Company Announcements

Bank of Georgia

Group PLC

Fourth Quarter and Full Year 2022

Preliminary 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 (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.

4Q22 AND FY22 RESULTS AND CONFERENCE CALL DETAILS

Bank of Georgia Group PLC announces the Group's preliminary consolidated financial results for the fourth quarter and full year 2022. Unless otherwise noted, numbers in this announcement are given for 4Q22 and FY22 and comparisons are with 4Q21 and FY21. 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 also available on the Group's website at www.bankofgeorgiagroup.com.

The information in this Announcement in respect of full year 2022 preliminary results, which was approved by the Board of Directors on 15 February 2023, does not constitute statutory accounts within the meaning of Section 434 of the UK Companies Act 2006. The statutory accounts for the year ended 31 December 2021 have been filed with the Registrar of Companies, and the audit reports were unqualified and contained no statements in respect of Sections 498 (2) or (3) of the UK Companies Act 2006. The consolidated financial statements for the year ended 31 December 2022 will be included in the Annual Report and Accounts expected to be published in March 2023, which will be filed with the Registrar of Companies following Bank of Georgia Group PLC's Annual General Meeting.

A webinar with investors and analysts will be held on 16 February 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/92928157803?pwd=eW14Q1pCcjlLZ080aWRlei9pQk9BUT09

Webinar ID: 929 2815 7803

Passcode: 974381

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

Webinar ID: 929 2815 7803#

Passcode: 974381

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

During the fourth quarter, the Georgian economy maintained its recent strong momentum despite the ongoing war in Ukraine and global interest rate and inflationary trends. Continued inbound migration and relocation of capital boosted domestic demand. According to preliminary data, real GDP grew 9.5% year-on-year in the fourth quarter, and estimated real GDP growth for full year 2022 was 10.1%. The export of goods and services was the main driver of growth along with increased investment expenditure. Consumption spending slowed due to high inflation and tightened lending conditions. Nonetheless, domestic demand remains strong, supported by increased revenues from the external sector and fiscal spending. The overall growth was broad-based, with primary contributions from transport and communications, hospitality, and other services sectors.

Resilient external sector

Georgia's exports of goods moderated in 4Q22, growing 18.6% year-on-year, resulting in a 31.8% y-o-y growth in 2022. The slowdown was mainly due to a reduction in global commodity prices. Import growth remained robust on the back of strong economic activity. The widening trade deficit was offset by the continued recovery in tourism inflows and surge in money transfers from abroad. Tourism revenues exceeded the 2019 level by 45.7% in 4Q22, resulting in a 7.6% growth vs 2019 for 2022. Remittances grew 142.2% y-o-y in 4Q22 on the back of ongoing inbound migration. Given the positive dynamics in all sources of inflows, Georgia's external balance improved significantly in 2022.

Healthy bank lending growth

Bank lending slowed further in the fourth quarter of 2022, resulting in 12.1% year-on-year growth on a constant currency basis vs 14.5% y-o-y growth in 3Q22. Tighter lending conditions, driven by higher interest rates on FX loans and the NBG's decision to reduce the maximum tenor of uncollateralised consumer loans to three years, have weighed on credit demand. Local currency lending remains the primary driver of credit growth leading to a sustained reduction in bank loan dollarisation, which stood at 44.8% at 31 December 2022, down 5.9 ppts vs last year.

Improved fiscal performance

Georgia's fiscal performance continues to improve. Consolidated budget tax revenues increased by 37.3% year-on-year in 4Q22. In December 2022, the Government of Georgia revised the planned budget deficit for 2022 down to 3.1% of GDP, reflecting better-than-expected tax revenues on the back of strong economic activity. Total public debt at year-end 2022 reached 39.6% of GDP, down from 49.7% in 2021, due to GEL appreciation and strong GDP growth. Overall, the positive 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.

Topped-out inflation and tight monetary policy

Headline CPI inflation slowed to 9.8% year-on-year in December 2022 (vs 10.4% in November 2022). The diminishing effects of strong GEL and recent reduction in global commodity prices on domestic inflation have been partially offset by increased demand-side pressures amid strong economic activity. Currently, inflation is mainly driven by elevated food prices and housing costs. Decelerating producer and import price inflation, however, indicates that consumer prices should keep slowing down over the following months. Monetary policy remains tight, with the NBG policy rate at 11.0% since March 2022. According to the NBG's current guidance, inflation is expected to approach the 3% target by the end of 2023.

Strong GEL

Strong external inflows, tight monetary policy, and improved sentiment have supported the local currency. GEL appreciated by 12.5% against USD during 2022. In January 2023, GEL further gained additional 1.9% against USD. GEL is expected to remain stable in the medium term, supported by strong external inflows and positive growth outlook.

4Q22 AND FY22 FINANCIAL HIGHLIGHTS[1]

Ratios were adjusted for a one-off GEL 391.1 million of other income due to the settlement of an outstanding legacy claim, and a one-off GEL 79.3 million tax expense due to an amendment to the current corporate taxation model in Georgia.

FINANCIAL HIGHLIGHTS

Operating income before cost of risk (adjusted for one-off items) was up 76.7% y-o-y in the fourth quarter to GEL 404.0 million and up 59.4% y-o-y for the full year to GEL 1,361.6 million.

·      The Group delivered strong y-o-y and q-o-q top-line growth during the fourth quarter, with non-interest income generation underpinned by the growth of the Georgian economy.

·      We ended the full year with operating income (adjusted for one-off items) of GEL 2,002 million, up 46.6% y-o-y, driven by a strong performance across core revenue lines, with a four-fold increase in net foreign currency gains on the back of migrant inflows, increased activity, and higher spreads throughout the year.

·      The Group delivered positive operating leverage y-o-y in 4Q22 and FY22 and improved the cost to income ratio to 31.0% in 4Q22 vs 39.8% in 4Q21, and to 32.0% in FY22 vs 37.2% in FY21.

 Asset quality remains strong

·      Cost of credit risk ratio was 0.9% in 4Q22 (-0.2% in 4Q21 and 1.0% in 3Q22) and 0.8% in FY22 (0.0% in FY21).  

·      NPLs to gross loans increased to 2.7% at 31 December 2022 (2.4% at 31 December 2021 and 2.4% at 30 September 2022), driven by a one-off methodological change as we are aligning our internal NPL definitions more closely to IFRS Stage 3 definitions. Excluding this change, NPLs to gross loans ratio would have decreased to 2.2% at 31 December 2022.

Robust bottom-line growth and high profitability

·      The Group's profit (adjusted for one-off items) amounted to GEL 325.9 million in 4Q22 (up 62.4% y-o-y and up 12.3% q-o-q). Profit for the full year was GEL 1,132.2 million (up 55.7% y-o-y). ROAE (adjusted) stood at 33.7% in 4Q22 (26.4% in 4Q21 and 32.4% in 3Q22), and was 32.4% in FY22 (25.8% in FY21).

·      Reported profit in 4Q22 amounted to GEL 637.7 million (up 217.7% y-o-y and up 119.7% q-o-q). Reported profit for full year was GEL 1,444.0 million (up 98.6% y-o-y).

Moderate loan book growth and strength of our deposit franchise

·      Loan book grew 4.3% y-o-y and 4.3% q-o-q during the fourth quarter. On a constant currency basis, the loan portfolio increased by 12.9% y-o-y and by 4.8% q-o-q.

·    Significant growth of client deposits and notes was achieved again during the fourth quarter - 30.1% y-o-y and 6.2% q-o-q in nominal terms and 43.2% y-o-y and 8.5% q-o-q on a constant currency basis, mainly driven by the Retail Banking segment.

Strong capital and liquidity positions

·      At 31 December 2022, the Bank's Basel III Common Equity Tier 1, Tier 1, and Total capital adequacy ratios stood at 14.7%, 16.7%, and 19.8%, respectively, all comfortably above the minimum requirements of 11.6%, 13.8% and 17.2%, respectively. The one-off other income of GEL 391.1m, recorded in the fourth quarter of the year, arose at the holding company level and is therefore not reflected in the Bank's capital ratios, which are calculated within the regulated Bank - JSC Bank of Georgia.

·      Liquidity coverage ratio stood at 132.4% at 31 December 2022 vs 124.0% at 31 December 2021 and 121.4% at 30 September 2022, above the 100% minimum requirement.

Capital distribution

·      On 20 October 2022, the Group paid an interim dividend of GEL 1.85 per ordinary share.

·      In December 2022, we completed the GEL 112.7 million share buyback and cancellation programme, having repurchased and cancelled 1,670,446 ordinary shares.  

·      The Board intends to increase the share buyback and cancellation programme by up to GEL 148 million.

·      At the 2023 Annual General Meeting, the Board also intends to recommend for shareholder approval a final dividend for 2022 of GEL 5.80 per share payable in Pounds Sterling at the prevailing rate. This would make a total dividend paid in respect of the Group's 2022 earnings of GEL 7.65 per share.

STRATEGIC HIGHLIGHTS[3]

Strong franchise growth

·      We increased Bank of Georgia's customer base to 1.7 million monthly active customers at 31 December 2022 - a 17.4% increase vs 31 December 2021 and a 5.7% increase vs 30 September 2022.

·      The number of monthly active digital users (MAU; individuals) was up 31.5% y-o-y and up 11.6% q-o-q to 1.1 million at 31 December 2022. The share of MAU in total active individuals increased to 68.7% at 31 December 2022, up from 61.1% at 31 December 2021 and 65.0% at 30 September 2022, reflecting the increasing adoption of our market-leading digital platforms.  

Digital channels 

·      We significantly increased the share of product sales through digital channels - to 40.0% in 4Q22 vs 28.4% in 4Q21 and vs 34.0% in 3Q22.

·      96.4% of total transactions were non-branch transactions in 4Q22, with the share of transactions via mBank/iBank at 58.2%, up from 50.8% in 4Q21.  

·      In the fourth quarter we fully launched sCoolApp, the first financial mobile application for school students in Georgia. Our goal is to increase basic financial literacy of young people by enabling access to digital financial services and a variety of educational content that will be built into the app. At 31 December 2022, 33,167 school students were monthly active users of the app.

Payments

·      Bank of Georgia's market share in acquiring increased to 50.3% in 4Q22 vs 43.0% in 4Q21. The volume of transactions executed through BOG's offline and online terminals was up 52.8% y-o-y in the fourth quarter of 2022 and up 48.9% for the full year.

·      Bank of Georgia's cards were used for payments at least once by 1.0 million individuals in December 2022 (up 33.0% y-o-y, up 11.8% q-o-q).   

Customer satisfaction

·      Net Promoter Score (NPS) stood at 58.4 in the fourth quarter (up 3.9 points y-o-y and down 1.7 points q-o-q).  

CHIEF EXECUTIVE OFFICER'S STATEMENT

2022 was an unprecedented year - which started with the war in Ukraine, which shocked us all, and which, sadly, remains ongoing.  Our thoughts remain with the Ukrainian people, and I hope this horrible human suffering ends soon.

Despite the high levels of uncertainty and volatility during the year, however, the Georgian economy demonstrated strong growth momentum, resulting in an estimated 10.1% real GDP growth in 2022. One of the key drivers of growth during 2022 were strong external inflows, including FX inflows that were boosted by the inbound migration of people and relocation of capital from nearby countries, as well as increased activity in the transportation sector, as the rerouting of cargo from Central Asia amplified Georgia's position as an important transport, trading and logistics corridor for the region. On the back of these developments, we saw strong nominal GDP growth, a reduced current account deficit to around 3.1% of GDP, a reduced fiscal deficit to 3.1% of GDP, and a significant strengthening of GEL, which appreciated by 12.5% against the US Dollar during 2022. Inflation and tight monetary policy are still the main challenges, but Georgia's macroeconomic risks overall reduced significantly - public debt decreased to 39.6% of GDP, from 49.7% in 2021, and banking sector loans to GDP also decreased to 62.7%, from 71.5% a year ago. In addition, gross international reserves increased by 14.7% in 2022 to USD 4.9bn.   

The strength of the Georgian economy underpinned the recent growth momentum of Bank of Georgia. Our market-leading digital channels and payments solutions, coupled with top of mind customer franchise and a dedicated team with a strong customer-centric culture - ensured that we were well-positioned to benefit from the greater than expected economic growth. We reported strong financial results in the fourth quarter, culminating in an excellent full-year performance as operating income before cost of risk (adjusted for one-off items) was up 59.4% y-o-y, profit (adjusted for one-off items) was up 55.7% to GEL 1,132 million and a full-year return on average equity stood at 32.4%[4]. We maintained a strong balance sheet and continued investments in building the business. Full year basic earnings per share more than doubled to GEL 30.99 per share, and book value per share increased by 43.3% to GEL 94.07.

Over the last few years, we have invested significantly in our customer franchise and, as a result, are now delivering significant growth across our key performance metrics. The number of our monthly active retail clients grew 17.1% y-o-y to 1.6 million, which is a great result in a country of 3.6 million. Importantly, the number of monthly active digital users was up 31.5% y-o-y to 1.1 million - representing 68.7% of our monthly active customers, compared to 61.1% a year ago.  During the fourth quarter, we launched the first financial mobile application for school students in Georgia - Bank of Georgia's sCoolApp - ending December with 33,167 monthly active users. Financial inclusion is one of our main focus areas, and we aim to enable children to improve their financial literacy skills through engagement with the app and the educational content that we plan to embed into this channel.

Our payments business also continued to excel, with the volume of transactions through Bank of Georgia's acquiring up 52.8% y-o-y in the fourth quarter and up 48.9% y-o-y for the full year. Now more than 1 million individuals use our cards for payments at least monthly, a 33.0% increase over the last 12 months.

On the portfolio side, our loan book increased by 12.9% y-o-y on a constant currency basis, and deposit growth was outstanding, at 43.2% y-o-y on a constant currency basis, not only supported by migrant inflows, but also by high levels of local economic activity, reflecting the strength of our brand and customer franchise.

Good profitability and the improved GEL resulted in a strong capital position, with historically high levels of capital buffers. The CET1 ratio stood at 14.7% at 31 December 2022, more than 300 basis points above the minimum requirement. In addition, the one-off gain of GEL 391.1 million, recorded in the fourth quarter of the year, arose at the holding company level and is therefore not reflected in the Bank's capital ratios, which are calculated within the regulated Bank - JSC Bank of Georgia.

Considering the Group's strong performance during 2022, at the 2023 Annual General Meeting, the Board intends to recommend a final dividend for 2022 of GEL 5.80 per share, making a total dividend for 2022 of GEL 7.65 per share. In addition, the Board intends to increase the share buyback and cancellation programme by up to GEL 148 million. This represents an overall dividend and share buyback pay-out ratio for the year ended 31 December 2022 of 37%, in line with our capital distribution policy.

Going forward, although risks remain, given the importance of the South Caucasian corridor for the Central Asian economies, we expect Georgia's role in the region to strengthen, bringing in additional investments and economic activity in the energy, transport, and logistics sectors over the next few years. On our side, we remain well-positioned to capture the benefits of increased economic activity in the country, and to sustainably deliver strong growth and high profitability. 

Archil Gachechiladze,

CEO, Bank of Georgia Group PLC

15 February 2023