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

Ladies and gentlemen, good afternoon, and welcome. I'm Lilly, your webcast operator for today, and I would like to thank you for joining the NLB Group's live webcast where we would like to present and discuss with you our performance in 2025. Our results will be presented by: Mr. Blaz Brodnjak, CEO; Mr. Archibald Kremser, CFO; and Mr. Andreas Burkhardt, CRO. Before we start, I would like to repeat once again for those of you who were not with us last time, how our new system for voice questions works because it's slightly different than before. [Operator Instructions] And before we move to today's results, we would like to take you briefly beyond the numbers. And now it's time to hand it over to Mr. Blaz Brodnjak.

Good afternoon. Warm welcome, everyone, to the disclosure of our annual performance last year and last quarter. We are really happy to report that we have been maintaining the momentum of growth, and that's more or less the key narrative of this period. So if we observe the growth of total assets, but above all the volume of loan growth, we can really see a strong boost to the business, practically entirely offsetting the loss of the rate environment at this time. And it's happening actually in all geographies, all segments and it's happening on both sides of the balance sheet. So we are growing loan book, but we are funding this growth with a very solid development also in deposits. Net operating income has stabilized and on a quarterly basis grown and also on the annual basis. It's indeed still pretty symbolic, but generally, we see a stabilization of margins, which is very important. And in last quarter, Archibald will give you more details. We see a slight potential rebound already envisaged. But at the same time, we are really talking about the key elements of the rate decline being fully factored in through the balance sheet and P&L positions. And now we believe that continuation of this growth will be reflected also in growth of revenue, subsequently. We have been strongly focusing on efficiencies still. So we are happy that we have kept the cost/income ratio below the guidance. And this is combined, obviously leading to a strong robust output in Q4 and the full year performance. I was mentioning the margins, and it's really seen now that the stabilization is now happening for practically half a year. And what is, of course, indeed worthwhile mentioning that in the industrial part of our economy, especially steel processing and automotive, we have seen certain deterioration. So there are a couple of larger, of course, exposure at this point of time, Stage 2, 3 -- to the Stage 3 (sic) [ Stage 2 to the Stage 3 ] and of course, also provisioned. Nevertheless, despite this represents quite a significant, I would say, change to the last 10 years that we have been able to observe. This did not result in higher cost of risk combined on a group level than 29 basis points. So this is still below our range of guidance. And this respect, simply confirming what we've been telling throughout the year. We've had a couple of known larger exposures we have been actively dealing with through the restructuring, through staging and throughout basically this period finding the ways forward, and we believe we have been well on track in this respect. And this output in terms of cost of risk is just showing the robustness of the business model, high diversification of the books, both in terms of industry concentration, but also in geography and segment concentration. And this respect just shows that, of course, even in more difficult times for the Central European economy, subdued growth, we are able to perform at a very high level. We have introduced the ROTE logic, so return on tangible equity in this respect now for the first time. But of course, we will keep it in the picture since we have successfully issued in Q4, and that was, of course, for us, a very important next milestone. A Tier 2 -- Tier 1 issuance, AT1 actually instrument in the amount of the benchmark size of EUR 500 million, of course -- sorry, EUR 300 million. And by this, we are, of course, now showing this in normalized terms, but Archibald will give you more details on that on capital structure and, of course, the capacities for growth. We are keeping the very solid dividend payout ratios. So we are talking this time around envisaged -- about envisaged 55% payout of '25 profit, which is in absolute terms, potentially, of course, showing growth of dividends despite the slight decline in bottom line in net terms. We are really happy about the progress in introducing new services and features to our clients. We have been awarded again the most advanced digital value proposition offering partly in the Slovenian market, and we are trying to replicate as much as possible, clearly, these new features to other geographies in our target landscape. Penetration has been growing. So we are happy to see more and more of our clients using our mobile solutions and online solutions. And we are, as we speak, introducing now really new, relevant features on more or less monthly basis. By that, I would pass the word to Archibald, who is going to take you through more details in numerical terms, and then Andreas will take over for the asset quality.

Thank you, Blaz. As usual, we touch a little bit on macro update first. And basically, bottom line is that's a fairly stable situation, not as strong as we would wish it to be, and it could be, and you see that we are more optimistic for '26, '27. But nevertheless, you've seen the very substantial loan growth that happened -- nevertheless, kind of subdued growth. And so it just tells us there is a very large pent-up demand in loans. And we speak about the low levels of bank penetration across our geographies. There's a slide later on that. So that's a feature that continues to drive growth and this inherent growth potential is basically the gist of our equity story, if you want. The inflation rates also still here and there, slightly elevated, are stabilizing too. And so in that sense, from a macro point of view, all lights on green, the fundamentals are good and improving most of the time. And I talked about penetration levels that still show a substantial gap to what you see in Eurozone. And that's what I said earlier. That's still a banking market with very strong inherent growth potentials. So liquidity, loan-to-deposit ratios, these numbers have come up in our subsidiary markets, are still fairly low in Slovenia. In our subsidiary markets, they have gone up a bit. And so in that sense, we clearly, as an organization, as a bank, we, of course, focus as much on the liability side as on the asset side. So one can't live without the other. And both are equally important. Indeed, deposits are much more in focus these days again. On the business performance, you've seen the headline numbers. I mean, growth was really very, very strong, and we had to revise our guidance, if you remember. And so balance sheet is now really in, I would call it, almost a sweet spot, 76% loan-to-deposit ratio, still substantial room to grow, but not as inefficient as it used to be. Now of course, with the Tier 1 kicking in, very strong levels of capitalization and then we have deliberately taken advantage of a very good fixed income market last year. And so in that sense, as usual, a very, very robust balance sheet, both in terms of fundamentals, liquidity, capital ratios. And of course, -- most importantly, we'll come to the profitability. So the balance sheet structure, still, as you know it, very evenly balanced, a bit overhang on the retail segment, individuals, very liquid balance sheet, and of course, predominantly deposit funded and the deposit mix very healthy in terms of the structure of deposits. We talked about loan growth. I'm not going to dwell on all the numbers here. You've seen the growth quite evenly spread, slightly higher numbers in our subsidiary, of course. And so totally expected. And as I mentioned earlier, here and there, that has led to quite visible increases in loan deposit ratios also across the market. And so we just see these markets can't wait to grow their balance sheets. And so that's a nice problem for us to have. And obviously, we are, I would claim, the best positioned in these geographies to capture all this potential. Very good news from the rate environment translating into loan yields. They are now really stabilizing visibly. You've seen already margins going already slightly up. That's still symbolic, but still a very good foundation for revenue growth now that we have mitigated the rate shock on the short end, we can benefit from the rate uplift on the longer end. And you see that we -- not just on the balance sheet level, but also in our loan origination activities are very much geared to higher durations. We've increased the share in fixed. And so has the whole balance sheet duration on the asset side increased visibly over the last year. The deposit mix, healthy, strong. The blue is the good stuff, the site deposits, term deposit, shares have slightly gone up. That's okay. But of course, we are now -- and you've seen it on the digitization agenda, we are now laser-focused on getting the customer experience, as everybody calls it, in the daily banking space, really up to scratch. We are -- I claim broadly speaking, there. There's still a long improvement agenda, but we have happily reported that we own the best banking app in Slovenia. We are just about to deploy it in Serbia. So we work a lot on making sure that this part of the franchise continues to thrive. Funding rates on group level stable. Slovenia with the LTD you've seen as a market feature actually going down. So that's simply a function of term deposits following here the rate evolution and much better investment prospects that exist in other instruments than cash. And of course, we happily serve these needs with our wealth management and asset management suite for which we now this -- have also for the first time this year, provided applications to more intuitively run this business for everyone. In SEE banks, in our subsidiary markets, you see the terms have gone a bit up. So we have had to go up on terms to fund our exceptional loan growth, and it translates a bit to higher funding rates. But on group level, we are basically flat. All in all, the quarter has been very good on the revenue side. There was seasonal -- and I'm particularly happy to now for the second time in a row, report quarterly NII growth, also revenue growth, 3%. That's really the stuff that will show up this year as a solid foundation for revenue growth. On costs, we had seasonality in Q4, totally expected. There is a bit of overhang in accruals, in spend. And all of that is very much, I would say, managed in regards of -- we try to spend on what we call value-added topics, that's predominantly people; that's predominantly people in terms of investing in the best talents of this region; technology, investing in the best technology; and of course, in our brand, we continue to invest in our brand. Otherwise, Andreas will talk about the cost of risk dynamics. Broadly speaking, we finished the year fully within guidance. You see full year charge was 29 basis points. And we are quite happy with the cost/income print. It's not where we would want to see it in the long term. You know our ambition is to get to 45% and less. And I think that's perfectly possible given our agenda that I mentioned earlier. You see now Blaz mentioned already ROTE, which I think is anyway the more custom metric for return on tangible equity. So we normalize for some EUR 150 million intangibles. Normalized ROE at 20% and you know our target is 25%. So we think there is upside or exceeding 20% and up to 25% with what we call strategic place. So there is more to come in our lens. And NIMs are now quite stable at 3.3%. So that's a very good starting position, I would say, going into the next year or into this year actually. On the fee side, pretty solid performance. You see year-on-year, 9%. And that's, broadly speaking, 5% in the space of what we call daily banking and really very strong performance on the value-added services. We predominantly sell still in Slovenia. And again, we keep saying we are platformizing this into our subsidiary markets, especially Serbia and Northern Macedonia. So we work on both the daily banking stuff with, again, in essence, deploying new services. We have rolled out now Apple Pay, Google Pay in all markets. We are just deploying digitized cards as a first choice. So this revenue stream, we are very focused on merchant onboarding. So we invest a lot here in technology to, as I said earlier, keep our most valuable treasure, our client trust, customer trust and by that, their accounts and their deposits with us. And so this will show up in single-digit revenue growth also going forward. And of course, we very much hope that very solid dynamic in investment funds distribution, bancassurance will continue going forward. On the NII, in essence, we have more than made up for the loss on the short side with the volume growth and also to some extent, better placement on the securities side. So all of that has contributed. And especially next year, we actually -- or this year, sorry, we expect, of course, this downfall on the cash side more or less to be negligible because baseline rate expectations are that we will stay around this 2% that we see at the moment. So you see Q-on-Q already 3%, and that is, of course, very promising for this year. On the noninterest income, I think I mentioned most of the highlights. So fee commission income, 9% year-on-year, very solid development. And I would say, a good foundation going forward. On the cost side, cost/income ratio, you saw the print in line of guidance. We have 4% like-for-like cost dynamics. That's in a fairly high labor inflation environment as we have seen it in the last years. And you've seen the inflation prints around 3%, 4%. I think given our determination to continue to invest also in the right people, the right talent and the right technology, to some extent, also in infrastructure, like real estate branch renewals and of course, especially for our cash transition. We invest heavily also in ATM renewals and so-called CDS devices to get cash and payment traffic out of the branch. And we very successfully actually reduced this traffic in the last 2 years by some 20%. And that is, of course, the foundation for future reductions in the fixed cost base of running this network. So I think we, by and large, remain now disciplined. There's, of course, more to come in all dimensions, and we will also continue to basically rationalize the workforce. You see the numbers. And by and large, this trend is expected to continue. The capital equation I mentioned, we now are really very well positioned for growth, and we have as I said, capitalized on a very good capital markets environment last year, now showing Tier 1s at 17%. You remember our guidance or expectation, our target range is 15%, CET1 at 15%. So our target range is to exceed 13%. So we are really programmed for growth. And this growth can, as we keep saying, come organic and nonorganic. Nothing has changed in our ambitions. And now we, as usual, are funded for this growth upfront. By that, I would turn to Andreas on asset quality.

Yes, Archibald, thank you. Mentioned it already at the very beginning, I mean, we had a very solid loan growth. And actually, well, almost as usual, very well distributed also between SME, corporate on the Corporate side and housing and consumer on the Retail side. We were growing in all geographies, a little, little bit stronger in the geographies outside Slovenia. So is you see the percentage here, again, slightly going back after last year, it was slightly going up. Why it was slightly going up last year? Because we acquired last year the leasing in Slovenia. On staging, you see, well, a very solid loan growth. So that means growth in Stage 1. On the Stage 2, you see actually a reduction in Corporate. That's not the good news because you see it in Stage 3. In Retail, and we discussed that earlier, that's primarily methodological changes. So here's very few real movement actually, which you see both in Stage 2 and Stage 3. So the real difference here is obviously in Corporate. You saw in the -- or you see in the last quarter, some EUR 90-plus million growth of Stage 3, so NPLs. And that's entirely on what Blaz mentioned already before. In Steel and Automotive, here in Slovenia, actually, we saw not the best year last year. And I told you we have a few clients, actually a very few clients, but bigger clients who have some problems from that. I think it's a mixture of their own problems and really the industry problems. Why am I saying a mixture? Because other clients in that industry are still working brilliantly. So it's not a unique picture, but what I was already actually assuming to happen now happened. So these are now NPLs that by no means -- would mean that they are out of business. Blaz mentioned already before, we are actively working on restructurings. We are in different stages. On the biggest case, actually, we make a very good progress. So it's going in the right direction. But definitely, for 2025, we had to accept and assume this downgrade. No surprises here at all on that slide, actually, a very well-diversified portfolio. Anyhow between Corporate and Retail; and here in Corporate, you also see that actually also in the quarter and yearly differences that there are no drastic movements, and it's very well diversified. We once again -- we did it already in the past, took a little bit automotive out, because on automotive, actually, what you can see is that, first of all, it's a small part of our corporate exposure. And secondly, 2/3 of that are in car sale and maintenance, we actually don't have any specific problems at all. What, of course, you see here new from the geography is Croatia for the leasing part, logically because the leasing company we acquired has a subsidiary in Croatia. And the only area we have more problems is actually in the manufacturing and actually here in Slovenia. But you see the total exposure here is pretty limited. And a part of the Slovenian exposure now last year actually run into some troubles. On the coverage ratios and NPL in total, NPL in total, we increased now to EUR 470 million. That's a 2% NPL ratio. So I think NPL ratio overall is still very good. Also, well, good 40% of these NPLs have 0 days delays. Now that's in the meanwhile, a mixture in the past, I told you mostly these are restructured cases which are not yet cured. That's still one part. The other part are actually the new cases coming in. So despite the fact that we stage them to Stage 3, they are not delayed. So this you see with the volume. Of course, on the coverage ratio, it has a considerable impact, these new cases since they are in a restructuring phase, so they're not out of business. We, of course, expect them to recover over the period. And that means that, of course, here provisioning levels are, of course, not like with very old cases. I would also like to stress, I mean, 49.4%, that's still considerably are over EU average. And obviously, over time, it will again increase because we are not expecting such volumes again dropping in. And if you see that in numbers in millions of euro. The total charge for the year is EUR 46.6 million. But what is interesting is that still we are considerably receiving repayments from written-off receivables that's sometimes even a little bit surprising to me. So our workout team here is still a very powerful machine, I have to say. A little bit is also coming from methodological changes, but that's a multiyear development. So that's not coming out of '25, but that's one next improvement step, which we did in '25, becoming simply more sharp and more correct on the calculations. The charge on impairments [ both of these ] EUR 93 million, of course, is considerably more than what we saw in the previous years, but that's exclusively coming actually from these few cases, which I just reported you and a little bit of regular portfolio development. With all of that, we end up with 29 bps cost of risk. Blaz also mentioned that at the beginning already. So that's actually even slightly below guidance. So overall, given that we were expecting these items to come, which I mentioned, I think it's still a very good outcome. So in that sense, I have to say, still happy. For 2026, also to say this with a few words, I'm not expecting situation to be very calm. So actually, as you know, we also for that year, give the guidance 30 bps to 50 bps cost of risk, which we also did for '25. But for sure, what is also true to say there is no systemic problem anywhere. If so, then I would expect that also in '26, we will see a few single cases for very specific reasons coming. Obviously, we don't see them now. But given that the environment is still vivid, we might see them in '26. That's why we keep guidance actually for '26 stable compared to the previous year. And with this, I'm handing over back to Blaz.

Thank you, Andreas. In terms of outlook, we are not basically changing anything. So it's pretty stable value propositions now for a couple of years. So we are aiming at 15% return and in normalized terms, exceeding 20% also in this year. And looking forward, of course, to maintain these levels of profitability. But what is, of course, very important, we are growing, and we are growing pretty solidly. So this is really the narrative today. As long as we can keep the growth of loans at more or less double-digit levels and of course, accompanied with stable margins and at least significantly lower pressure on margins. This is, of course, good because this is generating revenue now in real terms. We are continuing with the investment agenda. So what Archibald was mentioning is being accelerated as we speak. So we are bringing really new features. We are organizing ourselves in a flatter organization. We are talking about trial setup and so on so that we can really significantly increase number of new releases and deployments on a daily and monthly basis. But we believe we are bringing really critical features that have been still differentiating ourselves as kind of laggard towards, of course, the most progressive Neos of Europe -- but in terms of where we stand against, of course, incumbent competition, we are feeling pretty confident. We need to replicate, obviously, a success in terms of universal financial services distribution in Slovenia to other, of course, material markets. I'm specifically talking about the asset management and insurance services. But we have had really a very robust production in Slovenia, and we simply have to find the ways how to address the growing wage environment, obviously, also in Serbia, North Macedonia and other countries in the region, by which, of course, people can afford thinking of alternative investments to simple deposits. The treasury chest, obviously of -- the treasury box of Slovenia is the deposits, and I'm really happy that we have been able to grow deposit base as well. So there's been quite some concern, can we sustain this higher loan growth, right, with a reasonable growth of deposits? Well, we are proving we can. And that's a very important additional attribute. So this growth that's coming can, of course, be self-funded and self-funded in a reasonable structure of deposits. And by that, clearly, start really growing the revenue base on the path to 50:2:1, 2030, right, EUR 50 billion of assets. With this growth, we should be on the safe side. But of course, profitability is a bit of a function of rate environment and structure, the mix of origination of loans. And of course, hopefully still keeping this growth of the noninterest income by that, of course, hopefully also reducing a bit dependency on the interest environment. This is a solid prospect for the years to come. There's been nothing new on the M&A front to disclose, but we have front-loaded capital. So this AT1 issuance was on one -- on one side, obviously, using the attractive conditions in the market. But at the same time, it was making sure that we are ready, that we are ready in case there would be immediate opportunities coming our way. We've been talking about clearly high interest to accompany our businesses throughout the region. There have been, unfortunately, quite some shifts of head office capacity from Slovenia to Croatia. We are counting on the period after the elections in Slovenia in late-March that there will be -- that competitiveness of Slovenian economy will be on the table and on the agenda and will be addressed with concrete measures. Until then, clearly, we are trying to find our way still to meaningfully accompany our clients, especially in the market of Croatia, which has been -- it seems a significant beneficiary of this shift of decision-making authority from Slovenia. On the other hand, it's been early days, but we started exploring what would be potential form and way to enter the Albanian market. I had a very promising visit last week in a sense that this is a very vibrant quickly growing environment, and it would be natural somehow for the NLB being very, very strongly represented in the neighboring countries to Albania and potentially even with some [ passporting ] opportunities from Slovenia once, of course, Albania is on the verge of accessing. So it seems that there is a very high level of ambition to close all the chapters in '27 and then enter fully at '29. This would be potential incremental growth opportunity. There is nothing concrete to disclose or report. I'm just mentioning that these are the 2 markets that we have been continuously communicating as obvious targets, right, in sense of entry. And we have been trying to figure out and analytically simply address this now more diligently, what would be possible ways. So we feel confident. We feel strong. Our highly diversified business model in a sense of very strong focus on retail SMEs clearly and geographical dispersion and so on is showing results. So even in some distress in traditional, especially Slovenia is affected, obviously, as a highly industrialized country, some turmoil and stagnant evolution in industrial production. We obviously see strong momentum. Slovenia is growing at a lower level. It is partly due to, of course, impaired competitiveness and partly due to high level of industrialization. We hope this would crystallize and normalize throughout the upcoming couple of months. But the region is growing very strongly and well above the average of the European Union. And I'm sure we can grasp the, of course, the benefits of it. Here, I would wrap up. So no surprises in this respect. We have more or less overdelivered against all items in the analyst consensus apart from absolute number in cost of risk. But generally, overall performance is very, very solid, and we look forward to '26 and then the upcoming years.

[Indiscernible]

A good one. I was focusing on growth, but despite strong growth, we keep growth also in terms of absolute dividend payout. And of course, also at today's peak, historical peak of EUR 200 that we've seen. Unfortunately, it didn't close at EUR 200. It closed at EUR 199.5, which is for a couple of hours, we have been looking at a EUR 4 billion market capitalization, right? The dividend payout proposition is strong. So we are in absolute number growing the dividend promise to 55% of last year's profit, which is in absolute terms more than this year. And by that, we're catering for really attractive dividend yield still. And by that, obviously, a solid investment opportunity. I would wrap up here. Thank you very much again for all of your trust. We have almost quadrupled the value since IPO in November 2018. So this is something to be happy about. But there is so much more we can achieve together. Thank you.

Thank you, gentlemen. We'll take some questions now. Allow me to repeat the instructions for today because as I said, we have a slightly different system for voice questions. I believe we had two last time. [Operator Instructions] This is Ms. Miriam Killian from Deutsche Bank. I hope you can hear us.

Yes, I can hear you well. I hope you can hear me too. And I think so, yes. Perfect. I actually have 3, if I may. So first, could you please share your assumption for the Euribor rate in 2027? And then second would be regarding impairment and provisions. Is it fair for us to assume that they will be around the Q4 levels going forward? And then finally, I know I ask this a lot, but regarding costs, specifically the management compensation component, is this already fully in the numbers now? So just confirming where we are with this.

So on the rate, we basically assume stable rate environment going forward. There is -- there has been ups and downs in expectations, changes almost on a monthly basis. For the time being, our baseline is stable. On the impairments, we certainly don't hope that Q4 will be repeated. So I think Andreas was clear on that. So the guidance for next year, you see 30 bps to 50 bps full year. So that's -- for this year, 30 bps to 50 bps full year, same guidance for '27, so. And eventually on cost, we have flagged that indeed, the share price increase translates to some extent into costs on recognition of valuation increases of previously awarded so-called instruments to the management team. And that's a broader management team, not just the Management Board. We, of course, fully disclosed that. And yes, we basically revalue the stock as the share price performs. And of course, if share price continues to raise, which we all hope, you'll see further effects, but to a small extent because, of course, newer vintages, unfortunately, haven't quadrupled in value. So the effect is much smaller. But we would like to see more of that revaluation effect because that means we did a good job, you have a good share price performance and a very small part of that ends up as cost, if you want.

And we have another caller, Mr. Simon Nellis with Citibank.

Congratulations on the strong result. I have a few questions. Firstly, I mean, you're forecasting stable rates. So I guess, are you expecting margin to remain stable over your outlook horizon roughly from here? It sounds like you are. That would be my first question. If you can give us some color on margin outlook. Second, you're guiding for EUR 1.3 billion or above EUR 1.3 billion of revenue this year, which is more or less in line with last year. So why haven't you upgraded the guidance? Why are you not so bullish on growth on the top line? Or are you just being conservative there? And then also on the EUR 1.5 billion guidance for or above in revenue in 2027, if you can share some thoughts on how -- where do you see that growth coming from? And then last on the tax rate. Can you give us some color on where you expect the tax rate to go over time because I think it's still quite low. And then just maybe last on the risk cost guidance. It's a pretty large range. Can you give us some feeling of where you think it's going to settle over the next couple of years, having again outperformed your guidance last year?

Yes. That's pretty much the same story every year, right? We try to underpromise and outperform. So in this respect, showing more than EUR 1.3 billion could be sizably more. When it comes to the rates, we said rates are stable with an upward potential, so an uptick potentially. Now where this is going to end up at this point in time, it's hard to tell. But the Republic of Slovenia issued 3 weeks ago a bond -- 10-year bond with 3.3% yield, right, which is quite north from what last year at the budgeting process we could envisage, right? So -- it is early days. It is still mid of February, but there is a potential to keep margins not only stable, but start building up gradually. To what extent, we don't want to speculate now. But there is a potential for growth, and there is a potential for actually delivering more than EUR 1.3 billion in a materially important way, right? Then the year after, it's again a function of whether we would be able to keep the growth of the growth momentum. So in midterm strategic assumptions, we've been operating with high single digit, right, 8% growth. But last year, it was 14%. And if this year, it were to end up again in double-digit territory. Of course, there is a potential to show higher growth later on. The real question is to what extent in a high -- really high wage inflation environment, we can contain cost as well because Slovenian government just increased minimum wage by 16.4% in one shot, right? And we've seen such similar moves in some other countries as well. And this, of course, reflects then generally in the total pressure. So the combined equation of profitability is a bit, of course, a question of that as well. But generally, in revenue terms, yes, from now on, growth would have to be more reflected actually in the revenue as well, right? On the other hand, when it comes to the cost of risk, yes, in last 10 years, we -- in principle, apart from the COVID year, we outperformed this year barely, but still -- so in this respect, if you ask me from today's perspective, with a bit of good luck, current restructuring cases would not implode, would improve. And then it's more realistic to expect it at the lower end of the range again, right? If there were some further surprises coming from various corners or some restructurings that we are working on actually at certain point, get over the tipping point into the other direction, it might be rather closer to 50 (sic) [ 50 bps. ] But we don't expect it to go beyond that in any scenarios that we envisage. But as I said, realistically, if there are no negative surprises, we could expect it to be rather at the mid of the range or maybe even the lower part of the range. But that's my commercial view and Andreas might add some views here.

Yes, not much to add here. I mean, I largely agree with Blaz. I mean you just have to see, given our size, so we are not a huge group -- so 1 or 2 bigger cases make quite a difference. We had actually in very early of the last quarter this year, one additional case, which, well, at the moment, didn't look good. If that one would materialize, we would be around 40 (sic) [ 40 bps. ] Actually, it turned out that this was exactly when we were looking closer, it turned in the positive direction. So that one for sure, in the meanwhile is off the table. But one case up or down can pretty much move you in that range. For sure, we are confident that we will not exceed 50 bps in any of these years. And I would agree with Blaz. If things go normal, then we should be rather on the lower end. But the environment is very volatile. I mean, think a year back, which of the things which in 2025 happened, we would have all assumed -- and then you see how volatile the environment is. So I think to be more optimistic than giving that range. Also given our size, I think that would be -- well, not a good idea for now. But overall, I agree with Blaz.

In absolute numbers, right, 30 bps to 50 bps, we're talking about EUR 30 million difference in EUR 31.5 billion asset book, right? So any material case can be EUR 20 million, EUR 30 million here or there. And then you are talking about is it 30 or is it 50 or is it 20 basis points? So it's actually not such a broad range as it is perceived at the first glance maybe. Archi would give you more insight into the tax situation.

So effective tax rate, not much has changed. As you said, we are below 15%. We will converge towards 15%. If you add the balance sheet tax, we are above 15%. But this balance sheet tax is supposed to expire, coincides, by the way, with the basically the full utilization of the DTA. So in that sense, 15% is kind of the magic number to which we expect to converge as a group.

And sorry, on the balance sheet tax, I thought that was in place for many years until 2028. Is that right?

No, it's in place -- it was actually enacted by law for 5 years. And let's see whether the new government coming in, right, would have a desire to extend it or not. It was originally meant for 5 years. It is the second year. So in March, we will be paying second payment and then 3 more payments to come if the original idea holds. If there are aspirations from the government in a budgetary deficitary position to actually extend it, this is too early to tell. But it was envisaged originally for 5 years at around EUR 30-plus million.

It has a sunset clause, so it expires. And let's see, but that's what it is.

Thank you, Mr. Nellis. Now we're moving to the questions that have been submitted in the chat. And the first question is from Antun Horvatic with Allianz. He's saying congratulations on reaching a market cap of EUR 4 billion. Two questions from my side regarding Sarajevo, and I will read them one by one. There is a big difference between Sarajevo and Banja Luka when we compare net interest margin and cost-to-income ratio, which then results in different profitability of those 2 subsidiaries. Since they are in the same country, why is the difference so large?

According to the name, I would expect you are aware of the peculiarities of Bosnia-Herzegovina and 2 entities and a couple of other aspects of it. So they are not really fully comparable markets, right, in this respect. And we have a totally different position at a beginning position as the bank in Banja Luka was actually originally a sizable bank with significant market share inside deposits. And by that, of course, a funding base that is totally different and the market share in the submarket of some 17%, 18%. Whereby the bank in Federation, which means Sarajevo, has been the underdog in sense of total assets market share at only around 6%, 6.2% and has been fighting through and climbing up to obtain more or less a strong funding base on one side and the competitive landscape in actually both entities, but even more emphasized in Federation of Bosnia-Herzegovina is that corporate loans are priced at ridiculously low levels. I mean the margins actually of banks in Bosnia-Herzegovina are intuitively extremely low. So against any intuition, assuming country risk and the other aspects of where we are, the margins in Bosnia-Herzegovina are really extremely low, partly because they have been regulated to a certain extent, capped to a certain extent. But really, in some instances, it is irrational to follow. That's why, of course, we are focusing on retail portfolios, housing lending and so on. And in Federation, we mean scale simply compared to other market players, whereby in Banja Luka, we have a very solid side deposit base, which is a treasure, obviously, and a very solid market penetration in the submarket. So it's not really comparable in the sense of how we are positioned with both banks in submarkets on one side. On the other side, as much as this is one country, on the other hand, of course, there are so strong peculiarities or specifics of individual submarkets that you can't redirectly compare it necessarily.

And the second part of the question is regarding the Investor Day. Last Investor Day focused on 2030 strategy. What will be the focus this time?

Well, showing the progress in delivering the 2030 strategy still early in '26, right? It's still almost 5 years to go. And at the same time, thinking of potentially what might be beyond. But generally, it is really to focus on showing you and somehow instilling confidence in you that we are well on track to deliver the 2030.

Thank you. And we have another caller. This is Mr. Miguel Dias with Wood & Company. Can you hear us? No. Okay. Apologies. We'll make sure we get this call through. And we can move on to another question submitted in the chat, which is from Mr. Jovan Sikimic from ODDO. And again, there are 2 questions. I'll read them one by one. So number one, what was the trigger in Q4 to sharply increase the NPL ratio, Stage 3 in the corporate segment? Where do you see realistically the NPL ratio by the end of 2026?

Yes. So I thought we discussed what happened in Q4. But once again, so I mean, we have been discussing now throughout the year that we have a very small number, but with considerable volume of cases in automotive and in steel, where we simply expect the development not to be positive. This has actually materialized, if you want, a little bit accelerated through the fact that steel industry in Europe did not have an easy year at all. And automotive, you anyhow know also not really. But I have to say that these cases, they are very isolated. So it's not that the industry is doing bad in these countries, but it's very specific reasons. And this has simply materialized in quarter 4. The ones of you who were at the previous webcast, I mean, I have indicated that more or less already throughout the year that, that is not unrealistic to happen. As you see overall in the blend of cost of risk, we are still very, very solid. And obviously, by far, biggest part of the provisioning in the last quarter is coming from these cases, almost exclusively. So despite that, I mean, at the end of the day, the cost of risk result is very good. And looking forward, I mean, so I'm not expecting now every quarter to come such big cases. That's also referring a little bit to the previous question, no. We had basically now in the last quarter, 75% -- good 75% of the entire year's charge of cost of risk. And obviously, if we are guiding next year and the year after next year for 30 bps to 50 bps for the entire year, then obviously, the assumption is that this will not repeat. And honestly speaking, I mean, also on these cases, let's see what's happening in 2026. There's a chance, of course, that we see even worse news here. But honestly speaking, there's a very solid chance that we see also some positive news so that maybe the one or the other case would even resolve. So overall, it's a very isolated topic, for sure, not unexpected. And in that format, for sure, not expected to repeat.

The question is how this is going to affect '26, right? And I would actually expect quite some of these exposures to be cured. But the question is, of course, whether this could be possible to then be done in '26? Rather very likely '27 and beyond. And I would, from today's perspective, not see significant new influx in terms of NPLs, right, because this is more or less recognition of bigger, major cases. Stage 3 and provisioning, right? So we would hope now they are now officially firmly in the hands of the restructuring team, so no longer sales team. We are heavily working with other banks. We have been actually lead arranging all of these cases as the NLB. So we have really full insight into the shape of where we are and which stage of the restructuring. So we have quite good feelings around this. Here and there, there might be still negative surprises, but we would rather hope for the full curing actually of these cases. And then in upcoming years, not affecting this negatively, but positively. So this was more or less an interim ad hoc increase coming from very specific pockets of the portfolio, but contained in terms of concentration. Imagine this is almost the entire steel processing industry of Slovenia with more than 500 employees in restructuring, and we are still at only 29 basis points as a systemic universal financial services provider, being engaged in all of these cases. So it's contained. It's manageable. It's by no means anything ridiculous. And looking forward, I would rather see then some cures than additional incremental material deteriorations.

I mean, again, here, I agree with Blaz. The thing what you simply don't know in such a vivid environment, which we have, which surprises will we see in '26. And in that sense, I think it's prudent enough to be here reasonably cautious. So maybe we see some inflows. Do we see them now? No, we don't, again. But it's a very vivid environment. And if you look outside in this world, it's very easy to see. So let's see which surprises come this year. With saying all of that, again, we are very confident to keep in our guidance. And if things go a little bit normal, then for sure, on the better end of that.

In short, it should translate to NPL ratios at less than 3.

Hopefully below 2 soon.

Sorry. So we have the second question, which is, roughly speaking, strong growth is eating up into capital base, but profits are absorbing the impact. Effectively, the CET is stagnating. Do you think that there is a big room for a larger M&A out of internal resources, especially given the sharp rise in banks valuations over the last couple of months?

Depending on the size of the M&A and of course, the valuation. So it is really academic now. Of course, the midsized acquisition, and we are communicating up to EUR 4 billion, right, of risk-weighted assets, we can meaningfully finance with the existing capital structure and some dividend, right, discussion. So this is doable. If no, bigger acquisitions, of course, we never even thought of -- so in this respect, we are always communicating we are with our existing ownership structure, right, shareholder structure and capacity to originate capital, more or less limited with this up to EUR 4 billion risk-weighted assets, right? Keeping normal, of course, management buffers on the capital adequacy. So in this respect, we have never been dreaming of anything larger than that. And of course, this is, again, then in combination with the valuation, what we can absorb. It's so simple, right? So we never dreamt of anything like going beyond this EUR 4 billion, and we have proven, I hope, by now that we don't transact at ridiculous valuations, right? So this was -- this would always be a combination of absorbable size and valuations. And we would always try to retain cold hat and calm hand at transacting.

And now we'll give it another try with Mr. Miguel Dias with Wood & Company. So Mr. Dias, is it working now? Can you hear us?

Can you hear me?

Yes.

Okay, okay. Yes, congratulations on the very strong results. I just want to follow up on some of the questions that Simon asked. So in terms of net interest margin, you're seeing it stabilizing even with potential upside in 2026. The question is -- what are you assuming in terms of rates in Serbia? Are you assuming that they remain stable? Or are you assuming some cuts? And even with the cuts, you're seeing it the net interest margin at group level stable?

Yes. So I don't want to speculate on certain monetary policy. But I mean, you see inflation still slightly elevated. So I guess we don't expect big movements in '26 on the margin. There is, for sure, in a normalizing environment, a bit of a tendency in all these markets for margins to slightly compress over time. So that's why for us, we are focused on the overall operating margin, as we call it. And so in times of high interest rates is not for us to rest, but prepare for times of lower margin, and that means provide more higher value-added fee business. And Blaz mentioned asset management, that's for us front and center in the Serbian debate. And also all other, of course, services that keep our customers loyal and make them pay their regular fees for maintaining their bank accounts with us. So in that sense, the margin outlook, I wouldn't see dramas. I would see it rather stable. And given the volume growth, we see it translating into a good solid single-digit revenue growth.

In Serbia, this year, we'll be reintroducing comparable applications and onboarding process as we are, of course, also working on in Slovenia to more or less match the Neo experience. So in Serbia, we will be really working on new net client acquisition and site deposits as a funding base as well to be less dependent on generally the rate environment. And in this respect, hopefully, be able to keep the margin in Serbia, but globally looked at in the aggregate terms of the group, of course, a potential slight uptick even. I mean, we repatriated last year since our profit, more or less '24 profit in '25 in dividends as well. So it's been a highly successful transaction from the scratch. So we are pretty happy with the developments. But we need to beef up above all the user experience, and this is exactly the year of focusing on the user experience and by that attracting and retaining client base and site deposits predominantly.

All right. So I take your assumption is that flat rate in Serbia. Okay. Cool. In terms of the tax, the effective tax for the group, right now, we are a very -- quite low level. And from your comments previously, we are -- so you are seeing that you are converging towards 15%. And you mentioned also that the sunsetting of the banking tax in Slovenia. Do I take it correctly that you see the conversion towards the 15% by 2028 or?

Yes, '29 actually because this is when all this coincides basically utilization of DTA, the sunset clause and yes.

Yes, we will fully utilize the DTA and then this is expiring and then we are at normal levels of, let's say, European Union, right, as far as 15% global tax rate.

Because we see slightly higher than 15% in Slovenia and slightly lower than 15% in the rest of the space. In the meantime, there is an OECD rule in place that also makes countries converge, as a tendency towards this 15%. So for the time being, that's what we indicate.

All right. Understood. And in terms of the guidance, as Simon pointed out, I don't know, like I just made some back of the envelope calculations, it seems that, yes, you could have lifted the guidance in 2026 revenue. It seems rather very, very believable that you'll hit at least [indiscernible]

We would rather overdeliver than increase the guidance in February.

We need some goodies for the Investor Day as well, so.

Thank you, Mr. Dias. We have a lot of callers today, and we have also Mr. Simon Nellis with Citibank with another question.

Just a quick follow-up on costs. I see that you've had high teens growth in depreciation, D&A for 2 years now. I think it's mostly acquisition related, but can you give us some color on the outlook? I assume that the growth rate will decelerate quite significantly this year, I hope. And then also just on employee levels, I think they were down just under 3%. I think you are guiding for further reduction in staff over the next -- well, over the business plan. But can you give us an idea of -- is that going to be a gradual reduction over time? Or are there like big investments into tech and IT that you need to need to do before you can really reduce staff levels?

So on depreciation, that's a bit of an overlay of effects from the leasing acquisition, which happens to run technically some depreciation. So there was a step-up and that's, I guess, what you're observing. Otherwise, we are -- I mean, it is also true we keep investing in fixed assets in a sense of -- we improve our head offices. We improve more importantly, our branch environment. There was quite a bit of underinvestment in, I would say, the last 20 years cumulatively. So we have to catch up. We rationalize the branch network. We intend to reduce the number of outlets, especially outside Slovenia. I think in Slovenia, we are kind of almost there. We have actually indeed opened a new branch recently. So we try to be smart about this. And on the cost dynamic in general, headcounts, I mean, it's true that we have been more successful in some markets than in others. If you look at Serbia, I think that's a very solid success story. We have gone from 3,300 combined headcount to something just above 2,000. So here, we have, I would say, done the homework of the merger. In Slovenia, we keep investing in transformation capacity and talent. That is admittedly expensive, and also takes time to show effects. I'm looking forward to the Investor Day to put more flesh on that bone. But of course, we will rationalize the headcount group-wide. And I think we have shown here and there that we are able to do that effectively. And I mentioned earlier that the transaction load on the branch environment globally has been reduced by 20%, 25%. So I'm talking cash and payment transactions. So stuff where people go into the branch and use it for transactional services that, of course, in the meantime, you can do perfectly well in self-service. And we have reduced that workload by 20% over the last 2 years. So we do change the way we run and operate the branches, and this will also ultimately show up in back office and front office headcount. And that's part of the gist for the whole 2030 strategy, if you want, because in a nutshell, it says we would substantially increase operational leverage.

But '26 and '27 are still years of heavy investment in new platforms. I was mentioning new apps in Serbia, but this will be replicated throughout more or less the entire geography space. And in Slovenia, we are adding up also. So it's been a heavy investment program. It's not only, of course, the hardware of branches, it is also the software in the digitization. This is massive. And of course, this means licenses. This means, of course, new development. We are adding talents, of course, in delivery terms as well. But we are at the same time reducing. So the level of aspiration in terms of efficiencies has not faded out basically. So in principle, this is a couple of more years where you might see this 2%, 3%. But we have said at the last Investor Day, we are aiming at reducing by at least 20%. And we are on this trajectory to reduce by at least 20% until the end of 2030 in terms of the actual number of employees, right? The cost evolution, though, since we have been massively investing and we have been in a high wage inflation environment, it is not really realistic to expect that we will have lower absolute cost base. So in principle, it's more or less containing the growth to, let's say, maximum mid-single digit, while you are able to grow revenue quicker than that, significantly quicker than that at certain points. So this is the main idea still of the strategy.

And one last call, Mladen Dodig with Erste Bank.

I would like to join the congratulations my colleague on the result and the market cap. I don't know if my mic is good. I see you are -- tried hard to hear me something is wrong, definitely.

No, it's okay. Yes.

Yes. Just out of curiosity, this EUR 28.2 million repayments on the risk net impairments, is there a kind of equal geographic spread or it's coming from 1 region or 2 or -- because last time, I mean, I always ask you how much of this you have still left, but I know it's a number is not so significant considering the total assets now and everything, but it would be interesting if you can reveal it.

No. I mean, geographically, last year, well, again, a lot from Slovenia and a lot from Serbia. If you see the total stock of off-balance items, it's also not very surprising. And of course, you know that we, in Slovenia acquired actually also 2 assets, so Sberbank a few years ago and now leasing. Usually, that's actually interesting that was also with Komercijalna Banka, not unsimilar. The off-balance part is sometimes not worked very intensively on. So that's from the tendency and upside. For me, sometimes, honestly speaking, some of these cases are surprising. I mean we -- not this year, so '25, but one of the previous years, we solved the case which 30 years, nobody couldn't do nothing with it, 30 years, 3-0. And then it materialized in 6 months. So given that we still have a very solid off-balance book, I mean, it's a question of what in a concrete year really materializes from the tendency if we don't acquire any new assets in terms of inorganic growth, I mean, it's doomed to shrink obviously. But what -- in which magnitude and also which amplitude actually is, for these kind of assets, really very hard to predict.

And now we have 2 more questions from the chat, and we'll start with Mr. Dan David with Autonomous. The question is, can you explain the move in CET1 quarter-over-quarter? What profit is included in CET1? What would CET1 ratio be with all full year '25 profit included? Should we expect extraordinary distribution in 2026?

So CET1 assumes the envisaged payout ratio. So it's a retention of 45%, obviously, and that's baked in. So I mean, we could do the math. It will be very basic, probably add 100 bps, 150 bps in CET1 if we had included all of the profit. But that theoretically, hypothetically, we indicate a 55% payout for good reasons because we have the capacity after this very successful Tier 1 instrument issuance, in particular, we are really very well capitalized. And unless anything moves in M&A, which for now, we don't see the outlook of payout is 55%, and that is also fully baked into the CET1 ratio.

Thank you. And we have now 3 more questions left from Mr. Dan Mikhaylov from Vergent Asset Management. I will read them one by one. So the first question is, can you break the cost of risk guidance between Slovenia and ex Slovenia?

Look, at the end, this is a blend which in these days from what we are seeing is changing faster than I would like. At a certain point of time, we have, for sure, assumed more cost of risk in Republic of Srpska and in Serbia. Honestly speaking, for Serbia in 2025, it was surprisingly robust. Looking forward, I mean, as I told you, we don't have very concrete indications right now. If you would have that anyhow, we would book it in '25, right? And it's a very volatile environment. Serbia, if you ask me in the last couple of weeks from my perspective, has come a little bit off the hook of this higher tension point. Republic of Srpska a few months ago, there was a actually surprising turn. We saw in '25 actually more in Slovenia than I would have expected. So these cases, which we're mentioning now all the time, actually all materialized in Stage 3. At least one of them I would have expected to stay in Stage 2. So looking forward, obviously, the big geographies that's Serbia and Slovenia, we don't see now in any of the markets, including these 2, any -- very dramatic developments, which would indicate us here, it's much more than there. But it's a very vivid environment. And so in that sense -- the usual suspects are Slovenia and Serbia, given that simply the share of the portfolio. But at the end of the day, it's every year, again, a new combination, honestly speaking.

All right. But in '25, it was industrial base in Slovenia, basically. Steel processing and automotive Slovenia. There were a couple of EUR 10 million from the entire other group, but the rest is basically acknowledging that Slovenian industrial steel processing and automotive businesses have been under stress and require restructuring. And this is more or less the '25 reality, right?

Yes.

And in '26, it could be entirely different because we would hope that in Slovenia because that would be not so material anymore, and we will have normal distribution. '25 was not a normal distribution. It was a Slovenian skewed distribution because of strong industrialization of Slovenia.

The second part of the question is, do you plan any additional AT1 issuances? If so, should we expect this to enable you to raise dividend per share faster in the medium term?

So for now, given capital levels, there is no need. Of course, M&A would again change the equation depending on the size of the M&A. Broadly speaking, we indicated target optimal capital levels of 13% and 15% for CET1 and Tier 1. We are exceeding those ratios. That's why we are also upped a bit the game on the payout ratio from 50% to 55%. We try to not rock this boat too much. You see outlook '27 is 50% to 60%. So recognizing there is still upside from the current payout ratios, but we see this rather as a steady evolution than as jumping here the gun.

We are applying the balancing act continuously in a sense that we try to, of course, provide a meaningful dividend payout, but at the same time, keep also growth opportunities covered in a sense that as long as we can grow the loan book by even double digits, right? But at the same time, see some potential for the M&A, it would be irrational to distribute the capital in form of dividend. So we are simply keeping the buffers. If we didn't have any visibility on, let's say, halfway likely M&A going our way in a material amount in the upcoming 2 years, we could always upsize the dividend. But as long as this is not the case, it would simply not be smart because you go hunting with a loaded gun. And if you don't have it, then, of course, it's much tougher in case that there is an overnight opportunity.

And AT1, just to conclude, is at the moment at optimal level. So there is no need and actually no capacity to issue more as we speak. As I said, if the RWA base substantially increases, that equation changes again. And then obviously, we would consider stocking up on AT1.

And the third question, what is your assumed growth in personnel expenses in 2026 on the back of Slovenia's minimum wage hike?

Well, we are still looking at mid-single-digit levels in principle. Let's see where we end up because it's a combination, obviously, of wage pressures on one side and the actual headcount on the other. And it's too early to tell, but let's say, mid-single digit to high-single digit is somehow, something that is realistic to expect.

Ladies and gentlemen, thank you. In the interest of time, the remaining questions will be answered by e-mail. And now I will hand it over to our Management Board for closing remarks. Thank you for being with us.

Thank you very much. I believe we have exhausted more or less the key challenges in front of us, but above all also the opportunities. What is really, at this point of time, hard to tell, would NLB find its way in, I'd say, not-too-distant future to transact again because this is what we have been talking about. We need an event, and we are ready for an event mentally and of course, also in terms of capacity. But we are, of course, also at the same time, very happy that we have been the growth story. So growing the volume of loans by 14% is really something that is in comparison to, let's say, Western European markets where you are more or less exploiting internal reserves, I believe an attractive opportunity, right, and a narrative. And in this respect, this is really good to work in an environment that's growing. We're looking forward to the region. As a whole, Slovenia has had its challenges, but we see very solid prospects for growth in other geographies in the region. And that's simply something we will benefit from, and we are simply looking forward to it. And I would just wrap up, as always, thank you for hanging in there and being part of our successful journey. Take care.