Company Announcements

Bank of Georgia

Group PLC

3Q22 and 9M22 results

Name of authorised official of issuer responsible for making notification:

Nini Arshakuni, Head of Investor Relations

www.bankofgeorgiagroup.com

ABOUT BANK OF GEORGIA GROUP PLC

Bank of Georgia Group PLC ("Bank of Georgia Group" or the "Group" and on the LSE: BGEO LN) is a UK-incorporated holding company. The Group mainly comprises: a) retail banking and payments business (Retail Banking); and b) corporate banking and investment banking operations (Corporate and Investment Banking) in Georgia. 

JSC Bank of Georgia ("Bank of Georgia", "BOG", or the "Bank"), a systematically important and leading universal bank in Georgia, is the core entity of the Group. The Bank is a leader in the payments business and financial mobile application, with strong retail and corporate banking franchises. In line with our digital strategy, the Group focuses on expanding technological and advanced data analytics capabilities to offer more personalised solutions and seamless experiences to our customers. Employee empowerment, customer satisfaction, and data-driven decision-making, together with the strength of the banking franchise, are key enablers of the Group's sustainable value creation. By building on its competitive strengths and uncovering more opportunities, the Group is committed to delivering strong profitability sustainably and maximising shareholder value.

The Group expects to benefit from the growth of the Georgian economy, and through both its Retail Banking and Corporate and Investment Banking operations, it aims to deliver on its strategy and its key medium-term objectives  ̶  at least 20% return on average equity (ROAE) and c.10% growth of its loan book.

3Q22 AND 9M22 RESULTS AND CONFERENCE CALL DETAILS

Bank of Georgia Group PLC announces the Group's consolidated financial results for the third quarter and the first nine months of 2022. Unless otherwise noted, numbers in this announcement are for 3Q22 and comparisons are with 3Q21. The results have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the United Kingdom and the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority. The results are based on International Financial Reporting Standards (IFRS) as adopted by the United Kingdom, are unaudited and derived from management accounts. The results announcement is available on the Group's website at www.bankofgeorgiagroup.com.

A webinar with investors and analysts will be held on 10 November 2022, at 14:00 GMT / 15:00 CET / 09:00 EST.

Webinar instructions:

Please click the link below to join the webinar:

https://bankofgeorgia.zoom.us/j/94535963316?pwd=YjlEOXFFS2FDNHR3Z3VFRVoxc0g4Zz09

Webinar ID: 945 3596 3316

Passcode: 676792

Or use the following international dial-in numbers available at: https://bankofgeorgia.zoom.us/u/adUddteLJV   

Webinar ID: 945 3596 3316#

Passcode: 676792

Participants joining via Zoom can use the "raise hand" feature at the bottom of the screen to ask questions. Participants dialing in can press *9 to raise hand and ask questions.

CONTENTS

FORWARD-LOOKING STATEMENTS

This announcement contains forward-looking statements, including, but not limited to, statements concerning expectations, projections, objectives, targets, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, competitive strengths and weaknesses, plans or goals relating to financial position and future operations and development. Although Bank of Georgia Group PLC believes that the expectations and opinions reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations and opinions will prove to have been correct. By their nature, these forward-looking statements are subject to a number of known and unknown risks, uncertainties and contingencies, and actual results and events could differ materially from those currently being anticipated as reflected in such statements. Important factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements, certain of which are beyond our control, include, among other things: macro risk, including domestic instability; regional instability risk; credit risk; liquidity and funding risk; capital risk; market risk; regulatory and legal risk; financial crime risk; information security and data protection risks; operational risk; human capital risk; COVID-19 pandemic risk; model risk; climate change risk; and other key factors that could adversely affect our business and financial performance, as indicated elsewhere in this document and in past and future filings and reports of the Group, including the 'Principal risks and uncertainties' included in Bank of Georgia Group PLC's Annual Report and Accounts 2021 and in 2Q22 and 1H22 results release. No part of this document constitutes, or shall be taken to constitute, an invitation or inducement to invest in Bank of Georgia Group PLC or any other entity within the Group, and must not be relied upon in any way in connection with any investment decision. Bank of Georgia Group PLC and other entities within the Group undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required. Nothing in this document should be construed as a profit forecast.

MACROECONOMIC DEVELOPMENTS

Strong growth momentum

The Georgian economy has maintained strong momentum despite the ongoing war in Ukraine and global macroeconomic challenges. Real GDP grew 9.7% year-on-year in the third quarter, after a 10.5% growth during the first half of the year. Consumption spending has remained resilient, and investment expenditure has also picked up. Demand has been supported by increased revenues from the external sector, credit growth and fiscal spending. Importantly, growth is broad-based, driven by hospitality, real estate, communication, and transport industries.

Resilient external sector

Georgia's exports accelerated further in 3Q22, growing 40.5% year-on-year. Import growth also remained strong. In recent months, the widening trade deficit has been more than offset by the robust recovery in tourism inflows and money transfers from abroad. Tourism revenues reached 97.5% of 2019 level in the first nine months of 2022. Remittances grew 64.9% y-o-y in 3Q22 on the back of a growing number of migrants from the region. Given the positive dynamics in all sources of inflows, Georgia's external balance is expected to improve this year.

Moderate bank lending growth

Bank lending slowed during the third quarter, resulting in a 13.7% year-on-year growth on a constant currency basis in 3Q22 vs 18.7% y-o-y growth in the first half of the year. Tighter lending conditions driven by higher interest rates on FX loans and the NBG's recent decision to reduce maximum tenor on uncollateralized consumer loans from four to three years have weighed on credit demand. As growth is driven by local currency lending, the dollarisation of bank loans in Georgia has reduced to 45.1%.

Improved fiscal performance

Fiscal performance continues to improve. Tax revenues grew 27.0% year-on-year in the first nine months of 2022. The Government has revised the planned budget deficit for 2022 down to 3.2% of GDP (from 3.6% of GDP), reflecting better-than-expected tax revenues. In addition, public debt projection for year-end has been revised from 45.3% to 39.6% of GDP due to GEL appreciation and stronger-than-expected GDP growth. Overall, the improved growth outlook and the Government's commitment to fiscal consolidation supported by IMF's stand-by facilities are expected to ensure fiscal sustainability in the following years.

High inflation and tight monetary policy

Headline CPI inflation was 11.5% year-on-year in September, mainly driven by supply-side factors but with some impact related to demand-side as well, including rising housing costs. Decelerating producer price inflation, however, indicates that consumer price rise should also slow in the following months. Monetary policy remains tight, with the NBG policy rate at 11.0% since March 2022. The monetary policy is expected to remain tight for the rest of the year and ease gradually from mid-2023.

Recent GEL appreciation

Strong external inflows, tight monetary policy, and improved sentiments have supported the local currency. As at 31 October 2022, GEL gained 10.4% against the US Dollar year-to-date (5.2% appreciation vs end of June). GEL is expected to remain stable in the medium term.

Outlook

Considering stronger-than-expected macroeconomic performance in the first nine months and improved outlook for the rest of the year, Galt & Taggart has revised its real GDP growth forecast for 2022 up to 10.2%. Going forward, real GDP growth is expected to moderate at 4.8% in 2023 driven by consumption and lasting recovery in tourism and investment spending. The ongoing war in Ukraine, global recession fears, and high inflation are downside risks to growth.

3Q22 AND 9M22 FINANCIAL HIGHLIGHTS

FINANCIAL HIGHLIGHTS

§ The Group's performance in the third quarter reflected strong franchise growth and was supported by the growth momentum of the Georgian economy. The top-line was boosted by growth across core revenue lines, with continuing strong net foreign currency gains on the back of migrant and tourism inflows.

§ The Group delivered positive operating leverage y-o-y and q-o-q and improved the cost to income ratio to 30.6% in 3Q22 (36.8% in 3Q21 and 32.5% in 2Q22) and 32.5% in 9M22 (36.2% in 9M21).

§ Net interest margin was 5.3% in 3Q22, up 30 bps y-o-y and flat q-o-q. On a nine-month basis, NIM was 5.3%, up 50 bps y-o-y. NIM was supported by higher loan yield but negatively impacted by higher levels of liquidity.

§ Asset quality remains strong. Cost of credit risk ratio was 1.0% in 3Q22 (0.2% in 3Q21 and 0.6% in 2Q22) and 0.8% in 9M22 (0.1% in 9M21), mainly driven by the unsecured consumer and micro portfolios in the Retail Banking segment. The share of NPLs in gross loans came down to 2.4% at 30 September 2022 (2.6% at 30 June 2022), with reductions in both the Retail and Corporate Banking segments.  

§ Robust profit and profitability. Our profit in 3Q22 amounted to GEL 290.2m (up 56.6% y-o-y and up 5.3% q-o-q). Profit for the nine months ended 30 September 2022 was GEL 806.3 (up 53.2% y-o-y). ROAE stood at 32.4% in 3Q22 (25.7% in 3Q21 and 32.8% in 2Q22) and at 32.0% in 9M22 (25.7% in 9M21).

§ Moderate growth of the loan book - on a constant currency basis, loan portfolio was up 12.9% y-o-y and up 2.3% q-o-q. The y-o-y growth was driven by the consumer, mortgage, and MSME portfolios, whereas the q-o-q growth was driven by the consumer, mortgage and SME portfolios, partly offset by reduced micro and corporate loan books. In nominal terms, loan book was up 3.7% y-o-y and down 0.8% q-o-q - as a result of the continuing appreciation of the Georgian Lari against the US Dollar.

§ Significant growth of client deposits and notes during the quarter - 40.3% y-o-y and 17.2% q-o-q on a constant currency basis - reflecting the strength of the Group's customer franchise. Nominal growth was 29.1% y-o-y and 13.9% q-o-q.

§ Robust capital adequacy position. During the third quarter, the Bank's CET1 capital increased by 80 basis points, driven by robust internal capital generation and partially offset by business growth. At 30 September 2022, the Bank's Basel III Common Equity Tier 1, Tier 1, and Total capital adequacy ratios stood at 14.8%, 17.0%, and 20.3%, respectively, all comfortably above the minimum requirements of 11.6%, 13.8% and 17.2%, respectively.

§ Liquidity coverage ratio increased to 121.4% at 30 September 2022, vs 112.7% at 30 September 2021 and 113.5% at 30 June 2022. The LCR continues to be comfortably above the 100% minimum requirement.

§

STRATEGIC HIGHLIGHTS[2]

§ The Bank increased its customer base to 1.62 million monthly active customers at 30 September 2022 - an 18.8% increase vs 30 September 2021 and a 3.8% increase vs 30 June 2022.  

§ More than 1 million individuals were monthly active users of our mBank and iBank at 30 September 2022, up 31.2% y-o-y and up 4.8% q-o-q. The share of MAU in total active individuals reached 65.0% at 30 September 2022, up from 58.8% at 30 September 2021 and 64.3% at 30 June 2022.

§ Digital channels. We have continued to develop our digital channels and provide superior digital experience. We fully rolled out a chat bot in the mobile app, added the functionality that enables clients to purchase public transportation cards in the app, launched a payments platform (online analogue of our Express Pay terminal) - bogpay.ge, and piloted Bank of Georgia's sCool App for kids. In 3Q22, 96.7% of total transactions were non-branch transactions, with the share of transactions via mBank/iBank at 56%, up from 49% in 3Q21.   

§ Product offloading. Our objective is to increase customer activity and product sales in digital channels. During the third quarter, product offloading was 34.0% vs 29.1% in 3Q21.

§ Payments. Bank of Georgia's market share in acquiring increased to 48.8% in 3Q22 vs 41.2% in 3Q21, with POS acquiring market share at 54.1% in 3Q22 vs 48.5% in 3Q21. The volume of transactions executed through BOG's physical and online terminals was up 45.6% y-o-y in the third quarter of 2022.

§ Customer satisfaction. Net Promoter Score reached 60 in the third quarter (up 13.5 points y-o-y and up 8.3 points q-o-q), an all-time high result for the Bank.

§ Bank of Georgia was named World's Best Consumer Digital Bank 2022 by Global Finance. In addition, we have been recognised as World's Best in Lending (Consumer) and Best Consumer Digital Bank in Central and Eastern Europe by the same prestigious publication.

CHIEF EXECUTIVE OFFICER'S STATEMENT

As we approach the end of 2022, we continue to operate against a backdrop of regional and global challenges. However, the Georgian economy has performed much better than we anticipated in the beginning of the year. Following upward revisions by international organisations and local authorities, full-year real GDP growth is now expected at 10.2%. The debt burden in the economy has reduced, with bank loans to GDP down to 62% in 3Q22, from the highest level of 77.6% reached in 2020. Furthermore, public debt to GDP is expected at 39.6% in 2022, down from 60.1% during 2020. Fiscal buffers are being rebuilt, with fiscal deficit for 2022 revised down to 3.2% (vs 3.6% originally planned and vs 6.1% in 2021). The resilience of the economy to external shocks is supported by gross international reserves, which were up 5.8% year-on-year to $4.3 billion in 3Q22. On the back of strong external inflows, the Georgian Lari has continued to appreciate against the US Dollar and, while interest rates and inflation levels remain relatively high, both are expected to ease gradually from early 2023.

In Bank of Georgia, our entire team has remained committed to supporting each other and our customers. The Net Promoter Score is now 60, an all-time high result, compared with the mid-30s three years ago, reflecting a major improvement in customer experience. We finished the third quarter with more than 1,000,000 monthly active digital users - 65% of all monthly active individual clients - and, importantly, almost half of them use our mobile app and internet banking platform daily. Our payments business also performed well. The volume of transactions through our POS and e-commerce terminals was up 45.6% y-o-y and up 20.7% q-o-q in the third quarter. The strength of Bank of Georgia's retail digital franchise ensures that we remain "top of mind" in Georgia and is reflected in the financial performance of the Group. Overall, the first nine months of 2022 led to a profit of GEL 806.3 million, an increase of 53.2%, and a return on average equity of 32.0%. This was particularly driven by strong payments revenues and net foreign currency gains on the back of continuing client-driven flows as tourists and migrants from nearby countries came to Georgia over the past few months. We have continued to invest for future growth while constantly improving efficiency. Our cost to income ratio improved to 32.5% in 9M22 vs 36.2% in 9M21.

The Group's balance sheet remains strong and of good quality. Loan book growth was 12.9% y-o-y and 2.3% q-o-q, on a constant-currency basis. The y-o-y growth was driven by the consumer, mortgage, and MSME portfolios. Our deposit growth, an indicator of the strength of our core customer franchise, has been exceptional with over 40% growth y-o-y and 17.2% growth q-o-q, on a constant-currency basis. This was also supported by the deposit flows from migrants from neighbouring countries. 

Asset quality also remained robust. The cost of credit risk ratio stood at 1.0% in the third quarter. In Retail, we have returned to a more normalised through the cycle level of cost of credit risk ratio. The share of NPLs in gross loans was down to 2.4% at 30 September 2022.

Bank of Georgia is consistently delivering high profitability while maintaining a strong capital position, with CET1 ratio at 14.8% at 30 September 2022, 320 basis points above the minimum requirement. Given the highly liquid balance sheet, we implemented a Tender Offer in September 2022, repurchasing US$ 130 million of the Bank's Eurobond, due to mature next year. Only US$ 82.4 million of the original US$ 350 million Eurobond remains outstanding as at 8 November 2022.

An interim dividend of GEL 1.85 per ordinary share in respect of the period ended 30 June 2022 was paid to ordinary shareholders of the Group on 20 October 2022. The GEL 112.7 million share buyback and cancellation programme is ongoing and as at 1 November 2022, 1,269,273 shares had been repurchased and cancelled, at a total cost of GEL 78.9 million.

As Georgia's role as a transport, trading, and logistics corridor in the region is strengthening, the attention from international companies and investors will likely increase, and Bank of Georgia remains well-positioned to continue serving the country and our customers during this important period of time.

Archil Gachechiladze,

CEO, Bank of Georgia Group PLC

9 November 2022