Nova Ljubljanska Banka d.d. (NLBR) Earnings Call Transcript & Summary

Ladies and gentlemen, the management board of NLB, welcome you to the webcast, where they will present 1Q 2021 results. Today's presenters are Blaž Brodnjak, CEO, Archibald Kremser, CFO; and Andreas Burkhardt, COO. [Operator Instructions] Before we go on, we would like you to draw your attention to the disclaimer on Slide 2 of the presentation. By this, I pass the word to Mr. Brodnjak.

Thank you very much, and warm welcome, everyone, to the quarterly performance call of NLB Group. I'm really happy to report a very solid quarter this time around. Despite, of course, all the uncertainties related to the COVID situation still we see solid improvements both in health terms in Slovenia and also in the region, but above all, also in business terms. So it is really something that is giving us now really a confidence that this year is going to be quite a strong year. And in Q1, basically, we exceeded some of the expectations. There is a very solid ongoing result -- recurring results. And what I'm specifically happy about is that the integration process of Komercijalna Banka has been well underway. We are really working hard now to, of course, accelerate further this process and to be able to, within 12 months, fully integrate the business in Serbia. We have published, as you noticed, I'm sure, the takeover bid. We reached 88% ownership so far. We keep, of course, offering to minority shareholders, but this doesn't impact, in any way, our ambition to actually perform the integration. We have been really continuously seamlessly providing services, a significant focus on this product digitization. But above all, given the situation, also, obviously, a significant support of the businesses in the region, we have relaunched the Help Frame initiative, which is the very, very relevant ESG measure. On the other hand, as we announced, we have introduced the high-balance fees for retail deposits. In combination, obviously, to a relatively shallow pool of alternative investment opportunities for retail clients as well. We saw some progress in moving assets, actually rerouting assets from deposits into bancassurance and especially, asset management products, so we see a very strong production there and it continues. Within Q2, we announced publicly, we are reducing the threshold from EUR 250,000 to EUR 100,000 as of July 1. So we expect further strong, actually, the development in this direction. We have really been able to further improve the penetration in digital usage. So I'm really happy to see on a monthly basis, strong progress here. Our contact center has been equipped also with a closing capacity. So within a month, they would practically be able to close any transaction apart from the mortgage-related housing loan, and that's really an ongoing favor of the client experience. And we have just reemphasized and gave additional boost and push to the entire ESG territory with quite an ambitious road map, actually, to implement the whole universe of it. I'm actually sad that our colleague in the Board, Petr Brunclík, decided, from personal, reasons to actually leave the board. But I assure you, the situation is fully under control. So other Board members have been used to such situations in last years and have assumed full control, and we continue with undisturbed business operations. Furthermore, the teams on B1 and B2 level have been very solidly equipped and fully motivated to deliver on the ambitious digitalization on one side, but of course, efficiency improvement program as a whole. We have published the upcoming general assembly, Annual General Meeting, to take place on 14th of June. We have also published the dividend suggestion. On the other hand, coming back to the results a bit more concrete and Archibald will give you, of course, more flesh to it. We have really been already seeing a contribution of Komercijalna Banka just reaffirming that this was a really transformational decision. This was really a very meaningful one. We are very, very confident that in the coming years, there is going to be a strong delivery through the, of course, activation, commercialization of the bank. So really coming back to clients, we see, really, a significant potential for double-digit growth, especially of retail books. And we have shown in the first quarter that we have been able to grow, actually, retail book also in Slovenia and the corporate is also showing significant progress in cross-border lending and leasing is -- has started showing, really, first results. So the things we have been talking about are actually delivering on the expectation. We have kept, obviously, very strong capital position and liquidity has been, of course, further strengthened, given that there has been still net influx of deposits in Q1. We saw in March a bit more stable moat of this development, given the fact that the Slovenian economy finally started reopening. And as of today, practically, we are almost close to the full opening, reopening of the society, so hotels and restaurants have reopened also in-site. And of course, following certain restrictions in terms of distancing, in terms of, of course, being either vaccinated, infected or having a test in place. But generally, there is life. You see it in the streets. There's -- we serve -- again lively, so there is hope returning. Where we are talking about, of course, the general state of the economy, especially the production part and the export-related part, we have a very strong quarter behind us. There's growth of exports. There is even higher growth of exports and imports, obviously. So there is strong surplus in trade balance on one side, but this is really -- at the levels that are above -- significantly above, actually, of 2019 levels, even pre-COVID levels. So we are very confident that Slovenia economy is in a good shape and ready for a significant rebound. We have experienced, in Q1, a negative cost of risk. So we see solid development of a couple of assets and collections coming from these assets from various corners in terms of NPL -- P&L recognition and some of these trends have been continuing also as we speak. So we are quite confident that this year's cost of risk is going to be -- and Andreas is going to give you more flesh at a reasonable level. On the other hand, clearly, as I was mentioning. Operation has been improving also, not only physically through the opening of, but also mentally. So people really feel now much more empowered on side, on the other hand, they are much more positive. So we are hoping for the normal summer, that is going to really give significant boost to the sentiment and then, hopefully, private consumption to follow otherwise strong, robust trends coming from the corporate sector. The macroeconomic outlook has been stable throughout the whole region, and we are happy, specifically about development in Serbia, very robust picture coming out of Serbia. And that's, of course, our future growth market, so obviously, well positioned to be a beneficiary of this growth. I mentioned just shortly, the dividends, of course, we have published, as said, the General Assembly convocation and we have suggested what has so far been possible given the regulatory restrictions. We keep the ambition fulfilled within this year, hopefully, be able to pay EUR 92 million, i.e., in last quarter than adding the incremental decision, so another General Assembly call. There is a discrepancy in views coming from the European Central Bank and Bank of Slovenia. Bank of Slovenia somehow following the standalone parent bank logic, which we believe is professionally not consistent, but generally is the case so far. So the proposed resolution for the General Assembly is actually dual payment as soon as the residual, so far not been allowed by the Bank of Slovenia, would be allowed. And then we would hope, obviously, for the residual, for the entire EUR 92 million to be paid out this year. The Q1 result is supporting this. Furthermore, it is giving us hope that the whole year is going to be very, very solid. And of course, we are even more convinced that the midterm ambition in terms of dividend payout of in excess of EUR 300 million, actually now within 2 good years until July '23 will be possible. By that, I would hand over to Archibald to guide you through -- add more details, and then Andreas will follow-on the asset quality.

Thank you, Blaž. Welcome from my side. I'll step you through a range of key financials as usual. And of course, then look very much forward to your questions. And as Blaž said, very robust Q1 performance, actually, in all dimensions, revenues, costs and, of course, especially cost of risk. You see also here the first quarter with Komercijalna Banka contributing meaningful contributions. Actually, in the range, as we have expected, clearly, with a lot of upside still to come. So this is early days. Blaž said the integration is getting going. But more importantly, business activation and then cost measures are being set as we speak. But of course, will take some time to trickle through the results. And I can assure you, we are online with developments in Serbia and the team almost on a daily basis. So Blaž and myself are in the Board, as you know, so keep a very, very close eye on all of these dynamics. On the various P&L positions, you see that really recurring income is stable, slightly up, even without Komercijalna Banka. And of course, Komercijalna Banka adding very meaningfully already. Same on cost, very strict cost discipline, we'll come to more details on that. And very reassuringly even, let's say, at the end of COVID and comparing to a pre-COVID quarter last year, we have a pretty stable pre-provision result, and of course - on this, the visible contribution already of Komercijalna Banka. Breaking it a bit down, see that we have little bit of a pressure on interest income, of course, offset with contributions from KB. We offset that, and Blaž indicated the way we do it, fee commission income, very strong focus and very good and nice positive developments, especially in Slovenia, with the asset management franchise. And of course, we expect here more to come given what is already announced as further measures on the deposit side, which are, of course, in these days, a continuous pressure on NIM, in particular. Costs, as I said, we're really, really, really focused on keeping costs under control. And of course, heavily working on the whole, let's say, rework of the operating model. There is plenty of projects underway that keep direct check on costs, but also make sure that structurally, we set the right measures to -- in essence, help transition the bank to a more and more digital operating model. And of course, that, over time, will put our physical cost base, physical footprints, branch network headcounts in front and back, of course, under continuous review. So that's a never-ending story. In KB, we are, of course, accelerating some of these aspects, in particular, headcount, to some extent, branch networks are already under review. We have run or started the first, voluntarily, offers in KB, which we see very positively accepted by the bank. So we expect contributions here to kick in relatively fast. Andreas will give you more details on the very positive impairment provision dynamic. And that, overall, as was said, a very, very strong Q1. And more importantly, very solid basis and good outlook for the whole year. So we're really proud of this quarter and very optimistic looking into the rest of the year. You see that, also, for the NIM, for the first time, since quite a while, I can report that we have an uptick in NIM. That's really good to see. And we are, again, confident that there is more to come. We have, really, all operations now very much focused on loan growth. In particular, of course, KB, which as predicted and discussed, is, of course, having its expected positive impact. We also, for the first time, show you here the quarterly dynamics on the so-called operating margin overall and then similar dynamics. This includes, of course, the fee and commission income. And so overall, broadly speaking, stable and positive dynamics on many different elements in a continued challenging environment. So of course, this is all against the backdrop of a hugely challenging environment overall, given the rates of dynamic. Cost dimension is [ in ] continuous focus. And we see here the various components, including breakdowns of KB in particular, what KB added to the cost base. And as said before, apart from KB, which is a special -- which is running a special cost reduction program as we speak, of course, the rest of the group is in a continued effort to keep an eye on all dimensions of cost. Blaž mentioned digitalization is more or less in full swing. And of course, we expect, over time, this to substantially change our whole setup and appearance, not that we will end being a bank with many, basically, outlets but the design and the cost base of that outlets will be changing significantly over time. You'll see this basically happening gradually because these are structural costs, so not that easy to touch. But we are in a very good way and will continue to -- on that path, as I said, in an accelerated way also for KB. Loan dynamics. We are very happy to report that we see growth in all segments, corporates, retail and in basically all parts of the group. KB is, as indicated, a bit flattish on individuals, but that is soon to change. And we hear that monthly production volumes are actually developing very, very nice. So we are confident that for the full year, we will be able to show also very positive dynamics here. So overall, we see loan demand very healthy, picking up in all markets, especially housing is always a bright spot. There is really big demand across all geographies for that product. And of course, NLB will and continues to establish itself here as a leading player in that key product segment for us. On capital, very important topic for us, of course, given post-KB acquisition. We show a very solid capital adequacy in the range of EUR 16.1 million. So nicely above target. And that fully accommodates for the temporary, I should say, the decrease in capital on the minority interests of KB, which we fully took out temporarily until this so-called takeover bit is concluded. And then we expect, actually, a part of that minorities to be added back. As Blaž said, we are at below 90%. So for the time being, we assume these minorities will at least partially assume to be part of our group capital base. And of course, very importantly, negative goodwill is yet to come. You're seeing a range of 110 bps. We expect this to be included upon recognition of results and distribution of results by the upcoming general assembly. This is already aligned with the regulator, so more or less a done deal. And also speaking of capital, risk-weighted asset dynamics. That's something, of course, we keep watching very, very closely. And there's a continuous stream of activities trying to control and optimize our risk-weighted asset composition and risk-weighted asset drivers, importantly, also for the so-called MREL requirement. So for us, really a key metric to watch. And on the positive note, there is still good news to come. We look and we look forward and anticipate that equivalence treatments are taking some win this year for Bosnia, Herzegovina and Macedonia, Northern Macedonia. And that's, as you know, subject to equivalents. Regimes being enacted. That's a process around sort of EBA and EC eventually. And you've seen that kicking in for Serbia, end of last year, and we expect similar developments for these 2 markets. So that's coming up. In other words, on the capital side, actually quite some solid buffers are still to come which, of course, is very important to underpin our dividend ambitions and, of course, our ability to deploy capital in efficient ways. By that, I would pass on to Andreas to give you more flesh on cost of risk and asset quality.

Yes, Archibald. Thank you. I guess one main point was mentioned already by both colleagues. So first quarter, we saw a release of some EUR 15 million provisions, so positive contribution in cost of risk. That was, obviously, a little bit of a surprise in a sense that we saw both very positive effects from NPL resolution, both on balance and off balance. And so far, we also don't see any unexpected surprises on the negative side. But I will tell you more later on. So maybe first here now on the moratorium -- on the moratoriums. By end of March, 78% of the moratoria have expired, which were originally at the peak, 16% of our portfolio, including here, as you see, obviously, on our already Komercijalna Banka, whereas the big, big part of that has expired by end of December, so we have already some grip on that. And from the remaining EUR 500 million, actually, now these days in March, April. So in March, April, especially a lot of it has expired. What you can see is from the expired moratoria, 82% have 0-day delays. So they are paying fully regular. And you have a certain chunk, which is actually having delays, but slight delays. And then obviously, you see the more problematic ones with up to 90 days past due and default category, which is, altogether, some 4% of that portfolio. I have to say on staging, it looks a little bit different because there is more -- a little bit more stage 3 and you would see combined from these last 2 categories, which tells you that here, we are also conservative. And so far, I have to say this portfolio actually behaves very, very much in line with expectations. So previously, better-rated clients have no delays. Clients, which we saw criticals or we staged them, have certain problems, but not all of them. But overall, also here on that part, no negative surprises whatsoever for the time being. And then we have remaining moratoria at the end of March here, obviously. So companies are 70% of that and the rest is households. And I mean this is, obviously, now the long end of the moratoria. So many of these moratoriums are 12-month moratoriums, which primarily were given here in Slovenia. And this long end of the moratoriums is basically simply more critical. So if you see here the staging, then we are between 30% and 35% already on Stage 2 and from 6% to 12% on Stage 3. So I would say, here, we are even more conservative. Obviously now, whether it's conservative enough or too conservative, we will see in the next coming months. We obviously keep watching these clients especially closely, but let's see. So, so far, also here, we have a good feeling that we did the right thing. More, we will see in the next couple of months, but our view on these clients anyhow became already quite conservative, I would say. Overall, in the bank, I mean, one point was mentioned. So the release of provisions of EUR 15.5 million net for the reasons I explained already. And overall, a very stable stock of NPL with EUR 480 million end of March. But you have to see here that quite high portion, so EUR 196 million actually have 0 days delays. This, for a big portion are, of course, still clients which are in the past, restructured and which we didn't heal yet, but which are simply paying. And of course, these days, to a certain extent, also clients, which we foresaw the derivative problems after the moratoriums, but so far, they simply also keep paying. Yes. I would say that's maybe big picture view. Overall, this tells us, also, of course, considering what I said before, that we saw these positive surprises. But so far, we don't see negative ones, that certain one-offs still expected to come, really coming, that it's very realistic that we may outperform our cost of risk guidance, which we have originally given of 70 to 90 bps, so we might be better than that. And I guess for such times in such circumstances, as mentioned by the colleagues before, that's actually a very good news, and that proves that the bank advise also in the last years was, well, conservative enough and doing some things right. And of course, as a CRO, 1, 2 years after COVID has passed, I will say this with additional confidence. But so far, whatever we can see, honestly speaking, we should be very, very happy. With this, I will conclude my part for now and hand back to Blaž Brodnjak. Thank you.

Thank you, Andreas. There are some slides that are anyhow publicly available. So I would not speak to them necessarily. What I just mentioned at the beginning, we are full-fledged on the agenda of digitalization all over. So within ESG, of course, papers, initiatives, but generally, also when it comes to client experience. We plan to introduce a new -- brand new front-end platform, more or less, as an m-Bank and e-Bank for the retail clients here this year, and we are well advanced in the friends and family version already. And we are actually the only bank in the market offering 24/7 availability for practically almost all services. I mentioned before, very soon in a month, any client of NLB will be able to close any business actually online, 24/7, without having to talk to -- to come to the branch. You can already now raise any -- submit any request for any service and sign any contract with NLB through the mobile app, more or less, with biometrics. So that's a revolutionary client experience, and we, of course, plan to replicate this and roll this out throughout the entire group. Obviously, as soon as integration is done in Serbia, Serbia would be, of course, a focus market since also digitalization there is at the most advanced. The legislation is ready, so of course, we want to show them, immediately after Slovenia, a very strong progress in Serbia as well. It's happening practically all over the place. So we are actually moving clients to mobile usage. We are moving clients also to ease usage and to more or less 24/7 chat and video chat functionality and really we are happy with these trends. The contact center has really been having already closing capacity, as I mentioned. So we actually can, at 2:00 at night, close, more or less, almost all services. Even if you're not using mobile as an end-to-end digitalized solution, you can actually reach us for a personal interaction, not being dependent on the branch opening hours. And that's really a facilitating feature for midterm optimization of the channels. And that's really something that is enabling this now. Of course, we are planning for higher migrations, still, from clients. So many clients do prefer physical meetings in branches, but we, furthermore, position the branches and advisory hub and less and less asset transaction service to our clients. Archibald mentioned, I just reiterate that we are further, of course, working on efficiencies. Clearly in Slovenia and midterm, we are looking at further reductions, but this is true also, of course, for the whole region. Archibald also mentioned the already-successful first wave in Serbia of envisaged rationalization in terms of, of course, number of employees. And the voluntary regime actually has shown real success already in the first wave and will show also concrete results in the upcoming months once we actually deploy it. The KPIs here are improving as we speak. So digital penetration is moving, really, and of course, we have higher ambition, significantly higher ambition. And we really are pushing towards this migration in a more accelerated way even. When it comes to the outlook and the numbers, we have changed our way of positioning the results as our last appearance, recently when we're talking about the annual results. And more or less, we guide in these directions still. So Andreas gave you a picture that given the development in Q1 and positive effects coming from various corners in terms of accounting recognition, not necessarily -- or booked as a cost of risk, but coming from various corners, upon successful collection, upon successful resolution of some legal disputes and so on is actually catering for a likelihood, of course, to all performing the cost of risk. But more relevant, I would say, guidance is on return, so mid-single-digit return. That's -- sorry, a high single-digit return for this year. And that's something that we believe is a very solid performance. Q1 is definitely showing strong path towards that. And of course, what we keep to is the dividend suggestions. And we believe it is justified. We believe it is possible to pay this amount, actually, hopefully, already this year for the '21 portion. But for sure, we believe that it should be possible then until '23. So in actually good 2 years to pay out this excess of EUR 300 million. By that, I would wrap up to allow for questions, and we are now fully available for them, obviously. So, so far, very solid outcomes, very, very confident picture. We believe that the macro picture is solid and is improving even. So the HoReCa in some other industries that have been fully locked down for quite some time have been reopening gradually, and it has a positive trend. So it seems that towards the end of June, we might have full opening in the normal summer. And this would be really, mentally, a significant boost to private sentiment and consumption that is then going to assist, obviously, already so far robust trends in production. Thank you very much and gladly responding to your questions. Thank you.

[Operator Instructions] We have had 2 questions come through via the webcast from Jasper from Slovenia. Question 1. "Congratulations on excellent results. My question is regarding outstanding shares of KB. Is there any plan for KB to do buybacks or something else to get over 90%. Second question? Can you tell us if there is any new development in M&A plans, Albania, et cetera?

Archibald, will you do the KB part and I do the Albania?

So Blaž has said quite specifically, we have still an order outstanding. And so we're happy to buy to whoever is willing to sell, but obviously, that requires willing sellers. And from our point of view, if it happens, fine. If it doesn't happen, also okay. So that was, for us, just a hand extended to minorities. And so we are now progressing, of course, with the merger plans. And once the current order expires, we will simply proceed. So on M&A plans, I pass back to Blaž.

Thank you, Archibald, when it comes to further M&A plans, I would really now reiterate what we've been saying once we feel really confident about the integration in Serbia. So we are not jumping now to another opportunity just overnight. We see a significant chance for us, so actually feeling very, very well at the end of the year and confident to be able to onboard another project once we have full visibility on expected closing of integration in Serbia. So far, we are feeling well. So far, we feel confident we are going to actually meet these targets. And this might mean that towards the end of the year and beginning of next year, we might start exploring further opportunities. And we mentioned on a couple of occasions that Albania might be the next market we might consider. And we definitely hope that, that would be a stage when there would be a political agreement between Slovenia and Croatian governments, that we might be then thinking of entering this, or other way, Croatian market, not through the -- a large acquisition.

We've had a question come through on the telephone lines from Jovan Sikimic from RBI.

I have just 1, 2 questions. First of all, on KB, on your Excel spreadsheet. Actually, there is -- it's shown that KB NPL ratio is very low, 1-point, I don't know, 5%, 1.6% and very low coverage. I mean the question is how recurring is this or whether there are some accounting issues here that I -- actually, I do not understand why it's so low. And the next one would be on cost of risk. I mean, I'm not sure whether you can explain a bit what was really the amount of releases and whether you booked [ downright ] additional risk costs for your underlying portfolio, right, apart from these releases that you had.

So maybe first on the first question. I mean, obviously, Komercijalna Banka in the group accounting, their NPL portfolio was initially recognized at fair value. So here you see fair value amounts. And that's, of course, which is blurring a little bit the whole picture. I mean, if you see the whole group, then this was reducing our coverage ratios as a group and this is then supposed to normalize over time. Because, obviously, the fair value exposure will more and more expire and, hopefully not too many, but some new NPLs will come in. So this is to, well, a good extent, an accounting question as you already mentioned. But at the same time, of course, Komercijalna Banka, if you see them retroactively, they have, in the last years, actually done also a lot on NPL resolution. So their NPL levels are really quite reasonable. And I also have to say that so far, we have not seen any negative surprises, which honestly speaking, from my point of view, is a big, big recognition also to the due diligence work of our internal team, especially in late 2019 because it looks like that we got what we expected to get, and that's actually a very good news. On cost of risk. So the second question, in quarter 1, there were quite some items from off balance sheet, which released provisions. So basically, resolved it while it was already booked off balance. On the other side, we hit on-balance items, NPLs, which were resolved. And here, we also saw a positive contribution, so with other words, were usually resolved to better value than what was still in our books. And thirdly, cost of risk from regular activities, in the first quarter were very low. Honestly speaking, that's generally not really unexpected. So quarter 1, the cost of risk from such regular items usually is the lowest in the year. This is -- I mean, we are trying to get it as steady as possible during the year, but that's a fact of life. So here, usually, figures are low, but they were also low in this last quarter, which given circumstances is, of course, also a positive news.

If I may add just one follow-up on that. You also specified some one-off, which should materialize in the second quarter, right, 14-point something million. Is it also related to further risk cost release in the second quarter? And is it -- do you expect -- I mean, as you said that you plan to outperform the guidance? Or can we expect even something on top of that?

So on top of what I said already that we might outperform the guidance, that's too early days, I would say. I mean we are still in a COVID year. We are relatively early. So let's be also a little bit prudent. I also didn't say specifically that it would be quarter 2. But true is, yes, we are expecting certain one-off items. Not all of this, you will probably -- I mean, if the one-off items are the ones we are expecting, you will not, all of that, see by a cost of risk release because we also have one bigger fair value exposure, which we expect to resolve. So this you would see in the P&L, and you would also see the NPL reduction, but not in a cost of risk change. And you also see 1, 2 items, otherwise, which might contribute. And as Mr. Brodnjak also mentioned also on the legal side, we have now won 2 cases where we still may see some outcome, which is better than expected. So it's coming from a couple of sites, actually. At the moment, I would say, again, I think the message I gave was already quite optimistic. More than that is simply too early days because what you also have to realize is that all of these things are only true when you have the money on the accounts. So there are, for sure, still uncertainties.

We've had a question come through on the webcast from [ Makesh ]. "What is the purpose of 2 dividends instead of 1? NLB GDR holders will have to pay unnecessary cost of up to EUR 0.03 for each EUR 0.12 of dividend they receive."

Well, we tried -- sorry, I'll probably just end. We tried to -- Archibald, go ahead. So we tried to pace it in a way that is possible. So we don't want to, of course, keep shareholders waiting until it's really clear that we can pay the entire EUR 25 million, but EUR 25 million has been more or less green lighted by the European Central Bank given their approach to the dividend payout logic, assuming capital adequacy on the group level. Whereby Bank of Slovenia applied the standalone parent bank level, which we believe is professionally inconsistent. And this was actually the only possible way to, actually, within one General Assembly decision or regulate it in a way that it's paid out through 2 payments, but nevertheless, upon 1 decision. Archibald, you might want to add something. I apologize.

I mean to the cost, we are obviously very conscious of cost and efficiency of such transactions. To our best knowledge, there is no incremental cost to shareholders for such a payment. So we actually assume this is cost neutral and in this sense, I don't see an immediate disadvantage for shareholders. But we are very much, let's say, looking at all dimensions of such decisions. In our perception, the dividend split, as suggested, is the best solution for all parties.

And we would hope for the, of course, repeated the general assembly in Q4 for the residual up to EUR 92 million.

We've had another question through on the webcast from Victor. "when should we expect the bulk of one-off integration costs to be taken during 2021? Q1 cost performance looks strong. Do you see any chances of outperformance to combined cost guidance for 2021 and 2022?

Archi?

So on the cost, I mean, we've put out a quite specific cost ambition for this year. That includes -- that would include pretty much all of the restructuring charges. Now accounting of these charges follows an accounting logic. So I can't assure you that, indeed, all of these restructuring charges can be booked. Our ambition is to book whatever we can. That's in the magnitude of EUR 30 million. And I think we've indicated that the HR part of the restructuring process goes pretty much so far as planned. Actually, we are almost exceeding our ambitions here. And so in this sense, outperforming the cost guidance, to some extent, is possibly underperforming on our ambition to book restructuring charges to the largest extent in terms of timing. In terms of spending the money, we think we have sized this restructuring process sensibly. So we believe the numbers are what they are. And on the rest of the group, we've indicated that we are very, very, let's say, prudent in spending decisions. We are getting really focused on each and every penny overall, and more importantly, on setting the stage for structural optimizing of the cost base. And that has mostly to do with getting our digital agenda out. We are really excited that we have now pretty much all the building blocks in place in the bank. In terms of digital agenda, we have the data. We have the analytic capabilities. We increasingly have the headcount working on this analytical capabilities. We built the digital channels. Blaž mentioned [ about ] the contact center. So all the building blocks are gradually coming to play. So in this sense, we are now also progressing very well with our preparation for real estate rationalization. Clearly, COVID has taught us more or less what works, what works not so well in terms of remote work. So we will also have a hybrid model in place for us, and then that gradually, the office space, of course, then being addressed as a dimension. So all this in the next 1 to 2 years. So there's plenty of cost agenda, we work on structurally. We are very conscious and cautious on the run rate spend. And KB is a matter of whether we can book everything this year or next year. We believe the guidance for EUR 130 million for now still holds.

We had another question from Victor. "having been in control of Komercijalna for a number of months, what has been surprising to you? Anything that has been better or worse than expectations? How should we think about KB's loan book growth in 2021 and 2022?"

I answered these, I guess, during the previous addresses, right? So we are feeling very confident. No significant negative surprises. We have actually introduced first common joint campaigns communication-wise and, of course, also product-wise. So we have become price competitive, and we see already very significant production. In March, actually, this was a record production of all times in KB when it comes to the consumer loans, for example, and we have introduced the welcome packages, and we have really reactivated the sales with -- beginning of Q2, we introduced clear KPIs and performance-related variable remuneration for the sales also. So we are really feeling confident. And I mentioned actually double-digit growth. So that's something that we really believe in and should come. And this is true for retail loan book and corporate loan book. And by that, offset, partly, liquidity, reductions or abatements. So we are enthusiastic and excited about the whole thing. And we really give big hopes and bets on this to deliver what we were talking about once specifically introducing the case, right? Serbia should bring EUR 100 million contribution to the group, and that's something we are counting on. Archi, you might add something.

Nothing to add really.

We've had another question come through from Henry. "Page 24 of the presentation has loan growth of high single digits through 2023. What is normalized growth once you remove the noise in acquisitions and COVID? What do you think the long-term growth of the business is?

We cannot really be concrete and specific here. What we have some hopes for is that the Bank of Slovenia would remove certain hurdle here, which is a restriction of retail lending. Obviously, with high -- very strict criteria and creditworthiness of households. So this could facilitate significantly quicker growth in retail in Slovenia. But generally, high single-digit is something that is solid. I mean, if you look at the Q1 this year of close to 2%, practically, we are reaching this already. And if we keep the momentum, this is something that we are talking about. If there were a release of these restrictions for Bank of Slovenia, there might be possibility to grow quicker. Otherwise, this is simply something that we count on. And given the sentiment, given that it's significantly improving, as we speak, and then really depending on the usage, especially of overdrafts and credit cards once private consumption resumes. And these are all booked, obviously, after -- on the cash lending, the consumer lending, we might see some, nevertheless, bigger boost in consumer lending. Otherwise, we have had now, really, a conscious focus to be a market leader in retail lending in housing and consumer. We are top 3 bank in 6 countries, and that counts. And we have the size. We have now -- we are putting actually all the pieces of the puzzle together in Slovenia. And I must say I'm specifically proud that in the last 6 months, on average, we have been practically on -- without exception, originating higher portion of the entire new production in the market than our market share is. So we have been continuously growing market shares in housing and consumer loans in Slovenia, and that's our strategy also in other markets. So assuming the market allows more, we will be benefiting from it, I'm sure. But so far, we believe that high single-digit is reasonable to [ assume ].

We've had a question come from [ Laden ]. "Thank you for the call and congratulations on 1Q 21 results. Where do you want to see loan portfolio structure of KB in terms of retail versus corporate? And when do you plan to reintroduce dividend policy for KB?"

Maybe I'll do the balance sheet split, and then Archi, the dividend. So in principle, what I believe in is that there is a huge potential in both. And corporate is more or less a bigger number business. So KB is completely underrepresented in corporate business in Serbia. If you look at the market share in deposits, we are talking about 17% market and retail deposits, but our lending market share is still below 10%, both in housing and consumer but just making -- bringing into the natural position is giving you enormous potential. But then, you're talking about top 700 corporates in Serbia. We are barely present and this is something that is on the other side, of course, offering significant opportunity to grow. So if -- and if you do both things right, you could have a balanced picture as we're looking at in Slovenia and some other markets as well. So of course, primary focus is retail SME but there is significant opportunity also, especially given the very, very strong and robust liquidity of Komercijalna Banka and access to, of course, obviously, a very sticky deposit base. We could be a company in corporate sector in Serbia as well and also public infrastructure projects, municipal-level projects and so on, especially focusing on energy efficiency improvements and renewables. So we have the potential. We have the firepower. It is an aspect to do the relationship stuff, right? And actually then address the need and the demand that we are there. So we are grateful to take this opportunity.

Maybe on the dividend...

We've had -- carry on. I'm sorry.

Yes, there was a question, dividend of KB. I mean we don't comment on dividend policies of a listed entity that is not NLB itself. But by and large, you know that, of course, rationally speaking, you would expect that KB wants the whole integration process concludes, and that is somewhere next year in our perception. Of course, we would expect that a regular profit is going to be generated at some point. And as Blaž mentioned ambition levels, and of course, that as with any other operation, part of the profit is returned to the shareholder. But it's not on us, and it's too early to be more specific.

Okay. You've had a follow-up question on the telephone line from Jovan Sikimic from RBI.

Yes. Once again, this is my last on KB as well. And it seems that there was a kind of sharp margin drop in the first quarter compared to the 2020. I mean the question is where do you see the bottom? And then what would be your guidance, let's say, for this year on KB level?

Maybe a quick question from -- a quick answer from my side. KB was originally positioned as a market leader in FX deposit taking. So that is euro deposits in retail, and they actually run deliberate campaigns in the COVID months, towards the end of the COVID period to keep up market share in euro deposits. And they actually did that at quite some expense, so that was eating into the margin. We immediately stopped that upon resuming control on the asset. And so of course, we expect now this picking up of retail production to -- for the margins to recover. And you know that KB runs quite a low LTD ratio in the 50s, low 50s. So upon normalization of that ratio, we would see margins closer to where we see in the other bank. But I will and cannot be more specific than that. You know that Serbia operates at substantially higher-margin than, of course, rest of the group. And so we are hopeful that we can benefit to the fullest extent with a combination of the measures I mentioned.

We currently have no further questions. So I'll hand back over to Mr. Brodnjak.

Thank you very much. I would just reiterate what I said. We are feeling very well. We are feeling confident. The sentiment is improving throughout the region. Macro prospects seem really robust. I just saw that the prospects for Slovenia growth this year have improved to 4.9% coming from one corner. So it seems that 2022 would already be a recovery level year. And this means that we are well equipped and well positioned to take benefits out of it. So the unemployment rate has decreased now to more or less already almost pre-COVID level. And once we reopen HoReCa internally, I would see, actually, back to full employment situation here in the country, taking for talent all over the place and really add significant confidence and boost the sentiment of private consumption, and that's something that we really believe is going to then bring a lot of value to us. Overall, we believe it's a very well-positioned story. To harvest the yield in the coming years, we stick to dividend guidance. We stick to high single-digit ROE guidance. And so far, so good this year. And talking to you soon after presenting the H1 results, which we believe are going to be very robust as well. Thank you very much, and take care, and see you.

Thank you. Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect your lines.