BGEO profits surge ahead of generous Georgian corporate tax cuts

Growth across retail banking, corporate banking and its investment arm saw BGEO drive profits and allowed it to further benefit from the Georgian government’s generous new tax policy.

Total revenue during the first six months of the year of 439.8m Georgian lari (GEL) (£146m) was up 10.4% on the same period last year.

Despite operating costs rising 12.5%, post-tax profits of GEL 198.3m were up 47.6% compared to the first half of 2015, while earnings per share increased by 31.7% to GEL 4.57.

The impact of Georgia's tax cut, which will see retained profits untaxed and 15% tax only on distributed profits and will reduce the effective tax rate of the group’s non-banking businesses in 2017 and the entire group in 2019, and led to a number of deferred tax adjustments that increased profits in the first half of 2016 by GEL 66.8m.

A dividend was declared in May of GEL 2.4 per share which is paid in sterling at a GEL/GBP rate of 3.0376.

At the core banking division, net income of GEL 257m was up 5.6% on the same period last year, with the second quarter down slightly on the first but higher than its equivalent last year. Banking profits rose 20% as the consumer division passed the 2m customer mark and grew lending 7.5%.

Net interest margin (NIM) was 7.5% across the first and second quarters and is expected to benefit from a liability management exercise that saw the replacement of its Eurobond with a new $350m issue that matures in 2023.

The group’s investment businesses lifted profit before tax by more than 75%, with gross insurance profits up 10.7% to GEL 14.8m, healthcare up 47% to GEL 51.5m, real estate up more than sevenfold to GEL 8.5m and other investments almost doubled to GEL 12m.

The return on average equity in the banking business was 21.7% for the first half of the year, and 22.5% in the second quarter, despite carrying over GEL 625m of excess liquidity.

Chief executive Irakli Gilauri pointed out that the Georgian economy has remained resilient throughout the first half of 2016, with improving expectations for short and medium term GDP growth continuing to rise.

Gilauri said various recent strategic initiatives and acquisitions should see the strong growth continue into the second half and beyond.