Lion Finance Group PLC (BGEO) Earnings Call Transcript & Summary

Hello, everyone. Welcome to Bank of Georgia Group PLC's Conference Call. My name is Nini Arshakuni and I'm Head of Investor Relations at Bank of Georgia. I'm joined today on this call by the Group CEO, Archil Gachechiladze, who will start today's call with a brief overview of the key macro developments as well as the highlights of the Group's performance of the second quarter. And afterwards, we will be taking your questions. And please note that this call is being recorded. And archil, you can start now.

Thank you, Nini. Thank you, everybody, for joining our call, 17th of August. So a lot of people are on vacation and the ones who are not on vacation, we appreciate your attention and your time. So I'm happy to report that we have delivered record results in this quarter. So GEL 387 million net profit, which is up by 40% year-on-year, 34.6% return on equity, cost income of 26.9%. And our monthly active users of our retail application are up by 27% year-on-year above 1.2 million people -- 1.2 million persons. And our Net Promoter Score -- Retail Net Promoter Score is 61%, which is also all-time high. So all of these results are record numbers, each and every one of them, in fact, and we consider ourselves to be in a very good position to capture the good macroeconomic situation that we have in the country and also consider ourselves lucky to be able to deliver these numbers. We are also announcing dividends of GEL 3.06, which will be an interim dividend. And on top, we are also announcing a buyback program of GEL 62 million. This is reflecting our capital distribution policy of 30% to 50% of earnings. So a few words about the macro. Last 2 years, we have had, as you know, double-digit real economic growth. And this year so far first 6 months has been a real growth of 7.6%, which has been above the expectations, and we have upgraded our guidance or expectation for the full year economic growth by -- to 6.8% and next year, 5%. Having said that, I think our 6.8% has some risks on the upside. So we'll see if those numbers get upgraded further. Exports, imports as well as tourists are growing. Remittances have stabilized, although on a very high last year in space. So overall, I think all numbers are growing very robustly and pretty well. One concern that we had for the economy was high inflation. So we ended last year with 9.8%, if my memory is right, of CPI. Now CPI is down to 0.3%, and that's July numbers. And the core CPI is down to 3.2%, which is almost same as the target rate of 3%. So that, I think, provides a very good basis for the National Bank to start exiting the tight monetary policy that we have been in for a couple of years now and reduced it twice already from 11% to 10.5% and then from 10.5% to 10.25%. The National Bank of Georgia expects the rates to be around 9.5% by the end of the year. We think there is further room for reducing the refinancing rate [ above ] that expectation, i.e. maybe 9%, maybe 8.5%. And that will provide further boost to the economy, and will provide support. Lari is doing well. We've -- has been stable around 2.62 -- 61 versus USD 1. Overall, I think over the last 2 years, it has [indiscernible] versus a trading partners, but those trading partners also include Russia and Turkey. And there's no need gravitate towards the real effective exchange priority there because there are other considerations for the trade to gravitate one way or the other. Overall, I think the flows have been so strong that the National Bank reserves are above $5 billion, which are record. In fact, this is end of second quarter July numbers, there has been strong buying in July, and now the reserves are at $5.4 billion, including the July buying. So all in all, this year, only the National Bank in the first 6 months since I had bought more than $1 billion. And [indiscernible] more than $1 billion and in July, further $300 million. So it's $1.4 billion already, which is unprecedented, and it shows that not only the remittance and tourist flows are strong, but also investment is going very well, which we'll see later on when we [indiscernible]. The bank loan growth is moderate but slightly up in the second quarter to 8.4% in nominal terms. In constant currency terms, it's 13.5%, which is healthy, but still kind of not very high, and we'll see on the next slide that there's plenty of room to grow. Digitalization has continue to come down rather than the last 1 month, which is at 45% and the deposits more significantly -- deposits have also started to come down significantly. So more people are saving Lari after prolonged strength of Lari and also stability as well as national bank buying unprecedented amounts of dollars. Loans NPLs are healthy. This is IMF standard of 1.5%. We report under the IFRS standard, which is slightly different but to have comparison to other countries, that's why it [ posted ] under IMF standard. Talking of deleveraging basically over the last 2.5 years, we have delevered and now stabilized. So bank loans to GDP are 62% of GDP and national debt to GDP is under 40%, and we're still continuing to delever. The tax collection is ahead of the budget, and that provides further stability on the fiscal side as well. So in terms of some of the strategic updates on the results, so this is our profile, which we all know so that they are well on this, delivering about 10% real growth on the loan book and return on equity above 20% and dividends, 60% and those are some of the things that we rely on strategy. So first update, basically, our franchise, retail franchise is very strong number of monthly active users are up by 13.8% to overall clients. In terms of the digital application users, monthly active users is up by 27.3% year-on-year, above 1.2 million customers, of which 71.9% use it daily. So overall, 582,000 people on a daily basis, use our application. And that is a phenomenal number for any universal bank application. DAU/MAU is 47.7%, which is also the highest we've seen. So this is some of the list of things that we are offering on our application, including the dark mode, which is relatively [ missing ]. But also what we launched now is the instant payment to other bank as well because that used to take several hours and customers are demanding the payments more and more now. So that has been launched, it is quite popular with our customers. Our number of transactions has almost hit -- almost 100 million. What's significant is that mobile application and Internet banks retail has been now almost 2/3 now for all transactions. The other was in BNB terminals and [ in POS ] and small fraction in our branches. In terms of the sale of digital products, slightly lower in the second quarter, but we started to support some of the sales digital processes and in July, August, it's already up significantly above 46% of all products being sold digitally. We are aiming to go to 60% next year. So it's a significant effort being put there. What makes me quite happy, in fact, is how our mobile application in [indiscernible] is getting more and more popular with the legal entities. More and more people are using our application for business and its monthly active user start up by 38%, which we're now positioned to be growing on an annual basis. I said those rates are incredible. Transactions are also up by 24%. Our merchant acquiring business has progressed very well. In fact, year-on-year, we have a market share gain of 6.6%, and we achieved 53.7% market share in acquiring business. You see the POS and e-commerce distribution and the volumes are up by 51%. On the issuing side, i.e., our customers using Bank of Georgia cards, we are up to 1.1 million people using our cards on a regular basis, monthly active users. We stopped by 27% year-on-year, which is also an incredible progress. And here, again, our main competitor here is cash. So we're trying to basically incentivize our customers with loyalty points so forth to be spending more with cards rather than cash because cash is very expensive. We do not charge as much for cash -- cash out, as in -- maybe it's costly, transported cash back and forth to different allocations, ATMs and so forth. So it's beneficial on, not only on development side, but also on the cross sides to incentivize our customers to just spend through electronic channels. Also, when people spend through electronic channels, then merchants also have more to record in our automated loan availabilities than possible for such smaller merchants. And that's also a new product that we have launched in couple of months [indiscernible]. So this is last but not least, in fact, you all know our commitment to customer satisfaction. We hit in June the new fresh high of 61%, which is for any new [indiscernible] branches is an incredible change and I would like to thank all the full team that is working to deliver these services with the satisfaction to the customers. So we are all, as an organization dedicated to our customers and to servicing our customers with wholeheartedly, so to say, we dedicate ourselves to service. And this is what -- the recognition of that. There's a lot of work that grows behind those easy small numbers. So I would like to congratulate our staff with the [indiscernible]. Now a few words on the numbers. So a lot of things that I just described have manifest themselves in the numbers. In terms of the numbers [indiscernible] -- so you've seen the return on equity on the cost of risk side, basically 0.8% and cost to income was incredible 26.9%, CET ratio was 18.7%, well above -- 4% above the minimum requirement CET1 ratio. So what also is very good. This time around is our year-on-year growth of our loan book, which on a constant currency basis was 17.6%. And again, I think growing at this levels is possible short to medium term, but not long term obviously, and that is possible because the economy has delevered significantly, given the high growth in real and nominal terms over the last 3 years of the economy and not as much in loans. Deposits are up by 38% year-on-year, but what's -- but on a more kind of last quarter basis, it's about the same as the loans. So our loans and deposits are growing more or less in line here. Our net income grew by 34.8%, although it was helped by real estate realization gain of about [ $1 million ] or so. And non-interest income grew by 26.9%. So we had a slight reduction in fact, normalization of our FX flows. There were a lot of questions last year because we had a very good FX income second quarter and third quarter, somewhat starting to come down in the third -- and first quarter is slow in any case. So now we are seeing a more normalized level. There was some volatility in the second quarter, so we benefited from it, but it's also normal to have that. So that's what we have. In terms of the operating expenses, we had 11.5% growth year-on-year, which is not bad given the [indiscernible] growth, and that helped us to achieve 26.9% cost income and for the first quarter, 27.9%. Again, we had other income, which helps that. But if you normalize for that, it's still be under 30%. So it shows our disciplined cost discipline while we are projected to grow in our numbers. Loan growth, I already mentioned, it's 17.6% constant currency for the year and a pretty strong 6.4% in the quarter. What makes me happy is that it's for all lines of business. So we trail real nicely as well as SME and corporate. Those of you that remember, last year, we basically -- we're experiencing several quarters of slightly high cost of retail given the [indiscernible] define tuning that we had to do in our underwriting model that not only has been done nicely but has provided the basis to really achieve incredible results on that side. So I would like to also thank the team for doing a good job here. So that is helping now us to be more active on that front. Because it's also grew by 5.9% over the last quarter, which was also nice given the increased competition for deposits now. Net interest margin at 6.6%, slight pickup. That has been helped by the loan yield. And in terms of the deposits, we are seeing slight pickup in costs, obviously, like everywhere in the world. On the cost of risk, I already discussed our loan portfolio quality is well covered in terms of NPL coverage at about 70% and will be collected at 2026. So a pretty good stability there. On the profit side, year-on-year, we are net up by 40% on an adjusted basis, and we had a one-off there of GEL 21 million. So if you're put that into the account, that's up by 48%. Return on equity 34.6%. If you include the one-off, it's 36.5%. So it's an incredible return on equity, return on asset as well, which I'm not going to mention. Very good capital ratios and significant buffers and we obviously remember that we know some buffers, which are not included here on the multiple level, still -- so we have strong liquidity of 111%, slightly lower from the abnormally higher liquidity, a quarter before. I would like to mention that we retired Eurobond in July or June. in any case we retired it and we have GEL 80 million outstanding as well as we repaid some other DFI financing. We are drawing down some further lines because of increased liquidity requirements for the Russian current account holders, which is 80% now, starting from 1st of September. In terms of capital distribution, you see our discipline of capital distribution, and we are -- we have announced a dividend as well as the buyback as I mentioned. I would like to highlight one thing about the company's announced buybacks, but then they don't cancel the shares. So 2 years ago, when we announced a new capital repatriation policy, we said that we will be doing some buybacks and some distribution of dividends. So whatever you see here GEL 73 million and GEL 188 million, it has been bought back and canceled. So that's why this 49.2 million has been induced to 45.9 million or tell you see here in gray, those [ resell ] shares held by the management trust that are used for granting the shares to the management. So -- those are not -- I mean, it's accounting-wise, it's treasury shares, but it's shares held by -- for the management trust. Whatever we buy in our treasury for the bank treasury we cancel that one and we informed the market accordingly. So it's an actual conciliation, and that's what we want to do going forward. So on this right note, I will stop here and open it up for the questions.

So we'll take your questions now. [Operator Instructions] So the first question is from [indiscernible].

Could you please confirm if you can hear me?

Yes, we can hear you.

So I had three questions that I wanted to ask all related to the Eurobonds. The first question is -- so Bank of Georgia has a perpetual Eurobond, which has a call option in 2024. So could you please comment to an extent that you could comment on this issue. What should be our expectation whether this perpetual bond [indiscernible] or not? The second question, could you please comment on the how the regulator, how the National Bank of Georgia on their willingness to see the local banks calling their perpetual bonds. Is the consideration of investor interest in the -- on the agenda for the regulator, does the regulator wants to meet investor expectations in that regard and prompting and waiting to call the [indiscernible] or nothing concrete can be concluded on that respect? And the last question, could you please comment on the Eurobond activity that we should anticipate from the bank in the coming periods in this year and its subordinated space?

Thank you for your questions. First is that we understand what the market expectations are. Having said that, I don't think we are in a position to comment on our intentions. Regarding the NBG's willingness to allow falling of Tier 1, the National Bank of Georgia as well as the Georgian Government is very investor friendly and have been supporting of the investor interest even -- not only in good times. And I think Georgia is going through economically speaking, the very good times, good growth at this -- but basically, what we are seeing is that during the COVID times, the National Bank of Georgia allowed the coupon payments and that basically showed us their willingness to recognize the investor interest, even at that level of the capital structure in difficult times. So I have no reason to believe that anything has changed there. I've only seen and heard very investor supportive sentiment on the National Bank and revenue. In terms of the Eurobond activity, we don't see an immediate need for a large Eurobond senior note for our balance sheet at this point. Rates are quite high, and we are fine in terms of liquidity, and we have plenty of IFI facilities that we can go on. On the subdebt side, we don't expect public note at this point, we are doing a number of different instruments with different IFIs. So that's where we are now. Having said that, I think next year may change, and we may be back to the market, but we also have to see that the market rates are attractive because now fixing rates at this point, we're not too excited about. Maybe we are right maybe we are wrong. But overall, let's say, we don't expect immediate activity on the public markets at this point.

So the next question is from Can Demir.

Just one -- actually, two questions, but let me start with the one-off. Can you maybe talk about the accounting logic behind the realization of valuation gains on foreclosed assets? So that's the first question, Archil. The second question is on sort of operating leverage in the business because you hired close to 1,000 new employees in the past 12 months. Including around 170 new people in Belarus, and this is despite the closure of 20 branches in the past 12 months. So I was wondering in what areas do you do the hiring and maybe how we should think about the pace of hiring maybe next year or into 2025, if you have any visibility on it? And third question and -- congratulations on the few platforms as well. It's -- I think it's phenomenal, 44% without help of inflation. And I was wondering what the take rates are in the payments business? And do you see any regulatory pressure or regulatory risk around those take rates? So those are my 3 questions.

Sure. In terms of the one-offs, so basically, how the accounting works is that whenever we foreclose on the asset, and in this particular case those assets have been foreclosed to public auction. Then we do -- so basically, whatever -- we buy that and in that particular case, nobody showed up there. And a few months later on, we got lucky in terms of selling it at a much higher rate. So basically, when we buy it on a public auction, we're not allowed to revaluate it because it's a foreclosed asset and specifically because it was on a public auction. So that's why we had a gain on the other income side. I have to admit that it was a significant GEL 30 million to GEL 40 million write-down of remaining balance on the loan side. So it's not all rosy like that. But overall, those write-downs are already in the cost of risk that has been fully provided for. So all in all, that's the story with that. In terms of the cost income and hiring employees, so you're absolutely right that we are closing down some of these smaller branches, whatever we call the express at the time because more and more people are doing digital transactions. And those branches were there for bringing some first comers to the banks and now the push is towards the digital rather than increasing the penetration overall of the banking services in the population because almost everybody that could be banked is banked. I mean, this slight increase possible there in the regions, and that is socially also responsible, and we are focusing on that in terms of the ESG targets and so forth. But in terms of smaller branches, when we closed down a smaller branch, basically, there are only small number of employees that are not employed there. And I have to say that we don't lay off anybody because we are in a hiring mode and turnover in the -- from flying basically allows us to offer jobs to each and every one of those people that are in those branches. Where do we hire? We hire in mainly in back office, all of it, basically. But it's -- last year has been a significant hiring on the AML compliance and risk side for obvious reasons. We basically grew our AML office from about 15 people to more than 70 people. But that's just AML compliance and some risk department, all kind of difference. So overall, I think there's a lot of focus on there as well as then on the digital and IT. So digital, meaning the user experience and so forth, so forth, we have app development, everything is in-house as you know. So we have our core systems in-house. We have our applications in-house, etc. That as well as the IT side, which is on the core architecture, et cetera, where we are also moving towards the micro services, chopping up our large IT system into smaller cloud ready available. So that's where most of the hiring is happening. On the payment side, what we are seeing basically is that regulator is looking at that. But basically, there is no need as long as there's competition. And we see that there's competition. And I think overall regulator would like to see that the prices do not go up and the margins do not go up in terms of the acquiring fees and so forth. But the regulator also likes to see more noncash, and we are focused on that. So there, I think there's a lot of similar kind of targets in terms of promoting the noncash payments, and it's good for a lot of different things, including access to finance and inclusion for a lot of people that have not had access to different loan products and so forth. I mean, the small businesses, self-employed, et cetera. So there so far, we see that it will be probably convergence towards the ECB type of regulation on the payment side, but not much else, let's say.

And maybe one last thing on the take rates. On debit and credit cards.

What do you mean? Maybe it's a silly question, but what do you mean by take rate?

How much do you charge if a customer swipes the debit card from the merchant or a credit card for that matter? Any give or take, just sort of we can put it into context.

Something between 1% and 2% more or less. So for larger chains, et cetera, where the competition is big, it's closer to 1% for debit cards, for credit cards, depending on the type of card, Visa Mastercard also has interchange fees that are quite different depending on the level of different cards. It goes from 1.8% to 2.5% something like this. So we don't see the incredible rates that you see in some other countries of 5% and 7% and so forth. We actually have a pretty reasonable rates that you've seen in a lot of different countries. Having said that, we are using our position to promote a cheaper way of financing so that we can then return the loyalty points to people, to spend money with their cards rather than with cash. So when somebody has a card, let's say, salary card and then withdraw money from the ATM account -- ATM, we charge something there up to -- within a package, it's up free and then above certain level, we charge something. But it's loss-making. So all the cash handling that we have plus to the ATMs and et cetera, is loss-making. So when they take that money out and they bring that money to a merchant, and that merchant spends it. And then that merchant, we cannot provide credit easily because we have to study. And so it's harder to finance cash merchants than to actually see the turnaround. And then cashing that out is also not quite profitable. I mean, it covers the cost, but we don't make money there. So handling cash is not fun, basically. So we're trying to promote cashless for many different reasons. And there, I think the objective of the regulator and ours, I think, are the same.

Next question is from James Hamilton.

A couple if I may. Firstly, given your outlook for potentially much lower interest rates, you mentioned maybe down to sort of as low as 8.5%, is there a consequent impact on your NIM given that, that's exceptionally high? And secondly, obviously, your cost income ratio has improved to 26.9% in Q2, which is obviously a very strong result. I'm just wondering two things. Firstly, how much is this being driven by your digitization process? And how much further is there to go given for a full-service bank, 26.9% is exceptionally low.

Regarding the margin, basically, all I can say is that, obviously, I mean, it's an incredible margin of 6.6% for a universal bank. We think that there was broad stability in the third quarter, and it will start coming down from the fourth quarter onwards, somewhere between 5% and 6% from next year probably, it will probably come down closer to 5%. Basically, all of that will be caused by revaluation and repricing of deposits, which is happening, but it's a slow process. It's not immediate. A lot will depend on how we'll price on the consumer side, on mortgages at the market, the MBS development at all or not because mortgages are not super profitable, and so forth. But so far so good, we have been able to play with that pretty well. Regarding the cost income, 26.9% is helped with that other income part that we discussed at length but, let's say, below 30%. I don't think there's much more to go there, quite frankly. So I want to target 15% or 12% cost income. It's -- we want to be in a position where we can invest in new businesses that do not have that kind of cost income or new products, but still are making money for our shareholders. So all in all, I think we are guiding 35%. Obviously, we have been delivering much more than that. So that guidance is probably lesser than that number. So we don't intend to waste money, and we'll be disciplined and continue focusing on it. But yes, it's where we are, I think there is not much more to improve on that.

Archil, we have a couple of questions in the Q&A chat. Two questions from [ Steve Garelick ]. One is about asking if the current profitability has been impacted by the extraordinary gains from currency flows or any other sources caused by the Board? That's the first question. And the second question is regarding ROE, medium-term goal of 20%. The company's already goes 20%, but it continue to delivers results much higher than that. Does it make sense to reset the ROE goal?

So the first one, basically this -- I think, overall, all the economies in the periphery, including European economies, but certainly in Kazakhstan and Uzbekistan and Armenia and Azerbaijan and Georgia all benefit from people running away from Russia. It's not only people, it's IT workers, it's investments anything risky. But there's no immediate wave. Let's say, we had those waves last year and the second quarter partly in end of third quarter when Russia, further mobilization. So we don't see waves anymore. It's all stabilized some people [indiscernible], et cetera, et cetera. But basically, overall, I think that benefit is there. And we still have plenty of IT workers to have relocated with families here and probably settled although not officially, but they are working here. So there are a lot of U.S. outsourcing companies that have moved and created bases in Georgia, like EPAM and others I think that's long term. It's not going to go away in terms of even if the war ends tomorrow. So there's that benefit. But I don't think it's temporary. The temporary benefits have all stabilized. In terms of the currency flows, I also said that we don't see that big volatility in business, I think that has stabilized there as well. In terms of return on equity, we like to under promise and over deliver. 20% return on equity is not bad, but I agree as well as cost/income 35% that we had doesn't make sense anymore than 20%. People don't make any attention to. So I don't know if it makes sense to have ambitious targets. I mean we're ambitious people, and we are delivering results and good results. I don't know if setting more targets, we'll do any good. Myself as well as the management have much higher KPIs for the return of equity targets. So that should give you some assurance that we're not happy with 20%. But I don't see much benefit in terms of updating and setting very ambitious targets [indiscernible], because we are -- there are companies that don't have such public targets at all. I think given the consistency of results delivery and the quality of the franchise is what really defines the value of this company. A lot of companies that are -- that don't have that have to set targets and assure the investors that they'll be doing something good about it. But we actually need to do it if you are a good franchise and you are consistently focusing on such things.

So we had another question on the ROE target, whether we'll be looking at this, especially in light of the continued buyback program and noting that your peer has upgraded theirs, but I think we've answered this question already, right? So..

So anonymous people, I don't like to answer anonymous questions, but should we try to answer this one? Anonymous attendee congratulations on the results, considering the significant difference between the profitability between you and primary competitor. Would you say that such performance is a one-off event? If not, what is the major fundamental difference for such outperformance? I don't think it's right for us to talk about [indiscernible]. I mean we have a very similar banks in terms of the amount of capital and the balance sheet as well as the markets we operate on. So in terms of the nature of our results being one-off versus not one-off. I would encourage you to look at historical performance on a quarter-by-quarter basis, year-by-year basis. And in terms of what makes us special, I don't know, but to be lucky than good, I guess.

We have a raised hand from Ronak Gadhia.

Congratulations on the results. And also, I apologize I just joined a bit late so apologies if any of my questions are repeating. But just maybe to go on the question that the previous call was asking about funds and the stickiness fund inflows. One thing I've noticed on your results for the last 12 or so months is there's been a huge inflow of FX-denominated deposits, but those are largely being allocated to its government securities from outside of Georgia. So is this just an indication that there's still a big loan growth pipeline to come and the bank is [ owning ] back its capacity or just an indicator that the bank is a bit uncertain about the stickiness of these flows and the fact that they might eventually flow back up?

We had inflow over the last 1 year, obviously. But that inflow, a lot of people ask, is it Russia or not, et cera. Less than 1/3 of the growth on deposit was Russian, less than less than 30%, right. So more than 2/3 came from the residents. Having said that the residents are also -- there's liquidity flows into the country. So if Georgia sells an apartment to Russian family, obviously, then the Georgian President deposits money, so it would be growth from residents. So overall, I think funds flow has benefited from this horrible situation there, but basically, people are running away from russia. But it's more than 70% of the growth has been coming from the residents. The nonresident -- the economy -- the demand for loans was not there for the last 1 year. So we had more growth in the deposit standing loans. So it was -- what do you do with that money? When the growth -- when the demand is not there, they put it in treasuries, right? Maybe it's hard currency deposits, that's what we have done. Now just recently, the National Bank has raised the liquidity requirements for the current and demand deposits of Russians to 80%. So basically, whatever can flow out, you have to keep in treasuries. But we had it in any case. So that's what we're going to have. So I hope that answers your question. I think -- do I think that it will flow out? No. I think it's overly cautious and not particularly helpful regulation, if you are asking, but that's the view of the regulator, so we follow that.

Okay. And just again, maybe a related -- follow-up to that. The other component of your deposit book as obviously it's Lari deposit book. That's also growing quite aggressively. I think you mentioned the reason maybe for that. But what that has allowed you to do is maybe pay down expensive funding from the NBG and maybe reduce your loan-to-deposit ratio on the Lari side? So is this again a structural change? Or are we just seeing something [indiscernible] cyclical and then eventually that reverses as you start to grow along?

Yes. Really good question, in fact. Little bit of both, is the [indiscernible] I'll explain. So basically, over the last 2.5 years, the Georgian economy has grown much more than the loan portfolio. And Georgian economy growing also meant a lot of savings formation. And then on top, you have pension reform that is accumulating significant amounts like up to GEL 6 billion of deposits, mainly in deposits side there in different instruments, but a big chunk is in the [indiscernible]. So overall, I think the country has gone through deposit formation and less borrowing. And that creates more possibility for higher than nominal growth on the loan side, obviously. But it was first year -- last year was the first time when we had in our history, below 100% loan-to-deposit ratio. So historically, we used to borrow internationally and land locally. That has reversed slightly. It's not that we are investing outside, but we are, in fact, investing in treasuries and other things. So there's much more savings than deposits in the country than the loans and that I don't think will reverse in any dramatic way. So countries is maturing in that way, I can say. Having said that, when things stabilize and the rates come down, I think there's a possibility that the demand for loans will be higher than deposit formation. So again, we'll have possibility to borrow and top up our liabilities from the international sources. Having said that, I think we'll be nowhere close to the ratios of foreign funding that we used to have historically I hope that answered your question, Ronak.

No, it does. And maybe again, you've already answered the NIM question, but does this mean that as rates come down, you potentially got the opportunity because of the liquidity on the balance sheet, you've got the opportunity to reprice your funding costs lower and maybe sustain your NIMs to some extent?

To some extent, yes. So basically, we're less dependent. So when you look on a historic level, if you look at a 10-year horizon on the bank, basically, there's much more equity in the mix, almost double in terms of ratios that we used to have 10 years ago. So that helps NIM as well and much less reliant on wholesale financing. So of course, that helps, perhaps both of that has helps -- and in terms of the deposit franchise, I think we are -- on the retail side, we have 44% of retail deposits. It's a leading franchise, most trusted bank and the top of mind but -- by repeatedly over the last few years. So that franchise, I think, is more and more valuable as we have executed zero rate environment, and that manifests itself in a good need.

And just a final one. You've briefly touched on that. There's a lot of equity on the balance sheet, a GEL 300 million in the last quarter, a bit more coming through this quarter at the Holdco level. You can pay a lot of dividends, but can we expect in an exceptional dividend given the properties you're generating in the next 6, 12 months?

We basically are opportunistic about this extra capital, and then we want to see stabilization in the region. And obviously, then if nothing happens, then we return it back to the shareholders. If not, we deploy it one way or the other. But basically, this -- we don't intend to carry such buffers, whatever.

We have one raised hand from queue, but I don't see the last name of the person, so I'll just let him in.

Similar to the last question. Could you say what you think now the trend is in the loan-to-deposit ratio? Is it stable in which case you've got too much capital? Is it down, in which case you've got a lot too much capital or what?

In terms of the loan to deposit ratio, it's pretty much stable at this point. I mean last quarter, you saw that the loans and deposits grew about the same level. And as I said to the previous question - I answered to the previous question, as the rates come down, I think my expectation is that the loans will grow a bit more than the deposits, but it will be -- it will not be substantial. We will not alter the structure of the balance sheet in a major way. In terms of the amount of capital, I agree, our buffers are above our usual management buffer that we deliver substantially above effect. So as the volatility subsides in political and so forth in the region, obviously, we will either deploy or return that capital.

Victor Urge from Redwall is congratulating us and he said, we already answered this question, but we can still read out the congratulations. The question was about the liquidity requirements, the new liquidity requirements on the Russian deposits. So there are some raise-hand from James and [indiscernible] but they may have just gone to put it down, I think, should we still try.

Try. Maybe they have other questions.

James do you have any other questions?

Should we wrap it up?

Yes. No, we don't have any.

Ladies and gentlemen, thank you very much for joining this call. I hope it was interesting for you. I would like to congratulate our team hitting record numbers in the last quarter. As in all measures, in fact, a very low cost/income ratio, very high return on equity, very decent growth of deposits as well as loans. Very good growth of our digital users on the retail as well as legal entities, very good growth of merchant acquiring business and the card users. So on all strategic directions, I think we have -- and last but not least, the Net Promoter Score hitting 61, which also had a record showing. So on this bright note, I would like to thank you again for joining this call, and have a good weekend after a couple of days. Thank you.

Thank you. Bye.