Ladies and gentlemen, the management board of NLB welcomes you to the webcast, where they will present 1Q 2021 results. Today's presenters are Blaž Brodnjak, CEO. If you would like to ask a question, you can do this anytime during this event. If you have joined via the webcast, please use the Questions tab located above the slides. If you have joined via the conference call, please press star one on your telephone keypad. Before we go on, we would like you to draw your attention to the disclaimer on slide two of the presentation. By this, I pass the word to Mr. Brodnjak.
This time around, despite of course, all the uncertainties related to the COVID situation still, we see solid improvements both in health terms in Slovenia and also in the region, but above all, also in business terms. It is really something that is giving us really a confidence that this year is going to be quite a strong year. In Q1, basically, we exceeded some of the expectations. There is a very solid ongoing result, recurring result, and what I'm specifically happy about is that the integration process of Komercijalna Banka has been well underway. We are really working hard now to, of course, accelerate further this process and to be able to, within 12 months, fully integrate the business in Serbia. We have published, as you noticed, I'm sure, the takeover bid. We reached 88% ownership so far.
We keep, of course, offering to minority shareholders, this doesn't impact in any way our ambition to actually perform the integration. We have been really continuously, seamlessly providing services, a significant focus on this further digitization, but above all, given the situation also, obviously a significant support to the businesses in the region. We have relaunched the Help Frame initiative, which is the very, very relevant ESG measure. On the other hand, as we announced, we have introduced the high balance fees for retail deposits. In combination, obviously, to a relatively shallow pool of alternative investment opportunities for retail clients as well. We saw some progress in moving assets, actually rerouting assets from deposits into banc assurance, and especially asset management products. We see a very strong production there, and it continues, within Q2.
We announced publicly, we are reducing the threshold from EUR 250,000 to EUR 100,000 as of July 1st. We expect further strong, actually, the development in this direction. We have really been able to now further improve the penetration in digital usage. I'm really happy to see on a monthly basis, strong progress here. Our contact center has been equipped also with the closing capacity. Within a month, they will practically be able to close any transaction apart from the mortgage-related housing loan. That's really an ongoing favor of the client experience. We have just re-emphasized and gave additional boost and push to the entire ESG territory with quite an ambitious roadmap, actually, to implement the whole universe of it. I'm actually sad that our colleague in the board, Petr Brunclík, decided from personal reasons to actually leave the board.
I assure you, the situation is fully under control. Other board members have been used to such situations in last years and have assumed full control, and we continue with undisturbed business operations. Furthermore, the teams on B1 and B2 level have been very solidly equipped and fully motivated to deliver on the ambitious digitalization on one side, but of course, efficiency improvement program as a whole. We have published the upcoming general assembly, annual general meeting, to take place on 14th of June. We have also published the dividend suggestion. On the other hand, coming back to the results, a bit more concrete, Archibald will give you, of course, more flash to it. We have really been already seeing a contribution of Komercijalna Banka, just reaffirming that this was a really transformational decision. This was really a very meaningful one.
We are very confident that in the coming years, there is going to be a strong delivery through the, of course, activation, commercialization of the bank. Really, coming back to clients, we see really a significant potential for double-digit growth, especially of retail books. We have shown in the first quarter that we have been able to grow actually retail book also in Slovenia. The corporate is also showing significant progress in cross-border lending and leasing just started showing really first results. The things we have been talking about are actually delivering on the expectation. We have kept, obviously, a very strong capital position and liquidity has been, of course, further strengthened given that there has been net influx of deposits in Q1. We saw in March a bit more stable mode of this development, given the fact that the Slovenian economy finally started reopening.
As of today, practically, we are almost close to the full opening, reopening of the society. Hotels and restaurants have reopened also inside. Of course, following certain restrictions in terms of distancing, in terms of course, being either vaccinated, infected, or having a test in place. Generally, there is life. You see it in the streets. Terraces are again lively. There is hope returning. When we are talking about, of course, the general state of the economy, especially the production part and the export related part, we have very strong quarter behind us. There is growth of exports. There is even higher growth of exports than imports, obviously. There is strong surplus in trade balance on one side, but this is really at the levels that are significantly above actually of 2019 levels, even pre-COVID levels.
We are very confident that Slovenian economy is in a good shape and ready for a significant rebound. We have even experienced in Q1 a negative cost of risk. We see solid development of couple of assets and collections coming from these assets from various corners in terms of P&L recognition. Some of these trends have been continuing also as we speak. We are quite confident that this year's cost of risk is going to be at a reasonable level. Andreas is going to give you more fresh data. On the other hand, clearly, as I was mentioning, situation has been improving also, not only physically through the opening up, but also mentally. People really feel now much more empowered on one side. On the other hand, they are much more positive.
We are hoping for the normal summer that is going to really give significant boosts to the sentiment, and then hopefully private consumption to follow otherwise strong, robust trends coming from the corporate sector. The macroeconomic outlook has been stable throughout the whole region, and we are happy specifically about the development in Serbia. Very robust picture coming out of Serbia, and that's of course our future growth market, so obviously well-positioned to be a beneficiary of this growth. I mentioned just shortly the dividends. Of course, we have published, as said, the general assembly convocation, and we have suggested what has so far been possible given the regulatory restrictions. We keep the ambition to still within this year, hopefully be able to pay EUR 92 million, i.e., in last quarter, then adding the incremental decisions, so another general assembly call.
There is a discrepancy in views coming from the European Central Bank and Bank of Slovenia. Bank of Slovenia, somehow following the standalone parent bank logic, which we believe is professionally not consistent, but generally is the case so far. The proposed resolution for the general assembly is actually dual payment as soon as the residual, so far not been allowed by the Bank of Slovenia, would be allowed. We would hope obviously for the residual to the entire EUR 92 million to be paid out this year. The Q1 result is supporting this. Furthermore, it is giving us hope that the whole year is going to be very solid. We are even more convinced that the midterm ambition in terms of dividend payout of in the excess of EUR 300 million, actually now within two good years, until July 2023, will be possible.
By that, I would hand over to Archibald to guide you through more details, and then Andreas will follow on the asset quality.
Thank you, Blaž. Welcome from my side. I'll step you through a range of key financials as usual, and of course then look very much forward to your questions. As Blaž said, very robust Q1 performance, actually on all dimensions, revenues, costs, and of course especially cost of risk. You see also here the first quarter with Komercijalna Banka contributing and meaningful contributions, actually in the range as we have expected, clearly with a lot of upside still to come. This is early days. Blaž said integration is getting going. More importantly, business activation and then cost measures are being set as we speak. Of course, we will take some time to trickle through results. I can assure you we are online with developments in Serbia and the team almost on a daily basis.
Blaž and myself are in the board, as you know, so keep a very close eye on all of these dynamics. On the various P&L positions, you see that really recurring income is stable, slightly up even without Komercijalna Banka, and of course, Komercijalna Banka adding very meaningfully already. Same on cost. Very strict cost discipline. We'll come to more details on that. Very reassuringly, even let's say at the end of COVID and comparing to a pre-COVID quarter last year, we have a pretty stable pre-provision result, and of course, also on this, the visible contribution already of Komercijalna Banka. Breaking it a bit down, see that we feel a bit of a pressure on interest income, of course, offset with contributions from KB. We offset that, and Blaž indicated the way we do it.
Fee commission income, very strong focus, and very good and nice positive developments, especially here in Slovenia with the asset management franchise. Of course, we expect here more to come given what is already announced as further measures on the deposit side, which are, of course, in this phase, a continuous pressure on NIM in particular. Costs, as I said, we are really focused keeping costs under control and of course, heavily working on the whole let's say rework of the operating model. There is plenty of projects underway that keep direct check on costs, but also make sure that structurally we set the right measures to, in essence, help transition the bank to a more and more digital operating model. Of course that over time will cut all physical cost base, physical footprints, branch network, headcounts in front and back, of course, under continuous review.
That's a never-ending story. In KB, we are of course accelerating some of these aspects. In particular, headcount, to some extent, branch networks are already under review. We have run or started first voluntary leave offers in KB, which we see very positively accepted by the bank. We expect contributions here to kick in relatively fast. Andreas will give you more details on the very positive impairment provision dynamic, and that overall, as was said, a very strong Q1, and more importantly, very solid basis and good outlook for the whole year. We are really proud of this quarter and are very optimistic looking into the rest of the year. You see also NIM for the first time since quite a while, I can report that we have an uptick in NIM. That's really good to see, and we are, again, confident that there is more to come.
We have really all operations now very much focused on loan growth, in particular of course KB, which as predicted and discussed, is of course having its expected positive impact. We also, for the first time, show you here the quarterly dynamics on the so-called operating margin overall and then similar dynamics. This includes, of course, the fee and commission income. Overall, broadly speaking, stable and positive dynamics on many different elements in a continued challenging environment. Of course, this is all against the backdrop of a hugely challenging environment overall, given the rates dynamic. Cost I mentioned is a continuous focus, and we see here the various components, including breakdowns of KB in particular, what KB added to the cost base.
As said before, apart from KB, which is running a special cost reduction program as we speak, of course, the rest of the group is in a continued effort to keep an eye on all dimensions of cost. Blaž mentioned digitalization is more or less in full swing. Of course, we expect over time this to substantially change our whole setup and appearance. Not that we will end up being a bank with many physical outlets, but the design and then cost base of that outlets will be changing significantly over time. You see this basically happening gradually because these are structural costs, so not that easy to touch. We are on a very good way, and will continue on that path. As I said, in an accelerated way also for KB.
Loan dynamics, we are very happy to report that we see growth in all segments, corporates, retail, in basically all parts of the group. KB is, as indicated, a bit flattish on individuals. That is soon to change. We hear that monthly production volumes are actually developing very nice. We are confident that for the full year we will be able to show also very positive dynamics here. Overall, we see loan demand very healthy, picking up in all markets, especially housing is always a bright spot. There is really big demand across all geographies for that product. Of course, NLB will and continues to establish itself here as a leading player in that key product segment for us. On capital, very important topic for us, of course, given post- KB acquisition.
We show a very solid capital adequacy in the range of 16.1, nicely above target. That fully accommodates for the temporary, I should say, the decrease in capital on the minority interests of KB, which we fully took out temporarily until this so-called takeover bid is concluded. We expect actually a part of that minorities to be added back. As Blaž said, we are at below 90%. For the time being, we assume these minorities will at least partially assume to be part of our group capital base. Of course, very importantly, negative goodwill is yet to come. You see in the range of 110 basis points. We expect this to be included upon recognition of result and distribution of results by the upcoming general assembly. This is already aligned with the regulator, more or less a done deal.
Also speaking of capital risk-weighted asset dynamics, that's something of course we keep watching very closely. There is a continuous stream of activities trying to control and optimize our risk-weighted asset composition and risk-weighted asset drivers. Importantly also for the so-called MREL requirement. For us, really a key metric to watch. On the positive note, there is still good news to come. We look forward and anticipate that equivalence treatments are kicking somewhere this year for Bosnia and Herzegovina and Macedonia, North Macedonia. That's, as you know, subject to equivalence regimes being enacted. That's a process run through EBA and EC eventually. You've seen that kicking in for Serbia end of last year, and we expect similar developments for these two markets. That's coming up.
In other words, on the capital side, actually quite some solid buffers still to come, which of course is very important to underpin our dividend ambitions and of course, our ability to deploy capital in efficient ways. By that, I would pass on to Andreas to give you more flash on cost of risk and asset quality.
Archibald, t hank you. I guess one main point was mentioned already by both colleagues. First quarter, we saw a release in a sense that we saw both very positive effects from NPL resolution, both on balance and off balance. So far, we are now on the moratoriums. By end of March, 78% of the moratoria have expired, which were banks, whereas the big part of that has expired by end of December, so we have already some grip on that. From there, a lot of it has expired. What you can see is from the expired moratoria, 82% have zero-day delays, so they're repaying fully regular. You have a certain chunk which is actually having delays, but slight delays.
Obviously you see the more problematic ones with up to 90 days past due and default category, which is altogether some 4% of that portfolio. I have to say on staging, it looks a little bit different because these last two categories, which tells you that here we are also conservative. So far, I have to say this portfolio actually behaves. We saw critical, so we staged them, have certain problems, but not all of them. Overall, also here on that part, no negative surprises whatsoever for the time being. Then we have remaining moratoria at the end of March here, obviously. Companies, 70% of that, and the rest is households. This is obviously now the long end of the moratoria. Many of these moratorias are 12 months moratorias, which primarily were given here in Slovenia.
This long end of the moratoria we see simply more critical. If you see here the staging, then we are between 30%-35% already on stage two, and from 6%-12% on stage three. I would say here we are even more conservative. Obviously now, whether it's conservative enough or too conservative, we will see in the next coming months. We obviously keep watching these clients especially closely, but let's see. So far, also here we have a good feeling that we did the right thing. More we will see in the next couple of months, but our view on these clients anyhow became already quite conservative, I would say. Overall, in the bank, one point was mentioned, the release of provisions of EUR 15.5 million net, for the reasons I explained already.
Overall, a very stable stock of NPL with EUR 480 million end of March. You have to see here that quite high portion, so EUR 196 million, actually have zero days delays. These four big portion are, of course, still clients which are in the past restructured and which we didn't heal yet, but which are simply paying. Of course, these days, to a certain extent, also clients which we foresaw that they would have problems after the moratoriums, but so far they simply also keep paying. I would say that's maybe big picture view.
Overall, this tells us also, of course, considering what I said before, that we saw these positive surprises, but so far we don't see negative ones, that certain one-offs still expected to come, really coming, that it's very realistic that we may outperform our cost of risk guidance, which we have originally given of 70-90 basis points. We might be better than that. I guess for such times and such circumstances, as mentioned by the colleagues before, that's actually a very good news, and that proves that the bank, obviously, also in the last years was conservative enough in doing some things right. Of course, as a CRO, one, two years after COVID has passed, I will say this with additional confidence, but so far, whatever we can see, honestly speaking, we should be very happy.
With this, I will conclude my part for now and hand back to Blaž Brodnjak. Thank you.
Thank you, Andreas. There are some slides that are anyhow publicly available, I would not stick to them necessarily. What I just mentioned at the beginning, we are full-f ledged on the agenda of digitalization all over. Within the ESG, of course, paperless initiatives, but generally also when it comes to client experience, we plan to introduce a brand-new front end platform, more or less, as a main bank and e-bank for the retail clients here this year. We are well advanced in the friends and family version already. We are actually the only bank in the market offering twenty-four seven availability for practically almost all services. I mentioned before, very soon in a month, any client of NLB will be able to close any business actually online, 24/7 , without having to come to the branch.
You can already now raise any and submit any request for any service and sign any contract with NLB through the mobile app, more or less, with biometrics. That's a revolution of client experience, and we, of course, plan to replicate this and roll this out throughout the entire group. As soon as integration is done in Serbia would be, of course, focus market since also digitalization there is at the most advanced. The legislation is ready. Of course, we want to show them immediately after Slovenia, very strong progress in Serbia as well. It's happening practically all over the place. We are actually moving clients to mobile usage. We are moving clients also to e-usage and to more or less 24/7 chat and video chat functionality. We are really happy with this trend.
The contact center has really been having now already closing capacity, as I mentioned. We actually can, at two o'clock at night, close more or less, almost all services. Even if you're not using mobile as an end-to-end digitalized solution, you can actually reach us for a personal interaction, not being dependent on the branch opening hours. That's really a facilitating feature for midterm optimization of the channels. That's really something that is enabling this now. Of course, we are planning for higher migrations there from clients. Many clients do prefer physical meetings in branches, but we furthermore position the branch as an advisory hub and less and less a transaction service to our clients. Archibald mentioned, I'll just reiterate, we are further, of course, working on efficiencies, clearly in Slovenia and midterm, we are looking at further reductions.
This is true also, of course, for the whole region. Archibald also mentioned the already successful first wave in Serbia of envisaged rationalization in terms of course, number of employees. The voluntary regime actually has shown really success already in the first place and will show also concrete results in the upcoming months once we actually deploy it. The KPIs here are improving as we speak. Digital penetration is moving really, and of course, we have higher ambition, significantly higher ambition, and we really are pushing towards this migration in a more accelerated way even. When it comes to the outlook and the numbers, we have changed our way of positioning the results at our last appearance recently when we were talking about the annual results. More or less, we guide in this direction still.
Andreas gave you a picture that given the developments in Q1 and Q2 and positive effects coming from various corners in terms of accounting recognition, not necessarily all booked as cost of risk, but coming from various corners, upon successful collection, upon successful resolution of some legal disputes and so on, is actually catering for a likelihood, of course, to outperform on the cost of risk. More relevant, I would say, guidance is on the return. Mid-single digit return, that's Sorry, a high single digit return for this year. That's something that we believe is a very solid performance. Q1 is definitely showing strong path towards that. Of course, what we keep to is the dividend suggestions, and we believe it is justified. We believe it is possible to pay these amounts actually, hopefully already this year for the 2021 portion.
For sure, we believe that it should be possible then until 2023. In actually good two years to pay out this excess of EUR 300 million. By that, I would wrap up to allow for questions, and we are now fully available for them, obviously. So far, very solid outcomes, very confident picture. We believe that the macro picture is solid and is improving even. The HoReCa and some other industries that have been fully locked down for quite some time have been reopening gradually, and it has a positive trend. It's apologies. It seems that towards the end of June, we might have full opening and then normal summer. This would be really mentally a significant boost to private sentiment and consumption that is then going to assist, obviously, already so far robust trends in production.
Thank you very much, gladly responding to your questions. Thank you.
Of course. Ladies and gentlemen, if you would like to ask a question, please use the Questions tab located above the slides. If you have joined via the conference call, please press star one on your telephone keypad. If you choose to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. We have had two questions come through via the webcast from Jasper from Slovenia. Question one. Good afternoon. Congratulations on excellent results. My question is regarding outstanding shares of KB. Is there any plan for KB to do buybacks or something else to get over 90%?
Archibald, will you do the KB part and I do the Albania?
Blaž has said quite specifically we have still an order outstanding and so we are happy to buy to whoever is willing to sell, but obviously that requires willing sellers. From our point of view, if it happens, fine, if it doesn't happen, also okay. That was for us just a hand extended to minorities. We are now progressing, of course, with the merger plans and once the current order expires, we will simply proceed. On M&A plans, I pass back to Blaž.
Thank you, Archibald. When it comes to further M&A plans, I would really now reiterate what we've been saying. Once we feel really confident about integration in Serbia, so we are not jumping now to another opportunity just overnight. We see a significant chance for us to actually feeling very well at the end of the year and confident to be able to onboard another project once we have full visibility on expected closing of integration in Serbia. So far, we are feeling well. So far, we feel confident we are going to actually meet this target. This might mean that towards the end of the year and beginning of next year, we might start exploring further opportunities. We mentioned on a couple of occasions that Albania might be the next market we might consider.
We definitely hope that there would be a stage when there would be a political agreement between Slovenian and Croatian governments that we might be then thinking of entering this other way, Croatian market, though not through the large acquisition.
Thank you. We've had a question come through on the telephone line from Jovan Sikimić from RBI. Jovan, please go ahead. Your line is open.
Hello. Thanks for the call. I have just one, two questions. First of all, on KB, on your Excel spreadsheets, it's shown that KB NPL ratio is very low, one point, I don't know, 5%, 6% and very low coverage. The question is, how recurring is this? Whether there are some accounting issues here that actually I do not understand why it's so low. The next one would be on cost of risk. I'm not sure whether you can explain a bit what was really the amount of releases and whether you booked some additional risk costs for your underlying portfolio, apart from these releases that you had.
Maybe first on the first question. Obviously, Komercijalna Banka in the group accounting, their NPL portfolio was initially recognized at fair value. Here you see fair value amounts, and that's, of course, which is blurring a little bit, the whole picture. If you see the whole group, then this was reducing our coverage ratios as a group, this is then supposed to normalize over time. This is to a good extent an accounting question, as you already mentioned. At the same time, of course, Komercijalna Banka, if you see them retroactively, they have in the last years actually done also a lot on NPL resolution.
They are not seeing any negative surprises, which honestly speaking, from my point of view, is a big recognition also to the due diligence work of our internal team, especially in late 2019, because it looks like that we got what we expected to get, and that's actually a very good news. On cost of risk, so the second question, in quarter one, there were quite some items from off-balance sheet which released provisions. Basically, we solved it while it was already booked off-balance. On the other side, we had on-balance items, NPLs, which were resolved. Here we also saw a positive contribution. In other words, they were usually resolved to a better value than what was still in our books. Certainly, cost of risk from regular activities in the first quarter were very low. Honestly speaking, that's generally not really unexpected.
Quarter one, the cost of risk from such regular items usually is the lowest in the year. We are trying to get it as steady as possible during the year, but that's a fact of life. Here, usually figures are low, but they were also low in this last quarter, which given circumstances, is of course also a positive news.
Okay, thanks. If I may add just one follow-up on that. You also specified some one-off which should materialize in the second quarter, EUR 14 point I don't know, something million. Is it also related to further risk cost release in the second quarter? Do you expect, as you said, that you plan to outperform the guidance, or can we expect even something on top of that?
On top of what I said already that we might outperform the guidance, that's too early days, I would say. We are still in a COVID year. We are relatively early, so let's be also a little bit prudent. I also didn't say specifically that it would be quarter two.
Two is yes, we are expecting certain one-off items. If the one-off items are the ones we are expecting, you will not all of that see by a cost of risk release, because we also have one bigger fair value exposure, which we expect to resolve. This you would see in the P&L, and you would also see in the NPL reduction, not in a cost of risk change.
You also see one, two items, otherwise, which might contribute. As Mr. Brodnjak also mentioned, also on the legal side, we have now one, two cases where we still may see some outcome which is better than we expected. It's coming from a couple of sides, actually. At the moment, I would say, again, I think the message I gave was already quite optimistic. More than that is simply too early days, because what you also have to realize is that all of these things are only true when you have the money on the account. There are for sure still uncertainties.
Okay. Thank you.
Thank you.
Thank you. We've had a question come through on the webcast from Matej. What is the purpose of two dividends instead of one? The NLB GDR holders will have to pay unnecessary cost of up to EUR 0.03 for each EUR 0.12 of dividends they receive.
We tried. I apologize. We tried to. Archibald, go ahead.
We tried to pace it in a way that it's possible. We don't want to, of course, keep shareholders waiting, and it's really clear that we can pay the entire EUR 25 million. EUR 25 million has been more or less green-lighted by the European Central Bank, given their approach to the dividend payout logic, assuming capital adequacy on the group level, whereby Bank of Slovenia applied the standalone parent bank level, which we believe is professionally inconsistent. This was actually the only possible way to actually, within one general assembly decision, regulate it in a way that it is paid out through two payments, but nevertheless, upon one decision. Archibald, you might want to add some. Apologize.
For the cost, we are obviously very conscious of cost and efficiency of such transactions. To our best knowledge, there is no incremental cost to shareholders for such a payment. We actually assume this is cost neutral, and in this sense, I don't see an immediate disadvantage for shareholders. We are very much, let's say, looking at all dimensions of such decisions. In our perception, the dividend split, as suggested, is the best solution for all parties.
We would hope for the, of course, repeated then general assembly in Q4 for the residual up to EUR 92 million.
Thank you. We've had another question through on the webcast from Victor. When should we expect the bulk of one-off integration cost to be taken during 2021? Q1 cost performance looks strong. Do you see any chances of outperformance to combined cost guidance for 2021 and 2022?
Archie?
On the cost, we've put out a quite specific cost ambition for this year. That would include pretty much all of the restructuring charges. Accounting of these charges follows an accounting logic, so I can't assure you that indeed all of these restructuring charges can be booked. Our ambition is to book whatever we can. That's in the magnitude of EUR 30 million. I think we've indicated that the HR part of the restructuring process goes pretty much so far as planned. Actually, we are almost exceeding our ambitions here. In this sense, outperforming the cost guidance to some extent is possibly underperforming on our ambition to book restructuring charges to the largest extent in terms of timing. In terms of spending the money, we think we have sized this restructuring process sensibly. We believe the numbers are what they are.
On the rest of the group, we've indicated that we are very, very, let's say, prudent in spending decisions. We are getting really focused on each and every penny overall, and more importantly, on setting the stage for a structural optimizing of the cost base. That has mostly to do with getting our digital agenda out. We are really excited that we have now pretty much all the building blocks in place in the bank. In terms of digital agenda, we have the data, we have the analytical capabilities. We increasingly have the headcount working on these analytical capabilities. We built the digital channels. Blaž mentioned the contact center. All the building blocks are gradually coming to play. In this sense, we are now also progressing very well with our preparation for real estate rationalization.
Clearly, COVID has taught us all a lesson of what works, what works not so well in terms of remote work. We will also have a hybrid model in place for us and have gradually the office space, of course, then being addressed as a dimension. All this in the next one to two years. There's plenty of cost agenda we work on structurally. We are very conscious and cautious on the run rate spend. KB is a matter of whether we can book everything this year or next year. We believe the guidance EUR 430 million for now still holds.
Thank you. We've had another question from Victor. Having been in control of Komercijalna for a number of months, what has been surprising to you? Anything that has been better or worse than expectations? How should we think about KB's loan book growth in 2021 and 2022?
I touched this, I guess, during the previous addresses, right? We are feeling very confident. No significant negative surprises. We have actually introduced first common joint campaigns, communication-wise and of course, also product-wise. We have become price competitive, and we see already very significant production. In March, actually, this was a record production of all times in KB when it comes to the consumer loans, for example. We have introduced the welcome packages, and we have really reactivated the sales. With the beginning of Q2, we introduced clear KPIs and performance related variable remuneration to the sales staff. We are really feeling confident, and I mentioned actually double-digit growth. That's something that we really believe in and should come, and this is true for retail loan book and corporate loan book, and by that offset partly liquidity reserve placements.
We are enthusiastic and excited about the whole thing. We really give big hopes and bets on this to deliver what we were talking about once specifically introducing the case, right? Serbia should bring EUR 100 million contribution to the group, and that's something we are counting on. Archie, you might add something.
Nothing to add, really.
Thank you. We've had another question come through from Henry. Page 24 of the presentation says loan growth of a high single digit through 2023. What is normalized growth once you remove the noise and acquisitions and COVID? What do you think the long-term growth of the business is?
We cannot really be concrete and specific here. What we have some hopes for is that the Bank of Slovenia would remove certain hurdle here, which is restriction of retail lending, obviously, with very strict criteria on creditworthiness of households. This could facilitate significantly quicker growth in retail in Slovenia, but generally, high single digit is something that is solid. If you look at a Q1 this year of close to 2%, practically, we are reaching this already. If we keep the momentum, this is something that we are talking about. If there were a release of these restrictions from Bank of Slovenia, there might be possibility to grow quicker. Otherwise, this is simply something that we count on.
Given the sentiment, given that is significantly improving as we speak, then really depending on the usage, especially of overdrafts and credit cards once private consumption resumes. These are all booked obviously under cash lending, so consumer lending. We might see some, nevertheless, bigger boost in consumer lending. Otherwise, we have had now a really conscious focus to be a market leader in retail lending in housing and consumer. We are top three bank in six countries, and that counts. We have the size. We are putting actually all the piece of the puzzle together in Slovenia. I must say that I'm specifically proud that in the last six months, on average, we have been practically, without exception, originating higher portion of the entire new production in the market than our market share is.
We have been continuously growing market shares in housing and consumer loans in Slovenia, and that's our strategy also in other markets. Assuming the market allows more, we would be benefiting from it, I'm sure. So far, we believe that high single digit is reasonable and achievable.
Thank you. We've had a question come from Mladen. Thank you for the call and congratulations on 1Q 2021 results. Where do you want to see loan portfolio structure of KB in terms of retail versus corporate, and when? Do you plan to reintroduce dividend policy for KB?
Maybe I do the balance sheet split and then Archie will do the dividend. In principle, what I believe in is that there is a huge potential in both. Corporate is more or less a bigger number business. KB is completely underrepresented in corporate business in Serbia. If you look at the market share in deposits, we are talking about 17% market share in retail deposits. Our lending market share is below 10%, both in housing and consumer. Just bringing it to the natural position is giving you enormous potential. When you're talking about top 700 corporates in Serbia, we are barely present. This is something that is on the other side, of course, offering significant opportunity to grow.
If you do both things right, you could have a balanced picture as we are looking at in Slovenia and some other markets as well. Of course, primary focus is retail SME, but there is significant opportunity also, especially given the very, very strong and robust liquidity of Komercijalna Banka and access to, of course, obviously, a very sticky deposit base. We could be a company in corporate sector in Serbia as well, and also public infrastructure projects, municipal-level projects, and so on, especially focusing on energy efficiency improvements and renewables. We have the potential. We have the firepower. It is on us to actually do the relationship stuff right, and actually then address the need and the demand. We are there. We are great to take this opportunity.
Maybe on the dividend-
Thank you.
Maybe on the dividend of-
Oh, sorry.
Yeah, there was a question, dividend of KB. We don't comment on dividend policies of a listed entity that is not NLB itself. By and large, you know that, of course, rationally speaking, you would expect that KB, once the whole integration process concludes, and that is somewhere next year in our perception, of course, we would expect that a regular profit is going to be generated at some point, and Blaž mentioned ambition levels, and of course, as with any other operation, part of that profit is returned to the shareholder. It's not on us, and it's too early to be more specific.
Okay, thank you very much. You've had a follow-up question on the telephone line from Jovan Sikimić from RBI. Jovan, please go ahead. Your line is open.
Yes. Hi once again. This is my last on KB as well. It seems that there was a kind of sharp margin drop in the first quarter compared to the 2020. The question is, where do you see the bottom? What would be your guidance, let's say, for this year on KB level? Thank you.
Maybe a quick answer from my side. KB was originally positioned as a market leader in FX deposit-taking, so that is EUR deposits in retail. They actually ran deliberate campaigns in the COVID months, towards the end of the COVID period, to keep up market share in EUR deposits. They actually did that at quite some expense. That was eating into the margin. We immediately stopped that upon resuming control on the asset. Of course, we expect now with picking up of retail production for the margins to recover. You know that KB runs a quite low LTD ratio, in the 50s, low 50s.
Yes.
Upon normalization of that ratio, we would see margins closer to where we see in the other bank. I will and cannot be more specific than that. You know that Serbia operates at substantially higher margin than, of course, rest of the group. We are hopeful that we can benefit to the fullest extent with a combination of the measures I mentioned.
Okay, appreciate it. Thank you.
We currently have no further questions, so I'll hand back over to Mr. Brodnjak.
Thank you very much. I would just reiterate what I said. We are feeling very well. We are feeling confident. The sentiment is improving throughout the region. Macro prospects seem really robust. I just saw that the prospects for Slovenian growth this year have improved to 4.9%, coming from one corner. It seems that 2022 would already be a recovery level year, and this means that we are well equipped and well-positioned to take benefits out of it. The unemployment rate has decreased now to more or less already almost pre-COVID level. Once we reopen HoReCa entirely, I would see actually back to full employment situation here in the country, digging for talent all over the place, and really then significant confidence and boost the sentiment of private consumption. That's something that we really believe is going to then bring another value to us.
Overall, we believe it's a very well-positioned story to harvest, to yield in the coming years. We stick to dividend guidance. We stick to high single-digit ROE guidance. So far so good this year. Talking to you soon after presenting the H1 results, which we believe are going to be very robust as well. Thank you very much, and take care, and see you.
Thank you, ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect your lines.