Ladies and gentlemen, thank you for standing by. I am Mina, your callers' call operator. Welcome and thank you for joining the NLB Group Conference Call on live webcast to present and discuss the NLB Group's second quarter and first half 2025 financial results. All participants will be in a 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 star and zero on your telephone. At this time, I would like to turn the conference over to Mr. Blaž Brodnjak, CEO, Mr. Archibald Kremser, CFO, and Mr. Andreas Burkhardt, CRO. Mr. Brodjnak, you may now proceed.
Thank you very much, and a warm welcome, everyone, to our semi-annual webcast performance call. Let me draw your attention to the standard disclaimer and then start talking about what we believe, of course, is a transition to the future. Behind us, we are looking more or less to a very strong, robust quarter. What we are specifically happy about is that we are able to show growth, growth of business in all of dimensions, be it from private individuals to corporates and geographies. This is really a very solid output from this perspective. On the other hand, we have been able, through this growth and, of course, other measures that we took more or less already a year and a half ago, started taking them, a stable revenue evolution. In the rate-declining environment of 175 basis points year on year, basically, we have been able to keep stable revenues.
That's, of course, due to M&A activity through the Summit Leasing acquisition, but also through predominantly organic growth. This is really a strong boost for the future. On the other hand, we kept investing. There is a bit of a hike in dynamics of investment, and this is really acceleration of digitization and proper awarding of talents group-wide. We really want to accelerate client experience-related features that we offer to our clients. We are really happy that we were able to put in production a new mobile app in Slovenia, which was already in the previous version awarded as the best in the country, but now we added other features and we further significantly improved client experience. Our hub in Belgrade has really now become a powerful output engine. This is really NLB Digits now more or less operating with a capacity that is approaching 150 people.
Towards the middle of next year, we would already be seeing somewhere close to 200 people. This is one of the stronger ICT hubs, actually, in the region generally. This is really going to help us enormously in scaling, actually, the platformization of the solutions we use. NLB Pay has been the first such uniform platform, and NLB Click, so-called mobile app used in Slovenia, is going to be rolled out also in Serbia and other countries in subsequent years, really in an accelerated way and pace, adding client-relevant features, and by that really enabling end-to-end offering and hopefully, and for sure, improving also client experience. With that, there's been significant progress already in digitization. If we're looking at, for example, just a couple of data points, 58% overall mobile, more or less mobile app penetration in Slovenia, other countries catching up.
On the other hand, we are really also looking at, for example, overdraft self-service that are close to 80% already, credit card self-service limits for credit cards, for example, self-service to the mobile app, well north of 70%. These are really the first steps in the direction of more than 80% overall digital production with private individuals when it comes to standardized services. That's a challenging target, but we believe we are well on track to deliver on that. It is really something that we believe is a key driver of success, and that's something that is going to be really focusing our activities moving on. We are specifically also adding now significant, I would say, attention to engagement through the robot-assisted processes, through the use of artificial intelligence in all possible corners, meaningfully, clearly. By that, of course, adding relevance to what is end-to-end digitized service already.
I would specifically highlight the successful completion of the integration of both leasing entities in Slovenia. You know that we closed the transaction of acquisition of Summit Leasing on 9/11 last year, and I'm happy that it took us a bit more than nine months only to have full completion of the integration. On the 7th of July, the business was operationally merged, on the 4th of July legally, but on the 7th fully operationally. By now, no hiccups from this angle. We are really happy that now this business is really already fully focusing on new production and growth. The first synergies are kicking in already since, as of 7th of July, we will already see the reductions of planned FTEs.
We have been specifically proud collectively as a team that after quite some time, it was actually years, measured in years, NLB was really the biggest advocate and promoter of bringing Apple Pay services to the last missing southern European geographies. We're talking about markets of North Macedonia, Kosovo, and both Bosnia and Herzegovina. We were launching this among the first in Bosnia and Herzegovina, actually, but the first and still the only one in North Macedonia and Kosovo. This means that NLB is actually bringing modern contemporary services from payments universe to these countries as actually a key promoter of it. That's really something that the whole team collectively is enormously proud of. Strategy execution is well on track. We are really now talking about acceleration.
We really now, in the narrative used internally in the house, use more or less client-relevant features to be delivered in an agile way quickly. Slovenia is the first, Serbia to follow, and other geographies then, of course, immediately after. By that, really addressing, I would say, value proposition to younger generations and affluent clients as well, in a sense that they can really communicate with us 24/7 seamlessly. We are talking about mobile first, 24/7, an easy but safe service to be offered in a relevant way. Not only reactively when clients need us, but also proactively in a sense that we anticipate when, at which point of time, at what location, and through which channel we would actually be offering the service. The next milestone we are hoping for in the not-too-distant future is actually reaching the A grading in terms of the rating.
That's something that would be another really, not only emotionally, but also from a business perspective, extremely important milestone. We're just one notch south of, with the recent upgrade from S&P, and Moody's is also on that level. We are really looking forward to the upcoming quarters and, I would say, a year and a half or two where, of course, I can't anticipate that, but we would hope that there would be further recognition for such a milestone that would enormously impact, of course, the reputation of the business. We continue with our clear commitment to achieving ESG targets. I know this is these days not necessarily a so popular topic, but NLB Group is not shying away from it. We believe in mid-term and long-term sustainability targets of the planet, but above all our region.
Poor quality of air in our region is still poor quality of air in our region, and this is affecting quality of life of our people. Of course, we will still keep addressing it and addressing it very intensively. The same is true for other aspects of equal opportunities and principles of what the S and G pillar actually stand for. We have paid out the first half of the dividend foreseen for this year. Combined, this is EUR 12.85 per share, which is also at today's prices still a highly attractive dividend yield. In this respect, we are, of course, creating value for shareholders, but looking back also to the share performance, it's been very solid throughout the last period. We've been growing asset base. If you look at the banks around, our growth is significant.
It is, of course, partly due to the M&A activity and acquisition of leasing, but on the other hand, also organically, it is a very strong output. We're talking about 7% semi-annual growth of assets, of asset base, which is very, very solid. If you, of course, look into combined, it is more than 20%. Deposits have been following. We have not yet even started properly or intensively attracting them, but somehow there is a shift towards side deposits, which is, I'd say, a specific phenomenon, but not that specific necessarily in European terms. On the other hand, this is, of course, the biggest treasure that our bank has been operating with. Access to household accounts, access to corporate accounts, and the side dimension of it is just of enormous value. Net operating income shows solid growth.
This is a 5% growth, more or less in this period, and 6% year on year, which is very, very solid. I believe this is a good evidence that this growth is actually yielding the results also in terms of the revenue output. Once we see the rate environment hitting more or less the landing level, so it's now 200 basis points. Have we seen it already or is it 175 basis points? Let's see. The further incremental effect should not be that detrimental. Once we see the floor, more or less, we would, of course, at the same time start really then, of course, benefiting from the growth as well. We are focusing on containing costs. We don't see this as a challenge. We see this actually as conscious investment into talents and really accelerated digitization.
We are more focusing on overall efficiency of the business and focusing more on cost-to-income ratio than absolute cost level. 46.7% compared to, of course, peers is not standing out negatively. This is something that we are really focusing on. We rather see it actually as a very solid performance still. Result of the tax in terms of quarter, robust. There are, of course, some one-off effects coming from the cost of risk, which was not only benign, which actually even positively contributed to the results in the first half of the year. The health of portfolios is still very, very high, very, very strong. In this respect, of course, households are standing out still. There are some pockets, but overall, from portfolio level, this is a very, very healthy portfolio. We've seen some hiccups in especially the automotive sector.
Suppliers to predominantly German automotive businesses have experienced trouble, and we've been dealing with this consciously. That's why we have not yet moved the needle when it comes to the overall yearly guidance. I'll talk about this later on. Of course, the first half result is in this respect extremely robust. Net interest margin has naturally been decreasing clearly due to the rate reductions, but overall, we keep the pace. We keep the level that we believe is very sound from a long-term perspective. We were talking about keeping the levels above 3%. We are still solidly above 3%. We are very close to the landing rate. This is something that we believe is here to stay in a sense of keeping the very, very solid levels of margins.
Returns clearly impaired a bit given the rate reductions, but we will keep investing and we will, of course, I believe now see more stable evolution of revenue, actually further growth of revenue, and by that address profitability overall solidly. By that, I would pass the word to Archibald to guide you through some details.
All right, let me try to get the slides first in order. As usual, I started with a macro update. There is not too much to comment other than what everyone follows in media. I think, broadly speaking, the region is fine and developments are still on average visibly above what you see in the Eurozone. This is a growth area, it's a growth territory, both Slovenia and even more so our subsidiary markets. You'll see in the asset growth numbers that this delivers very, very solid asset growth potential. Inflation is also a little bit elevated, coming down in all markets. In that sense, yes, still, of course, lots of news flow from global contexts to some extent or local developments, but broadly speaking, very solid environment and full of growth opportunities as we see it.
In terms of the banking markets as such, you see that, first of all, loan penetrations still offer plenty of growth to the upside if you compare to Eurozone averages. You'll see that here and there we had already catch up. If you look at Kosovo, it's already fairly close. Other markets still have lots of room to grow. Also, LTDs have gone up slightly, but still are in healthy territory. That's for sure. Blaž mentioned it, some space that we start watching a bit more closely. Overall, you'll see that loan growth is phenomenal, and that's really a feature of this region that to some extent surprised us a little bit given all the headwinds that we faced. Broadly speaking, solid environment, very bankable, very robust performance. We'll talk about asset quality and still plenty of room to grow going forward.
We talked about already last time the economic footprint of our geographies, and the message is unchanged. This is a very diversified region in terms of production and segments of production. You'll see in the asset quality that so far, with a few exceptions, we are doing very well, and diversification remains a key strength of our portfolio. In terms of the business performance as such, the headlines you heard, we are approaching EUR 30 billion balance sheet. On our journey to EUR 50 billion, EUR 30 billion is almost in reach. When we published this strategy, we were closer to EUR 25 billion. That's already a first good milestone. You see phenomenal loan growth dynamics year to date, 7%. That's really very substantial. That is, of course, already baking in the leasing acquisition. That's really organic growth. You see year on year 20%.
That is obviously including the boost from leasing, but overall, very, very strong loan growth. Something that we were even a bit surprised with. Deposits are following and not as strong as loans. Clearly, we've seen some of LTDs going up in subsidiary markets. That's a sweet spot to operate in. It clearly helps profitability. You see that you've seen before already normalized ROE substantially above 20%. Very solid performance. We are operating at sweet spot of balance sheet dynamics. Balance sheet itself, as we call it, rock solid. LTDs, as I said, coming a bit closer to sweet spot operating points. Not too low, not too high. We'll try to keep it around this territory going forward. We also said that we are predominantly retail funded. You see deposits from individuals being 70%. I'm trying to go forward. Thank you.
Loan dynamics, I mentioned, it's really strong growth across the board. Not much else to say. It's both retail, it's both corporates. It's particularly strong in our subsidiary banks. You see SEE banks year to date 10%. That's really phenomenal. Of course, very helpful to keep revenue dynamics, which we'll talk about in a minute. The rate environment, of course, rates have come down. ECB basically year on year, we heard 175%- 200%, depending on what you look. Look at the margins and the rates coming down only basically something like 50 basis points. That's a fairly solid performance. Of course, helped by the fact that we are predominantly fixed rate oriented these days. That, of course, helps maintain interest income. Next slide, please. On the deposits, not much else to add. We are growing. That's important.
There is a shift here and there from sides to terms to basically fund some of this phenomenal growth. Obviously, that comes at slightly higher costs. In Slovenia, actually, it's the other way around. With 35% market share and deposit taking, we are clearly dialing down a bit on term deposits simply because rates are coming down. People are happy to invest more in higher yielding products, such as, for example, our mutual fund universe. Next slide, please. The funding costs in that sense are staying quite stable on the deposit side. That is, of course, a bit of an offset of our very strong position in Slovenia with some of the dynamics I mentioned earlier on our subsidiary banks. Next one, please. On the P&L, we are happy to report that income year on year is rising. Revenues are rising 5%.
That is a combination of, of course, all the things I mentioned earlier. Very strong loan growth, very disciplined balance sheet management, NII flat year on year, 1% up, and very good developments on fee and commission income. Of course, that's a highly competitive market. This year, we have been able to show fee and commission income growth across the board. If you look closer, you'd see that a lot of it comes, of course, from increasingly value-added services in asset and wealth management. Cost is a bit of a standout at the moment, but there were quite some one-offs and non-recurring elements in this dynamic. The like-for-like cost dynamic is something in the ballpark of 7%- 8%. That is something we feel comfortable with as we invest very deliberately in talent and technology.
At some point, and that's a discussion for sure next year, we will, of course, take out capacity where we can shift production to digital channels. That is, of course, in markets like Slovenia already quite visible, in other markets to follow. Overall, very strong quarter with results after tax, EUR 148 million. Of course, helped by cost of risk releases that we will hear of later. Also, please stay on slide before. Pre-provision income. Please, the previous slide and one more. Thank you. Pre-provision income, very solid as 2% year on year and 3% quarter on quarter. We feel very comfortable with where we are. We know there is work to be done, but that's a very robust platform for also net income growth going forward because cost is, of course, a game of investing and containment.
With specifically the CTO onboarding, Reinhardt, he's now taking a lot of attention also on process and efficiencies. That is a theme for the upcoming quarters. Next slide, please. On net interest income, basically, the main things I've mentioned, we see a margin that is on the net interest margin side, of course, following a bit the dynamics on the short end. Let's not forget on the long end, there is quite some upside that we have taken advantage of with deliberate investment in duration, stabilizing net interest margin, I think, quite nicely. If you look at the business margin, overall, it's even more stable because of the positive developments on the fee side I mentioned earlier. Next, please. Next, please. NII sensitivity is something we kept managing very deliberately throughout last year and continuing into this year.
Not much to say then, it's basically half the value it was a year ago. Of course, that helps a lot in not just maintaining NII income, but also being a platform for NII growth going forward. Next, please. On the non-interest income side, I said we are very comfortable with our developments, especially around the investment universe. You see here very strong developments. Increasingly, also with the help of innovations we put in place, Blaž mentioned the deployment of Apple Pay across the region. We think we will be able to maintain and increase customer loyalty. That will translate not just into fee income, but ultimately also into keeping our funding base stable and at relatively low cost. Next, please.
On the cost side, I think the headline number is showing quite some cost dynamic, but if you normalize for all the integration dynamics and some non-recurring items, 8% is something we acknowledge is on the higher end. We would not like this cost growth going forward necessarily. There will be some cost mitigant measures taking place. Of course, we said at some point, the headcounts will come down on a global scale. You see that trend is, of course, playing out even this year. Let's not forget, we have integrated, of course, the new operation in leasing. We haven't done yet all the headcount reductions, or they are not yet shown in terms of the leasing integration as such. Broadly speaking, we, of course, increasingly, as we get more digital, will also reduce employee numbers, mostly on a natural attrition basis.
Besides, Blaž said investing in technology is key to winning in that. We will not go bananas in terms of spend on IT, but certainly we'll be willing to spend at benchmark levels of between 10%- 12% of revenues. Next slide, please. On capital, actually, not much to say other than, of course, we see a bit of reduction in the capital ratio, especially a function of the growth, the phenomenal growth. In that sense, of course, we make sure that with appropriate measures in capital management, we still are able to fund future growth. We will maintain payout ratios for the time being at around 50%. We have indicated a landing zone between 50%- 60%, also going forward. That should provide sufficient capital generation for strong organic growth.
Of course, if and when M&A comes to play, we have opportunities in AT1 that at the moment we are not using yet to potential. Next, please. With that, I hand over to Andreas to struggle with technology.
Thank you. Next slide, please. Yeah, on asset quality, on this slide, you don't see too many news anymore given what the colleagues already said. In all areas, we see relatively strong loan growth. Of course, what you can see, and that was also mentioned before already, is that in the region outside Slovenia, we are growing even stronger than in Slovenia itself. That's why slowly, after this increase, also through leasing, we are now coming slowly again a little bit back in the percentage. Next slide. Asset quality, I mean, Blaž Brodnjak mentioned it. Quality is still very, very good. What you saw actually last year is a little bit of a jump in stage two on the corporate side. We were discussing that. Here, primarily, we are talking steel and automotive. This has now, for the time being, largely stabilized.
On the other side, you see now recently a little bit of a jump in retail. There is some inflow in stage two, but the much bigger effect here is actually that the statistical models in our subsidiary banks became much sharper and much more detailed. You see movements much more granular, and this is, of course, also triggering more of stage two. That's actually more precisely looking on items. This is now a stable state from that perspective. From methodological changes, you shouldn't see additional jumps here. Next slide. Here, of course, no big news on the distribution. We are very well distributed between the industries, and that has, of course, since last quarter, not changed much. Next slide, please. On NPLs, you see still, I have to say, absolute volumes being very stable. In the last half of a year, actually, EUR 3+ million .
Of course, this translates still in percentage, in slightly decreasing percentage because overall we are growing. Also, we still see a third of this NPL volume with no delays. Cases which mostly are on the way up rather than on the way down. You still see a very strong collateralization. What has in the meanwhile fully normalized is the distribution between the countries on the NPLs. Originally, if you go years back, you might still remember a stronger participation here of Slovenia due to historic reasons, and this has now much normalized. Next slide, please. I guess that's from the risk side, the interesting slide for today. You saw actually a very, very good second quarter, and this has turned for the time being the provisioning into a slight release with the first half of the year. The biggest contribution here actually is the IFRS 9 review.
This is happening every year in June, and we saw here mostly positive effects. Actually, we had a slight charge in Slovenia, a little bit more than EUR 2 million. On the other countries' releases, actually very much also in line with our expectation. Honestly speaking, I was rather here expecting a net of EUR 10 million- EUR 12 million. At the end, it ended up a little bit better. Very, very moderate charges on cost of risk. Again, from written off receivables, quite a nice contribution in a positive sense. Repayments here. This ends up with, actually a release of EUR 20 million in the second quarter, which makes our cost of risk, of course, at the moment looking very, very well. What I have to say is that we are living in a very vivid environment.
I saw now already one case in this quarter, which is coming in from the not so small cases. If you ask me, I'm very confident that we will stay, of course, within the guidance of 30 basis points- 50 basis points cost of risk. It would be, from my perspective, in this environment, for sure premature now to give you a better indication than that. If you ask me, we will come to that range, but probably, most probably, actually from my point of view, stay at the lower end of that. That's from my side for now. With this, I'm handing back over to Blaž. Thank you.
Let's move to the outlook slide, please. By that, talk about what we expect towards the end of the year. Andreas was pretty clear when it comes to the cost of risk. There is no change in guidance here. What is obvious is that with 7% semi-annual growth, talking about high single-digit annual growth is a bit conservative, right? In this respect, we have improved the guidance here to low double-digit levels. We would see potentially in Q3, Q4 still some hiccups, made predominantly from automotive and metal industry, but some restructuring cases have been well on track and have been wherever, of course, applicable, playing a very responsible role. We believe that we will not see major fallouts, but rather talking about 30 basis points from today's perspective is to be on a prudent side and not necessarily, of course, ridiculous.
We are keeping the efficiencies at the levels that we guided for. So 48%, depending now still a bit on our rate environment and further growth ability as something to be achieved. We are currently at 46.3%. We are still very well within. Other targets we don't change as of now. Revenue dynamics is pretty solid. We don't expect it to be below EUR 1.2 billion. Where it ends, we'll see. We are keeping clearly the potential for the inorganic growth. We've been looking around continuously. We've said that always. Currently, there's nothing that we have been engaged in. There don't seem to be many actionable assets, but here and there, there are some tactical eventual opportunities in other areas such as fleet management, such as some portals or so on. As I said, we have been analyzing potential opportunities from various industries.
Be it insurance, be it classical banking, be it leasing, being other stuff. We would, of course, communicate immediately when anything of that became relevant to be communicated. Currently, we have not been, to a material extent, engaged in something like this. We believe this is a very solid value proposition also for the upcoming year. As I said, once we see the rates stabilizing, with this growth and focus on efficiency of our investments and talent deployment, we believe we will be again growing the revenue base and by that keep also, of course, the profitability levels, keeping the dividend payout ratios, and in absolute terms, pretty attractive dividends. What is, of course, at the end, worthwhile mentioning at least, Archibald Kremser mentioned that the arrival of Reinhardt is, of course, significantly adding to the capacity of the Managing Board to deliver the transition and execute the strategy.
We are very happy that he's with us now for two and a half months already. On the other hand, today's decision of the Supervisory Board to grant further trust into the three of us is also pretty meaningful because this brings certain mid-term visibility and predictability when it comes to the core of the Management Board. In this respect, this is something that we believe is very important since you're looking in our eyes and you're by that simply counting on us to be focusing for the upcoming strategic period until the end of 2030, full force and fully motivated on a delivery. We officially, of course, thank the Supervisory Board for the trust. On the other hand, also to all of our clients and colleagues in the bank and the banking group staying with us on this exciting journey that we believe is yet to begin properly.
The best is still to come. By that, I would wrap it up and open floors for questions. 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 the webcast, you may type your question via the live feedback box below the presentation. For those participating in the question 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 Sikimic Jovan with ODDO. Please go ahead.
Yep. Good afternoon, guys. Thanks a lot for the presentation. I would have several questions. I mean, I think Blaž, you mentioned it several times about NII picking up, but can we be a bit more precise here? I mean, the growth has been really excellent with what, 13%- 14% year over year. Apparently, there is no space to cut deposit costs into the rate drop, apparently, because you were previously quite at a low level, right? You are exposed to, on the loan side, to downward repricing on Euribor, right? Which portion of loans still needs to be repriced down? When would you really expect the NII pace to kind of pick up at least a bit, given this kind of great loan growth?
It would be very difficult to talk about picking it up. We are keeping it stable. We always said that we would believe that it would remain well above 3%, and this is what we are looking at. I would not yet hope for a quick pickup in the rates and the margin, but keeping it stable is, to me, already a solid achievement. It's a combination, obviously, of various measures. It's not only loan activity. Arch, you might add something here.
I mean, on the revenue side, I understood you look for revenue growth. Yes, I think with the loan growth remaining strong, and we see it as strong. You're right, the tensions are here and there in some pockets, the funding aspect of it, because we maintain our principle of all entities, all subsidiaries remaining self-funded. At a margin of 3.5% and growth rates in the, you know, also next year, probably high single digits at least, I think there is a potential for a solid single-digit revenue growth. You know what number it's going to be, there are so many elements going into that equation. I think that that's as good as a guidance I can give you for now. That's what you see also in our outlook for 2026 indicated, right?
You guys from EUR 1.3 billion.
I mean, we didn't grow. Yeah.
Exactly. Exactly. If you make a run rate, what was the base of revenues in the first half was where?
If we take something a little bit in excess of 1,200, right? What we guide for?
Exactly. Exactly.
Fee and fee income growth year to date, something like mid-single digits. I see NIIs in an equal ballpark. It can be better with better circumstances here and there, but as a baseline, we talk mid-single digits in revenue growth. That should deliver the outlook as you have it in front of you. It is always a combined equation, NII, non-NII, and there's always a bit of movement and shift. I think it shows that there is revenue growth potential. Ideally, we exceed that. Our ambition to remind you is EUR 2 billion by 2030, right? That suggests in itself kegels of revenue growth that are in the mid-single digits, right?
Mid-single digits, just to understand it, would be for this year as well, right?
It is at this level as of now, right? We don't know yet what's going to be finally and terminally happening with the rates. We are offsetting this with growth, with some solid positioning of liquidity reserves on the longer end, where we see some promising yields and so on. It's a combination of measures. We can't be preciser than that. Very likely, we would show you more than EUR 1.2 billion this year. You know what exactly, let's see. We are as precise as we can be for the next year. We are talking about EUR 1.3 billion, which is a solid growth of revenues, right? While we will, of course, focus still on accelerated investments. 2026 is still, you know, on the investment side. That's why you see cost-to-income ratios still at these levels.
Towards 2030, we would hope for being able to reduce this down to 45% as a ratio.
Okay. You provided, I think, like-for-like OpEx growth, cost growth 8% or 7%- 8%. What is the correspondent revenue growth, excluding leasing?
Leasing is not yet very visible. We talk EUR 20 million or so on the half-year mark, so it's not yet very visible.
Okay, thanks. I have a last one on capital. I think last time you mentioned this puzzle for impact of around EUR 1 billion, if I'm not mistaken, on risk-weighted assets. It's still not in the numbers, right?
No, obviously not. The trading book is still something that, as you know very well, is being debated at the European level. When it eventually really comes or kicks in, we keep shifting the target and we happily follow not booking it. It helps.
You don't have any kind of horizon when it may happen.
I mean, the talk is 27% now, right? Let's see.
Okay.
Yes, it's indeed still the same billion. Just to remind everybody, we don't really have a trading book. For us, what matters is our equity participations in non-Euro currencies, and they basically then amount to what the regulator considers a trading position. That is actually the trigger for this EUR 1 billion, roughly.
Okay, thank you. Thank you very much.
Thank you.
Thank you.
Ladies and gentlemen, at this time, we will go on with the questions submitted from our webcast participants. The first webcast question is from [Ada Vinchev] with Erste Asset Management, and I quote, "In terms of takeover targets, which regions would make the most strategic sense? Potential size of acquisition." Thank you.
I'm sorry, could you repeat? I didn't fully understand the question.
Which regions?
Which regions?
Yeah.
Which regions?
Okay. This would be, of course, our markets. This is what we've been telling throughout last, you know, also through the presentation of the strategy for the upcoming period. It would be, of course, our home region, which is predominantly, of course, former Yugoslav territory. We under our region also see Albania because this is one of the Western Balkans countries on the accession. It seems potentially accelerated accession. We see Prime Minister Mr. Rama really acting very decisively in this direction. Albania would be, of course, one of our desired market entries. We haven't found any reasonable opportunities by now, and we will simply keep analyzing eventual opportunities. As I mentioned before, we have not been engaged in anything, but the region of interest is former Yugoslavia plus Albania.
Thank you. The next webcast question is from Miguel Dias with Wood & Co. "Hi guys, congrats on the strong results. Just some questions from my side, please. NFC, since like me and conscience were expecting a better performance here, how do you see development moving forward? Is this year development likely to be mid-single digit or high single digit is still within reach?
You're talking about net fee and commission income, NFC, right? I mean, it's, you know, between mid-single to high single digit. It really depends on also seasonality a bit. I would be very confidently saying mid-single digit, but there is some hope it might be better. There is strong pressure, obviously, from regulatory, and especially when it comes to payments, right? There is, it seems, a very strong focus of regulators, even not only politicians, but also regulators on limiting certain fees. Let's see how this plays out. We've seen this in various geographies lately as a quite common phenomenon. From, let's say, some things being enacted in Croatia, where we don't yet have a sizeable bank in operation. We've seen some stuff in Montenegro. We've seen some announcements and halfway threats in some other markets. Depending on where this ends, more or less, it would more or less determine.
I would not see it below, let's say, mid-single digits, but can you do more? It's also a bit of a function of to what extent the environment will be susceptible for it.
I would just add that particularly strong, and we are very happy, are developments in asset management. Part of the answer is simply also finding new services, as we did in Slovenia with wealth and asset management, because providing value-added services is the best protection from competition. Here we found something that, as you know, we are deploying now in other markets. There is room to grow. It's on us to find these niches and pockets. That's for sure one of them. We have a million customers in Serbia not serviced with these products that we sell very successfully in Slovenia. Part of the answer is external pressure, and part of the answer is our ability to continue to add to the service spectrum, which we are, of course, very actively working on.
Thank you. We have an audio question from the line of Dodig Mladen with Erste Bank. Please go ahead, Mr. Mladen.
Yes, good afternoon, gentlemen. Thanks for the call and congratulations on the results. I have this long shot question. You, Mr. Brodnjak, mentioned this halfway threat already. Do you have any, or of course, if you can comment, expectations on what might the Serbian Central Bank require from the banking sector regarding the interest rates? I mean, it's arguable whether it's justified or not, the margins and interest rates or anything, but if you can give us any kind of insight.
I would really not want to speculate in this respect and comment on regulatory measures that are not yet clearly profiled. I don't know, Archibald, would you have a bit more concrete view on it? Currently, you know, we are still living under the assumption that it would be at least halfway reasonable, right? Otherwise, of course, it might raise some eyebrows from the international society as well. In this respect, I can't really, you know, in detail comment what is to expect in aggregate terms on the banking group level. It should not be detrimental and should still be catering for when it comes to the rates and margins and total revenue, the levels that we simply presented.
Just to add, Serbia is for sure a big opportunity for us, maintains and remains to be a big opportunity for us in terms of growth. There is so much that we can still do from a very solid foundation on all dimensions, actually, on all levels of our operating model, from revenue, new customer acquisition. We are kind of halfway done with transforming the bank that we bought. There is still plenty of room to grow also in Serbia. Of course, regulation will always be there, not just Serbia, but in many other markets, in all other markets. It's always a tension between trying to make everybody still happy with banking as a service. I think banks are fundamentally important to all these economies.
Whatever politics or regulators have in mind, I think the role of the bank as a key financing source in these markets is not to be underestimated or forgotten, especially when times get tougher.
Yeah, it should actually improve your ability to lend to people because low rates at the end of the day mean higher creditworthiness in terms of what annuity can someone afford on one side. On the other side, it's, of course, also very relevant for us to understand that we have in the meantime become number three lender in Serbia. Archibald was mentioning our progress in Serbia. You also made personally this analysis that I've seen on LinkedIn published as well, Mladen. Thank you for it. In the meantime, we are a podium player in lending activities in Serbia, and we continue. We plan to continue this way.
Oh, I get it. I also was thinking about the reaction from the international institutions regarding this move. Okay, let's see what happens. A second long shot. I mean, considering the surprise on the movements on the risk cost side, can you give us maybe some insight to how many of these repayments of written off receivables you still have in your sleeves by the end of this year?
At the end of the day, it's EUR 8 million, right? It's from a EUR 29.5 billion balance sheet. It might appear as high, but EUR 8 million is not a really material amount for this banking group, right? You can hardly plan for that. You are positively surprised as well that we are still collecting from something that we believe is uncollectible. It is really hard to say, is it much more to come or not much more to come? We don't operate with this assumption. The rest is coming simply from model calculations, based on IFRS 9 and other simply requirements and prescribed developments. In this respect, our quality of portfolios is simply very high. There are only a couple of pockets where we see these hiccups, and we are actively dealing with them. That's why we are sticking still to this, let's say, around 30 basis points guidance.
Otherwise, we simply are sitting on a very healthy book.
I mean, generally speaking, the written off portfolio is aging. It's also in being written off aging, and it's shrinking. Honestly speaking, EUR 8 million is already some positive surprise in that sense. We are definitely expecting that this will get less and less, and it's natural to get less and less. The last time when we hit really a substantial add-on here was when we were buying Komercijalna Banka in Serbia. That actually was the only thing we underestimated a little bit in the due diligence process. From that, we saw still quite some backflows, more than expected. Of course, also this is now slowly dying out, simply because we are working already long enough on it. I would say the workout team, not only here in the bank, but in the group, the workout teams are excellent. That again and again gives us a little bit of positive surprises.
I have to warn that the surprises from the tendency, of course, will become smaller.
Okay, thank you very much.
We've kept saying this for 10 years, unfortunately.
I understand, yeah. Okay, thank you very much once again.
Thank you, Mladen.
Thank you.
The next question is a webcast question from Ian Slana from European Investment Bank. "Congratulations on solid loan growth across your markets in the first half of 2025. In light to sustain this and given the rising sovereign defense budget and related infrastructure investment across EU, do you see increased defense or dual-use public spending as a potential medium-term opportunity for loan growth, either directly or through supply chain financing? Are there any regulatory, reputational, or capital allocation constraints that would limit your ability to finance projects tied to the sector? Thank you.
Of course, we have committed to certain, you know, eligibility and non-eligibility of industries. In this respect, within our ESG agenda, we could hardly see us directly financing weapons or ammo or something like this. Whatever is a dual-use infrastructure, sovereign sponsored, of course, you could see us being playing at, which would be, you know, railway construction, road construction, you know, whatever other basic infrastructure, hospitals, energy production, or especially if it's renewable energy efficiency improvements. Of course, whatever is labeled dual use and has a civil, of course, purpose, you would see us very, very interested in supporting direct, you know, civil, life protection equipment, maybe, but, you know, life taking away equipment, not necessarily. This would require also a bit different views from the European Commission and the European Central Bank, you know, approach towards the industry as a whole.
On one side, yes, the sentiment within the ESG movement has been changing, but, you know, the regulatory has not yet been followed. If you look at, for example, some horizontal audits or whatever, you get questions that clearly are signaling that nothing has changed from the regulatory point of view. This would require really a fundamental shift in how mentally the European Commission and regulators and supervisors are looking at this. Systemically important commercial banks directly financing defense. This requires, I would say, strategic discussion. Some are on tables around that. That would have to give also some confidence and comfort to the boards of banks, you know, that they might not be penalized because of that at a certain point of time. NLB's posture has continuously been a pacifistic posture. We believe in peace and, you know, and life as a sacred thing.
We don't believe that life can be taken away by anyone. We don't want to support something that can take life away. On the other hand, of course, if something is protecting life, and above all, if it is actually a dual-use infrastructure, basic infrastructure, which is still significantly lacking, especially in some other countries in the region, or also in Slovenia still, if you are talking about speed railway tracks from Port of Koper to Hungarian-Austrian border, if this is a dual-use label, project, of course, we're interested. Right. The same is true for some other, of course, countries as well in the region. There is still basic infrastructure buildup that needs to happen simply for normal prosperity of this, not only within the defense context.
Thank you. We have a follow-up question from the line of Jovan Sikimic with ODDO. Please go ahead, sir.
Yes, thank you. I just have a question for Andreas, also a follow-up on cost of risk. If you stick to the lower end of 30 basis points- 50 basis points guidance, it would imply, I think, more than EUR 30 million with this kind of underlying strong loan growth for the remaining two quarters of the year. It would be, I think, the sharpest provisioning ever. What should happen from this perspective that you book more than EUR 30 million provisioning per next two quarters?
No, look, I mean, the environment is really very vivid. We see certain industries here in Slovenia freezing less easily than in the previous years. I mentioned already, here we are talking, for example, steel, we are talking automotive. It's pretty specific, I have to say. The well-prepared companies are still doing fine, but we see here much more smoke than in the past. We slowly see a little bit, surprisingly less for the time being still, outside Slovenia. Honestly speaking, if you see one, two mid-sized or bigger cases really coming into discussion, that's easily possible. That's also not, I mean, look on our size of portfolios. EUR 30 million is not a very big figure. We were now, of course, used to that for years. Honestly speaking, we had a brilliant cost of risk. The only time when we had a little bit of an outshoot was in 2020.
The first year of COVID, we had something like 70 basis points, but otherwise, always very close to zero. You saw a little bit of an uptick, by the way, in the last quarter last year already, which I also said that that would be easily possible. I'm relatively convinced that the second half of the year will not be such an easy walk. I'm convinced that we have a very good portfolio quality overall, and that will also not change. I'm not expecting any explosions, but I'm expecting that we will see a little bit more cost of risk in the second half of the year. Anything better than that might happen. Honestly speaking, at that point of time, it would not be fair to guide to.
Okay, thanks. I hope you also allocated some kind of portion of provisioning to the stage two loans where kind of automotive and steel companies are now kind of booked, right?
Of course. As you...
Yes, but I mean, to be very fair, when we talk about cost of risk this year, this is to the bigger extent that happened already last year. You saw in the last quarter of last year a relatively sharp increase of stage two in corporate. That, of course, was also triggering this provisioning charge, what you saw towards the end of last year.
Okay. You don't share how big those exposures are?
I mean, what I cannot talk is about single tickets. That's why I cannot...
Single tickets, not how long.
You see the sector breakdowns. You see a fairly granular split on staging. I encourage yours to take closer looks at the pillar three disclosures.
Yeah, I will do.
It's fairly granular data. Of course, whatever is staged is provided for with fairly visible levels. I mean, they were on display a couple of minutes ago. In other words, as Andreas said, it's always true and fair view. Of course, we keep learning as we go along. It's still a crystal ball to some extent.
It's basically a couple of cases you can count on the fingers of one hand that can now flip this or other way. This is plus minus EUR 10 million easily, which is today simply too early to tell. EUR 30 million absolute amount from these billions of loans is really immaterial realistically. A single case can flip to be a good case. Of course, you can even be releasing something, or it flips to restructuring and unlikely to pay. You need fundamental MRA signing and some other stuff, which you provision, which is immediately driving 30% provision or something and derating and stuff. It is really a very, very on the edge situation in some of the cases. These are really single cases. That's why when we are saying around 30 basis points, this is something we can really firmly stand behind. With a bit of luck, it can be less.
We would not expect much more.
Great. Thank you. Pretty clear. Thank you.
Thanks.
The next question is a webcast question from Ryan Floyd with Barca Capital. "I can understand that net interest income has not grown because of declining interest rates. However, I would have thought that non-one-off fee and commission income would have grown more year on year when inflation is around 2% in Slovenia. Help us to understand how you can grow commission income mid to high single digits above inflation in the future.
By focusing simply on incremental production of especially asset and wealth management service, which Archie mentioned on a couple of occasions during the presentation, which is, of course, first not eating into capital base and is not consuming capital because it's not building risk-weighted asset base and so on. There's been a stretch in payments and cards universe. Here, competition has been high and regulatory pressure has been kicking in. It is really by simply focusing on comprehensive offering of financial services, so universal portfolio financial services. By this, actually growing the assets under management and offering, growing also insurance sales of the banking group and so on. If you look at the production of bank insurance products and asset and wealth management products, this is a very solid new opportunity going forward because we have barely started doing this in Serbia.
We have bought an asset and wealth management company in North Macedonia, right? Now we are giving focus to it, setting KPIs, cross-selling or discussions between the entities. The bank, the distribution channel, and the asset and wealth management company on the other side, which is a product factory. Together with NLB funds, which is proprietarily held 100% owned business in Slovenia and has looked through supervisory and product origination mandate. In this context, we are also seeking for finding ways on how to actually significantly leverage growth of fee and commission income through this product portfolio predominantly. At the same time, you see the bank assurance. In Slovenia, the average premium per capita annually is around EUR 1,200, whereby in countries of the North, Southern, Eastern Europe, it's still less than EUR 100. It's 12-fold potential for growth in the upcoming 20- 30 years, right?
Counting on high single-digit growth from this angle is.
By no means overambitious. It's simply realistic to expect if you're focused on it. No, that's my short answer.
Thank you. The next question is a webcast question from Robert Brzoza with PKO BP Securities, and I quote, "Thank you for your presentation and congrats on the result." Here is Robert Brzoza from PKO. A question, why given all the tailwinds you are mentioning, volumes, costs, or risks, you have adjusted the 2025 broad outlook from above 20% to around 20%? Thank you.
It's just an acknowledgment of the fact that we don't want to curtail investment in specifically technology initiatives. That is basically, you know, twisting and tweaking a little bit the costs, but we deliberately say whatever creates customer value and establishes a platform for growth and future cost efficiencies, we will not optimize one year's financial results to the detriment of future benefits. Especially with the Chief Technology Officer coming in, Reinhardt, and then him also taking on the IT agenda and main mission to accelerate deployment of technology, this is just basically giving him the space to operate also effectively. It's nothing fanciful. It's just the statement of we will keep spending where we see meaningful outcomes. The investor before asked how to grow a fee business.
Invest in services, for example, for micro businesses where we are not yet on par with best in class and, you know, to create that cost cost. You know, it's a driver for future fee income growth. To deploy Apple Pay is not an immediate payoff. It rather costs money, but it's a platform for client retention. It's a platform for client acquisition. We don't manage the quarterly result. We manage the 2030 agenda. That's a growth agenda, and growth requires here and there investment.
Thank you. The next question is a webcast question from [Nick Bajet] with Frontera Capital, and I quote, "Do you think the auto and metals industry issues are company-specific, or could they be the leading edge of a structural competitiveness problem for these sectors?
I mean, look, from what we can see so far, it's rather company-specific. Of course, everybody is feeling it a little bit. Of course, some effects are also indirect. If you see, for example, the steel industry, where the steel industry here is very low exposed to the U.S., but partially clients of these steel companies are. They, of course, when they order something today, which they get in two months, are not sure which tariffs will then be applied if they export something to the U.S. That's not making life easier. The situation both in steel and automotive is, of course, an attention point. From the companies we have, at least our clients, nevertheless, the situation overall is pretty stable.
There are a few companies which were either catching in the wrong part of the investment cycle, or also sometimes doing some managerial mistakes, or having still some historical burden. There are a couple of reasons. It's very specific. It's very company-specific. For the time being, honestly speaking, for our portfolio of clients, we don't see.
Thank you. In the interest of time, we will now turn over to management for any closing comments, and all webcast questions will be answered via email.
All right. Thank you very much to everyone for hanging in there for many questions and broader comments. It's been a thrilling journey, as I always end up with. We have, as of today, been even more motivated because we have midterm visibility and predictability in terms of who is going to deliver the strategy. The managerial team and the broader, of course, team of NLB Group is fully committed to delivering this strategy. It's the region of growth. It's the region of accession. It's the region of opportunities. In this respect, the best is still to come. Thank you for being part of our journey.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for calling and have a good afternoon.