Last week, S&P Global Ratings upgraded NLB’s credit rating to ‘BBB+’ from ‘BBB’, with a stable outlook, based on financial outperformance and strong strategic execution. In this overview, we are bringing you all the details.
On 18 June 2025, S&P Global Ratings upgraded NLB’s long-term issuer credit rating from ‘BBB’ to ‘BBB+’, with a stable outlook, based on financial outperformance and strong strategic execution. S&P Global Ratings (The agency) said that this rating upgrade came due to the following factors:
- NLB continues to show solid performance and relatively strong asset quality despite economic uncertainties affecting its core markets in SEE.
- The bank is committed to its “Strategy 2030”, which foresees expansion in SEE, business model diversification, and the upgrade of its operating model, aimed at doubling its balance sheet and net income profits by 2030.
- Despite high balance sheet growth in recent years, NLB maintained sound capitalization and solid funding franchise, and the agency finds NLB has been outperforming peer banks with a stand-alone credit profile of ‘bbb-‘.
As a result, the agency raised its long-term issuer credit rating (ICR) on NLB to ‘BBB+’ from ‘BBB’, and all their issue ratings by one notch. They also upgraded the čong-term resolution counterparty rating, RCR, to ‘A-‘ from ‘BBB+’, while also affirming the short-term ICR and RCR at ‘A-2’. The stable outlook reflects the agency’s view that NLB will maintain a robust balance sheet and a solid financial performance over the next 12-24 months while continuing to implement its new business strategy.
Delving further into the details, the agency first noted that NLB outperforms peer banks with a ‘bbb-‘ stand-alone credit profile, thanks to its persistent strong financial performance and the leading deposit franchise in its core markets. They expect that NLB will continue to have strong profitability and reap the benefits of its new business strategy to become larger and more diversified by 2030. The bank’s asset quality remains resilient despite global uncertainty and geopolitical risks affecting its main operating countries in the SEE. While its Q1 2025 NIM decreased while loan losses grew, NLB still reported good profitability and a return on average common equity (RoAE) of 15.7%. In the agency’s baseline projections, they expect the bank’s profitability and asset quality indicators will remain sound in the next 12-24 months, but they also noted that asset quality risks have increased due to the US trade policies towards the EU. These could negatively impact countries in which NLB operates, especially companies that are export-orientated, for example, pharmaceutical, auto, aluminum, and steel companies.
The agency expects NLB will continue to expand in the SEE region, with an estimated organic balance sheet growth of 7-10% per year in the next two years, which could further be supported by M&As in this region. Despite this increase, they expect continued restrained risk appetite with no excessive risk-taking and potential extraordinary losses.
Next up, the agency notes that NLB’s profitability and funding profile are stronger than its peer group, with indicators such as RoAE and non-performing asset (NPA) ratio both better than those of its peers. As a point of comparison, the peer group recorded median RoAE and NPA ratios of 13.1% and 2.9%, respectively, as compared to NLB’s 17.3% RoAE and 2.1% NPA at the end of 2024. Meanwhile, NLB’s cost-to-income ratio and cost of risk (CoR) were similar to its peers, at 50% and 25 bps, respectively, at the YE. The agency expects NLB to further benefit from efficiency measures thanks to its digitalization strategy, which could bring the cost-to-income ratio below 45% by 2030. Also, the bank’s unchanged strong deposit franchise and high liquidity buffers compare stronger than most peers.
As the largest bank in Slovenia with a 37% market share in retail and 23% in corporate deposits, it benefits from deposit stability and low-interest expense. Its strong franchise has also historically led to high deposit growth in the region. Furthermore, the agency notes that all member banks in the region are self-funded and have excess liquidity to fund local lending operations. However, the agency also notes that NLB has a relatively concentrated funding profile compared to larger European banks, mainly due to short-term client deposits. In fact, the share of sight deposits was 82% of the total as of the end of March 2025, and these could move quickly in case of stress, although NLB deposits have remained sticky and resilient despite multiple market turbulences in recent years.
The agency also commented on its “Strategy 2030” initiative and noted that shortly after its announcement, NLB made an attempt at acquiring Addiko Bank, which would have indirectly granted it access to Croatia. Although this transaction was not successful, it did show NLB’s intent to grow in the SEE region and diversify its business model. Another acquisition, that of Summit Leasing Slovenia, with its car leasing subsidiary in Croatia in September 2024, is another indicator of NLB’s strategic target to expand operations inside and outside Slovenia. While the agency notes risks inherent to these acquisitions, NLB’s good track record of integrating previous entities is an overall good indicator for future M&As. Besides this, the bank has increased its management capacities, increasing the MB member number from 3 to 7 following recent ECB approval, which allowed the appointment of NLB’s chief transformation officer, CTO. These additions are seen as positive by the agency, in particular when it comes to effective bank steering and the execution of key strategic initiatives. Furthermore, the CTO’s appointment is also supportive of NLB’s vision of its “digital-first operating model”, on top of the announced investments of EUR 170m – EUR 200m from 2025 – 2030.
Lastly, the agency also commented on NLB’s good capital management, which has enabled balance sheet growth and shareholder remuneration in recent years. NLB’s regulatory Tier 1 capital ratio has remained between 15% and 17% since 2015, with the latest at 15.9% as of March 2025. Management guidance foresees a minimum ratio of 15% (excl. strategic buffers), with the excess being used for shareholder remuneration or acquisitions. Thus far, NLB has balanced the complex interplay of organic loan growth, acquisitions, shareholder expectations, and regulatory capital requirements thanks to its earnings power from its good franchise in the SEE and the growth momentum in the region. NLB’s risk-adjusted capital (RAC) ratio stood between 8% to 10% since 2015, including 9.5% by the end of 2024. The RAC ratio is almost half the regulatory tier 1 capital ratio due to higher risk charges that the agency applies to loan exposure for NLB’s large operations outside of Slovenia (app. 50% of the total credit portfolio), where the agency sees higher economic risks than in Slovenia. The agency expects the RAC ratio will move closer to 10% in the next two years, but they also think that M&As and higher-than-expected dividend payments, currently guided at between 50-60% of net income for 2025 and 2026, will keep the RAC ratio below 10%.
In terms of the outlook, it is stable, which reflects the agency’s view that NLB will maintain a robust balance sheet and solid financial performance in the next 2 years, while continuing to deliver on its “Strategy 2030”, to become a larger and more diversified bank in the SEE. They expect NLB will create value from its bank acquisitions through successful integrations and synergies while maintaining its risk appetite.
In terms of future upgrades or downgrades, the agency said the following:
The agency could upgrade NLB if it further diversified its business model through geographic or product expansion, leading to a more robust franchise and resiliency against challenging operating conditions in key markets. Its ability to control and maintain risks and governance standards across acquired banks is also a precondition for further upside to its ratings.
On the other hand, the agency notes that (while unlikely) it could downgrade NLB’s rating if it were to operate with an RAC ratio that is sustainably higher than 10% while maintaining sound asset quality metrics and a restrained risk appetite.