Bank of Georgia reports 20% ROE in 3Q11
6 January 2012
Bank of Georgia (BGEO LI) boosted 3Q11 net income +97% yoy to USD 22.6 mln for a ROE of 19.8% (up 7.2 pp). The bank increased its net interest income 9% yoy to USD 37 mln in 3Q11, while non-interest income surged 71% yoy to USD 28 mln. Operating expenses grew 9% yoy (but declined 3% in GEL terms), considerably lagging revenues and pushing the bank’s cost/income ratio down 11.6 pp yoy to 51.5%. Profit before provisions grew 71% yoy to USD 31 mln while loan loss provisions halved to USD 3.1 mln. Cost of risk decreased from 1.5% in 3Q10 to 0.7% as a result of improvement in loan portfolio quality and the disposal of the Ukrainian subsidiary. The bank’s loan and deposit portfolios grew 32% yoy and 53% yoy, respectively. NPLs stood at 3.8% of gross loans as of end-3Q11 (down 2.2 pp yoy) while NPL coverage ratio amounted to 121%.
Olena Zuikova: Bank of Georgia’s net interest income growth was weak at just 9% yoy despite strong balance sheet growth as the net interest margin was squeezed 1.6 pp yoy to 7.4% in 3Q11. The bank moved to toughen its interest expenses in August by reducing customer deposit rates, which should have had a positive effect on margins and net interest income already in 4Q11. We think the lender is likely to improve its ROE to the management’s target of 22% by 2013 if it maintains balance sheet growth at a double-digit rate and keeps loan quality under control. The stock currently trades at P/B (end-9M11) of 0.88x.
Bank of Georgia 3Q financials (IFRS, unaudited), USD mln
————————————————–
3Q11 Chg,yoy
————————————————–
Net interest income 36.6 9%
Net fees and commissions 11.6 21%
Other income/loss 16.5 135%
Operating expenses -33.3 6%
Pre-impairment profit 31.4 71%
Impairment charge for credit losses -3.1 -46%
Net income 22.6 97%
————————————————–
Sept.11 YTD yoy
————————————————–
Assets 2,625 16% 31%
Net loans 1,504 13% 32%
Deposits 1,399 22% 53%
Equity 467 19% 27%
————————————————–
Source: Company data
