Bank of Georgia Holdings PLC Q1 2014 Results

Bank of Georgia Holdings PLC (LSE: BGEO LN) (the “Bank”), the holding company of JSC Bank of Georgia and its subsidiaries, Georgia’s leading bank, announces today the consolidated results for the quarter ended 31 March 2014. The Bank reported Q1 2014 profit of GEL 53.7 million (US$30.7 million/GBP 18.5 million), or GEL 1.51 per share (US$0.86 per share/GBP 0.52 per share). Unless otherwise mentioned, all comparisons refer to Q1 2013 results.

Strong profit momentum maintained

  • Net Interest Margin (NIM) of 7.3%, compared 7.6% in Q1 2013
  • Revenue increased by GEL 14.5 million, or 11.8% y-o-y, to GEL 137.5 million
  • Positive operating leverage maintained at 1.9 percentage points in Q1 2014
  • Cost to Income ratio improved to 43.1% compared to 43.8% in Q1 2013
  • Profit for the period increased to GEL 53.7 million, up 27.8% y-o-y
  • Earnings per share (basic) increased by 26.9% to GEL 1.51 compared to GEL 1.19 in Q1 2013 
    Return on Average Assets (ROAA) stood at 3.3% in Q1 2014 compared to 3.1% in Q1 2013
  • Return on Average Equity (ROAE) stood at 17.7% in Q1 2014, compared to 15.9% in Q1 2013

Balance sheet strength supported by solid capital and liquidity positions and declining Cost of Funding

  • Net loan book increased by 18.1% y-o-y (down 1.0% q-o-q), while client deposits increased by 8.2% y-o-y (down 2.3% q-o-q)
  • Cost of Client Deposits decreased to a record low of 4.6% in Q1 2014 from 4.8% in Q4 2013 and 6.4% in Q1 2013. Loan Yields also declined to 14.8% from 16.9% in Q1 2013 and 15.6% in Q4 2013. 
  • Cost of credit risk improved significantly in Q1 2014 to GEL 13.3 million from GEL 17.3 million in Q1 2013
  • High liquidity maintained with 29.6% of total assets made up of cash and cash equivalents, amounts due from credit institutions, NBG CDs, Georgian government treasury bills and bonds and other high quality liquid assets as of 31 March 2014. Liquidity ratio, as per National Bank of Georgia (NBG), stood at 43.5%, compared to 44.1% a year ago
  • As of 31 March 2014 the Net Loans to Customer Funds and DFI ratio stood at 96.4% compared to 96.2% as of 31 December 2013 and 85.2% as of 31 March 2013. The Net Loans to Customer Funds ratio stood at a healthy level of 113.8% compared to 113.0% as of 31 December 2013 and 104.9% as of 31 March 2013.
  • BIS Tier I capital adequacy ratio stood at 23.8% compared to 23.2% a year ago.
  • Book value per share increased by 13.9% y-o-y to GEL 34.35 (US$20.23/GBP 12.17)
  • Balance Sheet leverage remained largely flat y-o-y at 4.1 times

Business highlights

  • Retail Banking continues to deliver strong franchise growth, supported by the successful roll-out of the Express Banking strategy, adding 1,423 Express Pay Terminals and 513,707 Express Cards since the launch of the Express Banking service. Retail Banking’s net loan book grew 21.1% and client deposits 24.9% y-o-y.
  • Corporate Banking’s net loan book increased 7.8% to GEL 1,715.5 but decreased 5.7% q-o-q. Corporate Banking Cost of Deposits decreased markedly from 5.7% in Q1 2013 to 3.2% in Q1 2014.
  • Investment Management’s Assets under Management (AUM) increased by 14.5% y-o-y to GEL 702.7 million as of 31 March 2014. Since the launch of the Certificate of Deposit (CD) programme in January 2013, the amount of CDs issued to Investment Management clients reached GEL 239.0 million, as of 31 March 2014
  • The Group’s insurance and healthcare business, reported GEL 6.0 million Q1 2014 profit, up 14.6% yo-y and expanded its healthcare business through acquisitions, adding 578 hospital beds to a total of 1,907
  • Affordable Housing’s second housing project is near completion and the construction of two new housing projects is underway. Net profit from the Bank’s affordable housing business totalled GEL 4.2 million in Q1 2014, reflecting the partial recognition of revenue from its second project as it nears completion.

“I am pleased with the Bank’s continued progress in the first quarter 2014 and its ability to report strong results in the seasonally quiet first quarter of the year. Our profit of GEL 53.7 million in Q1 2014 increased by 27.8% year on year, driven by positive operating leverage of 1.9% during the quarter and improving cost of risk compared to the same period last year. Asset quality improvements have translated into a reduced cost of risk of 1.0% compared to 1.4% in the first quarter last year.

The revenue growth reflected strong growth in net interest income, up 9.8% year-on-year, as a result of an 18.1% increase in customer lending over the last 12 months; a more than doubling of net healthcare revenues and a strong performance from the Bank’s Affordable Housing businesses. The net interest margin at 7.3% was slightly lower than last year, partly reflecting the cost of excess liquidity as well as the margin pressure on loans amid increased competition for credit - but remains within our medium-term target of 7.0-7.5%.

The 19.6% asset growth was primarily driven by the 18.1% increase of the loan book. Our client deposit balances increased by 8.2% despite the substantial reduction of deposit rates to the lowest levels that are now offered on the Georgian market. As a result, our Cost of Client Deposits has reached another historical low of 4.6%, which compares to 4.8% in Q4 2013 and 6.4% in the first quarter of last year. The significant efforts we made to improve our Cost of Funding, which is down 160 bps to 5.1% in Q1 2014, have supported our NIM. The Q1 2014 NIM of 7.3% declined by 30 bps on the back of 210 bps reduction on Loan Yields.

I would also like to note the robust performance of our synergistic businesses. Our healthcare business started the year with several acquisitions that have further strengthened our healthcare franchise through the addition of 578 hospital beds to a total of 1,907 and significantly increased our market share in terms of hospital beds. Our healthcare business doubled its revenue compared to Q1 2013, however, the effects of recent acquisitions have not yet been fully reflected in Q1 2014 results as the integration process of the new hospitals has just started. Our real estate business is nearing the completion of its second project, having sold 96% of apartments as of today. More than half of flats with an aggregate worth of US$24.4 million in two new projects commenced by m2 Real Estate in December 2013 have already been sold.

With current excess liquidity and our solid capital level, we believe we are strongly positioned to benefit from the continuation of macro-economic improvement in 2014, for which IMF estimates a 5.0% growth. We are looking forward to continue delivering on our targets for the full year on the back of the encouraging 7.4% estimated real GDP growth in Q1 2014,” commented Irakli Gilauri, Chief Executive Officer of Bank of Georgia Holdings PLC and JSC Bank of Georgia.