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Edited Transcript of BGEO.L earnings conference call or presentation 20-Aug-20 1:00pm GMT

Q2 2020 Bank of Georgia Group PLC Earnings Call

Aug 20, 2020 (Thomson StreetEvents) -- Edited Transcript of Bank of Georgia Group PLC earnings conference call or presentation Thursday, August 20, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Archil Gachechiladze

Bank of Georgia Group PLC - CEO & Director

* Natia Kalandarishvili

Bank of Georgia Group PLC - Head of IR & Funding

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Conference Call Participants

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* Andrew Keeley

Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst

* Andrey Mikhailov

Sova Capital Limited, Research Division - Research Analyst

* Ronak Gadhia

EFG Hermes Holding S.A.E., Research Division - Research Analyst

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Presentation

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Natia Kalandarishvili, Bank of Georgia Group PLC - Head of IR & Funding [1]

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Welcome, everybody, to Bank of Georgia Group PLC's Second Quarter Ended First Half of 2020 Financial Results Conference Call. My name is Natia Kalandarishvili. I'm Head of Investor Relations at Bank of Georgia. And today, I'll be moderating the call. Please be advised that the call is being recorded.

Today, our call will be organized in 2 parts. During the first part, Archil Gachechiladze, Bank of Georgia's CEO, will be presenting financial results for the second quarter. And during the second part, you'll be able to ask questions.

Now I'll hand over to Archil. Archil, please go ahead.

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Archil Gachechiladze, Bank of Georgia Group PLC - CEO & Director [2]

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Thank you, Natia. Welcome, everybody, to our first half earnings call. Perhaps, I would like to touch on high level what is going on in terms of our COVID-19 impact on the country and overall on the bank and then mention few of the facts on the results.

So in terms of the global pandemic, as you all know, it has affected everybody quite significantly and had a significant impact on Georgia as well, but I have to say that the Georgian government has handled this pandemic extremely well. They have started with lockdown early on with flights with China being banned by end of February. And then later on, have taken measures in terms of the travel and then limiting some of the movement and so forth. So with that, it did have a significant impact on the economy, especially April was a lockdown month and that in our numbers, we saw a significant reduction of the economic activity. But because the government has taken early actions, it was able to reopen the economy early on and really the amount of infected as well as the diseased numbers are extremely low, and we are one of the countries probably in top 20 countries in terms of the best management of this pandemic.

And it continues in a similar way, although the lockdown is no longer enforced. Having said that, the international travel remains rather limited and, therefore, we don't expect much international tools for the end of the year. The government has taken significant actions in terms of supporting the economy. The comprehensive list is included in our presentation is offered there. And I'm ready to answer any questions on that side.

What I can say is that as a result of this early lockdown and the recovery that we have been seeing and the opening of the economy earlier than some of the other countries in the region as well as actions taken by the government in terms of the economic package that has been put in place as well as the National Bank's swift movement in terms of reducing the capital requirement and providing Georgian Lari to the Georgian economy through the banks, all of that has resulted in a pretty rapid recovery. And that recovery is a bit faster than we expected, although this -- it's not the full recovery yet.

So in terms of macroeconomic environment, what we are seeing is that the April, as mentioned, has been a low point of the economic activity. Although May and June have -- we have seen a significant recovery in terms of the economic activity. So some of the metrics that we are looking at are the VAT turnover that is published by the Ministry of Finance as well as the payments that we see in our network. And our net fee and commission income business that -- net fee and commission as well, which shows an economic activity. And in all of those, we have seen a significant recovery from the low point of -- in the fee business, minus 48% in April but minus 10% in June. And similar type of recoveries have happened in the VAT turnover as well and the GDP numbers as well.

In July, we -- these numbers in terms of the economic activity are not yet published by the Ministry of Finance, but we expect -- what we are seeing on our business, we expect further improvement in July versus June, and that should remain for the rest of the year. What we have seen also is that tourists, as we mentioned, international tourist is limited. Although the second most important source of foreign currency, which is remittances, have held up remarkably well. In fact, June year-on-year was up 17%. And July number, which was just published, is up 20%, which is remarkable. In fact, July numbers are all-time high for the remittances, and that is definitely supporting the overall economy as well as the currency.

And talking of currency, in the second quarter, we saw appreciation by 7% of Lari versus U.S. dollar. And that was partly due to the strong remittances but also supported by the National Bank of Georgia, which interfered in a number of times to reduce the perception of risk that the local market hit in terms of the currency.

Now I would like to touch on a number of points in terms of the Bank of Georgia specifically. The balance sheet has remained very strong, broadly stable for the second quarter. We saw that -- we saw a slight reduction in terms of the nominal terms, but that was predominantly due to the strengthening of Lari. When you take that out, you are looking at a flat loan book in the second quarter. In terms of the operating income, we saw some reduction in net and interest income -- net interest income as well as net fee and commission income. But on a 6-month basis, it's probably stable.

What's interesting is that our net fee and commission declined significantly in April, more than the overall market. The reason for that is that a significant part of our franchise, the branches, which are expressed branches, and some of them are present at the entrances on metro station, about 60 of those. Given the full lockdown, the transport was fully closed, including those branches. And the other express branches that we had outside also were not meant, but only the electronic part with the ATMs and the express pay terminals were available.

So we could say that half of our branches, roughly speaking, or half of our capacity was shut down in April. The good news there is, though, is that after opening it up, we have a strong comeback, and we are seeing it in May and June, as I mentioned already, but also July and current trading is reflective of that strong comeback resolving our retail presence there.

In terms of the operating expenses, we were -- for the half year, we were up by 10.9%. And for the second quarter, we were up by 6.7%. We have taken a number of -- the increase is predominantly due to the investments that we are -- we have kept in the IT as well as somewhat in marketing as well. But more importantly, some of the cost-cutting and optimization measures that we have taken in the second quarter will be fully reflected in the third and fourth quarter. So all in all, that will result roughly to flat cost structure on the operating expense side for the year. So let me reiterate that one. So what we are seeing for the first half, you are seeing -- we are seeing the operating expenses increasing by 10.9%. For the full year, we are expecting roughly flat cost structure, vis-à-vis, the last year. So you'll see some of the cost saving coming in into the third and fourth quarter.

In terms of the net interest margin, we saw a significant reduction. That significant reduction was basically due to the -- what some call a perfect storm, basically. I will list some of the things that have affected it. On one side, we saw Lari costs increasing significantly in the beginning of the lockdown period. That has been normalized since, and we are net borrowers of Lari from the national Bank. At the same time, U.S. LIBOR dropping significantly is a negative for us because we are the net savers of U.S. dollars and we get less interest income on mandatory reserves that's there to stay prevalent.

High liquidity. We were running extremely high liquidity for the quarter, and that was partly due to 2 things. One is that we had to -- we repaid a GEL 500 million bond on the first of June, and the second is the conservative approach. So as we are entering and, in fact, experiencing or going through uncertain times, we chose to run higher liquidity than otherwise we would. So those 2 combined means that what you saw by the end of June, the LCR ratio running at 135%, is really the lower point throughout the quarter. We were actually running much higher liquidity throughout the quarter, including the repayment of GEL 500 million bond.

And last but not least is that whenever there's less lending, a less lending activity, there's less time over in the consumer and shorter-term loans, and that means less net interest margin as some of the fees that are spread over the life of the period will not get amortized earlier than the reminder of the loan.

So all of this combined meant that our net interest margin for the second quarter was 4.2%, which was quite low. We are currently running at 30 basis points higher than that, in fact, a little bit higher than that. So 4.5% or a little higher than that, and we expect that to increase further. A bit early to say but 20-plus basis points probably going closer to the end of the year.

So on that side, in terms of the quality of the loan book, we saw that our NPL ratios increased from 2.1% to 2.7%. And that decreased the coverage ratios, but the coverage ratios were artificially increased because we saw large provisioning that we made in the first quarter of this year. But the NPLs have not been fully reflected yet by the end of the first quarter. Since you saw that natural development, basically, there'll probably be some uptick further on the retail side. And that remains to be seen how that will develop.

All in all, when we reviewed some of the processes ongoing in terms of the corporate credit in terms of the SME and Solo, all of these portfolios are demonstrating stronger-than-expected credit quality. On the retail side, the work is ongoing, and a lot will be shown closer to the end of the year. But so far, there are some encouraging signs. So all in all, I would say that we are adequately provisioned so that ECL provision that we put in place in the first quarter seems to be well covering the expected losses so far. A lot will probably also depend on the next year and how tourist comes back next year, which we expect to kick in from the end of spring, beginning of summer. Regardless of how COVID develops, there will probably be some come back in tourism. If we overcome COVID-19 stronger, then obviously, there will be a strong rebound in tourist, but we are basically expecting some comeback of tourists from the spring of next year.

So all in all, I would -- yes, on a couple of other points. So we are running the capital ratios. There were a lot of questions in the first quarter, partly due to the strengthening of Lari and partly due to the internal capital generation. Core Tier 1 moved from 8.3% to 9.9%, and other ratios are strong as well to 12.7% and 17.4%. So total capital ratios and the core Tier 1 and Tier 1 ratios are all strong. And unless there's significant changes that happen in the environment, we expect that to continue in terms of internal generation, building up the capital that we need.

So the quarter ended with a return on equity of 21.8%, which is our -- closer to our normal levels. Although I have to say that it was partly due to our operating income being less than our normal times, but our cost of risk compensating that, again, due to the fact that we have provisioned adequately in the first quarter of this year.

Going forward, we see increased concentration on our digitalization. Our quarter has demonstrated that we had even further increase of the ratio of number of mobile transactions nominally increasing, but as a ratio of total increasing even more dramatically. We have been named by the Global Finance just -- Global Finance Magazine just 1 week ago as the best consumer digital bank in Georgia. Overall, we are also the independent third-party market research have reconfirmed our most trusted bank in Georgia in June, and we are also the leading retail depositor in the country. All in all, 96% of our transactions are digital. It used to be 93% about a year ago. That will -- we are investing a lot in terms of digital capability, and we intend to maintain our cutting-edge on that side to maintain that technological development and further at all times.

So with that, I will end the first part and open up for the questions. Just one last note is that the strategic objectives and the guidance of 20-plus-percent return on equity and 15% loan growth medium-term remains intact. And I think we believe that with the worst being over, we will very soon, if not already, come back to these targets.

So with that, I would like to open for questions. Natia, could you please.

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Questions and Answers

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Natia Kalandarishvili, Bank of Georgia Group PLC - Head of IR & Funding [1]

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Thank you, Archil. And now we can move to Q&A session. (Operator Instructions)

We already have 1 question from the phone. Please introduce yourself and ask the question.

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Archil Gachechiladze, Bank of Georgia Group PLC - CEO & Director [2]

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You are muted, I think. Natia, should you mute it?

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [3]

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Can you hear me?

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Archil Gachechiladze, Bank of Georgia Group PLC - CEO & Director [4]

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Yes.

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [5]

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It's Andrew Keeley from Sberbank. So I have a few questions. First of all, on asset quality, can you tell us -- give us a bit more color on what the GEL 18 million kind of provisions on other assets related to? And should we see this as kind of more or less a one-off? Or do you expect kind of further provisions on those to come in the second half of the year. And given kind of the comments you made about the -- feeling fairly comfortable, the substantial first quarter provisions that you took seems sufficient. And obviously, in the second quarter, you basically had a net release on your loan book. Should we expect kind of assuming the economy more or less remains on the kind of current trajectory, that the cost of risk on the kind of credit side should be pretty close to 0 in the second half of the year as well. And have you made any kind of macro input changes in the second quarter? And then I'll ask the other questions after this.

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Archil Gachechiladze, Bank of Georgia Group PLC - CEO & Director [6]

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Okay. So regarding the -- regarding -- so I will start with the second question. So you asked in terms of the reversal in the credit reserves and should we expect that, et cetera, et cetera. We have not changed the CL level. The reason why you saw some of the reversal was mainly due to Lari strengthening and that reduced the amount of the portfolio and thus the reserves as well as some of the repayments in corporate and, therefore, the reduction of the loan portfolio. So we systemically did not change the view so far. What we are seeing is that our initial model was relying on somewhat resumption of tourism in the fourth quarter, so now we don't expect much tourist. So in fact, although IMF expects 4% reduction in the economy, we actually expect 5.1%. Nevertheless, the book is behaving better than we expected, and there are less of people that are restructuring in the second wave, especially on the retail side than we expected. So all in all, although the tourists is not resuming, remittance is being stronger and overall economy being stronger as well as the loan book doing better, we think that we are adequately provisioned.

Now to -- in terms of the outlook on the risk, it's a bit too early to really start talking about releases. I think just saying that we are adequately provisioned is probably the best reflective of the reality. What I could say is that there's a detailed work. So there are some portfolios that you could cover one by one like corporate, for example, and we have done that job, and it looks pretty strong in terms of the credit quality. There is about 3 quarters of SMEs that we thought we should review, et cetera, and that work has been done as well. Our solo and mass retail, et cetera, some of that does need much more work to be done, which we will finish in the third quarter and we will have better idea. But so far, what we are seeing is that the loan book is pretty strong. A lot will still depend on the overall economic activity. So far, we are positively surprised, let's say, in terms of the number of people getting salaries almost back to pre-COVID levels, only a few percentage points lower. In terms of the total number of people getting salaries, the data that we get from the Ministry of Finance but also what we are seeing within the bank because we are a big chunk of the overall system. So that and overall other activity gives us a relatively positive outlook, although I would not rush in terms of releasing the reserves and so forth.

Now regarding sound in noncredit charges, other charges that you saw in the provision, they are -- some of which is more recurring, others are not. There are provisions on not received rents on some of the assets that we have taken from the borrowers, they have the option to buy it back, but since they have not paid the interest or has been fully provisioned. Having said that, the buyback option is at a much lower price. So it's too much detail. But whenever they buy back, they have to pay the rents. So unless they do that, otherwise, we'll get the asset appreciation. So we believe that it's actually not -- it's provisioned here, but we're not going to lose that money. There are some other cases where there's some legal costs associated with some of the provisioning in corporate portfolio that's partly put there as well. So mostly, it's that. So actually, every quarter, we have some credit and some noncredit provisioning that goes in that line, GEL 18 million, maybe on the high side. But other times, you could be looking at half of that or so in terms of recurring nature. But it's in the past as well, so it's not actually extraordinary one way or the other. Did I answer all your questions, Andrew?

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [7]

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Yes. Yes. That's very thorough. I have another question on your cost growth. So you basically said you're targeting flattish costs this year even after 11% cost growth in the first half of the year. And I'm just wondering, to what extent this means that you're going to be putting the break on kind of quite heavily in terms of your kind of digital and IT spending plans and the extent to which that's going to kind of hinder the further kind of digital digitalization of the business? Or will those costs basically be kind of rolled over to 2021?

And then maybe I can just ask my last question. In terms of your dividend, do you have any comments -- you're back up to kind of close to 10% core Tier 1 now, and that should keep on improving as your profitability kind of recovers. Do you have any kind of comments or thoughts on where you see a kind of minimum core Tier 1 in terms of the ability to start paying dividends again.

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Archil Gachechiladze, Bank of Georgia Group PLC - CEO & Director [8]

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So I will -- so we'll start with the dividend one. So we are currently using the released buffers that the National Bank released as part of this entering into the pandemic and asking us to provide GEL 400 million in terms of the NBG provisioning and so forth. We are almost 10% at core Tier 1, and I agree that is a very strong performance. The pre-provision core Tier 1 requirement was 10.45% if I remember right. So we have to stop using those buffers and build up a certain buffer to start discussing the dividend. So that's -- you can quickly run the numbers, but we are generating strong amount of capital. A lot also depends on Lari performance as well as growth.

So I would not hold my breath for the dividend this year, obviously. But I see us coming back to those discussions very soon next year, probably. But a lot -- there's a lot of uncertainties out there, but if all goes like it's going right now, we see rebuilding our capital above the pre-COVID minimum requirements by the MBG and then having those discussions, but right now I would not rush too much. Although I see that some of the regional banks have been able to have strong dividends, I think there, the provisioning is not at the same level. I think the approach that the National Bank has taken asking the sector to fully provide for the expected cycle is rather -- is different from some of the other countries. But at the same time, it's more conservative. So that means that we are -- we'll provide is for the full cycle where others may not be. What was the first question, Andrew, sorry?

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [9]

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Okay. It was on cost, basically. Yes, just

doesn't mean that you're kind of really putting the break on that. Yes.

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Archil Gachechiladze, Bank of Georgia Group PLC - CEO & Director [10]

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Yes. I remember. So the digital capability and investment in that side is 1 area where we are not cutting anything. Because if anything, what we have seen is that the COVID pandemic has accelerated this digital drive. And our leading position there, I think, has served us very well. And we intend to, in fact, further develop that leadership and continue investing in it. And there's significant novelties that we'll be rolling out on the mobile vent predominantly, but some of the other things as well, like mobile -- other offerings of other products and so forth. So on that front, no, we are not cutting much there. But all the other lines, we have basically tightened up our belt. But all in all, I would not say that it affects the functioning of the organization in any negative way. We just understand that when times are tough, we all need to tighten up a little bit. So all in all, I think what you are seeing, almost 11% increase in the first half. For the end of the year, you will probably be around 0 plus/minus a couple of percentage points, probably. Closer to 0, basically.

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Natia Kalandarishvili, Bank of Georgia Group PLC - Head of IR & Funding [11]

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Thank you, Andrew. Our next question comes from Ronak Gadhia. Ronak, please go ahead.

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Ronak Gadhia, EFG Hermes Holding S.A.E., Research Division - Research Analyst [12]

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My first one is just really maybe a follow-up on what Andrew is asking on dividend payment. Just looking at it from a slightly different, I guess, trigger point. So if I look at your total capital adequacy ratio, it was at around 17.4% is in the first half. At that run rate, I think you should end up at around 18.5% for the full year. I think your pre-COVID requirement was around 17.3%. So in that sense, you're already above regulatory requirement. But internally, I think you wanted to maintain a buffer of around 200 basis points. So by that calculation, you would be below your internal threshold -- capital threshold. Would that influence your dividend payment decision next year?

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Archil Gachechiladze, Bank of Georgia Group PLC - CEO & Director [13]

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I think the buffer that we are guiding the market of 200 basis points is a buffer that is there in terms of overall times. So in tough times, that buffer can go down. In other times, we can build up. So we don't always have to keep 200 basis points. At least, this is my understanding. So if by issuing dividends, we somehow decreased that buffer that should be weighted in terms of the cost and interests of the shareholders. So in other words, we will consider that one, but it should not be a limiting factor. As long as medium term, we see that we can maintain that buffer, it should not, one-off, affect the dividend decision. Although there are other factors that we are considering before resuming the dividends, including not using the buffers by the NBG, building somewhat some buffer as well as seeing the normalization of the economic activity and the signs are very, very good. In fact, the economy has come back stronger than we expected, but we want to see another 6 months or so and how it all goes and restart all the tourism, if not full, at least partial. And with all of that, I think we will have a strong performance.

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Ronak Gadhia, EFG Hermes Holding S.A.E., Research Division - Research Analyst [14]

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Just a couple of other follow-ups. What percentage of your loan book has been restructured and/or provided holiday payments?

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Archil Gachechiladze, Bank of Georgia Group PLC - CEO & Director [15]

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So we have 2 waves. In fact, the first wave and second wave of 3 months restructuring in, that will give you numbers, which is on the first wave, our corporate restructuring that used that offer was only 11%. And that was way lower than the overall market. In the MSME segment, it was 41%, which was also strongly below the market of the overall market and the retail, 71%.

In the second wave, only 12% of MSME used the restructuring offer and 22% of the retail. So those numbers are lower than the sector overall. And that's why we think that our risk profile is -- should be strong, but that remains to be seen. We have to see that perform over the next 12 months or so.

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Ronak Gadhia, EFG Hermes Holding S.A.E., Research Division - Research Analyst [16]

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Okay. Understood. And just a final one. I mean I guess the indications are positive when we look at what you're doing in terms of the macro assumptions you're making, the probability waiting for all these assumptions. But by my estimate, and I'm willing to share this calculation with you, but although [Malcom] does know about this -- how I got at this. But by my estimate is, if I look at the excess provisions you hold and what the historical normalized levels are, I estimate that your NPL ratio would increase -- would have to increase by about 2 to 3 percentage points for the excess provisions to be fully absorbed. So based on what you're seeing is there -- in your view, could your NPL ratio increase by that level in 2021? I know the risk of that happening this year, it seems quite low. But looking into 2021, you think is that a scenario that could materialize?

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Archil Gachechiladze, Bank of Georgia Group PLC - CEO & Director [17]

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So the uncertainties are still high, but I see where you're going. So basically, some of the detailed review that we have done suggest that the chances of that are rather slim, so on the corporate side and SME, et cetera. But on the retail side, a lot will depend on the macroeconomic situation and what happens next year. So I think I will stop there. So if the macroeconomic prediction of an increase next year of 5% or so of GDP happened, I think there are some upsides for us.

There's a question -- Natia, there's a question that came through a comment. Should I take that one?

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Natia Kalandarishvili, Bank of Georgia Group PLC - Head of IR & Funding [18]

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Yes. "Would you comment on the drivers behind your increasing deposit market share?"

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Archil Gachechiladze, Bank of Georgia Group PLC - CEO & Director [19]

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Yes. So as mentioned, we had the target of keeping high liquidity on the background of having a large repayment of Lari bond in June. So basically, we increased the market share by knocking on the corporate depositor stores and basically offering good rates. So that's why the -- what we are really looking in terms of the corporate market share is not a significant -- you can use it. Hello? Yes. So on that front, you can use it as a liquidity lever. And in this case, we used it to keep high liquidity, hence the [grab] of the market share. But for longer term, what we are looking at is the retail deposit market share, which is constant and increasing.

So should I take -- let me take some of the questions that have come in through the comments. So anonymous attendee has asked, "Hello, are there any plans to delist Bank of Georgia from stock market as it was in the case of Georgia Healthcare Group recently when Georgia Capital basically took [BGEO] private?"

Wow. That is anonymous. Not in any way is the answer. No, not in any way, really. I mean we are owned 80% institutionally, 19% by the Georgia Capital with the none voting shares until it decreased below 10%. And the ownership is widely spread through institutional ownership, and there are no plans whatsoever to delist it. In fact, we are committed to the structure. And we'll probably see for a long time.

"Archil, what are thoughts on Georgia Capital? Why are we seeing such a drastic dislocation between stock price and net asset value?" (inaudible) is asking.

[Arthur] I think there is a call in couple of hours of Georgia Capital, and you will have a chance to ask that the CEO of Georgia Capital. I am in no position to comment on that one.

Anonymous, "at the end of the moratorium, can you provide some color, customer behavior ability and willingness to repay principal and interest? Looking at the customer cash flow and the cash balance evolution, what percentage of loan should move to Stage 2, 3? We're all talking in a normal circumstance."

Very good question. In fact, it's unfortunate that it's anonymous. In fact, whenever there is anonymous and you're typing a question, could you please type name so that we can thank you personally for good questions like this. For this one, particularly, I can say that the second wave and the uptake in the second wave was so much less in terms of the restructuring that, that is a very good sign and encouraging. So just to reiterate the numbers, the MSME, the medium and small and medium businesses in the first wave, 41% wanted to have this payment holiday.

In the second wave, which was extra 3 months, only 12% expressed the willingness to do that. In the second wave -- so the first wave on the mass retail side, we had 71% taken. So it was an opt out. So we ask the clients to opt out actively from the restructuring. Otherwise, we restructure. Second one was the same, but it was only 22%. So the first one is 71%. Second one, 22%. So there's a significant reduction in the second wave as we come out from the lockdown. People want less of the restructuring. And on the portfolio that we saw restructured, there's a significant part of the restructured portfolio that our data because we see the turnover and the salary that they receive, et cetera. There's a significant part in that, that did not actually need to be restructured from the cash flow that they have, but I guess they were conservative given the development of the pandemic. So I'm cautiously optimistic in terms of how it all will develop.

In terms of the move to stage 2, you saw that there's a significant increase in stage 2 that we have introduced given the restructuring on the second wave and so forth. And as we will see as they come out of the restructuring, there's one thing is payments and the other thing is the ability to pay. Now given the fact that we are a large retail bank and we see their turnover, their salaries, their rents and so forth, we can -- we have all kinds of measures to see their ability to pay. And based on that, we will allocate part of that into the Stage 3. And that will be happening closer to the end of the year.

So anonymous, "do you expect to restart loan origination?"

That has been restarted already for -- right after April, in fact. So it was a very short period of time that we limited the origination, but the demand is not strong. Obviously, also, we tightened the underwriting standard, but the loan availability is there. So the standards are a bit higher, but the availability is there. And as we see that the country is exiting the COVID pandemic, and we see the full openness, et cetera. Obviously, we will review on the underwriting standards and losing it to more normal levels. Right now they are a bit tighter. Assuming a worst-case scenario, what is the maximum possible cash loss from Belarus? Worst-case of Belarus. Belarus, we are -- so our equity is roughly GEL 110 million there. It's a smallish bank, but it's performing very well, in fact, and it's well-functioning good bank with extremely good management and good book. So I don't know what you mean by worst case. So touch wood, everything is being peaceful. We don't expect much impact there. The equity position is what I described.

Ronak, a follow-up question from me, please. "Is the cost of corporate deposits more expensive than the cost of the corporate GEL bond yield when it was paid down? Also, would management seek to pay down the corporate book deposits and raise long-term GEL funding in order to optimize NIM?"

So right now the deposit rates are lower than used to be in terms of deposit, but there was some period in April when there was a significant hike on the corporate Lari deposits. But after the national bank took an action and provided liquidity to the market, those rates came down to the normal levels. What you are asking would probably make sense, not in terms of the optimization of the cost but rather by lengthening the maturity of Lari availability. And we will be opportunistic and look at the markets and what the appetite will be for that. There's no immediate plans of doing work right now going to the market.

Sorry. I'm a shy analyst. [Stephen Gorelik]. "Clarification on the second wave versus the first wave. Is everyone in the second wave included in the first wave or its new customers that ask for restructuring? Does it mean that everyone else from wave 1 is now performing as normal? What is BGEO's market share in SME and so forth?"

Let me -- [Stephen], let me answer your first question first. So second wave, it's not necessary that everyone that took the second wave was participating in the first wave because we offer that second wave. And if someone did not take the first wave, they still had an option of taking the second wave or if they lost a job or income and so forth. But whoever is not -- yes. So basically, the first wave is over. So whoever did not take the second wave is either performing or in NPLs. So you saw the NPL numbers, what they are, 2.7%. And you saw in the second wave, I don't have the aggregate number, but MSME was 12%, retail and was 22%. Everybody else is, yes, they are paying.

Next question is what is BGEO's market share in MSME BCM, how it changed since beginning of the year? I don't have it off the top of my head because there's certain definitions there. It didn't significantly change from the beginning of the year. Last year, we had significant gains in the SME segment in terms of the market share. This year, it's probably flattish or so. On the micro side, I think we are the strong market leader, and that is -- that remains the fact, in fact.

"With the results, can we see the benefit of having the best digital solution in the market?"

Stephen , where you see it, I would say that you are seeing the overall performance, and you are seeing it in stronger return on equity that we have, market-leading one. Longer term, I think, it's super important and probably everybody agrees with it. And the rest, time will show, basically.

(inaudible) Jefferies Equity Research. "On the payment holidays, was the opt out just for retail individuals? Or was it also opt out for MSME and corporate, please?"

Only for the retail was it opt out. Everybody else had to obtain. And the first wave was opt out for MSME as well, but in the second one, it was for retail only. With that, I think the written questions are fully addressed.

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Natia Kalandarishvili, Bank of Georgia Group PLC - Head of IR & Funding [20]

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We have one from the line, from Andrey Mikhailov. Andrey, please go ahead. You need to unmute your line.

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Andrey Mikhailov, Sova Capital Limited, Research Division - Research Analyst [21]

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Yes. I have a question on investment properties, which are accounted for at fair value, but their fair value in the accounts has not changed since the end of 2019. And basically, what you stated in the accounts is that you don't see prices falling in the real estate market but rather, you see the number of transactions being much lower than before. And my question would be, how would you expect this to develop towards the end of the year? So would you expect the prices to fall because sellers would be more willing to give discounts in order to sell their property? Or if the prices don't fall, maybe the number of transactions will remain very low. And in this case, would you still be willing to make any adjustment to the fair value? So essentially, my question is would you expect to have any negative charge on the investment properties book by the end of the year?

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Archil Gachechiladze, Bank of Georgia Group PLC - CEO & Director [22]

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Andrey, we don't know. So it all depends on how the market and the prices will develop. So right now, so far, unlike the 2008 and '09 crisis, we have not seen much movement in the prices. Yes. The number of transactional liquidity has decreased, and you can argue that, that's first step for -- to see the prices drop, but we have not really seen the prices change much. That is -- I wouldn't say a global phenomena but you see it in other places as well. As the liquidity in this crisis has been ample and the interest rates decline, we have not seen significant movement in the real estate prices. So should we expect it or not? We don't know. Probably if the economic impact -- negative impact worsens, you could say that you can have it. But so far, we have seen encouraging signs of the recovery. So a lot depends on '21 as well. I hope I answered your question.

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Natia Kalandarishvili, Bank of Georgia Group PLC - Head of IR & Funding [23]

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We have 3 additional questions. "What does the rate cut of 75 basis points mean on loan deposit repricing? Could you remind us margin sensitivity?"

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Archil Gachechiladze, Bank of Georgia Group PLC - CEO & Director [24]

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Can you repeat this, Natia, I apologize.

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Natia Kalandarishvili, Bank of Georgia Group PLC - Head of IR & Funding [25]

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"What does the rate cut of 75 basis points mean on the loan deposit repricing " They are asking about the margin sensitivity.

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Archil Gachechiladze, Bank of Georgia Group PLC - CEO & Director [26]

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I don't know off the top of my head. If Sulkhan wants to chime in. But Sulkhan, please let us know if you remember this by heart. Otherwise, it probably is best for us to come back to you on that. Yes. Sulkhan just wrote in the group here that he doesn't remember it off the top of his head. So please, if not here, you know the -- you know who this question is coming from, we can come back to you. Yes, it's loan capital. Yes, we'll come back to you on that.

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Natia Kalandarishvili, Bank of Georgia Group PLC - Head of IR & Funding [27]

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Next question, "I might have missed this, but do you continue to accrue interest on the restructured loans?"

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Archil Gachechiladze, Bank of Georgia Group PLC - CEO & Director [28]

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Yes. We do. So the only thing is that for the retail clients, what we offered in the first wave was that although the interest was accrued, it was not capitalized. So there was no interest on interest bank. So that accrued interest was spread over the remainder of the loan. And therefore, the NPV of that loan decreased, and that's the chart that you saw in the numbers, roughly GEL 38 million. And the second wave that was minimal, it was for retail only. So that's -- hopefully, that answers your question. So there's -- the interest continued accrued, but it didn't get capitalized but rather spread over the remainder of the loan. Therefore, the NPV of that decreased. That's the special charge that you saw on the books.

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Natia Kalandarishvili, Bank of Georgia Group PLC - Head of IR & Funding [29]

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And last question.

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Archil Gachechiladze, Bank of Georgia Group PLC - CEO & Director [30]

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In the first quarter. The second one was minimal, GEL 1 million. The first one was GEL 38 million.

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Natia Kalandarishvili, Bank of Georgia Group PLC - Head of IR & Funding [31]

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The last question for now. "Archil, given the current recovery path in net fee and commission income, what year-over-year performance will we expect for 2020?"

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Archil Gachechiladze, Bank of Georgia Group PLC - CEO & Director [32]

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It's difficult to say. On a monthly basis, we have seen a very strong recovery. That's all I can say. So you saw April being down almost by half and June being down by 10%, we are continuing that trend in a strong way. So all in all, for the year, I can't say right now and it will probably be too much to provide guidance on that one. All I can say is there are very strong recovery.

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Natia Kalandarishvili, Bank of Georgia Group PLC - Head of IR & Funding [33]

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We don't have any more questions for now.

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Archil Gachechiladze, Bank of Georgia Group PLC - CEO & Director [34]

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Well, with this, it was one of the longer calls, I guess, the Zoom provides a more comfortable way of asking questions sometimes in writing and sometimes via the call, and we will probably continue this -- using this technology for further quarterly announcements.

Thank you very much for joining this call. And as we said, we see a very strong comeback in the numbers and in the economy, and the book quality looks very encouraging. And all in all, we remain quite optimistic that we will be returning to our strategic targets soon or we have already returned them and think that, that is sustainable going forward. Thank you very much, and talk to you in the next quarter.