Half Year 2026 Nova Ljubljanska banka d.d. Earnings Call
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Speaker #3: And as said, I will be talking about the guidance. This remains one of the key pillars of the value proposition besides the growth, obviously.
Speaker #3: With that, I will pass the word to Archibald to guide you through some more details, and then later, as usual, to Andreas on the asset quality.
Speaker #4: Thank you, Blaž. Welcome from my side. A few words on macro: you know our region well. In the meantime, things are stable or improving on the real growth front, and of course that's a space to be watched, given the fairly dynamic environment.
Speaker #4: But it remains a robust growth environment. At the same time, inflation is under control, still slightly elevated as in other geographies, but under control.
Speaker #4: All of that in an environment where fundamentals are strong, continue to be strong, unemployment—you know, the drill—it's going down, single digits in most markets in the meantime.
Speaker #4: Fiscally balance, fiscal discipline, very much in check. So I would actually say this is a pretty very well-presentable figures by all means. And also the penetration levels—so in other words, the untapped potential—is still very strong.
Speaker #4: So use that's driving our loan growth. Nothing has changed here. And by and large, you see loan deposits slowly going up, but by and large it's still a very liquid market.
Speaker #4: However, LTDs have come up, and you see that in somewhat muted, more muted loan growth in the meantime. More disciplined loan growth as, of course, loan growth has to follow, especially for us, the deposit growth.
Speaker #4: So the savings capacity of the countries. In terms of the business, as was mentioned, very robust loan growth. Year to date, 5%. So we are still operating in a high single-digit, if not low double-digit growth environment.
Speaker #4: Deposits, 2%. That's a bit of a mixed picture. But all in very healthy levels. And of course, that's a space we are getting increasingly focused on to be first and foremost of all, not just out there with good products, but also with excellent customer service.
Speaker #4: That's where a lot of our attention and investment goes. Otherwise, still highly liquid robust well-capitalized balance sheet. Nothing has changed here, of course. Lots of dry powder still in regards of capitalization levels and liquidity levels.
Speaker #4: This is still our fortress balance sheet. Thank God. Super robust leverage ratios. So high levels of equity, cash equity, high levels of self-funding. And well diversified, Andreas will give it the rundown.
Speaker #4: And yes, we are still growing strong in loans. As you've seen, actually as you see here across segments and geographies. So this is really across the board, very high loan demand.
Speaker #4: And of course, for us as a bank, given liquidity here and there gets tighter, that naturally leads here and there also to repricings. Especially as rate environment is stable or actually on the long end going up.
Speaker #4: On the yield, you see that reflected. Loan yields are also stabilizing. And that's what is to be anticipated and expected as there is even talks of further slight rate increases on the short end.
Speaker #4: But also quite some dynamic in the long end specifically. So that would basically support stabilizing if not slightly increasing loan yields. Across our markets.
Speaker #4: On the deposit front, that's where a lot of our attention these days goes. It's healthy, by all means. And, of course, we have been a little bit more focused on loan growth in previous years, because liquidity was just plentiful.
Speaker #4: These days we spend much more attention on maintaining loan and deposit growth in balance. And you see that by and large we are very successful doing that.
Speaker #4: Here and there it shows up in the price. So you see that whereas in Slovenia, actually there is a bit of migration out from term deposits to savings and side accounts.
Speaker #4: Whereas in other markets we are seeing a bit of a migration to terms and of course that's more costly which is what you see in the deposit yield dynamics.
Speaker #4: On balance, very solid performance. Our deposit betas are still very, very low. All this leads of course to pretty robust revenue growth. So I'd say we are on a good track also in regards of our ambitions that we presented our capital markets day.
Speaker #4: You see NII growth 5% and that will be improving further. Also in the second half of the year as Blaž mentioned, we disposed of some expensive capital markets funding and of course with the better rating going forward as we have mentioned in the capital markets day, there will be uplift coming from refinancing our wholesale funding at better terms.
Speaker #4: Which is another equation we're very focused on. And fee commission 10%. I think this is really nothing to complain about. Very robust performance. And indeed I think we rightfully highlighted success in asset management on our front page because it really is a star performer.
Speaker #4: And by far not done yet. As most of the business still happens in Slovenia, but we have set up operations in Serbia and Northern Macedonia that are slowly getting started.
Speaker #4: Cost remains I would say fairly under control. 3% year on year. Is I think robust and disciplined. We still have fairly high levels of inflation or elevated levels of inflation for sure beyond 2%.
Speaker #4: So 3% I think is great performance. And but remains let's say permanent attention area. As we continue to invest in not just better customer experience we also invest in employee experience, head office spaces.
Speaker #4: So, we want to build a great bank for both our customers and our employees. That will continue to require investments, but we will remain very rational about those.
Speaker #4: On the indicators, cost income was mentioned. We are pretty okay with where we are. But these numbers are not, you know, static and they develop.
Speaker #4: Also we know that there is a bit of a cost dynamic usually in the second half of the year. But our ambitions, Blaž will talk about it, remain unchanged.
Speaker #4: NIM actually slightly going up as you've seen quarter to quarter. So that's really encouraging. And is what you would expect these days with the rate environment as I described.
Speaker #4: So not to dwell on these numbers too specifically, but to reiterate margin has not just stabilized but slightly gone up. That's good. And NII year on year pretty solid performance 5%.
Speaker #4: And if you look at quarter to quarter it's even 6%. So I'd say we can be pretty okay with that. But of course that is still area that we actually see potential to grow because the funding pressure will to some extent go away fade away.
Speaker #4: And as the effects of better capital markets funding kick in, I think there is room to grow even faster as we indicated also on the capital markets day.
Speaker #4: So we are pretty bullish on NII. And it comes actually from all dimensions. You see corporates, individuals, securities, delivering nicely. And as said, a bit of that is eaten up by higher deposit costs.
Speaker #4: But we expect this to stabilize. The sensitivity is these days really fairly low. And I guess in our lens that's a good position. Of course we look at that frequently and then might change our mind at some point.
Speaker #4: But for the time being we believe that's a good place to be. I talked about very solid fee and commission income. Blaž said focus on the recurring parts of the equation.
Speaker #4: That's 10% growth. It's across-the-board payments, and of course, particularly good performance in investment funds and bancassurance. I remind you we have rolled out several features that make these products now even more accessible, also now on digital platforms.
Speaker #4: So we combine great product excellence now with even broader distribution capacity. We used to sell this mostly in branches. Now we can sell it over the mobile phone.
Speaker #4: And I think with that we are pretty much on par in our digital UX with what you would expect from a modern bank these days.
Speaker #4: All of that as said drives good performance in fee commission income and again we are still operating somewhat below potential because indeed there are areas where we can do better.
Speaker #4: Cards, ATMs is something we are focused on these days. And there's plenty of potential to further penetrate our customer base with lots of value added products.
Speaker #4: Costs I discussed I think good discipline across the board. And again this is for sure not yet affecting any of bigger potentials in regards of automation because there are still quite a few untapped potentials and AI is not even a serious debate.
Speaker #4: Other than in punctual deployments and of course broad-based as a self-service. But as a capability I think there is still a lot to go and in that sense this cost function is okay.
Speaker #4: And we need capacity to invest as I mentioned earlier. So we also need pockets of rationalization and I think at the moment this is a pretty well balanced equation.
Speaker #4: Capital is of course given our successful raises last year and this year very robust. We didn't spend it on the acquisition. We maintain a solid but disciplined payout equation this year 55.
Speaker #4: We said towards 60. So in other words we see upside. But of course this is also very valuable dry powder for potential acquisition opportunities.
Speaker #4: By that I pass over to Andreas. On asset quality.
Speaker #2: I'll jump in. Thank you. Yeah. On asset quality actually pretty much of the same. So very controlled, very stable. Development if you look big picture.
Speaker #2: And as you can see on that chart as Blaž and Archibald both mentioned before solid loan growth basically in all areas. If you look a little bit deeper then there are some ups and downs I have to say.
Speaker #2: I'm considerably more happy this year with retail in Slovenia last year we were a little bit high on gross cost of risk. So we were working on models and getting a little bit sharper.
Speaker #2: That works well. So that looks considerably better. Where we still see inflows from a provisioning point of view is actually corporate Slovenia. So the old kits on the block making actually good progress in restructuring.
Speaker #2: But that's a way to go. So here no bad news. Then we have one two new cases. Which catch my attention. And you see this since we did a lot of staging last year you actually see it now more in the provisioning than in staging.
Speaker #2: Yeah. And yeah. In that sense here of course stage two as I just said corporate slightly up. Retail actually exactly flat. And in stage three the effect here in corporate has to do that one of the bigger cases we paid a third of the exposure from disposal of some non-core assets.
Speaker #2: That's actually a good part already of that. So very stable here. Of course our loan portfolio is well diversified. Nothing much has changed here.
Speaker #2: From new business there is a lot of wholesale and retail trade. Renewable energy projects which we anyhow like. And construction business. But overall big picture there's of course pretty similar.
Speaker #2: We at one point of time were showing you automotive because that was a little bit of an increased attention. Actually very much unchanged. The only area where we see some problems that's the manufacturing.
Speaker #2: And there are no news compared to what I have told you already. We have here two sizable cases from last year. Actually one of them is the one I mentioned to you before where we got the repayment.
Speaker #2: So that's actually good. If you look on total volumes of non-performing loans we are now at 460 million. So that's unchanged 2% of the portfolio.
Speaker #2: Almost half of that is actually with zero delays. So therefore unlikely to pay trigger or some of them of course there are some standstills.
Speaker #2: And when we look on coverage ratios they are now again going up. We were end of last year actually slightly below 50. Now we are again at 53.
Speaker #2: That's anyhow very solidly above EU average. Now again fully in the range actually which we see as healthy. And if you look on the provisioning side as I said at the beginning here you see some movements.
Speaker #2: So the portfolio development in the first year with first half of the year with 48 million is not that. On the other side we see still for me a little bit surprising actually still quite good repayments from off balance.
Speaker #2: And overall what you have to see is on IFRS 9 also here overall picture very much flat. If you look inside the effects which we saw last year was in retail and corporate Slovenia.
Speaker #2: Now you see reflected in the provisioning. So here we have some charge whereas in the rest of the group some relief. So overall basically flattish and that overall brings you to 32 million impairments.
Speaker #2: Since we are now on 20 billion loan book that's obviously then exactly 32 bips cost of risk. And looking forward if you ask me I'm really expecting that this year we will be in the range of guidance.
Speaker #2: So between 30 and 50 bips cost of risk I'm optimistic that we will be in the lower half of that. Whether we will like last year do the trick then at the end to stay slightly below I'm rather a little bit skeptic.
Speaker #2: So we see some inflows if you ask me we will continue to see that. But on the other side it will stay very controlled, very stable.
Speaker #2: No big surprises. And given what is the macro environment all around us I think that's actually a good news. With this I'm handing back over to Blaž.
Speaker #3: Thank you both. So the summary is that we have been of course performing against expectations. More or less in line with expectations. And towards the guidance and the research consensus.
Speaker #3: So it's another year of strong performance. We have as said in the M&A space tried to make a breakthrough with one bigger acquisition. We simply have moved on as said.
Speaker #3: And I'm consciously wearing today the heart of Sarajevo because this endeavor has actually forced us to focus again. And we will simply in the upcoming midterm period given the fact that the doors to Croatian market seem to be shut until there is any mutual agreement between both governments focus on domestic turf Slovenia.
Speaker #3: And above all, really become even stronger specialists for the Western Balkans. We have been talking about our desire to enter the last missing Western Balkans market, which is the Albanian market.
Speaker #3: We have, of course, not been hiding our ambitions to solidify our position in the Federation of Bosnia and Herzegovina. And we will, of course, address eventual opportunities coming also from the asset management and captive insurance space.
Speaker #3: Be it in Slovenia be it in of course other countries of our presence. And in this respect I believe this is fully in line with our strategic guidance and strategic framework.
Speaker #3: So organically we are showing strong performance. Organically we are moving on. And through the M&A we believe there will be opportunities down the way down the road.
Speaker #3: And in this respect, we believe it's still worthwhile retaining certain reserve capacity in our capital base. Nevertheless, we've told you last time around and within, of course, our Investor Day presentations, that we might be stepping up the dividend payout towards 60%.
Speaker #3: So this year we are still operating with a 55% of last year's profits. And to be paid out in December as usual. And then next year it might consider obviously stepping this up towards somehow towards 60 somewhere towards 60%.
Speaker #3: So all of the indicators here in the outlook seem to be achievable from today's perspective. So we are firmly standing behind them. Give or take right.
Speaker #3: Minimum deviations. But it's been a very strong Q2. And in this respect as mentioned some one off improvements be it in our structure of funding base.
Speaker #3: Be it in of course rate environment overall. Be it still fueled by strong growth. We believe that yeah clearly this is not only achievable but we might hear and there in these are other corner positive surprise.
Speaker #3: So overall we feel strong and confident. We are of course equipped with capital base and liquidity strength still. And we have a clear understanding of how to move on.
Speaker #3: So as said if you cannot make one step forward you maybe make one step back but then you make two forward. And from today's perspective this seems to be something that we are looking forward to actually.
Speaker #3: So thank you very much for as always being with us on this journey. And by that I would open up room for questions.
Speaker #1: Yes, thank you, gentlemen. We are now ready to take your questions. Dear viewers, let me just quickly repeat how you can do it. If you'd like to ask a question in person, type the word 'call' in the chat, and we'll make sure your call is placed.
Speaker #1: When it's your turn to speak I will say your name and a notification will pop up on your screen asking you to unmute your mic.
Speaker #1: If you prefer to ask your question in writing just type it in the chat and I'll read it for you. So we do have our first question today in the chat.
Speaker #1: So let me read it. It's from Dan David with autonomous. Can you talk about your priorities in credit markets in the second half of this year?
Speaker #1: You haven't refinanced a recent senior call separately would you consider covering the November 27th tier two call early given the strength of markets? And this is the first questions there are two more questions from the gentlemen.
Speaker #2: So, on the credit market, I would say it's more of the same. I wouldn't, but I leave it to colleagues to elaborate further. I don't see particular dynamics that would stick out from today's lens.
Speaker #2: And on the bond refinance I mean we monitor and observe capital markets every single day. Obviously we will not jump to conclusions. Markets are strong.
Speaker #2: Remain strong. And in that sense we put a lot of effort in keeping concent dialogue with investors. So nothing to jump to conclusions but yes in the second half of the year we'll get very focused on the submarket and of course subject to if M&A were to happen anywhere of course we would immediately rethink our funding plans and possibly size up or accelerate.
Speaker #2: But for the time being it's a regular refinance coming up next year. And towards second half of the year we'll start to basically prepare ourselves the rating I think improvement plus the continuous let's say convergence of our spreads to markets and peers will probably remain and of course we will do the legwork in terms of investor work and making sure these books will be well filled when we call the market.
Speaker #3: Yeah and great activity. More or less I can only add we will do more of the same. So just following what Archie said. Which is focusing on retail housing lending as an anchor product.
Speaker #3: Account and housing loan to me as an anchor product. Obviously with all the ancillary products come into it. Corporates we of course do but we do this consciously.
Speaker #3: Conscious to the capital allocation. So it has to be risk adjusted. We are not interested in high volumes at low prices. Just for the sake of growth.
Speaker #3: So more or less high diversification pattern is to be followed which is ideal distribution more or less. So if you know almost half of the home turf the other half out of the home turf.
Speaker #3: And it's approximately 53, 52, 53% retail. The rest corporate and SMEs. Across all of these geographies. And having more or less critical mass market shares in all of the markets with the exception of Federation of Boston Heads where we have been growing in specific niches and focused niches like housing loans to 11% already.
Speaker #3: So it is simply doing more of the same.
Speaker #1: Thank you. Now the second question. Can you provide details on the drop in corporate deposits in Slovenia year to date?
Speaker #3: Well this is pretty shopping market right. So that's a lot of shopping around. And corporates are pretty flexible when it comes to 10 basis points here and there.
Speaker #3: We never seen these deposits as sticky. So what we are really focusing on is account and account balances. And payments. Right. Some short term or longer term deposits are to us already a question of what makes sense and what doesn't make sense.
Speaker #3: So we don't see this as critical development. We believe this is well controlled development. Because of course always pay more and attract more deposits.
Speaker #3: But they have to be deployed productively. And as long as there is no more need we simply don't do it.
Speaker #1: Thank you. And the third question and the last question. If no new M&A target is found will you pay out excess capital if so when?
Speaker #3: As we've kept saying as long as there was no vision within 12 to 18 months on potential productive allocation of capital we could of course always consider paying out the dividend.
Speaker #3: We are stepping it up as a signal towards 60%. Right. From 55. But generally from today's perspective we believe that would be targets. So I can't be more concrete than that.
Speaker #3: But I can only say that we believe there will be targets. And pretty short term. Which might justify of course keeping the reserve. And the buffers.
Speaker #3: If there were more M&A activity Archibald signals we might even think of potential accelerating some of the funding program in terms of capital instruments.
Speaker #3: We are not saying we would. But if there were many opportunities coming our way in more unexpected pace we of course also could and should and would.
Speaker #3: But currently we believe we are just about right positioned to be able to address opportunities and at the same time keep the high dividend payout.
Speaker #1: Thank you. And now we will take our first voice question. With us is Mr. Dodik Mladen with Erste Bank. Mr. Dodik can you hear us?
Speaker #1: Please go ahead. Mr. Dodik. Okay. Then we have another caller. Here with us. Sorry. Yes. Go ahead.
Speaker #4: Sorry. Sorry. Good afternoon. Thank you for the call. Congratulations on the results. Well Mr. Brodnjak already maybe answered my questions regarding the maybe muted growth long growth in the second quarter.
Speaker #4: You said you will not be chasing volume just for the sake of growth. But maybe we the analysts are too spoiled to see that the region has marked very nice momentum kept nice momentum in growth in new kind of visibly slow down.
Speaker #4: I mean can you add something else to what you already said? I mean I'm sitting here in Serbia. I have seen quite a nice quarter for the sector and you are lagging behind.
Speaker #4: So yeah I mean you know what I'm asking.
Speaker #3: Yes. Yes. But compared to other banks sitting on subsidiary LTDs of above 100 we have a multiple point of entry Emerald approach. And we simply stick that our subsidiaries are self funded.
Speaker #3: Right. And when we demand from them to remain self funded position of course they have to make sure that there is balanced evolution of loans and deposits.
Speaker #3: So we don't simply let them go berserk with high volumes of lowly priced corporate or public sector lines. We really want them to focus on what is the gist of long term sustainable growth.
Speaker #3: And that's retail. Right. And SME business. And this is the answer to your question. We don't tolerate LTDs well above 90%. Simply we simply don't tolerate it.
Speaker #3: Because this is opening up risks, which potentially can compromise the entire Emerald context of the group. And this we simply, as a group, will strategically not allow.
Speaker #3: And that's why we are happy with the growth that not necessarily 25%. And it's maybe 12. Right. And it's funded by all means. And that's the answer to your question.
Speaker #4: So can we expect that you might restart sales a little bit aggressive sales now with the this campaigns for deposits? I mean I'm thinking here locally.
Speaker #4: But I would say that it can apply to other geographies. Right.
Speaker #3: Yes. I mean we've had this challenge in Serbia as you know. Because the system level loan to deposit ratio went up significantly in a couple of years.
Speaker #3: Right. We've had comparable pressures in Kosovo, North Macedonia, and recently in Montenegro as well. But we simply don't entertain this—just growth for the sake of growth.
Speaker #3: Don't we don't believe is a productive way of deployment of capital while it's structurally potentially challenging of course your Emerald context. And robustness of the whole group.
Speaker #3: Right. So in this respect, we are simply being responsible to the capital. We like the growth, but it has to be risk-adjusted priced.
Speaker #3: And it has to be sustainable in funding terms as well.
Speaker #4: So I guess now you keep the guidance in high single digit year on year.
Speaker #3: Yes. But we've got yeah I mean but if you look at the 5% it's still 5%. Right. Is it going to be then 8 or 10?
Speaker #3: I mean, 10% growth we claim is good growth. It is controlled, good growth with smart pricing in Slovenia. We are observing that we have about 30 basis points higher pricing in new production.
Speaker #3: Than others. And in single months we are maybe having new production below the natural market share. But we have the first as always as a market leader you start moving up with prices.
Speaker #3: And some other players follow with some delay. We cannot, as a market leader with a 33% market share in housing loans, imagine that once we publish new rates, you will ever be the cheapest in published rates.
Speaker #3: You will always be the most expensive. Because everyone else is positioning himself or itself just 5 basis points beneath you. So it's really about the actual rates.
Speaker #3: You transact at not the published rates. You actually and then of course that's a common paradigm challenge of market leader always in such markets.
Speaker #3: And we are sitting on a 37.4% market share of sight deposits of households in Slovenia. Imagine this strength, right? So we don't have to compromise on pricing just for the sake of growing.
Speaker #3: But of course we will not let good clients go. That's why we have of course internal approvals where of course we can decide differently.
Speaker #3: But when it comes to high volume business which is usually driving the total growth of the market which is large tickets in public finance for example in Slovenia where we see some international competitors going really ridiculously low with pricings.
Speaker #3: This is not something we are interested in simply. Because it doesn't make sense. This is so counterproductive.
Speaker #4: Okay. Thank you very much.
Speaker #3: Welcome.
Speaker #1: I would just add, Mladen, this is a marathon, not a sprint. It’s easy in banking to sprint, but we are on the 2030 marathon.
Speaker #1: And the 10% growth annualized would be perfectly fine.
Speaker #4: Thank you.
Speaker #1: Thank you, Mr. Dodik, for your question. And we have another caller. Now, we have with us Mr. Jovan Sikimić from ODDO. Mr. Sikimić, are you with us?
Speaker #1: No? Not yet? Okay. We'll give it another try. Mr. Jovan Sikimić?
Speaker #2: Maybe.
Speaker #1: Yes? You can hear us?
Speaker #2: Yes.
Speaker #1: We can hear you. Please go ahead.
Speaker #2: That's great. Thanks a lot gentlemen for the call and for taking my questions. I just have one or two I mean capital was I think flat.
Speaker #2: Right. Quota to quota despite the growth. And RWAs were also stable. I mean did you already kind of put in place any relief measures?
Speaker #2: I think you talked about them on the Capital Markets Day. Is there any reason, actually, why we see that assets did not grow in Q2?
Speaker #1: So, no, there is no relief measure in place. The SRTs are coming up, but not earlier than next year. I'd say mid-next year.
Speaker #2: Okay.
Speaker #1: So what you see is ups and downs of things that stack up. Some quarters in different ways. From up risk to here and there models to NPLs.
Speaker #1: So no, there is no particular thing behind it.
Speaker #2: Next year. Okay. Great. And I think we touched once the topic about this Swiss franc issue since Slovenia. Anything kind of new on that front yet or?
Speaker #3: Well there have just been certain adverse developments in three and quarters obviously. Not actually allowing the banks even to charge regular interest in case the low the loan is annulled which is in our understanding totally absurd.
Speaker #3: And total breach of the basic logic of lending as a whole. And this might of course have final answers maybe even in international courts in years from now.
Speaker #3: And will require from us kind of insight into the methodological framework used. So we might see some uptick in provisions from this angle. But it should be within the framework of reasonable.
Speaker #3: I can't be more precise than that.
Speaker #2: Okay. Okay. Fine. Great. Thank you.
Speaker #3: Welcome.
Speaker #1: Thank you Mr. Sikimić for your questions. And now we are moving on to another caller. Mr. Will Kelly. Mr. Kelly from Frontora Capital. Are you with us?
Speaker #1: Can you hear us?
Speaker #5: Yes. Can you hear me?
Speaker #1: Yes. Excellent. Please go ahead.
Speaker #5: Yeah. Thanks bludgeon everyone for the call. I guess I just wanted to ask on the 2027 recurring revenue target is that purely an organic number?
Speaker #5: And then just looking broader at the 2030 targets how much of that can be done organically? And moving past Attico I know you spoke about some of the areas that you would look at.
Speaker #5: But maybe you could provide just a little bit more color on in terms of the size of any one of these acquisitions.
Speaker #3: Yeah. So 2027 is purely standalone. 2027 is really organic. 30 is some sum in the ballpark of 80 to 85 percent organic and the rest is envisaging certain of course strategic bets and an M&A so I hope this response is to somehow to your question.
Speaker #3: Right. Corresponds. In principle, as said, 2027 we believe we are getting there. From what we see today, without transacting, 2030 we have firm belief that in the upcoming couple of years we will be able to here and there pull off a transaction.
Speaker #3: In either banking space leasing space where the asset management captive insurance. But predominantly banking of course would add to this capacity. So 2030 is to some I'd say 15 to 20 percent somehow betting on M&A.
Speaker #3: Otherwise organic.
Speaker #5: Okay. Understood. Thank you. Very helpful.
Speaker #3: Thanks.
Speaker #1: Thank you Mr. Kelly. And now we're moving to chat submitted questions. We have one from private investor. And the question goes like this. Can the management please comment on the decrease in interest margin in Bosnia and Serbia?
Speaker #1: What is driving this margin pressure on the funding side? And what is the management's outlook on this topic?
Speaker #6: So we alluded to the let's say a bit fight for the profits in Serbia. This is happening. It's a market where liquidity is getting tighter.
Speaker #6: And that simply drives pricing up. You've seen it in the share of term deposits across our subsidiaries going up visibly. And I mean this still funds very profitable loan growth.
Speaker #6: So in that sense a bit of a margin drop is not drama. As long as revenues go up. Fact is in Serbia we observe even a slight drop in revenues.
Speaker #6: Given that last year they had extraordinary growth in loans that now have to be funded kind of after the fact to some extent. And so this synchronization creates a bit of revenue volatility for Bosnia.
Speaker #6: I would say it's not something that worries us. We have two different entities in Bosnia. One operating very strongly and the other one blushes at Sarajevo.
Speaker #6: Is our appeal struggle where we kind of fight for a place in the market. I claim quite successfully here and there but it's a position of a small player.
Speaker #6: And of course a small player is to some extent the price taker. So here we carve out niches that are I think working very well.
Speaker #6: Housing was mentioned. And for the rest we also accept that we are not probably a competitive player in large corporate tickets in a market like Bosnian Federation.
Speaker #6: Simply because we are too small for that. So it's a bit of a mixed bag. Broadly speaking Slovenia performing very well. SEE markets here and there a bit of a transition year.
Speaker #6: 2026 and 2027 to the previous question on outlook. Yes we believe this will stabilize in 2027.
Speaker #1: Thank you. And the next question is from Antun Horvatić from Allianz. Congratulations on another strong quarter. I have a question regarding the asset management segment.
Speaker #1: Ilirika and InterCapital have listed ETFs on the Ljubljana Stock Exchange. Is there room or ambition for NLB Skladi in that space? Also, do you plan to enter the Croatian market in asset management?
Speaker #1: Since asset management falls under the different regulator than banks it should be easier.
Speaker #3: I mean the Skladi have introduced couple of novelties like alternative funds and real estate funds. And I'm sure that Luka and the team are of course closely monitoring also other alternatives.
Speaker #3: And I would not exclude obviously them trying to issue some other stuff as well. Even in a shorter term. When it comes to the interest for Croatian market look this is for us as always sad.
Speaker #3: It's an extremely important bridge between Slovenia and Western Balkan countries—geographically, sentimentally, and culturally—especially after the more or less complete shift of the border control regime to the Bosnian border.
Speaker #3: And introduction of Euro as a legal tender in Croatia. That's one market. So for us it's unnatural not to be allowed to play in this one market.
Speaker #3: Simply unnatural especially since of course Croatian players have been allowed to play in Slovenian market unlimitedly. And if you look at the food processing industry I mean it's predominantly Croatian.
Speaker #3: Ownership here. And I also believe it's irrational not for allowing us to play. But this is to me a political question of course we cannot resolve.
Speaker #3: And we can only hope for it to get resolved. We are present with the leasing operation, and we are happy with the trends. The Croatian leasing business has become even larger than the Serbian business already, in a pretty short time.
Speaker #3: So it's becoming important for us. Whereby of course in captive insurance space and asset management space this is definitely something that would be of interest.
Speaker #3: So, I can obviously state if there were any reasonable opportunities for us to invest, we have NLB funds as a 100 percent proprietary-held business.
Speaker #3: We claim professional and skilled to be able to pull this off. I mean after all we bought the asset management business from Generali in North Macedonia.
Speaker #3: Embraced it very effectively and performing well ahead of plans. So if there was any opportunity to buy an asset management company from your regular asset management space I'm not that sure about the pension space.
Speaker #3: But maybe even there. Right? This is definitely something we would be willing to look at. But we don't want to impose ourselves to someone that doesn't sincerely want us frankly.
Speaker #3: So that's also a message to our Croatian friends. Right? We don't want to be hated. We believe we bring friendship and business. Not hatred.
Speaker #1: Thank you. And also ladies and gentlemen thank you for all your questions. As there are no further questions at this time I will now hand the conference over to our management for closing remarks.
Speaker #1: Thank you for joining us today and have a wonderful day.
Speaker #3: Thank you very much to what we all said. There's nothing much to add. I would just happily report that today also the three management board members got vetted for another mandate.
Speaker #3: The three of us have on the hat from on the 6th of July this year actually assumed a new mandate for a five year period.
Speaker #3: Five year term. And the new colleagues will also be with us for the upcoming almost six years. So this has introduced now a midterm stability.
Speaker #3: To a more or less consistency to the 2030 aspiration to be delivered. So you can count on stable and fully motivated and really energy driven team to pull this off.
Speaker #3: And once again just to wrap it up thank you for being part of this wonderful journey with us.
