, on the OpEx side, again, we've seen a good deceleration in OpEx growth from Q1 levels. Can we expect that trend to continue into the last quarter and maybe into 2027 and further improvement in the cost-income ratio for Georgia?
Okay. First of all, on capital regulations, maybe there is a misunderstanding here, but I assume, Ronak, you are referring to the change at the risk rating point.
Yes.
Okay. The change in consumer risk ratings, the central bank had proposed to put those into effect on the 1st of July. As we said, on the 6th of August, we found out on the 6th of August that they were not coming into effect. Those proposed changes to the consumer risk ratings, it is not a question of them being kicked down the road. The regulator in Uzbekistan no longer intends to implement them. I think that is very positive. I do not think it is a question of the regulator changed their mind. I think if the direction of travel in the sector was not to the liking of the regulator, would it come back in the future? Possibly. But the regulator has been very clear with us and the sector, these regulations, the change in consumer risk rates are not coming into effect.
It is not a question of them being delayed. The second question-
Sorry, just before we go on. That is pretty significant. I mean, like you said, if they have just been completely canceled, I mean, one of the reasons you had to get to that 25% threshold was because of the penalty you would have to pay on capital. I guess they still want you to, like you said, the direction of travel still has to be in that direction, but it gives you some breathing room, right?
So, I guess there are several points at play here. One was the proposed changes in risk ratings, which has gone. The relative composition of loan books. So in our case, in terms of by the end of 2027, our bank's balance sheet having to have no more than 25% of loans in the form of instant cash loans, that remains. There hasn't been a change in the position of the regulator. That's obviously what we're working towards. We had a 50%, for this year, we have to get down to 50% instant cash loans on our bank's balance sheet. We're currently at 53%, so we will be there. So there's no change in that. The only change that has come is they are no longer implementing the change in risk ratings for consumer loans, which would have taken us from around 100% to in excess of 200%.
That is a positive, and I think it's a good kind of it reflects well, I think, in terms of the regulator. I mean, they made kind of clear the direction they wanted the sector to go in. The sector has responded. So that, for us, is good news. As you saw from the numbers, we are exceedingly well capitalized in Uzbekistan at the bank level, almost 13% above the regulatory minimum of CET1. Had they implemented that change, we still would have been well capitalized, but it is very much a positive that they haven't implemented that. Is that clear?
Yeah, yeah. Very clear. Thank you.
Okay, cool. Secondly, Georgia fee and commission income. There are several kind of elements at play here in terms of fee and commission income. I think, as previously kind of discussed, we've been investing in terms of our cards business, so the TBC card business, our loyalty schemes in Georgia, which has impacted in terms of fee and commission income growth, and that's been kind of signaled now, I think, for two, three quarters. Corporate, there's been a bit of seasonality in the corporate fees in Georgia, but as we kind of go into the fourth quarter, we are more optimistic in terms of the outlook for corporate fee and commission income, growth in corporate fees. So we should see a positive trajectory there.
I do not want to guide in terms of where we go going forwards, but we do see positive trajectory, but it is important to remember, we have been investing in our cards and loyalty aspects of our consumer business in Georgia. I think the third point, again, do not want to start guiding on each and every element of our P&L and balance sheet. I think Georgia, what I would say is that the trajectory of the economy remains very positive. Loan growth remains positive. In terms of the group, we are confident that we are going to be able to meet our financial targets for 2026 through to 2028, which across the group is 15% loan growth. So that is obviously volume growth is going to help us in terms of our outlook in terms of operating jaws through that period.
Understood. Thank you.
Thanks, Ronak. Next up, it is Ayetta. Ayetta, please go ahead.
Hi. Thank you for the presentation. I wanted to ask about your perp, the $75 million perp. It is callable, I think, from November onwards. Yes, just wondering if you have any comment, if you are allowed to comment on whether you plan to call this. Yes. Thank you.
I think you would be very surprised if I was to answer that question. I think what I can say is, I think we issued this instrument five years ago. We are very mindful in terms of market kind of precedence, and we look at all potential kind of opportunities when it comes to our funding through the capital markets. That is probably all I should say at this stage.
Okay. Thank you. Thank you, guys.
We do not have any more questions on the line, so we have some written questions, a couple of them. First of all, from Bruno, just asking about the, you have a duopolistic banking market in Georgia, how we see the competitive landscape and the banking market evolving in Uzbekistan and the kind of incumbents, new banks, and would we expect that the Uzbek market will become more highly concentrated in the same way as Georgia has over the next few years?
Yeah, to comment from my side and Guy, you could add. In Uzbekistan, we have a different kind of the competitors. We have Uzum, who is a marketplace, and also they have two banks, and they are competing with us in the consumer lending. We have Ipoteka Bank owned by the Hungarian group, who kind of the services they have here. As Guy mentioned, now we are growing our business in the secured SME business, and probably they will become more and more competitor to us. We have a Halyk Bank operating very successfully in Uzbekistan. To summarize, I think more as market is very attractive, under-penetrated, population is growing, very young population, so there is more and more players are coming to that market.
But also, openly said, internally, we are preparing for that competition, and we are doing a lot of things to compete in every segment where we today operate or in the future we want to jump.
Thanks, Vakho. Final question we have is on Georgian cost of risk, just that we saw quite low cost of risk in CIB and MSME, and whether there's anything to report there.
I mean, Vakhtang, please add. I think, so we did see an improvement, a 10 basis points improvement in the cost of risk. I think, as we said in the second quarter, if you actually looked at our second quarter cost of risk, we actually saw a pickup in the cost of risk, a one-off pickup in our CIB business, which was very much an isolated incident. I think in terms of, given the resilience of the Georgian economy, how we're seeing our business perform across all sub-segments, I think we continue to see an environment where asset quality is stable in Georgia.
Thanks, Guy. We have another question on the line. Alex from Roemer Capital. Alex, please go ahead.
Yes. I hope you can hear me.
Yeah.
Apologies, I kind of joined later. I was unable to join before. Andrew, can you help me bridge the gap between a quite nice profit under the IFRS and a negative result under local standards seen in TBC Uzbekistan Bank, the main entity? I really want to understand why such a gap in performance, in appearance at least.
Do you want me to I'll take that, Andrew. Alex, good to speak. You missed my rather kind of long-winded explanation on this earlier.
Okay.
Maybe we can take it offline. But in short, we have four balance sheets in Uzbekistan. The bank is accounting for a diminishing proportion of our consolidated book in Uzbekistan. A year ago, you would have seen the Uzbek bank being 90% of our overall portfolio in Uzbekistan. Today, it's 73%-74%. That's because historically, that was obviously our key lending vehicle. That's where the instant cash loans were disproportionately focused. We're obviously recalibrating in terms of having to meet the regulatory requirements. That is changing in a sense, the overall kind of relative kind of mix of where we're booking loans in Uzbekistan.
What I would encourage everyone to look at, as I said earlier, is to look at the consolidated TBC Uzbekistan numbers, because that shows all four lending balance sheets, but other parts of our ecosystem, such as Payme, so it represents the best view. Also, it gets very difficult as well when you start looking at the individual balance sheets, and then you have the fog, as I called it, of Uzbek accounting standards and trying to reconcile it with IFRS. Happy to take this offline in more detail if that is helpful.
Yeah, maybe next week. Once again, apologies, because I am sure that question was asked and answered. There was quite a pickup in net interest margin, which surprised me because I would imagine that if your cash loans are declining in proportion, and this is your cash cow, then margin should be flat or negative, logically. But your margin expanded. Can you tell me why?
Again, I think we have dealt with it. Just very quickly, and again, very happy to follow up. We have been proactively managing our cost of funding, cost of deposits in Uzbekistan, but we have also seen really good, nice tick up of other non-instant cash loan products. So, for example, credit cards, business cash loans, and they also have very attractive margins. Again, happy to follow up in more detail.
Yeah. Yes. Okay. Final, shall we expect continuation of the positive volume trends going forward? I presume that the worst is over and you turned the corner. Is it correct?
Again, without repeating myself in too many words, we expect to see more of the same in terms of Uzbekistan, which is our overall growth is obviously muted given the need to recalibrate, reduce the proportion of instant cash loans. But we are seeing very healthy growth outside of instant cash loans. And quarter four across the group tends to be, from a volume perspective, the best season that we have. But again, Alex, very happy to take that offline.
Okay. Speak to you next week. Thank you so much for the offer.
Thanks, Alex. Okay, I don't think we have any further questions. Just to say thank you very much, everybody, for joining us. Please keep in touch. We're always around to help out if you have any follow-up questions. And we look forward to reconnecting at our full-year results in February. Thank you and goodbye.
Thank you. Bye.
This concludes today's call. Thanks, everyone, very much for joining, and you may now disconnect.