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

Welcome, and thank you for joining the NLB group conference call and live webcast to present and discuss the fourth quarter and full year 2023 key unaudited business results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Blaz Brodnjak, CEO; Mr. Andreas Burkhardt, CRO; and Mr. Archibald Kremser, CFO. Mr. Brodnjak, you may now proceed.

Thank you, and warm welcome, everyone. Let me draw your attention to the usual disclaimer and welcome you to our performance call, reflecting towards last year over last year in which actually NLB has demonstrated its strength, NLB Group has been feeling strongest ever in history and has been above all holding the responsible position to society. I really am very proud of that specifically, despite all the uncertainties and of course, climate-related phenomenons and other societal challenges NLB has been not only strong but has been sharing the strength and success with the stakeholders and the society. This is something that really we are specifically proud of and myself personally as well. So besides the monetary success and performance, of course, we can be really also following the agenda of sustainable development within the region. This is something that is -- has been in the forefront, of course, painted a bit with the situation in Europe and Middle East. It is very difficult to discuss sustainability matters when we are not in peace environment. But generally, of course, we do remain and gain our focus even more on the topics when it comes to, of course, environmental protection, when it comes to above all society related social matters and governance quality and in this respect, we have further improved our sustainability rating by Sustainalytics significantly. So we now rank among 13% most advanced banks in this territory. We have been, of course, further committing to the net zero banking alliance goals in a sense that by 2050, we would be, of course, carbon neutral. On the other hand, we have been continuing with business development activities successfully and firmly. So besides integrating, completing the integration of a bank in Slovenia. So N Banka has been fully integrated by the September 1 of last year. We have, at the same time, been continuing the growth path in M&A activities. And this goes for the leasing territory where we signed the SPA for the market-leading franchise in Slovenia with some operations also out of Slovenia, whereby also in the asset management ancillary services landscape by acquiring -- signing the SPA for acquisition of the asset management company in North Macedonia from Generali and by that, we simply demonstrate our commitment towards, of course, excellence in distribution of universal financial services throughout the region of our presence. We have been, of course, focusing on people still talent. This is something that will make the difference also in the future. So NLB has been continuously winning the certificate of top employer and has really been paying even more attention towards education, training, skills, experience and of course, also collegial relationships among the employees driving this business forward. And in this respect, I'm really specifically proud of our immediate reactions when the Slovenian economy and country were in distress last August when actually we've seen historical floods. So climate-related phenomenons have become a new constant. They are here to stay it seems, obviously, and NLB has immediately reacted very responsibly by immediate support to the municipalities, most effective municipalities towards the end of the year also to the budget with a specific fund for the reconstruction and of course, NLB will keep contributing also in the upcoming years, sharing our success not only through dividends but of course, also specific donations and sponsorships, while at the same time, also Archibald will explain in detail more in terms of tax payments directly, of course, routed towards recoveries after the climate related phenomenon. So in this respect, we are in the environment that is very, very uncertain. We've seen changes both in tax environment. We expect changes in the rate environment. But of course, what we claim is that our -- not only balance sheet as we claim being a fortress, but generally, our business model is very resilient. And in this respect, this is something we will continue in the future. And I will come back to this when I'll be talking about the outlook a bit later. And I'm passing the word now to Archibald to give you more details on performance.

Thanks, Blaz. To start with the macro environment has remained by and large stable and favorable for banks and banking environments in general also in our region and the stability that we have observed in the past is continuing to play out well. Also in our view on the future, we see more or less a so-called soft lending still as a baseline scenario. And of course, this is very favorable for bank environment in general and also for us. And in particular, our region continues to benefit from slightly above Eurozone growth levels of rate ballpark 100 to 200 bps. So this should also, of course, continue to drive loan growth as we expected. This year, mid-single digits and going up to higher single digits again. And of course, in that sense, an important earnings revenue and profit driver going forward. In terms of the financials, the full year results, of course, very, very solid. You've seen the key numbers. And of course, a big driver was net interest income. So we have always positioned this bank for this moment. Now we have seized on this moment. And of course, attention on our side is turning very much to stabilizing this result, with both reducing a little bit NII sensitivity and most importantly, continue to support and sponsor loan growth as the best protection actually for NII sensitivity and you'll hear later that we are making good progress also in enhancing duration on the asset side. So in other words, going more into fixed term lending and specifically also in retail. Last year, you will remember, was affected by negative goodwill from the N Banka acquisition. This year, of course, mostly dominated by the NII development. We have a bit of dynamic on the cost side in an inflationary environment, not very surprising. Fee environment was stable. So we had deliberately kept this also moderate in terms of repricing and of course, provision, Andreas will talk about that ultimately ending the year with negative cost of risk. So in that sense, a little bit above normal results, I would say, especially given all the negative cost of risks. But we remain very, very positive on the outlook into this year, and Blaz will talk about this later. So in terms of details, the quarter itself remains solid. You still see NII actually growing moderately, 5% quarter-on-quarter. So that's still encouraging is this the peak, I guess, we have more or less seen a peak in -- at least in the NIM space. And you see that the quarter was also driven a little bit by a quite substantial DTA revaluation next to quite usual seasonalities in provision and the cost dynamic. Otherwise, full year ROE at 21%. So I think that's really a stellar result, a stellar return and NIM stabilizing, yearly NIMs at around 3.5%, quarterly NIMs are higher. We'll talk about that cost/income ratio basically where we wanted to see them when we IPO-ed the bank. Now we are firmly in the below 50% territory, and we definitely look forward to remain in that space. You see the balance sheet has grown to almost EUR 26 billion. So that's also definitely a milestone deposit base, very, very robust, almost at EUR 21 billion. So we like to call it a fortress balance sheet. And I mean, given the environment, nevertheless, the positive outlook, we, of course, like to maintain in the safe zone on all dimensions with capital and liquidity, I think, for good reasons. On the NII, I've mentioned already the full year NIM at around 3.5%. You see the quarterly NIM slightly ticked up last quarter we talked about, we haven't probably quite peaked. You'll see that NIM has slightly edged up. And -- but we are definitely in a sweet spot environment given NII. Looking what drives this dynamic, one important driver, of course, is the -- apart from the rate environment, continued growth in the loan book. So that's, of course, the anchor, the pillar of our revenue growth and especially in our SEE banks, our subsidiary banking network we see in retail, very solid growth was in corporate and overall, as a group, we basically are pretty much where we expect it to be. So mid-single digit we guided, and that's where we landed. Importantly, deposit base remained stable, actually growing and of course, we had to accommodate a little bit in pricing. We've talked about that in Q3, Q4, we started to reprice a little bit, moderately by that actually build market share also in the term deposit space. And so by that, we continue to provide value-added products to our customers, offering fair returns also on basic cash products, we call it savings and term deposits and will continue to work, enhancing and improving access to these products in a convenient self-service way. Otherwise, as regards to NII sensitivity, of course, focus of everybody these days. We are pretty much where we've been and in that sense, even if we see a bit of normalization of interest rates, we very confidently believe we can maintain the revenues by growing the loan book organically. So we'll offset whatever tactical losses given to NII sensitivity with growing the loan book. And so in that sense, revenue is expected to stay stable and then growing also going into this year. I talked about noninterest income, so fees, very solid development, given the environment we operate in and some regulatory measures here and there. We mentioned them but overall, a very solid and positive development. We had a couple of one-offs, some of which we are deliberately of course, invested in society, as Blaz mentioned, in flood relief measures, quite substantial amounts actually EUR 9 million. In Slovenia directly contributed to state bodies and the state itself. And we had, of course, as was reported already a bit of a hit in regulatory sense in terms of the rate ceilings on the mortgage book in Serbia. You see the EUR 15 million modification loss. But as I already explained last time, we expect this amount to be written back, of course, as these loans grow. On the cost side, we naturally see a bit of inflationary pressures. So we are on our guidance as of Q3, slightly in excess of old guidance, EUR 10 million up. But here we simply have to face the reality of -- well, they need to continue to invest specifically in the technology space. We have a run rate spend CapEx, OpEx and [ Parex ] in IT of about EUR 100 million plus. So this is a substantial commitment of this group to keep innovating and remain relevant for our customers. So that's, of course, the name of the game in banking these days and importantly, crucially continue to invest in stabilizing and securing the perimeter, so that the increasing tax coming from cyber fraud, be it phishing, be it other malicious activities. We are very, very committed to keep this bank safe and stable in terms of operations. Otherwise, we continue to seize efficiencies in all markets. Of course, predominantly Slovenia and Serbia, to some extent, Serbia still the tails of the integration in Slovenia to some extent, the tails of the integration from N Banka. But generally speaking, the trend seems to be in banking to have a few employees better paid and in terms of cost evolution. This means moderate cost growth but investing in quality and value-added spend. The tax equation has become a bit more complicated. I mean, we had this year, a revaluation of the DTA. That's something we have explained over and again to our investor base. This is still the tail from our 2013 loss recognition has visibly increased our recognition. You remember that we recognized DTAs for a 5-year period going forward. And given higher earnings environment and the higher corporate income tax environment, of the new legislation that has been put in place in Slovenia, we had to simply revalue the DTA, and that has shown quite visibly in Q4. On the other side, we look forward to the new legislation as it has been affected in Slovenia. As I said, higher corporate income tax for a limited period and so-called balance sheet tax in amounts of 20 bps. We expect on a group level that our group effective, we call it, contribution rate will trend around 20% for the next 5 years or so before it falls back to 15%. This is a bit outlined here in more detail. So you see the tax equation both for Slovenia and the group. And importantly, we wanted to highlight that if you take just cash taxes, our tax rate in Slovenia is something like 11%. If you add contributions that we made voluntarily to Republic of Slovenian bodies, be it the Ministry of Finance directly or municipalities we are at 14%, what we call contribution rate, the same equivalent rate at group level at 14% as well. And as I said before, we expect the equation here to slightly shift up, especially ever since Slovenia, of course, with the balance sheet tax and then '29 onwards to come back to around 15% on group level. The capital is, of course, a key pillar of our strength remains to be so. We are very, very proud to maintain a very solid capital ratio, CET1 at 16.4%, 4.5% above Pillar 2 guidance level, and that means, in essence, 600-plus bps over and above MDA. So very, very solid. And this, of course, accommodates already for the dividend payment that we have envisaged from the result '23 to be made next year. And in that sense, I think we continue to both remain very strongly capitalized while generating enough returns to be an attractive dividend payer as well. Of course, we have maintained this also by continuing to work on our capital market funding side. So we have just recently issued subordinated bond very successfully with substantial oversubscription following our senior bond. And you see here the total funding stack basically delivering very solid MREL ratios far in excess of the regulatory demand. And of course, we will continue to remain recurring, issue on the capital markets. So in that sense, I think we have passed now several milestones on the benchmark issuance, both in the senior and unsecured space, following our AT1 bond last year. So we are very well established in the meantime and look forward to remain active in this space. We are in the foreseeable future, intend to issue another senior bond benchmark size again, and we are very grateful for the interest we are able to attract these days. I turn to Andreas on asset quality.

Yes. Archibald. Thank you. Well, the main message on asset quality on the risk side is there are no surprises. What you can see is that portfolios continue to grow. You heard it already before, with the exception, if you want, of corporates, but this is influence of corporates, bigger corporates. But this is influenced primarily, and you heard this in the previous quarters from relatively higher repayments in the energy sector. So we were providing in '22 additional liquidity. This came back. If you corrected for that, also this portfolio was growing. And what you can see is that simply our subsidiary markets outside Slovenia are growing a little bit faster than us. So in the meanwhile, a little bit more than 50% of the portfolio is actually outside Slovenia. The portfolio is very well diversified. If you see the deltas in the last year, it's actually, well, everywhere relatively modest. Of course, also here, you can see again the electricity part where we had a decline, as I mentioned already before, for the mentioned reason. But overall, very nicely diversified. And if you see staging, then you can see that we have a slight increase in Stage 2 in corporate and well, relatively solid increase in Stage 2 actually in retail. Retail is not unexpected. I'm telling you this since a year approximately, in a high inflation and higher interest rate environment that's obviously expected. On the other side, what you can see on Stage 3 is that we are still making progress not only in relative but also absolute terms. So Stage 3 is still declining for corporates and is actually stable in retail. Stable in retail means, of course, we have some inflows, but we are still successful in the same speed actually to resolve. That's why this stays absolutely flat. And of course, given our growing portfolio, relatively still slowly declining. Overall, end of last year, EUR 301 million NPLs, I think that's actually a very good figure. 1/3 of that has 0 delays. Very, very solid coverage ratios, still improving and the geographical dispersion, well, as expected. So also here, fully normal situation. And overall cost of risk, this was mentioned already today, minus 7 bps. So very well in line with what we were guiding for in the last quarter, also not very surprisingly, and I indicated that we had a certain charge of EUR 15 million. That's actually on our portfolio size, very, very moderate. In general, you see here a couple of effects. You see still very solid development on corporate. You see still off-balance repayments. On the other side, you see certain charges on the retail portfolio, very much expected and in line with what I said before. And overall, we were guiding at the end around 0 bps cost of risk, we had minus 7, so we lease. We still see a little bit of trend towards fixed interest rates. Actually, corporate is very, very stable and retail still trending towards fixed which obviously is helping our structure. One thing which we got repeatedly questions, that's why finally, we decided now also to have a slide for you is on commercial real estate. So what in our bank in reality is commercial real estate is retail shopping centers, office and congress centers and hotels. The overall figure here is obviously below EUR 500 million and is actually to the very big part in the operational phase in the first 2 categories, So retail and office and In congress, you have 0 defaults. In hotels, you have defaults below 5%, but this is coming from a very few cases, 2, 3 very old cases. So before we restarted. So that's from the very long ago period, still left. And then 2, 3 cases, which we currently put a default rate because they are highly leveraged. They're coming from the recently integrated bank from N Banka. But these are cases which are paying just there -- well, for our taste, for our standards a little bit too highly leveraged. This is less than 5% altogether of the hotel portfolio. So overall, a very moderate sum. You will see in the following quarters, we will keep tracking. So you will see this now quarterly, just also that you have a regular update. And overall, on top of the fact that the size is moderate, a very, very good portfolio quality with good indicators and minimum problems. So far, so good. Of course, commercial real estate also for us in these days is a higher attention point, but I have to say that in this region, these areas in which we are working, they're still performing very, very well, and actually relatively few clouds on the horizon. So we are not really expecting this to change. With this, I conclude for now from my part. Thank you, and I'm handing back over to Blaz.

Thank you both. So the main message is that, of course, we have performed better than we planned, obviously in environment and actually following 10 years of hard work in structuring the business model in a way that it's really resilient and potent in a sense that, of course, we can generate growth in a growing environment. So the last information on real growth of Slovenian economy is 1.6%. Regional economies have been growing in the ballpark of 2% to 3%. So this is a growing region, right? Significantly swift growing region than the heart of Europe in this respect. So in this respect, of course, this is something that we believe is an attractive region to play in and on top of, of course, other elements driving the success. We are, of course, sharing the success and the biggest -- the most important message is, of course, that we are significantly beefing up the dividend. So the so for guidance on the dividend uptick, which was so far communicated in form of EUR 290 million in '24 and '25 combined is now, of course, much more attractive for shareholders as we are suggesting, as we are intending to suggest this year, again, in 2 AGMs cumulative payout of EUR 220 million, which is a 100% increase versus just compare it to last year and is, of course, 40% of the profits generated in 2023. Furthermore, we, now almost at the end of February, feel confident enough to simply guide for this year that this performance is going to be continued in a sense that, of course, we believe that we will be able to generate sufficient level of revenue at contained cost evolution at, of course, retained asset quality and growth at mid-single-digit levels, that we will be able to distribute also next year, 40% of -- at least 40% of this year's profit. This is, of course, a significant step-up in sharing, of course, of capital and success with stakeholders whereby we have been still very, very responsible when it comes to the matters in the society. I was mentioning before, on one side, classical CSR, but then we are one of the most important supporters of, obviously, also the regional culture, of regional sports, of regional humanitarian and health-associated institutions, bodies and projects. And in this respect, we really do share our success with the society as well. This is here to stay. So this step-up in the dividend payout, does not impair our ability to grow the business. So we are able to grow the business in the upcoming midterm period at high mid-single-digit rates organically. And we are retaining further M&A capacity at the level of up to EUR 4 billion of risk-weighted assets. So this is a strong signal to all of the stakeholders that, of course, NLB will remain equally potent while sharing significantly higher part of our results on the go also with the stakeholders. I firmly believe that this is, of course, a significant addition to the value proposition not only to the shareholders, but also to our clients, our talents and the whole region where we play. We believe that in the midterm period, we can expand this. And by that, I'm cordially inviting all of you to the upcoming Investor Day, which will take place this time in Ljubljana where we actually are headquartered on the 9th of May. And on that occasion, we plan to actually disclose the new midterm strategy, up to the end of 2030, in which we are going to address this midterm opportunities. So where do we believe are the key revenue pools to deploy our capital to and allocate our capital to in order to, of course, accrete more value to you and, of course, to sustainably grow the business, and by that being able to -- be able, obviously, to become even stronger pillar of the regional society potentially entering also some additional regional geographies, of course, expanding our business in ancillary universe and simply being an ever-improving bank when it comes to client experience from traditional banking services in the region. I would wrap it up here. We are stronger than ever. We are more responsible than ever. We feel confident more than ever and we believe we are worth of your trust, and we thank you very much for closing the market today at historical high. And by that, I move to the questions -- to your questions to which we will gladly respond.

[Operator Instructions] The first question is from the line of Sikimic Jovan with Raiffeisen Bank International.

Congrats actually for lifting the dividend, so it was very good. I would have a couple of questions. I mean, first of all, on 2025 guidance, it seems that there was a bit of upgrade, I think whether from revenue side, can you just tell us maybe roughly what's the rate assumption behind, particularly on the Eurozone side and also whether this Summit Leasing unit has been somehow incorporated into the guidance?

So Summit, yes, of course, we assume we will close this. So we are quite confident and the rate environment, basically, we always work on the forward, so market implied rate. So that's something in the ballpark of 2.5%. And I mentioned the rate sensitivities. Just bear in mind, they are mechanical rate sensitivity. So in essence, assume [indiscernible] and of course, we will continue to grow the business and by that, the revenue base or on the rate side. So the realized rate sensitivity is, of course, much lower than that. Which is why you see us confidently increasing with the revenue guidance as well.

You see a gradual shift towards retail. So you see growth of retail book that is a bit quicker than the corporate book, and you see structural shift within the retail book towards fixed. So this we see as a natural hedge. And in this respect, besides, of course, the structural change, we have also growth of volume by which we, of course, also address the revenue boost. So we do believe we can grow revenues in the upcoming years within what we guide for '25 and beyond.

I mean Importantly deposit betas have remained very resilient. You've noticed that we stick around below 10% range. Also we offer, I think, attractive products. We've seen moderate pickup. And of course, when rates come down, will also consider repricing some of these products as well. So there are some counterbalancing effects.

On the technology you mentioned, I mean, it is less than 10% on the group level. Is there any big differences among countries, I mean, Slovenia trend is lowest, right?

I'd say, broadly speaking, it's quite comparable, of course, you have some markets a bit more under pressure when market shares are a bit lower then clearly, the equation is a bit more sensitive. But broadly speaking, it's give or take in that ballpark.

Okay. And maybe one technical on the margin performance in Q4. I mean, definitely, there's little bit of slowdown, still, of course, appreciating. But compared to Q3, separately, it seems that the upside in Q4 came mainly from Slovenia compared to the, let's say, SEE network. Was there any special reason for this?

No, I think we are, in essence, I mean, Slovenia is always a key pillar of the whole group and of course, in Slovenia, in particular, I think we are very successfully continuing to originate retail loans in particular. And of course, we originate them at a bit higher levels these days. So -- but I wouldn't now see any particular thing I should highlight. We, of course, engaged a bit in hedging in Slovenia, but nothing I would mention here as outstanding. We just do -- continue to do our business, and of course, are very focused these days in stabilizing NIIs.

And we should not neglect the fact that Slovenia, obviously, is a euro country, right? So we have other countries that are not directly necessarily euro countries, and you've seen such a rate environment in Slovenia before. And now a new rate environment with the last hike actually in the Q4. So by that natural structure, more or less and $16 billion out of $26 billion in Slovenia, you would see it naturally.

Yes. And maybe last one from my side on Komercijalna, do you dare to predict or to guide for net or pretax profit 2025 roughly, or it's too early for that?

Well, we refrain now from guiding for specific in the subsidiary because we simply now see Komercijalna is well integrated business that has been performing north of what we guided for when we acquired and then integrated. So there is no specific need to highlight this specific guidance, but we, of course, expect growing trend in terms of profitability. And we are very happy with the performance the bank is growing market shares at double speed or than the other players in terms of new origination and in this respect, we are very happy with both retail and corporate evolution. So this is what we can say at this point. And of course, Komercijalna should become one of the key pillars of this group also in the future.

I think you'll hear a little bit more at the Investor Day on geographic ambitions. This is where we probably will get a bit more specific.

We will now move to our webcast questions. The first webcast question comes from [ Anton ] from [ Alliant ]. Congratulations on great results. Does the increase in dividends in 2024 mean that there are fewer M&A opportunities in the region than you hoped for? Would you be willing to pay a premium over the book value if some opportunities appear for bank acquisitions?

Well, that's an interesting question. With so robust performance in '23. We actually generated sufficient buffers also upon paying this dividend uptick. So we are guiding -- we are able to still assume acquisition with -- in the ballpark of EUR 4 billion of risk-weighted assets. And there are not many, right, potential actionable targets of this size in the region. So if there was one, this is actually the size of the leading bank in Serbia. This is the size of a sizable bank in Croatia, for example, if we were allowed at a certain point to enter this market as well. So we believe we are keeping sufficient buffers for eventually actionable opportunities. And on the Investor Day, we hope we will be able to come in front of you with something that is more concrete than that. So we believe we are introducing here a balancing act, sharing more value with shareholders, but keeping sufficient buffers for eventual midsized acquisitions, which is what we believe we can absorb meaningfully in the, let's say, midterm period. So we believe this is actually a very balancing value accretive way of thinking in a sense of sharing immediately our result with still keeping sufficient buffers for growth.

And then the discipline will remain in place. You have seen us being disciplined, you will remain to see us being disciplined.

Yes. In terms of valuations, this is simply the axiom of how we perform business. So value accretion is the only clear criteria here. We will not acquire anything for the sheer or purpose of growing the size or whatever. We will be engaged at -- we will have to accrete value as well.

The next question is from the line of Gadhia Ronak, who's a private investor.

And congratulations for the results. Just a couple of quick questions. Maybe on the growth side, are you still guiding towards mid-single-digit growth? Any downside risks to that given that the German economy seems pretty weak. And as we know, Germany is a big driver of growth in Slovenia and across the region. And second one was maybe if you could provide an update on what the potential M&A looks like in Croatia?

Well, when it comes to the growth, it's a bit of a mixed bag. We've seen Serbia growing. We've seen the regional economy is still growing, right? It's 1.5% to 3%. And which means that we are looking at the full employment basically, real talent shortage, which means households are in very good shape and healthy. And we've seen still household that GDP that is in low 20s. And in this respect, obviously, there is still a lot of room for growth and we see, especially in retail, a very sound evolution, let's say, also in Slovenia, 5%, but in the country, still high single digit, 8% to 10% and this is actually driving the mid-single digit because on the other hand, when it comes, of course, to corporates, we see a quite prudent way of thinking still by the CFOs and CEOs in the region. Because of this uncertainty, mainly coming from the German economy, they somehow delay certain investments, right? And in this respect, there is a bit lower demand for corporate loans in Slovenia versus still pretty solid one with 6% growth proven in the country. So in this respect, that's why we are basing this, let's say, steady state when it comes to retail, high single digit and corporate then lower -- rather lower single-digit combined in aggregate terms, leading to the mid-single digit. We would hope for stabilization finally, right, in 2025 and then normalization, which would mean a return of some positive sentiment and then, of course, also more corporate demand than driving the total growth to, let's say, high single-digit levels. This is how we look at it from this point of view. And remind me what was the second question? Croatia. Croatia we've obviously signed SPA. The SPA for the acquisition of the Summit Leasing with, of course, 100% participation in Croatia. We have filed, of course, applications to regulatory bodies, and we are waiting the response. We believe that this will be cleared and this would then, of course, potentially signal further steps in Croatia. We cannot be more concrete than that at this point of time.

Okay. With that acquisition, do you think it opens up opportunities for bigger acquisitions in the country?

We would hope so, but of course, it's not certain.

And just a follow-up on the Summit Leasing acquisition. Just remind us of what the time lines are and what the synergy benefits from the acquisition would be?

Timelines are, let's say, mid of this year. We, of course, conservatively communicate latest end of this year, so we would want to close with all the regulatory approvals before the year-end. We are aiming at more or less mid of the year, we hope it's feasible. When it comes to synergies, Archi, maybe you can assist here.

Well, typically, we assume a certain share of cost base. We are still doing the numbers here, but in essence, it's -- it was not a synergy case. In essence, it was a strategic ambition to grow leasing in the first place in Slovenia and also prevent competitors stepping in. But synergies will be in the single million euro digit annually, so.

When it comes to, obviously, cost synergies. But when it comes to, of course, commercial boost, this means acquiring the market-leading leasing business. And if you look at the look-through funding equation, funding synergies are of course, extremely important because you boost the growth of business at higher margins than regular lending products, and you fund it from your own base, which is here, which is -- so in this respect, this is really incrementally bringing a lot of value accretion.

The next question comes from the line of Goodacre Samuel with JPMorgan.

A couple of questions. One for you, Archi, perhaps you could clarify what appears to have been a trading loss in the fourth quarter, which I believe predominantly came from the foreign strategic markets. Could you give a bit of color around that? And then on the dividend, I think we're obviously awaiting a bit of an update on the future trajectory of dividends at your Capital Markets Day in May. But already today, you moving away from kind of targeting an absolute amount, given that you've been focusing more on the payout ratio. So what might we expect from a dividend policy going forward? Just in terms of how we can think about how you are deciding how to allocate capital, whether it be in those nominal amounts or in payout terms.

So not quite sure what you referred to as trading loss. We had the only significant event that I'm aware of is the modification loss we had in Serbia. Maybe you're alluding to that. So that is the effect of the regulation coming to play for ceiling fixed rate mortgage share loans, and we had to account for that in our existing book. With regards to dividend policies. I mean, Blaz, I think, more or less outlined our thinking around this. So in essence, it says higher than 40 and it's still very clearly underlines ambitions to grow the business. So we will have to maintain a balanced equation between payout and invest. And I think you also can see or hear between the lines that we want to maintain robustly capitalized. It is, after all, uncertain days. So in that sense, see us 100, 200 bps above, let's say, management risk appetite, it's called, but really, it's a risk appetite view. In other words, a lower limit and I'd rather see us 100, 200 bps above that. But details are really for the Capital Markets Day to be shared.

But you can somehow try to understand it from EUR 1.2 billion, let's say, around, right, revenue ambition level and then cost of income ratio and cost of below 50% and cost of risk. And then at least 40%. So we can't be more concrete than that. But of course, we would want to keep from today's perspective, somehow these dynamics also in the years to come. . But to be still verified by the strategic strategizing process and communicating in May. But we believe we are bringing good news here. We now, of course, move from absolute amounts from this 5-year period to dividend payout ratios, which was somehow signaled by various investors as something they would now prefer after this period of last couple of years. So this is not what we tried to do in a way that is stimulative and motivating. And we say consciously at least 40%. So if there were no reasonable opportunities in the upcoming period when it comes to the M&A, of course, in a single year, this might be significantly more. This is really depending on our ability to identify and then act upon concrete assets in the region.

The next question comes from the line of Dodig Mladen with Erste Group.

And of course, I joined the commercial relations from all the colleagues on the results. Well, my question was on dividends, but you explained it for a couple of times already. So correct me if I'm wrong. So conclusion on this EUR 500 million is now kind of in the -- off the table, and we are now talking about -- what I wanted actually to ask. So for example, for this year, this was staying unchanged, we could have expected, let's say, EUR 130 million and next year EUR 160 million in order to arrive to those EUR 290 million, but that's now out of discussion, right?

You will have about EUR 430 million already paid this year, so EUR 70 million next year, and we want to pay much more than EUR 70 million next year. So we refrain from EUR 500 million.

Of course. So let's say in some case, this EUR 130 million becomes EUR 220 million. Correct me, maybe I didn't saw in the presentation, I think I haven't seen the update on your average value of purely borrowing portfolio at the end of third quarter, it was 3.45. Do you happen to have information with you for the end of the year?

I think we don't disclose it, but if you kindly address IR, they'd be happy to give you the exact number.

Okay. Okay. And one more question regarding politics. Do you expect any, let's call them, change developments in Serbia, maybe repeated elections. Okay, of course, this could be a long discussion. But just maybe I wanted to hear your sense on the sales situation right now.

Well, we don't, of course, speak out publicly about political relations in the countries. We believe that Serbia is, of course, a country with significant growth with clear focus on development of the economy and buildup of the infrastructure. There's been, of course, this constant question about the relations when it comes to our operations in the 2 markets, right? We run 2 banks, 1 in Belgrade and 1 in Prishtina. We've closed at the end of January, all of the branches of NLB Komercijalna Banka in Northern territory of Kosovo and by that, in principle, there is no ambiguity in this respect anymore. So the bank in Prishtina is focusing on the territorial area. And on one side, and Belgrade Bank NLB Komercijalna is focusing obviously on the other territory. And in this respect, we have a clean cut. We believe that anyhow, the only reasonable future of the whole Western Balkans 6 is within the European Union. And we, again, probably know speak publicly that the European Commission better come to senses as soon as possible and integrates western Balkans fully into the European Union, but that's all we as a systemic institution can say about that. This will stabilize finally, the whole region.

Yes, yes, of course, I fully agree with you. Yes, it was something that I also wanted to kind of align in my thoughts that this whole region is going to the right direction, especially with the lease billions of euros being ready for the region through our various growth plans and similar stuff coming from EU. Yes, I guess that will be all from my side. And thank you very much, and I hope to see you in Ljubljana.

Thank you, Mladen. You're cordially invited as everyone else. Thank you.

We'll now move back to our webcast questions. The next webcast question comes from [ Miguel ] from WOOD. Can you please provide more color on the DTAs recognized? What is the remaining balance? And until when do you need to recognize the remaining DTA balance.

So I alluded to this a little bit, and we try to be quite explicit this time in our presentation. So you see that, in essence, all of the not recognized and recognized DTAs will be used over the period up until end of '28, upon which we are back to normal. And so in that sense, I explained, we'll see given the balance sheet tax in Slovenia, slightly above 15% in the 18% range group, let's call it, contribution rate because technically, the balance sheet tax is not accounted by the corporate income tax. It's expensed actually. But to be transparent, we have now established this contribution rate. And so both these balance sheet tax and the DTA more or less expire throughout the period until end of '28, upon which we arrived at the steady state scenario with some 15% around about group tax rate. And in terms of recognition policy, we recognize, in essence, 5-year earnings projection utilization in the balance sheet. On a conservative basis, I should emphasize, so not in full. But on a, let's say, conservative estimate of earnings outlook, this part is recognized in the balance sheet.

The next question is a follow-up question from Miguel from WOOD. Does the increase in dividend payout ratio to 40% and EUR 22 million already account for the excess capital distribution, you alluded to in previous calls? Or could we expect further dividend distribution in 2024?

Well, for 2024, from today's perspective, we have no intention to suggest more to the AGM because we believe that, as Archibald said before, in this uncertain environment generally, it is a good thing to have a bit more capital buffer, at least temporarily. On the other hand, we believe there might be actionable assets within the upcoming 12 months. And in this respect, of course, we want to keep sufficient capital reserve to be able to act upon such eventually actionable assets these arose as an opportunity. So in 2022, from today's perspective, we have no intention to suggest something like that, the strategizing process has been still pending. So I would not now preclude or prejudge on what will be the outcome, but we will then communicate on the 9th of May a bit more midterm perspective from this end. What is there that we believe is distributable. And reasonable to suggest to the AGM and what we believe is actually on one side of strategic reserve or on the other already addressing concrete opportunities that might arise until then already or soon after. This is all I can say at this point. But it's a 100% uptick from last year.

Next question is again a follow-up question from Miguel from WOOD. You previously guided 0 bps cost of risk in 2023, but booked provisions that imply 10 bps for full year '23. I was just curious as to why you decided to book more provisions than maybe previously anticipated in third quarter of 2023. Also, what is included in other impairment and provisions?

No, I think we are mixing here 2 topics. One thing is cost of risk. So here we are talking about impairments for loan loss provisions, right? And the figure for end of the year is 7 bps negative. So we are releasing cost of risk. Of course, there are also other provisions. So non-loan loss provisions here in 2023. In general, we saw some charges on the legal side. Primarily topics like, for example, let's see for here in Slovenia, and HR provision, exactly, these kind of things. So -- but these are not-loan loss provisions and, of course, not calculated in the cost of risk.

Next question is a follow-up question from Miguel from WOOD. Can we still expect further a NIM expansion in first quarter '24? What is the current share of term deposits and average cost?

So term deposits, I think, have been shown a share of deposit base. So we talk something in the territory of 10%, at the group level, and the payout on a term in Slovenia is, in essence, 2.5 for an excess of 12 months to give you an idea. And of course, we will review and revisit these pricing assumptions as we go along and as market price dynamics develop.

Yes, when it comes to NIMs, obviously, crystal ball, right? So it's really the function of whether and when and to what extent ECB starts moving. Until then, it is clear that not necessarily everything has already been repriced when it comes from the last hike because you have some 6 months, 12 months drivers and so on. There must still be something coming in. On the other hand, there is a slow shift towards term deposits where we pay a bit more. You saw, of course, the average funding cost is moving up slightly. But we believe that we have seen the peak in the, let's say, mid of quarter 4. And but at the end, the whole quarter was still growing in terms of NIM. So let's see. But it's really a function of how decisively and when ECB will start moving down with that rates. And it's an assumption everyone can have.

The next question webcast comes from Anton from Alliant. What is the expected contribution of leasing and asset management segments to group profit in 2024?

So leasing is still -- if we exclude Summit, leasing is still a bit of a start-up business in Slovenia. So we're just rebuilding this book. So we talk total book size, something in the ballpark of EUR 300 million. So I mean, margins here are like 2%, 3%. So it's a fairly straightforward calculation. So it's not very material these days. Of course, with Summit, and that's why we explained before. This was not a synergy case. This was us accelerating growing in this attractive business. And here, we then talk about 1 billion-plus altogether. So that, of course, will become material. So we then certainly count on revenues in the ballpark of EUR 30 million, give or take. So this is material for us. And of course, importantly, it's underpinning our strategy to provide not just the core banking services, but complement our distribution capacity with as many products as possible. So yes, asset management, these days is a EUR 20 million revenue, give or take pool. And again, here, we expect more to come and we just announced that we acquired a business in Macedonia, North Macedonia, we continue to operate with a subsidiary of former Komercijalna Banka, so we see here the glass half full and are very ambitious in order to setting us up organizationally to fully, let's say, chased this revenue and profit pools. But again, I would ask for a bit of patience. I think more likely, we will certainly shed on this in the upcoming Investor Day. But for sure, that's a big theme there as well.

The next question comes from the line of Brzoza Robert with PKO BP Securities.

I have 2 questions, one on the potential impact of Basel IV introduction. And second, on your expectations regarding the further 2024 level of NPL recoveries, whether you would see them at a similar level to '23 or significantly below that level?

I apologize. I didn't understand the first question. What was the first question?

The impact of Basel IV introduction on your capital position, risk-weighted assets, et cetera.

So the first one, easy, moderate, if anything at all, because we are still a standard-based approach. And regarding NPL recovery, I want to pass on to Blaz.

Yes. So on NPLs you saw end of last year, we are at EUR 300 million NPLs. I would say this is approximately the bottom where you can get to. I mean we are still growing, we continue to grow. So if we just absolutely stay in this range, I think, we can say this is very, very successful. What you saw in 2023 is a certain inflow. In retail, we were able actually in the same speed to -- we solve also NPLs, you saw on the corporate side, still some good success. So overall, we again decreased a little bit in an absolute numbers in '23. I would say, at one point of time, given also the area in which we are working as a group, there's a bottom to that. So I would not expect much more decreasing absolute numbers. We might still if we are lucky, see slightly decreasing relative numbers. As you saw on the cost of risk guidance for 2024, we are expecting moderately positive cost of risk, so 20 to 40 bps you have to see that, of course, if you see any of our midsized tickets, 1, 2 tickets can make a solid difference. I mean if you calculate so sharply around 0, you might have also one day a negative surprise. I have to say, I don't see these surprises coming for the time being. So what we can see for now, I'm very confident that we will stay within the predicted cost of risk and that we will stay relatively flattish on the absolute NPL level in terms of millions of euro. But of course, as the colleagues also before mentioned, it's a vivid environment. It's not even a piece in Europe. So I mean, it's always possible that you see 1 or 2 cases outside the range what we are expecting. But do we see this for now? Do I expect it for 2024? No. So we are very confident and optimistic to stay within the forecasted range.

Next question comes from our webcast participant Anton from Alliant. Do you think Slovenian government retail bonds will affect your level of deposits in Slovenia?

First of all, we want to congratulate the government for deciding actually to go this way because this is a very important milestone. We firmly believe in developing Slovenian capital market. We are, at the same time, happy that NLB was one of the main, of course, distribution channels. And I believe that the outcome of this issue was ideal, so like it's oversubscription because we would play the scenario where not everyone will get everything that was asked for, so in this respect, I think this was just a perfect outcome. It's EUR 250 million and EUR 27 billion deposit portfolio. So it is by no means deteriorating the bank's structure, the balance sheet of the banks I need to respect, it's something we welcome. Our LTDs are at 66%. We have solid growth of deposits still, right? So we believe this is simply a way to develop the market further. And the rest is in the hands of the Slovenian government. So we have by no means being impaired by that. Furthermore, I believe that this is following the more or less main goal of literacy of development of capital markets of balanced distribution of assets of Slovenian households, private individuals and businesses and it's going to benefit us as a universal distributor of financial services in long term in any way. So, so far, so good. I think this was actually a perfectly done transaction.

Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Blaz Brodnjak for any closing comments. Thank you.

I think it was an exhausting feature here. So thank you very much for being with us for your continuous trust and I'm really celebrating today because we have seen the historical high of the stock. This is more than doubling since the IPO in 5 years. This is really bringing the dividend promise of at today's price, still more than 10% dividend yield. And this is leaving still room for further organic and M&A-driven growth. And we believe there is much more to come and we believe it's worthwhile extending this for us also in the future. Thank you very much.

Ladies and gentlemen, the conference has now concluded. And you may disconnect your telephone. Thank you for calling, and have a good afternoon.