Ladies and gentlemen, dear colleagues and friends, welcome to NLB Investor Day 2026. It is my pleasure to greet you here in Sarajevo. [Foreign language] As you may have noticed, the music we started this event with carries a familiar NLB melody, but it is reimagined in a local sevdah tradition. It is a small but meaningful reminder of what this bank stands for. It is the only regional bank headquartered in this region. While it operates as a group, it is strongly rooted in all markets it calls home. Today, we are going to dive deep into NLB's performance. We are going to talk about the numbers. They are important.
What's even more important are the stories behind these numbers and the impacts they create for individuals, economies, and societies of this region. We have a full ambitious agenda. I suggest we start right away. I will call our first speaker to the stage, CEO of NLB Group, Blaž Brodnjak. As much as we all know Blaž, he will do two things for us. Number one, he's going to provide a little bit of the context and the platform for all of the discussions to follow today. Number two, highly likely he will infect us all with his high energy. Blaž, thank you. Let's give a round of applause. The floor is yours.
I didn't need those at the time of the IPO. They served me a coffee in a teacup, so I hope I will not overwhelm you with my energy. Esteemed customers, they come first. Mr. Vice Governor, investors, analysts, journalists, other dear guests, and members of our NLB family from all our markets, including our precious team from NLB Banka Sarajevo. The heroic Olympic city, a symbol of resilience due to which I have been wearing the heart of Sarajevo on every occasion when I try to transfer meaningful messages. The melting pot of religions and the toughest hardship combined with priceless moments of joy.
Geographically placed in the heart of Europe on crossroads between the West and East, North and South, it has been giving birth to enormously creative people who have been uniquely translating complexities of diversity into the second to none sense of humor and heart-touching words and tunes people from the entire region have been singing along and dancing to. One of the most special places NLB Group and myself genuinely love and call home. If anyone is truly interested in understanding the dynamics of this unique place, the Nobel Prize winner for the literature, Ivo Andrić, a Croat born actually in old Bosnian capital of Travnik, wrote in Belgrade in Serbian language a marvelous novel. He labeled this novel Travnička hronika, or Bosnian Chronicle in English.
It for sure helps me grasping the whys of this or that specific local phenomenon, so I read it once a decade and I warmly recommend it to everyone planning a visit or doing business in the region. Two years flew by very quickly, and we have been living in, again, pretty challenging times. When multilateralism, liberal democracy, and some longstanding alliances seem to be severely impaired, it is so much more important to strive for them to survive and bring back hope. When the compasses of hegemon seem to be entirely lost, and it appears as if we have to look back up to the skies and navigate by the stars to find the calm waters again, it is absolutely essential that we do everything possible to retain the most important benefits of the post-World War II European quality of life.
It unfortunately appears ever more difficult and requires sobering transformation in many aspects of our lives, from the demographic policies to work attitude and from, unfortunately, also massive investments in standalone defense capabilities and energy supplies to much more cohesive banking, capital, and fiscal union. Threats of the appearance of enormously powerful AI tools like Mythos and similar are obviously not making it easier for anyone with digitizing business models, including the national and supranational bodies. Europe has at the same time still been a wonderful place with many talented people, full of experience, know-how, and capital, combined with a fairytale landscape and solidarity-based high quality of life.
Saying that, as genuine believers in the European idea of peace and freedoms of all kinds, we have also been fully aware of the critical need for change while we also believe that prosperous Europe is only possible with more of Europe. Following this thought and being active in the region, we firmly claim that required significant transformation of Europe is not possible without embracing the idea of accelerated accession of the Western Balkans countries into the European Union. The so far carrot-and-stick approach has been instilling hope but has been ending up in a despair. This island within the European Union finally needs to be fully integrated and by that become a vibrant link within the vertical growth axis of Eastern and Southeastern Europe all the way from Baltics to Adriatic and Black Sea.
Lately, we have seen new initiatives potentially waiving the veto right, which should be embraced, and this window of opportunity should really not be missed. Talents from Western Balkans simply deserve a chance and opportunity to enhance their welfare and to create value for local and international businesses willing to invest in this region. 2%-4% real and some 5%-8% nominal growth of GDP, paired with a double-digit growth of loan volume, with unserious services of insurance and asset management only surfacing, represent a very appealing business case for providers of universal financial services. In NLB Group, we have been genuine believers in the positive development of the region, therefore, we have been consistently deploying our capital to it.
Throughout the last five years, we have been continuously growing market shares in our base market of Slovenia so that we have strengthened the position of a leading provider of services in all deposit, lending, and asset management dimensions with actual market shares ranging from 30 to even more than 40%. At the same time, we have surfaced as one of the top deposit takers and lenders throughout the entire region of our presence. In all our markets, of which five belong to the so-called Western Balkans, we have been in a relationship with statistically relevant samples of businesses and private individuals, thus, in a bank-centric society and economy, an investment in NLB shares acts as a credible proxy introducing a bet on the macro development of the entire region.
We are indeed talking about a bunch of small and fragmented markets. In the core, they are all descendants of what used to be a common country. Basic principles of banking business derive from the same logic. Lately, the regulatory and legislative standards have been converging to the European Banking Union framework, providing further consistency. Besides ever more comparable business environment, we had once been watching the same movies, reading the same comics, and even cheering for the same flag by singing the same anthem, which is, at least for me as a Slovenian, significantly shortening the ways to the hearts of people from the region. NLB has been further supporting these emotional ties through a unique, comprehensive, and very well-recognized program of corporate social responsibility.
Given the above, NLB Group has been acting as one of the systemic backbones and key advocates of the region we come from. As despite of its position in the heart of Europe, it has been perceived as a frontier universe and, by that, neglected and hidden, we have been continuously trying to spread a positive word about it around the globe. As a promoter and connector, we have, for this very occasion and event, been thinking a bit out of the box, and we have invited also other, upon our belief, still overly neglected banking champions from the so-called frontier and broader region whom you will be able to talk to in person tomorrow. Finally, allow me to thank you all very much for devoting your time traveling here and listening to us and our story.
It has been the one of convergence and catch-up growth, attractive dividends, and needed European integration-based value creation. We are enormously grateful for your trust and support throughout this exciting journey. Enjoy Sarajevo, may we have good answers for whatever may come. This I didn't write. This looks like Europe. It feels like Europe. Let's recognize it is Europe. Sarajevo, Bosnia Herzegovina.
Thank you, Blaž, first of all, for the book recommendation. Noted. For reminding us of the resilience of this city and the connectedness of this region, which is ultimately probably its best opportunity to grow. We are going to take a deep look into NLB's performance today. Before we do that, it makes sense to take a step back and take a look at the bigger picture because context, especially in banking, matters. Our next speaker is someone whose job is quite literally to observe, interpret, and challenge the banking systems on behalf of investors. Andrew Stimpson is the head of European Banks Research at KBW, the firm that lives and breathes financial services, and he's spent the last two decades analyzing the largest European banking systems, providing advice for institutional investors, and translating complexity into clear signals.
Andrew can provide a deeper understanding of where European banking is today and where it is heading to the future. Andrew, thanks for taking the time and joining us today. Welcome on the stage. Let's give a round of applause for Andrew.
Thank you very much.
The floor is yours.
Thank you very much. Ladies and gentlemen, good morning. I wanted to start with a statistic, one I thought I'd never get to say as a European banks analyst. Just over the past five years, European banks have returned investors over 350% in total returns. That's more than the S&P 500. It's more than the U.S. banks. It's even more than the Magnificent Seven. Our hosts today have done even better than that. When we're titling our presentation A Golden Age for Bank Investors, it's not just a nice marketing title that we've put together, that's actually what the statistics show. My name is Andy Stimpson. I'm head of European Banks Research at KBW. As that very kind introduction said, I've been doing this for about 20 years.
What I want to do over the just slightly less than next 20 minutes is go through whether we think that that golden age of bank investing is over, and it's our strong conviction that the answer to that question is no, and we think there's much further to go. Let me show you why. This chart shows you the 5-year trailing total returns for the European banks versus the broader European market. I started my career in September 2005, which is roughly where that peak is. That wasn't my fault. Shortly after that, there was a financial crisis, and then we went through this terrible period where it ended up being a bit of a cheat code for portfolio managers to just not have any banks in their portfolio.
On a five-year trailing basis, European banks underperformed the wider European market all the way from 2007, unfortunately for me and my career, all the way up until early 2024. The good news is that after troughing in September 2020, the banks then went on a record-breaking period of outperformance, and one that we just hadn't seen before. We think that there is still much further to go. How did that happen? The earnings upgrade cycle has been probably the biggest change that has occurred. This chart is very colorful, but what it shows you is the three-month change in earnings for the furthest year ahead on our forecast. We went through a period from 2010 all the way through to 2020 where we were having downgrades.
We're now in a period where we're having almost uninterrupted upgrades. We're now in the sixth year of almost uninterrupted upgrades. There's also a positive story to tell on valuation. Again, quite a colorful chart, the thick line shows you the price for the European banks, and then we've plotted on where the different PE ratios would be on those prices. What I wanna get across with this chart is the price performance last year was incredible for the European banks. You know, banner year for the European banks. Really it was the prices just catching up with that really exciting earnings upgrade cycle. It wasn't moving ahead of it. It was just catching up. Now we're trading, after the rally yesterday, 8.2x 2028 earnings. That's still below the long-term average PE ratio for the European banks.
Why did those earnings get upgraded like that? Was it just rates? That's usually something that gets thrown at banks. It's just due to rates. I think that's unfair. The period from 2014 through to 2020 was abnormal. I think the history books will show that period of negative rates and a flat or inverted yield curve at very penal rates as being the abnormal period. Today, being back at 2% rates in the Eurozone I think is much more normal. In addition, banks have reduced their sensitivity to those to those changes in interest rates. These charts are showing you what would happen for 100 basis points parallel shift in rates. If we look back at 2022, that would've hit European bank earnings by 20%. Today, that's back to an average of about 6%.
The word parallel on these charts is doing a lot of heavy lifting. We very rarely see a nice academic parallel move in rates. It's much more common to have different shapes to the yield curve. What banks have been doing to reduce that sensitivity is extend their sensitivity to the middle and the long end of the curve. We can see that coming through in margins. The top chart here shows you net interest income over risk-weighted assets. There's a million and one ways to do net interest margins, but that's one way. Then the bottom chart just shows you what would happen if you just took an average of 3-month EURIBOR and 5-year trailing, 5-year swaps. You can see they're not perfect, but they're not too dissimilar.
What's happening now is, through 2025, there was at the start of 2025, still a bit of apprehension that as rates came down, earnings were going to be, were going to disappear, and we're gonna go back to that 2014 to 2020 period of downgrades. That's not what happened because the long end of the curve had a significant improvement. Costs. Costs are, I think an unsung success story for European banks. The top chart here showing the cost income ratio coming down. I think that is, obviously it's benefiting from the from the good news on the revenue story. the bottom chart there shows you it's actually coming through in, you know, in cost versus risk-weighted assets as well.
Today, the debate on costs is really interesting because you've got some banks saying we're gonna grow costs because we need to invest in cutting-edge technology. You've got other banks saying we're gonna cut costs because we have invested in cutting-edge technology, and then we can cut costs. I think that debate is gonna rumble on for a while. I haven't got the answers to that debate. One thing that I think is becoming clear is that you no longer have to be the very largest bank to have the economies of scale to get hold of that cutting-edge technology. Most of the IP is now owned by third parties, so it's now it's much more important whatever size bank you are, that you have your middle and back-end systems that are able to then deploy the cutting-edge technology.
The advantages on technology no longer just reside with the largest banks. Everything sounds good so far, so there's got to be something we need to worry about. Asset quality is always the thing which we're always gonna worry about as banking analysts. This chart shows you over 40 years, how provisions have behaved. Then the thick line here is showing you the five-year trailing average, and that's down now to a 40-year low. That all sounds good, so maybe we shouldn't worry about asset quality so much. We're always gonna worry when it's low, and we're gonna worry when it's high. I would argue that there's a debate to be had as to whether that number is too low.
Are we being too risk-averse as banks, as Europeans, in order to get the stuff done that we need to do? I'll come onto that in a second. No presentation on a bank would be complete without something on regulation and regulatory capital. It's not really an earnings driver as such. This isn't the perfect chart really. It shows you the capital ratios doubling over that period, but it really doesn't do it justice. The numerator's been tightened significantly, and the denominator has been expanded significantly. It's more than a doubling in regulatory capital. That period after the financial crisis, really up until the dividend ban in 2020, was a real hunger march for investors.
I was talking about total returns earlier, the dividends for banks are really important, and we couldn't really deliver much back in terms of dividends because we were having to build our capital up and up and up. Today, though, the banks now sit with quite a lot of excess capital. There's about 70 basis points on average above their regulatory capital targets, but their targets sit 260 basis points above the minimums. Now the discussion's turning to what do we do with all of that capital? Talk to shareholders. Since 2020, buybacks are becoming quite important as well, and that has helped drive a bit of the earnings upgrade story. This chart shows you the median share count for European banks.
We're seeing about a 3% decline in share counts since, and including 2023, and we think that's gonna continue on. It's a bit better for larger banks, but really we've got a broad swath of European banks now doing buybacks. It was more powerful when they were trading below tangible book value. Now more banks trading above tangible book value means we need to start asking, "Okay, now what do we do with our capital?" I think the discussion now with investors is much more turning towards growth. What else are you gonna do with that capital? There is a discussion to be had whether it should be inorganic or organic. I think inorganic is perfectly fine.
We're actually seeing very good share price reactions to acquirers when they are announcing deals or doing good deals. It's a bit tougher to analyze from a top-down perspective 'cause each deal is quite specific. I've focused my analysis here on the organic growth. What these charts show, and I'm sure there's gonna be a similar one later on today, is the debt to GDP, but this is from the customer perspective. If the corporate's on the left and the household's on the right, if the corporate's on the left are going to be borrowing from private capital, that would still show up in these numbers. That's been going down for 15 years, and we added Slovenia on there as well. It's a similar shape to the others. That's a long time.
Again, it kind of relates back to that piece of the slide I put up on provisions. If your customer's been de-leveraging for 15 years, it's really hard for the system to be building up a lot of bad debts. What happens now? Last year was probably the first year where we started to see loan growth running across Europe, across the Eurozone at about 3%. Not the most exciting statistic I could present to you today, and I'm sure you're gonna hear better growth rates later on today. All that would do is make these lines go, you know, horizontal. Again, not that interesting. There's an enormous capacity to grow loan books now. What's gonna be the catalyst for that growth?
I think Europe is just at the start of realizing just how far behind it is on some really key projects. We've all been told for a long time that we're behind on defense. I think that penny's dropped. We're really learning just this, just this year just how far behind Europe is on AI, on AI infrastructure, and then again with our second energy shock on energy infrastructure as well. These are all big CapEx-intensive projects that we need to finance somehow. The EU is trying to get its Capital Markets Union and Savings & Investment Union up and running. It's just gonna take time, and it's going quite slow.
Europe's going to need its banks. We've estimated that those projects plus a chunk of financing needed for more housing would add 3 to 4% extra loan growth structurally for the European banks. On top of that, I think there's increasingly gonna be a discussion around deregulation. The Americans are moving much faster on this with much more intent. In Europe, we're still stuck on simplification and reducing the amount of forms that we're going to fill in. Reducing the amount of forms that banks have to fill in is great. That will reduce our costs, and that's nice from an efficiency point of view. It's not gonna build your defense industry, it's not gonna build any data centers, and it's not gonna build your energy infrastructure.
I think what we're going to have is politicians starting to get much louder in calls for deregulation, and I think to start with at least, the regulators are going to be, are going to be pushing back on that. It's going to be a really crucial time for Europe. Lastly, just to come back on valuation, and this chart I come back to a lot in my research. This is a chart of relative PE of the European banks versus the broader European market. Banks PE divided by the markets PE. Today, after yesterday's rally, we're at 65%, which is okay, but pre-pandemic, if you look at the period outside of the red box to the left there, you'll see down at 60% was really where banks bottomed.
That's where banks periods of underperformance tended to end, not periods of outperformance beginning to end. I've circled in red where all the other four periods, and unfortunately for me, there's only been four other periods of banks outperforming for any significant amount of time. We're in the 5th. All the other four periods have all ended only once this ratio is above 80% or less than a 20% discount to the broader European market. Just on this chart alone, there's still a lot further to go. For me to sum up, I think it's fair to say the revenues have been upgraded for European banks. I think that's well underpinned because of the way they've been managing their interest rate risk. Banks are becoming more efficient. They're deploying technology.
We're seeing very good asset quality, which again, I would argue may be a bit too good. Bank balance sheets are in incredible health. Household balance sheets are in incredible health. Corporate balance sheets are in incredible health. Now we just need to figure out the policies, or the politicians need to figure out the policies, in order to get that growth to come through. Five years ago, if I'd got on stage and said European banks are going to outperform the Magnificent Seven, I think everyone probably would have laughed at me, quite rightly. I think I would have laughed at me if I'd have got on stage and said that. Today, I think it's fair to say that the golden age of bank investing is not over. We think it's compounding.
Thank you very much.
Thank you, Andrew. Thank you, Andrew, for your insightful presentation, also with a positive note to it. I think you provided us with a really good lens through which we will later observe NLB's performance. I can't wait to hear how it compares to the most ambitious players in this obviously very exciting industry. Before we move on, we want to provide you with another lens, that of a macroeconomical context. The South-Eastern Europe is often discussed, but not always fully understood. What are the trends and developments that are impacting the economies in this region? What does that mean for the balance between the risk and opportunities for the investors? Mario Holzner is our next speaker. He is the Executive Director of Vienna Institute for International Economic Studies. Vienna Institute is the leading authority on monitoring the macroeconomics of Central and South-Eastern Europe.
Mario is bringing today a deeply researched, independent, and also a little bit insider view of the forces that are shaping this region. Mario, thanks for joining us. The microphone is yours.
Thank you very much. Thank you so much for having me. If you're interested in a more recent Bosnian author, then Dževad Karahasan would be the first choice. I think he wrote some interesting novels. Let me give you a few insights into the macro development of our region. I can't spare you of the global context, which you are very well aware everyone is. Let's put it that way, the world around us has become, let's say, a little bit more egocentric, and we have to find our place in this big theater, not only in this one, but in the global theater. Let's look at our region and what can we do in our region. I have to say, looking at the data doesn't look that bad.
Slovenia, let's say, as the productivity leader in Southeast Europe-has increased over the last quarter century from about 80% to 90% of EU average income. Here I have plotted the countries from the region in % of the Slovenian GDP per capita level at purchasing power parity. Slovenia has 100 line above, and the others, you can see they all converged at actually quite strong rates of increase. In the 2000s, early 2000s, at levels of around 30% of the Slovenian income level going to around 50%. That is quite something. In fact, if you travel around the region, and I love it to take my car and in summer drive around, last summer I was in Montenegro. This is Porto Montenegro.
Not the whole country looks like that, which from an aesthetic point of view maybe isn't that bad anyway. You see that there is more wealth in the region. There is an increase in the living standards unprecedented probably in the history of this region. Life, not for everyone, but for many, has become actually quite good. Partly people who emigrated are coming back and say, "Look, life is here actually better if I adjust for the price level and compare my income in Düsseldorf or somewhere, then maybe in Yeah, I'd say it might be better to live," you know? So we have some anecdotal evidence of people coming back to the region.
In this region, if you look at the more recent figures, these are the averages for 2021-2025, looking at the gross fixed capital formation, so basically broad investment, in the region in, as a share of GDP, then our countries compared to the peers in the wider Central Eastern and Southeast European region are doing fairly well. They are mostly in the upper part, around 25% of GDP, and as an investment share. By European standards, that is quite a lot. The outlier, Kosovo, is even above 30%. To be clear, a large part of this in this country is about housing investment as an asset class, a bit misusing housing as asset.
It's a bit inflated, but nevertheless, there is a lot of investment in infrastructure, in particularly green energy projects, but also a lot of transport infrastructure, energy infrastructure at large and other infrastructures. Investment is the backbone of economic growth. This here is a picture from a few years ago from the interchange of the A1 between Tirana, the airport, and Durres. It is typical, I would say, for the region. You see that in these interchanges, we then also have companies who settled there, are close to the new highways and can do business very well. Luckily it's not only anymore just highways.
Refurbishing the ailing railway infrastructure is on its way. I think very important. The most of the airports are anyway already in quite a good shape, so things are improving on that front quite a lot. Businesses, and this is I think really interesting, we dived into data on small enterprises, 10 to 49 employees in the wider region for the countries that we have the data, and looked at particular industries which are promising. By and large, the digital economy is seen as one of the promising industries of the future. If you look here at 2025 latest data share of the digital sector in the overall group of small enterprises, and by and large most enterprises in our region are small, this is massive.
This is around 5%-6% and above in the region. The even more important information is on the right-hand side, growth over the recent years. It's the strongest in our region, on average, 4%, 5%, 6% per year. I think this doesn't in the end come as a surprise. Traditionally, and I can allude also to the former state, there were always very good schools for mathematicians, before basically IBM was just waiting at the doors of the schools and took all the bright guys away. Now finally, it pays off and some of the bright guys actually stay in the region and establish their own companies. Just as an example, you might check out this one.
A women-founded Macedonian company that is a promising startup company dealing with basically a platform for pictures in retail. It's difficult to explain, but like most of the AI companies. You can check out the products. It's quite a promising example. There are so many others also in Kosovo. There is, for instance, a promising potential future unicorn and obviously in the other countries as well. Interestingly, this in a way rounds up the whole picture, also foreign investors believe in this region. I mean, this looks like almost I have made up. I didn't. This comes from our FDI database.
These are the average, again, over the last five or so years, the average FDI inflows, so foreign direct investment in % of GDP. It's true the rest of the wider region saw in recent years much lower inflows, so that's also why the inflows to our region are looking particularly high. Nevertheless, this is about 6% of GDP. Annually, you have this amount of foreign direct investment. It's not only capital, because with foreign direct investment, typically you have also a transfer of technology, of knowhow, of a lot of ways how to operate in the modern economy. This is really an important event for the region that obviously was also a latecomer to the party. That is clear. The wars were not helping in the 1990s.
That also meant that EU accession was process was late. I mean, thinking about that Yugoslavia was actually on the verge to becoming an EU member in the early 1990s. Yeah. Okay, let's forget about the past. Let's look into the future. That's what the investors outside are doing. What we know from the experience of the past EU accession events is that foreign direct investment pours into the countries just before EU accession. This implies that the investors believe that the region will become in total part of the European Union in one way or another, at least probably with regard to economic issues. Right, here we are basically at the question of the European Union accession. Difficult to say. There are regular family photos. Some are already bought by this.
Look at the tall guys. They are typically from the region. They have a plan. They wanted, at least that one here, to have their countries becoming member of the Union during their lifetime. How realistic this is, I don't know. Recent news were that basically Commission is starting preparing the accession treaty for Montenegro. At least in a regatta way, there will be single countries becoming members, and there is discussion about having a membership light together with Moldova and Ukraine. Not unlikely, but difficult to say how it will turn out. Nevertheless, something is happening. Something changed. It's not anymore this completely hopeless situation the region has been maybe just six, seven years ago. Let's turn to some short-run developments.
Everything is in the flux. Looking today in the morning at the oil price, it's down to around 100 again, probably the last few minutes again, at a different level. We don't know. There is a price shock coming from the U.S.-Iran war. There are supply problems. There is an issue about confidence in the whole global economy. So far, only the oil price really looks like 2022, and we have to say this is in nominal terms. There was 25% or so inflation since then. In real terms, this would be lower, but okay. Let's hope this episode ends soon. So far also, we don't see a transmission in other prices. On the right-hand side, you see the gas price, European gas price indicator, basically. Just a minor increase.
At the moment, this is not 2022. Obviously problematic, and I will now present you the results from our flagship report, just published a few days ago, where we forecast macro indicators for 23 economies from Central East and Southeast Europe. Starting with inflation predictions, obviously we had to increase inflation expectations from our winter forecast, and our region is energy intensive. In the consumer price basket, energy is important, so there also inflation is among those countries where we had to increase the forecast most. Still, this is in a range of 3%-4%. I think it's still acceptable, particularly if this is the crisis in the Gulf will end soon. This is the baseline scenario, obviously.
In terms of growth, this region is still continuing to converge, doing quite well. Again, comparing to the peers, our countries are in the upper segment. Growth is around 3%. Not only within the region, but obviously also compared to Euro area, Germany, Austria, this is basically 3x higher growth than Western Europe. This is significant. Obviously, if Western Europe would finally start to grow, by and large we say over the very long run, our region grows 2% to 2.5% higher than Western Europe.
Just think about finally someone taking up Mario Draghi's report and really pouring in EUR hundreds of billions per year into the energy infrastructure of Europe, into a high-speed railway in Europe, into everything, into our defense and everything that we need in Europe, and finally introduce Eurobonds in order to create the backbone of a European capital market. These growth rates in Western Europe, if that would go up to 2%, 3%, well, you can just imagine how far we would come in the region. Probably we would see something like 6%, 7% growth rates. At the European level, we probably are still not facing enough pressure. Our back is still not right at the wall, just a few centimeters still.
Give them a little bit more time, and we will be there, and they will have to do something about it and get rid of the crazy fiscal rules that they have established, and start really to invest on a broad basis to basically save the European Project, otherwise I think we will go down the drain. This looks promising. Our region is even under difficult circumstances doing fine. This is our forecast average for 2026, 2028 throughout the region. I won't spare you of a negative scenario, even if after yesterday it doesn't look that likely, who knows what comes tomorrow again. Obviously, that would be if the oil prices would continue to be strongly above $100 per barrel Brent. Inflation would be higher.
This is the difference to the baseline, would be about 2, 3 percentage points higher. That would already hurt consumers and others. The growth forecast, we would have to reduce by and large 1 percentage point, which would still give the region quite a strong co-growth, at least by European standards. I would now, with the last slides, try to again zoom out a little bit into the longer term question. Speaking about the growth model, due to demographic change, we see for years already extremely strong wage growth in the region. That means it's obviously a pressure for export-oriented industry. Most countries of the wider region compared, export intensity, compared with 2019, 2025 compared to 2019, most countries of the wider region have seen a reduction in export shares.
Our region, core countries of our region, Albania, Bosnia, Kosovo, Serbia, actually still have been expanding, even under such circumstances, their exports. This is quite a remarkable result for the export-oriented industry. Overall, other sectors that are focusing on the domestic market are doing better. Obviously also for banking, this is an interesting thing to focus on. This region grows wealthier. People can do business also more in the country. The wider region's export-oriented growth model is changing, is shifting. Again, a caveat. China is taking market share at a rapid rate in the whole wider region. The China 2.0 shock is real. If you speak to business people, they will tell you, "Well, they are not just selling cheap stuff anymore.
They are now selling really also the good stuff. This is something to watch. Slovenia is actually quite a leading country in this, let's say, interesting indicator. Also regarding obviously the recent connections between Slovenian industry and China. This is to be seen in this context. This is something to look at, not necessarily something bad. A lot of it is also actually important inputs into our transition, our energy transition. China is basically producing solar panels, battery systems, and selling us below cost.
We would be, in a way, crazy if we wouldn't just buy up all that stuff and develop our green energy sector, be independent from fossil fuels, not necessarily because of saving nature or something, but basically just because of the price and being autonomous on energy production. This is the context also of this indicator. Let me conclude this picture, which I think overall is very good. The convergence story is intact and is going on. High growth rates by European standards. The region is really showing resilience. Like this city, it is a region that doesn't give up. Investment in infrastructure is strong. Everyone who is traveling the region sees it, feels it. The digital economy is developing well. Foreign direct investment is pouring heavily into the region.
As I mentioned, this typically happens before EU accession, so investors believe in the prospects of the region to join the Union in a not too distant future. In the short run, inflation is back. Much of that impact might actually just come with a certain lag. Even if energy prices stabilize just now, this Iran shock is negative hit for the region's economies, but also it is accelerating existing structural changes. It fits into an overall picture of increasing wages due to demographics, but also issues of geopolitics with regard to export intensities. We have now much more wealthier consumers in the region. There are new and higher investment needs, investment into automation, robotization. Again, just run around the city, there are vending machines instead of shops.
You know, you see already automation being embraced. There are fiscal issues. Countries in the region can't afford to just have flat rates anymore, so we will see increases in taxation in the region. This comes in parallel with improving public services, with also converging the welfare state to European standards. Challenges for exporters, but a lot of opportunities for producers, for service providers who are focusing on the domestic markets which are growing. Thank you very much for your attention, and I wish you a great day today.
Thank you, Mario. Thank you. Thank you, Mario, again, for providing us with the big picture and obviously also a very positive and prosperous one. Now we are going to narrow the focus to the country we are in today, Bosnia and Herzegovina. There is no one better suited to talk about the economy of this country than the representative of the Central Bank of Bosnia and Herzegovina. We are lucky to have with us today Emir Kurtić, the Vice Governor of Central Bank of Bosnia and Herzegovina. Emir, thanks for joining us. Please join me on stage. Let's give a round of applause. Tell us more.
Thank you. Ladies and gentlemen, distinguished investors, colleagues, partners, and friends, welcome to Bosnia and Herzegovina. A lot of numbers mentioned today. I guess I will have to take a different angle just to keep your attention, especially since my predecessors did an unbelievably good job, at least from my perspective, because I've seen so many good data and so many good information which are relevant for what I do. It is really a pleasure to be here with you, and I'd like to thank NLB for inviting Central Bank of Bosnia and Herzegovina to address the audience and to talk about Bosnia and Herzegovina's economy from the perspective of the Central Bank. However, those who know me will understand the angle, and I will definitely take a different angle.
In economics, just like in football, there are teams that try to win through individual brilliance, and there are systems that survive because of discipline, structure, and the ability to adapt under pressure. Bosnia and Herzegovina has never been an economy playing with the largest budget, the deepest bench, or the luxury of a massive domestic market. Perhaps precisely because of that, it had to develop a different style of play. If I were to describe a Bosnian economy in football terms, I would say that over the past several years we have been playing a very demanding high-intensity match. Global inflation was obviously a high press against us. The energy crisis was the opponent's counterattack after our losing of possession. Rising interest rates changed the tempo of the game. Geopolitical uncertainty constantly tested the last defensive line of our system.
It is exactly in such matches that you discover how important structure truly is. From my personal perspective, looking at what is happening around, I was actually pretty amazed how this country and how this economy did well in such tight pressures with all the odds against us and with many kind of taking us as the possible and probable first victims of all the bad things going our way. The currency board arrangement in Bosnia and Herzegovina is often viewed purely as a monetary regime, sometimes I see it more as a highly disciplined defensive formation. It does not allow excessive improvisation. It does not tolerate too much individualism. It prevents unnecessary departures of players from position. Precisely because of that, it preserves stability and keeps the lines compact even when pressure becomes strongest.
Of course, such a system also means you cannot play completely open football. You cannot respond to every shock with aggressive attacks or monetary experimentation. You can remain stable. In periods of global instability, remaining stable is sometimes just as valuable as scoring goals. I believe this is one of the most important characteristics of Bosnia and Herzegovina today. We may not always look spectacular, but the financial system remains stable through the pandemic, through the energy crisis, and through the strongest inflationary pressures Europe has seen in decades. In other words, the system did not lose compactness. Every football coach will tell you that teams usually lose matches when they lose compactness between the lines. The same applies to economies. The banking sector of Bosnia and Herzegovina remains highly capitalized and liquid. Financial stability has been preserved even during periods when global markets experienced serious turbulence.
For investors, that matters. Investors are not looking only for growth. They are looking for predictability. They are looking for the word mentioned many times today, resilience. They are looking for systems capable of withstanding pressure. Ultimately, the ability to remain organized under pressure is what separates serious teams from those that disappear after one good season. At the same time, Bosnia remains deeply connected to the European Union economy. The EU is our dominant trading partner, the largest source of investment, and our most important financial space. That is why European integration of Bosnia and Herzegovina is not only a political process. It is also a process of economic and regulatory convergence toward the European market, which is particularly visible in the financial sector.
Today, we are intensively working on, as also has been mentioned, accelerated integrations and accelerated accession of Western Balkan countries to EU, and Bosnia is part of this process. Preparations for SEPA accession, the name of the lady I mentioned so many times in the last year, the SEPA lady, and the development of instant payments through the TIPS Loan project, they are not just merely technical projects. The evidence from the World Bank surveys show that what happened in Albania, North Macedonia, and Montenegro after joining SEPA are unbelievable. We are talking about tenfold to twentyfold, ten times or twenty times, even twenty times lowering of costs of transactions. I hope you all cheer for us to finally join the SEPA, hopefully this year.
When it comes to the other project, the TIPS Loan project, I have to use the opportunity, hoping that the people from the local NLB will not hate me, but I have to challenge the NLB board and say, hey, I wish you will be among the first or maybe first bank implementing TIPS Loan in Bosnia and Herzegovina. The ball is in your court. These projects are about accelerating the speed of the game, reducing friction in the movement of capital, improving transaction efficiency. We have investors here, and I think these words are music to their ears. If we do this, they will have much easier life. In modern football, one second often determines the difference between creating a chance and losing possession. In modern finance, the difference between instant and slow payments is becoming equally important.
Recently, I've heard that Lidl calculated that every one second difference in one second of instant payment, how to put it, making it faster for just one second means around EUR 300,000 of savings on a yearly basis. It's obviously a goal worth trying to get it. For a long time, the region played very cautiously, very defensively, focused primarily on preserving stability. Now we are obviously shifting toward a more ambitious system of play. More connectivity, more regional integration, more digital infrastructure, more investment, more speed. Bosnia has important position in that process, not because of the size of the market, but because of its geographic position, its connectivity with EU, and the fact that there is still substantial room for productivity growth, modernization, and investment expansion. Of course, no serious team can play only in attack.
We already mentioned our discipline when it comes to the defensive play. If you allow me, I'd like to step away for a moment from purely technical language because I'm aware that investor conferences are usually built around numbers, as I mentioned at the start, projections, spreads, ratings, probabilities, and models. Of course, they should be. Please allow me one part of this intervention to be slightly more personal, not only as a central banker, but also as someone who genuinely believes this country is often viewed through much narrower lens than it deserves. When people discuss Bosnia and Herzegovina internationally, conversations often begin with political complexity. Rarely with resilience. Rarely with institutional endurance.
Rarely with the fact that this is a country which, despite all its internal complexity, maintained monetary stability, preserved financial system stability, and continued servicing its obligations even through some of the most difficult global periods in recent history. 20 years ago, my professor of finance told me, "In Bosnia, nothing is good except the quality of life." Since all of you have some level of experience in life, you know that actually the latter matters the most. 20 years later, I could say that Bosnia, many things are actually pretty good. Excellent, not to say, including the quality of life. A few weeks ago, during a meeting with one of the international rating agencies, a colleague of mine asked a simple question: "Has Bosnia and Herzegovina ever failed to service its external debt obligation?" I was puzzled with his question.
I was curious where is he going with this question, someone in the room, after some silence said, "Well, we're not really sure." He said, "I will help you. No, never." He said, "Is it possible to happen?" Again, some silence and the simple answer, "Well, probably it is possible." He said, "I will help you again. It's not possible. According to our constitution, the servicing external debt comes as an absolute priority." He had a final question for them, a humorous one. He said, "Why don't we as a country have a AA A rating?" From the bank perspective, we service our debts on time. We never fail to do so.
How come you just don't give us a triple A?" Of course, we understand the methodology, and we understand that from the methodology perspective, you can't get the triple A just like that. Behind the humor, the serious point is maybe important for us here and the reason why we're here today. How much weight do markets sometimes give to perception compared to actual repayment behavior? As a vice governor partly responsible for external debt servicing, that's on my desk on a daily basis, I can say something very directly. Bosnia and Herzegovina services its obligations, full stop. Consistently, on time, without delays. Not only that, we have our important correspondents from Deutsche Bank who can testify to this.
At times, we even, which you witnessed last year, execute payments and arbitration-related obligations whose economic logic, not to mention, common sense logic, could certainly be debated, but we still pay even that. I believe that matters because ultimately, beyond all methodologies, every investor asks one fundamental question. When pressure comes, does the system hold? I believe Bosnia and Herzegovina has demonstrated that the system does hold. Not because it is perfect, not because it is simple, but because there is a level of institutional discipline and financial responsibility that is often underestimated from the outside. Perhaps this is where I return once again to the football analogy. Some teams look stronger during warm-up. Some dominate headlines. Some have bigger budgets and louder fan bases.
There are also teams that stay in the game because they remain organized under pressure, disciplined in difficult moments, and capable of delivering results even when conditions are far from ideal. I believe Bosnia and Herzegovina, economically speaking, has shown quite a lot of that character over the years. We might not be the largest market in Europe, but in a world becoming increasingly fragmented and unpredictable, markets capable of offering stability, resilience, and room for long-term development are becoming increasingly relevant. Ultimately, trust, stability, and the ability to adapt remain the most valuable capital any economy can possess. One final remark. Since we had some very good book recommendations, we started with Andrić, then we went to Karahasan. Wow. All the aces.
I'd like to add Meša Selimović to the list, and especially his book Fortress because it's about surviving in insecure times. It's about dignity under the pressure. It's about internal resilience, and it's about a man trying to find stability in constantly changing world. As I said with my professor's anecdote about the quality of life and what's good and what's not good in Bosnia, a priest once said after a prayer, "Half of the folks are whining about my prayers taking too long. Half of them are whining about my prayers being too short. Obviously, I'm just doing it the right way." With the Bosnia as well, many are talking about political complexity, but also many are talking about how beautiful it is actually to spend some time or even live here.
Obviously, both sides are not quite right completely, and obviously we are, I guess, just right. Thank you so much.
Thank you, Emir. I knew what I was saying when I said we're lucky to have you. You have just ruined a couple of stereotype. The first stereotype you ruined for us was that of Bosnia and Herzegovina. Thank you for that. You also ruined the stereotype of a banker, a central banker particularly. I never thought I would hear about football in the presentation about economy and finance. Thank you for that. If I remember correctly, it was probably the structure and stability and institutional discipline that helped Bosnia defeat the former World Championship champions in football. Am I right? Let's give a round of applause. Let's give a round of applause. We provided you with the context, and we equipped you with the lens. Now it is time to fully focus on NLB's performance.
Blaž, just to get you ready, you are next up on the stage. I don't know whether you need your headset. No? Okay. I think you should remind us what were the promises made in 2030, in the Strategy 2030, and what are the proof points the bank collected in the meantime?
Thank you.
Go ahead.
Going back to sport analogies, right? We have a very specific client whom we love, and that's Edin Džeko, right? That's the ace of the Bosnian team. Another coincidence on how this region is small, my son was standing in front of the football players while Slovenia was playing Scotland, and he was standing in front of the player whose surname was Kurtić. The same surname as the Mr. Vice Governor. It's really a very small region. There is another saying, coming back to, you know, sense of humor that is, you know, none, no even close to Bosnian. There's a saying, "Nothing can succeed in Bosnia, not even the crisis." Is as, you know, affirming the statements of Mr. Vice Governor about resilience, right?
Looking back, eight years ago when we came to the market, it was our third attempt. Two early fishing roadshows, finally we were not pulled back, we delivered the final of the IPO and we're listed. In this respect, at that time we delivered certain promises. You know, people were talking about this being a dividend stock story. It was still early to 2018 and late to 2018, right? You saw the charts on how the banking sector started recovering in terms of valuations and everything beyond 2000. No one really believed in us in a sense this is a growth story. You know, this was the negative rate environment. It was very difficult to discuss, you know, anything, you know, to grow the loan book, let alone, of course, making it profitably, right?
We were somehow pitching our story as a dividend stock. Then, of course, once we got privatized, this unleashed really, you know, the entire potential of the banking group, right? Since we had before that acquisition ban. We had to abandon leasing business, factoring business, geographies, right? Had to be limited in what we can lend to specific industries such as logistics, construction, financial holdings, and so on. Once this straitjacket was taken away, the first thing we did six months after, basically, was acquiring the bank with the largest branch network in Serbia. No one believed in us at that point of time, right? There were some local competitors, some international competitors.
Everyone underestimated us, you know, and our stamina, you know, our devotion towards finally to deliver the growth on top of, you know, what was supposed to be a dividend story. I joined the team personally December 2012. Archibald and Andreas joined me then in July and September 2013. Colleagues were then coming in gradually, right? We've been in the stories now since 13 and a half years, and it was a distress story. Once we came in, it was a fundamental restructuring. Emotionally tough, you know, and requiring applying totally different management model. It was crisis management, right? It was saving. It was cutting. It was shutting. It was getting away, getting out, you know, of segments, products, businesses, geographies. This is a totally different mindset to a growth mindset, right?
Privatization, you know, and this triggered basically fundamental transformation, right. Of everything. Of focus on efficiencies, on focus on underwriting standards, introducing really cash flow lending principles and so on, right. Privatization, basically, once we have proven that this is now a stable, right, resilient bank, enabled actually and fostered us, you know, provoked us to start thinking of growth. Since then, basically, not only we delivered, of course, profits shown here, and, you know, dividend, which was anyhow always a given as a promise. We, in principle, you know, started really showing that this is by no means solely a dividend story. It is also a growth story.
When I took over the helm as the CEO, as the first acting CEO and then full-fledged CEO in 2016, this was an EUR 11.8 billion bank. Today it is EUR 32.2 billion bank, right? 10 years. It's almost tripling the size, right? It was not by any means only a dividend. It is a growth story, and it is a regional growth story, and it's combined these days already also with, I claim, significant digital transformation. Couple of years ago, we decided we no longer want to stand out locally against local players. We really want to replicate client experience and focus on client experience and, in the morning when I came here, they put some makeup on me, you know, and the lady said, "It's the MPS." The MPS is what we focus on, but it also means Narodno pozoriste Sarajevo, which means National Theatre Sarajevo.
Okay, my first today's word was the MPS. Right. You heard my address. It started with "Dear customers," right? We really focus now really truly, genuinely, you know, on delivering digital transformation, focusing on client experience. You know, we don't want to be second to no one, right? Of course, we understand fully that Neos and FinTechs in European Monetary Union don't have any barriers, and of course, the bank number 3 in Slovenia is Revolut in terms of client count, not in terms of course, of revenue per client and profits per client yet, right? On top, we combine this growth with acquisitions. I mentioned Komercijalna banka, but it was not only Komercijalna banka, right?
There are some numbers here in terms of, you know, how we focus besides on digital first and, you know, we really aim. There will be numbers shown later with deep dives. We really aim to 80-plus % digital end-to-end production and so on. We have been also belonging to, you know, in sustainability terms, we have been receiving ratings, and there is a slide on this as well, that are qualifying us among top 5% in the world. And it was our first investor day when we signed certain commitments, right, like NetZB and so on, where we unfortunately now look at American, U.K.-based banks jumping out of it. But in principle, these are commitments and genuine commitments. On the other hand, this M&A track record is now a sizable one, right?
It was not just acquiring Komercijalna banka. No. It was followed by an ad hoc overnight operation of resolution of Sberbank banka d.d. at that point of time. What I'm specifically proud of is that we were, by then, in the mindset and by preparation, all ready to jump on any actionable opportunity in the region. We have created an M&A team, specific team of professionals that have been analyzing every asset in universal financial services distribution in the region. We have been still focusing exclusively on the region of former Yugoslavia. We have started communicating Albania two years later, right? There are two intersections we focus on. One is the common former Yugoslavia, and the other one is the bunch of six Western Balkans countries, and Albania comes on top, right?
In five of them, we are present with top three lending position more or less, top three, top four lending position, but Albania is missing and well, has still been missing, right? In this respect, we were ready. We were able to pull out of our sleeves a binding bid in 24 hours, right, over the weekend, right? We were able to and that's what I wanted to say, to also provide a binding bid for the Banking Agency of the Federation of Bosnia and Herzegovina in two days.
We were, you know, really casting two bids in two days, binding bids for two banks, which means that the mindset on the board level, in the boardroom, luckily we have international representatives also that have been, you know, working before for investment banks in private equity, and they understood the magnitude of opportunity and, you know, we were really ready to jump overnight. The growth mindset has been with us now for quite some time, and it's focusing on delivering organic growth. At the same time, delivering with M&A if there was an opportunity. Of course, for every willing buyer, there has to be a willing seller, so sometimes you need to be very patient, you know, but there might be some opportunities going our way.
What we have proven on top is that we have had the capability to meaningfully integrate, right? Efficiently, quickly, seamlessly. We've seen a lot of skeptical faces when we were road showing in 2019 where we had our bid out for Komercijalna. You know, "You haven't acquired anything for 10, 15 years, you know. How can you prove you will be able to integrate big, formerly state-owned bank in Serbia?" Right? There were a lot of skeptical voices. With our team in Serbia and our, you know, support from Ljubljana, we managed seamlessly in more or less good year from when we started the operation. Same time, we integrate in 6 months in Montenegro seamlessly. You know, we then integrate also Sberbank seamlessly, you know.
We had to get out of the leasing business as a part of the commitments towards the European Commission at that point of time, right, within the stated process. We bought the market-leading leasing business in Slovenia with the offspring in Croatia. By that, after more than 3 decades, we came back to Croatian market by which we have been the only provider of universal financial services that is offering at least one form of financing across the board in all of the markets of former Yugoslavia. There's no one else. On top, we have been, of course, the only ones with the mind and the heart here because we are the only one headquartered here, right?
There are others that have predominant Central European, Central Eastern European operations and some, a wing here in Eastern, South-Eastern Europe. We are the ones living here, and we are the ones that can speak you know, the accent of Sarajevo or of Belgrade or of Zagreb. In North Macedonia, I can understand Macedonian. Also, the leasing business was successfully integrated, and I'm happy to report that, you know, we are growing quickly in Croatian market as well, by now, obviously only by leasing. When it comes to the developments around, of course, current activities, I can't be very concrete. I can only refer to what we have formally published. Whatever is a public understanding and public information, please, I kindly encourage you to read.
There was an intention published, right, an intent. There might be, of course, subsequent steps. Like, what I can obviously say is that eventual acquisition of Addiko would be highly complementary. This is what we have been, of course, always saying. Already two years ago when we for the first time published the voluntary takeover bid. It is transparent, it is equally treating small shareholders, you know, and it is, we believe, you know, arm's length in all the context and in all dimensions. It would, of course, bring certain additional boost to our digital offering, end-to-end product offering across the board. There is full complementarity of the markets. There are a lot of synergies, this would of course provide a market entry to Croatia also through the banking platform.
We of course are universal provider, we are number one in Slovenia by a distance, number one in Slovenia at distributing ancillary services, right? We have been distributing more than 70% of whole life insurance policies in Slovenia distributed through the banking channel. We have developed Vita insurance from the scratch as a bank to today having 20% market share in life insurance. We have developed the asset management vehicle, you will be seeing Luka on stage later on, to 42.6% market share from the scratch in 22 years, basically, right? We are really able to distribute meaningfully, and of course, we are interested in universal portfolio. This doesn't exclude, of course, Croatia being interesting for us also for insurance, asset management, and other services, right? Beyond leasing and classical banking.
But it is obvious that a transaction, if it was to happen, would be highly value accretive and would be, of course, heavily also content-wide accretive for NLB's aspirations. This is just an add-on on what this would mean in market shares, right, in specific countries. This would, of course, strengthen our position, but it is not in any way problematic in terms of a competitive context, right? This is by no means the case. In last years, we have been out as a frequent issuer by now, so the markets have got to know us, both equity and, of course, fixed income.
We have developed together with our PR team, IR team, of course, investment relations team, and our financial markets team, a broad network of, you know, counterparties whom we talk to when it comes to issuances as set on both equity and fixed income terrain. We have global prominent investor base, right? It is redistributed globally, and by that, of course, I have a specific privilege to be able to talk approximately twice a year to our key investors. This is, to me, the biggest privilege of my job because them simply raising questions are positioning, you know, me in my mindset where Europe is in a given context, where the region is, where Slovenia is, and where my banking group is.
You know, carefully listening to their questions and trying to, of course, provide meaningful answers is to me a learning process, you know, and it's to me more or less a studying process on, you know, on what to do next. This is really, for me, the most important, you know-how raising hub is the questions of our investors and analysts, frankly, right? What I'm specifically proud of, because this is a real milestone, given the fact that we entered into a distressed situation, into a restructuring case, transformational restructuring, right, is that we started more or less, you know, with bailout, and we ended up, you know, a couple of months ago with A rating by Moody's. This I really see as, you know, a breakthrough. We are A-rated business.
13 years ago, we were, you know, attached to the, you know, breathing support, right? The dividend payout ratio is still highly attractive. NLB is standing out. You know, as at today's prices, it's 6+% dividend yield, right? If you look at the valuation in terms of earnings, we are, you know, just at low 9%, right? 9 times, low 9 times, right? Which is, you know, still some 20%-25% discount, obviously, to, you know, whom we want to be compared with. This is the Addiko's of this world, for example, because they are very comparable in structure, right? Dominant Europe, but then, of course, others.
We have the same Slovenia, 30% to more than 40% market shares, Euro country, 90.5%, EUR 90.5 billion of balance sheet there, right? Then the rest, up to 32.2% is, you know, in Southeastern Europe. Very, very good diversification. Of course, you bet on Slovenian stability and at the same time, of course, resilience and growth of Southeastern Europe. I was mentioning this, the sustainability. You know, everyone is stepping away, but in long term, of course, in long run, there is no alternative to sustainable development, right? We're sticking to it. We are not stepping away from what we signed. We are committed to it, devoted to it, and we are delivering against it, right? We are really top 5% in the world by ratings in this respect.
We promised quite something. I believe we delivered, frankly, without some, you know, modesty, more. If you look at the total shareholder return since the IPO, it's now eight years, it is 550%, right? There are, of course, people in the world that delivered more, but there are not many banks. There is maybe just one in the Western Hemisphere of Europe that has delivered more, but it was heavily depressed at valuation at that point of time, right? This is, in this respect, a success story. If you look at the dividend, of course, support to it's very meaningful. Generally, this is all what I want to say as an introduction. Thank you very much for, you know, hanging in there by now.
The guys, after the break, will be guiding you through the details of, you know, what is the next step. We firmly believe we are ready for the next chapter. That's continuous growth. That's, again, delivering against the promise. Thank you again. After the break.
If NLB's performance is a movie, then you have just gotten a really good trailer for it. There's a sense of direction, a little bit of suspense is created, there's anticipation building for what is coming up next. This is going to happen after the break. During the break, we are serving some coffee. Enjoy it. Also, if you have questions for our speakers before, Andrew and Mario, pull them by the sleeves. I'm sure they can provide more and further information. Otherwise, refresh yourself, and I'll see you back at exactly 11 o'clock. Enjoy your break, and be back at 11:00AM. Thank you. Welcome back. Thanks for coming back, and thank you for being punctual. I expected nothing less from people who are active in the financial industry.
We took a look at the big picture, not only one, a couple of them. Now it's time to go and zoom onto the details. We are going to have deep dives. We are going to go segment by segment and look at the details of what really drives NLB's performance. Before I call my speakers to the stage, a couple of words on the format. It will very much reflect the way this bank operates. This bank is capable of leveraging the existing business legacy with the need and capacity to transform. It's also capable of managing growth and managing risk at the same time. Therefore, there will be multiple speakers on the stage. Each will provide their own perspective for you to have a comprehensive information. A next note is on the questions.
You are going to have some questions that you would like to ask our speakers. We are going to collect all of the questions and deal with them at the last session of the day, Ask Us Anything session. There is a QR code provided for you on the side screen. I suggest you scan it right now. Whenever you have a question, just post it. The investor relations team is going to work hard behind the scenes to organize them. We can address them holistically and efficiently at the end of our day today. On the screen you will obviously see some slides. Please note that all of the presentations will be available and published for you in a little bit more detailed form so that you can refer to them later.
Now it is time to start deep diving into the first segment. It's a retail segment, the segment that is the backbone of this bank's business. It is also the closest, in the closest touch with the customers and probably the clearest reflection of the market dynamics. I will invite to the stage, and it's my pleasure to call up a lady, Hedvika Usenik is the Member of the Management Board responsible for retail. Hedvika, isn't it nice you didn't have to say anything, you're already getting an applause. If life would always function this way. Then I would like to call Reinhard Höll, Member of the Management Board responsible for transformation, IT, and back office. Welcome, Reinhard. That's the spirit. Andreas Burkhardt, Member of the Management Board responsible for risk.
I promise that this format will reflect the way this bank operates, and you are just getting some really important signals. Hedviga, let's start right away. We see some numbers on the screen, and I don't have my clicker.
Is this the right one? Sorry, is this the right one for me?
Yeah, that's the right microphone. I don't have my clicker. I will rely on the production to help us with the slides. Let's talk through the numbers that we see on this first screen. If you can give us the monitor as well. Oh, lifesaver, guardian angels obviously existing here in Bosnia. There is also the presentation I will need on the monitor when you get a chance to get to that. Otherwise, we will manage with what we see here. The numbers that we see on the big screen, obviously retail represents a high share of NLB revenue. In what way is this important for this bank?
Yes, it represents actually more than two-thirds, last year 70%, of revenues of this group, so no pressure for me.
You're obviously taking it very well.
It also represents 2.8 million active customers in this region, which is a large share of the population. It brings a lot of stable deposits of household and small businesses to this group. You know, it's important also from this perspective. Most importantly, what is behind these numbers is even more important.
That it's more than 3,000 dedicated, really passionate colleagues.
Working for these clients, delivering all these results, and being continuously on transformation as retail usually is.
It's a lot about the stability, and stability is rarely provided by the organization, in most cases by the people. Thanks for mentioning that. 2.8 million clients.
Uh-
What does that number tell us about the bank's ability to perform in not such an easy environment to perform as a bank?
Well, the speakers before me helped me a lot because they were talking a lot about convergence, right, a lot about the growth that this region still offers, you know, in the future. Having 2.8 million customers means for us that even with this customer base, without growing, and of course the ambition is also to grow. As these customers are getting higher disposable income, they have money not only to, you know, pay for the, for the shop where they have to go, but they can also have some spare money to take loans, not only consumer, maybe also mortgage. They have spare money to protect themselves with insurance, and here we also play.
They have potentially also money to invest. For us, the business is growing with the markets growing. If we grow ahead of the market, as we usually do, you can imagine that this is a big opportunity for us.
Yeah. Obviously you're seizing it in a very disciplined way. We have talked about the markets. We have talked about the customers. Let's go to one key performance indicator that really talks more about the financials, and it's risk on return on risk-adjusted capital. Why is this number here?
Because retail-
Why is it-
is profitable. Yeah, it's profitable, maybe I would mention three areas or three things why retail is profitable in our case. The first one I would for sure mention is scale. I'm talking about 2.8 million customers, which is a significant scale in our markets. It's very difficult to be profitable without scale in retail.
You need it to be profitable. This is one thing. The other thing I would reiterate is the strong and stable sticky deposit base. This is also one thing that is important for profitability. The third one is one area that we have been focusing on for years, and we will keep doing so, and this is fee business. Playing also in payments, account fees, asset management, insurance. All of these areas are super important for profitability as a booster.
Mm-hmm, mm-hmm.
Stability.
Yeah. We are going to talk a little bit more detailed about this later. Now this is something that you will see in all of the deep dives. It's just the overview of what was happening from 2024 until now, and what is projected until 2030. It is the commitment from the strategy. A big picture of your delivery against the strategy, what happened in the environment that made this challenging?
Yeah, I mean, it looks quite good, 11% CAGR over the past two years, right?
Yeah
What is not on the slide, and it what made it, really difficult is the rate environment in the Euro area. Actually, since we published the strategy two years ago and now, the rates moved from 4% to 2%. This, you know, was quite challenging for us. Nevertheless, we managed to grow.
Yeah
Despite this challenge, that's why we are also confident that also going forward we are able to grow with 8% CAGR as we are envisaging with this strategy.
More to follow on the non-net interest income in as we continue with the presentations. Let's move on and take a look at the key commitments, key promises in the strategy of 2030. Obviously, with most of them, you are on track. Congratulations for that. I know you're going to make it sound really easy again, but still, which are the most significant and why?
In general, I would say we are really well on track with most of the KPIs of the strategy. Especially because for some of them you need to build some enablers before you see really the growth on these KPIs. I would say we are well on track on revenues, on, you know, number of customers, on revenue per customer also. We are also very well on track on digital KPIs. Where we still need to focus a bit more is digital acquisition. As we speak, we are building enablers for that, and by that I mean modern, good onboarding processes. Without that, it's hard to.
You know, move in this space. We are, as we speak, developing it in Slovenia and Serbia to our biggest markets. North Macedonia already did it, just a few months ago. These are our three major markets. I'm sure also this KPI will move very fast. MPS is an area that will stay focused, I think, forever.
Yeah. Even when you achieve it.
By 2030, I would not imagine this area to be fully green because there are so many areas that we need to work on to make MPS, you know, at the levels that we aspire to have.
Thanks for mentioning, focusing on all of the things that we see that are orange and still deserve attention. We are going to also talk a little bit more to details about that. Now, big numbers, or significant numbers, holistic numbers for the bank we heard about before. Now this is a little bit more about market growth and a little bit more nuance to the market success. What makes these achievements outstanding? Again, maybe comparing them to what we have seen, the macroeconomics, or what do you see even bottom-up happening in the region?
When we revealed the strategy two years ago, our ambition in retail was growing, so CAGR 8%-9% per year. At that time, you know, it felt quite ambitious. This is happening every year. I don't know exactly how we are going to make it, but we are making it always.
Yeah. You just say yes.
The real growth that happened in our case was 12% and 14%, so, you know, well above plan. Also Q1 of this year is showing the trend that gives us confidence that we should also finish this year above the strategic ambitions. We are doing this although we are already a very strong lender. We are clear number one by a margin in Slovenia. You see here the top three markets. I would not like to underestimate other markets, for sure our host in Sarajevo who are growing very fast as well. These are our top three markets. Why we are putting them here? Because they represent 80% of our retail business roughly.
As you see, we have a strong retail lending market share in Slovenia, over 30%.
We are very proud that last year, for the first time in history, our bank in North Macedonia became number ONE retail lender.
Bravo.
Bravo.
Thank you.
We also made a significant progress in Serbia, which is, you know, by the potential and by the number of clients, you know, by the market itself.
nOe of our greatest potential in the region. This growth in volumes of loans was supported by the growth of deposits, which was also very good.
5% and 9%. This is also very important, I think.
Mm-hmm. Mm-hmm.
I believe, you know, I believe we made a great achievement by that growth, and I'm sure that we can also continue this way.
Growing fast in the markets where the market share is initially low, yes, of course. Growing fast in the markets where the market share is initially very high, as in Slovenia, kudos for that.
I can maybe add also for Slovenia, where we are clear market leader, you see. For the last five years, we have been consistently the faster or at least second fastest bank in the market. As a market leader.
Bravo
We're not stopping.
Congratulations for that. The question of growth always comes associated with the question of risk. Let's take a look at what is happening on the risk side. This is where I move to my other two speakers. Andreas, you are in charge of risk. How do you ensure that the loan growth that Hedvika was mentioning before doesn't come at the expense of underwriting discipline?
I mean retail business in a banking group our size, that's of course a lot of numbers. It's a mass business. It's always a lot about modeling, validation, doing these prep steps properly, and honestly speaking, a lot about segmentation. On segmentation, I have to say, it's still sometimes a learning path. Now and then we still have our little surprises. It's a constant path to improve and to become more efficient. You see that, I mean, compared to European averages, we have better NPL ratios in our group, which is actually, given that this is not the easiest region in Europe, pretty amazing. That tells you that on this path we're doing something right.
Of course, what is true is that, the group is much more focusing on digitalization.
It's much more focusing on consumer lending. These are, of course, topics which from a tendency add a little bit to the cost of risk. Honestly speaking, this is not the right question. The right question is profitability. Which net interest margin do you have and which cost of risk do you have?
This way in which we are moving is highly profitable. In that sense, we will probably see from the cost of risk point of view a little bit of a normalization from the NPL ratios, a little bit of a normalization. Overall, as you can see from our figures, we are rock solid, and we are rock solid despite actually, you heard it from Hedvika, a pretty intensive growth over the last couple of years. Sometimes not from so easy starting positions depending on where we were, and we did this all in a very, you know, risk efficient way, in a conservative enough way, and we will for sure continue on this path.
It's about the segmentation. It's about the modeling, also about the technology digitalization. Are there practices that are helping you be successful in that? What will happen with the risk appetite or what's the risk appetite for further retail expansion across CEE? Based on what we hear from Hedviga, it's not even half from over, correct? What does that mean for risk?
Look, I mean, the group in the last couple of years has increasingly focused on retail business, and as you can see also which percentage actually of our income is coming from retail. Retail historically, but that's especially true for our group and for this region, but that's actually generally true in Europe, is a very solid business. If you do things right, if you don't do big mistakes in how you approach the business, honestly focusing more on retail gives the bank more stability.
More predictability. In that sense, from a risk perspective, of course it's something which we highly support.
Mm-hmm. Specifically NPLs, which is much lower than that of European Union. That's something we see on the slide. How do you comment on that? What makes you performing so well?
Well, on the one side, I guess, with modeling, with segmentation, we do some things right. On the other side, I mean, what I also have to say for these markets is that people in reality are pretty conservative. For private individual, you will pay a loan. It's not a habit not to do that, right?
To say it simple. This is especially true for housing and mortgage loans. People don't want to jeopardize their homes.
In general, there's a relatively high discipline. I'm very grateful actually to the slides which we saw at the beginning. What you can also see is that actually, the countries here have a very good starting position because the indebtedness level compared to many other markets is actually very low.
The starting base historically is low indebtedness, so there's a lot of room actually to grow volumes and to grow it, risk-wise solid.
Okay. There's one type of risk that we see here that's not so much a responsibility of Andreas, but much more yours, Reinhard, because you are in charge of IT and back office. Can you talk a little bit about how you are making sure that this bank is safer than at least the regional peers, if not other ambitious players?
Yeah. I feel you're talking about cyber risk and digital risk. The first good message is that if we look at our current fraud rates, if we look at AML, we are vigilant, and our number's actually significantly lower compared to regional peers, but also compared to European averages. Fraud rates are low. Cybersecurity incidents are very low. We cannot rest on that. I think if you ask what we're doing about it, well, one is we're really trying to stay paranoid about this whole thing. In this current day and age, I mean, Mito was already mentioned twice today, there's many things where we're really working on making sure we are plugged into the international community. That is sometimes as simple as, well, making sure that we are talking to Anthropic, that we're talking to OpenAI.
It is about making deliberate changes in the way who we work with from an external perspective, meaning our threat detection, to be very concrete, used to be run completely out of the region. Now we split it half locally, half internationally.
The same thing we're trying to do on fraud management, trying to work with external partners. The third element is, and here the power of the group comes into play, and I will talk about that a bit later as well.
We are a federation of banks. We can really gain from scale. Some of our competitors locally, they're in one market. We, for instance, have a fantastic team who deals with DDoS attacks out of Belgrade. I can give you five other examples where really from a fraud and security and a cyber perspective, we're constantly trying to gain more economies of scale, but also get the best talent pool, and sometimes in surprising places. Fraud management, actually Kosovo has some real expertise, and quite a few banks are running the center of that. If we're talking server-side attacks, it's really coming out of Belgrade. For some of the other areas, it's Slovenia, and maybe in some other areas we're gonna go somewhere else. Ultimately, it's an area I'm happy where we are, but we really need to stay paranoid.
Stay the paranoid mindset plus leveraging the diversity of what this region has to offer. Hedvika, I'm coming back to you. We are going to take a look a little bit starting the discussion of what you mentioned before, and it's the non-net interest income. What are the key insights that investors should take home from this slide?
First, I have to say I'm super passionate about fee business. My colleagues hate me sometimes because of that.
That's not possible.
Our track record is also very strong. On top of previous growth, also in the last couple of years, the average growth was 8%. Also this is similar CAGR we expect in the years going forward. Also Q1 of this year is showing a good trend. We have some confidence that, you know, this growth will continue. If I decompose this growth, you know, over the past years, where we were growing the most was two areas, asset management and bank assurance. We will hear a lot more about asset management later on when Luka comes to stage.
These are also two of our strategic initiatives that are probably most ahead of plan.
I'm very proud.
Yeah
The development of these two initiatives. If I look at the performance of this, for instance, of asset management, since last Investor Day, we further strengthened our market share, which is already very strong in Slovenia, to over 42%.
Yeah. Blaž mentioned it.
Blaž mentioned. Yeah. In the meantime, we also managed to move and scale the business to Serbia and North Macedonia, where we are investing a lot to develop a similar success story as we did in Slovenia. We are adding alternative funds to the shelf, but I will not dwell more because Luka will tell much more about it.
Don't steal too much of his thunder.
Exactly. On bank assurance, what I'm proud about is, apart from really strong growth of fees, still couple of years ago we were reporting that most of these fees are coming from Slovenia. Now the picture is much more balanced. We have strong performance of all the countries. In absolute terms, of course, Serbia added a lot when they started seriously doing this business some one and a half years ago. All in all, I'm very proud of the development, especially of two lines. These two lines. I will not talk again so much about payments because Antonio will address this part much more in the future. What is important for me is that we are growing all areas of fee business and that it's a balanced picture.
That it's coming from different products and different geographies.
Maybe I would mention not only product-related initiatives, but also segment-related initiatives. We are focusing especially on a couple of segments which are super important for fee generation. This is affluent, including private banking and micro, and these are both strong contributors also going forward. By focusing even more on these segments, it will help us grow more in this space.
Diversification in terms of segments, in terms of geographies.
Yes
Is the name of the game obviously here. Now let's dive a little bit deeper on the discussion that you started before when we saw the commitments and things that still need to be on track. We heard that digitalization, the word many times today already. Let's start with digital penetration. Tell us what are you doing in this respect to improve?
First of all, we are very happy with our new digital platform that we rolled out in Slovenia last year. It also received an award for the second time in a row already for the best banking app in the market.
Congratulations.
As we speak, we are rolling it out also in Serbia. It should be, you know, second, third quarter of this year already, and then other countries follow. On digital penetration itself, nothing more to say. We are on track. We have now a track record of several years of delivering on this target, and I'm very confident that by 2030 we will reach 80% and more as we were planning.
Very briefly, we could talk about that obviously for a long time. Very briefly, what are the game changers when it comes to digital sales?
Well, first of all, why we are talking so much about these two KPIs. Digital penetration is important to have digital sales because without customers on mobile apps and without them using it actively, so we call it being engaged, it's impossible to do digital sales. This is a prerequisite. Then when we are talking about digital sales, you need to do very good intuitive end-to-end processes. As simple as that.
Yeah.
It's easier said than done, of course.
Yeah.
You need to be able to give the customer the possibility, for instance, to increase card limit, to increase overdraft, to open a saving account, open a term deposit, do a consumer loan via mobile app seamlessly end to end. This is the prerequisite.
Only then you can really start digital sales.
Yeah.
Okay. good luck with that. A little bit more of view, overview on the key initiatives. You talk about micro, you talk about affluent. Anything to add to that? What is a top priority?
Yeah
that out of these eight initiatives that we haven't paid enough attention yet?
I will come back to this. I would still like to stress one important point on digital sales if I can. Because, you know, for some people who are coming from Western Europe, perhaps the digital sales of 15%-16% does not seem exciting. I can tell you two examples of countries who are really front runners. One is North Macedonia, who last year managed to enable the main end-to-end processes in digital banking, and already by end of year managed to reach 35% digital sales. Slovenia, where also within year and a half we enabled the main end-to-end processes, and as per end of first quarter we were already above 43%. I believe this number will accelerate very fast and will get to 50% earlier than we expect.
Ooh, even overachieving here. Congratulations.
Well-
Can we move on?
Yes
Top priorities out of the eight initiative? I'm pressing you just slightly so that we are effective with time, even though I could discuss that for much.
I will not talk so much about the initiatives where we already discussed. Bank assurance, asset management, you've heard. You heard micro, you heard affluent. I will also not talk so much about the lending initiatives, so consumer finance, mortgage, housing, because these are the prerequisites for us to continue this growth of retail lending that I was talking about.
I will focus on go-to-market initiative, which is probably the most complex, the most demanding, and it's talking about the future of distribution. What we want to do, we were discussing digital before. We want to even more move all the transactional business, all the simple sales to digital channels normally. Then, in contact center, we want to move all the simple contacts to Gen AI supported.
You know, voice bots, chatbots, and so on, really focus branches and contact center more to advisory. This also means that we will need less staff in branches. In our strategy 2030, we have very concrete plans. It's not just an idea, we have concrete plans year by year, bank by bank, how we will reduce the staff in branches by roughly 30%. Throughout the strategic period. We already did it. In the first two years, we already reduced by 12%. On the other side, we will work on quality. We will train our advisors more.
We will introduce, and we are introducing hospitality approach to banking. What we know from hotels to restaurants.
Why would the service in bank be worse than that? We are focusing a lot on customer experience as we mentioned before. What we are doing, we are trying to use more data-driven approach. Really listening to customers and then acting upon it and developing a very strong CRM strategy in order to support really meaningful sales.
This is in essence, I try to simplify.
This initiative is really quite complex.
Yeah. Meaning that dealing with the bank will become a lot more similar to coming to a hotel or a restaurant than it is now when it's a functional.
Hopefully this is the plan.
Commodity-like experience. Good luck with that. There are a lot of initiatives here, and a lot of them cannot succeed with a really good contribution, commitment from technology and transformation. What do we need to know about the tech background to support all of the things that Hedvika was mentioning before and are obviously ambitious plan that will transform the experience of the client significantly?
Yeah, I think this is the crucial thing because what we're playing here is a, is a strategy Blaž mentioned this earlier about achieving European best practice. I think the core message, we heard a lot about convergence, it's also a convergence of the customer experience and the technology experience.
I think one thing I would always challenge everyone in the audience, Google digital phone penetration in the Western Balkans. It's almost indistinguishable from Germany, from the U.K., from the Netherlands. The customer expectations may be lagging a few years behind, but they are essentially the same. We need to follow a well-trodden path. What does it mean in terms of technology? Really two things. One, on making sure that the customer front end is as close to best practice as we can achieve. Here our strategy is really we wanna own the front end. If we kind of talk completely, Hedvika mentioned the digital banking platform in Slovenia, as we would call it. Actually, it's the app and the online banking. We're rolling the same thing out in Serbia as we speak. We're talking about the same thing for other markets.
I will be later on speaking about the same thing for legal entities. The other part, and again there's a lot of stuff in the background, is making sure that we clean out our processes as much as we can. Often technology is a tool, but it's really about the mindset. Are we thinking from the customer all the way towards the end? I'm actually gonna make this joke. I have now readjusted this chair five times.
Transformation Officer.
Technology is not sitting on it and hoping it works. It is about constantly readjusting until we get it to the space it needs to be.
It's, if risk is being paranoid, this is being obsessed not just by the technology, but all of the processes that this technology supports.
Correct. I would just add also being smart about when it matters.
When we talk about consumer finance, we now are able to provide a consumer finance in Slovenia in less than 10 minutes. This is when it matters. For a mortgage, the question is actually less about when you get the cash, but whether you have a confidence in your bank that we will help you to buy that house. Here it's really about making sure that we focus on the right questions, and I will be the first one to admit, I mean, technology transformation is always about leaving that mindset behind. It's very easy in a bank to hide behind all the things. We're here on a journey. Also, the region is on a journey where you're seeing what customers accepted was okay. When I got my first bank account in Slovenia, it was five signatures.
We now got it down to two for regulatory reasons.
It's one of those things where we constantly need to push for the right thing and not just accept what was always there.
Yeah. This is the stories and the impacts behind the numbers where you can bring significant change to the whole market. These are some of the pillars of your job joining the NLB. Let's start with the digital first bank. What are the key approaches here? On top of what Hedvika mentioned is the front end, what happens in the back?
It's really about two things. First of all, the customer chooses the channel they want. If a customer wants to interact fully with a bank digital, he or she should be freely able to do that. This is a story which will keep us busy for the next three to four years. There's regulation, there are sometimes technical issues, we really want to push this thing. We see a clear differentiation in terms of customer stickiness. Why? Because if someone is in an app and they use the app 20 times a month, the customer's more sticky. The other point is also about playing to our strengths. There's very, very clear evidence if something is going wrong, call up our contact center. That makes a big, big difference, and you actually see quite a few FinTechs now adding up contact centers back into the game.
Doing this 24/7 as the only bank in the region in local language, huge advantage. The same thing, by the way, plays towards if you wanna get a mortgage. Personally, I got my mortgage completely online. My wife wasn't happy about it, so she actually went to the branch. We can do with both. I think here it's really about becoming agnostic in the way we operate and deal with the whole thing, and trying to then constantly fill the right height of the chair.
You mentioned before going from five signatures you needed to sign up for the bank to two now. The digital first process, you have a really ambitious target here, zero minutes in 2030. Are you sticking with it?
Uh, we are s-
If yes, why?
We are sticking with it because that's what the customer wants. Of course, there are some caveats. If you think about, you order a ticket on, I don't know, Amazon, whatever, Apple fills in your information, you can do that. Of course, we need to comply with regulation. Of course, this might require digital identity, which the European Union is pushing about that. If you ask the customer, "I wanna get a consumer finance," the time to yes and the time to cash should be super quick. Here we need to be ambitious. We need to not look towards our local competition, but Blaž said it's Revolut. It might be Raisin in certain other areas. It might be Trade Republic. We always need to go in that direction and stick to the ambitious targets, otherwise we're not gonna get there.
Okay. Just one sentence answer here. Efficiency here, what does that mean? Will people do more work or will people do work differently?
They will do work differently. Hedviga already mentioned a little bit about go-to-market, so it's not gonna be a one-sentence answer. If you look really closely, and we're really honest, any European bank, still most employees spend 50%, 60% of their time on value-added stuff, be it on process efficiency, be it on AI. It almost doesn't matter. We have among the highest skilled employees in the whole region. If you go to the average employee in a branch in NLB, all of them are actually real advisors. Neither Hedviga or myself actually want them to be spending their time on admin stuff. The real point for us is the more we manage to reduce the efficiency, they can actually spend more time on trying to sell and advise clients, and of course, get some efficiency out of the system.
Hedviga, just to wrap up, the key takeaways for investors, if possible, one-sentence answers.
We are a little bit behind the times.
We are well on track with the strategy 2030. We will continue growing. We will on the fly also totally transform the distribution model, and we will do it, as now, with a lot of passion. This I can promise.
We can believe you about the passion, and we are going to definitely monitor your progress closely. Thank you for now. Thank you for providing all of the insights, firsthand experiences. You are free to enjoy the rest of the event from the audience.
Thank you.
We are continuing with the deep dive. Thank you also for the applause. Well deserved, not just for this performance, but the overall performance. Keep up the good work. The chair is heated now. We are continuing with our second deep dive, which is about Corporate and Investment Banking. Andrej Lasič, Member of the Management Board responsible for CIB, please join me on stage. A round of applause for Andrej as well. Okay. An overview of the Corporate and Investment Banking here. We heard about the big picture, the macroeconomic indicators top-down view from Mario before. It was quite promising. You are following the companies quite closely bottom up. Anything to add to what we heard in the keynote?
No. Thank you, Martina, for this question. The only thing that I would like to add is thank you, Mario, to remember me that I'm the most happiest corporate banker operating in the fastest region in Europe. This I can confirm.
How should we interpret the numbers that we see on the screen? It's a EUR 500 million revenue target until 2030. It's a 4% CAGR, 8% CAGR revenue target.
Yeah, 4% CAGR was last two years. EUR 500 million is extremely ambitious. It grows from EUR 300 million in the base year 2023 to EUR 500 million. Why I strongly believe that we will achieve this growth, because this four-year 4% CAGR in last two years, you have to have in mind that in this period, interest rates dropped from 4% to 2%, and 70% of our business is on variable rates. That we manage even with negative downtrend interest rate to grow, it means that the volume, we compensate the with the volume on both sides, on interest income and on non-interest income. Now also the macroeconomists are telling us that the interest rate environment will stabilize for next years. We live on growth.
As far as I'm hearing from ECB, there will be one lift up of interest rate in next session. I strongly believe that with the planned growth plus stabilization of interest environment, we can achieve 8%, and I'm very much positive.
Okay. A little bit more detailed view. Again, the slide that sounds familiar, we use similar ones for all three segments. There is one thing that sticks out, and it was mentioned, I think, a couple of times today, but not enough for my taste, and it's the green loan and sustainability agenda. In light of everything that's going on in this region, how much is this still a business priority?
As it was said by many of my colleagues here, especially Blaž, we are really truly live in this region. We are headquarter in this region, and we truly believe that we have to improve the quality of life in this region and strongly believe that this is huge potential still in improving the lines, so all the infrastructure, from highways, railways, heating system, electricity system, and so on. Therefore, our green agenda will stay. We will continue, and I strongly believe even this infrastructure in each and every country, from Slovenia to Macedonia, it's huge untapped potential. I'm proud that in this two years' time we actually finance around EUR 1 billion, which is almost 12%, 13% of our corporate balance sheet into the green assets.
Mm-hmm. Any projects worth mentioning here?
There are really several ones. My flagship project I would mention, it was the first wind park in Kosovo who actually produce. We financed together with EBRD. It was four years ago or even five years ago. We produced 10% of green electricity in Kosovo.
Oh
Many, many, many other similar ones.
Congratulations for that. Where else is there a room for growth in CIB segment?
I believe it's Room for growth is everywhere. It was said, by Mario, I believe this is the region with the lowest indebtedness. The corporate segment has the lowest indebtedness in Europe compared to GDP. It's the room for growth everywhere. What I would mention, our infrastructure project, this region needs infrastructure much. The people deserve that, and I strongly believe that by integration towards EU, this will be a huge potential. This is one of the pillars of our strategy, so what we are calling, off balance sheet financing, so originate and distribute, but I will speak a bit later on.
Yeah. This is something we have planned anyway. This is also the story a little bit about how the bank can change, not just itself, not just the end customers, but also economies and because of that, societies. Let's look at the commitments from the strategy 2030. Again, congratulations, we see a lot of green area. What are the most significant achievements when we focus on the green, on the positive ones in the last two years?
Firstly, I'm really happy that we determined this strategy two years ago because all these KPIs, and they are very much transparent and detailed, became a Bible. We're actually discussing about them each on each monthly call with each and every bank, they are really in our hearts that we are following all the KPIs that are presenting. Of course, due to the fact that we are an investor, The most important for me, it's revenue per active clients. Obviously, we are doing something well. Obviously, the share of wallet is increasing, we are really banking with the right clients with high potential also for growth and also showing that our client base is growing. Secondly, what I would point out, which is for me the key metrics, is for sure NPS.
I'm proudly saying that NPS for NLB d.d. in Slovenia, we are on the first place. It was not Blaž described just a few hours before that where we started, 2016, 2013, we were the, yeah, edge of collapse at that time. The client recognized that. NPS in that time was negative, heavily negative. We are the bank number 1. Obviously, we are doing something right. We have, nevertheless, it's that, I put it's my focus, it's our bank focus, the client satisfaction. We are not yet on the levels that we would like to be because our ambition is to be first, second, or third bank in each and every market, and there is still some work to do.
Thank you for mentioning the NPS. It's probably the compound of many different factors, including what image, legacy in terms of image are you bringing to, in certain markets. Congratulations for your achievements in Slovenia. Let's talk about not non-net interest income. It looks a little bit like at risk. What are you doing to balance that?
Look, when we are doing this, we didn't, honestly, we didn't plan the growth you will seen last two years. The growth in the portfolio, in deposit, and in the loan side was really enormous, especially in some places. Of course, there will be a huge focus on equity-light product, but it's actually nice words for free business. I strongly believe that there will be a huge growth potential, especially where we are focusing on infrastructure deals, where we'll try to originate and then to distribute, to syndicate to some foreign banks, to some partners, to some financial institution who has some appetite towards this region. I believe, I strongly believe that this appetite exists.
Mario just presented that there is a huge inflow and of investment in the region, so there are also some financial institution without any limits currently in the region, and they would like to see the potential. Thanks to Reinhard, who just joined us, recently joined us last year from Germany. We have several meeting with German banks. Due to the political reasons that are happening around the globe, they are changing their strategy and more focusing on the Europe, not so much on overseas countries, and this could be brilliant tactic of NLB and opportunity to be this, let's say, giant bank, European giant bank who are not banking yet in the in that region, that we would become local platform.
Mm-hmm. An excellent entry point. Let's focus on the growth again. What we see here, again, loan portfolio CAGR 14%, deposit portfolio CAGR 10%. What are the most important messages related to that for the investors?
Yeah. My first story, or what I will firstly present from this slide, which has many dimension I will try to explain, is that we are really holistically approaching to the clients. If you see the growth of loan and deposit, it's almost balanced. This is for me the critical one, that we really see the clients holistically, and that we are trying to bank them, not only chipping them the cheap loans, one product. I believe this is not long-term sustainable. To combine with all and many of the other products, and this is just showing. Especially if I tell you that out of this EUR 1 billion of growth of deposit in last two years, became EUR 5 billion of deposit, 80% of that are a vista.
They are really showing that the clients, our clients, are making payments through our accounts because a vista is showing the really relationship, this is my focus. The other thing that shows this picture is how our portfolio is structured. You can see half of the picture is Slovenia, and exactly half of the EUR 8 billion corporate portfolio is located in Slovenia. 24% in Serbia, 25% in Serbia, and the rest quarter in other countries. All the countries are growing faster than the market. We are increasing the market share. Obviously, we are doing something right that we are gaining market share in each and every market.
There is an interesting piece of data that we see in Serbia, where corporate deposits outgrew the loans. What's the explanation for that?
It's relatively simple. A specific situation in Serbia, that there is will of their local Serbian central bank of dinarization. By the law, only the corporate can have, they have to have dinar deposit. The growth in the corporate segment on the dinars, it's relatively high. We are trying to get as much as possible of those deposits. Obviously, we are very much successful.
Congratulations for that. As with Hedvika before, we are going to talk about the slides that is somewhere at the intersection between the growth, the market, approach, accessibility, and also the risks. Andrej, comment the graph on the left side for us. The numbers are self-explanatory, but what are the key insights here?
This is actually the deep dive of Marija, because Marija just shows Slovenia, and I present all the other markets that we are present. What is shown, that the corporate segment, this is the corporate debt compared to GDP, and it's much, it's one of the lowest in Europe. Europe average is 34%. Only Kosovo, due to the structure of their economy, it's on that level. All the other markets are much below. This shows that the stability of corporate sector, and secondly, the future potential. It's very easy. What is even important, the least indebted country is Slovenia, with 14% corporate indebtedness compared to the GDP. Roughly EUR 10 billion out of EUR 60 billion of GDP of the country. The second one is Serbia, and our portfolio.
Also growth potential, 75% is located exactly as the in those two countries.
Let's comment the single name concentration decline from the business perspective.
This, to be honest, from all the figures that me personally, I'm mostly proud of, is exactly this one. 2020, single name. Top 50 exposures, corporate exposures of NLB Group represent 30% of total corporate exposure. Today, 2024. Nevertheless, that we grew the portfolio from EUR 2 billion, from EUR 6 billion to EUR 8 billion. I hope that you can follow those figures. That means for me that SME, because that means that SME strategy, which is one of the key pillars, is working. SME portfolio, which is diversified, is the most important we are saying backbone of the regional economy in each and every country. It's increasing, it's working, and relatively growing faster than, let's say, larger ticket, infrastructure ticket, and so on. I'm really proud of that. Behind that is the growth of SME segment.
Mm-hmm. Diversification, again, the name of the game. Andreas, I will ask you, anything to add from the risk perspective to the single name concentration decline?
For sure. Maybe first, one word or actually a few about the indebtedness of the corporate area in these economies. I mean, this coin has a little bit two sides. When Slovenia had the last financial crisis, what the companies which survived learned loan is a bad thing. They largely deleveraged. Of course, that's good in a sense of being robust against shocks. Honestly speaking, luckily, a little crisis came at the right time. Otherwise, at one point of time, you are under-invested. You are lagging behind others, right? The this really is not something which I just see as positive. Of course, given where we are living in the last couple of years, COVID, and then all what we saw now, Ukraine now Iran.
Of course, you know, on these kind of disruptions, on these kind of, well, little crises here and there, it's a very strong point actually. It hit actually the Slovenia economy at an extremely favorable point of time for them, right? Of course, I mean, what it tells you in general, I mean, the other countries outside Slovenia and Serbia simply historically come from a point where there was a limited potential to take loans. This gives us now in all the markets the opportunity actually to catch up and honestly to support our corporate clients really to be on spot and to really follow developments to be proactive here and to, you know, succeed also in future.
On your original question, of course, as a CRO, I'm very happy about this trend that the concentration is reducing. Definitely, I fully agree with Andrej that our focus is SME more and more. I mean, it's good to see that you really see this also just simply in numbers. If you ask me on average, this is the more stable and less volatile business. I think on the next slide you will anyhow see. Corporate still has some volatility. To keep this volatility in check, of course, moving towards less of a concentration is the best thing we can do. Happy about that.
Let's focus a little bit, just briefly on the sectors that we see on this slide, where manufacturing, construction. These that represent quite a large portion in your portfolio are obviously under a little bit of pressure right now. What's your take on that from, as a risk officer?
I mean, first of all, the message on this slide, I think the main message is, we are copy of the region. When you invest in us, you're investing in this region. I think this you see very well from this slide. We are very much represented to the percentages in the industries where they are presented in the country, and I think that's a first good message. On manufacturing, I have to say so far what we see is not really a general pressure so that the industry would be under pressure, but we see very specific stories. Honestly speaking, what we saw in the last one, two years was actually sometimes surprisingly robustness of that area, given circumstances.
Where we see problems, you will see it once again on the next slide, I guess. Where we see problems, these are very specific stories. Either companies have a bad luck that things hit them in a bad time, that can happen, or, honestly speaking, more dramatic, companies which for years didn't do their homework, right? This is always a problem. In more turbulent times, you see this more.
I would say.
Yeah
Well, we see already.
Yeah.
The next slide. I wouldn't see a sensitivity overall here. At least we cannot observe that yet in our portfolio. It's really specific stories.
Just to double-click on what you said before, the non-performing loans in SME, wonderful achievement. Much better than what we see as an EU average. What's your forecast? How are you making sure? What gives you confidence that this will stabilize in the future?
As you can see, the trend here is very, very good. Of course, I have to say originally coming generally in the corporate area from far less good figures than European average, right? In the meanwhile, in SME, you see we are better. If you ask me, that's a lot of constant work and improvement. Of course, historically speaking, corporate business is much more expert-based in a sense that, you know, risk experts are working on cases. We are more and more trying also to get this model-based and to get this, you know, with less involvement on single cases of risk. In that sense, if you want also more automatized.
We are pushing these limits up and up. What you can see in reality is that it even brings the better results, right? A logically set up system or model is doing on average less mistakes than even the best expert, right? This you see very clearly with SME. Here, the trend, as you can see, is actually continuing. On the corporate side, so the bigger corporates, you see the very funny jump at the end. If you would see two more years, we just didn't want to do that because all our other figures are going from that year on. In SME you wouldn't see dramas. In corporate you would see we came from solid double-digit NPL rates, right?
Here, a lot of good and hard work has been done. On the one side, of course, from the colleagues from corporate, but I also have to say from our restructuring and workout teams as well. Now what we saw last year here really is three, four major corporate cases in Slovenia only. For Slovenia, on the corporate side from the risk side, last year was not a good year. These are all very specific stories. I'm working on these bigger cases by myself, so I could tell you much more, but I can't.
Yeah.
Uh, so, um-
Maybe during the lunch.
I can't. Is this a trend? Do we see the stick going up again? It's not a trend. These are very single isolated cases. We are not a huge group, so you still see such cases.
Honestly speaking, on these concrete cases, for two of them we saw very positive developments so far in this year. For one, neutral developments in a sense that we knew last year is still similar. Even these cases seem to go in a good direction. Again, it's not a trend. Of course, these big corporates, they are, A, still really expert-based, so, you know, risk experts are working on that. This is not yet, you know, just a model. You push a button and you get a result. These are more complex cases. If you ask me, in our region where we are working, it's complementary. You cannot do retail without corporate. You cannot do corporate without retail, right?
It's Even so, you see here a bigger volatility, and we will see bigger volatility here in future, simply because they are big. We are not so big. If you have a few cases, you feel that. But we also really very much need that segment, because it's just complementary for thever whatever else we are doing.
Mm-hmm. Mm-hmm. Good luck with managing those cases. Obviously, you have a lot of transparency into them. These numbers are telling Very briefly, Andrej, we're running a little bit out of time. What happens if the rates change? There is some debate about that in the space.
If rate change, there will be for sure at least, if they will change normally, so not aggressively uplift. There will cause the risk on the corporate side for repayment, will just mean positively for our income evolution.
These are the key initiatives that you are focusing on. We already talked a little bit about the being a buffer between German banks who don't have the origination here, helping them. There is a lot about investment banking that we will hear afterwards from Luka, because we have a full 15 minutes on NLB Funds. What is the underlying proposition here to make this initiative successful?
I would mention briefly, because we are really out of time, as I see. All these three initiatives, we are market leader in trade finance in Slovenia. We are market leader in investment banking in Slovenia. We are structuring, I would say, 70%-90% of these syndicated bonds, corporate bonds in Slovenia. The plan is really to copy-paste all this activity on the rest of the market where we are present, where this investment banking or trade finance activity are not yet developed. With the integration, I'm sure that those two components will increase in each of every market, and also the fee business. That's why I strongly believe that fee business will increase because we'll accelerate all these activities in the market, especially Serbia, Macedonia, and so on.
Third thing that I strongly believe, and also both macroeconomists that were presenting, were saying that region needs and has huge potential for investments. Infrastructure investments, we have all the figures for Slovenia, Serbia, each and every country. I can tell you, Slovenia is planning, in infrastructure, from railways, ports, electricity, roughly EUR 15 billion of investment in next five years. Serbia figure is EUR 30 billion. For sure we cannot finance that. There are bigger investment at our balance sheet. For sure, we will try to structure these deals. We'll try to help the governments, the local, the local or power government companies and bring the money from abroad. That's why the key word then, originate and distribute.
We'll try really to platform this bank, who are the leading bank in each and every country, to bring the needed financials in the region. The major problem currently that I see is really political will and the will of decision-making bodies to start to invest in the renovation of all kind of infrastructure that I would not repeat.
For the Slovenian colleagues, this is self-explanatory. Thank you, Andrej. All of those things are succeeding because you have such a strong relationship, meaning this bank is not talking to a corporate partner, but there is an employee talking to an employee at the corporate partner. Of course, platforms are needed here. Andrej has talked about that. Small, medium enterprises, the need for digitalization is here as well. Compared to retail, is this harder or easier to tackle?
I will argue it's harder, but it's also easier. Why is it harder? I'm gonna make the story of convergence again. Every single corporate customer is also a retail customer. They use their NLB Klik app in our case hopefully. They may use Apple Pay. They may use NLB Pay. Why doesn't it work as easy for your legal entity? Well, the answer's often regulatory driven. Often it's also more complicated because you have different employees accessing different things. That's why you're seeing here a lot of stuff is when we talk about how can we make digital onboarding for a legal entity as smooth. How can we make the web app as smooth? How can we get a loan origination also as quick as possible? In a sense it's a little bit easier because you're at least in some cases dealing with really professional counterparties.
In some cases you're also dealing with someone who thinks, may actually even act like a private individual. That's why it's actually so important that for a lot of those things we have in the back end joint teams between retail and the corporate side actually making sure that we're really targeting at this intersection of this SME and micro business where, to be honest, none of our international competitors actually ever wanna go, which makes it super interesting for us.
Lots of work that you have put on yourself in terms of transforming, digitizing, the bank. Let's talk about the process efficiency first. We started this discussion in retail. You have very aggressive targets here. What are the key steps to achieve them?
Don't get ahead of yourself and work through them. There is no silver bullet here. It's always the simple steps about make sure the process is actually as simple as possible, and you don't start with the most complex product. There is this old joke in MVP is not a maximum viable product. It also needs to be viable, by the way. A lot of the stuff is actually process optimization supported by technology. Sometimes the technology is very fancy. We're talking about loan origination platform, which we are upgrading throughout the bank at the moment. Sometimes it's AI-assisted. We come later to a couple of examples where, for instance, the credit process- we're starting to roll out AI at scale. Lastly, again, it's listening to the customer.
Very, very often, this is a little bit more tricky with legal entities, the customer you think you're talking to, the CEO, might actually not be the user. The user might be sitting in the finance department and has many other problems. If you look across the different areas here, Andrej mentioned, for instance, trade finance. Trade finance is not typically the CEO decision. It's actually the decision of someone who sits in finance. Again, here trying to also, to be honest, pull out my people in IT, can we somehow get you to think that way and not just describe something which a code is a tough business. The final point of course here again where I say it's actually a lot easier because we can again follow best practice from other markets. Here it's not even so much Europe.
I mean, I personally like to look much, much more to Southeast Asia in to that respect. We've actually looked into South Africa quite a bit. Part of the job, I was lucky enough to work for a South African bank for a couple of years. If you look how much they have leapfrogged because the market is very different and they need to be hyper-efficient, there is a lot of stuff where we can also say we apply it here locally, but in a sense that it works.
With the process efficiency, obviously you have a clean slate because currently in lending STP you are at zero. Similar question to the one I gave you before. It's a clean slate. Is that making your job easier or harder?
I will this time say it's actually making it easier, so it's a simple yes. Why? We can actually not start with legacy. I mean, we're in the middle of redesigning when we're getting closer in many respects of our legal entity loan origination process. It's a lot easier if you actually start with a simpler customer, not with the most complex. Our existing process tries to cover everything you can even think of. Start with that one. Use really a best practice European player to help as an external vendor which isn't from the region. Supplement it with local knowledge, with local expertise, making sure it works on local context. I think the other element I said here earlier, however, also still applies. We do have the advantage of the parameters in the contact center.
We do have the advantage that our process are made for the region. If you go to some of the European fintechs, well, Slovenia or Serbia are always gonna be 2% of their market, of their total revenues. They will never make sure it's as adapted to what we're doing here. Yes, it's aggressive. To be honest, actually the customers want that, and they want to have the option. Whether then they decide to go to the branch or contact center, it's almost up to them, or the relationship manager.
Giving them the flexibility is what you want to achieve at the end of the day. Thank you, Reinhard, for now. To wrap up, Andrej, a two-word answer. Next time it's gonna be a two-letter answer, two sentences, two words, now a two-word answer. What's the main takeaway for investors based on our discussion that we just had about CIB?
As we see macroeconomics, as we know the region, obviously currently we are doing something right because the penetration of this bank towards all the products, all the client base, large, SME, micro, retail, we will achieve the strategy. This is firstly. One word, prudent growth. Nothing else.
Mm-hmm. Yeah. Good luck with that. May the opportunities and infrastructural projects be on your side. Thank you, Andrej. Also, thank you, Andreas, for bringing the risk perspective into the discussion that was primarily about growth. Both of you are done for now. You can enjoy the rest of the show from the audience. Thank you, the audience, for the applause as well. We are changing the gears slightly. We are going to talk about payments next. Antonio, please join me on stage. A round of applause for Antonio as well. We have to be fair.
Can I stand up?
Yes, you can stand, of course. You can stand.
Good.
Thanks for asking. We have the presentation already. Before we move on, just a small disclaimer. As well as Hedviga, as well as Andrej, they were both referring to some of the numbers, and what you see here is embedded in the performance of retail and CIB. The numbers that we show you here are here for transparency and precision. They do not add up to the retail and CIB. With that disclaimer, let's start talking business, Antonio. We have three KPIs here related to payments. In what way are they significant for our discussion today? What kind of headline do they provide?
Thank you, Martina. Good day everyone. Please be patient between us and the lunch break. Andrej said something. He said, "You cannot do retail without corporate, and you cannot do corporate without retail." I would add, you cannot connect with the clients without payments.
Full circle. Good headline. Good headline.
These three numbers, I mean, again, around 17% actually of the total net fees and commission income are coming from the payments and accounts business. When I say payments, it's payments, cards, acquiring, and cash, so all together, just to understand. The second one is showing the progress that we did, and it's one of the progresses. Around 80% improving net non-interest income in the issuing part, working both on the value chain optimization, but also in profitable growth of the issuing business. We are proud of being one of the biggest merchant franchise here in our region, representing 20,000 merchant working with us on the merchant acquiring business.
Antonio, just bring the microphone.
Yes
A bit close so we can hear your wonderful voice. Good. The full picture of payments and the contribution to the bank. They are about the income, as we see here, but they also go beyond the income. What are they contributing to the NLB's group's performance?
Yes, the income is very important. Now I think I'm loud.
Everybody hears you loud and clear.
What this slide shows that actually it shows that our target is ambitious but achievable because the last year growth is around 7%. The cover for 2025, 2030 is around 6%. Nevertheless, there are headwinds coming from the regulator, from the fintechs, pushing on the prices down. We are firmly positioned and believe that we will achieve our target for the net fees. As I said, you cannot connect with the clients without payments. Beside the fee, what payments are bringing to our business is the connectivity with clients.
More our clients are using on a daily basis our payment services and our account services, the more they are sticky with us, the more they are loyal to us, the less they will think about going or changing to someone else. The second thing, it is very important, Nick, is the a vista deposit. The more they use their payment services, the more they are satisfied with the user experience of our payment services, security of payment services, the more they will decide that we are their primary bank, that the salary of their is with us, that the main turnover of corporate companies are with us, and with this improving and contributing to the a vista deposit, but also to the whole deposit base, which is without deposit you cannot grow in the banking.
It's a lot about stability. It's also a lot about customer stickiness that is happening here. We heard before two keynotes. One was about banking system, the other one was about macroeconomic indicators. This region is very specific. In what way can you contribute to the societal impact here precisely because of the role the payments plays in the relationship between the bank and the customers?
Actually, one of the reasons why we position payments as a separate, let's say, shadow business is about the net fees and commission. It's about the impact that brings to our operations, but it is about also the impact on the society. As Andrej mentioned Blaž Brodnjak at the beginning, we really believe in our mission that we want to contribute to the wellbeing of this region. I strongly believe, and there is a proof, that with the digitization of payments, we contribute to the digital literacy, financial literacy of our clients, but also we contribute to decreasing of the gray economy in our region, which is one of the biggest problem, followed by the corruption that is coming from the gray economy.
This is our mission. This is our legacy that we try to address with the payment services.
Good luck with that. It's a really important role you play. I'm sure that everyone who is doing business in this region, and also the normal citizens would agree. Let's take a look at the key commitments. Congratulations. Again, a lot of green areas here. Excellent achievements. Which are most significant for you and for our discussion today?
I mean, hard to choose. Being on track with KPIs is very important. It is important about credibility, but it's also important about challenging our assumptions, challenging our way of working, challenging our, let's say, even challenging some of our plans for the future. If I am pushed to choose one of them, I would say cash transactions in branches. Why I would use this one? Because it tackles the mindset change. It addresses the changes of habits of our clients, but it also addresses the changes of the mindset and habits of our employees in the branches. We made a tremendous progress here, so together payments in retail, with adding new services, quality of services, new way of dealing with cash, working on the mindset change, implementing a lot of KPIs for the retail colleagues.
Actually, you can see very, very good progress. Two countries, Slovenia and Kosovo, are already around 5%, which is very good proof. It is proof that can be done in, let's say, developed country like Slovenia, but it can be done also in the cash-heavy society as Kosovo. This also bring us, how to say, surety that we can do everywhere.
There's one area that is in focus, NLB Pay mobile wallet rating. How are you making sure that?
I will combine actually these two, NLB Pay mobile wallet and tokenized card transaction.
Tokenized card transaction.
Yes
Is also interesting with extremely high growth and still
Why I would focus on this, again, coming to our region, because if there is one KPI that it goes with the saying for our region, where only seeing is believing, is the one related to tokenized card transaction. When we started changing the platform of our NLB Pay, we were at around 1.5%. We introduce Google Pay, we brought up Google Pay in the countries where it was not present. We brought Apple Pay. We brought it into the countries where it was not present last July. Macedonia, Kosovo, Bosnia, and also Slovenia, actually. We were the one pushing Apple to open these markets, and we're really proud of. Suddenly, in some countries, even in 1 month, from 0 to 6% share of the tokenized card transaction in all card transactions. Already on a group level, we are around 20%.
Slovenia is already at 28%. Again, about our region, as Reinker said previously, we are not different. If we bring to our clients good services with good user experience, they will adopt. This is linked with the NLB Pay mobile wallet penetration, we have to understand the numbers that we are seeing here. Focus is there. We want to be above 4.5. We have to understand that the baseline 4.5 was only Google Play Store, which was because only one bank was on Apple. Today, we have in all banks Apple, Google, even Garmin Pay, and this number is combination of both. Again, our ambition is to be above 4.5 on both source.
Good luck. Still a little bit of work to do. Let's move on. Here you will see some familiar names. One is the SEPA lady. We will come to that later. Let's talk about the cash dominance. How does that matter for the growth of payments as a segment in NLB's business?
I mean, we already mentioned even previously, this just shows the potential that is still ahead of us. This just shows that our strategy for tackling the cash transformation is still important for us, and it represents big potential. Even Slovenia today, last available data, 64% of POS transactions are done in cash. In other countries, even more. I see this number as big potential for us.
Excellent, NLB's mode, market shares. It's a good starting point. How long can you hold the advantage of being present in all of these markets, the only banking group that is present covering all of these markets? How much can you hold this advantage, and how long can you hold this advantage, and how will you do it?
Yes, we are well-positioned on all of these markets, as we heard previously, not to repeat the positions. How long? It depends on us.
If we continue bringing innovative services to our clients, secure services to our clients, if we change the relationship with our clients, then we can. We can hold this position.
We mentioned one name. It's Revolut. Unfortunately, somehow I tried to avoid, but somehow I have to use it. If in Slovenia we are competing with Revolut and there is a, let's say, defense strategy that we are applying, closing the gaps, et cetera, what I believe is that for our region, we can be the rest of the countries. We can be the Revolut of the region, and this is the aim that we are pursuing.
Excellent. We heard the name SEPA lady before from Emir, if you remember. How much is this framework a game-changer for your growth?
First of all, it is a great, a game-changer for clients, as it was said. SEPA is bringing faster and cheaper transfers, especially for international payments right away. We embrace SEPA. Our four banks are already from two days ago, four banks are already on SEPA, so North Macedonia, Montenegro, Slovenia, anyhow, and Serbia from two days ago. Even Central Bank of North Macedonia we've supported as a sponsor. We are supporter. Why? On the short term, it is decreasing fees from our international payments, but we believe that we can address the bigger potential that is there with SEPA rails. For example, one example, EUR 10 billion of remittances in our region.
Majority of them were coming not through the banking rails because of the slow, because of the price, because of everything. SEPA can be one of the ways how we can address this potential.
Here again, some interesting numbers. Let's start with the average value spent per card. I don't know how much I am contributing to this picture, I hope not too much, but how much you are contributing to this picture with the things that you can do.
You are at about 45.
Okay. Thank you. I'll take it as a compliment still.
Yes.
I mean, what is this result of?
It's a combination of several things. For sure, general trend of increasing of digital payments contributes. For sure, inflation contributes, but again, inflation in last two years, per year was around 2.7%-3.5% in different markets actually, on average in the countries where we are present. We see growth here much bigger than that one.
It's, again, about the bringing new services, increasing the awareness of our clients and our staff, KPIs, pricing policies. These were the things that brought us here.
Increase 30% in just two years.
Yeah. This is something that I wanted to hear. It's not just my fault.
It's not just your fault.
It's the things that you are doing as well. In terms of further growth, where do you see the most space in terms of services and also the markets?
For sure there is a growth in new customer acquisition. This is very important. As you saw in retail and corporate, we are focusing on the digital onboarding, addressing new clients, et cetera. There is potential here. We have enormous potential still within our client base. This is very important to understand for, especially for the investors. Why? Actually, it is not because we are better or worse than the others, but the product penetration, especially in card business, is still low in this region in general. It is not us, but it is our region. Here we understand this potential, and we are focusing on this potential. We develop policies. We are introducing new products, value-added services on the products. We are introducing premium cards for our affluent segment for private and for premium segment.
With this we are pushing clients to use this card services. At the same time, we are working on increasing the product penetration within the client base, both on legal entities and private individuals. With that, the private individuals, there is much more potential in credit card. For the legal entities, the potential is in both debit and credit card.
Merchant acquiring, what's the value proposition? What are the reasons that as a merchant, I would work with NLB and not some other banks?
I mean.
Especially in a very cash heavy region.
Merchant acquiring business is one of the area of the banking actually, which is under biggest distress, like the biggest disruption. The whole model, business model is disrupted. The value services that we are offering, the products, the partnership, the pricing policies, the distribution model, everything is under distress. Being one of the biggest merchant acquiring franchise in this region, 20,000 clients, we feel this change. Because we feel this change, we act. We try to partner with the local providers of the electronic cash register to partner with the local municipalities.
To bring new services to our, to our POS. We work and invested in modernizing our POS fleet, digital tips, smart POS for taxis, for small retailers, for open market retailers, et cetera, et cetera. We also address the transit business here, and it's again connected with the cash transition and cash transition potential within our region. I will use now example of Sarajevo, where actually we were first and still the only one that we enabled taxi payment with card, just for the investors coming from the abroad.
Just a heads up.
to understand where we are and how big this potential is. First, that we enabled parking payment with cards. First, with that we enabled distribution upon e-commerce payments with cards. The same thing in Banja Luka. This is where we are at the moment, and that's why the potential is very big.
Clients are also understanding this.
Changes and they are, how to say, appreciating.
I will use one more example here. It is one client's small medium merchant from Slovenia, good bar restaurant, who started to use integrated payment services with the electronic cashier and with the bar menu. Ask him why. He said, "I was very skeptical at the beginning, but now I'm pushing cards and digital payments." I say, "Why?" From 30% to 70% increase of share of these payments in his turnover. He said, "It brought a lot of benefits for my company, for my clients, and for my employees." I said, "How?" First, because of bigger card turnover, the total turnover of the bar increased. We all know why. Not to go deep. Please continue. Second, because of the integrated solution, clients were more satisfied because of the speed of ordering a payment increased.
Waiters were more satisfied because they didn't have the loopholes going for ordering payment, coming back. Waiters were also satisfied more because of the digital tips. With introducing digital tips, the tips increased for 5x in five years. In the end, he said, "I have less fluctuation of my staff because there is a much bigger portion of tips to be shared among them." I just use this example to understand that these changes are really bringing values to our clients, also bringing to values to our society because as digital payments are, the more transparent the economy is. We all know that bars usually wants much more cash. This one, no, anymore.
As it is very hard to find the staff for hospitality business, obviously a very strong argument. Let's just wrap up this discussion briefly. Cash is here to stay, obviously, we talked about the SEPA lady. It can be a beauty, as you said before. It can also be a beast. How are you managing the cash in a profitable and effective way?
Cash is here and will stay, as you said. Even in our projection about the cash volume, cash turnover, not share of cash in all transactions, but cash turnover, we predict 1% CAGR in next year on a yearly basis. Cash is here and cash will stay. That's why we are working on introducing new business models with our retailers, which will decrease not just a risk, decrease the operational risk, but can increase also the revenues and again, sticking of our clients. We are working on the solution where the instantaneous cash deposit on their accounts will be improving their cash management possibility, but also having money into the bank much faster, much sooner, and allowing us to use this money.
For the retail, especially for the branch, we are investing in ATM and CDMs solutions. Actually, one big change that we did and we are implementing currently is, one, we are aiming for one single ATM software platform, which will allow us, first of all, to have a multi-vendor procurements, but also in the same time to have development at one place at once for all the markets. This will improve, first of all, user experience because the services which will be available immediately at all markets, but also will decrease prices and investments for development.
Following the customers whatever type of service they prefer. Let's do a wrap-up of the payments part. client stickiness, you talked about a lot of technological initiatives. To what extent is loyalty a matter of technology in payments, and to what extent it is about really the relationship between two people?
We are firm believer in loyalty, when we say loyalty, it is not about only gifts, benefits, awards, perks or whatever. Predominantly it is about the relationship with our clients, which through the leveraging of data, leveraging on digital platform can be done much smarter. It is important that we are, as Blaž Brodnjak is always saying, with the right solution, at the right place, with the right product. Also, it is important that we are there when the things are wrong, our call centers, our products to be safe, and et cetera, et cetera. Loyalty is one of the most important part of our business. Actually, the banking business is business of trust and loyalty in general. We will try next period with the new platform to address this potential. This initiative is a strategic bet.
It's one of the most innovative initiatives related to the customer interaction. That's why outcomes can be different. That's why we are pursuing with the high energy. At this time, I will say stay tuned for more.
More. Another trailer. Make sure you come to our next event, whatever it will be called, in about two years, and ask Antonio Argir for more. Thank you, Antonio Argir. A round of applause. Your job is done for now. Enjoy the rest of the show. We are going to switch topics and talk about technology now. Reinhard Höll, the initial question for you: you were heavily involved with the preparation of the strategy on the side of the consulting company. Now you are watching its execution from the inside. What are the key lessons learned here?
First of all, the strategy was two years ago spot on. I will say two years ago I didn't know how geopolitics is going to play out. We heard that a couple of times. If you listen to us today, I mean, it's really about a story of convergence. Our strategy boils down to digital first, find the right customer interface, find the right way to deal with, talk and deal and interact with the customer, and have the platform behind it. It's also about the convergence, and I just want to give three personal examples. The first one, apart from the taxi example Antonio just mentioned, I now see Slovenia almost as an adopted home country. I've not used cash a single time. If I look at the penetration and how much we can do with that one, lots of upside.
The second thing is I think probably half of you are gonna be on the flight to Frankfurt. You see when you pass into Austria, into Germany, lots and lots and lots of more wind turbines and even more solar energy. You actually have more sun and more wind down here. Again, illustrating the amount of growth coming for me. If you think about all the things behind it, and we heard about mortgages, we heard about consumer finance. That story of convergence is something which is gonna drive our strategy for the next 5-10 years. What is different, and what I will fully admit, that we always underestimated the need for focus and doing it step by step.
There is sadly here no silver bullet, when I talk about technology I always talk about nitty-gritty stuff and doing it the next one, the next one, the next one. Here as an institution, of course the main challenge was that across seven markets, how do we get the scale of the size we have despite having to adapt to all the local markets we have here?
A lot of in between centralized and local approaches, again, given the diversity of these markets. We talked about some things, about the digital first processes, to some extent in the retail and the CIB deep dive. Also we mentioned, we saw some platform or new platform or re-platform when we talked about CIB. Anything to add here relating to digital first processes?
I think it's of course we talked mostly about the customer focus areas, it goes across everything. We have all the buzzwords you expect on here. We talk about RPAs, we talk about AI, we talk about the prism subs. Sometimes it's something as simple where I can say we're working on optimizing our reporting. Sounds boring, is actually quite important to be a nimble organization. When we're talking about RPAs, it's about automating and actually making sure that the people work on the right stuff. I think one advantage I would just point out here where our federated model is really helping, we can always test out stuff more easier. There's a wonderful number of the 120 RPAs on here. We actually here in Sarajevo have a little bit of a competence center on RPAs at the moment.
We're testing it and then trying to also employ them in other areas and operations. The point here is of course we need to get structured and we need to have a very structured approach when we test something out to roll it across the different markets, but we are thankfully small enough that we can actually see it and doesn't need to be something coming out of headquarters and then do it whatever will come.
Global rollouts simply don't look the same in a bank of this size. AI is something we can't avoid when it comes to technology. Any use cases that are success stories for you?
I would highlight, well, actually quite a few, but actually really it at the moment boils down to two. One is, you will see here the numbers, that we have 100% penetration of employees actually using AI, be it Copilot, be it ChatGPT, be it Claude, be it other things. At the moment 80% of our code is actually now created in an AI-assisted way. You see this wonderful number here on the left, three times X in terms of large scale IT deployment. This is all the stuff I talked about earlier, be it the app, be it the loan origination, be it stuff we're doing on core. The only reason we have been able to do that is by using those tools much, much more effectively and actually increasing productivity quite a bit.
The second thing I wanna say is down here when we say AML and retail credit risk and chatbot. I actually wanna here highlight retail credit risk. Andreas has mentioned this a little bit earlier. If you look at the standardized consumer finance or even a mortgage, we are trying to have this as automated as possible. We are already employing here AI to actually make that work. I will say of course, and this is always a little bit the caveat, AI is not easy in banking. We're a regulated industry. We need to be careful about stuff like GDPR, customer data, and that we are consistent, that we have regulatory proof points. I think here for us is striking the right balance.
We are fully committed to getting the benefits of AI, we also need to make sure that we don't experiment on the wrong areas. At the moment it's of course focused internally. The biggest thing for me in the near future, however, is actually if you think something else. We're in a region with many different languages. Is there any reason why if you're in Slovenia you can't actually talk to a customer in English, German or Italian, or if you're in Macedonia you can provide services in Greek or in Kosovo and Turkish? I think here the applications are multitude. We have a very clear roadmaps on how to deal with that one, this is definitely the area where in two years it's gonna look different than today.
This is one of the perks of having many small markets. No matter how rooted you are in them, there's still a layer of complexity that needs to be managed.
Go for this.
You're talking about one architecture. How much is this a tech issue, and how much is this a people and culture transformation issue?
I would say it's 70% cultural governance and people, and 30% technology. To give an example, if you wanna run Had we mentioned a CRM, customer relationship management, earlier. To do this consistently across a group and leave in sufficient amount of degrees of freedom is actually not that straightforward. We're talking about consumer finance Slovenia versus Serbia versus Macedonia, of course we are aiming to having a consistent way we talk to the customer and the way we steer our colleagues because we have a group function behind it. On the flip side, the local market conditions might be slightly different. There's also the question, how do you allocate resources? There's the point here about having one common architecture. It's in our region not completely 100% possible. There's regulation. There might be slightly different connectivity from payments.
The point is, we are in a situation where we need to steer the resources to the most effective ways, and we have put a heavy focus on updating our process and then actually getting more bang for the buck. Actually then achieving this one for all the people, not just to think about, okay, I'm based in Slovenia, but I suddenly have a group function. I'm based in group payments. It's to a large extent in Macedonia. I need to think about Slovenia. All those kind of things is something where we're working heavily on. If you look at the team, we are becoming much more intermingled the way we deal with the whole thing. It's definitely a journey. One way I would also say it's actually I'm super excited about the outcome of that.
I will also say we are in the middle of this transition.
It's one of the things that is probably the most difficult to measure and see the outcomes. Technical debt, you lowered it in a significant way. Can you get it down to zero? Is that a realistic expectation?
I don't think in a bank you will ever be able to get it down to zero.
If you actually look into the numbers, and we've put a heavy focus on actually tracking it more and making sure it works in a consistent way, we estimate at the moment, you heard me earlier, that the efficiency of us in the IT development has probably gone up by a factor of 2. I personally think we can get it up another factor of three in the next five years.
Why? Because of AI, because of more consistent systems, and because of a more group approach. There are always limits. There might be a local system for regulatory reasons we need to have. Sometimes I will always also say, well, if there's a business case to just let it run two more years.
Let's have that discussion. There's also the element in here occasionally we do may want to run something which is slightly different for actually business continuity reasons. At the moment, in this, in this world we're in and in the environment, I'm very happy to say, well, even in the worst case, we can always fall back into our branches and keep the business running. That's a big advantage we just need to keep in mind. We will continue to find the right balance. The goal is, of course, continue to get it as much towards cloud. We're aiming at a 60% cloud penetration. We're aiming to have a best practice IT stack, and we're again benchmarking ourself against fintechs, not against traditional banks. Always some exceptions will apply.
Remaining comfortable with a little bit of it. We are talking about experience. We heard that many times today in retail, in CIB. Best-in-class digital experience is one of the commitments that we see here. How ready are non-Slovenia markets for it according to your observation now a year and a half?
I think they are and they ain't. Why do I say they are? Because in many respects we are already in a European market. Revolut was mentioned a number of times. If you look at the numbers of Revolut users across the region, they are high. You can go Trade Republic, you can go others. If you look at Amazon, if you look at retail experiences, the digital engagement, the digital phone penetration is almost identical across all of them. There is the point that habits, of course, last for a while, and they are always sometimes trigger event. Corona for many of us was one of them. The customers are clearly clamoring for that.
If you actually read the feedback we're getting in some of the markets where we may have rolled out a digital banking app a year later, the feedbacks are almost identical about what we're fixing, what we're not fixing.
I would also say the final point, not to underestimate it, in most of the markets, Slovenia being a little bit of the exception, you very often have a huge diaspora. Meaning if you look, Bosnia and Kosovo for instance, lots of people may have relatives or even work in Germany, Austria. If you look in Serbia, lots of people also work in other countries. The consumer in this market is someone who's clearly European and actually expects European services.
One more discussion point here. Group effectiveness, strategic vendor management, operational efficiency, and NLB DigIT. 60% headcount, 11 entities, six countries. This is a story a little bit about the war for talent.
It-
How are you winning it in comparison to fintechs but also other tech players that are very attractive employers and especially considering the brain drain in the region?
We're fighting it. I would be careful to say we're always winning it because this is a very, very fast-changing market. The way we are set up is actually that of course every entity has their own technology staff. Important, not just in IT, often also embedded in the business. We've done a couple of very strategic decisions over the last couple of years which we are continuing to scale up. One is Digit. Digit is our technology provider out of Belgrade. Our CEO Mina is also here if you wanna speak to her at lunch. Where we made a very deliberate choice, okay, Serbia actually has the biggest local IT market. Let's tap into that. We also made the choice, well, let's actually not put that into our local bank.
Let's put that into a separate company because there are some people who actually prefer not working for a bank in the technology space. Let's acknowledge that. The second thing is, of course, being a stable employer and actually offering a lot of You saw from Blaž earlier, being a top 100 employer in Slovenia for many, many years running is quite attractive. I think the last element, when I first joined, I made a statement internally saying, "I want NLB to be a cool place to work for." I will admit we're probably not quite there, we've gotten a lot cooler in the last five years. We're building some really amazing stuff which actually gets into the hand of everyone in the region.
The way Antonio talks about you can now pay with card here, you have Apple Pay, you have NLB Pay and all the things around it, that's something which is actually pretty amazing compared to some of the other developments out there. I think the final point I will say, and this is what really keeps me on my toes, is are we completely there about leveraging the region? I mentioned Kosovo and fraud centers, for instance, earlier.
Well, I think we might be able to do more. We have actually quite a big community in Macedonia. Don't underestimate also the power of someone working in London. I mean, it was mentioned today by the Vice Governor. The quality of life in the region is pretty amazing. I've lived in London for a couple of years. London is amazing city, but for some people it might be advantageous not to have to use the subway every morning for an hour and a half.
Let's wrap this up with a little bit atypical question for a technology officer, but probably very typical for a transformation officer. What is your number one hope and dream for the transformation of this bank for the future? Of course, there are priorities here. We could spend a lot of time going through each and every one of them. What's this not keeping you awake, but what's the dream that you have for this bank as the transformation officer?
There's an official and there's a personal answer. The official answer is for me that we stay every step on the way focused on the customer and deliver targeted and focused against the plan, and I think we're absolutely in the right way. The personal answer will be when I first joined NLB, and it still happens in my friends in Germany. NLB is actually recognized as a European leader. I can clearly see us in a couple of years when Blaž will be standing up here and we're not talking about 50, we're talking about a target of maybe even more than that, a lot more than that. It's always amazing how many of my friends have now bought NLB shares. I will say that.
This isn't thing as I would like to see that happening from people who I don't know personally, but who actually say, "Well, this is actually a pretty cool investment and it's a story which we can follow up on.
Okay. May your dreams come true. Thank you, Reinhard. He deserves a big applause because he was the active listener for most of the time. Thank you for all of your insights. I had to make some tough choices during those deep dives. I could have made this discussion shorter. I didn't on purpose because I felt there was still a lot of value created in all of the insights that our speakers brought. Thank you very much. We provided some food for thought, and I know you are just in being anxious about having lunch. We provided food for thought, but no brain can function without real energy being produced by calories. I'm inviting you to lunch. It is served right outside. Enjoy it. Probably some questions you can ask already in the lunch, in the informal discussions you will have.
The hostesses will bring you back in about 45 minutes. Bon appétit and thanks for patience.
[Break]
We are back. Most of us are back. Welcome back from lunch. I hope you enjoyed it. I know you are now full of energy pun intended, and ready for more. Before we talk more details about ancillary business of NLB, let's reflect a little bit backwards and think about all of the information and insights you gathered at this event. Yes, there was a lot of content. I want you to think, what was the main aha moment for you personally? What happened throughout the day that made you say, "Hmm, aha." Probably every one of you has a different answer to this question.
For me, the main aha was how different the reality looks if you take the time and energy to listen to the experts and insiders, rather than picking up on the signals isolated and superficial that we are bombarded with every day through media and especially social media. That's exactly why we're here for. To provide the forum for discussion, to equip you with information so at the end of the day, you can make more informed, better informed decisions. We are going to continue with the deep dive. As I said, we are going to ancillary business of NLB. The first topic we have is NLB Lease & Go. This is the most recent addition to NLB Group, yet a really important one, as you will hear in the next minutes.
This is the time where I am inviting Marko Jerić, the CEO of NLB Lease&Go, to the stage. A round of applause. My clicker is also here. Marko.
Hello.
Hello. We already see the first slides. Before we start commenting on it, a quick introduction. It sounds like business as usual, but maybe it's not for all of us. What's the biggest difference between a leasing company and a bank?
Thank you, Martina. Since most of you are out of lunch, I guess, usually when you're out of lunch, you're craving for a cup of coffee, I guess. Let me use that cup of coffee as an analogy, as an example. If you walk into a, let's say, an average bank, ask for a cup of coffee, probably at least an old-style bank, the clerk will ask you 12 questions. Some of those being milk type, temperature, origin of the coffee, KYC, you know. For instance, foam, cream, whatever. If you walk into a leasing shop, we'll ask one question: strong or stronger? Nothing else.
You will say. Stronger.
Okay. Thank you for the analogy. Analogies aside, coffee aside, there will be one more break. Why banks need ancillary business such as leasing company?
On a serious note, firstly, leasing, not always, but leasing can be even faster and can be even more simpler. Doesn't mean that banks are not fast. They are. Leasing benefits sometimes from that so-called point of sale advantage. A customer is in the car saloon, psychologically ready to buy the car, you know, chooses the make, the brand, our partner, so the saloon guy, comes in and says, Look, by the way, we also can offer you leasing from NLB. You can do everything here on the spot. By the way, you can also buy the car insurance policy, which is mandatory. You practically do everything there. That's still the edge and the benefit that we have, and of course, we use it.
Secondly, I believe we really act complementary to our bank and its offerings on segments where the bank is not present at all, for various reasons, or on segments where the bank is not that much present. Lastly, thirdly, with our 1,000-plus channel partners and more than 100,000 clients, we actually also offer for our bank cross-sell opportunities to sell their products.
It's a large ecosystem that you're bringing closer to the bank. We will, again, see something that looks like a familiar graph. We see some key numbers on this slide. They are revealing in terms of showing growth. What are the stories behind that.
Basically, we're trying to signal the same message that you heard from Blaž in the beginning today, in the morning. We want to compete, and we are using different tools how to compete. Basically, the very similar tool set that you saw with the bank and its group. Basically, we started as a greenfield in May 2020. And, you know, since we grew organically in the beginning, and we're up against the biggest players in Slovenia, we needed an edge, and our edge was digital. We also tried to be better in digital when it comes to end customers and our partners. After a couple of years, we said it's time to also expand geographically. We entered Serbia and North Macedonia. After a couple of years, the real M&A big bang came along, which you heard from Blaž Brodnjak already today.
We bought the number one leasing player in Slovenia. That, of course, in itself also brought a hidden gem. It brought us an indirect entry into Croatia, which was for us as a group, very meaningful and very important. Then we said, "Okay, we are done with that. What's the next thing? Let's do something different." We decided to go beyond our traditional leasing space, and we bought an online digital platform used for used car sales. We said, "Let's try to turn that into a true marketplace, into a proper ecosystem, where we bring different partners together.
In essence, we're using the same tool set as our group is using, and always on the lookout for something else.
Mm-hmm. This is almost bringing the portfolio of services full circle. We will talk a little bit more about NLB Funds later. You started talking about markets. Croatia is an important one. It is like the foot in the door. Which market was the hardest to succeed in, and why?
I wouldn't say that it was one specifically hard. Of course, for NLB Group, Croatia was hard to entry. We all know why, for political, historical reasons, nothing to do with us. You know, all of the markets have their so-called local flavor, if you will. You have incumbent players which you're up against, and you have to be creative and innovative. In each of every market, you have to be always on the lookout. What I would say is, and you can see that from the current snapshot, year-end, is currently on all four markets, it's very clear and visible that domestic Slovenian market has been still the core engine of growth, both in terms of total asset size and in terms of real results. It represents some 85%.
That, I have to say, will change. This ratio will change. 2030, you will see that this ratio should at least look like 2/3 max Slovenia and at least 1/3 from other markets.
Which I think is important, because in other markets, we will grow to meaningful market shares.
Again, some numbers. It portrays a nice picture about the financial contribution to the NLB Group by NLB Lease&Go. Significant growth projected here. Let's also talk about the non-financial contributions. You started mentioning that. Let's be a little bit more detailed here.
First sentence, of course, financial contribution matters. It's of course, it's really important, you can see from the numbers that, ending last year, our total contribution to NLB stood at some EUR 37 million, which I believe is meaningful. We aim to double that by 2030. That is important. Equally as important as you just, you know, pointed me towards, is the non-financial part, which is bringing NLB to segments where NLB is not present, again, either for regulatory or other reasons, or bringing NLB to segments where they're not that much present. Here, I would primarily highlight the so-called consumer goods point of sale at the retailers, at the shops, where we are together with our partners, really offering our clients immediate solution if they choose a kitchen, whatever. You know, we are there immediately.
That doesn't only bring balance sheet growth. It also brings, at the end, also again, an opportunity for NLB.
For our 650 plus partners and our 100,000 plus clients to sell their offerings, you know?
That NLB also tags them with their offering. I think that's even important as well. Lastly, and I'll talk more about that later on, we also bring the so-called non-interest revenues.
Non-interest initiatives and products that clients can see benefit from an offer. Buy them.
Something Hedvika is very passionate about. You bring her the client, she takes them and develops them.
Exactly
Into something a lot more. There are a couple of levers that help you achieve that. Let's talk about what makes you so successful. Yes, we see them written here, but I want your interpretation of this reality.
Firstly, before I list them, you know, we constantly talk about that at NLB Group. Focus. Focus is key.
That's the first thing. If I have to simplify, let's say in four things, how do we grow, how do we compete, I would say the following. First one is, we will continue doing the things that we know how to do well in the future going forward. Our core leasing business, which we know, we will simply scale up in all of our geographies. Of course, different segment has different focus. Slovenia, we are already number one in car retail, which means we'll also be focusing more on heavy commercial vehicles with corporate clients and on, as already mentioned, point of sale consumer loans. In other markets, we also want to grow car retail business even more.
That's first thing. Second thing, which is equally important, we try new stuff, and we throw in new ingredients into that equation, which is the so-called non-interest initiatives, which I will talk about a bit later on. Third thing, which is equally important, is we have a lot of partners. We want to deepen those partnerships and, you know, use them as a two-way street. We bring NLB clients to those partners and vice versa. We will bring our partners and clients to NLB. That's a huge opportunity in itself.
Acting as a platform.
Lastly, of course, all of that has to happen in a, let's call it lean and clean environment, in streamlined operations, in an end-to-end digital customer-centric focus, which we are all constantly addressing and talking about. Of course, all of that happens primarily for one reason, our people, our employees.
Mm. Mm-hmm, mm-hmm.
That's, I would say that's the mix of the ingredients.
Going further and talking about big picture, what we see on the slide is the outcome of the initiatives that you have. Here we are talking about the nontraditional growth engines. What are the proof points and success stories that confirm this strategic direction?
Before I list a couple of them, nonetheless, allow me one statement. Our traditional leasing business has been the bread and butter that basically funds the journey towards additional revenue pools. I have to say that, we'll also always nurture that business, and it's going to be an ever important pillar in our sales generation going forward. Having said that, of course, we want new revenue pools, I'm just gonna list a couple of those. First one, insurance intermediation. We are already today, in Slovenia, one of the biggest selling channels for insurance companies. We sell some 20,000-plus insurance policies per year, you know, we have an insurance penetration of below 50% so far. That in itself is an upside if we do it even better and with more focus. Secondly, I would mention operational leasing.
You know, in Slovenia, financial leasing is the predominant form of leasing financing. 95% of people, and also in other markets that we're in, use financial leasing, but habits are changing. People do not necessarily want to own the vehicle. They want to own and manage properly the TCO of the vehicle, and there, operational leasing kicks in. European averages, by the way, are much higher, especially for corporates and micros, to use operational leasing. A sub-segment of that is the so-called full fleet service. There, with our trusted corporate partners, we want to manage their car fleet. We are the ones, besides financing, doing the nitty-gritty, dirty tasks for them so that they don't have to do it.
Lastly, as I already mentioned, our digital platform, which up until now was used for car sales, we really want to turn it into a proper ecosystem where we connect different partners, be it insurance companies, be it companies doing inspection, repairs, registration of vehicles, of course, our bank, and the likes, and that, at the end of the day, is for the end client, a platform offering everything together.
Again, another cross-sell opportunity for our bank if we do it right.
Given the very specific relationship people have towards cars, you're probably changing the society in some way if you are pushing those services, especially when you're mentioning SMEs and operational leasing.
Exactly. Sorry to jump in. Exactly what you just said. Through that platform, if you do it properly, you're extending the life cycle-
You're allowing the second usage, the third usage of the vehicle, et cetera, so you're actually helping ESG agenda as well.
Yeah, recycling of the vehicles.
Yes
Which is not such a business as usual as someone would expect. Back to the big picture, what we see on the slide is the outcome of all of the initiatives that you talked about, all of the growth engines. What gives you confidence that you can achieve them?
Our employees. Our talents. Simple as that. They will drive this, not myself, not my colleagues. They will do that. They will be the ones.
With new cars, with new entrants like Chinese entrants. They will be the ones getting us better with, you know, new segments such as battery electric vehicles, et cetera, et cetera. They will be the ones that make that we lift our market shares in all of geographies, and they will do all of the projects, and they will deliver the projects for non-interesting common issues we set.
Simple. Our employees.
Yeah. Despite the digital initiatives that are obviously in place here, and when you are leading, it's still really important to, in your business, to have this face-to-face good relationship.
Absolutely
on your side to exploit it in a really non-intrusive way.
Absolutely. I'm a firm believer that AI will not replace people, but I'm also a firm believer that the people that are using AI will replace the people that are not using AI.
It's as simple as that.
Okay. Just before we wrap, the key takeaways for investors?
Well, let's end with the same cup of coffee. We started with that cup of coffee.
Yes, there will be break.
If anyone here in the room, you know, walks into either our, to our partner or into our branch and starts the process with us with the offer and ends it with the signed and activated contract, I want it that it's finished within the time it takes him to drink that stronger cup of coffee. If any one of you wants to buy a car, call me up. We'll provide the car and the coffee.
All right. Let's give a round of applause. Thank you, Marko.
Thank you.
Something tells me that you like your coffee strong.
Yeah.
I wish you to have lots of strong coffees to support you in all of those initiatives that you are taking. We are now changing the gears slightly. We are going to look at another ancillary business of NLB, and it is NLB Funds. This company set very ambitious targets for itself, and there will be moments in the next presentation where you might ask yourself, "Where is the space for such an ambitious growth?" I'm quite convinced that Luka Podlogar, the CEO of NLB Skladi, who is our next speaker, will prove you otherwise, not only that there is a space for growth, but also that this organization has the dedication, it has the know-how, and it has the conviction to exploit it all. Luka, thanks for joining us.
Thank you. Hello. Thank you very much, Martina. It's a real honor to talk about the business I feel quite passionate about for the first time in front of the investor community. Over the next 15 minutes.
I'd like to make one argument, and that is that NLB Funds is not just a regional asset manager, but actually it's the real investment engine of NLB Group. It's lean, profitable, growing much faster than the markets it operates in. Let me show you why. Let's start with the facts. The end of 2025, we completed with just short of EUR 4 billion in total assets under management, and that's across UCITS alternative investment funds and discretionary portfolios. We generated EUR 59 million in consolidated revenues and contributed EUR 50 million to group net fee income.
We operate across three markets, Slovenia, where we're the clear market leader with more than 42% market share, Serbia, where we're very small, just started, sort of developing the business, and North Macedonia, where we did a very successful acquisition in 2024 from Generali Group and have actually since then grown the market share by a few percentage points. It's a very lean, efficient, scalable business that we have. This is just the baseline. What I'd like to talk about is, how do we get from here to the business we would like to develop? If there's one number that I want you to remember today, it's 60%. 60% has been our return on equity on standalone basis for 2025, we want to go even further, to 66% by 2030.
If I were to add the distribution fees that we pay to the group, this number would go north of 100%. Those of you who follow asset managers know that these numbers are really, really high. Usually, the European average is there up to 20%. Some of them go above, but only few of them. This is essentially what an asset management located in South-Eastern Europe with the scale, the brand, and especially the distribution embedded in the banking group can actually achieve. Just to give you a bit of a feel for the numbers, approximately EUR 0.70 of everything that we charge for asset management flows straight to the pre-tax bottom line of the group. Today, as I mentioned, we're contributing EUR 50 million to the group net fee income. That is approximately 15%.
We would like to grow this number even further to 20% and above. The logic for the group is actually very simple. Every deposit client that we convert into an investment product client becomes a more profitable, more loyal, lower churn client for the group. Basically, asset management is how we build relationships and actually make our clients more profitable. Let's look a little bit at how the opportunity looks like from the inside. We have currently in Slovenia 729 active retail clients. In asset management, approximately 103,000 clients. That gives you an average penetration rate of 14%. If you look at individual segments, you will see that those really valuable client segments, such as private banking, have even a much higher penetration rate, north of 50%.
When you go to affluent, the penetration drops to below 20%, when you go into various mass segments, it's actually high single digit. Now, this tells you 3 things. First, the products work. When the clients are engaged, they stay invested. Second thing is that the biggest opportunity is actually in the middle, in the affluent space, but also extending towards mass. The third thing is that we're not asking our clients to do something alien. We're just asking them to deepen their financial life, their relationship with us. Now, with 42% AUM market share in Slovenia, 46% market share in net assets, I think we are very well-positioned to grow this further and to develop this business and actually to win. We're not actually following the market, we're creating it.
I want you to zoom out a bit, the regional story actually is here where this story becomes really, really compelling from the long term. Austria today, actually end of 2025, had EUR 26,800 per capita invested in funds. Italy, EUR 22,700. Slovenia had EUR 3,400. When you go to South-Eastern European countries, these numbers become really, really small. On the flip side, if you look at the growth rates, Slovenian fund industry over the last five years grew at 17.5% CAGR. Macedonia, 27%. Serbia, staggering 39%. Whereas in Western Europe, if you here you've got the numbers for Italy and Austria, these numbers are in low single digits. 4% Austria, 5% Italy. This obviously is not surprising, right?
South-Eastern European countries where a lot of financial assets of households have been traditionally held in deposits are just starting this journey of conversion towards investment products. Basically, these economies are at a stage where Western Europe was, let's say, three decades ago and has actually already completed this conversion. Essentially, those players who will be present in this market at the beginning of this development and will actually build the brand, the distribution, and especially the client relationships, I think, will be the ones who will win. NLB, with its footprint across the entire region, here should be the natural winner. Now, the question is, how do we now convert this appealing macro story to a workable growth strategy? I see this mainly across three growth vectors.
The first one is all about efficiency and all about the scale. It's actually deepening Slovenia. This is, I think, where the largest opportunity actually exists. We see this deepening as a three-stage funnel. The first one's all about creating more awareness, more awareness that investment products exist within our group. Traditionally, we've done this predominantly through our really capable army of financial advisors. We heard, I think, earlier that, you know, NLB has really the best employees. This is true. We have the best financial advisors in our branches. They are the most capable ones, especially, I can say, in Slovenia, in the entire industry. Obviously, there's a limit to how much awareness they can create and how many clients they can service.
More and more, we are going to digital channel and actually try to use them in order to create awareness about investing. Obviously, once you create awareness, you need to engage the clients. Again, traditionally, this was done more through, you know, the talk with financial advisors. Our plan is to resort more and more to CRM tools, which we are developing, in order to actually not use just the spray and pray strategy, but actually be really focused and have a concerted effort on whom do we target, so that they become ready for the third stage, which is obviously the conversion, the investing. This has, again, until now, still happening in physical form in branches.
You know, what we're doing is actually developing NLB Klik with a full functionality for investing so that basically this process of subscription becomes fully automated. This is the only way how we can actually address the mass market. The penetration rate currently on average is around 14%. As I mentioned, we would like to grow this to more than 20%. I've got two good examples what actually happens if we really focus on engagement. For example, in the private banking segment, which is our most valuable segment, from 2024 to 2025, by really focusing on this, we managed to grow total AUM by 34%. 34%. This is not just funds, it's across all products, across all investment products. Similarly, in the affluent segment, between 2024 and 2025, we grew the AUM by 29%, right?
It is now on us to replicate this also in the other segments. Today, and here, by the way, what I want to really focus on is that the whole story is about replication. It's not about building from scratch. In Slovenia, NLB has the most sophisticated and capable distribution machine for fund products, and generally for investment products. We want to bring this to the other countries. Just copy that as much as we can. The phase 1 of this expansion is already underway. We started in Serbia. We're at the moment very small, a bit more than EUR 60 million AUM.
What we need to do in that market, which is extremely attractive, with the one million client, retail client base that we have within NLB Serbia, we need to expand the product range and then really start focusing on deepening this client relationship towards investment products. In Macedonia, as I mentioned, 2024, we did a very successful acquisition. I must admit, actually, it's performing better than, you know, what we modeled, so I'm actually quite proud of that. We rebranded the business in 2025, and it's already delivering excellent results. We managed to grow market share by more than 5 percentage points just in one year. Now, obviously, the rest of the countries also need these products. Montenegro, which will be the next one following, Bosnia and Kosovo, they've got a combined retail client base of 700,000.
It's quite an attractive client base. Obviously, the infrastructure is there, so those clients exist, right? What doesn't exist are the products, and it's basically on us to close this gap and bring these products to the market in the next stage of development. The third growth vector are the products. In Slovenia, we've currently got a UCITS umbrella structure with 20 different sub-funds. From the less risky ones to the most risky technology, you know, equity funds. The majority, obviously, of these products, I would say, are quite enough to fulfill the investment needs of our customers within the affluent segment and especially also in the mass segment. Some of our customers, especially those most valuable ones within the private banking segment and within the affluent space, they want something more.
They maybe want more yield, they maybe want more stability in their portfolios. Some of them want some more, I would say, unusual asset classes. They maybe want exposure to real estate returns. This is basically the reason why we started developing alternative investment funds. The first one we already launched last year is the NLB Green Transition I. This is an infrastructure equity fund, which, as we heard today, focuses on the growth of the regional infrastructure projects. That's only for professional investors. Hopefully very soon, we'll be launching our first retail listed real estate fund. That's gonna be the first product. We're gonna be the first one in the region who will actually offer real estate asset class, which is usually reserved for professional investors, to retail clients.
Product diversity, actually, product development is how we see this as a tool to unlock new pools of cash and actually it's also a tool which helps us to improve the client profitability, but also to stabilize, which alternative products are great for, to stabilize the P&L. Obviously, one cannot talk about asset management these days if without mentioning the technologies. We don't see technology really as a growth driver, we see this more as a multiplier or as an enabler of our strategy. Obviously, the key platform here will be NLB Klik. As I mentioned before, you know, you can only do as much, you can only service as many clients with the army of financial advisors in the branches.
Through NLB Klik, with automated subscription and automated funds functionality, you can basically address an unlimited amount of customers. Obviously, there's still a lot to be done there, nevertheless, this will be the platform of the future. The model nevertheless will remain a two-tier model because our private banking clients and our affluent clients, they still want this personalized advice. They're usually a bit more demanding, so they need these conversations, and usually, they also invest higher amounts of money. Basically, physical branches, contact with the real people are absolutely essential here.
This model is something that no fintech actually can match because we have the customers, we've got the physical presence and basically there's pretty much nothing that can help you develop this if you're a standalone manager or a fintech coming from the outside. To sum up a little bit how this story looks like in the numbers. In terms of the assets under management, what we would like to do until 2030 is grow from the current approximately EUR 4 billion to EUR 6.4 billion. That's a 13% CAGR. Not something crazy. It's not a hockey stick. It's basically a sort of disciplined, you know, serious compounding story, which is gonna bring us to this number. This number also doesn't contain the phase 2 countries. It doesn't contain anything inorganic.
Just organic growth based on the current countries. From the revenues, we're expecting approximately a doubling from EUR 59 million to EUR 103 million. From the profit perspective, this is actually the profit contribution to the group net income, right? It's comprised of our net income on the standalone basis, plus the post-tax contribution for the distribution to the group. Here, we see approximately also a doubling. To sum up, why will we win? First, the most important thing is the distribution advantage. 729,000 active retail customers in Slovenia, 2.8 million retail customers across the group, 381 branches, NLB Klik. This is something that nobody in the region can buy. It took decades to build. The second thing is the infrastructure that we operate. We've got the UCITS license, we've got the AIFMD license. We can manage discretionary portfolios.
We've got a very well set up risk management framework. We've got the compliance processes really developed. We've got the fund administration. We are basically unifying the processes also in Serbia and in Macedonia, bringing from the software perspective, everybody on the same platform. Right. This would take years and millions of EUR for somebody to build, but we already paid for it. The last thing is the track record and the brand. We've got more than 20 years of experience in the Slovenian market. In 2024, we were voted in Slovenia the asset management company of the decade. NLB is the most trusted financial brand. Basically, Our clients are not asking us for a loan, they're entrusting us with their life savings, so that's a completely different paradigm. And this is more valuable than any marketing budget.
Basically, I hope I was able to convince you that this is just the start of a long duration, you know, compounding, growth compounding story. The clients are there, the infrastructure is there, and we're operating in a market which grows a few times faster than Western European fund markets. Thank you.
Thank you, Luka. Somebody once said that the fortune favors the brave, and there is no doubt that in your case it will prove true. We have made a full circle across NLB's performance and its portfolio of businesses and services. We have one more topic left and one more important conversation left. Let's go to the topic. Probably it deserves a headline, This is the moment you have all been waiting for, because its title is Financial Performance and Shareholder Remuneration. Many different things will be covered, how the actual dashboard compares to targets. It's gonna be about the revenue bridge, it's gonna be about capital allocation framework. Of course, it's also gonna be about the dividend trajectory and M&A philosophy. Archibald Kremser is our next speaker, Member of the Management Board responsible for finance. I think he needs no further introduction in this community.
Thank you. Welcome everybody, we really appreciate all of you coming here. The long way to Sarajevo, the beautiful place we are all here. Thanks to our host. Thanks for the teams preparing all this. It was an enormous effort of many teams trying to make this a credible event. Credible means it's genuine, it's authentic, it comes from the heart. I hope you got a sense of the hard work all of us and all of the people in our group put in to make all of the things happen.
What I present you is, I think what was built and presented bottom up as, how we see this business, how it has evolved, and numbers are just a reflection of the stories, and the hypothesis that the colleagues presented and I totally bought them. I hope you did as well. I found them very convincing and thanks for the colleagues to take the stage here as well. I think, I mean, it's easy to be proud about history. What matters to you is the future. Nevertheless, I think it's fair to say that the story since we IPO'd was a sound success. As was mentioned, we think this success has not been surpassed by many banks in Western Europe, even after the last re-rate.
As was said initially by Blaž, we completely segued and changed the narrative from a pure dividend story to a growth story. You see this, I think, reflected in the share price and the total shareholder return. This wouldn't have been possible without that change in narrative. Of course, to some extent we got lucky. The fact that we had been able to acquire significant presence in Serbia is never to be taken for granted. M&A is by nature unpredictable, but we made it. We believed in the opportunity. We believed that it's worthwhile going for it. Don't forget, at the time we were technically almost still in an acquisition ban by the European authorities. This team, I think, has shown that we are thinking entrepreneurial and we go for opportunities relentless every single day.
That's what makes this team tick, and that's what reflects in the numbers. You see that the targets we set out in the last capital markets, they are unchanged. We are not gonna change them for now. 2030 is the famous 50 to 1. We think that's a credible size bank these days in Europe, a highly regulated market. This size and scale matters because without this result, we can't afford all the investments in the innovations, in the expansion, in the people, in the technology, all the things that have been mentioned. Without these numbers, we can't afford them. This scale matters. What we will and what I will talk a little bit about is that we got more specific in terms of our financial return story.
It's anchored on, I think a more credible ability to segue payout ratios to a 60%, and that's in essence anchored on better access to hybrid capital, which we have demonstrated we can. Plus, of course, continued discipline in capital allocation so that funds a higher payout ratio. Then of course, we talked a lot about investment, but ultimately we have to also talk about discipline. As a CFO, after all, it's my job to also keep this business efficient. Last time we had been presenting a cost-income ratio ambition of beating 45%. This time we feel that based on the many substantive debates we had in the organization, that we can aim for a low 40s cost-income ratio.
All of that will compound on today's share price to a very attractive return, we believe, until 2030 of 20%-30% annualized return. That is basically on the lower bound, more or less, a cash and earnings per share story, with the payout ratio, of course, than a dividend per share story. On top of which, we believe there's still structural valuation potential. We still think this stock has a re-rate upside, that would take us to the higher bound of that return. I have to shortly show the disclaimer. Apologize, lawyers are at play. What has happened since we IPO'd? Basically we doubled the business, we doubled all relevant metrics from balance sheet, earnings per share, more than doubled actually.
As a result of all of that, the market cap has improved by almost five-fold. That's, I think, a remarkable achievement. We like to celebrate. Fine. Let's move on. At the last Investor Day, we presented you with the new ambition, now it's basically the two years in, or if you want, one-third into the journey. I think as you heard all of the colleagues talking about how they felt about this journey in terms of what they aim for, what they're working on, I think you heard a consistent theme, which is the story is materializing in front of our eyes. We've seen the volume growth. We've seen the revenue growth.
Yes, there was a re-rate in the stock as well, so that happened, to be fair, for all European banking stocks or for many of them. Of course, that's what we in a way always predicted because it was very clear, at least for me, since we IPO'd, banks are structurally undervalued and negative rates can't go on forever. That this happened to some extent was predictable, but now it happened, and of course we are very grateful. I think banks are now reasonably valued. As I said before, I think we have still upside in terms of our own valuation, and we'll come to that later. Here you see the market cap, the return since our last Investor Day.
I think a presentable 140%, of course, including the re-rate, which took us from 5x earnings to 9x earnings. As you know, European banks trade at roughly 11 or higher. There is still this re-rate potential. If you think about the future that I tried to outline before, our belief is the market cap, given all the growth that we have presented and which we believe is credible, market cap will almost mechanically rise substantially. As we are on the verge from a small cap bank to a mid cap bank, I think this re-rate will kind of naturally happen. What powers all the growth is, and we heard the independent view, it wasn't rehearsed, is a growth that is, as we heard, visibly higher the European average.
Of course, that's a given in our market. That's the privilege of us being able to operate in this market. The macro environment has, of course after the quite substantial turbulences we have experienced, now stabilized. The next years are gonna be fairly stable in our perception, and the growth potential of this region can unfold itself. It's inherent in the region. If it's not disrupted, it will naturally happen. In terms of our, what we call addressable GDP pool, it, well, almost tripled since we IPO'd and has shown a nominal CAGR of 8%. I mean, that's a phenomenal growth, right? It's almost mechanically driving any growth of any bank operating in that region. Don't forget, in that region, we are the big fish.
In the small pond, we are the big fish. I think all of our colleagues are demonstrating a story of being the leading provider of financial services in our fairly small region, having the best products, having the highest ambitions, and having the most customer service. We haven't even factored into our plans the EU accession potential. It was mentioned that it's imminent. I would like to be as optimistic. Montenegro really talks about accession 28. Let's see. Martin, our colleague can tell you more about where we really are. As we heard, the FDI is happening. The confidence in the region is increasing. More importantly, I think that's also worthwhile underlining, the region is becoming so attractive that people are actually returning into the region.
Diaspora is partially coming back, and that naturally will drive investment and consumption. We see this as a maybe conservative base case. This almost mechanically translates into the substantial loan growth that colleagues have been presenting, both in retail, in corporate, across all geographies. We have been massively growing the loan book. Especially since Investor Day, if you look, we added EUR 5 billion. We are a third into the journey. We added basically a third of our ambition. In that sense, I would say tick on that ambition and on a very good track. In regards of revenues, I mean, we had this phenomenal boost from the rate environment. We had very successful M&A transactions in the past, both in Serbia and in Slovenia. We talked about leasing.
I think the remarkable thing since the Investor Day was that against the massive headwind from the rate environment, I think Hedviga mentioned that, of rate cuts in the ballpark of 200 basis points, we managed to actually slightly rise the net interest income. I think that's a massive achievement, and I can just be very grateful to the colleagues in business delivering that because that's, of course, function of very successful sales and good customer relationships. If you look at little bit behind the curtain, we've split this here in Slovenia and rest of the markets. You see that Slovenia was, before the rate cycle, a little bit more exposed to rate sensitivities. You see the brighter bar was jumping from 22 to 23. That's rates. The blue bar is SCE.
Jumping in 21. Komercijalna banka, the acquisition, then growing more steadily, if you want. It was less exposed to the European Central Bank rate environment. Now Slovenia had to digest the decrease in rates. If you see the drop is much smaller than the increase. We have managed with a combination of massive loan book growth plus good structural measures. We have extended duration on the balance sheet. We have very well-stabilized Slovenia net interest income. Let's also not forget this is all in the backdrop of the headwind from the rate environment we quantified here. These are not small numbers. If you look at our global NII, EUR 120 million, we lost ceteris paribus on the rate environment, is a massive headwind.
We also mentioned that we carry in our balance sheet quite expensive funding from the capital markets that we had to issue given MREL stipulations. The regulatorily imposed capital market presence of ours, this in seniors and subs, costs us EUR 50 million more than it's supposed to cost us. Let's put it like that. The way we prove this number is basically of having funded at 200 to 300 basis points better levels in the most recent transactions than when we started that journey. This number is a real thing, and it will come back over time when we roll over these lines. Until 2030, all our liabilities will be refinanced.
The outlook on the balance sheet is basically nothing else than a compounding of all the stories you've heard from the various colleagues, retail, CIB. Leasing, to be fair and transparent, is embedded in these numbers. If you see 9% CAGR on the loan side, that is basically if you remember the 8% nominal GDP growth, plus a little bit of market share, plus a little bit of increased penetration levels. You've seen the charts of loans per GDP. GDP grows, or the loans per GDP grows. That adds kind of a percentage point to our loan growth. We come from 8 to 9%, and that's not a very aggressive case. Let me emphasize that. We have been growing faster, as you've heard.
Frankly, that's a managed growth rate because we have to fund that growth at reasonable costs. Of course, deposits, if you grow beyond your means, can get very expensive. We have in Slovenia the immense privilege of 35% market share in sight deposits. We don't enjoy the same privilege in all other markets. Frankly, we have markets like Serbia, Macedonia, where at the moment, the growth of the last year was so phenomenal that now we have a bit of a struggle to keep the deposit side growing, which is what you see a little bit under pressure on our NIMs. Some of you will have seen the Q1 result, some pressure on NIM was visible. That's what you observe here.
This is basically catching up on the liability side what was a phenomenal growth on the asset side. You see the EUR 10 billion I mentioned is the remaining ambition. EUR 5 billion ticked off, and we are a third into the journey. The EUR 10 billion, I believe, are perfectly credible. You see that this is still a conservative balance sheet, 80% loan-to-deposit ratio. Consider what we presented last year or two years ago as a quite ambitious strategy as an almost conservative base case, right? In terms of NII, and we have turned this number really upside down in the last couple of weeks because we wanted to be sure when we stand in front of you that we believe in these numbers, because they are high at outset, right?
8% CAGR in NII is not an easy achievement to chase. No matter what we discuss about potentials, et cetera, this is ambitious. I think the analysis showed that, of course, Slovenia is now in a pretty privileged position. With our deposit base, we are almost unbeatable. In terms of NII growth, it'll be high single digit, if not double digits. The other markets will be in the high single digits, we might see bumps on the road as we see them currently in markets like Serbia. Bumps means there's not an immediate increase. There might be a quarter where we have to fund the loan volumes with term deposits, which are expensive.
There'll bit, a bit of, let's say, transition into this, high single-digit growth rate, but the compound growth rate of 8% is something we stand behind. Of course, the lion's share of that is retail. Retail is the cash cow of this banking group. It's the main business line. That's not to say retail is more or less important than corporate. This is an ecosystem. I think we have to really understand in small countries, corporate banking, retail banking is not a closed ecosystem, but a pretty closely associated ecosystem. I think Antonio Argir was referring to that as well. As I said, cherry on top is, the normalization of the wholesale funding part, which should add and it's baked into this number, some EUR 50 million in NII contribution by better funding levels of our, capital market stack.
You heard the colleagues talk about fee and commission income. Here it looks almost boring, but you heard the exciting stories from Luka, from Marko and Hedvika. Andrej was talking about trade finance. This is all baked in. I'm not gonna go through that stories. Of course, the key to unlock this potential is once you have an anchor product with a customer, you manage to cross-sell more products into that customer. That is the fee growth, we have the customer base. We have close to three million customers already. Many of them are not, by far not using the potential of our Group. A lot of the growth is not just inherent in the potential of the market, but it's inherent in the potential of our existing customer base.
This share of wallet theme is reflected in here, I would argue not too aggressively. Putting all this together, and we still don't talk any M&A, we come to something in the ballpark of EUR 1.8 billion revenue target by 2030. That is more or less in line with what we have been presenting last time around at our Investor Day in Ljubljana when we said more than EUR 2 billion, but 20% or so M&A associated. This is the organic part of the cake. You've heard the underpinning stories from the colleagues before. As I mentioned, leasing asset management is baked into these numbers because it's part of the CIB and retail franchise. On costs, I think as a finance person, it's easy to say, let's reduce the cost, and everybody expects it.
Test one, two, three. Okay. Switched on. I mean, cost is nothing else than the annual investment decision in people, technology, our client spaces, called branches, et cetera. Just of course, as CFO, my job is to make sure we allocate these resources and investment decisions reasonably efficiently. In retail, there is a pretty clear path, and you have seen with the enormous progress in digitization, there is now a credible path to substantially also drive down what we call the physical footprint. We are investing in branches. They become now much more pleasant to be in much better spaces. And we need, as a universal bank, we need representative space to do all this advisory. We invest quite heavily in our branch environments. Ultimately, the number of square meter will come down.
The number of branches will be rationalized. Hedviga said number of headcount will be rationalized. Because let's face it, there is still a labor cost inflation. We want the best people. We heard that. These people cost money, so we want the ability to pay and reward the best people in these markets fairly and properly. Means ultimately, we need less mechanized labor, both in front and back office. Altogether, our base case is 15% less headcount by 2030. That's not a very aggressive case, I shall emphasize. It's our base case mostly already backed up with pretty specific ideas in the respective business lines.
There is no big AI revolution baked in, and I think it was fair from Reinhard to mention we haven't yet figured out in full what AI will do to our business model. I think in two years it's fair to say there'll be an update on that. For now, that's a base case, and it delivers low 40s in cost-income ratio and provides sufficient space still to invest, not just in IT, I think you heard our comments earlier, but also in real estate because we are, at the end of the day, a face-to-face business. We are not a neobank. We are a face-to-face business. With all the dynamics happening, the efficiency in our business model, the operating leverage will go up substantially.
I was very happy to see that colleagues partially mentioned the continued discipline in capital management. I think the thinking about businesses as a return on capital is now really widely embedded in the whole group. I think the philosophy of being rational with capital and capital deployment is very clear and is established. We had here specifically in Sarajevo a big debate about, you know, competing against ultra-low CIP placements, and we decided to do it only very limited, right? Be very rational about it. I think that's immensely important. This culture is immensely important and valuable ultimately for shareholders because that creates the space for capital returns ultimately, right?
The more efficient the bank remains in capital deployment, the more space there is in capital returns. You see, it is undisputed leader, I would say, Retail Slovenia, with this immense market share in sight deposit just rules the world in terms of profitability and efficiency. It is the cash cow. You see, corporate is capital-intensive, we will be rational about it. You heard all the efforts are going in direction of capital-light products. Everything fee-based, everything off-balance or originate to distribute will help keep this number in a reasonable space. That's perfectly fine because as I said, it's not cherry-picking. It's one market. We are one universal bank with one brand, there's lots of cross-sell that is not necessarily reflected in these numbers. We'll be ultimately having reasonable business judgments about how to go about this.
I think it's important that the steering wheel is, you know, staying on the road. What else can we do on capital? We make sure that it's deployed efficiently in the business operations. We can also do some technical balance sheet measures. We talk a lot about securitization or synthetic risk transfer. There is potential. As you see, it's quite material. Into 2030, we think we can unlock EUR 250 million in CET1. That's material. Of course, as I mentioned earlier, it was immensely important for us to unlock our access to hybrid capital. The so-called AT1 was really a strategic breakthrough towards end of last year because now we can fund Tier 1 capital at very competitive levels.
That also unlocks a lot of capacity to keep payout ratios towards our ambition level, as I mentioned earlier. These two things are kind of the extra boosts that we put in place since our last Capital Markets Day, and they make us more confident that we can go from a 50%-60% payout ratio to towards 60%. All right? You see here the capital bridge. Sorry, it's a very crowded slide. It's clearly start from a very, very comfortable current capital position. Also, thanks to this very successful Tier 1 transaction, 20% capital levels. You see how we deploy that capital. We expect something in the ballpark of 10% risk-weighted asset CAGR. That is in line more or less with the loan volume growth that we indicated earlier.
You see a pretty strong organic capital generation capability. 250 basis points I think is a solid organic capital accrual. Here we go. How does it end up? EUR 90 at a 60% assumed payout ratio end up in the pockets of shareholders, which I think is a pretty good deal. The surplus capital, Blanche alluded to the elephant in the room, which is, of course, still an elephant. We'll see what happens here. We have the firepower and appetite for M&A. Of course, always with the same level of discipline that you know from us, but we are willing and able to act and execute on M&A if and when the opportunity presents itself. That I think is a valuable optionality in our business case.
The case is not built on M&A, but the optionality is there, and I think that's immensely valuable, has proven to be immensely valuable in the past, and we want to preserve to some extent this capacity. At the moment, we are absolutely trigger-ready. The 20-30 return equation is in essence very simple. It's built on the EPS dynamic. It's built on a 60% payout ratio ambition, and that basically makes the lower part of that range. The upper part of that range is cherry on top. We believe if market cap is coming closer to somewhere in between EUR 5 billion and EUR 10 billion, towards the end of that period, it will be a EUR 7 billion, EUR 8 billion stock, we will be also re-rating.
I think it's very fair to assume to a until the conservative case is from a 9-10 PE. There's nothing aggressive in any of these numbers. We consider this, as I said, a base case. You see price book under these assumptions migrates towards 1.5. This is a slight re. This is not aggressive re-rate. Basically still leaving headroom to what we actually see these days in the market. To wrap it up, where are we two years down the line? I think the message is very, very simple, and I hope you heard it credibly not from me, but from the colleagues, so that we have now a very high conviction on our organic path. I think that's the most important message.
From the strategy we presented two years ago, where frankly it was an ambition and a plan and a strategy, now we are two years into that journey, a lot of work has been happening. Reinhard has joined, given extra boost to the transformation process. Two years in, the numbers show, I think the presentations show, we have a high conviction on this path. All right? I think that's a very important message. Of course, we complement that as usual with eyes on M&A. Not obsessed with M&A, eyes on M&A. Here you see that we slightly changed the wording, as I mentioned. Cost signal for higher cost discipline. Low forties is the cost income target. There will be headcount reductions, no question. There will also be investment in the right technology, the right people, the right spaces.
We just by the way also consider or are in advanced discussions for a new head office. We not just provide the best spaces for our customers, we also want the best spaces for our people, so we keep investing. Given the capital efficiency tools we have in our toolbox, there is still space to move payout ratios towards 60. All right. From 50 to 60, we want to go towards 60. Cash returns are important. I think that's it. Thank you very much for your attention. The next segment I think is gonna be a joint Q&A. Thank you so much.
Thank you. Thank you, Archibald. It was conscious decision to leave this presentation to the end, equip you with a lot of stories that are happening in different segments of NLB's business. Archibald, thank you for connecting those fragmented pieces of information into one comprehensive financial picture. Excellent job. Before we have a joint Q&A session, we first have a coffee break. You definitely are not gonna be asked foam or cream or strong or stronger. Just enjoy whatever you get. The coffee break is for 20 minutes, then we are going to bring this event to an end with an ask us anything question. This is the last chance you have to pose the questions. Of course, we are also going to take the questions live. In the meantime, when you sharpen your pencils or prepare your phones, enjoy your coffee.
Thank you. I'll see you in 20 minutes.
[Break]
Ladies and gentlemen, the event will resume shortly. Please stay in your seats.
How was the coffee? Strong or stronger? Everybody, welcome back. We are bringing this event to a close. I promised before we have one topic, we did that. We have a very important discussion. We are going to lead you through an Ask Us Anything questions. Thank you to all of those who posted the questions online. The investor relations team worked hard in the back scenes to prepare them, cluster them, and organize them so we can deal with them in a very efficient way. I will invite all of the members of the Management Board back to the stage. Your seats are a little bit more comfortable this time because there will be a lot more grilling from the audience. Come back, Andreas, Reinhard, Blaž, Antonio, Andrej, Hedvika, Archibald. You are welcome to the stage. A small disclaimer for everyone here.
Of course, we have many more representatives of NLB leadership present, and Marko and Luka are staying here. If there will be questions for them, of course, we will activate them. Take your seats. We noticed that some of you were taking photos of the slides. I completely understand that. You see something that's interesting for you. Rest assured there will be all of the presentations available, published for you so you can download them and take all of the details in for further reference. All right, I see you are ready. You have the microphones, some of you. Yes. Good. Let's start with the question from, for Blaž Brodnjak. It was posted by Jan from Autonomous Research. Number one, around M&A area. If no M&A will be conducted, will the dividend payout ratio be lifted, and to what extent it will be?
That's a fair and good question. We have been so far responding to it, and we didn't change the narrative in a way that as long as we believe there will be meaningful acquisition within 18 upcoming 18 months, we want to of course retain enough capital for such meaningful acquisitions. If we lost hope that this will be possible, right? We could always tactically size up 1 single dividend or, you know, multiple dividends. We derive from a fact that we will be able to acquire, right? There will be actionable opportunities, and in this case, it's better to go hunting with a loaded gun. This is 1 of the analysts that told me that, not me. Right? It was an American analyst, though. You know, so we try to play this as a balancing act, right?
We want to give you as much value as possible, through the cash payouts and of course, value accretion. But on the other hand, if there was an opportunity and we are M&A ready, or should I say trigger ready, we want to be of course equipped with, you know, the substance for it. Just additional information for everyone. There are CEOs of four subsidiary banks in the room as well. If there were any specific questions per single market, also the CEOs could get provoked and asked.
Thank you, Blaž Brodnjak. Let's spread the burden. Do we have any questions from the live audience? If you do have questions, hands up. We will supply the microphone for you, and you will be able to ask live. Do we have anyone having any questions from the audience? I am not seeing any hands up. I will be repeating that opportunity, giving it back to you in a moment. Question from Jan from Autonomous again, but this time for Archibald. Will there be change in terms of MREL requirements? I understand that there is no subordinated MREL requirement as of now.
True. No, true and no change. As I mentioned earlier, we are fully financed also for MREL, and we deliberately put instead of a senior an AT1, which technically is more expensive, if you want. Of course, also has MREL qualities, but it gives us this M&A optionality on top. More importantly, it gave us a credible dividend booster instrument for funding this payout ratio ambition on top of the M&A optionality. That was really a breakthrough. In that sense, the next things to happen technically are not necessarily planned for 2026, we have a call date coming up. We will call. There is a senior bond outstanding. We will call it. That will also help NII this year. We are fully funded without that instrument.
That was the point of the AT1 prefunding, if you want. Of course, it's refinancing of everything that comes up for call. There are two further calls in 2027. They will be customarily and routinely refinanced. We hope that, as said, on average, 200, 300 basis points better spreads. That's the EUR 50 million cherry on top I mentioned earlier.
Mm-hmm. Thank you, Archibald. Another question for Blaž, this time from Anton from Coeli. Blaž, heads up, although the 2030 targets are not old, much has happened. Is it too early to expect significantly higher revenue growth rates or lower costs from tech and AI?
Yeah, a lot has been happening, not necessarily all in a predicted space, right? There has been also some adverse developments lately. Generally, I hope that Archibald now, after giving his input, right, has delivered a lot of answers in this respect. We do believe that we are planning incredibly high growth, right? We are talking about CAGRs that are high single-digit in revenue, and we are talking about containing cost. Can we contain cost further by, you know, accelerated application of AI and RPA? We touched it, right? We would hope for it, but we rather, of course, underpromise and overdeliver than the other way around. What we are talking about here is a very credible in, you know, investment case.
Of course, yes, if there were developments in, in interest rate environment and, you know, generally even as was mentioned before, you know, accelerated investment in Europe in the core of Western Europe, delivering even, you know, 3, 4 percentage points more here, of course, this could deliver additional revenue boost, right? Nevertheless, we count ourselves as a Slovenian business, Euro country since 2007, you know, to rather a Central European core, you know, Euro country, right? Where, of course, the growth might be a bit slower. Although we are benefiting, as Archibald tried to show, this year as well, you know, because the balance sheet of the parent bank is positioned well for rising rates. It's really a function a bit of where they end.
If it's only 25 basis points, you know, and then there's nothing for five years, of course, this is then a stable environment. You know, this is not necessarily, you know, boosting the rates. You try to address this with a proper mix of production, right? More retail, more consumer loan book, more leasing, you know, more consideration space, boosting the fee income and so on. I would not say that what we showed today is not ambitious. I claim it is ambitious, right? It is ambitious. It is creating a lot of value for you. In ideal circumstances, we could do something more. On the other hand, the AI and RPA, you know, it was properly mentioned and properly also raising awareness. In banking world, right, it's not necessarily that easy, you know?
I mean, yesterday we spent, almost, you know, significant time of the supervisory board discussing Mythos, right? What from this angle represents an opportunity and what from this angle represents a threat, right? We are extremely cautious when it comes to protecting personal information and property, and of course, God forbid also, you know, compromising on either of those. You know, not only because of regulation, but because of reputation, right? This is a killer eventually, right? If you lose it on this ground. In this respect, it is a balanced evolution. We would hope that, yes, indeed, through the RPA, we could automate more or less everything that is today, you know, person taking a data, bringing it somewhere else, whatever. You know, removing the hands.
When it comes to the AI, yes, through the CRM literacy, we would of course want to become more relevant, right. Antonio Argir was reiterating my saying, right. Be at the right time, at the right place with the right solution, right. Which is being relevant and more efficient and effective, and by that, potentially having less hands. Given the threats coming from the cybersecurity risk, I claim and I tell guys, branches will be a gold. You know, we can resume to manual procedures. We can. We have, you know, business continuity, you know, plans in place. We can call you to the branch, or you come to the branch, and we are back to manual, good old time, good old days of banking, right. Of course, we can't sustain this for months, right. You know, for a couple of days, we can. Revolut can't.
If they're down, they're down. There is nowhere they can call you, right? In this respect, it's going to be a mix of trust that is based also on existence of analog structure and infrastructure.
Right? It's going to be a mix of everything. Yes, we want to hope We want to accelerate, right? Process improvement, process efficiency improvement through the robotization, relevance through the AI, reporting efficiency, internal processes efficiency through the AI, of course, assistance. We will keep brains, and we will keep talents, and we will keep people in branches. Less of them, better trained, but they will still be there.
Mm-hmm. Okay. Another question for Archibald, this time from James from Coeli. Why is the guidance for the next few years low despite the stabilization of rates? Shouldn't earnings benefit more from solid asset growth?
They will. I indicated Slovenia is quite well-positioned, also for NII growth. Actually we see a slight uptick in Q1. There was nominally a bit of a Q1 decrease in NII, the ones who looked at the result. That is a bit of a day count mechanic. On a like-for-like basis, actually NII keeps growing on group level. It's also true that in some subs, as I mentioned, we have a temporary, I would say, funding pressure, and this funding pressure will have to be, let's say, gone through. That will be largely mitigated by Slovenia, and we still expect good single-digit growth of NII this year. Then 2027 onwards, an acceleration.
I think that's, given circumstances, a very solid, and ambitious but also realistic I mean, we will be happily overachieving. At the moment, this is how we see realities unfolding. The CAGR of 8%, as I said, we spent a lot of time stress-testing this NII CAGR. We went deep into market specifics, especially the ones that have not this huge privilege of 35% retail site deposits. Because there the equation is a bit more complex. Talking Serbia, Macedonia, they have two currencies de facto, both of them with different dynamics and quite some, you know, temporary tension on lower FDIs in last year. Still a rate environment that is actually following a bit Europe, with one-year time lag coming down.
All this in combination, I think, lead us now to believe 2026 solid, 2027 acceleration.
Good luck. Heads up to the CEOs of Bosnian and Kosovo NLB banks. I will need at least one microphone somewhere closer to the stage. The question comes from James again, and the question is: What needs to be done in Bosnia and Kosovo to ensure those businesses generate a ROE in line with their cost of capital? Let's have Bosnia first maybe. As we are at home here, we need one microphone.
Which cost of capital do you apply? They believe they earn it.
We did joke, we said miracle should happen. I mean, aside miracle, I think this question refers to a federation part of Bosnia, not Republika Srpska. You're much better. Point is that we have very low margin and very high competition currently these days. I have to say that this return on equity, anyhow, it's among the best one among banks in federation part. This is like an average these days. We are doing our best to improve from one year to another. It's getting better. It was much lower and every single year is improving.
We hope that margin will go up because in Bosnia they are the lowest in the region, and that competition will be much, much less aggressive.
Mm-hmm. Now Kosovo.
Yes. Hi. From our case, I will say that despite the fact that we are leaders in the banking sector in Kosovo in terms of profitability, by far in terms of market share, what the market has undertaken is actually quite a lot. What was already mentioned is a heated market in terms of liquidity, as the whole market has had an elevated LTD. Basically a normalization of cost of funding would actually impact. This was, I would really more or less call it, a one-off impact for consecutive two years due to strengthening or liquidity issues in the market overall, which has to do quite a lot with what macroeconomically is happening in the market.
Overall, the normalization of cost of liquidity would bring us to where we are. At the end, I have to say that we're a lot working also on structurally changing and strengthening our balance sheet towards what it was mentioned also earlier here quite a lot in terms of the current accounts and increasing portion of salary receivers. Basically lowering our cost base amongst other things. Normalization of the market in terms of cost of funding and also us strengthening our balance sheet in terms of diversification of funding. That would be a short sort of an answer.
Okay. Thank you for the.
I hope I've answered the question.
Yeah.
Thank you.
Thank you for the reinforcement of the message.
Maybe can I have the mic for a second? The steering group wide is the same. You actually have seen in the slide deck how returns across the segments and geographies are currently and as we expect them in 2030. It was this two-dimensional bubble chart. Where I said retail Slovenia is the clear cash cow, corporate is the capital intense. Basically, these markets are all in between. The logic of allocating capital is the same group wide. There is for each market cost of equity that is in Slovenia typically below 10%, in other markets typically above 10%. Partially visibly above 10%. Kosovo would be in the 15% ballpark.
This is what keeps us rational in what Lidija described as very competitive corporate business in the federation, where we deliberately say we don't need to be in that segment at all costs unless there's a very specific cross-sell situation. Business is always free to go and they have the last call. The allocation logic is group wide harmonized, and it's group wide the same, and there's group wide oversight. Andrej is looking at, you know, large tickets himself with the team and making sure we keep it on target.
Maybe two sentences more about-
From risk.
Federation of Bosnia and Herzegovina, for me, it's actually an amazing story because that's a crazy market. If you look at the interest rate environment, that's a crazy market. This is from the size. Historically, our underdog bank, if you see market shares, and they were very successfully increasing this market share. While running this uphill struggle, because that's always an uphill struggle, substantially increasing profitability. I think that's already a very good success, and that's one of our strategic markets. What can we do to further help them is, maybe here or there we will find an M&A opportunity. If the current one would not play out, that will be for sure not the last target we are looking at.
Simply to bring them on or to support them coming to a market share like we own the other markets. That's what we of course very actively thinking about on top of what was mentioned already from Lidija and Achim.
In short, it's strategic steering, right? We decided in federations five, six years ago, since we were at approximately 1.7%, 1.8% market share in housing lending, we will focus on retail housing lending. Today, we are in excess of 10% market share in five years, right? Almost 11%. you know, overall market share of 6.3% is total assets market share. you know, in target segments, we are 10%+, which exactly says we are strategically steering the balance sheet towards more lucrative pockets where the deployment of capital makes sense, right? you know, if you look at what cost of capital actually applies, these guys are earning cost of capital because this is for us a hurdle rate. All of these banks are earning cost of capital, right?
This is the case because we have started strategically steering the balance sheet also in Kosovo. Two-thirds of the balance sheet was corporate loans or even more. No? We are now what, half, right? In North Macedonia and Sarajevo, we are two-thirds retail, right? That's the target structure. We really strategically steer the balance sheet structure as well.
Okay. Hedvika, heads up. Tautvydas from Arete has the question for you: What is your cost of acquisition in retail banking? How did it evolve over the time, and what are the future projections? Does it differ across channels or countries you operate in?
Well, I was commenting before that we are at the beginning of the route when it comes to digital acquisition. Which means that most of our acquisition currently still happens via branches, and this is of course more costly than, you know, digital acquisition. I assume that in the coming years or even quarters, this will materially change. The cost of acquisition would go down. What I would comment still on this point is that we are as much as we are focusing on acquisition, we are also focusing on churn prevention. Our target is net growth. I have to say that we managed the churn down quite significantly in the past years.
Most of the clients that are with us are also staying with us, so we have quite low churn rates, and this helps also with the cost of acquisition these days well before we bring a lot of more digital acquisition in.
Mm-hmm. Thank you. Also for from Tautvydas, this time for Andrej, the question: What is your largest fee-based product in CIB currently? Which product has the most potential for the future?
Yeah. Thank you for the question. Currently, it's very well-balanced under five, let's say, main product. The most important is trade finance. This, it's exactly one-fifth of the fee business. Secondly is investment banking, the same. It's payments, also one-fifth. Acquiring, and the fifth one, it's general fee business, fee business for the accounts management and so on. It's exactly on these five levels. We are not aggressive in this. I will also show you on the payments level. It's the target. It's only 4%-5%. Especially it was mentioned by Valdis Dombrovskis, SEPA inclusion, which will dramatically decrease cost for the companies and retail for cross-border payments.
Where I see and realistically will be the biggest potential for fee business is trade finance. Majority of the countries yet are not yet there, but the internationalization, the trade finance deals or trade finance business will increase.
Originate and distribute has huge potential, especially in investment into the infrastructure. What I would mention is investment banking, where we are really heavily investing also in the people on a group level and trade finance.
Hedvika, you have a question from Ronak, from Dunross. Have you observed any evidence that your depositors are shifting their savings to alternative digital channels like stablecoins?
No, we have not. At least not material. As I said before, we still have very strong growth of deposits. Last year, 9%, group level retail deposits, despite record asset management sales last year. No material outflows.
Mm-hmm. Okay. Well, I'm-
What we see, people are moving obviously to, especially Slovenia, to Revolut. I mentioned before, Revolut is bank number three by number of clients. They actually move only smaller portion of their, you know, property in this respect. Usually, when they also don't want to show necessarily what they are paying for, right? It's a lot of gaming, it's a lot of crypto trading, which we don't offer yet, right? We haven't started offering it. It's predominantly in these dimensions. Otherwise, or, you know, this, one-off cards and so on, which we are now introducing also as a service very soon. We are bringing in new functionalities, we are gradually disintermediating a need to move away, right? Abroad, unless you really don't want to show something, and this is happening. This is what we see.
You know, gaming, crypto trading. This is predominantly moved to other banks, other providers.
Stable coins have not yet really, you know, a lot of role here in Slovenia and other countries anyhow. We'll see. Crypto is the continuous question. Our supervisory board is challenging us, you know. Have you analyzed the evolution of stable coins globally? Have you analyzed the evolution of crypto trading? You know, would you start offering just trading? In such a strong consumer protection environment, right, we have been witnessing, we are a bit hesitant. As long as, you know, there's our direct peers offering this more aggressively, we are a bit cautious, you know. There is a enormous reputational risk, you know, and not necessarily that much of an earning potential yet. This territory still needs to evolve.
As Hedvika says, we are not losing materially, you know, for, against such alternatives.
Hedvika has something to add.
Yeah. What I would also add, in Slovenia, moving now also to other markets, we have invested a lot into the youth segment for years now, we observe quite high market share, actually around 40% and above in the youth segment, so up to 27 years. We see them, they value very much that we are, you know, an important sponsor of sports, culture, so important big events also in Slovenia. They find this that we are also very strong in corporate and social responsibility. I think to young people, this really matters also.
Mm-hmm. Mm-hmm. They are looking for impact.
This helps prevent outflows also.
Thank you. Antonio, you got a couple of questions from Anton, from Coeli. The first one, in payments, do you think your markets will end up as a card-based, or will local payments methods emerge? Depending on what prevail, how would it affect NLB?
Thank you for the question. Good question. Actually, the local payments and instant payments is developing and evolving. What we are expecting is that the card business, card transaction, issuing transaction will grow from some 9%-15%, depend on the market. The instant payment, A2A, transaction, will grow more. Again, in both of them, we are speaking about growth. We combine If you see our payments fees, payments and accounts total, as I referred previously, in this total bucket of fee, accounts are around 40%, 42%. If you see payments together, payments card and cash, including account, cards are less than 30%. This good combination gives us assurance, even in this shift, that we will achieve our targeted growth and targeted net fees and commission income from this.
In general, cards are from 60%-70%. Now, in digital payments, probably as share, probably their share will drop between 50%-60%. Again, the volume itself will grow.
Okay. The second question for you as well, Antonio, from Anton Coeli. You said you want to shift cash distribution to retailers. Are retailers happy to bear the security costs of this?
There are two business models. One is cash distribution to the end customers, which is cash-at-till service. This means that actually the retailers, big retailers like a petrol station or big retailers, they would leverage on cash that they already have in their stores, and they will just offer to the end customers possibility that they withdraw cash with some purchase. In this regard, we are expanding the cash access cash accession points. The second part is we are trying with some big retailers in Slovenia, actually one petrol and one convenience store, without increasing their operational risk. To accelerate and to have instantaneous booking of their money on the account in the bank. We are already piloting here, the risk on their side actually will not increase, will decrease.
Risk will increase a bit probably on our side, controlled with the three parties agreement.
It's unbelievable what kind of innovations are coming in this cash management group because cash, as I said, is here and will stay.
There are considerations. This is by no means a given yet. We've been managing 70% of country's cash, right? NLB has been managing 70% of country's cash, a bit more than 1/3 card payments, 40% overall payments, 40% international payments. This is enormously powerful position. We also run a significant part of the ATM network and so on, right? There have been some initiatives potentially on the industry level because in Slovenia it is proprietary run, right? There is no third party that is in centralized way of running the business to potentially put forces together and outsource. The entire banking system outsource to a specialized vehicle.
There might be an attempt to divest potentially card processing center, which is today owned by the banks and by that potentially then address this issue as well. But it's early days. It might lead to consolidation of cash services and ATM management services on the industry level in the country. Of course, the other countries are already running differently. In Croatia it is already centralized and so on.
Actually it goes again in the same direction. It's about the managing the operational risk, in which case we will, how to say, outsource the operational risk, still keep the banking or role here.
Okay. Andreas, next question is for you. We got it from posting on the website. How can we ensure that as NLB Group grows, especially with SEE momentum and M&A opportunities, that risk culture stays ahead of the business cycle?
That's a pretty general question. I mean, I could talk a long time about that. I will give you a few highlights. I mean, first of all, and if you ask me, most importantly, if you look here in this Management Board, you see almost seven risk managers sitting. I don't know how much you feel that when the colleagues discuss it with you. But the risk understanding on board level is, for my taste, really exceptional, and that makes life much, much easier, I tell you. Because, you know, garbage in, garbage out. If we would get a lot of crazy stuff, and I'm filtering a lot of that, what comes out is crazy, right?
This is the opposite situation in this board that makes things much easier, and that's for sure 1 important anchor and pillar of this answer. Otherwise, I mean, it's very important to keep basic principles, you know. These basic principles, as long as I'm sitting in the chair, they will always be the same. Sometimes this is triggering discussions. Just to give you one example, one of our anchors is that our subsidiaries are self-funded. Now, we were today discussing a couple of times that not in every market liquidity is any more abundant. They will have to stay self-funded. This doesn't mean that we cannot provide them a line. This doesn't mean that we not support them at all. Overall, they have to stay self-funded.
We saw now in two markets actually that this was exactly triggering what the colleagues mentioned. They had to collect more deposits really to fund the growth. That became at a certain point of time, a little bit more expensive. We have to live with that. I will not bend on basic principles, you know. Then, maybe the third one, and last one for now, on M&A. Look, the question is that in the due diligence, you have to, of course, do a quality due diligence and then really to be disciplined. I think, Blaž was today already talking about that. We will just doing value accretives things. Here, you know, this can have different dimensions. Again, giving you one example.
When we were acquiring Komercijalna banka, if you ask me, with the due diligence, we were spot on except of one detail. What we underestimated is how ridiculously bad they were working on their off-balance exposure. This created us an additional value of some EUR 80 million-EUR 90 million just from that part on write-backs, right? Of course, this coin with M&A has two sides. On the one side, of course, you have to see all relevant risks so that you don't have the bad surprises. What is allowed is sometimes a positive surprise. Here, actually, we had one. What we saw later on with Sberbank, with N Banka, how we called them till we merged them, was actually in a much smaller scale, but a similar story.
It's interesting how many banks are wisely not very consequently working on their late-stage clients. That, of course, then helps in value generation. Thank you.
Thank you. Andrej, you got a question from Simon, from Citi. We heard from the macro overview that China 2.0, high levels of imports from China are having a huge impact. Are your corporate borrowers prepared for this?
Thank you, Simon, for this question. I believe this question is rising all over Europe and all these battles that we are currently seeing. The first page of macro is exactly because of that. I would say directly on Slovenia, it's three combination of these higher imports. I don't know how much you know, but some years ago, Hisense bought the biggest, the largest corporate company in Slovenia called Gorenje does home appliances, roughly EUR 1 billion of sale. What happened afterwards, because Hisense says that it has also their own trade company in Europe transfer everything to Slovenia. Therefore is visibly the import from China to Slovenia increase. This is one reason. It's not the only one. Secondly, pharmaceutical industry in Slovenia is extremely strong. We have Lek and Krka.
Novartis and Novartis both are having heavy investments, and majority of core material is coming from China, which is one of the also huge risk for Europe because majority of ingredients for or majority of pharmaceutical products are coming from China. Due to the inflation also this growth. The third reason is few years ago, the import of China cars in Slovenia or in the region was zero. Currently, I believe these are the Chinese car are the third most sellable cars. I believe the import from China is some mixture. How my or our corporates region, especially Slovenia, because Slovenia is the most open economy, are feeling this China implication is indirect. We discuss, Andreas actually discuss this huge jump, relatively huge jump in NPL in Slovenia from almost 0% to 4%. These are three cases.
What is common, three, four cases, what is common for these cases, they are all from auto industry and heavy industry, so heavy electricity or energy users. How we are facing it, the German economy is facing this pressure from China, and of course this is then transfer indirectly to Slovene corporates. I hope, in the last, at least last month before this new war, Iran and American war, the things are normalizing. The companies are adapting to the new, let's say, to the new sentiment. This is how our corporates are feeling, especially from Slovenia. It's indirectly due to our partners' country partners in Europe.
Thank you. Archibald, next question is for you. Miriam from Deutsche Bank. NIM and IM further compressed to 3.19% in Q1. How do you see development through to 2026 and key drivers?
Thank you for that question. Jokes aside, there's a bit of a technicality involved here. The quarterly dynamic is a bit different than what you see here. There is a annual reset in a way in calculating this number, it's building up over the quarters. Quarterly dynamic is less dramatic, the drop. Yes, there is a pressure. We discussed it, I think, extensively now. We see NIMs in Slovenia expanding now. We see NIMs in some markets stabilizing, and in some markets there's a bit of a compression. Broadly speaking, we want to stay firmly, and we will stay firmly above 3%. Over time, 3.20-3.30% is kind of the ballpark estimate that we put in our plans.
Of course, they are to some extent also managed by dialing down a bit the loan growth. Because what was driving up funding growth is basically a quite aggressive loan growth, right? If you look double-digit loan growth, they can only sustain for so long, and we have partially hit the buffers. We are now deliberately dialing back. If you consider it positively, there is enormous pent-up demand in loans in all of these economies, driven by consumption, by investment, by housing. We could print loans till, you know, our head. Question is we have to fund them. The response is tactically do the funding, get the house in order for, so Andreas Burkhardt is happy. The second part is raise the prices, right?
Raise the prices on the asset side, which is also a very passionate debate at our ALCOs, because Front loves high prices. It's a balancing act. Dial down a bit the loan growth to 9% is what we consider sustainable, and that should stabilize NIMs at around the 3.0%, 2%, 3.3%.
Mm-hmm. Thank you. The next question, I would let you decide who answers this one. Would you characterize the 2026, 2027 guidance as conservative at this stage, or do you rather view current consensus expectations as too optimistic?
Well, I mean, our guidance is, we just published. In that sense, there is nothing to add. If there is news to come, we will communicate a new guidance. For now, it is what it is.
Thank you. I'm going to ask the production to give me more questions. This is a question for you, Luka, from Tautvydas. Who are your biggest competitors in asset management, and what is your competitive advantage over them? We need one microphone here for Luka so he can.
Thank you. In the local market, it's a large insurance group, Triglav. It's also their asset management business and the other big competitor in Slovenia, is Infond, which is part of Sava Re. Obviously if we look at the broader space, at the broader region, in Serbia, Raiffeisen and Intesa are very strong. OTP also gearing up, in Macedonia we've got two local competitors. Generally obviously if you look, if you look at the market, include also the, you know, ETFs which are gaining some popularity, obviously the competitive space expands also to the global players, you know, which are offering ETFs through the trading accounts. For now, this is still a relatively, you know, limited distribution, I would say.
Okay. Thank you, Luka. You can hand the microphone to Marko because he will answer the next question. Marko, in your leasing growth targets by 2030, how much of that growth is organic and how much is it M&A related?
Thank you for the question.
Basically, you heard me saying before that, when preparing the targets, we primarily relied upon our existing franchises and upon our existing geo-markets. You also heard me saying that we also have M&A in our toolbox, and we're ready to use it if an interesting opportunity comes along. Having said that, and since you opened the door with the question, I also do acknowledge that we have quite ambitious targets in front of us and a competitive landscape that Lidija was mentioning a while back. Some M&A acceleration could help of course, but, and I underline what Archibald has said, only if it's value accretive. If it's not, thank you, but no thank you.
Marko, can you give the microphone back to Archibald? He might need it, and I need another set of questions. This is for the CEO of NLB Serbia. We will need the microphone here again. Maybe let's use this one, Andreas. It's going to be much easier for later. Thank you. Very efficient, very operative. Why not slow growth in Serbia? Why we don't slow the growth in Serbia a little if the funding is so expensive? Thanks for standing up. The cameras will catch you.
Well, first of all, when you have the engine, then it's complicated to stop the engine. I think it's better what we are doing.
Maybe just the microphone a little bit closer.
What we are doing is not stop the engine because the engine is going very fast. Instead of this, we increase the pricing for all segments from 50 to more than 100 basis points. This, in this equation, it is good. At the same time, in its first quarter, we are the fastest-growing bank with deposits and second in the loans. In that respect, we are working on both side. We are starting the first, I think, in Serbia to collecting deposit in order to be on, I could say a reasonably safe side, to have everything under the control, but in the safe side, to have a really robust production because our customers expecting that we are there and also this help us to the side business, daily business.
With the loans we are getting, more and more customers. This is, in a nutshell, we will not slow down, but of course we will be more focused on lucrative segments. Of course, still collecting sight deposit because this is bread and butter of the business. Thanks.
Thank you. I will manage the microphone here. While I'm waiting for questions.
Just one add-on.
that were posted.
If I may.
One, one add on. Andrej, go.
First Andrej and then Archibald.
If I may just add, we are fully aware, I believe already Andreas was speaking. The question and Vlastimir was speaking regarding the liquidity and especially cost side of liability side in Serbia. For the best project, for the best companies, we ordered them immediately. Actually, already in last year we established a comprehensive pipeline of all the deals, and we will use also the group liquidity and the group equity really not to lose the best clients and the best deals, especially when the team really for last five years was growing, increasing the market share, not to slow down the tempo that we, and the image that we are having in Serbia. We will also use the group strength.
Mm-hmm. Archibald, anything to add?
Exactly the same answer.
Okay. Now I will.
Since our screen is not yet back, the next question was to Archibald and me. What are the two things we are most worried about?
Thank you, Andreas.
The rest then I lost.
You first.
Okay, me first. I mean, look on the short one. If we look on this conflict now with Iran and the U.S., and I think we were discussing it before this, these energy price hikes, I think that's in the meanwhile in the region well-digested, so here I wouldn't expect any big turmoil. A different story is if we would see energy shortages, right? This is very hard to predict, which impacts that would have. I mean, just to give you one little example, if you have a glass producer and the furnace is down for two days, forget the furnace, right?
Here, of course, we could have in a short period a relatively strong impact. I think governments everywhere, but also here in the region, they are very well aware of that. I think that should be one of the last things to happen. That would of course be a major risk. The other thing, Blaž usually keeps saying it's really true. I mean, cyber risk, that's of course something which is, you know, expanding every day. Here we have to be very careful that we are really, you know, on top of things. Because here, you know, it's hard to predict how big an impact could be.
Here we are extremely careful, but that's something, you know, which can keep you up at night, as Blaž keeps saying.
Okay.
Archibald, and then for you.
Archibald?
Not much to add other than, I keep thinking are we focused or, as we sometimes say, obsessed enough on the customer experience? We I think are getting a grip on the digital side. I think we need to get more systematic grip also on the branch side, which we tend to thin out with capacity. The habits are still very transactional, and I think we really have to watch out that we keep our valuable reputation with our customers in that region with excellence in service. Here and there I keep hearing feedbacks, customer feedbacks that are not excellent, and that worries me while we are running this transition.
Archibald, next question for you as well. What is the ECB rate assumption for the plan? 2%?
Yes.
Okay. Short and sweet. How do you assess the competitive landscape in your core markets? What key factors could structurally compress the growth premium going forward? Maybe Blaž.
This is what I usually say. There is always value in imperfection, the imperfection of this market is that competition is not perfect, which means of course these markets are below the radar for global investors, right? You have typical couple of typical suspects. That's two Italian groups, 2.5 Austrian groups, and one Hungarian group that, you know, are more or less consistently or not consistently investing. We have been really the only headquarters business in this region that has been exclusively focusing with the entire strategic and capital capacity on this region. Which means we are consistent at applying business strategy, which means that we are fully committed and devoted, including the CSR program, sustainability program associated with it, introducing, bringing new services, right?
I mean, as much profound as it might seem, we brought Apple to four markets. Apple Pay was not interested. You know, Apple was not interested to bring Apple Pay to Kosovo, North Macedonia, Albania, and Bosnia and Herzegovina. It was our effort, Antonio and the team, for a couple of years to bring the service to these markets. You know? This, this is because we care, because we are really interested in client experience and differentiation. You know, Federation Bank was the first one bringing actually all of these services, including smart POS and everything, right? Even if it's taxi card.
We are really consistently investing and now platformizing this consistent investment, not only in terms of IT solutions and support, but also in terms of, you know, how we perceive corporate business, how we perceive retail business. Look through group-wide. It's really consistency. I claim we are the most consistent player here, and that's why we have been growing market shares across the board. Segments, products, geographies, right? Consistently for us, 5 years, right? I would say that there is a lot more we can achieve. We have to do the homework. You know, we are not competing only with subsidiaries of international banking group because they don't have head offices. We are the only head office with subsidiaries.
Subsidiary per se, you know, is never that much, you know, powerful in terms of introducing anything because you have to report, you have to ask. If you're coming from these small markets, you are automatically number 17 or 18 in the equation.
Right?
In terms of your presence in the total assets of the group, you're a couple of %.
By definition. There are very rare exceptions. There are some rare exceptions, but very rare exceptions, right? In this respect, it is really something that I believe is for us a given that we will have certain competitive edge because we are consistently and heavily investing in this region, right? The other one is that of course Slovenia and others will be soon, or is exposed to international competition, which means head offices like Revolut, right? They can of course easily deploy their services to our market, and they have been doing this. We have been, for example, handicapped for a couple of years because Slovenian authorities didn't allow us video authentication. My neighbor sitting in the next apartment in the city of Ljubljana, Slovenian citizen, could open an online account with Revolut or N26, but I was not allowed to authenticate him online. For years, right?
In Bosnia and Herzegovina, you still cannot sign digitally. Digital signature is not yet a valid means of signing, right? Online here is impossible. You can online gather the interest, right? Someone has to be sent to, you know, to pick up the signature. You have to drag the client somewhere, the branch office or, you know, post office or an agent going there, you know? It is still a kind of natural barrier, right, for, to enter, for entry of pure online digital players. This is what Antonio said. Our aspiration is, and we don't want to use this, but yeah, I would again, we want to be a Revolut of Southern Eastern Europe for these countries.
They are not banking on you. Once they come, it's different. You know, if we do the homework, if we did the homework on time, it's going to be at least more difficult for them.
You know? We are obviously investing a lot into the welfare and local societies, right? My address in the morning is different than address of Revolut CEO. Does anyone in Bosnia and Herzegovina know who Revolut CEO is? NLB CEO is coming here, right, and he's talking to who's who in local language, seriously interested in prosperity of this country, right? Not of how to extract EUR 150 from every account. This comes on top, you know.
Collateral effect. The next question is, Reinhard, for you. Could you share where you are in your cloud migration and reduction of technical debt journey today, and how the CapEx is phased across the plan period?
I will try. Maybe Archibald, something on CapEx also for you. Cloud migration. We started the cloud migration journey a couple of years ago, and we're probably a third through. I would, however, just add here, this is a very deliberate journey we're taking. Cloud is not a means for itself. We are depending on what system we are talking about. Sometimes the right answer is cloud and SaaS. Sometimes the right answer is cloud. Sometimes the right answer is actually cloud here locally or within the EU for regulatory and other reasons. This really depends a little bit. I think as a general point, wherever cloud is possible and sensible of a business case, we are pushing toward it, and we're pushing the envelope, including things like in core banking systems, but it's a journey which will keep us busy.
You saw 2030 towards the 60%, we're definitely aiming on that. If we're looking to the technical debt, similar story. I think here, again, we're probably 30% to 35% through the whole journey. Of course, if we're talking technical debt, you asked me that earlier today.
The last 20% are the most difficult one. On the one hand, we're really seeing, we're not only expecting, but we're already seeing a significant acceleration with the use of AI. You heard me earlier to say the biggest use case at the moment is actually AI-assisted coding, and that really does make a difference, especially, I mean, as every other bank, there are some stuff in SQL we're not particularly proud of. AI is fantastic to try and now to systematically get rid of that. We are seeing on the one hand an acceleration, on the other hand, also because we're getting to the more difficult bit. It's something on the journey towards 2030, where hopefully that number is significantly below 20%. I think CapEx, and here, Archibald, please add to that one.
It's something quite complex also the way we are dealing with our own internal sub- subsidiary DigIT. It's always a number to be a little bit careful. Roughly it's linearly with a delay. There are lots of factors at play here, but in linear with the plan, arising with a little bit of a delay. Archibald, maybe you add.
I wouldn't focus so much on CapEx. What we do track is IT spend because the boundaries are blurring anyway for exactly this cloud migration. What used to be a CapEx, you buy a box, is now you buy a service. That's, you know, accounting-wise, over time, this converges. What we track is IT spend across OpEx, and CapEx. This blend, we indicated, currently at EUR 150+ million per annum, and that's, we measure in relation to revenue base. We want, relative to the size of the business measured in revenues, spend the right amount on technology. This right amount is about 10, 9. Should go up to 10-ish, and maybe in a peak year, be an 11. I do confirm to what Reinhard said. Efficiency in IT is also dramatically accelerating.
This 80% AI-assisted coding a year ago was 50% AI-assisted coding. There is also a dramatic productivity revolution happening in the IT space. I'm not gonna give you a five-year firmed up IT spend guidance because efficiency is happening there too. You have this commitment of spending sufficient amounts, so ballpark 9%-10% of revenues, to keep not just the lights on, but increasingly keep us safe because the UX is there. To keep us safe, I think, will require more resources than we currently may imagine. Being safe is the most important value we can provide to our customer base. This we can't compromise. Threats and news flows are real and have to be really considered extremely cautious.
The latest threat levels are something we indeed yesterday discussed we should discuss at European levels because, you know, Mythos or this famous Beast is not even accessible to us. American banks are playing with that. U.K. banks are playing with it, are getting scared. European banks don't even have access to that. We need to level up on that space, and that will consume resources. I think the traditional coding stuff will get dramatically more productive.
Thank you, Archibald. That was the last question we received online. Last opportunity. Anyone in the audience? We have one question in the back. You will get a microphone shortly.
Hi, everyone.
One more here. Yeah, noted.
My name is Mihael Antolić from InterCapital. First of all, I want to thank you for the detailed presentations and the answers. It's definitely gonna make my job as an analyst far easier. I do have three questions for you. First of all, the current conflict in the Middle East, are you seeing any downsides from it, especially when it comes to energy sensitive sectors, industrials, manufacturing? My second question is, in case that conflict continues and we see higher inflation again in Europe.
In that case, we could also expect higher interest rates from ECB. Your current strategy is basically limiting the net interest income sensitivity. In that case, would you be limiting the upside as well? If so, could you reverse that? My third question is related to your 23 strategy. What are the main impediments you're seeing to the execution? Thank you.
That's quite broad, right? How much time have we got? I mean, look, what is puzzling me is within this Middle East crisis, obviously, what is going to be with supplies, right? The real question is: Will there be consistent supply, continuous supply of energy? You know, look at what's happening with airliners, we just discussing, right? You know, is it going to be able to be flown here, right? You know, Lufthansa just killed the city line, which is, you know. They disconnected Munich with Ljubljana, right? There were many other, actually lines that were simply shut and cut, right? What does this mean for industrial basin of Central Europe, which is, you know, the most powerful industrial basin still. Now, okay, China is taking over.
Generally, you know, we are exporting 80% to European Union, right? You know, of it, you know, it is majority going to Germany, Austria, Northern Italy, and Switzerland, logically, right? What is going to be the energy supply and, you know, what is going to be the price level? When it comes to portfolio of our bigger corporate energy-intensive clients, they have mainly bought and hedged their energy, you know, procurement for the upcoming 12-18 months. The bigger question is. Is there going to be a supply, right? Whether the price holds if there is no supply. This is when it comes to the energy. No one is smarter than that. I mean, look at today's evolution. It was $93, and I don't know what is now, but it was $93 once.
You were talking about the levels. No, it was. Second later it was $93. I don't know where is now, right? Then generally when it comes to, you know, what would be the impediments, we are basing, of course, with certain level of predictability and stability, right? If there's a major global turmoil, this is not factored in our projections. Our projections factor in political, you know, and macro stability with reasonable growth rates that we have forecasted here. Whatever is eating into this and, you know, big European investment is not coming furthermore, right? There is a negative spiral you also were talking about. You know, if this was not coming, what would be, you know, down the drain you used, if I remember correctly, right? Are we going down the drain? It's not factored in.
Going down the drain is not factored in, right? I'm really happy that your analysis has shown that this is actually the growth turf of Europe. Not even Central Europe. It is Southeastern Europe. Five geographies of Southeastern, from Southeastern standing out dramatically in terms of expected growth and actually, you know, delivered growth in most couple of years, right? This is extremely good positioning in this respect. I would not go broader than that because we can philosophize. These are very, you know, philosophic questions. We plan for stability, predictability, moderate growth of Central Europe, rapid growth, which is 3 percentage points more on average, yeah, indeed. I was talking about 2%-4% real and 5%-8% nominal, right?
If this is delivered and then the rate environment in higher inflation, right, is not leading to overwhelming credit risk. Because, you know, here the hurdle is actually is this introducing overwhelming credit risk? You know, are clients facing, you know, turmoil and distress because suddenly housing loan is 7%, no longer 3%, right? If it's linked to the LIBOR, you know. Is then for corporates suddenly what used to be 3% yesterday now 6% or 7%, you know. Are their business models sustaining that? If it's a moderate hike in inflation leading to moderate hike of interest rates, that's good for banks, right? We will not consciously open up gaps and positions, right? We will operate with current sensitivity, and current sensitivity is positioned for growth of rates obviously.
There is still significant portion of your LIBOR-linked exposure, which is automatically benefiting. There is significant portion of our, you know, liquidity reserves sitting on ECB accounts or central bank accounts and of course, in sovereign bonds. This has, you know, gotten also repriced significantly. Where this ends in high inflation environment, you tell me. Is Slovenian bond, instead of 3.66%, going to yield 7% in two years? I don't know, right? Hopefully not, because this would very likely distress for the entire society. If it's 4.5, we are benefiting on basis points almost, you know. It's gradually priced in. Here we are operating with 2% rate environment and relative stable sovereign yields.
If there is 4% rate environment leading to, of course, higher sovereign yields as well, of course, this is immediately on the entire stock, right? Gradually in couple of years repricing. You were seeing before sensitivities, right? You know, suddenly benefiting EUR 150 million, then of course, having to survive offsetting EUR 140 million, and so on. It's really a broad question, so I can't, you know, respond necessarily shortly.
Maybe allow me just one, two sentences on asset quality in that respect. An unpredictable environment is an unpredictable environment, you know. We are talking a lot about the downside. I think as now a couple of us already mentioned on energy, for several reasons, price hikes don't seem to be really the big problem at that point of time.
For the foreseeable future, the problem would really or might happen if you have really interruptions in availability of energy. That's hard to predict, but let's talk one second also about the upside, and I give you one very simple example. We have here in Federation Bosnia and Herzegovina, actually in northern Bosnia, one automotive supplier. He was growing before COVID times per year 3%-5%, relatively low margin business, but profitable, solid, you know, growing. Since COVID, he's growing 15%-20% per year, nobody's asking any more about price. The only question is, "Can you deliver?" You know?
What we see in these days, and every of these new shocks is reiterating again that big European companies understand more and more again that this is a region with highly educated people, that this is a region which can deliver, and especially it's a region which is very close. We saw in these last two shocks, so COVID and then Ukraine, these tendencies happening and we start seeing them happening again now. In that sense, you know, it's also an opportunity. What will then prevail, more risk, more opportunity, is, I think, in this volatile environment not easy to say. It would be for sure wrong just to be pessimistic about it. Thanks.
Okay. Maybe a microphone to Andrej. Anything to add?
It also might be this crisis, the opportunity. Europe will recognize same for the region that we have to be self-sufficient on the energy. Europe roughly has a self-sufficient on electricity production, more or less. Some country less, some country more, but all the oil and gas, we are a majority of that we are importing. Some, something is in the north, but majority we are importing. There will be huge investment for self-sufficient in that, and it could be also huge opportunity for the whole not only for the region, but for the whole Europe. I believe that governments and everybody is now preparing on this, and this will be real, long-term sustainable transition. Not because of high, I don't know, high standard, which are extremely important, but because of pure needs that Europe is sufficient.
There will be a huge transition in that and huge opportunities.
Okay. Thank you. We have one more question, I believe.
Maja, Croatia osiguranje. Only add on, in this direction, and it's related with, the actually the stagflationary momentum that is maybe, you know, has some kind of possibility to happen. In that sense, if we see the inflationary pressures reemerge and also the economic growth slow down, how would that slow down in the economic growth influence the, affect the, your plan? Nothing radical, but let's say, you know, below expectations.
It's combined, right? If it's in this, going this stagflation direction, less loan demand but higher prices. You know, it is very difficult to model and then you apply your assumptions here.
Indeed, we have a model. A mild stagflation is actually NII positive, at least in the short, medium term. Of course in the long term it's not a good thing. Depending how long such a situation would prevail, but it's not an immediate disaster, let's say. I don't expect sudden swings. I mean, we, well, neither from Iran nor from anything else mentioned, I don't expect sudden swings. Things will pan out, things will level out. A stagflation, a mild stagflation is actually a bit counterintuitively for a bank, slightly positive short to medium term.
Okay. Now I feel like I'm at an auction. I'm asking one more time, any questions? Yes. Microphone is coming shortly.
Stojan. Hi. Thanks a lot for this event. Jovan from Oddo. I have an easy question on your planned acquisition. How confident-
Which one? We have many planned.
Yeah, yeah. You know what I mean. I think the last one you announced, right? How confident are you now? I mean, okay, you increased the price, but last time we learned that it's not all about price, right? What's the likelihood in your case from today's perspective? If you succeed, what would be, let's say, we know the bank is listed, we know, you know the setup. You have been looking at the bank probably for longer. What would be the, let's say, the additional earnings potential from, let's say, second, third year onwards? Because now you presented this, the, the guidance standalone and with potential M&A, and the difference would be actually a bit below what the potential target would bring. Does it mean that you would be ready to dispose a bit of the group?
Accompanied by professional advisors, I can only refer you to the last publication.
Thank you very much for your nice answer. Thanks a lot. Really, it helps a lot.
You had to ask.
He had to answer.
Exactly. Maybe the last one from me. How do you derive to this 1.5 times book value target? That would be interesting to know.
Sorry, what was that?
The one five-
You did on one of the slides, right?
price book. That's.
Yeah
Relatively modest re-rate of the PE to a 10 multiple. Currently nine to something like closer to 10. Plus of course the EPS, DPS developments that we described.
Okay.
That's how it works out.
Okay. Okay, thanks.
Okay. Any more questions? Yes, we do. Here is one. We will get the microphone. It is quite challenging if someone is sitting in the middle. This is this region, we help each other out and we pass the microphones around.
Yeah.
Here you go.
Yeah, just trying to be a bit more difficult before the end of the day. Look, I guess you guys are a bit sick of, you know, answering the questions whether your forecasts are conservative, whether you're being, you know, you could be a bit more optimistic. Just a bit, one more question along those lines, and this is on the payment side, where you're forecasting growth of around 6%-8%. I just feel that looks a bit conservative. When I look at, you know, the cash utilization in the system, when I look at other EMs, typically where a company has a first-mover advantage, they've been able to grow at significant double digits for, you know, 5+ years.
Given the technology that you're introducing, the first-mover advantage, the brand that you have, I'm just trying to understand why your growth will be, you know, 6%-8%. How have you come up with that?
Thank you for the question. This refers to the growth of the net fees and commission income from payments, accounts, and cards, for the next period, 6% CAGR. Actually, it is derived from the initial baseline that we showed. We proved that we can grow a little bit more even than we planned previously, we grow with 7%. Referring to the previous question, SEPA coming, A2A accounts developing, instant payments developing within the region, this will for sure contribute to the growth of the payment volumes and transactions, not necessarily in the net fees and commission income because they are decreasing.
For example, we have Montenegro example, where by the governor, it was demanded from the bank that all the payments through SEPA up to EUR 200 is free of charge. We have to embed these kind of things within our projections.
Okay. Any more questions? Yes. The microphone-
I've got the mic.
is conveniently close.
Of all the countries in which you operate, which one are you the most optimistic about and why?
With the government turn Slovenia. I'm joking. Look, we are of course betting on all of them. We bet on accession and convergence, right? What appears to be the case, at least how European Commission is approaching it, is that Montenegro is coming in as the catalyst, right? In a country like Montenegro, some big infrastructure and swift infrastructure feedback build-up is couple of billion EUR, not more, is actually having 7%-8% GDP growth impact easily, right? What does this mean in materiality terms for the group? Of course, it's a different story to what extent we can be part of it, but, you know, multiplication effect of such growth in the entire society is very high, right? It is on us really where there is a hope for, you know, accelerated accession.
That's why we are so bullish on Albania, for example. We are not yet there, you know, but we are finding the ways. We are opening rep office, we published we will be opening rep office as the first, right, attempt. Once they are in, we could, even if not having a chance to buy something meaningful, through passporting be a part of infrastructural build-up, right? We simply provide cross-border lending from Slovenia, balance it easily, right? By that, this can be easily EUR 200 million, you know, a year, you know, once you're doing it, once you put the system in place, the platform in place, right? It is across the board, we see a potential all for all of them. We will see what will be happening in Serbia.
Sooner or later, there will be some kind of a transition in Serbia as well. Serbia was the largest FDI per capita recipient in the world for a couple of years. Now we see this tuned down a bit, right? I would expect this to resume immediately once, you know, European Commission and Serbia come to terms about, you know, rule of law and independence of media, whatever is at, you know, that is being disputed, and whether that has been addressed with no European Commission threatening with withholding, you know, funds, right? This is an official fact, basically, right? Once there is a report, improvement in report between the two, right? I would expect Serbia to fly again, to start really flying again, right? You saw general macro.
I mean, almost without the exception, these countries are, you know, in this ballpark, right? Albania, where we are not yet in, extremely bullish. Montenegro will obviously go in. I mean, this is From my naïve understanding, I see Montenegro as a message. They're bringing it in because the vote of Montenegro is cheap, right? Even if there is veto, right? It's a catalyst for the others. It's a proof it's possible, right? The people from other countries will understand, guys, it's possible, and we require this from their leaders, right? Including reforms that are necessary for the EC to perceive, you know, you are credible. You know, you are credible for accession, right? It will not be 15 years from now. Montenegro is in, Albania might be in 29. You are in 30 or 32.
That's much quicker than, you know, 20 years from. I would not highlight one specific geography. Serbia stands out because of the size and because of course, enormous global interest for investment that was going in direction. I mean, you saw real estate investments by Israeli capital, Arab capital, you know, infrastructural investment from Chinese, from Turks, from Russians, you know, U.S. money, European money. Now it's a bit impaired, I expect this to resume immediately once there is political, you know, relationship improvement. This is for sure the most sizable one out of Slovenia, right? We would hope North Macedonia, NATO country, come on, give hope to these people as well, right?
I mean, they delivered on what they were asked to, but now they are willing to deliver the constitutional change again, but then they need a promise there is no one standing around the corner requiring something else, right? This they will not do. I talked to the prime minister personally. He said, "Look, I'm even willing to change the constitution, but I need to know that's it. That's enough." Right? First Greece, then Albanians, then Bulgarians. Who's next? Right? Otherwise, there's big hope for all of them, and we bet on all of them, and we are top three in all of them, apart from Albania.
All right. Thank you, Blaž. You know what I'm gonna ask. I don't need to ask anymore. Just raise your hands if there is any other questions. Looks like, I'm really investigating thoroughly, looks like there are no further questions. Thank you for having the energy all up to the end, being here, listening, and probably being inspired by some of the things that you heard and asked the questions. Members of the Management Board, we are done with this presentation. Blaž, can you give us key takeaways you want the investor community to go home with today before we really wrap?
I did part of it in last expression of energy outburst, right?
It was very insightful though.
Yeah. No, I'm really happy at first that you know, hang in there so long. It's been a long day, I'm really happy about the interest shown by you, devotion, taking time, coming here. I understand there were guys taking three flights getting here, that's real commitment. Thank you very much. It means a lot to us. It went through the reflection of what was good in the last years, eight years since the IPO, and I'm happy that the external parties have supported a thesis, right? First, that the bank appears to be relatively moderately valued by the, still, the investment universe, since, you know, the banks generally have been somehow, you know, trading still historically at relatively lower level compared to the market.
There is another one that is, you know, even trading more, even more conservative. That's the NLB, right? We have been delivering total shareholder return, as, and of course, you cannot sleep on laurels, so yes, we can celebrate shortly for what we have delivered so far. The plan, I hope you understand, is credible. It's really bottom up. It is, you know, deriving from real detailed assumptions in retail, in corporate, in geographies, right, in payments, you know, real revenue streams, how to address them. I was specifically impressed by the presentation showing really that Southeastern Europe is the growth turf of Europe, right? Regardless of what we are talking about, you know, general, is it 1%, is it 0.8%, is it 2%? Here, the growth is going to be nominally 6+, right?
If it's nominally 6+, this is of course good prerequisite for loan book growth of, you know, high single-digit, which is what we basically assume, but are able to deliver in double-digit numbers, right, in last two years. If we were to keep this pace of 12%, let's say, growth, we could easily overshoot EUR 50 billion. If there was an opportunity to transact through M&A, this could significantly fast-forward reaching the volumes, and of course, also adding these EUR 200 million missing or EUR 150 million missing from EUR 1.8 billion, right, we showed from organic scenario. EUR 1.8 billion at normalized valuation still means, right, of 10x multiple or 11x multiple, still means there is a lot of accretion to your value, basically from, you know, from this angle, from capital gain.
We are stepping up towards 60%, towards higher level of efficiency from below 45% towards 40%, right? We are showing simply credible plan. I believe and I hope and I trust that you have perceived what was said today as a credible plan to deliver what had been promised. Thank you very much again for hanging in there, for coming, and it's not yet over. The evening is going to be even more impressive, believe me. The evening program is gonna be
Thank you, Blaž.
Thank you.
Thank you, Blaž. I believe this applause goes for all of the board members.
One more sentence. Just one more. I apologize. I have to do this because the message you want to stick, you need to reiterate, right? It looks like Europe. It feels like Europe. Let's recognize it's Europe. Thank you.
Okay. All right. In normal terms, I would now free you from the stage. Not yet. Just wait here. I think some photos need to be made, and you can endure another minute. That brings me to the point when we really wrap up the event. For those of you who are staying, there are a couple of things happening in the afternoon. Number one, I'm looking at you, Irena, walking tour of the city. Is it happening? Thumbs up if yes. It is. If you're interesting to stretch your legs, and I hear it stopped raining outside, and get close up and personal with the city, just congregate at the entrance of the city, of the theater, and it will depart shortly.
It's about an hour, and you will enjoy it because it is a vibrant and resilient and very unique city. In the evening, at exactly 7:00 P.M., 19 hours CET, the dinner is starting at the Vijećnica. This is city hall. It was newly renovated. It has historical importance. As Blaž announced, you may find yourself immersed in the culture and the history of this region even more to complete everything that you heard about the economies, the societies, the banking systems in this part of the world. I think from the information I needed to share with you, that's all. Thank you for staying that long. Thank you for your energy again and all the attention. Thank you also to the teams that worked hard behind the scenes to make this event go by so seamlessly. Apart from that, I can only say good luck and goodbye.
Thank you.