• Return on Equity: 28% with cost income of 35.6%.

• Net Profit: GEL430 million, adjusted to GEL480 million with ECL charge.

• Dividend per Share: GEL3.38, approximately 95 pounds.

• Buyback: GEL73 million, approximately 0.5 million shares.

• Revenue Growth: Up by 42% year-on-year; Georgian financial services up by 4.8%.

• Interest Income: Up by 14.8% from GEL382 million to GEL438 million.

• Net Fee and Commission Income: Up by 37% from GEL88 million to GEL120 million.

• Net FX Revenue: Up by 12% from GEL88 million to GEL99 million.

• Loan Portfolio Growth: 64% overall; 23% in Georgia.

• Net Interest Margin: 6.3%.

• Cost of Risk: 1.1%, adjusted to 0.4% without ECL charge.

• Return on Equity (Adjusted): 31% with ECL adjustment.

• Dividend Growth: 10% increase from last year.

• Warning! GuruFocus has detected 4 Warning Signs with FPAFF.

Release Date: August 22, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Bank of Georgia Group PLC (BDGSF) reported a strong return on equity of 28%, with the Georgian operations just shy of 30%.

• The company announced a dividend per share of GEL3.38 and a buyback of GEL73 million, reflecting strong capital numbers.

• Both Georgia and Armenia showed robust economic growth, with Georgia delivering 9.5% real growth in the second quarter.

• Digital engagement is increasing, with digital usage growing by 20% and retail sales through digital channels reaching 57%.

• The company achieved a new historic high Net Promoter Score (NPS) of 71%, indicating high client satisfaction.

Negative Points

• The cost of risk increased due to an ECL charge related to the acquisition, impacting profitability.

• The SME division in Georgia showed slightly lower profits, reflecting strong competition in the segment.

• There is a higher cost structure in Ameriabank due to retention bonuses and investments in new capabilities.

• The Georgian SME segment experienced a slight increase in non-performing loans (NPLs), though not major.

• The company faces challenges in maintaining low cost of risk in Georgia, with expectations of it normalizing around 1%.

Q & A Highlights

Q: Are you comfortable with the current rate of lending growth, and should we expect it to moderate in the second half of the year? Additionally, could you comment on the divisional performance in Georgia, particularly the retail banking and SME divisions? A: The strong lending growth is reflective of robust economic conditions in both Georgia and Armenia. While a 20% growth rate may not be sustainable long-term, a 15% rate is more realistic, with Armenia potentially seeing higher growth. Regarding divisional performance, the retail division benefits from lower Lari rates, while corporate profits are affected by these rates. The SME segment faces strong competition, impacting growth slightly.

Q: Does Ameriabank require significant investment to achieve your retail banking ambitions, and what can we expect regarding cost efficiency? A: Investments in Ameriabank are already reflected in current numbers. While there will be some investment, the scale of the bank allows for manageable cost increases. Retention bonuses will impact costs for the next few quarters, but these will normalize over time.

Q: Could you explain the increase in Georgian SME NPLs and the higher cost of risk? Also, are there structural differences in Ameriabank's cost structure compared to Georgia? A: The slight increase in SME NPLs is not indicative of a major issue. Ameriabank's higher costs are partly due to retention bonuses and investments in new capabilities. These costs should normalize by mid-next year. The $49 million credit loss charge will be absorbed over time as the portfolio refreshes.

Q: Can you comment on the competitive landscape of digital banking and payments in Armenia? A: Smaller banks in Armenia are more active in retail banking, while larger banks like Ameriabank have strong brand recognition and opportunities to capitalize on synergies in retail services.

Q: What drove the outperformance of Georgian GDP growth in the second quarter, and is it sustainable? A: Strong tourism and service export numbers contributed to the GDP growth. Despite political volatility, the economic performance remains robust, and there is potential for continued growth.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.