Ladies and gentlemen, thank you for standing by. I'm Konstantinos, your Chorus Call operator. Welcome and thank you for joining the NLB Group conference call and live webcast to present and discuss the third quarter 2024 financial results. All participants will be in listen-only mode and 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 0 on your telephone. At this time I would like to turn the conference over to Mr. Blaž Brodnjak, CEO and Mr. Andreas Burkhardt, CRO. Mr. Brodnjak, you may now proceed.
Thank you very much. Warm welcome, everyone. Good afternoon to our regular performance call. Thank you for devoting your time. Let me draw our attention to the standard disclaimer first and then move to. Something that we believe is a good story. Right? So we are looking back to another.
Very strong quarter in all dimensions. We see growth, which is good. So all client segments, all geographies organic and after successful closing of acquisition of Summit Leasing, including the participation in Croatia, also M&A growth relevant and related growth, which is all adding value and we believe productively engaging capital. We've been growing assets stably through the retail and corporate portfolios and introducing now leasing as a very strong pillar. There is a very solid trend in net operating income. Clearly the margins have picked. We will come to that later on. But in principle we are defending the revenue by a set of various measures. If efficiency is still there, cost income.
Ratio is still very solid and result. After tax in Q3. Of course, depending a bit on seasonality. Cost of risk evolutions in previous. Quarters, but generally very strong output. Key highlights refer to very stable and. Benign evolution of cost of risk. Still, Andreas will give you a bit. Moreover, however, of course, certain uncertainties and turbulences in German economy and generally. Manufacturing European manufacturing universe are potentially affecting. Us, but there have been no detrimental evolutions in this respect. ROE, of course on a pretty high. Basic capital is very solid and we.
Have been, as said, managing with various measures also the net interest margins. So clearly we've seen rate cuts and a lot more is ahead of us. But with a set of various measures we have been addressing. This one clearly being of course the growth so organic and regulated growth of loan books. On the other hand, rerouting some of the liquidity reserves from ECB balances to longer term securities, hedging some of the positions and focusing on fee income origination, which is of course also a very solid measure. Referring back then also to the revenue to the dividend payout that is pending. So we have already convened the AGM which is going to take place on the 9th of December and then distributing the second half of this year's solid dividend. So the macro of the region is still very promising.
We've seen significantly higher growth rates than in Eurozone and generally European Union territory Slovenia this year rather towards 1.5%. But then for the upcoming years practically all geographies showing very solid promise in a sense of what we can hope for. The inflation coming down, unemployment being basically very, very low. I mean, this recorded reported numbers do not necessarily reflect actual situation in the market because you know, anyone willing to work, of course can find work easily. So this has not changed. And also in terms of the general balance of fiscal systems of the region, also referring to the indebtedness of the countries in this respect, this is a very solid situation to be in in a sense of of course prospect growth and us playing in this region as a regional specialist addressing this growth potential. Key developments I mentioned in principle.
So I'm very happy about the growth of income. On one side, of course it's related by still pretty solid rate environment. But on the other hand, as said. We have started introducing certain rate reduction. Measures, offsetting measures already earlier this year. Much basically at the beginning of the. We're already anticipating some of these developments. And I also mentioned which measures has been actually undertaken.
The interest expenses versus interest income, of course, are leading to something that is in this respect pretty stable. Still, net interest margin evolution, especially if we look at Southeastern Europe. But generally, we have been with these measures offsetting generally already significant reduction. On the other hand, the operational business margin has been kept at very solid rates, even growing okay in last quarter, stabilizing and then gradually moving down, but still capped at very solid levels, which is of course producing very, very solid revenue and capacity.
Loan dynamics is very favorable. We are happy about high single-digit growth of retail books in Slovenia and. Even double-digit growth year to date.
Growth in southeastern geographies, which is of course a very solid prospect for the entire year where high single digit to even double digit growth rates are expected, it seems, and reasonably expected. On the other hand, we are also seeing pickup in corporate demand, not necessarily in market level aggregate loan books, but us being able to address the demand of the businesses that still invest in I would say more engaged way it seems than some competitive players in the region. And I claim this has been happening at absolute discipline when it comes to underwriting standards and criteria. So high single digit growth of corporate and sovereign books is also a good reason to celebrate Q3 results. Interest environment is of course something that we are all wondering what the future will bring.
And in this respect I would say that the nominal rates on client level are very supportive to the results. We have been shifting to the significant extent as much as possible new production from variable to fixed rates. And of course this is resulting in stable nominal rates on the client level. We've seen a bit, I would say revive demand for floating rates but in terms of retail demand it's still predominantly fixed and you know, people still are more or less of course seeking for fixed rates. On the other hand, the banks have proactively reacted more or less already months ago by adjusting let's say housing lending rates to something that is I claim very attractive for clients already and is in historical context absolutely reasonable.
So we are happy about housing loan demand coming back to the market and we have been addressing this over proportionally in relation to some of the competitors since we have been gaining market shares in practically all segments across geographies and across segments as well. As mentioned, deposit dynamics is somehow managed. So in this respect there is a growth, there is mid single digit growth of course in individual business, in private individual business.
On the other hand, of course, we have no desire nor need to pay high deposit rates to corporate clients, and in this respect, for higher amounts obviously, and in this respect some decline in total deposit stock is expected, leading towards more efficient loan-to-deposit ratio and by that overall profitability of the banking group. We remain clearly self-funded entirely, and LTDs are still low 70s% but more efficient than mid 60s% compared to last year. But total funding cost coming from the deposit universe is absolutely manageable, and it has, I would say my assessment is it has peaked. We've seen still pretty solidly low betas of 12% and more or less stabilization of term deposits of around EUR 1 billion, which is exactly at the level we somehow planned with last year when we saw this trend coming.
The savings accounts still remain pretty attractive products but they have automatic repricing mechanism of 20% arrival rate and in this respect of course are pretty interesting product for clients and us as well. The NII sensitivity has been as mentioned before, addressed with various measures and we brought it down significantly so from approximately EUR 110 million to let's say EUR 73.9 million, less than EUR 74 million at 100 basis points shift which we believe is reasonable. Of course we will continue growing, of course we will continue focusing on fee income and, and other revenue generation drivers and by that clearly offset what's to come. We have been operating with assumptions of, let's say around 200 basis points towards the end of next year. If of course the rates gone would go in a material different. Or to.
The materially higher extent down, this would have incremental impact, and this is not envisaged in our guidances, so we operate with assumptions of nevertheless moderate reductions to these levels. The non-interest income especially solid and healthy trend, happy about the trend in fees all over the place, so smart pricing, heavy engagement, high focus have been driving this growth. We have been adding clearly also the leasing pillar as something that is going to also contribute incrementally as well, but generally from the universal financial services distribution capacity. A really strong year for the asset management products, really strong year for life insurance unit-linked products, and as said with smarter pricing as well and the focus on cash transition to non-cash payment services as well, strong support of these fees.
There have been clearly some tensions when it comes to costs. We are operating in the region where we've had a significant wage inflation also based on some regulatory and legislatively based measures in terms of significant increases of minimum wages. You know, really still quite some exodus of talent by that naturally of course requiring to pay up a bit on one hand. So this is partly coming from the employee cost increases, but predominantly also because we have been incrementally investing in digitalization. So in this respect we have been really moving new production more and more to digital and transitionally we of course need to invest. So this was envisaged, this was planned for.
And in this respect that's something that's of course introducing certain tension since if we saw then really quick rate reductions, we would have temporary squeezes until we see the new bottom when it comes to rate environment. And then from then on of course have again solid growth of revenue base. Given of course a very strong organic evolution and us still being alert on eventual MA opportunities. Capital position remains strong. It is of course in terms of. Total capital ratio a bit lower. But this is good news because this means we are able to grow risk-weighted assets significantly again organically and by acquisitions and by this, of course, consuming the buffers that are on purpose and.
Consciously in place since we have attempted. Some acquisitions recently and we might again. Attempt some acquisitions in the near future. And in this respect, of course, these buffers are absolutely constructive and not in the way of accreting more value to you as shareholders. Dividend payments have been still strong, but. As such, there might be opportunities for. Value-accretive acquisitions and, at the same time, a scene close to or even.
Double-digit growth, which is of course something that we like, especially at the rates, nominal rates, we are able to generate this growth at, right. When it comes to the wholesale funding, yes, we have acquired Summit Leasing. This has increased the Slovenian resolution group and of course this requires incremental consumption of MREL instruments. That is requiring of course certain increases at certain point of time of MREL funds. In this respect we might fast-forward some of the planned issuances. So we were talking so far that towards mid of next year we would be planning a benchmark size up to EUR 500 million in senior preferred notes. We might accelerate this to the beginning of the year and by that of course cover this need. On the other hand, we have been talking about on various occasions about our eventual interest in issuing also AT1 instruments.
That would of course support the growth. From potential incremental acquisitions while securing very solid dividend payouts. When it comes to the asset quality. I would pass the word to Andreas and then come back for the guidances.
Thank you very much. Welcome. Also from my side we are back to 50% of our portfolio sitting in Slovenia. This you see on the lower part that's now not a surprise. This is actually the influence from Summit Leasing and on the upper part when it's split between SME, corporate, housing and consumer, you see it a little bit more in detail. So the white part is actually if we would not have acquired Summit. Well, light gray is the actual situation you see everywhere. Very solid growth. And of course, you know, I mean the 31% for consumer is including now the part coming from Summit Leasing. Without that it's around 12%. So still very good I would say. And also where we have some solid influence from Summit is in SME.
So here the growth is 14% with them and would be around 6%-7% without them. Very well diversified portfolio. What you can see is we were very solidly growing in construction industry area. Actually these are for good part deals which already coming from previous period and now just start being implemented here. Quality of the portfolio is very, very good and otherwise I would say no major developments to highlight. What recently is a little bit more in the focus of discussion is automotive. So that's why we prepared this time a slide on top of the ones we had so far. You see manufacturing or car components, that's actually very, very limited. That's EUR 155 million in the group. And then we have in leasing and in banks of course, car sales and car maintenance related exposures.
That's together something like EUR 230-EUR 240 million on the last two so far, zero negative developments. Very, very regular on the manufacturing. I have in my head now one medium-sized and one, well, rather smaller client. One of them, yeah, not breathing easy, but honestly speaking, that's much less result of the current situation. That's more of homework to be done. This client is intensively working on it. So I think this will go in the right direction. The smaller one, I'm more skeptical. So here you see a little bit of a movement and what you don't see here is that of course also in steel industry also here we have some clients. The current situation has some impacts in lower volumes, but no dramatic developments here actually either. It's more that whoever of course before didn't do a perfect homework, now feels it more than others.
We will have to see how this is developing. I don't expect any dramas, but in such situations clients are usually exposed with multiple banks. It's not just depending on us, but if everybody stays calm and rational then I think this is very well manageable. On staging you saw the jumps for a variety of reasons, quite some of them also methodological in Stage 2 in retail in the past and as I think told you already last time, I am expecting this to stabilize. That's now exactly what happened. What you otherwise can see is that Stage 2 and Stage 3 stays very, very controlled. Actually now in the third quarter basically, well just minimal changes everywhere. If you look on the NPLs, we have now a little bit more NPLs in number of euros than end of last year. Actually 20 more.
That's actually still pretty much of a luxury discussion, I would say. A part of this now is of course also coming from the leasing acquisition. Also there we have some Stage 3, some NPLs logically and a little bit is coming from retail, basically still zero from corporate. What is also still true is that approximately one third. So concretely EUR 125 million of these NPLs are with zero delays. So many of them in a healing stage and they are not yet healed. Collateral coverage remains very, very solid and the geographical dispersion you're now already used to that is obviously normal. So compared to the shares in our overall business and I guess that's what you want to see, so that's okay. Then last but not least, cost of risk. So we had some methodological changes actually improvements this year.
This is something which, and I think somebody asked me last time. I'm not exactly expecting to repeat next year. So this is, well, if you want more or less one time effect this year. On the other side, portfolio development very, very moderate in the entire year. On the negative side, you see EUR 26 million and on the last quarter, quarter four and a half, so very moderate. On the other side, we still have good results from repayments of written-off receivables. This is still amazing. Which figures here coming in, honestly, for very much aging off-balance portfolio and that's good. Overall, we still see releases in the first three quarters. So this might not be like that anymore till end of the year for sure. We will very solidly stay within what we guiding for, so below 20 basis points cost of risk.
Whether it's still negative will need to be seen. I mean we have here two elements. On the one side I told you a little bit about corporate clients. Here of course little, a little bit focus is really indeed on automotive and on steel. On the other side we see currently some layoffs of course also to clients in this sectors we are exposed to the retail clients now, but on the other side, as Blaž mentioned before, I mean it's still a situation where everybody who wants work gets work pretty fast. This case we shouldn't see here anything, but let's see. I'm still the CEO so I'm a little bit careful. Development so far this year of course again very good and I'm not expecting any dramas or revolutions but we might see some provisions actually in the last quarter.
Yeah, with this I'm handing back to Blaž and actually to our newest acquisition. Thank you.
Thanks Andreas. This is the first more or less flash about what this new acquisition means. We will come with more detailed numbers with the annual report we just closed. On the 11th of September. So some consolidation effects are just, you. No, for a short number of just. Limited number of days and burdened with. Some one-offs which would be confusing in disclosures. So in this respect we just guide. In principle for what this business is. In terms of size, in terms of structure and what it should incrementally bring in mid-term in terms of contributions. So we are talking about EUR 20 million, growing to EUR 30 million contribution in the midterm. And that's of course material.
And if we were talking in the past that leasing should become a pillar with more than a billion of volume, we're talking of course now about rather more than EUR 3 billion until the 2030 within the strategic constellation. Right. This has become an important sub. Pillar of our business, covering four geographies. Of course having ambition to potentially look at further acquisition opportunities, be it portfolios, be it fleets, be it businesses as a whole.
This is going to be another development stream of our banking group. When it comes to the integration, it is well on the way. I am personally chairing the supervisory board of Summit Leasing in this capacity and supervising the integration process. We are aiming to complete it, let's say until the end of H1 next year. Then on having clearly one company, one entity, so legal and operational merger completed, it will be called NLB Lease&Go, of course operating the entire network of four leasing businesses in four countries. Then finishing this presentation with the outlook. We have been pretty consistent with what we have been saying so far. Of course 25% towards the end of this year, we do not expect major negative surprises.
Andreas gave you some hints that of course manufacturing in Europe has been under pressure and there have been some businesses in steel processing and automotive that had challenges. I believe they are all of course possible to overcome without major pain for banks and the businesses, but it will require some effort. So is it going to be negative cost of risk or not? It's not necessarily yet clear, but you know for sure below 20 basis points as a guidance here. And when it comes to the next. Year, we are working heavily on keeping the revenue base.
So, despite significantly, I would say, accelerated reductions of the rates, we believe we should be offsetting this by growth on one side of business and on the other side, not only of course loan book, but also fee income with high single digit rates. And on the other side, clearly this has been somehow confronted by still intention to invest. So we are significantly investing and even accelerating investment in digitization. And we just put in production, for example, self service credit card limit management and self service overdraft. And you know, this is already delivering. More than 50, almost in some cases. Even more than 60% of people actually doing this on themselves. So in this respect it pays off to invest into digital and there will be this interim tension.
Clearly 2025 is going to be confronted by swift rate reduction and of course investment. And in this respect we are guiding for a bit higher cost of risk interimistically as a transition period. But of course we don't shy away.
We keep saying that until 2030 it should be of course retained below 45%. Cost of risk is a bit of an enigma. We've been for 10 years now guiding you to 30-50 basis points. So it's really a bit of a function of a health of Central European economy. We see some turbulence now in Germany, premature elections obviously coming somehow. Is there going to be some measures that are going to revamp, revive Central European industrial base, which Slovenia is of course heavily dependent on when it comes to our output and should then this leads to increased order books and so on. Let's see. So we are consciously, cautiously guiding for these 30-50 basis points. They haven't crystallized in last 10 years and we would hope they would not this year as well. But situation in Europe is not really rosy.
Let's see what comes also with the result of American elections, how this will potentially impair European Union economy, you know, in terms of global competitiveness and so on. And how of course a strongly manufacturing based economy like Slovenian, a bit less regional, might potentially get affected. But generally we believe this is something that is, you know, finally leading to a kind of normalization of cost of risk. We would of course keep high promise on dividend payout. I mentioned if we were to engage in acquisitions, there is a potential that we retain with capital buffers of up to EUR 4 billion.
We would in any case, if there was a more material acquisition, I would say supplement that in parallel with an AT1 issuance so that we would keep the high dividend payouts and bring then the rare situation to investors which would be the best of both worlds, right? Value accretive acquisition in combination with still solid dividend payout. So overall, we are bringing, I believe.
Good news, not deviating from what we've been saying so far. It's been a very strong quarter. It's going to be a strong year. It's going to be a bit transitional, demanding 2025 and first half of 2026, but then on, once we hit the bottom in terms of the rate environment, I believe the growth organic plus potential M&A accompanied by a very conscious investment in digitalization which would at a certain stage then of course also lead to significant reduction in headcounts. We are talking about 20-20+% within six years. Of course this should then also keep the cost income ratios below the guiding for 45% towards the end of the strategic period. That much from our side when it. Comes to the presentation and by that. We are opening the floor for questions and comments. Thank you.
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 the 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 the question via online feedback box below the presentation. For those participating in the questions and answer session, please use your handset when asking a question for better quality. Anyone who has a question, press the star one at this time. One moment for the first question, please. As a reminder, if you would like to ask a question, please press star one on your telephone or type your question in the box. There are no audio questions at this time and we will now move on to our webcast questions.
The first webcast question is from Anton with Allianz. First question, when is the next issuance of MREL bonds planned?
I mentioned early next year, very likely. It's not yet a firm decision, but we have been planning originally mid of next year, but we might accelerate that to the beginning of the year. I can't be more specific, but early in the year is very likely.
Thank you. Second question. Can you tell us about buying the online vehicles sales platform DoberAvto, which was owned by the Automobile Association of Slovenia? How much loan generation do you expect from that platform? Thank you.
Well, that's really a small, I would say, entrepreneurial sidestep. So it is simply adding towards our comprehensive mobility solutions ideas. It is a small portal at this point of time. It is immaterial for the banking group and it's too early to tell in principle to what extent it would assist us at eventually disintermediating other players in this universe. So it's more or less adding to the entire end-to-end business model of mobility providing. And it's too early to tell this concretely, but it's an attempt of building ecosystem solutions when it comes to mobility. It is immaterial for the banking group as of today.
Thank you. The next webcast question is from Jovan from RBI and I quote, “You have kept 2025 ROE unchanged despite revising CIR upward 48% at unchanged revenue outlook. Does this 15% ROE for 2025 now look too ambitious?” Thank you.
We believe it looks more realistic. Right. Because if you look at the 15% of outlook for 2024, we say more than 15%. Right? We tend to deliver more than 15%. So in this respect, you know, it. Is to be put in perspective. So you know, so far we somehow wanted not to over promise but to over deliver 25%. Okay, can be seen more as a stretch, but we believe 15% is achievable.
The next question is a follow-up question from Jovan and I quote, what was the contribution by SLS to the net interest income and fee income in Q3 thank you very much.
It was immaterial basically because it was just this 19 days. Right? So that's why we said we are not more specific than that. We will be more specific in January report but we will then clearly disclose all of these effects, and the key ambition obviously is in midterm to come to EUR 30 million contribution to the group's results, but more specifics are coming.
The next webcast question is from Vladan from Ipopema, and I quote. At what. level do you expect net interest margin to stabilize after 2025? Thank you.
It's too early to tell. It's a function of so many moving parts. I can't be concrete in this respect. What we are trying to do is of course defend the margin as much as possible with various measures. You see the client facing rates which are pretty stable still. Right?
So you didn't see the decline because this is of course now shifting balances from the ECB balances to the corporate client portfolio, part leasing, part corporate growth, part retail growth to significant stand fixed rates and so on. So I can't be really concrete. We will lose some of the margin clearly, but with various measures we are trying to defend it then to lead towards these combined guided four results. But as I mentioned where we expect rate environment, right? We expect it at 200 basis points at the end of next year.
Thank you. The next question is a follow up question from Jovan with RBI and I quote, "What is the driver behind the cost to income ratio? Target revision from 45% - 48% for 2025." Thank you.
The driver is obviously keeping revenues stable, and still certain investments. There are still tails from former inflationary environment in sense of the wage inflation in the region. If you just are monitoring the legislatively based unilateral increases of minimum wage across the board in the region. This is actually in the ballpark of 20% in some countries even and so on. There are still tensions here. On the other hand, there have been tensions because, of course, the different profiles of talents that you need for digitalization are also relatively more expensive. We are onboarding people that are not cheap, but of course are there to deliver clearly the digitalization targets, and this is introducing this interim pressure as I mentioned, so there is some tendency to, of course, invest. On the other hand, clearly revenue base is.
Is more or less stable, is not growing and this is intermittently introducing this tension.
Thank you very much. Next question is from Anton with Allianz and I quote regarding Summit Leasing and the number of branches, do you plan to increase the number of branches of Summit Leasing? Are you happy with the current number of bank branches and can people working in bank branches be easily moved to work in leasing branches if needed? Thank you.
There is of course clear overlapping of leasing branches. So we'd rather be closing leasing branches, not adding leasing branches. In Slovenia. Right. In other markets this is a different discussion because we have just started in Serbia and North Macedonia and in Croatia we have the situation as it is, so we want to grow the business there, but in Slovenia we don't want to grow the number of branches. We believe we are well covered when it comes to general number of branches in the banks universe. Right.
This is really a function of us successfully digitalizing the standardized routine services and then on the go on the way, of course decide whether there are further reduction potentials in and in which geographies. We are down from 158. We on the go bought 11 branches for Sberbank. So in Slovenia we had 169. We are down to 67, 68. So what is the optimal branch count in the country? I guess around 60 - 65. The time will tell how many. The real question is of the format of these branches. How quick is going to be cash transition?
Do all the branches need to offer cash? Can we eliminate cash from a number of those branches? Can we downsize them to a couple of advisory positions? Because we want to push all standardized services such as the entire consumer lending universe, which means credit cards, overdrafts, cash loans to mobile, and this we will then be monitoring on the go, analyzing end to end. What, for example, a 65% new production. Offer overdrafts via mobile phone means for end-to-end manual consumption of hands. If I make it plastic, which means that on the go we will simply adjust the number of employees at the end, leading to something we believe is going to be at least 20% less employees at the end of 2030 than today. Right.
In standalone terms. So without other acquisitions. So this is going to be then a result of less people, not necessarily, of course, a lower cost of employees. Lower employee costs because we will have different profiles of people. We will have advisors in branches and of course we will have significantly built up structures when it comes to data universe and IT delivery. So in this respect it's going to. Be a different bank. We just discussed today's strategy with our supervisory board strategy implementation and what we. Are working on is a framework to become a digital bank with strong asset management bancassurance arm, which means that all standardized services we aim for 80+ 90+ % being produced in terms of new production via mobile in. Six years from now, which will of.
course fundamentally change the business model. That's a fundamental transformation of the business model, and it's difficult to tell you now how many people we will have in 2027, but the target for 2030 as a derivative of our successfully digitizing the services. Is at least 20% less. Number of branches is then to me a function of tactical analysis on the go. We are managing total cost.
Thank you. The next question comes from the line of Mladen Dodig with Erste Group. Please go ahead.
Good afternoon, gentlemen. Thank you for the call and congratulations on the result. Just one question regarding Serbia for this upcoming regulation on capping the interest rates. I mean, first of all prolongation of the cap on mortgages, but also now this potential introduction of capping the interest rates on consumer loans. What are your feeling on this? How do you expect whether it will be a huge impact considering the fact that the interest rates, as you said, are accelerating downwards. But again in consumer segments still lots of fixed arrangements and then rather slower dynamics of decline.
Current analysis tells us it should not. Exceeds last year's performance in terms of what was last year's one-off modification loss. So we hope for it to retain on this level.
Okay, I just thought maybe would. How should I say, competitive room will be smaller with this cap on consumer interest rates or you expect that banks will, I mean, go faster than this gap is actually limiting?
I believe that the new production, I mean, this is my personal view, right? New production should always be at reasonable rates. Now, we can be discussing what was happening in the past, and the new production is anyhow will be happening with reasonable rates. What is then, of course, one of the facts for the stock. You know, this is a different story, right? So, on one side, a bit lower capacity to generate revenues, but I believe that with more reasonable rates, you can create more volume. So, at the end of the day, it's more or less an equation with more variables than just one. You cannot look at it, set it as part of it. So, because of flow rates, you might be able to generate more volume.
On the other hand, when it comes to stock, one-off loss modification, one-off modification losses should not exceed last year's amount. This is how my team is assessing the situation.
Thank you very much. Thank you.
Welcome.
The next question is from our webcast participant Ronak with Dynrose and I quote, how do you explain the strong organic growth in Slovenia despite the relatively modest GDP growth and uncertainty about the automotive industry in Germany? Thank you.
Yeah, but if you look at it realistically, we are talking about 1.5% real growth, right? Which is, let's say, 4% nominal or. Something and then 6% year- to- date. Growth of retail book in the economy with full employment, with household debt to GDP at 21%-22% and so on. Housing loan rates are at 3% fixed for 10 years, which is in historical terms solid attractive already for clients. That's why they simply are back to the real estate market. The same is true for cash loans. I mean, people can afford durable goods.
Cash loan pricing was in any case not too volatile because it was always predominantly fixed rates around this 5.5%-6.5%. People have money, people still are consuming, people are still traveling, people are refurbishing their houses and so on, buying equipment and you know, 6% growth annualized, 8% growth in the nominal economy. Growth of let's say, you know, 4% or 3%-4% in such an underpenetrated and shallow financial market is to me not a surprise. It's actually expected and desired evolution. You know, the sentiment is pretty okayish and people simply do use that.
Thank you. Next question is a follow-up question from Ronak with Dynrose and I quote, what is the guidance for effective tax rate guidance for full year 2024 and full year 2025. Thank you.
It should not materially change from what, some 14%-15%. Right. So it's difficult to be more precise. It should be on that level. So there is, I would say, a one-off tax normalization in Slovenia, which is of course the balance sheet tax, which is to be with us for five years, which is more or less a kind of normalized corporate income taxation expectations. But we are in general operating with, let's say, 15% +, give or take a percentage point.
Thank you. Next question is a follow-up question again from Ronak with Dynrose and I quote, "Is there more scope to reduce the amount of cash equivalents on the balance sheet and correspondingly increase the loan-to-deposit ratio?" Thank you, sir.
I'm not sure I understood the question. What was which equivalence?
So is there more scope to reduce the amount of cash equivalents on the balance sheet and correspondingly increase the loan-to-deposit ratio?
We are reducing loan-to-deposit. Ratio by various measures. Right. And one was for example, the acquisition of Summit, which is directly translating what was EUR 800 million approximately with the ECB now in the client business. Right. The other is significant growth. So you see growth of loans is hard and growth of deposits right in aggregate terms. So this is what we have been focusing on. Would there be more acquisitions if possible? Yes. And you know, depending on the target. Of course, then the group-wide loan. Loan-to-deposit ratio might look like this right away. Of course we can fuel growth additionally by focusing on attracting more deposits. We have consciously not been doing this because of course we have this loan-to-deposit ratios that we have.
In this respect we're working on efficiency of the balance sheet. There is a set. Of measures predominantly focusing clearly on client. Relevant production, which means of course we. Don't want to buy bonds all over the place. We want to do lending business with corporate clients and predominantly of course retail clients, households, and these are the main measures. There is nothing at heart immediately different. We did take some of course money. From the ECB balances and placed it into, let's say, longer duration securities. But this is not loans directly. We did hedge some of the positions when it comes to loan-to-deposit. Ratio, specifically as said, it's simply rerouting. Money into client business and we do it organically and through M&A.
Thank you. The next webcast question is from Ian with EIB and I quote, with the outlook for the steel industry worsening, do you anticipate increasing loan loss provisions in 2024 for clients in steel dependent industries? And could you provide some insight into the bank's approach to stress testing for clients in construction and automotive given their correlation to the steel market? Thank you.
So, I mean, steel industry. I think I mentioned before we see here, of course, some stress. The stress is, however, not dramatic really, and it's a little bit current situation and it's a little bit how much homework that the concrete customers did in the recent years. We might see some loan loss provisioning here. If you ask me, if everybody stays focused on managing the situation, I wouldn't even expect that. But this is what we will have to see. Related industries, honestly speaking, for the time being, no real impact, and construction industry. I mean, here I have to say that what we have in our portfolio looks very, very solid. We even showed you, for some quarters, some slides on that, and that the portfolio quality is very stable, and this is not really. We don't see that changing.
You see also, or you saw in one of my slides today, that we are also still active here. We are more selective than we have been some years ago, but we are active and we have a very solid portfolio. To which extent we might see some other side effects, well, will be seen. If you ask me, it looks all very controlled, all very limited. So I'm not expecting here really big side effects. What is a little bit of a question is, of course now, if certain industries are laying off people, how fast will these people find other jobs or are willing to find other jobs? Will we see here something on retail? The effect, if any, will be for sure very, very limited, and overall it keeps us very solidly in what you see here actually still on the screen.
So below 20 basis points cost of risk this year. Otherwise, you know, I mean, times at the moment are fluid. So I don't want to now in detail try to envision what we will see in the next two months because there are some uncertainties. But in the best case you will see nothing. In a little bit worse case you might see some provision, but very controlled, very limited.
Thank you. The next webcast question comes from Tomaž from Slovenia and I quote, congratulations for delivering solid quarter results. Obviously European automotive industry is facing serious headwinds, especially the German one, as you have already touched upon in the presentation, since Slovenian contractors are fully embedded into the European automotive supply chain, to name a few, with business-related challenges and please excuse my pronunciation, Mahle Nova, Agis, Unior, Zreče, SIJ gave out grim outlook. So have you detected any other negative spillover effects into the local economies in the region? Thank you.
I guess I was trying to answer the question before. Of course, I will not single out now certain clients here. I mean the automotive industry directly. You know, we see here a very wide range. In reality, in Slovenia, you see companies which are in troubles for 15 years and they're still in troubles. You see brilliant companies which are also to an extent diversified and which don't seem to have any serious impact, and you see the ones in the middle somehow, and depending on how they are on their feet so far, how good or less good they are, they feel this impact stronger or less strong, and we are dealing with this very proactively. They are single clients also, but rather not so big clients which simply don't have the capacity to sustain too much.
And here we might see this or that negative surprise, but this is not something which you will really see in our figures. So the times are getting more vivid. And as I was trying to explain before, there are of course also then some spillover effects. But to the extent we are looking on our figures as a bank, both in corporate and retail, that's all very controlled. And as I said, we will stay, as I see it, clearly within the guidance, both for this year and of course next year, you.
Thank you. Next worker's question is a follow up question from Slovenia and I quote, Do you expect a materially important uptick in loan provisions in the automotive or manufacturing segment in the midterm period? Thank you.
So look, I mean, I don't know in how many more colors to say that. So I mean maybe a little bit new element here is mentioned midterm. Not really to be honest. I mean we have many producers here in Slovenia, especially in Slovenia. That's, that's where we see most of automotive which, which are very specialized in a positive way. So, so they have niches which also with a changing automotive industry and also with changing success of certain carmakers will always have their place. And that's if you ask me, a strength of automotive industry there. And then of course you have a few players which did not fully do their homework, which are a little bit weaker. And here we might on the short term especially see some impact. But on the midterm I think this will clear out this or that way rather swiftly.
So, on the midterm, I still see automotive industry here in the country is actually pretty solid, and if any impact, then I would rather see it short term but less mid term or long term.
Thank you. Next follow-up question is from Tomaž, again from Slovenia, and I quote: Also in post-pandemic recovery period you have been vocal about the opportunities offered by the nearshoring in the region. Did nearshoring materialize in terms you expected and how will it be affected if Chinese automotive brands incrementally obtain the market share of the European legacy brands? Thank you.
It seems Tomaž is sticking to automotive industry. I mean, we can have now a workshop on the automotive industry. No one has a crystal ball. Slovenian producers are pretty specialized and are quite universal as well. So there is quite significant return to internal combustion engines as well at the same time. Right. So one aspect of the story is that there was a shift towards, of course, E- vehicles. But on the other hand, European producers are again investing a bit more back into internal combustion hybrid technologies and so on. And Slovenian suppliers are well positioned for. That, for this as well.
They are small in terms of global size, very flexible, you know, can adapt quickly and this is exactly the name of the game. Nearshoring of course was very, very relevant. It is going to be now of utmost relevance how European Union, European Commission and Slovenian and regional governments will address global competitiveness. And that's not, you know, just, you know, talking about mobility, talking about, you know, on one side the structure of the energy supplies and mobility concepts but you know as well general competitiveness. And you know, in Slovenia for example, of course we need to work on much more competitive tax environment to attract foreign investment, to attract of course also.
Talents globally and so on and so on. That's not entirely in the hands of producers nor the banks, the governments. European governments finally have to return Europe's hope to start building value again, to. Resume to work simply and be competitive, and it's not going to be helped. By talking about rights, rights on rights and freedom. We need to start working again. You see the sentiment in Germany currently. Let's return guys to work, let's return to value creation, to innovation. I'm absolutely positive the German economy and German engineering capacity is going to bring. Something that is going to revive Europe's competitiveness. If we didn't believe that we should leave Europe.
Thank you. The next webcast question is from Krešimir and I quote, can you please explain the reasons behind a relatively strong growth in operating costs in the third quarter of 2024? Thank you.
We explained what are the reasons. Partly it is coming, of course. 10% combined actually is coming from the wage inflation. On one side investment into digital which is significant and on the other hand clearly there is in the upcoming trend. These are still tails more or less from the past. So we try to of course still invest in the upcoming two years. We first front loaded more or less majority of digitalization investments for the strategic six year period into these first two to three years and that's naturally of course introducing tension here. So in this respect this is expected was planned and at the end of the day we also guided for it in terms of cost-income ratio which is going to be on that level and profits that are going to be on that level.
I mentioned consciously what is the intention for the next year because of course we will have swift reduction of rates and. We will still consciously be investing in. Talents and people and digitalization. And in this respect this is simply inevitable is the case. So Q3 specifically is not standing out necessarily in any unexpected way from our side.
Thank you. The next webcast question is a follow-up question from Krešimir and Ian. Do you think it is possible to achieve EUR 600 million in net profit by the end of the year? 30 per share. Thank you.
This is pretty specific questions I can't respond to. Usually Q4 is never linear to other quarters. I wouldn't say that EUR 600 million is something that is rational and reasonable to expect. But you know, I can't be more specific than that. We are looking forward to last quarter to be solid within the perimeter of the guidance. But EUR 600 million is an overstretch.
Thank you ladies and gentlemen. There are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you.
Just to thank everyone again for devoting. Your time hanging in there and being with us on this journey. A bit more turbulent times ahead of us, but controlled. We believe NLB has what it takes to weather through the uncertain period. I think Europe generally has to get back to senses and back to work, and I think this is happening as we speak. We will see German election, we will see Slovenian election in a year and a half, and NLB definitely is here to assist productive investment in infrastructure of corporates and households, and we are basing this on solid trends in terms of new production. There is more to come. This is a growth region.
You saw the macro expectations for the upcoming years, and from this growth region, as a regional specialist in the environment of, I would say, very limited interest of global players, NLB will be on the winning side. There is going to be an interim pressures, but you know, once we see the bottom, we plan solid growth and delivery of the midterm strategy which is going to be significantly accretive to our stakeholders. Thank you again for being part of our journey and see you soon for the annual results.