Speaker #1: Right, to thank you for joining the NLB Group's live webcast, where we will present and discuss our performance in the third quarter of 2026.
Speaker #1: Before we begin, I would like to quickly explain how our voice question system works instead of calling in by phone; you can ask your questions directly in the Zoom.
Speaker #1: We will not be able to see you, only hear your voice. If you wish to ask a question in person, simply type the word "call" in the chat, and we'll place your call in the queue.
Speaker #1: When it's your turn to speak, I will announce your name, and you will receive a prompt on your screen asking you to unmute your microphone.
Speaker #1: If you prefer to ask your question in writing, you can type it directly into the chat. So, once again, you can use the chat either to type "call" or to submit your question in the text form.
Speaker #1: Please have a look at the disclaimer on the screen. At this point, I would like to hand over the conference to Blaz Brodnjak, CEO, Archibald Kremser, CFO, and Andreas Burkhardt, CRO.
Speaker #1: Mr. Brodnjak, the floor is yours.
Speaker #2: Thank you very much. Welcome, everyone. Good afternoon. Let me begin by reflecting on two things. First, I'm wearing the moustache today, which I usually don't, right?
Speaker #2: But this is a kind encouragement to all male participants of the call: please do test your blood for PSA twice a year. It costs you €10, and it removes any risk.
Speaker #2: The second thing I wear today, probably, is the Heart of Sarajevo, which is reflecting upon or pointing to a historical wind of opportunity to the leaders of the nations of Western Balkans and the European Commission to finally do what's right and what's necessary for full embracing, fully embracing Western Balkans countries into the European Union membership.
Speaker #2: Benidorm, our business, I can proudly reflect to the Q3 results. And our general story—which is, with immediate reaction of the "we didn't succeed" with one acquisition—actually being able to sign 55% stakes SPAs with what is to be a further strengthening leadership position in Slovenia, which is a home base, then working on heavily on the client experience, introducing new services to our clients, region-wide.
Speaker #2: Finally, story about consistency: we have rebranded our business in Serbia, so all our banks are now called NLB Banka Bank, and actually have head offices which are predominantly capitals of the region.
Speaker #2: Stability: the management board has now had, more or less, a overall comprehensive midterm mandate ahead of us. And a story of, I would say, good European citizenship, because we have been part of the what is a sovereignty project of Europe, digital Europe.
Speaker #2: All of this backed up by a very solid capital base. So I'm really happy that we managed to pull off a issuance of the strongly performing issuance of the AT—sorry, of the Tier 2 instrument.
Speaker #2: And we have potentially been amidst of identifying opportunities to further strengthen the base with potentially 81 issuance in the upcoming days or weeks. In this respect, this is simply following also the organic evolution, which has been very strong.
Speaker #2: So in sense of what are the opportunities available to us, there's been total asset growth. But more importantly, the what is the core business growth, the loan growth of 10%, which is, from my point of view, a very solid and a bit ahead of what we have been guiding for at high single digits.
Speaker #2: So we are looking at around 10% growth. And that's a very firm base of stabilizing the revenue, which I'm coming to shortly. And we have been able to fund this, obviously, with our own deposit base.
Speaker #2: Further optimizing our loan-to-deposit ratios, to, let's say, targeted 80% levels just shy of it. So it is really a well-steered and well-developing towards the targeted structured business.
Speaker #2: In this respect, I can really sign and really it will be proud of pretty much stabilized operating income, net operating income. And it's coming from growing net interest income, finally, right?
Speaker #2: And it is coming from a very solid fee, especially fee income, coming from more or less all geographies. There have been some one-off effects.
Speaker #2: Archibald is going to explain, but more or less of setting the one-offs of Q1, which, you know, is more or less stabilizing the picture, but from recurring point of view, it's been a story of a solid growth of organic solid growth of revenue.
Speaker #2: I'm also happy about the efficiency improvements. So when you talk about the cost income ratios, we're driving them below 45%. We are, as we discussed, within our strategic aspirations framework, targeting, of course, lower 40s, but, you know, being already below 45% is encouraging.
Speaker #2: So this talks about contained growth of cost while still heavily investing into the user experience improvement. Result of the tax consequency when it comes to, of course, quarterly performance is very good on an annual basis.
Speaker #2: It's more or less stable compared to last year. But this is, of course, also partly due to the difference in cost of risk. Andreas is going to talk about and some, of course, additional provisioning on the Swiss franc related Swiss franc loans related matters.
Speaker #2: Which we are going to talk about a bit later, but there are some one-off one-off effects. There's been some stress, of course, in the industrial part of the Slovenian economy, highly diversified economy, highly industrialized economy.
Speaker #2: And with high energy prices and clearly, of course, some market imbalances in Europe, this has been reflected in our portfolio. So this is a couple of known businesses we have been restructuring.
Speaker #2: And really, depending on, you know, this or other ongoing this or other direction, the year might end with some additional cost of risk, but Andreas will be more specific from this point of view.
Speaker #2: But, of course, still within the original guidance we have been communicating to you. And in terms of the Swiss francs, obviously, there have been some developments in front of Slovenian courts, which have not been, of course, in the interest of the banks.
Speaker #2: So we try to understand with now refreshed view on it and methodological approach. And, of course, this has been addressed with certain additional provision, in Q3, and there is potentially some more to come.
Speaker #2: Andreas will give you more flash on this and me then wrapping it up with the outlook. But overall, we are looking at a very solid performance in Q3, in year-to-date, and still the last quarter should be, of course, in recurring terms very solid quarter.
Speaker #2: Capital base is, as I said, further strengthened, preparing by that, of course, also not only for the organic growth and continuous dividend payouts. We have, of course, also communicated in last days that there is a second half of the dividend coming in December.
Speaker #2: So we simply stick to the promise. But, of course, this leaves room for us potentially transacting further in M&A space. We've been talking about our interest in the geographies, of course, beyond Slovenia.
Speaker #2: Unfortunately, we have not been able to enter the Croatian market, but we have been now heavily working on identifying opportunities to further enhance our position, especially in federation of Bosnia and Herzegovina.
Speaker #2: But, of course, we have been also mentioning Albania continuously. So we will simply continue being engaged at exploring these opportunities. And, of course, also exploiting them if they were to come, of course, realistic for us to assume.
Speaker #2: Mentioning the dividend, and by that simply sticking to the promise, this is a growth story and it is a dividend stock story. So I think we believe it's still firmly appealing to everyone.
Speaker #2: By that, I would pass the word to Archibald for more details on financials.
Speaker #1: Thank you, Blaž. Let me just remind you again why we are so excited about the region. More broadly, and you see here the highlights, as we keep telling them, a little bit more conveniently presented maybe.
Speaker #1: But it is all about growth. We are operating broadly speaking in one of the strongest growth regions of Europe. And it shows in the numbers.
Speaker #1: This is to be continued with what is mentioned here as convergence potential. So this growth is almost destined to continue and there's plenty of upside on all dimensions.
Speaker #1: The penetration level, be it the convergence itself, be it the penetration levels, and all of that happening in markets that broadly speaking are self-funded.
Speaker #1: Labor markets are keeping up. So that supports not just future credit growth, but, of course, also credit quality. So broadly speaking, that's a region we are very excited about to operate in.
Speaker #1: You see that also in the hard numbers, be it in the GDP, in absolute terms, and, of course, in per capita, these are the numbers I just alluded to.
Speaker #1: Altogether, this is, of course, a fairly small region. So we talk 16 million some 230 billion in GDP. But in that fairly small region, with still quite fragmented market setup, we are aspiring to and aiming to be the leading bank of choice.
Speaker #1: And that focus and dedication, I think, shows in the numbers. So just to remind you, that, of course, everything is anchored in Slovenia. With still a majority of our business sitting here, that's a AAA rated country.
Speaker #1: Serbia, strong investment grade. And the other markets, altogether, in BB, single B space. So again, all of this supporting the future growth and, to some extent, also, of course, with the higher margin environment.
Speaker #1: From the subsidiary space, in combination, I think this is feeding the growth story that we have been talking about in our capital markets thing.
Speaker #1: But this is who we are. This is where we operate. And that's in itself providing plenty of growth opportunities. You see the growth by country.
Speaker #1: I'm not going to go country by country, but you see very strong numbers, very strong performance here and there's improved outlooks also for next year.
Speaker #1: And as I said, all of this happening in a healthy funding environment. We talk about funding later, but it's very important for us that this penetration levels still provide future growth opportunities, and funding is sourced locally.
Speaker #1: Now, how was Q1? I think, from a balance sheet point of view, you see lots of greens. So strong loan growth, strong deposit growth.
Speaker #1: And not much more to be said here. This, as we will see, happened across the geographies, across the segments. And still a very strong liquidity position shy of 80% on a group level.
Speaker #1: That is, of course, the fuel that provides for future growth, not just in terms of capital, but also in terms of liquidity. The balance sheet remains simple balance sheet.
Speaker #1: We are proud to be a simple transparent business that shows up in every single metric we talk about. This is mostly retail funded bank, predominantly deposit funded bank.
Speaker #1: And, of course, we invest and place loans to the economies we operate roughly 50-50 with overhang these days. And emphasis on the growth in retail.
Speaker #1: And you see that already retail is leading versus corporates. That's deliberate steering. Of course, we sponsor the whole economy. But in terms of deliberate loan growth, we are happy to sponsor retail slightly ahead of corporates.
Speaker #1: You see that in the numbers by geography, and again, as said, a little bit higher acceleration in growth in retail. Our relative to corporate and this happening both in Slovenia and in our subsidiary banks.
Speaker #1: And a little bit more modest growth in corporates, of course, reflects a bit the macro context and demand equation. And also our conscious choice in capital deployment in regards of risk-adjusted pricing.
Speaker #1: You see loan yields are stable, actually slightly increasing. For Slovenia, so that's the column in the middle. You see loan yields actually moving a little bit up.
Speaker #1: That is, of course, following the broader trend in rates that we have all observed over the last course of years. It feeds slowly from the so-called front book, so the new origination into the averages.
Speaker #1: You see that from Q2 to Q3. Some 10 basis points uptick. So that's healthy I would say loan yield development. And not much has changed in regards of the fixed float compositions or retail very much a fixed rate business and corporates some 50-50 fix and float.
Speaker #1: On the deposits, growth was a bit more moderate. And in Slovenia, to some extent, that is seasonal. On one side, on the other side, also a bit of a shift it seems in customer preferences.
Speaker #1: So some of which we, of course, are happy to facilitate to simply get smarter in investing. That personal wealth. So what you see here in moderation of deposit growth shows actually as much stronger growth in assets on the management, in our wealth and private banking franchise.
Speaker #1: And here and there, of course, in our subsidiaries, we have to fund nominally higher growth rates with also higher groceries in deposits. And you'll see that here and there, as we kept talking about this shows a little bit in cost of funding.
Speaker #1: As you see it's stabilizing. In our subsidiary markets, we are not seeing further increase. That's a good sign. In Slovenia, you actually see now the recent rate hikes also shining a little bit through in the deposit funding rates in Slovenia.
Speaker #1: That's simply a passing on the rate environment also to our customers, which of course is the fair and right thing to do. In regards of P&L, very strong quarter.
Speaker #1: And on the recurring basis, I mean, the result pre-provision 9% year on year I think is excellent performance. This is really the path to strategy delivery as we talked about it on our capital markets day.
Speaker #1: So this year so far, was delivering spot on. So you see NII growing 7%, fee commission income growing even 10%. Cost quite moderate. And it grows where we want to spend.
Speaker #1: That is in the right people setup. As much as in the technology. And as was mentioned by Blaž, we now really have significant I think shows of strengths in our much improved user experience.
Speaker #1: Both in key markets. And on the results further down, you'll hear that, of course, on one side we talk about normalization of cost of risk in Q3.
Speaker #1: And in that sense, bottom line was stable. But that, of course, on a much more benign cost of risk environment last year round. Returns normalized in excess of 20%.
Speaker #1: So that's firmly in the range of our strategy delivery. And also from a recurring point of view, I think we are now almost operating at a sweet spot of business performance.
Speaker #1: And more importantly, in an environment, as I mentioned earlier, that continues to provide this growth opportunities. We talked about NII, 7% year on year.
Speaker #1: On a quarterly basis, even better, 6% performance. That is a little bit sponsored also by slightly improved wholesale funding mix. On one side, on the nominal level, but of course, we keep funding our balance sheet at increasingly competitive rates on the wholesale environment.
Speaker #1: And you now see margins. Picking up at group level. 321 at Q2, improving to 336. So that's quite visible and quite significant. And of course, we are looking forward to further improve on the back of what I said earlier.
Speaker #1: Slightly higher rate environment. And of course, discipline in capital allocation and loan production. On the non-interest income, you see sorry, on the interest income, you see that basically business is contributing very strongly.
Speaker #1: So both loans, corporates as well as loans to individuals, pretty strong growth. And the slightly higher cost of funding I mentioned earlier, here and there, is actually covered entirely by also the ability to place higher yield assets on the security side.
Speaker #1: So you see 25 million better result from securities covering the slightly higher cost on the deposit funding. So all in all, strong contribution from core business, which is loans lending to corporates and individuals.
Speaker #1: Similar story and of course, with a little bit more visible funding mix change on the quarterly evolution. 6% is super remarkable. But of course, even if you normalize for the funding mix, something like 3% quarter on quarter performance improvement is I think a very, very good performance.
Speaker #1: We kept talking about our outlook on rates and how we position in a good way for further changes in rate environments. As you see here, we are fairly neutral positioned.
Speaker #1: If anything, we might benefit from a moderate rate hike still to come. But broadly speaking, we are now on a fairly neutral position in regarding to NII sensitivity.
Speaker #1: Which is at this rate environment exactly where you want to be. On the non-interest income, again, I think standout is this very solid year on year performance.
Speaker #1: 10% on net fee and commission. It's fortunately the performance on all dimensions. Contributing strongly from basic banking services, and let's not forget a lot of our investments geared to improving daily life of our customers.
Speaker #1: So that is of course reflected then also in extracting the revenues from this daily banking as we call it. This is the payment transaction basic account revenue.
Speaker #1: And of course, the other standout is our continued success in asset management and all services around this space. Demand here is continuing to be very strong.
Speaker #1: And as we keep saying, we are just getting started in markets outside Slovenia, namely Serbia and Northern Macedonia. But also here, we start to see visible elements of contribution.
Speaker #1: From a low basis, in other words, this is future growth in years to come. We had a bit of non-recurring positives. That is of course our laser focus in regards of legacy asset resolution.
Speaker #1: And this somewhat offset also of course some of the negatives we have on covering for legal cases that Blaž mentioned. So all in all, fairly neutral contribution from the positives and negatives one-offs.
Speaker #1: And very strong recurring performance. Cost is our, I would say, continued discipline on headcounts. You see that numbers are stable. Broadly speaking, we invest, where we want to invest.
Speaker #1: Of course, we want to work with the best teams across the region. And we continue to invest in this talents. So we are not blindly cutting costs.
Speaker #1: But we are very deliberate in how we spend, on what to spend. Of course, a big driver these days is spending on everything technology related.
Speaker #1: And importantly, this shows now really visible results in much improved customer experience across geographies and customer segments. In terms of capital, this is clearly the situation pre-issuance of our very successful Tier 2.
Speaker #1: Transaction we had in October. And so starting from a strong basis, we add up. And that's of course deliberate. To some extent, pre-financing expiry that are expected next year.
Speaker #1: So in the Tier 2 space in particular, we have a call date coming up next year. Of 225 million. So we refinanced that with a 400 million issuance.
Speaker #1: And of course, we are also looking at the 81 space. We have one instrument that is becoming callable next year. And we are strongly considering to, if and when, to refinance that.
Speaker #1: Of course, also in light of our pretty solid M&A pipeline that Blaž alluded to. So all in all, very strong capital position, which of course is the foundation for both sponsoring dividends as well as funding future growth.
Speaker #1: By that, I pass on to Andreas.
Speaker #2: I'll keep up. Thank you. Yeah. On asset quality, actually the third quarter is pretty benign. So much of the same. You will see a little bit of more movement in the last quarter.
Speaker #2: Blaž was already indicating it. So for the three quarters so far, strong growth. Basically in all areas. Also already mentioned. And of course, geographically distribution basically unchanged.
Speaker #2: Because we are growing in all the markets. If you look on the provisioning and asset quality, dynamics, you see here a very stable picture.
Speaker #2: This will now change a little bit driven by corporate Slovenia actually primarily. In the last quarter, so there will be a certain movement from stage two to stage three.
Speaker #2: But obviously no dramas at all. But you will see that a little bit otherwise stable. The portfolio is very well diversified. I think especially in these days, right now, we see this especially as a strength.
Speaker #2: And if you look it backwards, actually the portfolio became in the last few years actually considerably more diversified in a sense also that simply, for example, top 50 are today a much smaller percentage than still a few years ago.
Speaker #2: On coverage ratios of all kinds, I think very solid. Obviously above EU average. Absolute numbers basically unchanged to the quarter before. Also again as a reminder, a good part of this NPLs so 45% almost are without any delays.
Speaker #2: So also this one very stable. And if you look a little bit more in details for the first three quarters so far, model changes net basically zero impact.
Speaker #2: This is actually driven a little bit by charges in Slovenia. And by releases in the other countries. So Slovenia here, if you want like that is a little bit underperforming.
Speaker #2: Portfolio development is, if you ask me, at least for what we were used to, not brilliant. But for sure okay. And still strong repayments.
Speaker #2: I think Archibald mentioned it before. From off-balance items. So as a blend, that's so far slow short of guidance a little bit. So 28 bips annualized.
Speaker #2: What we see now in the last quarter is pretty vivid movements. Up and down a little bit honestly speaking. So we have one bigger one smaller case materializing.
Speaker #2: That's why I told you the stage three will a little bit increase in corporate. What further will happen needs to be seen. I mean, what I'm very firm about that we will stay within guidance.
Speaker #2: I'm not very optimistic anymore that that would be to the lower end. Doesn't look like. But whether it's rather in the mid-range or a little bit more up really is at that point hard to say.
Speaker #2: We saw now this one case which I mentioned the bigger one actually was developing quite positive in the first half of the year. And now took a turn.
Speaker #2: So that one is done already. The rest really to be seen. And again, what we see also is still positive surprises also we might see eventually even already resolving of one previous case.
Speaker #2: So we will see. It's really hard to say except that I can for sure strongly confirm that we will stay within the guidance. Where exactly we will end up here let's see.
Speaker #2: And because Blaž mentioned that I would briefly also touch that one on Swiss franc. Obviously that's a different topic. You saw that in well summer of this year there were some court rulings which were not in favor of banks as Blaž already said.
Speaker #2: So that has triggered actually a change in our logic. So we saw very to the very low end of a double digit impact in the third quarter.
Speaker #2: And we will probably see something similar in the last quarter. And that is more or less it. So we are here pretty on the conservative side.
Speaker #2: Of course what you don't really know what additionally might happen next year. So we might see still a little bit in next year. But honestly speaking should be much more moderate by our current understanding than what the change in the legal logic court logic triggered this year.
Speaker #2: So obviously no dramas at all. But also something which is simply visible. With this, thank you very much. And I'm handing back over to Blaž.
Speaker #1: Yes. Thank you. So recurring results are I would say even great. And in Q4 we would expect them to continue. And there is also rate environment expectations associated with it.
Speaker #1: But generally there is demand for loans. There is of course also now stable margin environment. So we believe that recurring pre provision result is going to retain remain very strong.
Speaker #1: And that's why we also improve the guidance on the revenue. So we now believe he's going to exceed 1.35 billion. And in this respect that's a solid of course further evidence of growth.
Speaker #1: On the other hand in the cost of risk space Andreas was mentioning there is some volatility. And it's really you know down to how one or two cases will develop.
Speaker #1: And you can see Daniel couple of you know 10 million here or there. So in this respect this is really something that could be mid 30s or mid 40s.
Speaker #1: But within the range absolutely. When it comes to the Swiss francs we have to firmly claim we believe that the developments Estonian courts are outrageous.
Speaker #1: We believe that they're against the prince basic principles of rule of law. So we will fight against that. But of course we need to acknowledge reality that we have been losing in front of the courts.
Speaker #1: In the abrupt way. So we have addressed this with methodological approach obviously. And of course we are going to be discussing this further with the auditors.
Speaker #1: And with the ECB at the end of the day. So we believe there is going to be some further of course measures in this direction.
Speaker #1: But not really to the material end of the equation. That's what we believe that of course this guidance when it comes to the final returns absolutely holds.
Speaker #1: And the next year we are more or less guiding again around normal principles right. Basic principles of growth when it comes to revenue evolution.
Speaker #1: Our controlled focus on cost evolution. More or less being an investment into client experience right. And the talent. And then cost of risk is always a function a bit of is the environment going to improve or not.
Speaker #1: The energy prices are raising some concerns clearly. You know especially for the strongly industrialized economy as you as Slovenian is. Last concerns interestingly when it comes to subsidiary space.
Speaker #1: Because it's less industrialized environment. But also production of own energy at much more favorable terms. If you look at the Bosnian prices of energy it's much lower than Slovenian for example right.
Speaker #1: So the access to energy at lower price of course is playing a role these days. But overall this is still a very solid set of guidance metric right.
Speaker #1: In this respect what is important to mention is the continuation and we are retaining and of course keeping the capacity to grow also through the M&A.
Speaker #1: So we have been working hard. I mentioned at the beginning right. You sometimes in your life make one step backwards in order to be able to do two forwards.
Speaker #1: And us not succeeding in one acquisition actually basically resulted in us in a matter of weeks not even months you know moving towards other opportunity.
Speaker #1: We have been telling for years we are not dependent on one single opportunity. And we are agnostic when it comes to understanding what potentially might become actionable.
Speaker #1: So you know strengthening the leading position in Slovenia is for us absolutely a statement. But not only a statement. It's simply reaffirming us as a business here.
Speaker #1: On the other hand we have been working hard to identify other eventual opportunities. Not limited to banking. So I would specifically mentioning of course some geographies when it comes to banking which is federation which is Bosnia and Herzegovina which is Albania which is at certain point if there was an agreement between both countries on the second reactor of the nuclear power plant also Croatia still.
Speaker #1: But this I guess now has become the only possibility for us. So both countries striking a deal on this joint venture project. On the other hand you might see us moving back into the captive insurance space.
Speaker #1: So we of course have been interested. It's part of our strategy. To of course also assume ownership positions potentially in life insurance. Which then would serve as another vertical of our business.
Speaker #1: So we are happy with the evolution of the leasing stream which is now a four country game. We are of course trying to understand whether it can become additional countries game.
Speaker #1: On the other hand the asset management has been really producing fabulous results. In Slovenia but now finally you know getting momentum in Serbia and North Macedonia.
Speaker #1: And then insurance comes on top. So we have been absolute champion in distribution of insurance life insurance policies through the banking channel in Slovenia.
Speaker #1: And we want to replicate this know how. And of course set of activities to other geographies as well. And we believe there is value in potentially you know obtaining also a captive position in equity terms in this space.
Speaker #1: So you might see us you know moving in this direction. We can't communicate as we speak anything of you know concrete nature. But within this framework we have been highly active.
Speaker #1: That's why of course we have been also engaged in exploring you know an interest. And of course market conditions have to fit. We are by no means in a desperate position.
Speaker #1: So we are simply here strengthening the capital base consciously to fuel the growth. To back up the growth. And maintaining solid dividend payout. So you might see us testing the market with the 81.
Speaker #1: Also two further back up what is also partly expiring or being able to be called. At you know in the upcoming year. But incrementally also assisting the growth.
Speaker #1: So we are all excited about what we have been managing to achieve. And I would just reiterate I'm sure there will be questions how we feel about current situation in Serbia and other countries.
Speaker #1: We see them as an enormous historical opportunity. Frankly. So we see the situation pretty stable. So we don't see massive outflows. So the situation is stable.
Speaker #1: But it is above all the message to the leaders of not only regional countries but also to the European Commission. Please don't waste this historical window of opportunity.
Speaker #1: Western Balkans deserves prospect. Deserves delight at the end of the tunnel. And now it's time. Of course for the leaders of the region to do the reforms.
Speaker #1: But of course also to the leaders of the European Commission to acknowledge that there is no unified Europe. And I'm wearing the heart of Sarajevo not only as a symbol of peace and resilience but to me at least unified and united Europe.
Speaker #1: Thank you very much. Opening floors for the questions.
Speaker #2: Thank you gentlemen. Yes dear viewers now we will open the floor to your questions. But before that please allow me to briefly repeat the instructions.
Speaker #2: If you would like to ask a question in person simply type the word call in the chat and we will place your call in the queue.
Speaker #2: When it's your turn to speak I will announce your name and you will receive a prompt on your screen asking you to unmute your microphone.
Speaker #2: If you prefer to ask your question in writing just type it directly into the chat. And usually we take callers first but today is one of those days.
Speaker #2: So we don't have any callers as yet. So the first question is from Mr. Anton Horvatić AZ pension funds and it's about Deželna banka Slovenia.
Speaker #2: So let me read it. Congratulations on the results. I have a few questions regarding Deželna banka Slovenia. MLB is moving to become digital institution and at the same time you are acquiring rather old school brick and mortar bank with a lot of branches.
Speaker #2: Since I presume their clients are used to having a bank with physical presence how do you plan to adapt these clients to your digital products and your digital philosophy?
Speaker #2: Also with the bank comes their very large ATM network. What do you plan to do with surplus ATMs? Can they be sent to more cash focus countries like Macedonia or Kosovo?
Speaker #2: Is there a market for used ATMs?
Speaker #1: A couple of quite specific questions. Deželna banka Slovenija is a symbol of what Slovenia stands for. You know countryside farming society but above all a very solid rock solid sticky deposit base of 1.2 billion of side deposits almost.
Speaker #1: So this is not just to be trivialized. It is a very well performing stably performing soundly performing and safely performing institution. We have been committed of course to provide access to the banking services throughout the network but approximately half of this network is simply combined.
Speaker #1: So therefore by that natural synergies because you don't need two branches you know in the next street. So in this respect there are of course physical synergies at hand.
Speaker #1: All of what I'm saying is subject to us obtaining approval. So we have just signed the SBAs for 55% of course are aspiring to sign 100% and of course through the public offer obtain 100% and then be able to pull off the integration.
Speaker #1: It is not that abundant ATM network you have been signaling to. By no means NLB is currently running a massive network which is and is supplying 70% of country's cash to the ATM networks and also branches of banks.
Speaker #1: So as much as some of the markets have synergized by outsourcing the service Slovenian market has been pooling around couple of players since NLB has been actually a pooler of 70% of cash business in the country.
Speaker #1: So of course we believe we can manage this meaningfully in order not to impair the access of Slovenian citizens to cash which is also one of the aspirations obviously of the central bank given the digital Europe program project and of the local government.
Speaker #1: That is also trying to of course make sure that there's not going to be too strong of an impairment of the ATM service. Now moving an ATM is quite a cost right.
Speaker #1: You know so the used ATM in Slovenia would be used ATM also in other countries. So we want to actually offer comparable terms of service and client experience to all our clients.
Speaker #1: So you know we don't want to look down to some other country just you know because it is different geography. It deserves inferior level of service.
Speaker #1: By no means. So we have been renewing the network of the ATMs group wide you know and especially in the in Serbia actually a couple of years ago we renewed the entire fleet and we had the most modern fleet actually in Serbia at that point of time.
Speaker #1: So we by no means would think of simply you know shipping this somewhere else just for the sake of saving money. By no means.
Speaker #1: So this is simply an ongoing process. The footprint optimization is an ongoing process. Whereby we believe that of course also retaining certain physical access is necessary for the advisory capacity of the bank.
Speaker #1: What we do is homework in terms of of course online end to end digital digitally available services more or less are replicating the best news of this world and fintechs on the other hand maintaining physical access of our clients to our to us right to be able to perform the advisory part of the service.
Speaker #1: But this does not mean of course that we will retain the equally sized branches or equally formatted branches. So this is something we have been working on also intensively.
Speaker #1: So Deželna banka Slovenija is highly synergetic of course opportunity. It is bringing a lot of deposits. So this is also a funding platform for us.
Speaker #1: It is bringing additionally of course tens of thousands of clients new clients to the bank which are very traditional indeed in terms of how they may be communicate but they are of course also very savvy in sense of of course making their life easier.
Speaker #1: I mean I have a family case of you know a farmer who of course is also interested not to have to leave the vineyard to perform banking services.
Speaker #1: Right. They also prefer doing this via mobile phone if possible via mobile first solutions or with video chat you know interactions. So we simply are going to improve that access and I believe they will they will cherish and value it not of course be unhappy because of it.
Speaker #2: Thank you. Now we do have a caller our first live question today from Mr. Jovan Sikimić from ODDL. Mr. Sikimić can you hear us?
Speaker #2: Sir? Can you hear us? Yeah. Please go ahead. Yes.
Speaker #1: Hear me. Great. Hi. Congrats for the results from my side as well. Short on Serbia. After this this latest events any unusual deposit outflows observed in the last couple of days?
Speaker #1: And in terms of I think we touched this topic once on on on the public sector exposure of it's it's it's around 400 million maybe if you can share with us which industries or which projects and and how collateralized are are are such loans and do you feel comfortable at this stage about about about the quality?
Speaker #3: So when it comes to the deposit outflows there within the merit of normal there has been some shift from dinner to euro now and some of course withdrawals which is usually seen such situations but nothing extraordinary.
Speaker #3: So nothing that raises concerns at this point of time. So we are absolutely happy about the developments these days. When it comes to the concrete financing towards the public sector of course I cannot discuss concrete tickets.
Speaker #3: I can only reflect on the structure of this which is predominantly direct sovereign risk for the buildup of the productive infrastructure of the country.
Speaker #1: Okay. Thanks. And on on the NIM I think NIM NIM kind of soared a lot in in Slovenia right in Q3. And I think you mentioned that a certain effect came from this earlier redemption of of of notes of of Emerald notes.
Speaker #1: Can you quantify maybe what shall we expect going forward?
Speaker #3: I mean you've seen I I I quantified it in the call. I just earlier I mean if you look at the quarter quarterly bridge basically let's say simplified half of that quarterly bridge is the the the the funding result.
Speaker #3: You see the explicit in the bridge. But that remains a quarterly improvement of still around about 3%. So that's you know still fairly solid.
Speaker #3: So broadly speaking on NI we are really knock on wood but happy. It's as a as I call it a sweet spot at the moment.
Speaker #3: And of course as we alluded to in our capital markets state broadly speaking better funding levels are part of our strategic ambition and we fund now a totally different levels new issuances than we used to fund.
Speaker #3: Look look for example at our tier two issuance was it 175 we used to fund at you know twice the level and and so on and so forth.
Speaker #3: So so it's it's in that sense technically this quarter but the strategic backdrop is really we fund more competitively and that will continue to bolster NIR growth in our 2030 frame.
Speaker #1: Okay. Perfect. Thank you gentlemen. Thanks.
Speaker #2: Thank you Mr. Sikimić. And our next question is from the chat and is from Mr. Aleš Jeraj. He says the bank is becoming too big for the market it is currently focused on.
Speaker #2: I'm curious if you can tell us when we can expect a strategy update and especially which markets would be added. I'm thinking along the lines that in the future the bank could focus on markets between the Adriatic and Black Sea where the greatest potential in Europe seems to be for the coming decade.
Speaker #1: Slovenia I guess that's it when it comes to banking. So with the acquisition of Deželna banka that's it when it comes to M&A and we will simply be focusing on organic distribution of universal financial services and there is still a lot of room for growth in asset management bank insurance and of course also further deepening of the financial system because if you look at the household debt to GDP and total debt to GDP it is still you know at only a half of the Western European levels.
Speaker #1: So there is a lot of growth potential in Slovenia alone. But then we have by no means exploited the potential in the former Yugoslav territory.
Speaker #1: So you know Croatia is on tap basically. We have a 235 million living business there business there but as if that was an opportunity for both countries to finally gas to you know an agreement regarding the old deposit deposits of Croatian citizens formerly Vranska banka branch this would potentially open up doors for us for a couple of billion growth you know in a pretty short time frame.
Speaker #1: We have zero exposure towards Croatian sovereign towards Croatian municipalities key accounts SMEs zero. So there is you know immediate cross-border opportunity if we were allowed simply to enter the market even without buying anything.
Speaker #1: Just doing EU EU passporting based corporate lending for example. This this is bringing billions of opportunities for us. There is a lot of energy efficiency improvement projects a lot of infrastructure buildup energy production renewables batteries projects you know data centers projects that are going to be developed in Croatia in the upcoming years.
Speaker #1: On top there is entirely new geography of western Balkans which we have not yet tackled and that's the Albanian market obviously. So if we were successful to enter Albanian market this could be again you know up to five long-term 10 billion opportunity.
Speaker #1: In this respect you know that's something that you know within our capital constraints it's still a massive opportunity and then still you know further strengthening and deepening our position in all over the other countries where our highest market shares in terms of total assets are not exceeding 19% in any of the markets.
Speaker #1: So there is a lot of opportunity for growth there as well. Talking about the adjacent you know concentric circle right which is then Bulgaria Romania and and and further these are the bigger shops and bigger countries.
Speaker #1: So it would either have to be niches or we would of course have difficulties funding it capital wise. So in this respect this would be possible if that was a point in time where the ownership structure of the of the NLB as a group could potentially be addressed in a sense that it is possible to issue new shares or swap shares through new issuance.
Speaker #1: But this would require of course the current position of the Republic of Slovenia of 25% plus one share to be either transformed into a kind of a preferred stock with golden fold whatever for the statute or some other form of shape of of course reducing this position which you know currently is not envisaged since this is of course a important asset of the Republic of Slovenia.
Speaker #1: So in this respect the hindrance is the capital we are organically originating it. We have bigger difficulties in issuing simply new shares. We are beefing it up with 80 80 ones and tier twos right and retained profits.
Speaker #1: But we can't issue new capital you know in a common share terms and the core tier one obviously is something you have to build right.
Speaker #1: This is not coming you know on its own. Unless you're able to issue shares. So there are some physical constraints in in numerical terms which we can't cannot overcome on our own.
Speaker #1: Right. If that was an opportunity to of course to open up the model then you could be thinking big right. You could be talking about South European Southern European platforms ranging from you know what is even you know on the other side of Black Sea towards towards of course Adriatic.
Speaker #1: But that's that's something else that's a visionary aspect that would require totally different look at the capital structure of the bank.
Speaker #2: Thank you. We have another caller Mr. Mladen Dodik with Erste. Mr. Dodik can you hear me?
Speaker #4: Yes. Hello. Can you hear me?
Speaker #2: Yes. Please go ahead. Very well. Thank you.
Speaker #4: Thank you for the opportunity and congratulations on on on a very nice quarter. Well I I would not expect an answer but you mentioned Albania and Bosnia Herzegovina so many times.
Speaker #4: Just out of curiosity how close are you to announce something suddenly like like it was with with Deželna banka can we see it sooner or or or later?
Speaker #1: We will communicate when it will be appropriate to communicate if it will be at all done.
Speaker #4: Okay. Thank you. Thank you very much.
Speaker #2: Thank you Mr. Dodik. We have another question in the chat. It's from Mr. Dan Mihajlo from Virgin. With Alta banka losing their license will you be interested in acquiring parts of the Addiko portfolio from Raiffeisen?
Speaker #1: We don't see this at all as an option Raiffeisen has communicated that they're going to simply stick to the promise and buy the the entire group.
Speaker #1: So we don't see this being an alternative at all. Right. We have said we have moved on and we are now rooting our capital towards other opportunities.
Speaker #1: It's it's as simple as that. And I was mentioning which geographies are of our main interest. I just hope that this situation clarifies as soon as possible because this instability is not in the interest of Addiko group its clients its talents you know and anyone else because financial instability of any of the players is not good for the system as a whole.
Speaker #1: So we just wish good luck everyone to close this transaction as soon as possible.
Speaker #2: Thank you. And another question from the chat. From Mr. Daniel David with Autonomous. Could you take us through the timeline on Swiss franc claims for here and what size the financial impact could be in the worst case?
Speaker #2: Am I right to assume the ROT target reducing to 14% slide 63 is due to the cost of risk rise into year end? Is the new tier two in the umbrella ratio reported?
Speaker #3: Maybe I take on on the easy technical one. So there is of course not yet reported because it was not printed at the time.
Speaker #3: We'll add to the umbrella ratio and of course importantly to the capital ratio. And indeed the outlook basically captures the debate we had around both cost of risk and also to some extent Swiss franc let's also not forget as I alluded to there are positive one-offs and negative one-offs and we might also have a bit of a similar things happening in Q4.
Speaker #3: So in that sense maybe we are a bit careful with this guidance because it is volatile times but broadly speaking I think you captured the dynamic correctly.
Speaker #1: The guidance is on on a conservative end assuming all of this. So assuming whatever is the tales of the Swiss francs and whatever is the situation with the cost of risk.
Speaker #2: Thank you. The next question is from Jure Hustic. With KF Finance. Does the stagnation in retail deposits in Q3 indicate an outflow to Neobanks or government bonds and what pricing or product measures are you planning to defend your deposit franchise?
Speaker #1: Well this has to be looked in combination of what was the net inflows into our asset management products. Our deposit equation namely is driven by what we get into our accounts and how we stimulate our clients obviously and as per of course their main ambitions to actually use an alternative investment opportunities.
Speaker #1: So if you look at the production of asset management this year net inflows including of course also unit linked insurance business has been of course on a record levels predominantly.
Speaker #1: So in this respect this is the entire equation has to be taken into into account. Yes on one side of course we need funding for lending business but we have barely started really you know focusing on this because we have been still optimizing our launch of deposit ratio towards 80% which is you know an optimal use of of funding.
Speaker #1: Right. On the other hand we have been enormously successful with the asset management and and bank insurance services. So it's by no means saying you know we are we are losing money to you know against the other of course providers.
Speaker #1: There is some but by no means extraordinary. We have been mainly highly successful. I've simply you know allocating the deposit base that is coming into the bank in various pockets of investment opportunities not only deposits obviously but also asset management and bank insurance service.
Speaker #3: And there's always a bit of seasonality in deposit growth. So it's it's not something typically Q4 is tends to be a bit stronger. And indeed we are still a highly liquid balance sheet with launch of deposit less than 80.
Speaker #3: So that's a that's and to some extent it's also a matter of price. You've seen us paying up on on deposits. So we also pass on some of our some of the rate moves to our customers.
Speaker #3: So this is an equation of course that we watch continuously. We put a lot of emphasis as I indicated in terms of tech investments into making us an attractive and reliable partner at least on par with Neobanks.
Speaker #3: So we claim our customer experience as to exceed Neobank experience if you add the value added services in contact centers 24/7 if you add the proximity of branch networks.
Speaker #3: So we put a lot of attention on on on of course making us the better choice for customers and by that also their preferred partner for keeping their accounts and by that side deposits.
Speaker #3: So that's continuous focus and never ends.
Speaker #2: Thank you. Ladies and gentlemen thank you too. As there are no further questions at this point I will now hand over the conference to the management for closing remarks.
Speaker #2: Thank you for joining us today and have a nice day.
Speaker #1: Thank you all for being with us. It's been an amazing quarter actually but looking forward there is a bit of volatility yet we remain confidence of course that we are on the right right path and track to deliver 2030 strategy.
Speaker #1: Organic solid trends accompanied by first successes in the M&A space as well which were always part of the narrative. And we are excitingly looking into communicating the results of the whole year.
