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

Ladies and gentlemen, the Management Board of NLB welcomes you to the webcast, where they will present key highlights and business performance of NLB Group 3Q 2021. Today's presenters are Blaž Brodnjak, CEO; Archibald Kremser, CFO; and Andreas Burkhardt, CRO. [Operator Instructions] Before we go on, we would like 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 a warm welcome from NLB's premises. I'm really specifically happy this time around since we have behind us an extremely strong quarter. We have achieved further milestones, and we are really significantly more confident than in previous quarters. And looking forward to the year-end, we maintain this confidence. So in all dimensions, practically, we have seen very solid developments and specifically focusing on recurring business evolution, and we have been actually evidencing the strong growth of retail on demand. And finally, also a pickup in corporate lending, Obviously, seeking for talent has led to the fact that companies are now forced to think of robotization, automation, digitization and so on. And there is a significant investment demand finally happening. There is also quite vibrant M&A society happening now in the region and NLB has been also assisting this endeavor via IV advisory, which we have actually been creating further milestone at positioning us as universal financial services group. But overall, I'm really happy about the evolution of the loan volumes in retail throughout the region. So in all geographies, a very solid demand for housing and consumer lending. Clearly, there have been still some subdued evolution in terms of consumer lending in Slovenia, given the restrictions of Bank of Slovenia still in place from macroprudential universe, yet housing demand is solid. There is quite a good sentiment despite clearly, again, COVID situation worsening, Nevertheless, economy has been practically operating at almost full utilization of capacities. Yes, there have been obviously some ad hoc shocks in supply chains and energy pricing. But it seems that they have been pretty much under control in Slovenia. We are closely monitoring these developments. And so far, the corporates are not yet reporting any significant distress coming from it. Of course, there might be some further shorter lockdowns of the service industry, but we've had pretty much a very strong half of the year for them, practical -- almost full utilization or full capacity utilization practically across the summer and early autumn. So we also feel confident there. And as in previous quarters, we can only report the exposure of the NLB Group to the potentially impact industry has been pretty limited. On the other hand, pretty important developments in integration of Komercijalna Banka, that's something that, of course, everyone is looking at with a high level of scrutiny since this has been our first major acquisition in years. But I can really happily report that developments have been fully under control. We feel very, very confident at delivering integration in Serbia towards the end of April, as we have been communicating so far. I'm also happy reporting that the restructuring charge that was foreseen -- that has been foreseen so far, is within this ballpark. And also timing wise, we are well on track. We have sold actually the subsidiary of Komercijalna Group in Banja Luka. So we have signed a contract, the SPA with Banka Poštanska štedionica from Serbia. So there will be no integration in ]. We expect legal closing, practically regulatory closing potentially still this year. And we are well advanced -- very well advanced with the integration in Montenegro. So actually this weekend, we plan to actually already do the migration, and then as of Monday, open as one business. This has been really solid, solid development, and we feel very confident about this to continue. Archibald will give you a bit more details later. January, I'm also happy to report that there have been -- there has been lifting of restrictions for dividend pay. So we will be actually -- we have called -- complicated the general assembly for December, and we plan to provide a little Christmas give to our investors on the 24th of December, which would be a payout of the residual dividends up to EUR 92.2 million cumulatively, which would then for this full year actuator for EUR [ 4.6 ] per share payout, which is very solid and which is in line with what we have been communicating so far. In terms of evolution and guidance for the coming quarter and end of the year, I guess that the most material, of course, difference to -- so far support is that the cost of risk evolution has been pretty, pretty solid. So even in Q3, still significantly negative cost of risk, i.e., positive contribution to the result. And it seems obviously that we would close the year also with negative cost of risk, which will, of course, significantly boost the result of the whole year and adding obviously incrementally with another positive quarter towards the end of the year. I'm really very, very happy about the recurring results. So in all client segments, practically in all geographies, there are strong pipelines. We see loan demand and above all noninterest income. So fee income evolution, asset management products after the introduction of high balance fees are really originating significant revenue. On the other hand, clearly, the high balance fee introduced has been offsetting a bit and balancing out the influx of deposits. So we've seen in Q3 already much more balanced evolution, loan growth and stable deposits development. So this is, of course, speaking in favor of stabilization of net interest margin at certain point, as we can engage more capital obviously into the lucrative lending business, especially in retail, but as I said, corporate following. And of course, also the ancillary products being sold that don't carry actually credit risk and we're not really showing some stable, stable production. So in this respect, this is a very solid period behind us. And I believe this has been continuing, and we are looking forward to the significant future quarters. And by that, I would pass the word to Archibald and then wrap up with a bit more guidance also for the future and strategic priorities. So Archibald, the floor is yours.

Thank you, Blaz. Welcome, everybody. Also from my side, this is really a pleasure to present this quarter, Blaz already -- in way, it was a very, very strong financial performance as well. And importantly, really on the back of good recurring business development. So core revenues are developing very healthy. Quarterly profit, EUR 66 million -- close to EUR 66 million. Net interest income slightly up by 2% and really on the back of very strong loan demand from all corners. So the whole region including Slovenia, by the way, of course, more on mortgage than on consumers as explained by Blaz. But really across the board, a very strong loan demand, especially from retail. So we are, by that, also gaining market share and retail. And that is, of course, also our continued ambition. I think we have to -- the setup now in the meantime also across the group to further drive that growth. We have increasingly also the technical capabilities and also the steering on a group level to keep continuing on that basis. The loan demand, especially from retail, very strong. Also corporate picking up. And of course, post pandemic, both appetite on bank as much as on corporate is, to some extent, still muted. But we expect over time this order to normalize. And we see many, many interesting projects also in the pipeline in corporate, both in Slovenia and abroad. Other highlights are clearly the continuing cost discipline. And here, we see a more or less flat quarterly dynamic and that's what we like. This is what we try to keep. Obviously, the restructuring charges still to come, especially in Q4, we will see some incremental charges . But as explained, and we'll come to that in more detail, this is already in line with our expectations. On cost of risk, not much to say other than incredible good performance, especially on the resolution and recovery . And Andreas will indicate details. Forward-looking guidance will have negative cost of risk also for the full year. And in this sense, we are not just looking at a very strong Q3, but also is a very, very robust outlook for the full year. The details to that, as I said, good performance on interest income driven by very solid loan demand, quarterly increase of net interest income, 3%. That's really quite encouraging, I have to say. And it's really very much driven by the drive going through the whole group in terms of retail growth. And we see this, given the macro environment, which is positive and supportive also for next year, we see this continuing. Margins are stable. We took nominally a bit of a hit because we took in some TLTRO in limited amount of EUR 750 million. And that obviously will contribute at some point to margin. But for the time being, this money is, of course, predominantly parked in Central bank accounts. So technically kind of depressed EBITDA margin environment. If you normalize for that, we are flat quarter-on-quarter. Noninterest income, a continuous success story. Many, many elements driving that from regular core business. Of course, recovering payment flows to very, very positive continued dynamic on our sale of mutual funds, especially here, of course, in Slovenia, with really strong, strong drive in volume growth and by that also increasing our market share. Cost is -- well, it looks boring here, but of course, there's a lot of effort underlying to keep the costs flattish as we call it, we run here a midterm cost containment plan. And that basically reduces costs on, as we call it, physical footprint. You see it here a number of branches is continuing to go down, number of employees is continuing to go down and reinvest these proceeds in innovation and technology. Obviously, there is a stronger dynamic now in Serbia on cost. Clearly, we have 2 operations. We are consolidating them into one. And even ahead of the merger, as we've communicated earlier, we are very, very focused on, let's say, sizing the target organization in a right way. So that we ultimately also have the space here to invest both in people, new skills and the new technologies. There is a very tech-friendly market. So we obviously want to benefit from that. Loan dynamics, very robust, as I said a couple of times now and especially retail is really a choice to watch these days, 9% year-to-date. Obviously, strong double digits in our subsidiaries, particularly positive 6% already in KB. Let's not forget that it's in the middle of a restructuring process, in the middle of a quite substantial headcount reduction that took already place. So we are really very pleased with that result. And on corporates, I'd say, first positive signs of pickup in loan demand. And obviously, the future is increasingly smart money. So projects, green projects, infrastructure and both in the region as well as abroad. Capital, in short, very strong position. Quite well above all thresholds, regulatory and risk appetite. Risk appetite, [ EUR 15.75 million ]. We will close the year, well ahead of that. We are at EUR 17-plus million these days. And I think it was mentioned and it's clearly published, we are currently testing the market for potential Tier 2 issuance. We believe the rate environment is something we should take advantage of. We have 3 smaller issues outstanding. So anyway, this is either prefunding of consolidating these outstanding instruments is certainly adding to MREL, which is going to be a topic going forward, and also gives us a bit of dry powder at the M&A opportunities. By that, I think I will pass the word to Andreas on asset quality.

Yes. Archibald, thank you. My colleague said it already. Basically, good news, especially with such a not easy year. We have some EUR 15 billion on the loan side, but that's a little confusing because this EUR 4 billion, which you see state, that's primarily central banks. So you somehow would, I guess, have to deduct that one. And the growth is exactly going in the areas we want to, and then you heard it before, actually, so both retail mortgage and retail consumer, but also on the corporate side, focus on SME. That's what we want. So also here happy. And by geography, obviously, what happened is that Slovenia now is approximately half. And our other markets are half, which by far, increase, of course, logically, with the acquisition of Komercijalna Banka in Serbia. If you look on staging, we have a higher stage of -- a high percentage of stage on portfolio obviously. And actually see a negative surprises here. We have solid coverages, which we will see that also then on another slide in a different way. So here, I would say, a very stable, very solid, especially for such times. On the NPL ratios, I mean, we are further reducing NPL ratio and also actually absolute amount of NPL, a little bit less than EUR 400 million. The interesting thing is that EUR 170 million here, have 0 delays. So that's now already something like 40%. For different reasons. I mean, a lot of that is restructured clients, which are not yet cured in some -- well, special cases. But here, you see also the very solid trend and obviously, again in a little bit of a different view, the NPL coverage, which is very solid. Here on the right side, you see added also collateral values and the coverages with that. So this total coverage here, NPL cash and collateral coverage 141% actually, of course, also very solid. And if you go a little bit in the year. So in these first 3 quarters so far, on loan loss provisions only, so that's the dark blue, EUR 34 million release, it's minus 50 bps. That's wisely much better than we were hoping for. And as Blaz already said, given where we are, end of third quarter, we are planning to stay in the negative territory in this year; not exactly minus 50 bps, but still negative. And if you go a little more in detail, what you can see is that in this year, there was a, well, moderate release on the pool provisioning side. So that's basically changed expectations of the macro environment. This is approximately half what we built last year, is plus EUR 7.5 million. And then north were maybe especially still Stage 3. So provision charge. So cases which were primarily came into Stage 3 or deteriorated there even more. That's EUR 23 million. That's very moderate. But on the other side, what you see is repayment of written-off receivables if we were especially successful this year. That's for sure in that sense, extraordinary here with EUR 37 million. Not expecting that one to repeat next year. But here, obviously, we have the special effect that we have our KB announced Komercijalna Banka. And here, we had actually one big case, which is contributing to this. Then here in ], we had one case, where actually from a site topic, we collected quite some money, which was -- where the case was not anymore in our books. So overall, here exceptionally good contribution obviously from that side. And with that, for this year, I can just say pretty happy. I mean, we are constantly revising our outlook to lower cost of risk figures. Now we'll be already negative. That's again for that year. I'm really extremely happy. And what is also good, and you will see this then also in the midterm outlook, we are still expecting in the upcoming years here to have very solid figures. What will gradually normalize surprisedly is the regular items on cost of risk. But we still see some good inflow in the upcoming years from extraordinary items like, also still with Nova items. And in that sense, I think also from here, very solid future in the upcoming periods. With this, I would keep it for now from risk, and I'm handing back over actually to Archibald.

Thank you, Andreas. This is then quickly updating on KB integration. And of course, we'll be happy to answer the more detailed questions . We are following the planned milestone plan that is well online in the community, it's published, and we follow it the very same way. Governance on this is very tight. We really put a lot of emphasis in making sure to get this right. Crucial milestone is coming up. This weekend, we will cut over in Montenegro, becoming one bank legally speaking. Technically, this was, of course, a tedious exercise. But not just technically, also the HR dimension is something we -- was really a lot of attention. Ultimately, we merged 2 organizations, and we want to make sure we keep the best talents in all the markets we operate. So we really put a lot of attention into picking also -- then the right senior management for the combined organization and keeping the best of post worlds. And I think we are really making very solid progress both technical and HR dimension. Clearly for Montenegro, this is as of next week, a new reality. I think it's well prepared, and I don't expect any issues from the process. So as a Chairman in Montenegro, of course, I keep special attention on making sure we really get it right. Both in Serbia -- in Serbia, we are, in essence, mirroring the process with a longer period of time given the larger complexity, but the same process is, in essence, going on. And as in Montenegro, clearly, HR, technology, and most importantly, be there for our customers and get the business right. So here, clearly, there is a transition process, but we see very encouraging first results. Production volumes in retail are up significantly. And this with a reduced headcount actually in branches as we had the first voluntary leave program implemented and about close to 500 people already leaving. We have no further programs open. We are really putting a lot of emphasis in both getting the business equation right, but also the human equation. And this is post talent retention. But also, let's say, a socially acceptable way to reduce headcount when necessary. And I would claim we are on good track on all dimensions. And so we look forward to execute the leading merger in Serbia by end of April next year. This is still the milestone we follow. There is, of course, still a lot of pending discussions, including also with the regulator. But we really try to make sure to get this process done in time. And by that, we'll have a world-class operation in Serbia with a lot of potential ahead in a market that we really see is providing plenty of opportunities, both in corporate and retail. You know that we have signed an agreement to ]. I think that's a beneficial transaction. We've always said that we are open for tactical opportunities here. The [indiscernible] acquisition was clearly to increase presence in Serbia. So to this extent, we were happy to also have a transaction that is a win-win for both sides. So in this case, the acquirer is another state-owned bank in Serbia. And for Montenegro, we simply concluded at the end of some deliberations that the merger is the best way forward. On the merger process itself, both cost and synergies are something that clearly we are tracking very closely. So far, every, let's say, even early-stage deliberations are still valid, more or less. So post the restructuring charge is in line with what we anticipated. And of course, the synergy in other words, the cost equation, the target cost structure is pretty much aligned with where we want it to be. And by that, I would conclude KB process well underway, incredible effort. It's driven entirely by people in the organization. So this is not an outsourced exercise. So I would really also claim that collectively, we have with this process also built a quite credible capacity for further integrations should they come. And with that, I'll pass it back to Blaz.

Thank you, Archibald. On that note, in principle, we can touch the guidance clearly and further development. So we really feel very, very confident at this point of time. Now that we are only able to buy a meaningful business, but also meaningfully integrates the acquired business. We have improved this on the go with pretty well developing integration in 2 countries. And then, of course, the divestment that was not really making a lot of sense. So in this respect, this is building the track record, the experience that is extremely relevant for what's to come. And it is clearly that we have been gated -- it is clear, it has become evident that we are able to grow market shares consistently throughout all geographies. And we have been doing this in anchor segments, which is retail and housing loans. This is really hooking the client for 20, 30 years, cross-selling other products and so on. We have been clear pioneer, aim digitization of banking, universal financial services actually in Slovenia, and we want to replicate this consistently through other markets as well. We have been a finalist of Gartner assessment of European businesses when it comes to data universe. So we have a very consistent and pretty good idea of where we want to develop our data universe to really become a business that's data-driven, not data heavy only. And in this respect, this is positioning bank, obviously, in the society as someone that is really seriously promoting not only digitalization, but actually living it. On the other hand, the sustainability territory, that is, of course, in the forefront of practically every debate these days. NLB has been clear front-runner -- a clear front-runner of these efforts and endeavors in the entire region. And this is not going to, of course, shy away. We are simply adding energy and color to this as well. So we start with all the measurements, all the impact analysis practically still this year, we should be measuring Scope 1, Scope 2 and significant part of Scope 3. Reporting this, disclosing this in lending terms, clearly, out of coal for good, low coal even enhancement for good, right, seeking actively for energy efficiency improvement projects, renewable projects, developing retail products, corporate products, re-fostering the green transition. On the other hand, being a pillar and strongest promoter advocate of the other 2 pillars of the ESG, right? Which is inclusion, which is obviously the governance, especially the governance. We have been observing clearly some issues with the governance with state-owned businesses in the region. So we have been the proof that it is possible to govern the businesses that have materials ownership in a professional independent way and create value for our stakeholders. And then coming back to with what Archibald wrapped up. So we have the capacity to grow the business organically, but we are building and have already significant capacity to, of course, also consider eventual M&A opportunities. We cannot be concrete at this point of time since there is nothing yet concrete to disclose. But clearly, we have been analyzing eventual opportunities to buy portfolios or, of course, the entire businesses in the regional geographies without being specific. So there is significant more room for in-market consolidation. And there have been, of course, other players as well potentially interested in that and especially OTP has been moving in this space significantly in last year now with acquisition of the MK Group of Sberbank Group and so on. So this consolidation is, of course, just speaking in favor of economics of the industry gradually improving, getting more rational in terms of, of course, the market approach in terms of, of course, less inferiorly price, inferior campaigns because you are in distress. So we have had the privilege of actually operating with a critical mass in all our existing markets. In all our existing markets, we are practically talks to the business. We have been gaining market shares in segments in geographies. So this is a very good position to be in, yet we are not sleeping. So we are heavily investing in digital. We are heavily investing in data. We are heavily investing in sustainability. And as we speak, we have also been trying to understand eventual tech space, fintech space in the region, potentially partnering, of course, with these guys as well. Payment turf is something we have been heavily interested in. We just increased our participation in Bankart as a regional card processing platform. So we are now at 46% of the stake. There might be interest clearly to partner with other people in the region to really develop this into the regional hub and platform. And by that, not only create value for the banks, driving unit cost down, but of course, also for the clients, having reliable, predictable, real-time instant payment universe available at all times. And that's something that clearly is a very solid opportunity for us. And of course, we are looking at it. So we are currently, of course, analyzing the situation in the whole region. As I said, talking about products like leasing, talking about portfolios, like credit portfolios, talking about, of course, the banks, fintech businesses. And we are building the capacity, Archibald mentioned, the Tier 2 issuance as well on one side, consolidating on one, on the other side, providing the MREL. And the third component clearly is having the dry powder for acquisitions as well. So very, very good position to be in. And this always leading obviously to the guidance for the period to come. I'm really happy that we will be able to pay out now this residual amount to EUR [ 90 ] million this year. We have the capacity for a strong dividend payout in the coming years. But this dividend payout to be combined clearly with meaningful acquisition and organic growth as well, primarily organic. But if there were value-accretive opportunities, and here, we would absolutely retain absolute discipline. So maximum discipline only value accretion, that's the only criteria on. So we don't want to grow for the sake of growth. We want to grow meaningfully, and by that, of course, create more value for all our stakeholders. When it comes to concrete KPIs, I would not go into detail. We are sticking more or less to the guidance. Obviously, cost of risk for this year is going to turn out better than just recently, still guided for, '23 is the year where we believe actually for the kind of a normalization. So it seems that first half of '22 is still going to be -- these are all the COVID impacted on one side, but on the other side, we really see very strong performance. There are 0 delinquencies coming from retail, full employment practically in place, absolute search for talent, which means there would be no delinquencies coming from retail. We are closely monitoring corporate developments. So corporates don't show yet any weaknesses -- any signs of weaknesses. So repayment discipline is extremely high, practically impeccable. So we would see a very limited chance for NPL migrations next year. That's why, of course, there might be still pretty low cost of risk next year. '23, we see as the year of, let's say, normalization of the environment. And then when we're talking about cost of risk, it's in this ballpark than which is something close to what we have been normally talking about. But then we now see really high single-digit growth of growth -- of loan business, right? Of lending. We see very high demand for interior services, for asset management business, and that's really encouraging because these adding risk-free income, obviously, right? Dividend flow, we want to retain very strong, now would potentially be addressing this with key stakeholders if there were larger acquisition opportunities. But as I said, at this point of time, there is nothing like this on the table. So we'll stick to what we're talking about. And in terms of returns, right, of course, talking about normalized levels of core Tier 1, we would be -- we want to show more than 12%. And that's ahead of clearly in an IPO promise at that point of time, despite COVID, despite very solid dividend payout in the meantime and so on. So I'm really very confident. I'm really very happy about development so far, and I'm really excited about what's to come because I claim NLB is extremely well positioned to become real champion of the region, and we will not shy away from exploring and exploiting this opportunity. So this would be from our side. Any questions clearly that you might have then subsequently addressed to our Investor Relations team. Otherwise, now, of course, happily responding to any immediate reactions. Thank you very much for listening and looking forward to the Q&A session.

[Operator Instructions] Our first question today from the conference call comes from Jovan Sikimic from [ RBI ].

I would have 2, 3 questions. If we look at fee trends in Q3, it seems that it was down 2% versus previous quarter. So it's a bit of kind of underperforming versus some of peers. And also, if you look at KB level in those kind of visible decline quarter-to-quarter. Can you explain maybe what's the reason for that? And the second one would be if you can also explain this movement on other impairments quarter-to-quarter. Also, if you look at KB, there was weak, I think, booking in the second quarter, and then release in third. And I'm not sure that I fully understand whether it has to do with these legal cases or with something else? And then I have another one on capital that I can ask later.

core performance on fees is very robust and stable. There was a bit of a technical adjustment on accounting methods between KB as a new entity in the group and the rest of the group, that has led to a little bit of reallocation of the income. So that's not a loss really; it's a reallocation in the P&L. Underlying performance is pretty robust. So I take Q2, Q3 pretty flattish. But -- and so this kind of drop is kind of an optical effect. On provisioning in KB, I mean, the thing we got a little bit worried about previously was retail litigation. This has led to quite some provisioning as case is crept up. But we had a very positive and strongly supportive ruling at in Serbia that basically took this question more or less off the table. So in other words, as of September, we don't expect massive or any visible new dynamic from that space. So that was a bit, let's say, provision dynamic. And obviously, they run HR provisions for the restructuring process. So clearly, they booked, I think, in the range of 7 million HR provisions already. And there is more to come. And this is a straight or squarely in the restructuring bucket that we anyway have envisaged. And we are following it, tracking it and then also intend to disclose the progress made here. So as I indicated before, from today's point of view, we will book roughly 2/3 of restructuring charges that were envisaged. Cumulatively, if you remember, that was EUR 30 million on the level of Serbia and another EUR 3 million, EUR 4 million for Montenegro, and 2/3 of that roughly are going to be booked this year, the rest next year. And your question on capital?

Yes. On capital, you mentioned Tier 2 issue. I mean, if you look at your current position here, I think you have already more than 2% of risk-weighted assets. So what's about size are we talking about? And is it also linked to potential, let's say, portfolio or bank acquisitions in the region, as Blaz just mentioned. And also the one related to this, do you expect any change of -- for our maybe following the KP consolidation? And of course, the change of capital requirements.

Yes. Maybe the last one first. I mean, obviously, the spread pending final decision [Audio Gap] Can you hear me?

Now, yes.

Now it's better.

I didn't do anything. So on spread -- the short answer is we don't expect any bigger change. There will be little ups and downs, but cumulatively, we don't expect big changes. We'll publish that in as customary in the annual report. The short answer is no big changes expected. On Tier 2, I mean, the rationale is relatively simple. We have 3 very illiquid instruments outstanding . And anyway, we thought this is still a lower rate environment where we, in a way, reconsolidate this outstanding issue. Now the other dimension is MREL. We are in intense dialogue with SRB. And clearly, we have to get MREL funding in place. So since this is also a building block for MREL. And yes, third, we want to be ready if there is a tactical opportunity to also work on that. And in a way, be prepared for whatever may come. That's our slogan. So we thought this transaction at this point in time should we ultimately be willing to do it at prices offered is ticking many boxes. So I mean you can always argue whether you got it right, and this is the right moment, it's the right cost. We feel it's the right moment. It's better to be early than late on capital. And we just want to still gain from what currently still looks like a low rate environment, but you know that rates are going up and Tier 2s are the most sensitive to rate hikes.

And AT1 is not an option, right?

Well, AT1 would -- is an option. There is still a bit of a textile and that is not yet resolved on AT1 that makes it a bit more expensive. AT1 is an option, but I guess, even kind of more expensive. So in the preference, comes first.

[Operator Instructions] We have no questions on the conference call at the moment. So we'll move to the questions from the webcast. Our first question from the webcast comes from Mladen Dodig of Erste Group. Dear gentlemen, congratulations on positive developments. It seems that waiting music in this webcast gets more cheerful every quarter. It looks that KB is starting to contribute positively to loans and deposits ratio. Do you expect this to accelerate and at which pace? Could you tell us more about potential T2 issuance size, purpose may be . Are there any M&A moves on a near horizon? And finally, how is the developing? Thank you and all the best.

If I may jump in. So we expect from much more, and I mentioned this before. So we will be now focusing on successful integration. So we plan to actually fully merge until the end of April, and they don't have one business. And then I would really personally count on significantly more than 10% annual growth, right, of retail and corporate books. So pretty completely very significant growth. And this is simply, of course, the attractive margin environment. So KB should really start contributing meaningfully, and we have mentioned in previous appearances that we expect EUR 100 million net income from Serbia alone, pretty soon, in midterm. And the guys are committed to deliver that. And we are looking forward to it. When it comes to eventual acquisitions, as I mentioned, we cannot disclose anything concrete yet since there has been low concrete activity but we have been very closely analyzing the whole surf, the whole space in the region. And if there were concrete opportunities coming out of our way, clearly, we will not shy away from analyzing and eventually addressing . And next year might already show some developments this way, but there is nothing matured to the level that we could actually disclose. And in terms of capital, for it, clearly, we believe we can meaningfully acquire on top of organic growth. So I'm not sure I understood fully the question. But on one side, Tier 2 art mentioned all the components of Tier 2. It's consolidating the Tier 2 universe is adding clearly the MREL eligibility on the other side, and is, of course, providing incrementally as well capital boost. We have been obviously generating capital with better-than-expected running result. And we have triggered clearly also the sale of the fund business, which I'm sure you realized, and this would close somewhere next year. And of course, it's too early to judge on any P&L contribution of it, but it's for sure going to -- if we went through, it would definitely at capacity. So NLB has been operating with significant acquisition capacity also from capital end.

Thank you. So the next question on the webcast came from Vladan Pavlovic of IPOPEMA Securities. He has asked 3 questions. The first question is the bank will be very near 90% stake in KB after the merger with NLB Belgrade. Will you come out again with an offer for minorities and eventually do the squeeze out to KB? The second question is, where do you see the largest potential for growth in loans amongst regional countries where you have a presence? And the third question is, any opinion on dividend payment for Komercijalna from 2021 earnings as early dividend policy is terminated. What may be the payout ratio if you plan to pay it at all?

On KB, I mean, obviously, we can't comment on any -- whatever market transaction. If there were anything we'd have to publish it or the bank has to publish it. For the time being, we are focused on the merger and nothing else. On dividend policy of KB. I mean, clearly, at the moment, there is still no possibility for a dividend from the regulator. Should that be listed? Clearly, we would do what we do in all our subsidiaries, do -- we manage capital efficiently. And that would typically mean they pay a dividend from the recurring profit after the capital they need for operating in the market. and ultimately also get capital efficient. So we also like to see a good combination of Tier 1 and Tier 2. And we'll implement gradually all these measures over time in all our subsidiaries. So I can't disclose now tactically in between steps and timing elements because that will be premature.

The next question today comes from Sam Goodacre of JPMorgan, he asked 2 questions. The first question is, cost of risk net reversals for 2021. So does this imply further reversals in Q4? And the second question is, where are you on your ESG agenda? And what are the key pillars you are focusing on for 2022?

Well, coming to its ESG agenda. We have, by far, the most concrete road map from all the businesses in the region. I claim that confidently. And we are really heavy -- heavily moving forward. We have engaged a significant fleet of actually senior professionals who are dealing with this in terms of introducing the measurements, introducing the policies. We have just yesterday actually approved the Sustainability Committee chaired by myself. On the other hand, clearly, we have signed many, many protocols and be it UN principles for responsible banking, be obviously mega instruments, EBRDs commitments and so on. But more or less, we leave it. So we are actually not financing coal anymore. We don't have reduction targets. We are not financing it anymore. We are actively developing clearly the products that are stimulating energy efficiency and renewable production and so on. And I was mentioning, especially the inclusion and other elements of the societal support. So we have had actually a very successful campaign called Help Frame that where we actually have been promoting our clients, not us and , but our clients actually giving them the advertising space in all geographies across the region. And we are introducing all these practice university across the region. Maybe as a side note, we have been awarded the Advertiser of the Year actually in Slovenia as the first bank in history, competing with retailers and food producers and so on, right, because of our sustainability efforts. We have been also awarded for the marketing excellence for the comprehensive marketing just recently by the Slovenian Marketing Association exactly for sustainability efforts, both in terms of communication and measures introduced. Though we have been actually publicly recognized and acknowledged as the pioneer of sustainability, of course, we don't have yet ratings in place. But we, as I said, would start reporting Scope 1, Scope 2 and significant elements of Scope 3 still until the end of this year, and next year actually develop us further in terms of, of course, our own carbon footprint in a sense that we would really start accelerating our efforts to consolidate our head office footprint. They move it in from 6 buildings into 1.5, really talking about the car fleet. I don't plug inhibit that I'm consistently plugging actually to the plug, right? And I don't drive as a conscious personal decision, more than 120 kilometers per hour ever in my life anymore, right? So these are my decisions and that are green decisions. We will go for ratings as well, but the whole comprehensive program has had a very specific road map, and we are going to be disclosing it and reporting this more regularly periodically, that much maybe on sustainability. But Archi, you wanted to add for sure something else?

I think you addressed a cost of risk, Andreas.

Yes, exactly. Exactly. The other one was cost of risk. So yes, I mean, that's surprisedly true what you are saying or assuming. I mean we are saying that we will end around minus 20 bps for cost of risk this year. And that means, of course, that we will still see some cost of risk in quarter 4, it's actually not a different development than before. So you see overall moderate cost of risk, but we are not assuming currently for -- the last quarter is any bigger extraordinary items. Actually, there are 1, 2 topics, which we are still discussing which are pending, might still change the needle a bit, but most realistic expectation is, yes, we would see some positive -- some booking of cost of risk in the last quarter, and that's why we end up then around minus 20 bps. Generally speaking, what we are aspiring is from next year on. So starting with Q1 reporting next year, we will split cost of risk in how we show it to you in regular and extraordinary topics. We are still now fine-tuning the definition, and then we'll start rolling it out. And from next year and then trying to report that in that way to you because, of course, these extraordinary items mixed in the regular flow always triggering the same kind of questions, which are very natural that we are trying to improve here on the way how we show it to you also from next year on that it's a little bit easier to follow, but your assumptions are correct, yes.

Our next question is from . Are you thinking about starting on share repurchase program?

We discussed that a lot with our investors, and we still think a simple dividend is the most straightforward capital return instrument. We have a tens. So at the moment, we are not considering anything like that, except at some point, we -- well, -- but here, regulation has changed. So in the past, we had programs to fund our employee programs and management programs, remuneration -- variable remuneration programs, we had to install for compliance purposes as EPA regulations stipulate a certain amount of variable compensation to be paid in stock like instruments and here the local legislation has changed the line now also, stock mirror instruments. So in a way, at the moment, no repurchase program needed and also not intended.

And the last question today comes from Simon Nellis of Citibank. First question is what is the outlook for fee income at KB given that adjusted for the reallocation of OpEx to fee expenses, fees were down. Second question, can you please provide an update on legal risk in Serbia related to consumer loan fees?

So the fee outlook in KB, I can't be specific because we are not commenting specifically on subsidiaries. But in essence, I see it very positively. I mean, they have normalized a range of products in terms of fees. So far, they have been below market. Now they are on market with the fee structure, so that there should be a visible positive effect coming from that side. And in regarding consumer litigations, I've commented before that also with very strong or, I should say, from the regulator speaking out on behalf of what is lawful correct, the Supreme Court has come out with a ruling that basically confirms the position of the banks that as long as these have been -- consumer lending fees have been properly disclosed as effective interest rates , there is no dilemma in charging those fees. So I think by that, from our point of view, the legal system has worked as it should. Also with strong support from the regulator. And from our point of view, this is a matter of history books.

And we've had a final question come through from [ from Slovenia ]. Congrats on the good results. Can you speak a bit more on the data monetization and the fintech angle you're pursuing? Does that mean offering digital products in the countries without physical presence, for example?

I'm not sure I understood the question. Can you please just repeat it?

Of course. Congratulations on the good results. Can you speak a bit more on the data monetization and the fintech angle you're pursuing? Does that mean offering digital products in the countries without physical presence, for example?

Well, we still believe that there is value to take in our existing region but this doesn't exclude eventually, of course, offering services digitally only in the missing geographies, right? So -- but from the region. We have not yet thought of eventual opportunities beyond SEE and Western Balkans, frankly. But clearly, if we find ways to come to the platform that could reasonably go beyond that borders. Of course, we would not necessarily shy away from exploring such an opportunity. We have nothing like that in hand as we speak. But since we are working on platforms and ecosystem platforms and open banking, we just today launched a hackathon on open banking, right? And if there were ideas introduced where we believe that any BNPL and so on, schemes might be actually run by us or the co-sponsor by us and so on, they are my defense for us to actually do something like this, but there is nothing concrete to report on yet as of yet. I hope this response. But otherwise, we are closely monitoring the fintech universe in the region. We are observing the entrants. We are observing obviously the others that have been already developing some stuff and then putting it to launch. But as said, also talking about eventual partnerships, not only monetary. And we might, in the coming months or years, to report on potentially even acquisitions in this space, not only banking and portfolios. I understood this was the last question, yes?

Yes, this was the last question.

Then I would just wrap up by stating that combining the privatization proceeds, dividend payouts envision until the end of this year and the residual value of the Republic of Slovenia in our own participation, NLB has fully repaid stated from 2013. I think this deserves a reflection. Since -- from this moment on, we are creating new value to our stakeholders. And I hope everyone is appreciating that, and we're getting regional champion together. Thank you very much.

This concludes today's call. Thank you very much for joining us. You may now disconnect your line.