Bank of Georgia 2011 financials in line with expectations

Bank of Georgia Holdings (BGEO LN) reported Bank of Georgia (BGEZ LI), its only subsidiary, posted net income from continuing operations of USD 22 mln in 4Q11 and USD 90 mln in 2011 (ROE of 20.4%). At the same time, net loss from discontinued operations (mainly related to the disposal of BG Bank in Ukraine) stood at USD 9 mln. Growth in the bank’s core earnings was strong, with net interest income adding 22% yoy and net fees and commission improving 26% yoy. Cost control remained tight, which pushed the bank’s cost/income ratio down 8.3 pp yoy to 49.3%. Capitalizing on improving loan quality (NPLs down 1 pp yoy to 3.6%), the bank slashed its cost of risk to 0.9% in 2011 from 2.1% in 2010. The bank achieved a strong asset growth rate of 24% yoy in 2011, though net loan growth was slightly weaker at 17%. Given its solid performance last year, the Bank of Georgia Holdings board plans to recommend dividends of USD 0.42/share (vs. USD 0.17 a year earlier), implying a dividend payout ratio of 14% and dividend yield of 2.5% on yesterday’s closing price.

Bank of Georgia 4Q11 and 2011 financials, USD mln     

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                                                     4Q11  qoq    yoy  2011  yoy
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Net interest income                          36       -6%  13%   143  22%
Net fees and commission                  13       14%  24%    45  26%
Operating expenses                          34       6%  35%   130  16%
Net income (continuing operations)    22      -1%  56%    90  94%
Assets                                             2,794   6%  24%         
Net loans                                         1,567   2%  17%         
Deposits                                          1,529   9%  35%                                                              
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Source: Company data        

Olena Zuikova: Bank of Georgia’s 2011 results are in line with our expectations and the market’s. With the 2012 economic outlook remaining favorable for Georgia, we expect bank asset and net loan growth to remain strong in 2012, both at 18%. We note some pressure on margins (NIM down 0.9 pp yoy to 7.1% in 2011), but this is mainly due to an increase in the share of GEL-denominated (higher-yielding) deposits in total customer funding. Since the bank remains excessively capitalized (NBG Tier 1 ratio was 15.3% as of end-February, above the minimum of 8%), the bank should stick to its progressive dividend payout policy and we think the payout ratio might increase to 40% by 2015. We reiterate our BUY recommendation on Bank of Georgia Holdings (TP is USD 23.7/share).