According to the management, we should expect to see a relatively regular Q3.
Yesterday, NLB Group’s Management Board held a pre-publication call in which the company discussed their 9M results in broad terms. According to the management, we should expect to see a relatively regular Q3.
Slovenia is currently undergoing quite strict Covid-19 measures, compared to NLB’s other markets. To be specific, for the first time since WW2, a restriction on movement at night was introduced, meaning that Slovenians are not allowed to leave their homes from 9 pm until 6 am (with some exceptions). As a result of the imposed restrictions, many shops are closed, while the operation of hairdressing and beauty salons, wellness centres, swimming pools, cinemas, theatres and gyms is prohibited. In addition, starting this week, passing from one province to another is prohibited (unless given an acceptable reason). However, the management added that there is much more positive sentiment in the company compared to the first lockdown.
Looking at the P&L, interest income is expected to be rather stable, while on a QoQ basis we should see an improvement of net interest income. Such a result could be attributed mostly to still a solid loan production in the retail segment, while the management adds that even higher growth rates on the retail would have been observed if the imposed restrictions on consumer lending were not in place. Meanwhile, we can expect to see mixed results from the corporate side.
Moving on to fee and commission income, we can expect also relatively stable results with solid development in Q3, however with an expected YoY decrease. The mentioned decrease could mostly be attributed to a lower performance in Q1 and Q2 due to lockdown. The current measures should also have an impact on the fee and commission income, whose extent will depend significantly on the duration of the current measures. The management stated that it is plausible to expect fee and commission income to be affected, however they add that the result would be contained and would not be even closely as dramatic as in Q1 and Q2.
On the cost side, the management notes that cost discipline remains strong and that we should expect flattish cost dynamic. This could be seen as quite positive given the company’s investments into digitalization. The company has accelerated its digital agenda and they state that you can already conduct many transactions without having to go physically to the bank; such as opening an account, cash loans, overdrafts etc. The bank added that they have seen a positive trend in a shift of more and more clients to digital.
Moving on to NPLs, the management added that NPLs should be maintained and that the company is monitoring loans on a single client level. The maintained NPLs should not come as a surprise given the fact that moratoriums in certain markets are still in place. NLB adds that the bank’s loan portfolio is not significantly exposed to the riskiest industries such as tourism or the automotive industry, while the markets they operate in are also not very dependent on the mentioned industries (with the exception of Montenegro). The bank also added that the Slovenian companies in general came into the crisis quite under-levered, which in the current situation could be seen as positive and could also be a solid foundation for robust loan growth after the crisis. Besides that, cross border lending is taking place, but not on the levels expected prior to the pandemic. However, given the current situation the bank is quite satisfied with cross border lending and adds that the competition is not as fierce in this space as it was in the past. The bank still remains very selective in its practice.
Moving on to cost of risk, the management recently gave a guidance of roughly 150 bps for FY 2020. Up until the current restrictions in Slovenia, the bank was quite positive that they would beat the mentioned estimate, however given the current situation they are being careful in giving any other guidance. However, the management adds that there is still more space for a downward trend in COR as some markets are performing considerably better like Serbia and Slovenia (up until the current measures). Therefore, we might possibly lower than expected COR which would lead to an improvement of the bottom line. The also noted that roughly half of risk costs in Q3 could be attributed to pool provisions due to change in macro outlook.
