On Friday, NLB held its Q1 2023 pre-call with investors & analysts. In this brief overview, we bring you the key takeaways from that call.
Right from the start, NLB pointed out that the strong results we have witnessed in 2022, should also continue in Q1 2023. Even though a decline in the volume of loan issuances is to be expected, hoovering at mid-single digits, the increase in interest rates we have seen since last summer has positively impacted the margins. In fact, according to NLB, the interest rates on newly issued loans are app. 3x higher than they were a year ago (1.5% vs. app. 4.5%). This would mean that even with the lower mid-single loan volume growth, the interest income is still expected to increase.
In terms of the current macroeconomic situation, and especially the situation in the banking sector in general, NLB for itself does not see a strong material or rather any material impact from the Credit Suisse situation and related developments. Furthermore, the SEE region they operate in (excl. Croatia) is according to NLB not facing any major stress to its economic development, with historically low unemployment rates. They also noted that there might be some improvement in the demographic situation, in particular in North Macedonia and Kosovo, with an increase in foreign investments in these countries.
They also note that the Ukraine war, nor the interest rate hikes themselves, haven’t had an adverse effect on NLB. This is especially evident on the deposit front, as they note that they do not see any losses on retail deposits, and some small and immaterial losses on the corporate side. They also noted that on the loan side, 60% of their loans are tied to the 6M EURIBOR, which as it grew positively impacted the top-line developments. In terms of the corporate clients, there is a reduction in growth, especially in volume, but this is more due to the fact that the demand was so high in 2022, especially for the energy-intensive industries. As the situation in the energy market has mostly stabilized, these clients are continuing to pay their loans and as such do not require that many new issuances. Lastly, deposit pricing remains pretty contained.
In terms of risk, they noted that Q1 2023 should continue the strong trend seen in 2022, as they said that they expect some positive developments and no negative developments. As such, despite the current situation, they do not expect any negative developments on the risk side.
They also touched upon their current developments, including the issuance of the senior preferred bond as well as their M&A activities. The M&A activity in this sense, even though no concrete details were provided and NLB themselves pointed out that they are to receive more information in the coming weeks, is still interesting. They noted that this would mainly pertain to the acquisition of the lease assets left over after OTP’s integration of Nova KBM in Slovenia, with assets amounting to app. EUR 800m. They further noted that EUR 100m of these assets are present in Croatia. This acquisition, if it does go through, would make NLB a market leader in the leasing business in Slovenia. Of course, none of this is set in stone, and at this point is only speculation.
The funding, however, is more concrete. As mentioned several times already by NLB, the plan is to issue a senior preferred bond in the range from EUR 300m to EUR 600m. The EUR 300m is the minimum required that has to be issued to fulfill the MREL requirement, which has to be done by 1 January 2024. The remaining amount, as noted by NLB, would be issued to help fund the aforementioned lease business acquisition. The issuance of the bond should happen somewhere in Q2 2023. NLB also noted that this is the first green bond they’re issuing, and in terms of the rate at which it will be issued, they hope that this will have a downward effect on the interest rate. Furthermore, they also noted that the rate at which it will be issued, of course, subject to market conditions, should not exceed the amount at which their last bond was issued.
All taken together, NLB repeated several times that they might have to revisit and upgrade their outlook and guidance, on the base of these positive developments.
Several other tidbits were provided during the Q&A session. NLB is benefitting greatly from the interest hike developments, which they see as a return to normal. In fact, at the ECB, they’re holding app. EUR 2bn of assets, which are yielding 3% returns as compared to 0% a year ago.
Furthermore, they noted that the only real risk that worries them is the current inflation rate, and especially the persistence of core inflation growth. However, they do note that because of the loan, deposit, and interest rate developments, revenue growth should be extremely strong and more than enough to compensate for this.
Lastly, they note that they frontloaded some regulatory charges to Q1 2023, which should have been done in Q2 2023. As such, an impact of this should be seen on the financial statements, but should also not come as a surprise. Overall, they noted that the bottom line development should also come very strong.
