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

Ladies and gentlemen, thank you for standing by. I am Mina, your Chorus Call operator. Welcome, and thank you for joining the NLB Group Conference Call and Live Webcast to present and discuss the Fourth Quarter and Full Year 2024 Unaudited Financial 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. Archibald Kremser, CFO; Mr. Andreas Burkhardt, CRO. Mr. Brodnjak, you may now proceed.

Thank you very much, and good afternoon. Welcome, everyone, to our regular performance call. This time reflecting on '24. Let me draw your attention first to the standard disclaimer and then dig directly into what we claim is another very strong year. We have seen significant growth, which is supporting our strategy we communicated last year. It is based on growth. And of course, in the interest rate declining environment, this is essential to offset the otherwise negative effect. We are growing in all dimensions in retail and corporate business and across all geographies, which is specifically encouraging. We grow both sides of the balance sheet. Of course, we are focusing on loan growth, especially since we have a very strong loan-to-deposit ratio across the board. It's a very strongly self-financed franchise all over the place. And if we refer then to the net operating income, we have seen a stabilized situation quarter-on-quarter, but still growth, of course, year-on-year. We have been containing efficiency levels at what we have been guiding for more or less around 45%, and what is specifically relevant to mention, if you normalize the result for nonrecurring items, obviously, actually, we have been improving the result further. So the pre-provision profit has grown by EUR 50 million, that's almost 10% and profit before tax by approximately EUR 30 million. So if we take into consideration the DTA that was booked last year, the revaluation of the DTA and this year is, of course, new impact of the so-called balance sheet tax that was introduced by the Republic of Slovenia, the performance has actually been further improving continuously. And this is the most important message, of course, also for all of you. We have seen finally a kind of a normalization of the cost of risk. We've been talking about this eventually to crystallize for almost a decade. Andreas was always signaling it might come at a certain point. But so far, we have been benefiting from still significant write-backs from the past. Now we see on one side, normalization, so less write-backs coming from the legacy portfolios on one side. On the other side, yes, indeed, general macro situation in Europe has caused in specific industries, certain, of course, challenges. We are talking about steel processing, steel production and steel trade and automotive specifically, Andreas will give you a bit more flash on that. So we have seen some cost of risk since some first restructuring cases initiated in last quarter of last year, then leading towards this 14 basis points of cost of risk. All indicators and KPIs I'm talking about are well within the guidance we have been providing throughout the entire year. So it should not come as a major surprise. The ROE, if you look at the normalized level, it is still very, very solid. Once again, I would reiterate, we have to look at the recurring performance and strong performance pre-provision and also before tax. And on the other hand, with various measures, the entire set of measures, we have been keeping margin very, very stable, which is, of course, in the interest rate declining environment, the gist of whatever you can do. So on one side, yes, focusing on new production, which was predominantly with fixed rates. It was, of course, acquiring leasing business and shifting part of our liquidity reserves from the ECB balances to client business. On the other side, of course, managing rates on liability side, hedging portfolios, reshifting some liquidity reserves also to the longer tenors. Archibald will give you more flash there. And above all, reducing the interest rate sensitivity significantly, which is now, of course, providing for more stable and more predictable development in the upcoming 1.5 years or 2. We have been on the way, creating a lot of value for you, dear shareholders. We have paid out the dividend of EUR 220 million. And this year's result is actually enabling us to think of being even more ambitious in this respect. So at the end, when I'll be talking about the outlook, I will be also, of course, addressing this in terms of the value proposition to you. We have been looking at valuations that we believe are still pretty rational. If we look at the price to earnings, if we look at the dividend payout, payout ratio and so on. I'm specifically happy that our performance is based on, I would say, revival of development and revival of the client experience positioning of NLB, specifically in domestic domicile market of Slovenia. So we have regained a leading position with our mobile apps, web application, web portal among all Slovenian banks, which is just the beginning of the journey. And I will be talking about this later while addressing again the strategy and strategic outlook towards 2030. You do see an uptick in costs, which is, on one side, of course, one-off and nonrecurring based. And of course, this can be explained later on. On the other hand, there is some growth of cost, which I would, of course, associate with unavoidable wage inflation in our region where we operate. You would see double digits and above legislatively imposed minimum wage increases, average wages, of course, growing. But on the other side, specifically coming from our conscious investment into the strategy. So we have really been investing in the reprofiling of the talent pool. So these leading positions in our channels are by no means coincidence. We have been consciously investing and we will keep investing for a year or so or 2 so that we really are aiming towards this final target operating model transition to actually originate more than 80% of our new production digitally and client in 2030. By that, I would pass the word to Archibald to guide you through more details of financials and capital position. Andreas will then talk about asset quality. Thank you.

Thank you, Blaz. Welcome, everyone, from my side. It's a pleasure to guide you a little bit more detail through the results. As usual, we start with macro. And also the region, as you follow yourself, is here and there a bit noisy. Broadly speaking, we talk about a fairly stable environment. And we talked last time about the positive news from Serbia with the rating upgrade, BBB. We have now 2 markets in A, respectively, BBB category. And of course, these 2 markets cover by far most of our footprint. So in that sense, very solid starting position, and that goes on also going forward in our expectations. You've seen very strong loan growth, we'll talk about it. That is, of course, a function of continued solid macro performance throughout our geographies. And you see Serbia is still expected, for example, to grow in ballpark of 4%. Slovenia is still respectable 2%. So that's a solid performance. Inflation in the meantime, well under control. And so in that sense, all lights on green. Also from the footprint of the financial system, you see there's plenty of room to grow still. And we talked about strong growth already, but there is more to come in our perspective. Our strategy is anchored on very strong organic loan growth performance going forward. And you see the fundamentals are still there and very much continue to be there. So when we talk about, amongst other things, labor cost inflation, that's a little bit of bad news for us running a cost base, but it's excellent news for us operating in a market with raising income levels because that, of course, fundamentally drives the loan growth and bankability growth potential. On the income statement itself, interest income performance was outstanding in a fairly difficult year with falling rates. We have managed to grow NII by 12%, very respectable even in the last quarter, also, of course, helped by the consolidation effects now of Summit Leasing that we consolidate from a P&L point of view as of Q4. You see NII growth in Q4. You see fairly stable NII margins even slightly upticking. And it plays out what we always claim that is fundamentally important for us that even in a declining rate environment, we managed to stabilize and even Q4, you see fairly stable NII margins even slightly upticking. And it plays out what we always claim that is fundamentally important for us that even in a declining rate environment, we managed to stabilize and even grow the income base. And that's a function, of course, of the loan demand that we talked about, and that is there and continues to be there. We have worked heavily last year on, of course, stabilizing NII, and we have visibly reduced NII sensitivity. And you see the numbers. Don't forget these numbers are never to be just mechanically put in any model because this is ceteris paribus as it's called or we pretend everything happen at once and we do nothing about it. That's never going to happen. But gives you a first idea of particularly that we worked heavily last year on, of course, stabilizing NII, and we have visibly reduced NII sensitivity. And you see the numbers. Don't forget these numbers are never to be just mechanically put in any model because this is ceteris paribus as it's called or we pretend everything happened at once and we do nothing about it. That's never going to happen. But gives you a first idea of particularly that we worked on improving that NII sensitivity further. So we stabilized, locked in high rate environments with deliberately adding duration to the asset side of the balance sheet. You see here something like 1 year to 3.5 years. And that is, of course, a good basis for the next year, this year, adding basically EUR 2.5 billion fixed income to an already [Technical Difficulty] balance sheet. You see here something like 1 year to 3.5 years. And that is, of course, good basis for the next year or this year, adding basically EUR 2.5 billion fixed income to an already solid balance sheet is, of course, fundamentally supportive for this year's performance. On noninterest income, you see solid growth again. And apart from seasonality, we are more than happy with the result in fee and commission income, particularly always worthwhile mentioning our exceptional results and success in growing the nonbanking part of that business. So that's, of course, our asset management outfit, which operates highly successfully in Slovenia. And in the meantime, we are building the foundations and start to operate already in 2 more markets where practically we start from very low basis, but have very high expectations going forward. So there is plenty of potential to also basically counter effects that, of course, we also see here and there on more competitive spaces of the fee environment, let's say, payments, POS and things like that. By and large, very solid performance on revenues. And on costs was mentioned already. I think it's very important to first say that cost growth was 9% normalized. So if you take like-for-like comparisons, so you normalize for balance sheet tax, which was EUR 33 million and you normalize for the effects of us having integrated and added the revenue, but also the cost base of Summit Leasing in Q4, you see that the normalized cost growth 9% is elevated, and we acknowledge that, but it's in the balance sheet tax, which was EUR 33 million and you normalize for the effects of us having integrated and added the revenue, but also the cost base of Summit Leasing in Q4, you see that the normalized cost growth of 9% is elevated, and we acknowledge that, but it's in a high inflation environment, not unusual. A big part of Q4, which, of course, left a bit of a dent in the result of Q4 was also seasonal. So we have typical cost seasonality in Q4 of some EUR 10 million. And this year, to be fair, we also accrued quite a considerable amount in variable compensation, some EUR 14 million, EUR 15 million. That, of course, shows up in cost, but ultimately in nature and essence is variable. And of course, a function of success. We believe it was a highly successful year. So that's what we accrue for. And in that sense, I think it shows that the cost is, first of all, not growing unreasonably. And second, Q4 is to be really looked at carefully in decomposing the certain elements. So fundamental cost growth Q4 was almost neglectable because inflation in the meantime is fairly under check. But of course, it is true, and that will never go away that we get now much more focused on reaping potentials of digitization. Blaz talked about the success in Slovenia, where in the meantime, we have, roughly speaking, 30% of our transactional products in the meantime, transacted mobile or online. So that, of course, opens up routes and paths to starting to continue working on efficiency and then cost base reduction throughout, of course, all functions of the bank end-to-end, front, mid back, all the control functions. Costs being in that sense, in our view, under check. Cost/income ratio, 45.7%. So it's slightly better than last year, which was a record year. On the balance sheet, the structure has been optimized. We come from the 60s in LTVs, and we entered the 70s. So that's, of course, a function of exceptional loan growth. Still solid deposit growth, but LTV is now, let's say, a more normal ratio. And we look forward to continue optimizing the balance sheet. You still see very high amounts of liquidity. And of course, in that sense, we have plenty of room to grow the business from the strength of our balance sheet. On the loan growth itself, you see exceptional growth, both in individual and corporate state segment. So we are really proud and pleased with performance across the board. And of course, this was even accelerated as a good foundation for this year's result with adding almost EUR 1 billion in leasing exposures, all of which are, and Andreas will talk about asset quality, broadly speaking, very well and robustly performing. The rate environment, we talked about on the asset side is fairly stable. Of course, we see a little bit of decline here and there, but that's to be expected. And of course, this was even accelerated as a good foundation for this year's result with adding almost EUR 1 billion in leasing exposures, and Andreas will talk about asset quality, broadly speaking, very well and robustly performing. The rate environment we talked about on the asset side is fairly stable. Of course, we see a little bit of decline here and there, but that's to be expected. And of course, we continue to originate and emphasize in a forward-looking way fixed income, especially on the retail side. On the deposit, very solid growth, 7%. We are very pleased and very focused on that space, too. Of course, we are slightly adjusting our terms on deposit taking. And you will see that deposit cost of funds is fairly under control, deposit betas in the low double digits. And of course, very strong performance still in our share inside deposits, which, of course, is the bread and butter for every bank. I should also mention that in terms of wholesale funding, we have, in the meantime, EUR 1.5 billion capital markets senior funding outstanding and prices here have also substantially compressed. Last issuance was at a spread of 115 basis points. That's in excess of 300 basis points just 2, 3 years ago. So very solid performance and of course, a function of our continued presence also in capital markets and reaping the benefits from preferred bond very successfully placed, as I said, almost 1 with below A rated paper. And of course, now comfortably meeting any MREL needs. By that, I would pass on to Andreas on asset quality.

Yes. Archibald, thank you. As you saw at the beginning, we were ending up with 14 bps cost of risk. So this is well within the guidance which we gave lately. So obviously, no bad news, actually rather good news because the guidance was 20. What is surprising too is that not always we have very positive surprises compared to what we were guiding for, but we are clearly and well within guidance. If you see the portfolio, as already mentioned by both colleagues, we are solidly growing both in SME, corporate and also retail, both housing and consumer. What you see this time additionally is this white bar. So the white bar indicates you are still growing a little bit more aggressively. So that's why the Slovenian part is always tending to go a little bit down. But now through the inclusion of leasing, of course, you see it again going a little bit up. On asset quality, we were discussing that a couple of times. I mean we saw in Stage 2 in retail quite some impact in the first quarter. On the one side, methodological changes. On the other side, we were a little bit sleepy here in Slovenia with early collection. We corrected that. So we are here now much more pushy and successful. And that's why this trend very much stabilized. On the other side, you see corporate, here in corporate, you see actually a little bit of a jump in the last quarter. And I will explain that in more detail later on. Two is that this is very specific cases. So its side, you see corporate, here in corporate, you see actually a little bit of a jump in the last quarter. And I will explain that in more detail later on. Two is that this is very specific cases. So it's not a wide trend, but it's very specific cases, but we will talk about that more later on. Actually, reflection then later on in Stage 3. Retail absolutely stable now. And in corporate, again, it's not a wide trend. but it's very specific cases, but we will talk about that more later on. Actually, a reflection then later on in Stage 3. Retail absolutely stable now. And in corporate, again, also in Stage 3, you see a little bit of an increase here. So corporate last quarter, we had some impact on Stage 2 and also on Stage 3. Distribution by industries, very, very well distributed. I wouldn't say much more on that slide. But what I will talk more about now is manufacturing. So you have a breakout slide here with quite some details. And well, the most interesting part is that you can see in the last quarter, actually, a jump of EUR 57 million in Stage 2, and this is steel industry. So we have very selective cases where we had to stage because situation was deteriorating. These are not NPLs, client is performing, is paying, but situation is less good than when we were originating the loan. So that's obviously why we were staging. And you see that this is actually really the major effect from quarter 4. Otherwise, very stable. Automotive because automotive was in the last months always a little bit of a more interesting topic. The overall exposure, as you can see, if you count these 3 circles together, is very, very moderate. And actually, where we see staging is more or less exclusively in manufacturing of car components. So here, we have also very limited number of cases where we have Stage 2. We have one very old case, which is, well, almost forever in Stage 3. So it's not that here, we see widespread movements, but we see single cases. And honestly speaking, both for the steel cases, which I mentioned before and here also for automotive, it's interesting that it's basically not coming primarily from trends which we see in Europe, but it's much more coming really from concrete situations in companies, which, honestly speaking, probably would, to a good extent, also materialize without external impact. But of course, having this external impact additionally, you see here the result. But on the other side, I have to say that for many other automotive clients, we see a very good robustness under the circumstances which we have right now. Overall, coverage ratio, you are used to that from us. It's very, very solid, more or less unchanged. Well, very slightly declining, but more or less unchanged. You see now an absolute growth actually of EUR 29 million for the entire year on NPL stock. out of which a good 1/3 has 0 delays. And actually, the bigger part of this increase, so this nominal increase is coming from the acquisition of the leasing business. And that means that overall, also including that effect, obviously, we are stable with NPL ratios. And this is very moderate and actually very robust and also the geographic distribution, not very surprisingly, like in the previous quarters, is how you would expect it. So distributed similar to the distribution of our business. And last but not least, yearly view and quarterly view on provisioning. Obviously, if you compare with the previous quarter, the turn was now from negative cost of risk to positive cost of risk. actually with relatively solid EUR 32 million, EUR 33 million, which gives us in the entire year and quarterly view on provisioning. Obviously, if you compare with the previous quarter, the turn was now from negative cost of risk to positive cost of risk, actually with relatively solid EUR 32 million, EUR 33 million, which gives us in the entire year EUR 20.6 million positive to 14 bps, as I mentioned before. What is here important to stress, as I said before, this is to a very big extent, very specific situations. So it would for sure not be logical and there's no reason now to multiply these figures for the upcoming quarters. But we really see here a lot of onetime effects actually. On the other side, what is true is that the environment is not becoming easier. We see this both in retail and corporate. So I see no reason at all to change what we are guiding for in 2025, which is 30 to 50 bps cost of risk for this year. But honestly speaking, given the environment too is that the environment is not becoming easier. We see this both in retail and corporate. So I see no reason at all to change what we are guiding for in 2025, which is 30 to 50 bps cost of risk for this year. But honestly speaking, given the environment, I would also not bet that we will again positively surprise you. But of course, we are firm in staying within this guidance. With this, I'm handing actually back to Blaz. Thank you.

A short brief update on leasing. So we are well in midst of the integration. We aim to integrate both leasing entities in Slovenia by, let's say, end of second quarter this year. I'm personally chairing the steering committee of this integration, and we are well advanced, and we see no major hiccups and critical elements in it. So as of mid of the year, this should be one integral business called NLB Lease&Go. Funding synergies kicked in immediately at, of course, the closing of the deal, but now we are in midst of the integration process. Also some one-off charges that hit Q4 came from this integration, clearly, envisaging some severance payouts for, of course, 40 to 50 people that, of course, will be then, of course, not working in the leasing stream anymore after the integration. Otherwise, what we are aiming at is some EUR 30 million contribution in a sense of positive impact to the results. And in this respect, absolutely meaningful addition to our business. We are happy that, of course, we entered Croatian market by that. And the first indications are that we will be able to develop this business solidly also in this market. We are specifically happy with trends in Serbia. And yes, by this move, we have become the leader in the very important we claim very important stream of operations. We were talking about EUR 1 billion business coming from leasing. Now of course, level of ambition has increased to grow EUR 3 billion until 2030. Talking about outlook and strategy, maybe first going to the strategic aspirations, which we communicated last year at the Investor Day. So [ 5:1 ] holds. It is, of course, a function of halfway predictable rate environment. So we have not, in our projections, been assuming rates below 2%. Now we are hearing potentially assumptions that the neutral rate or whatever area of neutral rate might even go below 2%. We hope it would not be that stay for long. In any case, once we hit the floor of the rate environment from that point on, we believe we can buy this strong growth of volumes, of course, then with stable margins, also be able to grow the net interest income on one side, on the other side, go below 2%. We hope it would not be that stay for long. In any case, once we hit the floor of the rate environment, from that point on, we believe we can buy this strong growth of volumes, of course, then with stable margins, also be able to grow the net interest income on one side, on the other side, continue with a very strong trend of fee income evolution, then really be transforming into the digital bank. So here, we are talking about also some indicators and KPIs of what this is supposed to be, in terms of performance, we really aim for more than 80% of new production to be delivered actually through digital channels. I'm talking obviously about standardized routine mass services. And this requires the fundamental change of the target operating model. In this respect, I'm really happy that today, the Supervisory Board did follow the suggestion of the Management Board to strengthen the Management Board. So today, we have got an appointment of the seventh Management Board member to be responsible for this transformation as a Chief Transformation Officer. It's a senior experienced [Technical Difficulty] really happy that today, the Supervisory Board did follow the suggestion of the Management Board to strengthen the Management Board. So today, we have got an appointment of the seventh Management Board member to be responsible for this transformation as a Chief Transformation Officer. It's a senior experienced seasoned manager with the banking and advisory background who has been also working with us on creating the strategy and by this is willing to invest his skin in the game, which I specifically respect and appreciate. And in this respect, I'm really taking this as a very, very meaningful add-on to the team on one side, on the other side, a very strong recognition of credibility of the story because we are talking about, I believe, a very, very senior profile joining our team. And the person is obviously Mr. Reinhard Holl. So a warm welcome, Reinhard to the team. When it comes to the numbers, we are sticking to the guidance that we have been communicated so far. So we have continuously been talking about keeping the revenue base stable despite declining rate environment. So around EUR 1.2 billion sound feasible from today's perspective. Yes, there is a tension, temporary tension at least in this interim period with, of course, rates declining on one side, and you need to invest into transformation of the business model, which we have been doing. And this, of course, doesn't cater results overnight. So there is going to be a temporary tension on the cost-to-income ratio. So we are talking about around 48%, and we claim that we should be then once the rate environment stabilizes, be then steadily reducing this ratio to target below 45% in 2030. Andreas was talking about, and we have been talking for a decade about normalization of the cost of risk. So let's see how this now is unwinding throughout the year. Let's see how this is, of course, going to be affected by hopeful stabilization of the crisis in Europe in terms of, of course, wars or conflicts and then hopeful rebound of the economy, let's see the results of elections. We then steadily reducing this ratio to target below 45% in 2030. Andreas was talking about, and we have been talking for a decade about normalization of the cost of risk. So let's see how this now is unwinding throughout the year. Let's see how this is going to be affected by hopeful stabilization of the crisis in Europe in terms of, of course, wars or conflicts and then hopeful rebound of the economy, let's see the results of elections and so on throughout some geographies. But generally, we expect the situation to remain stable. Unemployment is practically full. We don't see strong delinquencies potentially coming from retail portfolio. On the other hand, Andreas was mentioning very specific peculiar challenges from corporate portfolio, not as a kind of a structural phenomenon. What is extremely strong throughout some geographies. But generally, we expect the situation to remain stable. Unemployment is practically full. We don't see strong delinquencies potentially coming from retail portfolio. On the other hand, Andreas was mentioning very specific peculiar challenges from corporate portfolio, not as a kind of a structural phenomenon. What is extremely important to highlight here is that we are sticking to our, I wouldn't call it promise, but a value proposition of, of course, strong dividend payouts. As we don't, from today's perspective, operate with an assumption of a high or material acquisition opportunity, although this [Technical Difficulty] important to highlight here is that we are sticking to our, I wouldn't call it promise, but a value proposition, of course, of strong dividend payouts. As we don't, from today's perspective, operate with an assumption of high or material acquisition opportunity, although this might quickly change in this volatile environment, we are operating with a stand-alone assumption, so no major acquisition with a significantly increased dividend payout. So from 40% to 50% in absolute monies, this would mean, of course, from EUR 220 million to EUR 257 million, which from today's price, I just look at the closing price, which was [ EUR 142 ] in [ Ljubljana ] Stock Exchange. This means 9% gross dividend yield. I claim this has been a very attractive value proposition on one side. And if you look at the valuation of the stock at below 6x earnings compared to the peers, we want to be compared with, obviously, unfortunately, coming still from the frontier market stigmatized market, although we are much closer to developed markets, we believe this is a very reasonable value proposition. And of course, it's going to remain this way for the upcoming midterm period. In '26, we hope for then a bit more predictable environment. Hopefully, we will see the floor on the rates. Hopefully, we'll see a bit more predictable security outlook for the region and of course, the macro outlook for the entire Europe and, of course, our target region. And then stepping up in terms of revenue again while focusing on process efficiencies and improvements and by the controlling cost evolution and then also stepping up the dividend payout. So this is, we believe, a very credible dividend stock story on one side. While we would not shy away, we have been keeping saying this continuously, we would not shy away from security outlook for the region and of course, the macro outlook for the entire Europe and, of course, our target region. And then stepping up in terms of revenue again while focusing on process efficiencies and improvements and by that controlling cost evolution. and then also stepping up the dividend payout. So this is, we believe, a very credible dividend stock story on one side. While we would not shy away, we have been keeping saying this continuously, we would not shy away from eventual M&A opportunities from universal financial industry scope and framework, potentially some captive life insurance or as said, banking still in market consolidation space, potentially entering new geographies such as Albania, hopefully then, of course, also with the banking operation in Croatia and so on. So overall, we claim this is a good message today. If you look at the recurring results, there is close to 10% improvement of pre-provision profit. There is EUR 30 million improvement in profit before tax. There is a step-up in dividend to 9% dividend yield as of today's price, at aggregate valuation still well below 6x earnings. And above all, we have a growth momentum. This is a growth story at the same time. We believe we can grow this business to double it in 5 to 6 years in terms of size and then, of course, subject to economics playing out, of course, differently once you have the economies of scale in all of your markets on one side. On the other side, you are able to transform your target operating model into predominantly digital in retail mobile first, in corporate digital first. This is something that we claim will deliver a lot of value. And if we were on the way to successfully acquire some businesses on top, creating then, of course, value accretion, be it through favorable valuation, be it through synergies that are also available usually in such scenarios, this would add to the story. Thank you very much again for your trust and for staying with us and stepping into our exciting journey. And by that, I would open floors for questions. Thank you.

[Operator Instructions] The first question comes from the line of Jovan Sikimic with ODDO.

I would have a question on, let me say, if you can explain the guidance for '25. I mean you've just been talking about nice loan growth, which, yes, definitely happened already in '24. You also talked about reduced rate sensitivity. And why you're keeping EUR 1.2 billion revenues unchanged. So is there any special reason? What's your rate assumption on that? And maybe does it have to do something with a split between floating and fixed rate because I think vast majority of loans are fixed or vast majority, 50%, 60%, right? If you can just comment on that, please? And also in that context, if we assume, yes, EUR 1.2 billion income and 48% cost/income ratio, then we would come to cost of kind of below EUR 600 million, which let's assume, as you mentioned, certain portion of cost is nonrecurring. So that would mean kind of flat costs this year compared to '24, whether it is realistic at all?

Well, we tend to be on a conservative side when it comes to revenue assumptions because it is a kind of a crystal ball where the rates are going to be. And the result is still, of course, significantly a function of the rate environment. The costs will not necessarily stay flat. Of course, we are still investing and they're still staying on wage inflation, and there is still a transition period. But on the other hand, what we are trying to manage as an overall performance is finally the result. And it's less a function of cost-income ratio, and it's more of a function of total output. How credibly can we really assume the revenues is at this point of time, really difficult. So if you ask me as Blaz, from today's perspective, would revenues be higher than EUR 1.2 billion? Very likely. But it is, of course, really fully a function of the rates and when the lower rates kick in. And if now we operate with the lending rate is 2% and the lending rate of 2% kicks in at the end of the year, it's one way. If it happens earlier and then we see below 2% very early in the second half of the year, then it's different. So this year is really tricky to guide for the revenue and the relationship with revenue with costs. So from that angle, we are rather sticking to other key KPIs in this respect, which is profitability and dividend payout. [ Archie ], you might add some thoughts here.

Not much to be said. But you are right. I mean that's why I think the guidance is indicating it might be in excess of EUR 1.2 billion. But how much really is subject to deliberation. I think the strong message is we expect the revenues to be stable and actually with a perspective to grow based on all the things we described. I think that's the underlying message. We discussed, cost/income is the ambition. That should allow for a little bit of cost growth, but we are very, very focused on disciplining this element because the big wave of inflation is gone. And what is still prevailing in the region and that we simply, as I said, there is a good side to it and a bit of a bad side. The good side is rising income levels is rising opportunity for us. That feeds our loan growth at the end of the day. But of course, qualified people want a fair share of compensation. So we simply have to really focus going forward also much more on efficiencies in the business and in particular, in functions that can ultimately be automized.

Okay. And if I may ask, I mean, I think we keep asking this every time on the M&A going forward after leasing consolidation, hope still high M&A appetite, right, in the region?

We keep the appetite. The real question is what would be the actionable assets, right? We've seen us attempting not succeeding. Would we be interested still in such an asset? Yes, but there would have to be preconditions met that such an asset would become actionable for us, right? So it's not an easy pool. And for every willing buyer, there has to be a willing seller at reasonable terms if you are a conservative buyer, especially. So we would not jump to anything overnight and in irrational way. So as said, there has to be a willing seller. We have been continuously analyzing smaller opportunities. So we just announced a couple of days ago buying a small web portal on mobility, which is simply an add-on to our leasing business. It's immaterial for the group. But by that, we try to understand end-to-end value proposition when it comes to mobility. And we'll be testing grounds and learning on the way how we can actually boost some earnings from leasing stream here and also bank stream here. But yes, of course, we have been also analyzing some fleets that were offered some other fintech solutions, but at the end of the day, we didn't find necessarily them viable for our conservative appetite when it comes to valuations and read and value accretion. So as said, if there was a bank in Bosnia and Herzegovina with headquarters in Sarajevo, where we are bleeding the most in sense of we are lacking critical mass, right, we would, of course, be interested in looking at it. If there was an opportunity of an asset like you somehow alluded to, to potentially be a gain in some kind of a structured sales process, of course, we would be interested. And then we could still offer the voluntary takeover bid to all shareholders, right? If there was an Albanian sizable bank, we would, of course, be willing to look at it. If there was captive insurance idea on the table besides all regional insurance players, of course, we would be interested in looking at it. But as said, for every willing buyer, there has to be a willing seller as we have not had such an idea as of right now, what potentially is actionable in the sense that there will be someone talking to us. That's why we are offering now more value to the shareholders by increased dividend payout, right, in relative and absolute terms. If something surfaced unexpectedly quickly now, of course, there is still some time before we would approach the shareholders with the AGM suggestion for the dividend. We have been continuously talking about attempting the AT1. It would be irrational doing it just for the sake of doing it. But if we're able to continue with so solid growth organically as we have been in the last half year, we might want to do AT1 just in case as well because, of course, you want to grow at 12%, right, within your fully controlled perimetry of your underwriting criteria and risk appetite and so on. And by that, of course, on the go, you're consuming your capital and you need Tier 1 capital as well. And you can create it in various ways. And of course, if there is no acquisition, we would not want to eat into the dividend payout, we would want to then issue AT1, right, to enable high dividend payout. But it's a bit too early. It's mid-February. So we have some time until end of April before we convoke the general assembly at which we would then, if there was no, of course, M&A, this EUR 257 million, we would suggest very likely 2 tranches again.

Okay. And you mentioned, Blaz, exceptionally high growth. And I think in Q4, it was super exceptional, right? I mean the question is, is there anything which is not recurring?

One thing is leasing clearly, you have to understand with 11th of September, we closed leasing and then the full quarter was actually then, although in Q3, the part of the assets were there already. But that is, yes, there is growth coming from all the corners. So in December, we had more than 40% of new production in leasing. We had more than 40% of new production housing in your own bucket in Slovenia. Clearly. You have to understand it with 11th of September, we closed leasing and then the full quarter was actually then, although in Q3, the part of the assets were there already. But that is, yes, there is growth coming from all the corners. So in December, we had more than 40% of new production in leasing. We had more than 40% of new production housing in your own bucket in Slovenia, for example, right? And we had very strong production throughout the region as well. I mean, simply, we are focused. We have strong KPIs in the sales network. We are strictly focused on the quality of this production, which in retail have always been high quality, right? What is now missing partly clearly is the write-backs and what we got used to and was, of course, not normal negative cost of risk or 0 cost of risk, right? So now we are looking at some cost of risk, which is if you do consumer lending, of course, reasonable and normal. You don't want to forgo business. If you can create business at 6% rates in consumer lending and you've got 50 bps of cost of risk, that's absolutely normal and acceptable, right? And you want it actually. But so far, it was offset by the write-backs and offset by a very good situation in corporates. Now we see some hiccups in corporate. It's by no means a disaster or a tragedy, but it is some cost of risk, right? And at 3.8%, 4% margins, having 30, 40 basis points of cost of risk, that's absolutely normal. And by that, you simply boost business.

[Operator Instructions] Ladies and gentlemen, there are no further audio questions at this time. We will now proceed with the questions submitted in the webcast. One audio question came up. It is from the line of Dodig Mladen with Erste Bank.

Congratulations on the results. Actually, I don't have too many questions just because line was kind of bad, Mr. Blaz, when you were talking about the dividend for 2024 is 50%. So this actually corresponds with some amount even close to EUR 13. Am I right?

Yes. This is EUR 12.85 per share if this was EUR 257 million to be paid out.

Okay. And regarding some specific topics in Serbia, so this program for mortgages for young people and stuff like this, I guess, you are on top of the things. So do you think the NLB could participate in this? Or this is just some maybe early to ask?

Archie, would you want to start?

Well, actually, that's something we are quite keenly focused on. So housing for young people is something we try to encourage regardless of special activities. It's a key focus. We emphasize it. We subsidize it a little bit. We believe it's relevant for both business, but also for just being a so-called good citizen and doing the right thing. So yes, it's something we are very interested.

Ladies and gentlemen, we will now proceed with the webcast questions. The first webcast question is from [ Anton Horwaze ] with Allianz. And I quote, "How are you satisfied with Summit Leasing performance so far? Can you share any plans for Croatia?"

It is absolutely developing according to expectations, actually a bit north of expectations in terms of new production. I can't be more specific than that. We are happy with how we started doing business in Croatia. And of course, we will simply do in Croatia what the market will allow. What was the biggest, of course, attribute of what we obtained with Summit Leasing was the market-leading position in Slovenia. It goes without saying that now we are with EUR 1.3 billion of assets or EUR 1.2 billion to EUR 1.3 billion of assets, market-leading operator in Slovenia. And so in terms of new production, we are looking at more than 40% of new production on the market. So this was actually the main purpose of this acquisition. I was mentioning before that integration is well underway and should complete within H1. And by that, really full focus on mobility becoming our value proposition for the citizens and businesses of the country. Croatia is a good, nice add-on. Serbia is growing very well. It's of the size that is going to, for sure, be bigger than Croatian in midterm, given the distribution power we've got in Serbia. And we have started in Macedonia, North Macedonia as well with now more boost. So we are generally happy with leasing performance. We will be growing in Croatia, but of course, we will not become quickly a very material player in Croatia. That's clear. For this, we would need universal presence. For this, we need bank presence, which we, of course, understand is, at this point of time, still very sensitive question.

And just to add, you've seen that for next year already, we expect contributions in the ballpark of EUR 30 million, including funding synergies to grow to EUR 30 million plus funding synergies, so some EUR 40 million, and that's a baseline plan, '27. So that is becoming a meaningful business, adding also meaningfully to bottom line.

Yes. We look at the leasing business in terms of complexity comparable to one of our material subsidiaries because it is, of course, simpler in terms of the product portfolio and general complexity of the business. But as it is the international operation, a kind of a hub for 4 countries, we look at it as more or less equally important than to material banking subsidiaries. So it's kind of a subsidiary from the financial services industry.

The next webcast question comes from [ Jaka Izonic ], a private investor. And I quote, "At the moment, price of share is below book value. Are there any plans for share repurchases as this would be a shareholder-friendly action and would probably boost price of share.

That's, of course, a common discussion continuously. The real question is whether this would boost the liquidity and boost by that attract more interest and boost the share price. We are giving value to shareholders also in form of very high dividend payout. So 9% dividend payout is, we believe, a substitute to share buyback. In the given ownership structure of NLB, it's, of course, also not that easy to pull off on one side. On the other side, at already shallow liquidity, you might further impair liquidity with simply having less shares outstanding. So in this respect, that's not something that necessarily creates more value than giving you straight cash.

And just to say total shareholder return last year was in excess of 60%. So I think that's a very good performance. And the Management Board is incentivized on continuing to grow total shareholder return at least on par with our peer group. So that's one of our so-called long-term incentives. So we are very, very focused on total shareholder return, including share price and dividend.

The next webcast question is from Ruslan Gadeev with Raiffeisen Bank International. And I quote "congratulations with the solid results, and thank you for the detailed presentation. As I understand, NLB's main resolution group is now very well positioned in terms of MREL, thanks to the recent bond issue. Can you please share if there is any clarity regarding the MREL funding plans for NLB subsidiaries, timing, volumes, format of borrowings?

So first of all, thank you for the question. And yes, indeed, it was a very successful deal for us, as I mentioned earlier, in the meantime, very normal funding spread of just above 110 basis points. So that's almost on par with A-rated banks in Central Europe. But we continue to work on improving that further. And let's remind ourselves, we started from in excess of 300 basis points. So all this will show up ultimately in better funding structures, better funding costs for the group. For subsidiaries, for the time being, the needs are very modest. So whatever needs there are, we either discuss funding from the parent bank or together in partnership with our partners, IFIs from the IFI space. And then we will take it from there. So for this year, in particular, no issuance is planned. But for a market like Serbia, we remain very open-minded because it's in general in our interest to also develop local capital markets. So if there were, let's say, an opportunity at some point to issue out of Serbia, and if it would meet the needs and there would be an investor base, that's something we would definitely consider. For other markets, frankly, the market probably is not there yet, but may at some point emerge.

Well, I would just add that in terms of MREL funding, we have realized that it is steady value actually in being very robustly positioned here, and this might also be a bit of a ground for [indiscernible] in any case. because we have come to the point where with a bit of luck, we might very soon see A rating as a bank, as a group. And A-rated bank, of course, has potentially even better terms at issuing further instruments in the future. And the spread Archibald is talking about might become even more favorable, right? As I said, there is no guarantee for something like this, but with a bit of luck with further developments that are not deteriorating, we are just one notch below. And also the last issuance was basically rated just one notch below. And this would, of course, then re-rate potentially the entire capital market instrument portfolio. Tier 2s would suddenly be investment grade potentially and so on. So we will be very closely monitoring the entire universe here. Of course, we have a significant capacity on the group level to support ourselves as well. So we would not want to forgo value here simply that there is no sense in it. But at the same time, we consciously keep multiple point of entry. And of course, we make sure that these banks remain self-funded and that those structural instruments are in balance and in check when it comes to us keeping the position of multiple point of entry.

The next webcast questions are from Miguel Dias with Wood & Co. I will read one by one. First of all, congratulations on the results and thanks for the presentation. Question #1, on the variable compensation costs, how to look at this moving forward, probably a one-off for 2024, but you tell me.

Look, as you realize, part of our compensation scheme, if you read our remuneration policy, which is a public document that was approved, was also, of course, shown to the AGM that didn't object to it, right, is, of course, directly linked to financial performance to performance of the stock. So half of the variable pay of the management in the group is directly linked to performance of the stock on one side. On the other side, clearly, strong performance better, as said in recurring terms than last year is delivering, of course, well-rated performance as well in case, of course, performance is not rated that high, of course, part of the scheme. And there, of course, the total shareholder return has significant weight in it besides sustainable development. Yes. So we are directly motivated to give you more value. And I guess if you get more value to higher share price and higher dividend, clearly, I guess you would not be envy that also the broader managerial team and the employees, of course, at the team of the bank get some of this value as well in terms of variable paycheck. So it is one-off to the extent that success is one-off. If success is sustainable, then I guess it would become more sustainable, but you would be happy with the sustainable success, I trust.

I think the nature of this cost is variable. That's the whole point in looking at it. And of course, very much linked to delivering on our strategy ambitions.

Thank you. Question #2, what do these provisions for legal risk and restructuring provisions pertain to? Could you please provide some color? Are restructuring provision expected in coming quarters as well?

Andreas will give you details, but it's mainly reflecting to a couple of cases from the steel processing... But there were also restructuring provisions. This human HR, okay. HR is clear. It's coming from the integration of leasing and of course, us also focusing on process improvements and by that, providing room for severance payments from this angle. Legal is coming predominantly from Swiss franc portfolio and some other here and there pockets throughout the region, but Andreas might give you more flesh on this situation.

Yes. So I mean on the legal provisions, there was some impact now on the one side, still for some Serbian legacy cases. On the other side, as Blaz already mentioned on Swiss franc. Well, the question looking forward is to which extent this is repeating. I mean we shouldn't see that coming in every quarter. But what we are realizing, of course, is getting bigger that these kind of legal issues in itself a little bit randomly, but here or there, you see them in the group and focus over time is switching, but it's not realistic to assume them as real...

Question #3 from Mr. Dias, and I quote, "could you provide some color of the one-off in NLB Komercijalna Banka, Beograd due to an adjustment of receivables related to card operations around EUR 2 million.

This was, in essence, a cleanup exercise from a little bit of history that was ultimately now surfacing in the context of us changing the card processor. And so as I said, it's a cleanup, a bit historic. We bought this bank 3, 4 years ago. And this is just one of the longer tails of such an integration exercise.

By nature, it's one-off because this was recognized a simple difference logic of calculating certain things, recording certain things, and it surfaced more or less at the integration and migration actually of card processing from existing provider to Banka [indiscernible], proprietary. We own 46% of the business, and we process all of our banks basically in this center. So now with migration of Komercijalna Banka, the entire portfolio of NLB banks is processed by Banka. And it surfaced that there were some different logic applied, some different calculation methods applied, and we simply clean this up with one shot, and it's one-off in nature.

So nothing to worry about in the future.

Next question. How should we look at effective tax rate moving forward? 30% is the new normal, excluding the tax of Slovenia assets?

So as we quite elaborately explained, I think, last year is we have a few diverging effects. One is this extraordinary so-called balance sheet tax that, of course, hits us. We account for it in the cost base. So that is a material position in our cost base, some EUR 33 million last year. We show it in the so-called contribution ratio, which at group level is in excess of some 15%. And for Slovenia, we still tend to benefit a little bit from so-called deferred tax asset, but to a much lesser extent. And these 2 things kind of expire together. So after that period, we should basically converge to a tax rate of some 15% at group level.

The last question from Mr. Dias is could you provide an updated opinion on the situation in Serbia?

We will not comment the situation generally. We are closely monitoring situation in the whole region throughout the last 20 years. And we've been used, of course, to here and there challenges. We believe that Serbia has a bright future. This is a quickly growing economy. And we hope that the situation will settle at a certain point of time, and we will resume to business and normal way of life. Generally, as said, we hope for stabilization as soon as possible, but we don't assess it critically from the economy development point of view at this point of time.

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

Thank you very much. Thanks again for hanging in there throughout this presentation and throughout the last years. The message of today is a good message. The performance of the bank in recurring terms has further improved last year. So we have seen growth of pre-provision profit by almost 10% or 10%. We have seen the growth of pretax profit. On the other hand, clearly, once you stabilize this for one-offs, that's set a very good message. What we are suggesting at this point of time, of course, crystallizing throughout the upcoming months in absence of eventual M&A is a very solid uptick in the dividend payout, both in absolute terms and relative terms, 9% dividend at today's share price at 50% payout from the last year's profit. and solid growth of our portfolios represent a very good foundation for value creation also for the upcoming years. What we're looking forward to is, of course, finally crystallization of what the, let's say, midterm predictable rate environment might look like because this will then determine the pace of when we actually will be able to much more predictably plan the growth. 2030 aspirations are here to stay. We remain at these levels of doubling the business and doubling the profitability in these 6 years. We will need a bit of luck for that. But as I said, we will not shy away from further organic and inorganic M&A-driven growth, and we will ambitiously address eventual opportunities coming our way. So thank you for being with us and also upfront for being with us also in the future.

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