Welcome and thank you for joining the NLB Group Conference Call and Live Webcast to present and discuss the fourth quarter and full year 2023 [Foreign language] business results. All participants will be listening only. Now that the conference is being recorded. The presentation will be followed by a question and answer session. Should anyone need assistance during the conference call, you may signal an operator by pressing star and zero on your telephone. At this time, I would like to turn the conference over to Mr. Blaž Brodnjak, CEO, Mr. Andreas Burkhardt, CRO, and Mr. Archibald Kremser, CFO. Mr. Brodnjak, you may now proceed.
Thank you, and warm welcome everyone. Let me draw your attention to the usual disclaimer and welcome you to our performance call, reflecting towards last year, over last year, in which actually NLB has demonstrated its, its strength. NLB Group has been feeling strongest ever in history and has been, above all, holding the responsible position to society. I, I really am very proud of that specifically. Despite all the uncertainties and, of course, climate-related phenomena and other societal challenges, NLB has been not only strong, but has been sharing this, this strength and success with the stakeholders and the society. This is something that really we are specifically proud of and myself personally as well. So besides the, monetary success and performance, of course, we can be really also following the agenda of sustainable development within the region.
This is something that is has been in the forefront, of course, tainted a bit with the situation in Europe and Middle East. It is very difficult to discuss sustainability matters when we are not in peace environment. But generally, of course, we do remain and, you know, gain our focus even more on when, when on the topics, when it comes to, of course, environmental protection, when it comes to, above all, society-related social matters and governance quality. And in this respect, we have further improved our sustainability rating by Sustainalytics significantly, so we now rank among 13% most advanced banks in this territory. We have been, of course, further committing to the Net-Zero Banking Alliance goals, in a sense that by 2050, we would be of course carbon neutral.
On the other hand, we have been continuing with business development activities, successfully and firmly. So besides integrating, completing the integration of a bank in Slovenia, so N Banka has been fully integrated by September 1st of last year. We have, at the same time, been continuing the growth path via in M&A activities, and in this goes for the leasing territory, where we signed the SPA for the market leading franchise in Slovenia, with some operations also out of Slovenia. Whereby also in the asset management, and ancillary services landscape by acquiring, signing the SPA for acquisition of the, asset management company in North Macedonia from Generali. And by that, we simply demonstrate our commitment towards, of course, excellence in distribution of universal financial services, throughout the region of our presence.
We have been, of course, focusing on people, still talents. This is something that will make the difference also in the future. So NLB has been continuously winning the certificate of top employer and has really been paying even more attention towards education, training, skills, experience, and of course, also collegial relationships among the employees driving this business forward. And in this respect, I'm really specifically proud of our immediate reactions, when the Slovenian economy and country were in distress last August, when actually we've seen historical floods. So climate-related phenomena have become a new constant. They are here to stay, it seems, obviously. And NLB has immediately reacted very responsibly by immediate support to the municipalities, most affected municipalities, towards the end of the year, also to the budget, with specific fund for the reconstruction.
Of course, NLB will keep contributing also in the upcoming years, sharing our success not only through dividends, but of course also specific donations and sponsorships, while at the same time also Archibald will explain in detail more in terms of tax payments directly, of course, rooted towards recoveries after the climate-related phenomenons. In this respect, we are in the environment that is very, very uncertain. We've seen changes both in tax environment, we expect changes in the rate environment. But of course, what we claim is that our not only balance sheet, as we claim being a fortress, but generally our business model is very resilient. And in this respect, this is something we will continue in the future, and I will come back to this when I will talking about the outlook a bit later.
I'm passing the word now to Archibald to give you more details on performance.
Thanks, Blaž. To start with, the macro environment has remained by and large stable and favorable for banks and bank environments in general, also in our region. The stability that we have observed in the past is continuing to play out well. Also in our view on the future, we see more or less a so-called soft landing still as a baseline scenario. Of course, this is very favorable for bank environments in general and also for us, and in particular, our region continues to benefit from slightly above Eurozone growth levels of ballpark 100-200 basis points. This should also, of course, continue to drive loan growth as we expected this year, mid-single digits and going up to higher single digits again.
Of course, in that sense, an important earnings revenue and profit driver going forward. In terms of the financials, the full year results, of course, are very, very solid. You've seen the key numbers. And of course, a big driver was net interest income. So we have always positioned this bank for this moment. Now we have seized on this moment, and of course, attention on our side is turning very much to stabilizing this result with both reducing a little bit NII sensitivity and, most importantly, continue to support and sponsor loan growth as the best protection actually for NII sensitivity. And you've—you'll hear later that we are making good progress also in enhancing duration on the asset side.
So in other words, going more into fixed-term lending and, specifically also in retail. Last year, you will remember, was affected by a negative goodwill from the N Banka acquisition. This year, of course, mostly dominated by the NII development. We have a bit of dynamic on the cost side in an inflationary environment, not very surprising. Our fee environment was stable, so we had deliberately kept this also moderate in terms of repricing. And, of course, provision, Andreas will talk about that, ultimately ending the year with negative cost of risk. So in that sense, a little bit above normal results, I would say, especially given all the negative cost of risks.
But we remain very, very positive on the outlook into this year, and [Plášil] will talk about this later. So in terms of details, the quarter itself remains solid. You still see NII actually growing moderately, 5% quarter-on-quarter. So that's still encouraging. Is this the peak? I guess we have more or less seen a peak in at least the NIM space. And you see that the quarter was also driven a little bit by a quite substantial DTA revaluation next to quite usual seasonalities in provision and the cost dynamic. Otherwise, a full year ROE at 21%, so I think that's really a stellar result, a stellar return.
NIM stabilizing, yearly NIMs at around 3.5%. Our quarterly NIMs are higher. We'll talk about that. Cost-income ratio, basically where we wanted to see them when we IPO'd the bank. Now we are firmly in the below 50% territory, and we, we definitely look forward to remain in that space. You see the balance sheet has grown to almost EUR 26 billion. So that's also definitely a milestone. Deposit base, very, very robust, almost at EUR 21 billion. So we like to call this a fortress balance sheet, and, I mean, given the environment, nevertheless, the positive outlook, we of course like to maintain in the safe zone on all dimensions, be it capital or liquidity, I think for good reasons.
On the NII, I've mentioned already the full year NIM at around 3.5%. You see the quarterly NIM slightly ticked up. Last quarter, we talked about we haven't probably quite peaked. You see that NIM has slightly edged up, and but we are definitely in a sweet spot environment given NII. Looking what drives this dynamic, one important driver, of course, is the apart from the rate environment, continued growth in the loan book. So that's, of course, the anchor, the pillar of our revenue growth, and especially in our SEE banks, our subsidiary banking network, we see in retail very solid growth also in corporate.
Overall, as a group, we basically are pretty much where we expected to be, so mid-single digit. We guided, and that's where we landed. Importantly, deposit base remains stable, actually growing, and, of course, we had to accommodate a little bit in pricing. We've talked about that in Q3. Q4, we started to reprice a little bit, moderately, by that actually built market share also in the term deposit space. And, so by that, we continue to provide value-added products to our customers, offering fair returns also on basic, cash products, we call it savings and term, deposits, and we'll continue to work enhancing and improving, access to these products in a convenient self-service way. Otherwise, as you know, regards NII sensitivity, of course, a focus of everybody these days.
We are pretty much where we've been, and, in that sense, even if we see a bit of normalization of interest rates, we, we very confidently believe we can maintain the revenues by growing the loan book organically. So we'll offset whatever tactical losses given to NII sensitivity with growing the loan book. And so in that sense, revenue is expected to stay stable and, and growing also going into this year. I talked about non-interest income, so fees, very solid development given the environment we operate in and some regulatory measures here and there, we mentioned them, but overall a very, very solid and positive development.
We had a couple of one-offs, some of which we deliberately, of course, invested in society, as Blaž mentioned, in flood relief measures, quite substantial amounts, actually EUR 9 million, in Slovenia directly contributed to state bodies and the state itself. And we had, of course, as was reported already, a bit of a hit in a regulatory sense in terms of the rate ceilings on the mortgage book in Serbia. You see the EUR 15 million modification loss, but as I already explained last time, we expect this amount to be written back, of course, as these loans accrue.
On the cost side, we naturally see a bit of inflationary pressure, so we are on our guidance, as of Q3, slightly in excess of old guidance, EUR 10 million up, but here we simply have to face the reality of. Well, the need to continue to invest, specifically in, the technology space. We have a run rate spend, CapEx, OpEx, and PerEx in IT of about EUR 100 million plus. So this, is a substantial commitment of this group to keep innovating and, remain relevant for our customers.
So that's of course the name of the game in banking these days, and importantly, crucially, continue to invest in stabilizing and securing the perimeter, so that the increasing attacks coming from cyber fraud, be it phishing, be it other malicious activities, we are very, very committed to keep this bank safe and stable in terms of operations. Otherwise, we continue to seize efficiencies in all markets. Of course, predominantly, Slovenia and Serbia to some extent. Serbia is still the tails of the integration, and Slovenia, to some extent, the tails of the integration from N Banka.
But generally speaking, the trend seems to be in banking to have few employees, better paid, and in terms of cost evolution, this means moderate cost growth, but investing in quality and value-added spend. The tax equation has become a bit more complicated. I mean, we, we had this year a revaluation of the DTA. That's something we have explained over in the [Gentho] investor base. This is still the tail from our 2013 loss recognition, has visibly increased our recognition.
You remember that we recognized DTAs for a five-year period going forward, and given higher earnings environment and a higher corporate income tax environment of the new legislation that has been put in place in Slovenia, we had to simply revalue the DTA, and that has shown quite visibly in Q4. On the other side, we look forward to the new legislation as it has been effected in Slovenia. As I said, higher corporate income tax for a limited period and a so-called balance sheet tax in amounts of 20 basis points. We expect on a group level that our group effective contribution rate will trend around 20% for the next five years or so before it falls back to 15%.
This is a bit outlined here in more detail. So you see the tax equation both for Slovenia and the group. Importantly, we wanted to highlight that, if you take just cash taxes, our tax rate in Slovenia is something like 11%. If you add contributions that we made voluntarily to Republic of Slovenian bodies, be it the Ministry of Finance directly or municipalities, we are at 14%, what we call contribution rate. The same equivalent rate at group level at 14% as well. As I said before, we expect the equation here to slightly shift up, especially over in Slovenia, of course, with the balance sheet tax, and then 2029 onwards to come back to around 15% on group level.
The capital is of course a key pillar of our strength, remains to be so. We are very, very proud to maintain a very solid capital ratio, CET1 at 16.4%, 4.5% above Pillar 2 guidance level, and that means, in essence, 600+ basis points over and above MDA, so very, very solid. This, of course, accommodates already for the dividend payment that we have envisaged from the result 2023 to be made next year. In that sense, I think we continue to both remain very strongly capitalized while generating enough returns to be an attractive dividend payer as well. Of course, we have maintained this also by continuing to work on our capital market funding side.
So we have just recently issued a subordinated bond very successfully with substantial oversubscription following our senior bond. And you see here the total funding stack are basically delivering very solid MREL ratios, far in excess of the regulatory demand. And of course, we will continue to remain a recurring issuer on the capital market. So in that sense, I think we have passed now several milestones on the benchmark issuance both in the senior and unsecured space, following our AT1 bond last year. So we are very well established in the meantime and look forward to remain active in this space. We in the foreseeable future intend to issue another senior bond, benchmark size again, and we are very grateful for the interest we are able to attract these days. With that, I turn to Andreas on asset quality.
Yeah, Archibald, thank you. Well, the main message on asset quality on the risk side is there are no surprises. What you can see is that portfolios continue to grow. You heard it already before, with the exception, if you want, of corporates, but this is so corporates, bigger corporates. But this is influenced primarily, and you heard this in the previous quarters, from relatively high repayments in the energy sector. So we were providing in 2022 additional liquidity. This came back. If you corrected for that, also, this portfolio was growing. And what you can see is that simply our subsidiary markets outside Slovenia are growing a little bit faster than us. So in the meanwhile, a little bit more than 50% of the portfolio is actually outside Slovenia. The portfolio is very well diversified.
If you see the deltas in the last year, it's actually, well, everywhere, relatively modest. Of course, also here you can see again the electricity part, where we had a decline, as I mentioned already before, for the mentioned reason. But overall, very nicely diversified. And if you see staging, then you can see that we have a slight increase in Stage 2 in corporate and well, relatively solid increase in Stage 2, actually in retail. Retail is not unexpected. I'm telling you this since a year, approximately, in a high inflation and higher interest rate environment, that's obviously expected. On the other side, what you can see on Stage 3 is that we are still making progress, not only in relative, but also absolute terms.
So Stage 3 is still declining for corporates and is actually stable in retail. Stable in retail means, of course, we have some inflows, but we are still successful in the same speed actually to resolve. That's why this stays absolutely flat, and of course, given our growing portfolio, relatively still, slowly declining. Overall, end of last year, EUR 301 million NPLs. I think that's actually a very good figure. 1/3 of that has zero delays. Very, very solid coverage ratios, still improving and the geographic dispersion, well, as expected, so also here, fully normal situation. Overall cost of risk, this was mentioned already, today, minus seven basis points. So very well, in line with, what we were guiding for.
In the last quarter, also not very surprisingly, and I indicated that, we had a certain charge, so EUR 15 million, that's actually on our portfolio size, very, very moderate. In general, you see here a couple of effects. You see still very solid development on corporate. You see still off-balance repayments. On the other side, you see certain charges on the retail portfolio, very much expected and in line with what I said before. And overall, we were guiding at the end around zero basis points cost of risk. We had minus seven. So release. We still see a little bit of trend towards fixed interest rates. Actually, corporate is very, very stable, and retail still tending toward fixed, which obviously is helping our structure.
One thing which, we got repeatedly questions, that's why finally we decided now also have, to have a slide for you, is on commercial real estate. So, what in our bank in reality, is commercial real estate is, retail shopping centers, office and congress centers, and hotels. The overall figure here is obviously below EUR 500 million, and is actually, to the very big part in the operational phase. In the first two categories, so retail and office and congress, you have zero defaults. In hotels, you have defaults below 5%, but this is coming from a very few cases, two, three very old cases, so before we restarted, so that's from the very long ago period, still left. And then, two, three cases, which we currently, put a default rate because they are highly leveraged.
They're coming from the recently integrated bank, from N Banka. But these are cases which are paying well, for our taste, for our standards, a little bit too highly leveraged. This is less than 5% altogether of the hotel portfolio. So, overall, a very moderate sum. You will see in the following quarters, we will keep tracking, so you will see this now quarterly, just also that you have a regular update. And overall, on top of the fact that the size is moderate, a very, very good portfolio quality, with good indicators and, minimum problems. So, so far so good.
Of course, commercial real estate, also for us in these days is a higher attention point, but I have to say that in this region, these areas in which we are working, they're still performing very, very well, and actually, relatively few clouds on the horizon, so we are not really expecting this to change. With this, I conclude for now for my part. Thank you, and I'm handing back over to Blaž.
Thank you both. So the main message is that, of course, we have performed better than we planned, obviously, in an environment, and actually following 10 years of hard work in structuring the business model, in a way that it's really resilient and potent in a sense that, of course we can generate growth in a growing environment. So the last information on real growth of Slovenian economy is 1.6%. Regional economies have been growing in the ballpark of 2%-3%. So this is a growing region, right? Significantly, you know, swifter growing region than the heart of Europe in this respect. So in this respect, of course, this is something that we believe is, you know, an attractive region to play in.
On top of, of course, other elements driving the success, we are of course, sharing this success. The biggest, the most important message is of course, that we are significantly beefing up the dividend. So the so far guidance on the dividend uptick, which was so far communicated in form of EUR 290 million in 2024 and 2025 combined, is now of course, much more attractive for shareholders as we are suggesting, as we are intending to suggest this year again, in two GMs, cumulative payout of EUR 220 million, which is a 100% increase versus just compared to last year. And it's, of course, 40% of the profits generated in 2023.
Furthermore, we now almost at the end of February feel confident enough to simply guide for this year that, you know, this performance is going to be continued in a sense that of course, we believe that we will be able to generate sufficient level of revenue at contained cost evolution of course, maintained retained asset quality and growth at mid-single digit levels that we will be able to distribute also next year, at least 40% of this year's profit. This is of course, a significant step up in sharing of course, of capital and success with stakeholders, whereby we have been still very, very responsible when it comes to the matters in the society.
I was mentioning before, on one side, classical CSR, but then we are one of the most important supporters of, obviously, also of the regional culture, of regional sports, of regional humanitarian health-associated institutions, bodies, and, and projects, and in this respect, we really do share our success with the society as well. This is here to stay, so this step up in the dividend payout does not impair our ability to grow the business. So we are able to grow the business in the upcoming midterm period at high mid-single digit rates organically, and we are retaining further M&A in capacity at the level of up to EUR 4 billion of risk-weighted assets.
This is a strong signal to all of the stakeholders that, of course, NLB will remain equally potent while sharing significantly higher part of our results on the go, also with the stakeholders. I firmly believe that this is, of course, a significant addition to the value proposition, not only to the shareholders, but also to our clients, our talents, and the whole region where we play. We believe that in the midterm period, we can expand this, and I, by that, I'm cordially inviting all of you to the upcoming Investor Day, which will take place this time in Ljubljana, where we actually are headquartered, on the 9th of May.
On that occasion, we plan to actually disclose the new midterm strategy up to the end of 2030, within which we are going to address these midterm opportunities. So where do we believe are the key revenue pools to deploy our capital to and allocate our capital to, in order to, of course, accrete more value to you and, of course, sustainably grow the business, and by that, being able, obviously, to become even stronger pillar of the regional society, potentially entering also some additional regional geographies, of course, expanding our business in ancillary universe, and simply being an ever-improving bank when it comes to client experience from traditional banking services in the region. I would wrap it up here. We are stronger than ever.
We are more responsible than ever. We feel confident more than ever, and we believe we are, you know, worth of your trust, and we thank you very much for closing the market today at historical high. By that, I move to the questions, to your questions, to which we will gladly respond. Thank you very much.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their telephone. If you wish to remove yourself from the question queue, then you may press star and two. Those participating via webcast, you may type your question via the live feedback box below the presentation. For those participating in the questions and answer session, please use your handset when asking your question for better quality. Anyone who has a question may press star and one at this time. One moment for the first question, please. The first question is from the line of Jovan Sikimić with Raiffeisen Bank International. Please go ahead.
Yeah. Hi, good afternoon, and thanks a lot for the opportunity to ask questions and congrats, actually, for lifting the dividend. So it was very good. I would have a couple of questions. I mean, first of all, on 2025 guidance, it seems that there was a bit of upgrade, I think, rather from revenue side. Can you just tell us maybe roughly what's the rate assumption behind, particularly on the Eurozone side, and also whether the Summit Leasing unit has been somehow incorporated into the guidance?
So Summit, yes, of course, we assume we will close this, so we are quite confident. And, rate environment, basically, we always work on the forward, so market implied rates, so that's something in the ballpark of 2.5%. And, I mentioned the rate sensitivities. Just bear in mind, they are mechanical rate sensitivities, so they, in essence, assume ceteris paribus. And of course, we will continue to grow the business, and by that, the revenue base or on the rate side. So the realized rate sensitivity is, of course, much lower than, than that, which is why you see us confidently increasing with revenue guidance as well.
You see a gradual shift towards retail, so you see, you know, growth of retail book that is a bit quicker than the corporate book, and you see structural shift within the retail book towards fixed. So this we see as a natural hedge. And in this respect, besides, of course, the structural change, we have also growth of volume by which we, of course, also address the revenue boost. So we do believe we can grow revenues in the upcoming years within what we guide for 2024, 2025, and beyond.
I mean, Importantly, deposit betas have remained very resilient. You've noticed that we stick around below 10% range. Also, we offer, I think, attractive products. We've seen moderate pickup, and of course, when rates come down, we'll also consider repricing some of these products as well.
Okay, but I mean.
So there are counterbalancing effects.
On deposit betas, you mentioned it, I mean, it is like, yeah, less than 10% on the group level. Is there any big differences among countries? I mean, Slovenia is apparently the lowest, right?
I'd say broadly speaking, it's quite comparable. Of course, you have some markets a bit more under pressure when market shares are a bit, you know, lower, then clearly the equation is a bit more sensitive, but broadly speaking, it's give or take in that ballpark.
Okay. And maybe one technical on the margin performance in Q4. I mean, definitely there is a bit of slowdown, still, of course, appreciating, but compared to Q3 separately, it seems that the upside in Q4 came mainly from Slovenia compared to the, let's say, SEE network. Was there any special reason for this?
No, I think we are, in essence, I mean, Slovenia is always, you know, a key pillar of the whole group. So, and of course, in Slovenia, in particular, I think we are very successfully continuing to originate retail loans in particular. And of course, we originate them at a bit higher levels these days. So, but I wouldn't, you know, now see any particular thing I should highlight. We, of course, engage a bit in hedging in Slovenia, but nothing I would mention here is, you know, outstanding. We just do continue to do our business and, of course, are very focused these days in stabilizing NIIs.
We should not neglect the fact that Slovenia obviously is a Euro country, right? We have other countries that are not directly, necessarily Euro countries, and, you know, we've seen such a rate environment in Slovenia before and now a new rate environment with the last hike actually in the, you know, Q4.
Yeah.
By that natural structure, more or less, and EUR 16 billion out of EUR 26 billion in Slovenia, you know, you would see it naturally.
Yeah. And maybe last one from my side, on Komercijalna. Do you dare to predict or to guide for net or pre-tax profit 2025, roughly, or it's too early for that?
Well, we refrained now from guiding for specific single subsidiary because we simply now see Komercijalna as well, integrated business that has been performing north of what we, you know, guided for when we acquired and then integrated. So there is no specific need to highlight this specific guidance, but we of course, expect growing trend in terms of profitability. And we are very happy with the performance. The bank is growing market shares at, you know, double speed or, you know, than the other players in terms of new origination. And in this respect, we are very happy with both retail and corporate evolution. So this is what we can say at this point and of course, Komercijalna should become one of the key pillars of this group also in the future.
I think you will hear a little bit.
Okay, appreciate.
I think you'll hear a little bit more at the Investor Day.
Yes. Okay.
On geographic ambitions. This is where we probably will get a bit more specific.
Okay, now. Appreciate it. Thanks a lot, guys. Thank you.
Thank you, all.
We will now move to our webcast questions. The first webcast question comes from Antoine, from Allianz, and I quote: "Congratulations on great results. Does the increase in dividends in 2024 mean that there are fewer M&A opportunities in the region than you hoped for? Would you be willing to pay a premium over the book value if some opportunities appear for bank acquisitions?
Thank you." Well, that's an interesting question. With so robust performance in 2023, we actually generated, you know, sufficient buffers also upon paying this dividend uptick. So we are guiding, we are able to still assume acquisition, you know, with in the ballpark of EUR 4 billion of risk-weighted assets. And there are not many, right, potential actionable targets of this size in the region.
So if there was one, this is actually the size of the leading bank in Serbia. This is the size of a sizable bank, you know, in Croatia, for example, if we were allowed, you know, at certain point, to enter this market as well. So, we believe we are keeping sufficient buffers for eventually actionable opportunities, and on the Investor Day, we hope we will be able to, you know, come in front of you with something that is more concrete than that.
So we believe we are, we are introducing here a balancing act, sharing more value with shareholders, but keeping sufficient, buffers for eventual mid-sized acquisitions, which is what we believe we can absorb meaningfully, you know, in the, let's say, midterm period. We believe this is actually a very balancing value, accretive way of thinking, in a sense of sharing immediately, our result with still keeping sufficient buffers for growth.
M&A discipline will remain in place. You have seen us being disciplined. You will remain to see us being disciplined.
Yeah. In terms of valuations, this is simply, you know, the axiom of how we perform business. So value accretion is the only clear criterion here. We will not acquire anything for the sheer purpose of growing the size. So whatever we'll be engaged at will have to accrete value as well.
The next question is from the line of Ronak Gadiya, who's a private investor. Please go ahead.
Good afternoon, and thank you, and congratulations for the result. Just a couple of quick questions. Maybe on the growth side, you've been guiding towards mid-single digit growth. Any downside risks to that, given that, you know, the German economy seems pretty weak, and as we know, Germany is a big driver of growth in Slovenia and across the region? And the second one was, maybe if you could provide an update on what the potential M&A looks like in Croatia.
Well, when it comes to the growth, it's a bit of a mixed bag. We've seen Serbia growing, we've seen regional economies still growing, right, at 1.5%-3%. Which means that, you know, we are looking at the full employment, basically, real talent shortage, which means households are in very good shape and healthy. And we've seen still household debt-to-GDP is, you know, in low 20%s, and in this respect, obviously, there is still a lot of room for growth. And we see, especially in retail, a very sound evolution, let's say, also in Slovenia, 5%, but in the country is still high single digit, 8%-10%.
And this is actually driving the mid-single-digit, because on the other hand, when it comes, of course, to corporates, we see a quite prudent way of thinking still by the CFOs and CEOs in the region. Because of this uncertainty, mainly coming from the German economy, they somehow delay certain investments, right? And in this respect, there is a bit lower demand for corporate loans in Slovenia versus still pretty solid one, with 6% growth proven in the country. So in this respect, that's why we are basing this, you know, let's say, you know, steady state when it comes to retail, high single-digit, and, you know, corporate, then lower, or rather lower single-digit combined in aggregate terms, leading to the mid-single-digit.
We would hope for stabilization finally, right, in 2025, and then normalization, which would mean a return of some positive sentiment, and then, of course, also more corporate demand, then driving the total growth, to, let's say, high single-digit levels. This is how we look at it, from this point of view. And remind me, what was the second question? Croatia. Croatia, we've obviously signed a, an SPA, the SPA for the acquisition of the Summit Leasing, with, of course, 100% participation in Croatia. We have filed, of course, applications to regulatory bodies, and we are awaiting the response. We believe that this will be cleared, and this would then, of course, potentially signal further steps in Croatia. We cannot be more concrete than that at this point of time.
Okay, but with that acquisition, do you think it opens up opportunities for bigger acquisitions in the country?
We would hope so, but of course, it's not certain.
Okay. Just follow up on the Summit Leasing acquisition. Just remind us of what the timelines are and what the synergy benefits from the acquisition would be.
Yeah. Timelines are, let's say, mid of this year. We, of course, conservatively communicate latest end of this year, so we would want to close with all the regulatory approvals before the year end. We are aiming at more or less mid of the year, we hope. It's feasible. When it comes to synergy, Archie, maybe you can assist here.
Well, typically, we assume a certai share of cost base. We are still doing the numbers here, but in essence, it was not a synergy case, in essence. It was a strategic ambition to grow leasing in the first place in Slovenia and also prevent competitors stepping in. But synergies will be in the single-digit EUR million annually, so.
When it comes to, obviously, cost synergies, but when it comes to, of course, commercial boost, this means, you know, acquiring the market-leading leasing business. And if you look at the look-through funding equation, funding synergies are, of course, here extremely important because you boost the growth of business at higher margins than regular lending products, and you fund it from your own base, which is here, which is, you know, in this respect, this is really, you know, incrementally bringing a lot of value creation.
Good. Understood. Thank you very much, and congrats again.
Thank you.
Thank you.
The next question comes from the line of Samuel Goodacre with JP Morgan. Please go ahead.
Good afternoon, everybody, and thank you for your time. A couple of questions. One for you, Archie. Perhaps you could clarify what appears to have been a trading loss in the fourth quarter, which I believe predominantly came from the foreign strategic markets. Could you give a bit of color around that? And then on the dividend, I think we're obviously awaiting a bit of an update on the future trajectory of dividends at your Capital Markets Day in May. But already today, you're moving away from kind of targeting an absolute amount, given that you've been focusing more on the payout ratio.
What might we expect from a dividend policy going forward, just in terms of how we can think about how you are deciding how to allocate capital, whether it be in those nominal amounts or in payout terms? Thank you.
So not quite sure what you refer to as trading loss. The only significant event that I'm aware of is the modification loss we had in Serbia. Maybe you're alluding to that. So that is the effect of the regulation coming to play for ceiling fixed-rate mortgage loans, and we had to account for that in our existing book. With regards to dividend policies, I mean, Blaž, I think, more or less, outlined our thinking around this. It, in essence, it says higher than 40, and it still, you know, very clearly underlines ambitions to grow the business. So we will have to maintain a balanced equation between payout and invest.
I think you also can see or hear between the lines that we want to maintain robustly capitalized. It is after all, uncertain days. So, in that sense, see us 100, 200 basis points above, let's say, management risk appetite, it's called, but really it's a risk appetite view. In other words, a lower limit, and I'd rather see us 100, 200 basis points above that. But details are really for the capital markets day to be shared.
But you can somehow try to understand it from EUR 1.2 billion, let's say around, right, revenue ambition level and then cost of income ratio and cost of below 50% and then, you know, cost of risk, and then at least 40%. So we can't be more concrete than that, but of course, we would want to keep from today's perspective, somehow these dynamics also in the years to come, but to be still verified by the strategizing process and communicate in May. But, we believe we are bringing good news here. We now, of course, move from absolute amounts from this five-year period to dividend payout ratios, which was somehow signaled by various investors as something they would now prefer after, you know, this, this, period of last couple of years.
So, you know, this is now what we tried to do in a way that is stimulative and motivating. And, you know, we say consciously, at least 40%. So if there were no reasonable opportunities, you know, in the upcoming period when it comes to the M&A, of course, in a single year, this might be significantly more. This is really depending on our ability to identify and then act upon concrete assets in the region.
Okay, thanks very much. Cheers.
Thank you, Sam.
Welcome.
The next question comes from the line of Mladen Dodig with Erste Group. Please go ahead.
Good afternoon, gentlemen. Thank you for your time and opportunity for questions. And of course, I join the congratulations from all the colleagues on the results. Well, my question was on dividends, but you explained it for a couple of times already. So, correct me if I'm wrong, so conclusion on this EUR 500 million is now kind of off the table, and we are now talking about. What I wanted actually to ask is, so for example, for this year, if this was staying unchanged, we could have expect, let's say, EUR 130 million, and next year EUR 160 million in order to arrive to those EUR 290 million, but that's now out of discussion, right?
Well, you will have now EUR 430 million already paid this year, so EUR 70 million next year, and we want to pay much more than EUR 70 million next year so we refrain from EUR 500 million.
Exactly. Of course. Of course. So, let's say in some case, this EUR 130 million becomes EUR 220 million. Okay, thank you. Correct me, maybe I didn't saw in the presentation. I think I haven't seen the update on your average value of Euribor in portfolio. At the end of third quarter, it was 3.45%. Do you happen to have information with you for the end of the year?
I think we don't disclose it, but, if you kindly address IR, they'd be happy to give you the exact number.
Okay. Okay, okay. One more question regarding politics. So do you expect any, let's call them, strange developments in Serbia, maybe repeated elections? Okay, of course, this could be a long discussion, but just maybe I wanted to hear your sense on the same situation right now.
Well, we don't, of course, speak up publicly about, you know, political relations in the countries. We believe that Serbia is, of course, a country with significant growth, with clear focus on development of the economy and build-up of the infrastructure. There's been, of course, this constant question about relations, you know, when it comes to our operations in the two markets, right? We run two banks, one in Belgrade and one in Prishtina. We've closed at the end of January, all of the branches of NLB Komercijalna Banka in northern territory of Kosovo, and by that, in principle, there is no ambiguity in this respect anymore.
So the bank, Prishtina, is focusing on the territorial area and on one side, and Belgrade bank NLB Komercijalna is focusing obviously on the other territory, and in this respect, you know, we have a clean cut. We believe that anyhow, the only reasonable future of the whole Western Balkans Six is within the European Union, and we again, you know, speak up publicly that European Commission better comes to senses as soon as possible and integrates Western Balkans fully into the European Union. But that's all we as a systemic institution can say about that. This will stabilize finally the whole region.
Yes, yes, of course. I fully agree with you, sir. Yeah, it was something that I also wanted to kind of align with in my thoughts, that the whole region is going to the right direction, especially with all these billions of euros getting ready, being ready for the region through our various growth plans and similar stuff coming from EU. Yes, I guess that would be all from my side. Thank you very much, and I hope to see you in Ljubljana.
Thank you, Mladen. You are cordially invited, as everyone else. Thank you.
We'll now move back to our webcast, questions. The next webcast question comes from Miguel, from Wood, and I quote: "Can you please provide more color on the DTAs recognized? What is the remaining balance, and until when do you need to recognize the remaining DTA balance? Thank you.
So I alluded to this a little bit, and we tried to be quite explicit this time in our presentation. So you'll see that, in essence, all of the not recognized and recognized DTAs will be used over the period up until end of 2028, upon which we are back to normal. And so in that sense, I explained, we'll see, given the balance sheet tax in Slovenia, slightly above 15%, in the 18% range. Group, let's call it contribution rate, because technically the balance sheet tax is not accounted for in the corporate income tax. It's expensed, actually. But to be transparent, we have now established this contribution rate.
Both this balance sheet tax and the DTA more or less expire throughout the period until end of 2028, upon which we arrive then at a steady state scenario with some 15% roundabout group tax rate. In terms of recognition policy, we recognize in essence five-year earnings projection utilization in the balance sheet. On a conservative basis, I should emphasize. Not, not in full, but on a, let's say, conservative estimate of earnings outlook, this part is recognized in the balance sheet.
The next question is a follow-up question from Miguel from Wood, and I quote: "Does the increase in dividend payout ratio to 40% and EUR 22 million already account for the excess capital distribution you alluded, you alluded to in previous calls, or could we expect further dividend distribution in 2024? Thank you.
Well, for 2024, as from today's perspective, we have no intention to suggest more to the GM, because we believe that, you know, as Archibald said before, in this uncertain environment, generally, it is a good thing to have a bit more capital buffer, at least temporarily. On the other hand, we believe there might be actionable assets within the upcoming 12 months. And in this respect, of course, we want to keep sufficient capital reserve to be able to act upon such eventually actionable assets, you know, if this arose as a, as an opportunity. So in 2022, from today's perspective, we have no intentions to suggest something like that. The strategizing process has been still pending, so I would not now preclude or, you know, pre-judge on what will be the outcome.
But, you know, we will then communicate on the 9th of May, a bit more midterm perspective from this end, you know. What is there that we believe is distributable and, you know, reasonable to suggest to the GM, and what we believe is actually on one side, a strategic reserve, or on the other, already addressing concrete opportunities, that might arise until then already or, you know, soon after. This is all I can say at this point. But it's a 100% uptick from last year.
Next question is again a follow-up question from Miguel from Wood, and I quote: "You previously guided for zero basis points cost of risk in 2023, but booked provisions that imply 10 basis points for full year 2023. I was just curious as to why you decided to book more provisions than maybe previously anticipated in third quarter of 2023. Also, what is included in other impairment and provisions? Thank you.
No, I think we are mixing here two topics. One thing is cost of risk. So here we are talking about impairments for loan loss provisions, right? And the figure per end of the year is seven basis points negative, so we are releasing cost of risk. Of course, there are also other provisions, so non-loan loss provisions. Here, in 2023, in general, we saw some charges on the legal side. Primarily, topics like for example, Lex Rei Sitae here in Slovenia, and.
HR provisions.
HR provisions, exactly. These kind of things. So, these are not loan loss provisions and of course, not calculated in the cost of risk.
Next question is a follow-up question from Miguel from Wood, and I quote: "Can we still expect further, NIM expansion in first quarter 2024? What is the current share of term deposits and average cost? Thank you.
So, term deposits, I think, have been shown as share of deposit base, so we talk something in the territory of 10% at the group level. And, the payout on a term in Slovenia is, in essence, 2.5 % for an excess of 12 months, to give you an idea. And of course, we will review and revisit these pricing assumptions, as we go along and as market price dynamics develop.
Yeah, when it comes to NIMs, obviously, crystal ball, right? So it's really the function of whether and when and to what extent ECB starts moving. Now, until then, it is clear that not necessarily everything has already been repriced when it comes from the last hikes, because you have some six-month, 12-months arrivals and so on, there must still be something coming in. On the other hand, there is a slow shift towards term deposits, where we pay a bit more. You saw. We of course, the average funding cost is moving up slightly. But, you know, we believe that we have seen the peak in the, let's say, middle of quarter four and, you know, but at the end, the whole quarter was still, you know, growing in terms of NIM. So let's see.
You know, it's really a function of how decisively and when ECB will start moving down with their rates. It's an assumption everyone can have.
The next webcast question comes from Aktun, from Allianz, and I quote: "What is the expected contribution of leasing and asset management segments to group profit in 2024? Thank you.
So leasing is still if we exclude Summit Leasing is still a bit of a start-up business in Slovenia, so we're just rebuilding this book. So we talk total book size, something in the ballpark of EUR 300 million. So I mean, margins here are like 2%-3%. So it's a fairly straightforward calculation, so it's not very material these days. Of course, with Summit, and that's why we explained before, this was not a synergy case, this was us accelerating, growing in this attractive business. And here we then talk about $1 billion+ altogether. So that, of course, will become material, so we then certainly count on revenues in the ballpark of EUR 30 million, give or take.
So this is material for us, and of course, importantly, it's underpinning our strategy to provide not just core banking services, but complement our distribution capacity with as many products as possible. So yes, asset management these days is a EUR 20 million revenue, give or take, pool. And again, here we expect more to come, and we just announced that we acquired a business in North Macedonia. We continue to operate with a subsidiary of a former Komercijalna Banka . So we see here the glass half full and are very ambitious in also setting us up organizationally to fully, let's say, chase this revenue profit pools. But I again would ask for a bit of patience. I think more light we will certainly shed on this in the upcoming Investor Day. For sure, that's a big theme there as well.
The next question comes from the line of Brzoza Robert, with PKO BP Securities. Please go ahead. Mr. Brzoza, can you hear us?
Hello. Yes, can you hear me now?
Yes, we can. Please go ahead.
All right. Thank, thank you. Sorry. Good afternoon, everyone. I have two questions, one on the potential impact of Basel IV introduction, and second, on your expectation regarding the further 2024 level of NPL recoveries, whether you would see them at a similar level to 2023 or significantly below that level? Thank you.
I apologize. I didn't understand the first question. What was the first question?
The impact of Basel IV rules introduction on your capital positions, risk-weighted assets, et cetera.
The first one, easy, moderate, if anything at all, because we are still standardized approach. Regarding NPL recovery.
Yeah.
I pass on to Andreas.
Yeah, so on NPLs, you saw end of last year, we are at EUR 300 million NPLs. I would say this is approximately the bottom where you can get to. I mean, we are still growing. We continue to grow, so if we just absolutely stay in this range, I think we can say this is very, very successful. What you saw in 2023 is a certain inflow in retail. We were able, actually, in the same speed to resolve also NPLs. You saw on the corporate side, still some good success. So overall, we again decreased a little bit in even in absolute numbers in 2023.
I would say at one point of time, given also the area in which we are working as a group, there's a bottom to that, so I would not expect much more decreasing absolute numbers. We might still, if we are lucky, see slightly decreasing relative numbers. As you saw on the cost of risk guidance for 2024, we are expecting moderately positive cost of risk, so 20-40 basis points. You have to see that of course, if you see any of our mid-sized tickets, one, two tickets can make a solid difference. I mean, if you calculate so sharply around zero, you might have also one day a negative surprise. I have to say, I don't see these surprises coming for the time being.
So what we can see for now, I'm very confident that we will stay within the predicted cost of risk, and that we will stay relatively flattish on the absolute NPL level in terms of millions of euro. But of course, as the colleagues also before mentioned, it's a vivid environment. It's not even a peace in Europe. So, you know, I mean, it's always possible that you see one or two cases outside the range what we are expecting. But do we see this for now? Do I expect it for 2024? No. So we are very confident and optimistic to stay within the forecasted range.
That's fine. Thank you.
Thank you.
Thank you.
Next question, comes from our webcast participant, Anton from Allianz, and I quote: "Do you think Slovenian government retail bonds will affect your level of deposits in Slovenia? Thank you.
First of all, we want to congratulate the government for deciding actually to go this way, because this is a very important milestone. We firmly believe in developing Slovenian capital market. We are, at the same time, happy that NLB was one of the main, of course, distribution channels, and, you know, I believe that the outcome of this issue was ideal, slight oversubscription, because we would hate a scenario where, you know, not everyone would get everything that, you know, was asked for. So in this respect, I think this was just a perfect outcome. It's EUR 250 million in, you know, EUR 27 billion deposit portfolio, so it is by no means deteriorating the bank's structure, the balance sheet of the banks. And in this respect, it's something we welcome. You know, our LTDs are at 66%.
We have solid growth of deposits still, right? So we believe this is simply a way to develop the market further and the rest is in the hands of the Slovenian government. So we have by no means been impaired by that. Furthermore, I believe that this is, you know, following the more or less main goal of literacy, of development of capital markets, of you know, balanced distribution of assets, of Slovenian households, private individuals, and businesses. And this is going to benefit us as universal distributor of financial services in long term in any way. So, so far so good. I think this was actually a perfectly done transaction.
Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Mr. Blaž Brodnjak for any closing comments. Thank you.
I think it was an exhausting feature here, so thank you very much for being with us for your continuous trust. And I'm really celebrating today because we have seen the historical high of the stock. This is more than doubling since the IPO in five years, and this is really bringing the dividend promise of at today's price, still more than 10% dividend yield. And this is leaving still room for further organic and M&A-driven growth, and we believe there is much more to come, and we believe it's worthwhile now extending this trust also in the future. Thank you very much.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for calling, and have a good afternoon.