Thank you very much. Good afternoon, everyone. Well, welcome to another quarterly presentation of NLB Group results. Let me draw your attention to the regular disclaimers, standard disclaimer, and move on to what we are looking back as something that is of course very good. We continue with very solid performance, the fortress balance sheet as we have more or less been positioning our business in the last decade. Throughout the last decade, is now crystallizing its value. We knew sub-sensitivities upfront, we knew certain positions upfront. We have weathered through the, you know, just recent turmoil, with very solid position. In this respect, we haven't eaten into the capital significantly. We have actually been performing very well in all dimensions. Continued with the loan growth, especially in retail.
Announce guided mid-single digit growth has been happening in front of our eyes. There's been a bit of a short-term drop in corporate lending given the fact that the energy sector companies that really needed liquidity support in the last quarter of last year have repaid this support, which is also a strong signal of strength from the energy sector in the region. By that, we believe we are well on track in both segments, as said, extending financing to households and businesses of the region. Of course, this has been happening now in a different and interest environment. We have continued with very ambitious activities when it comes to fee origination as well. This has been evidenced now and recorded with really solid results of the first quarter.
In terms of net interest income, in terms of obviously a bit, a bit moderate pace of growth of volumes, of loans and, fee products. Overall, this is resulting in a very robust top line. The group has continued with very disciplined cost management. If we sterilize results for one-off restructuring charges, we have been in a pretty, still very high, practically inflation environment, very strongly controlling the cost development and evolution. By that, delivering, of course, solid top line, on one side, and of course, the bottom line on the other.
This has been further supported clearly by very, very solid asset quality, high diversification of risk and sound underwriting criteria have, again, shown that the balance sheet of the bank has been positioned very, very well, that the credit risk has by no means been a sizable, a sizable risk category, even in such turbulent times as we have been evidencing. On the other side, this is based still on a strong macro. Despite what you may read globally, this region has been growing in real terms, solidly. If you look at Slovenia, clearly we have had the record level of employed people and the lowest level of unemployed people in the history of the nation, practically since 1990.
In this respect, of course, this is strong support to the first soundness of the finance of households and businesses. On the other hand, clearly, the prepayment, impeccable practical repayment discipline leading to very, very good output in terms of the cost of risk. There has been a slowdown in real economic growth, but if you compare this to the European Union average and European Monetary Union average for both Slovenia and the region, we are still, you know, in a very good position. We are now coming from a very strong, robust growth in Slovenia in 2021 and 2022, where Slovenia regained its position of the most successful transition economy with reaching 92% of European average in terms of GDP per capita in purchasing power parity terms.
We see further stronger growth than in the core European Union. Slovenia is catching up quickly, and other countries in the region also are somehow still, you know, riding the wave of still solid first order books of businesses. On the other hand, now pretty stable situation when it comes to being able to procure energy and, you know, procure this energy at much more reasonable terms than last year. The producers, especially the industrial part of the, well, the economy in Slovenia, has been able to, you know, significant extent pass over the energy pricing pressures, to the offtake prices, and by that, obviously creating strong cash flows. This has been leading clearly to, you know, the past year in history when it comes to the profits.
Of course, in the first quarter of this year, we see a kind of a slowdown compared to, you know, the last year, but this is still at pretty high levels when it comes to the total output. In terms of other important developments, NLB has continued clearly with the focus on the entire landscape of so-called ESG related matters. Sustainability is in the forefront of what we have been doing. In this respect, we have been clearly working on now already published framework of the green bond. The funding position of the bank has been very, very strong, sitting on really a significant cushion when it comes to liquidity reserves.
Of course, communicated already, have been communicating for a while, that we have been working on the issuance of senior preferred bonds this year. We have been in pretty advanced discussions. We are actually, we have a high ambition to label this clearly not only label, but of course deliver upon the promise from it, by green, which means that these EUR 300 million-EUR 500 million senior preferred notes that would come to the market still preferably in second quarter, so in the coming weeks, would of course also be the first ever in history with a green address to it. In this respect, of course, label to it, and by that, of course, further cementing our commitments in a direction of course, green transition within our region.
We have just called the general assembly, convoked the general assembly, that's going to take place in June, 19th of June, at which we also announce the payment of the first installment of the dividend. We are sticking to what we have been communicating so far. Combined dividend of EUR 110 million, of which, EUR 55 million to be paid, to be payable in June and the rest towards the end of the year. By that, we keep the momentum in being able to address the shareholder base twice a year. I will wrap up with the outlook at which I will explain also our capacity to actually address eventual action opportunities. In this respect, it might be worthwhile having the opportunity to talk to the shareholders more frequently in the upcoming period.
I will pass the word to Archibald, who would guide you through details, and then later on Andreas to the asset quality matters. I would then resume and sum up at the end with the outlook.
Thanks, Blaž. I'll keep it relatively brief because many of these slides are, especially on the macro, not much has changed indeed. Blaž indicated that things are stable across our region on pretty much all countries. You see the growth projections, they are a bit slowed down predictably. You see a bit higher inflation rates throughout the region. Slovenia seems or is a bit elevated relative to Europe already on a pretty solid path downwards as the rest of Europe. In the region, it might stick around a little bit longer, but overall, we are very comfortable with the macro situation. That's, of course, the context for us operating in a safe environment.
You see the general trends are stable, fiscal positions maintained responsibly, and currencies and currency management throughout the region are stable and for us, predictable, understandable. These things are managed rationally. For us, that's an environment in which, as indicated, we thrive. We remind you that overall economies are, broadly speaking, still on moderate leverage level. Importantly, these days, LTDs, as you see, are moderate even to, compared to Europe standards. These are system levels. So our bank, of course, not different, and in some markets are indeed even stronger. This is environment we like. As was mentioned, loan growth has somewhat moderated, and that's okay. You see that basically loans are flat, deposits are flat.
Q1, EUR 120 million profit after tax. That's obviously a very, very strong result. We are well excited to be able to present these results. It's positive in all dimensions. Revenues up substantially, of course, rates playing a significant role, we'll come to that. Fees still are rising also of course, on quarterly basis with moderated growth. Don't forget there's a bit of a switchover from fees to rates still playing out. Of course, with this result, fundamentals and KPIs are just stellar. I wouldn't put any other name on it. All this on the back, as Blaž said, a very, very strong and robust balance sheet. Strong liquidity, strong capital.
These are things that in this environment, frankly matter, so we're very happy and privileged to be in that position. We don't take it for granted. Of course, we work every day to keep it like that. On rates, as was mentioned, the trend that basically we're starting to visibly show in Q4 are now continuing, and it's pretty much predictable and transparent from our point of view, also for outside investors. We of course, start to pass on some of these rate increases to customers. We want our customers' base to remain stable and loyal to the bank, to the franchise. Of course, we in the meantime offer a healthy mix of terms and sites.
On terms, you already get better rates, depending of course a bit on the particular situation in particular markets. Of course, for us it's important to keep this kind of a fair and balanced equation. Ultimately, of course, customer loyalty is something we value. In that sense, you see a bit of deposit pricing. In essence, prices go up on group level Q4- Q1 from something like 10 bips up to something like 20-25 bips up. There is a repricing dynamic playing out, and that's something we are happy with. As mentioned, this is just fair to our customer base. Of course, these days, deposits are very much valued, not just by us, but also by competition.
We are here clearly also trying to keep up with our competitive environments. Nevertheless, interest margins are now visibly above 3%, so that's of course an environment in which banks thrive. In that sense, also our incremental costs incurred with quite visible capital market activity last year, and as Blaž indicated, to continue, we are now clearly on path to, well, reap the benefits of 10 years of solid underwriting, being in the market, having a loyal and strong retail and corporate customer base, and now it shows. Of course, it's showing in all dimensions. Fees, as I mentioned, continue to grow, also a bit moderate.
If you look, the fee commission year-on-year comparison. As I said, that's of course, somewhat understandable with regards to the conversion from some fee to some rate revenues. Remember we had still up until not so far ago, corporate deposit balance fees. Of course, all this is gone. Also to comment briefly, we have recognized regulatory charges in quite visible amounts in Q1. That is, of course, not a recurring cost. This is the dynamic of cost recognition. These costs will not show up in subsequent quarters. Costs are an overlay of recurring costs, and of course, we see the inflation dynamic or is in our cost base.
The restructuring charges, as was mentioned, plus ongoing continued efforts to synergize, both in Serbia and Slovenia. These developments are not finished. In that sense, with this Q1 number, we are pretty confident that we will be able to keep guidance as published already. Of course, we continue to do our homework in both markets. I mentioned Serbian integration is finished, but efficiency work is not yet done. In Slovenia, of course, we are still in the midst of an integration process. Profitability is of course very, very strong these days, and we are really privileged to be able to present such numbers. Not much to be added here. You see also the different markets very well performing.
Every market is really showing good trends, and in particular Serbia. If you see the dynamic, then you will understand that our published EUR 100 million ambition is not so much off. Loan dynamics, we mentioned pretty good, solid performance in individual segment retails. As Blaž said, some in essence, good repayment dynamics because the energy crisis is largely gone and digested. In that sense, some of the money that we extended to this sector came back. That's perfectly fine. You see our subsidiary banks are pretty much on target with regards to growth in an environment like that. We are broadly speaking, very happy with this dynamic. Capital is... Well, not much to say.
We had a bit of reverses from the securities valuations. Some EUR 20 million came back on OCI. On the other side, we had to expire or retire the benefit from the regulator on some of that, so that's a one-off reversal. In that sense, we are still hovering around 19%, so very, very strong capitalization. Of course, that's a function of us being, having been quite active in capital markets. Last year, remember we had EUR 300 million in combined Tier 2 and Tier 1. That shows now and of course underlines our fundamental strengths and what we like to call the fortress balance sheet these days. It's just a good thing to have for many reasons.
On the funding side, you see our somewhat fragmented universe, and we will, going forward, work on consolidating these positions, especially the Tier 2s. As they become callable, we will look into ways how to consolidate them. In the meantime, as was mentioned, we are on the road with a green bond. With that, we will comfortably meet the 2024 target. Ideally, we'll raise up to EUR 500 million to give us some room for maneuver also from for tactically M&A. On the banking book, of course, on the securities portfolio these days, everybody is looking at, to what's going on. We are, in essence, as we've always said, very conservatively invested. You see here basically investment grade plus our home sovereigns.
Of course, with valuations that, well, clearly show the result of a record increase in rate environment, observed in the last 12 months, but nothing we can't comfortably digest. There is really nothing remarkable in here other than we were conservative, we are still conservative, and in that sense, for us, yes, it was quite a dynamic year behind us, but our balance sheet easily digested whatever happened. By that, I'll pass on to Andreas.
Archibald, thank you. I heard from both colleagues already solid underwriting, so thanks for that. Indeed, I have to say, the first quarter from risk perspective was actually excellent. You saw it already quickly in Archibald's presentation, above EUR 80 million of loan loss provisions we were able to release. That's coming a little bit from all sides. We were disposing of the remaining Russian bonds for much lower discount than we were anticipating. We had some solid repayment in the energy sector. Actually, of contingency lines, which with these price levels are, of course, not needed anymore. You heard it at the very beginning also from Blaž. Then again, approximately EUR 6 million, little bit more than EUR 6 million, from off-balance items. Overall, a very good quarter. Some positive surprises, no negative ones.
The next slides are, in the meanwhile, I guess, quite familiar with you on this one. Well, the dispersion between corporate and retail and the geographical dispersion, no surprises. The only thing what you can see here in corporate, a reduction of some EUR 140 million in total exposure, and that's obviously related primarily what we just all said already, Blaž and me, that's the repayments in the energy sector. Very well-diversified portfolio. Also here, no revolutions to this kind of well, overview. You are, in the meanwhile, also already used, of course, with a focus on manufacturing and trade. But if you go here in deeper, if you go here deeper, also well-diversified and actually no real surprises. On NPL ratios, well, still continuing to decline.
Obviously, at these levels now, slowly declining, so from 1.8 in December to 1.7 end of March. That is in EUR 320 million on-balance NPLs, whereas, well, a little bit less than half of it, EUR 149 million with 0 delays. Also with this you are already familiar, these are primarily restructured cases which are not yet through the healing period. Obviously, very well covered and also, geographically dispersion of these NPLs is, in the meanwhile, normal. Previously, we saw some over average here in Slovenia simply because we kept the non-Slovenian part, originally in, well, beginning of 2014, but that's fully normalized in the meanwhile.
What we added, well, last year I guess, because it gets more interesting, is two slides on interest rates. What you see here, if you would compare with previous presentations, is that simply, obviously, we have a trend towards fixed, not very surprisingly, and that's especially true for consumer and housing, both here in Slovenia but also in the rest of the group. When we are talking about the variable part of our exposures, I mean, what you can simply see, but this we explained also previously already that because our interest rates here change every three or six months, depending on the EURIBOR, mostly so that the biggest part of the portfolio buys these three and six months. There's always a little bit running after effects.
In reality, on top of the bullish development on the income and on the margins, this tells you that in this environment, obviously, still more to come. Yeah, that's from my side. Thank you. I'm handing back to Blaž.
When we're talking about the outlook, clearly we can say that we have took some time to revise the reality, right? We have been performing significantly north of what we have been expecting for this time of the year. In this respect, it was simply responsible to review this communicated guide guidance targets, and in this respect, produce, you know, a set of them that we believe are much more reasonably representing what is actually happening. It's almost half a year gone. In this respect, this is of course good news. This is all good news for investors.
We are seeing this business position now more solidly when it comes to, of course, top-line origination capacity, so exceeding EUR 1 billion already this year, more or less reaching almost EUR 1 billion, but then in the upcoming years. Of course, anticipating, you know, further normalization, this time a bit down again of the interest environment, but of course, growing the business, and by that, being able really to deliver the top line that is significantly higher than expected. On the other hand, keeping the discipline when it comes to the cost management, delivering on synergies, through both integrations that have been pending, and especially the upcoming years will be really the years of focusing on process efficiencies and improvements all over the place, end-to-end, and further push on digitization.
We believe that, you know, overall results and there have been discussions and dilemmas where when and whether NLB will ever reach 50% cost-income ratio by some investors. We are very close, if not over-delivering, right, below 50% cost-income ratio. On the other side, the returns, both normalized and, you know, the actual reported ones are, of course, significantly better than expected. We are looking at more than 17% and more than 18% outlook for this year, and actually in the upcoming years, even up to 20%. We have been moving this bank to the EUR 400 million net profit ballpark, you know, even more in the upcoming years. The internally originated capital through higher than expected profitability is of course leading to even more capacity to consider eventual technical M&A.
It is on one side facilitating for organic growth, but we've seen a bit tamer development here, so we still stick to the mid-single digit volume growth of both retail and corporate books this year. On the other hand, of course, this leaves significant room then for, you know, even a bit more ambitious thinking of potentially acquiring businesses within our home region landscape. In this respect, we have been talking at around EUR 2 billion capacity. Now we are actually talking about around EUR 4 billion capacity, which is, of course, a very good news for us, believing that we can actually significantly increase the volume of our operations in the upcoming mid-term period, which is in the interest on one side of further robustness of this banking group, further positioning of this group in this region.
Also, it's a good news, we believe also for shareholders, because simply, you know, growing capital base at even same volume of traded shares automatically leads, in principle, at certain point through normalization of valuation to, of course, higher liquidity, hopefully bringing this banking group, you know, closer to the emerging market perception, right. This is something that is our goal in midterm, and we have been, of course, acting in this direction. This means that of course we will be engaged in case of actionable, pending processes. Be it in Slovenia when it comes to potential leasing, you know, as have been announced more or less, that there might be a transaction. Of course, we have been closely monitoring developments in other core geographies.
As soon as there might be actionable assets, NLB would analyze the eventual opportunity and potentially bid. Currently there is nothing we can speak of concretely, but once of course, this might be the case, we would of course properly follow rules of disclosure. Overall, just to sum up, we are in a very good shape. NLB is very likely in the best shape ever in history. The 10 years of hard work on positioning the business in terms of target segments, target products, and capital buffers and liquidity position and high diversification of the funding base and high diversification of the asset base is actually, you know, for this time simply, you know, the best possible.
If we compare our business with, let's say, peers, both in terms of betas, both in terms of deposits stability, dimension diversification of risk on both sides of the balance sheet, we are really pairing fairly well, if not standing out. That's something I think is a very important message on top of financial performance. Financial performance is clearly very good, but also the strategic positioning of this business in terms of commercial activities, but of course, also the enormously expected deliverables from the structure is simply from something that provides significant room for optimism for the upcoming midterm period.
Given that the management board and the colleagues in the NLB Group have decided to this time when publishing these good results and strength also try to give some of this success back to the society. We will in the upcoming weeks, together with our employees, who will actually suggest and then vote for the recipient, donate EUR 1.35 million on all our markets combined to people in need. This time, these donations really go to the ones in social, health, handicap distress. By that, we simply want and will act as the responsible sub-pillar, systemic sub-pillar of our society. We believe that this is a very important gesture. It's not only about us being highly successful in monetary terms, but really impacting the environment.
Besides our clear focus on the ESG sustainability when it comes to climate change related and green transition related matters, we believe there are still, in this part of the world, many society related matters and inclusion and governance related matters on which we focus equally passionately. In this respect, I can express my utmost pride of my colleagues that we have jointly come to this conclusion and will communicate in due course who the recipients will be. Thank you very much for listening. Now of course, we are open for any questions and comments you might have. Thank you.
The first question is from the line of Jovan Sikimić with RBI. Please go ahead.
Yes. Hello, guys. Congrats to strong results. I would have two, three questions, if I may start with cost of risk. I mean, you had. I mean, those releases happen, right? It's hard to predict them, of course. Given the kind of huge amount in Q1, you in fact just a bit narrowed the cost of risk guidance for 2023. I mean, if we imply kind of for the rest of the year based on, let's say, the current midpoint of the cost of risk guidance, it would imply, I don't know, 50, 60, maybe even more additional provisioning for the rest of the year, which is equal to the pandemic year. It is really realistic or you simply want to stay conservative on that front?
That's a good question. I mean, look, as a CRO, I'm tending to be a little bit conservative. You have to see we are living in a highly volatile environment. So far, I have to say there are no specific clouds on the horizon, so provisioning is going, well, very regularly with these exceptional items which we had in Q1. You might say it's a little bit conservative. On the other side, really, it's a highly volatile environment, and you have to see if two, three mid-sized to bigger clients...
would get into troubles which we might not foresee in that way. This cost of risk is, if you translate it in EUR million, that's not exactly a huge maneuvering space. Yeah, I mean, that was also by the way a point we were discussing. If you ask me at that point of time.
Mm-hmm.
...to predict 30-40 bips cost of risk for the whole year is not overly conservative, but is for sure careful given where we are at the moment.
Okay. No, fair enough. Fair enough. Have you also described somewhere, I didn't get it in the presentation about commercial real estate exposure, given all these unpleasant events in U.S. Can you say a little bit on that?
I was almost expecting that question. I mean, first of all, commercial real estate, we have to define what commercial real estate is. There's a definition here in Europe, which is simply a regulatory definition, so reporting to the European Central Bank. This commercial real estate is simply the real estate, which is not retail, so residential, right? To say it simple.
Mm-hmm.
Of course, we have here sizable amounts of collaterals. You have to see that the bank is only very, very selectively doing what you would probably call asset-based lending. In most of the cases, the analysis of the corporate client in the way how we are giving loans is not related to the collateral. The collateral is a comfort element, but the repayment source is the business quality of the client and not related to this concrete real estate. In so far, if you would take that figure, that's a totally, you know, unhelpful comparison because it's just a reporting line to European Central Bank.
When we are talking about commercial real estate in sense of shopping malls, in sense of, offices, in sense of, for example, also wind parks, our exposure is below EUR 300 million, and we face zero troubles and so for this part of the exposure. The reason is also relatively banal. I mean, shopping malls in this region are booming. People are coming to the office, offices are needed, and wind farms or wind parks are working. Of course, you know, you always see a little bit ups and downs with this or that concrete client. Again, we don't have troubles, we don't have delays, and we are also selecting these clients very carefully. Usually they also have other repayment sources than this concrete project.
Overall, so far that's a very limited part of our business. I have to say that's the content answer. The formal answer is of course related to reporting line to ECB. This is a completely different dimension, and you mentioned it actually correctly than what we are discussing currently or what we would discuss in the U.S.
Jovan, frankly, office space is immaterial. We have two commercial centers, This is, you know, big capital cities of the region, You know, they don't have still abundance of that. On the other hand, we have two hotels, These are centrally located hotels in capitals again. It's, you know, it's really when it comes to materiality of it, office space is practically immaterial, This I guess, the biggest concern given the remote work concerns now.
Yes. Of course. Thank you. My last one would be, if I may, I think you booked some provision against potential fee reimbursements in case of early repayment. Is it something, a kind of one-off nature or should we expect it more going forward?
Well, we from today's perspective, believe it should suffice. This is, it is coming, it's coming as a follow-up to the so-called Lexitor case, right, in European Union, whereby you're bound to return proportional fees in case of early prepayments. This is going five years back, and we have assessed that, you know, with this level of provisioning, this should be covered. There might be potentially, if in case of, further needs, this would be something that is palatable and should not, you know, to significantly start eat into the result. It is, it is palatable.
Okay. Thank you. Appreciate the answers. Thank you. Bye-bye.
Thank you, Jovan.
Ladies and gentlemen, we will now move to our webcast questions. The first webcast question comes from Andre from HSBC, and I quote, "Are there any signs of any potential adverse government measures such as windfall tax?
There is nothing concretely, no, indicated. There are, you know, aversions of it. In North Macedonia, there has been a measure that didn't impact us, given the last year's performance. There are some other announced in Montenegro. There are some, you know, mainly fee restriction measures. There are some, of course, central bank-related placements measures where some central banks are keeping intentionally very low interest levels, right? Not following the ECB. We call this a bit of a hidden windfall tax, right? This is all factored in in our results. What is coming incrementally, potentially we don't see as really material. You know, this should be within single digit, single million digit. Single digit million perimeter, you know. It's not something that will destroy the results. From today's perspective, right?
The next webcast question is from Ronak from EFG Hermes. I quote, first question: What is the NIM expectation for the rest of the year given first quarter performance and the further rate hikes by ECB?
Well, two unknowns, right? What will be further hikes, right? Whether and when we would see a retreat of the levels, right? This is pretty difficult question. We have been pretty conservatively planning originally. That's why we have also been guiding now conservatively. Our existing guidance does factor in that, you know, there would be a cooling of, you know, this hike at certain point of time. I cannot be specific. The margin as of today has still been growing. Now it's still of course, because the rollover of EURIBOR is not finished, and we have EUR 5.6 billion long EURIBOR position, and we have that much money in central bank balances, right? When this next hike comes and what is the size of this hike is a crystal ball question.
The other side of the medal is of course the deposit pricing, and here we are moving up gradually, responsibly, because we also of course expect retreat of the rates at certain points. We don't want to now, you know, come to the situation that, you know, the rates on deposit side are exploding and then of course it is difficult to take these rights away from clients. It is also a moderated process in a sense. I can't be really specific, but from today's perspective, assuming there are, for example, two more hikes to come, let's say 50 BPS combined, right? Coming in the upcoming months, and then the retreat of rates is happening in, let's say, end of Q3 or, you know, early Q4, gradually, right?
We would still see quite some time of, let's say, margin at least being stable if not growing, and then, you know, potentially going down again. You know, supported by, of course, the volumes that will then pick up because this would mean stabilization of general perception of the environment. You know, is then inflation manageable, is then, you know, how we perceive generally, you know, some normal relations within the society and economy, and some normalization of economic policies, right? Fiscal and monetary. In this respect, we feel we are in a sweet spot structurally, and we aim to keep margins fairly high throughout the midterm period. Of course, again, another crystal ball question. Would then finally, after retreating, new normal level of EURIBORs be 2-2.5? Who has the answer to that?
I mean, we try to give you a handle with our 25 outlook. If you want, that's the midterm view that we take. That of course factors in a number of all of these elements that you ask for. From deposit betas, which currently are in the low single digits or mid single digits, but they come, they will come, let's say, conservatively into the double digits. Not high into double digits, but we will talk double digits. Of course, funding is, you know, still to continue. There are some rollovers we will have to look at. It's a complex combined question. The simple answer is our 25 guidance that we provide that I think gives you a reasonably good handle to get a sense of revenue dynamics, which ultimately matters.
The second webcast question is I quote, "The 5% Q1Q, quarter-on-quarter loan growth in Serbia, was that driven by strong sector-wide growth or market share gain, and how sustainable is it?
Generally, actually already before the integration, we've seen Komercijalna banka growing quicker than the market, and this has been continuing now. This is a bit to be attributed to the fact that we are running the largest network in Serbia, and that we have actually reactivated the engine, right? We have brought quite some talent in the bank. We have introduced some basic KPI principles, incentivizing clearly sales, right, activities. This is happening across the board, so corporate and retail. In corporate, it was really catching up because Komercijalna actually, you know, moved out of the corporate sector almost from the bigger, you know, corporates, corporate entities in the country. We are simply returning to the positions, and that were, that are somewhat more well expected.
Retail, we have reactivated the engine that sits on a very strong deposit franchise. If people hold accounts with you and trust you their money, obviously you also want to sell them other products. This is something that finally now is happening. We are really focusing on housing loans. We are really focusing on cash loans. The teams have simply been successful. In this respect, this is something that we like. This is something that we expected. I called this bank when we acquired a sleeping beauty, and this beauty has been waking up now. It will wake up even more, in a more energized way.
You know, this is somehow something that is normal, because if you have the market share of deposits of X and loans of half of that, it's simply normal convergence process if you just do the things right and you are simply competitive, right? People don't take loans in other banks, they simply take them with you. You know, if you have the normal distribution of client portfolio, somehow resembling the society, right? In principle, you naturally converge to natural market share also the asset side. That's why you're growing actually quicker than the market on average now. We expect this to continue for the midterm actually, throughout the midterm.
The third webcast question, and I quote is, "Will increase in contribution from Serbia lead to higher group NIMs in the medium term?
We answered that question, already I think, I mean, what we communicate is a combined picture. I gave indications on, all of the elements going into the equation, and the 25 outlook is pretty specific. You'll find the answers there.
The next webcast question is from Nishad from Citi. I quote. First question: Where do you see most growth in international operations and why?
That's an interesting question. I mean, we have communicated, you know, many times we are focusing clearly on our home region. We see a lot of projects coming our way when it comes to energy efficiency and renewable energy production. That's something that is now becoming really very, very, very actual throughout the entire region. We have been very interested in entering Croatian market as well, which might be, of course, incrementally adding a significant pocket of, you know, potential placements. This is clearly subject to the agreement between both countries. That's something that we believe the sentiment has come to the point that there is quite some hope that this might actually, you know, lead to a solution at a certain point of time.
Generally, we see then, of course, with reduction of the inflation and stabilization of environment, again, a convergence game of the region, because this region is actually, you know, has had traditionally significantly higher growth rates than the, let's say, heart of European Union. By that, we simply believe there will be significant volume of opportunities. Besides the energy-related projects, also basic infrastructure still. You know, this region still misses roads, still misses, you know, railways, still misses productive infrastructure, communication lines and so on, right? There will be a lot of infrastructure investment. Still, you know, the wastewater treatment project still. I mean, things that have been done some 20 or 30 years ago in more developed markets will now come with big swing to this region.
On the other hand, you know, when you grow the business, we are developing the economy to a certain extent, clearly the average wages grow, and this has been a phenomenon now for a couple of years. Average wages have been growing now significantly, also in other countries besides Slovenia, which will enable people, households really to start thinking about long-term savings products, which means considering services to, of course, classical banking deposits, which is investment fund business, real asset management business, you know, insurance, Unit-Linked Insurance Plan business. So there... We see, besides classical lending opportunities, we also see a lot of opportunities for generating fee income, simply by developing these markets to something that is, you know, halfway comparable to already developed markets.
In this respect, you know, that's, that there is a lot of room for us delivering good results simply by being a good bank. Not in innovating something, you know, totally out of from outer space. This is really simply delivering the businesses of the region and households of the region, you know, comparable products and solutions than, you know, it has been the case in other markets already for some years. NLB is well-positioned as a systemic bank in all of the markets of our presence, basically, and significant networks with, you know-how and really proven business model, especially when it comes to ancillary services offering in Slovenia as the hub and, of course, then in other countries to pick up.
Overall, we believe there will be a lot of investment opportunities coming, especially from the infrastructural landscape, related to green transition specifically as well. On the other hand, simply by pickup of economy. Economy has been growing, and it's been growing the rates that are, of course, significantly higher than the rates in more developed markets, right? If you look at the FDI volume in Serbia, you know, it's still at the level of EUR 4 billion. I mean, this is just money coming in. There is a lot of investment coming in.
Second question, and I quote, is: What deposit betas are you seeing currently?
I mentioned before, we are in the single digits, actually mid-single digits. As we mentioned also before, we see this going up, of course, because we wanna be fair to loyal customers. That means we wanna offer attractive also savings opportunities. That means this betas will enter double-digit territory. By that, coming back to the NIM question, the combined equation is still very, very strong. We still see us maintaining robust NIMs. If they always will exceed 3%, I think is the question that you press us, but it's hard to tell. As many elements go into this equation, but it'll be on a good, healthy level for the foreseeable future, and the 2025 guidance, I think, is a testament to that. That's, I think, the baseline message.
That factors in some pickup in deposit betas. Yes.
We try to stimulate people to think...
Uh-
Sorry, just to finish. We have some time ago, obviously, we introduced products, a kind of investment pairs, right? You deposit some money longer term, but you also place some money into the investment funds or other alternative investment opportunities. By that, we stimulate that also with higher rates a bit. It just doesn't necessarily mean all of this money goes into long-term deposits, right? By NLB d.d. sitting on the loan to deposit ratio of 55%, right? We see a lot of room for us rerouting this money clearly also to alternative investment opportunities. Not necessarily meaning betas go sky high, but, you know, meaning this money find other ways as well, right? In this respect, we are again, extremely well-positioned. Extremely well-positioned.
The next webcast question is a follow-up question from Ronak from Hermes, and I quote: Does the regular profit guidance for of EUR 400 million in financial year 2025 include the potential profits from new acquisitions? Or is this going to be generated from existing operations?
Well, that's standalone. This is, of course, not foreseeing any acquisitions. Acquisitions we never planned for because they are, of course, totally uncertain. As I mentioned, currently, there have been no actionable assets, actually. There might be a leasing process, but, you know, we don't factor this in anything until we are selected as a bidder. You know, of course, we will do then the business case and properly model everything. You know, we can't guide anything that is uncertain. No. That's totally uncertain or unpredictable.
We are conservative.
Mm-hmm.
The next webcast question comes from Vladan from Erste, and I quote: "Good afternoon. Thank you for the call, and congratulations on results. You just mentioned Croatia, which, by the way, had a nice first quarter 2023 lending activity, probably due to switch to euro. Could you tell us whether there are some news on NLB entering this market? Any concrete details, potential triggers, upcoming events in that respect? Many thanks and kind regards.
Thank you, Vladea, for nice words. There is nothing concrete. We are just saying that we believe the sentiment is right, and we have been observing some activity on both sides of the border, potentially leading to removing the hurdle, right? NLB still has to be confronted with when it comes to considering Croatian exporters, be it in terms of cross-border lending, be it in terms of foreign acquisitions. You know, the upcoming months, I guess, will tell us whether there is any real opportunity for us to enter. I was just mentioning before that, you know, This could, for us, be, of course, a very reasonable new market. This is the GDP that is bigger than Slovenian, one of three big GDPs of the region, and a missing link, a bridge to other markets, right?
That seems to be offshore because there is no connection in between, although this was once a common market. In this respect, that's something we have high hopes for, but it is still uncertain, right? If you, if you ask me personally, I see the biggest likelihood in last 32 years for something to come up. Is it going to come? I don't know.
The next webcast question is from Andrej from HSBC, and I quote: "Why didn't Kosovo NIM increase?
Why did or did not?
Why didn't Kosovo NIM increase?
Sorry. Once again. Didn't or did?
Why didn't Kosovo NIM increase?
It's high already.
I mean, there are specific regulatory related, of course, measures here and there. We were mentioning central banks not paying up, right? Still keeping rates at 0. Of course, you see the production mix and so on. We really had in Kosovo very high rates, right? That was, you know, a pressure of not being able to push them up even more. This was simply from consumer protection perception and, you know, regulatory and governmental focus, not something you can easily exercise in already very high margin environment, right? On the other side, clearly, it was not assisted by simply central banks paying more. This is a specific, temporary phenomenon we see there.
If you look at the total results and the output of Kosovo, this is very likely one of the best, if not the best performing bank in the region, with ROE of just shy of 30%, with cost-income ratio below 30%, right? This was, of course, coming out of very, very solid margin, right? Also levels. In this is the answer. This is very specific market and, you know, you would have to understand the very specifics of this small but for us, very lucrative market.
I remind you about our principle of remaining self-funded in all markets. Deposit pricing dynamics are a bit different market to market.
Yeah.
In Kosovo, the situation is to some extent specific. This is a leading franchise in the market. Of course, it's continuously being attacked here and there. Preserve this margin that we have would be already a very, very good outcome. In that sense, it's a privileged position as Blaž said to protect as much as we can.
This is the answer, basically. We had a very quick growth of corporate lending, especially last year, and this led obviously to a bit of a liquidity stretch because we, as said, are keeping our subsidiaries self-funded. We are strictly following the multiple entry point in terms of also MPE requirements. By that, colleagues, of course, were fueling this growth with a bit of higher pay deposits, no? Generally, the margin is still very solid, and this is incrementally still benefiting clearly, you know, adding to the overall output that we like to make.
Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Blaž Brodnjak for any closing comments. Thank you.
Thank you very much for hanging in there and being with us for all of this time, right? We are on a good track. NLB, as mentioned, is stronger than ever. we not only are happy about that, we believe as systemic business, we have had the levers and drivers to actually assist the society to develop and thrive. That's something we believe have been demonstrating throughout last times and we will continue doing. Amidst of the second quarter, we are happy also until now. I wish you all the best, and looking forward to our next meeting very soon. Thank you.