Yesterday, NLB’s stock surged by 1.4%, reaching EUR 88.60 per share. In this quick overview, we’ll detail as to why.
Excluding the last 3 to 4 months of continued growth, the last time NLB’s share price reached its all-time high value was back in January 2021, at EUR 82 per share. Since then, the stock price has declined to app. EUR 53 per share at its lowest, in March 2022. This came due to the pressure that was present on the entire economy, and the expectations that a recession was bound to happen. A recession would of course, have a negative effect on the banking sector, as it would induce a higher amount of non-performing loans, or NPLs. Furthermore, elevated inflation rates also put general pressure on equity.
On the other hand, the start of the interest rate hikes back in July 2022 signaled that the time of “easy money” and quantitative easing was over. Banks benefited significantly from this development, as higher interest rates at the Central Bank also mean that higher interest rates on loans can be expected. This is exactly what happened from that point onwards, albeit with a somewhat delayed response.
As such, NLB recorded one of its best periods in history starting in the third/fourth quarter of 2022, and continuing to this day, on the back of higher net interest income, fuelled by the aforementioned higher loan interest rates. Furthermore, the ECB continually tests the banking stability of large European banks and has many regulatory requirements for these institutions. In this regard, NLB fulfilled all the requirements and continues to do so to this day. One key metric in measuring risk for banks is, of course, the cost of risk, which measures the provisions put aside for the potential deterioration in the economy, and thus higher levels of “bad” loans. Despite the whole situation, particularly during the winter of 2022 when energy prices were elevated significantly, the expected deterioration did not materialize.
This led to a double positive for NLB; on the one hand, higher profit was mostly driven by higher net interest income, while at the same time, lower provisions for the cost of risk. Of course, NLB also did several other things that surely improved the perception of the company, such as the launching of the green bond last year, as well as the upcoming new bond launch. Furthermore, the Company also announced the acquisition of Summit Leasing (more on which you can read here), while simultaneously continuing to pay out dividends, which amounted to EUR 5.5 per share in 2023 (in two tranches). Lastly, NLB has already upgraded its outlook for the upcoming years several times, further signaling the expected positive developments for the Bank.
All of these factors, combined with the general improvement in investor sentiment that has been present for the last couple of months, and which was further fueled by the expected interest rate cuts by ECB have all led to an increase in stock values, with NLB at the forefront. As a result, NLB’s share price grew by app. 1.4% yesterday, reaching a new all-time high of EUR 88.6 per share.
NLB, SBITOP price development (2019 – 2024 YTD, %)
Source: Bloomberg, InterCapital Research
