As NLB held a 9M 2019 pre-publication call, we are bringing you some key takes from it. Note that the company will publish their Q3 results on 29 November 2019.
Yesterday, NLB Group held a pre-publication call, in which the CEO and the CFO of the bank presented the Group’s operations in 9M 2019 and expectations for the following period. Blaž Brodnjak (CEO) touched upon the environment in which the Group operates and stated that they consider it a favourable one, which allows the growth of 2.5% to 3% YoY. In Serbia, the expected growth is even at 4% where NLB sees solid prospects for the bank as they have intensified cross-border lending. As a reminder, due to the EC commitments, NLB was not allowed to provide cross-border lending until the Slovenian State reduced their share in the company down to 25% + 1 share.
In the call, the management stated that NLB is in contact with ECB from whom they are waiting to allow them to embark again on leasing business. The Group already has factoring operations established in Slovenia and they are onboarding factoring platform in other countries. The management stated that the bank sees a strong demand for retail loans in Slovenia and regulator has reopened dialogue with them, so they hope that current terms under which consumer loans can be placed will be calibrated. The trend of regulators’ attempt to curb retail loans is evidenced throughout the region. NLB has a stance that restricting access to perfectly normal citizens credit is not healthy. In Serbia NLB was in a dialogue with the regulator and their voice was heard, so they do not expect measures to have an adverse impact on loan growth. In North Macedonia the action triggered by its central banks is still in its infancy so it remains to be seen how it will play out.
Financial results
When looking at financial results, which will be published on 29 November, the management has announced that in Q3 NLB has evidenced solid top-line growth while small tensions on interest income has been evidenced. The company is focused on a new set-up with transition of ownership in NLB Vita. Therefore, the bank is in the process of reviewing overall set-up in their distribution channel.
On the costs side, the bank expects to see a favourable development and on the level of the year, with costs expected to grow at very low single digits. In line with the company’s expectations, the head-count is decreasing as the bank is replacing some processes with digital responsibilities which they see as a positive trend that will continue in the next year. In Q3 NLB Group has evidenced NPL resolutions that will affect the results in a positive way. In the same period, the company has 2 large tickets that are release of provision on non-performing loans and are a results of regular healing activities. The bank still sits on book of 100% provisioned loans that amounts to EUR 900m gross so there is still potential for new releases in the future. The Group stated that they do not plan or predict this category as it is very volatile and with ageing these receivables mostly deteriorate.
On income tax the Group evidenced a bit of a reverse effect that what was seen in Q2 as they have adjusted their quarterly disclosure. On the level of the year the group expects 10-11% effective tax rate, the same as what was previously guided.
Target capital adequacy ratio remains unchanged as 16.25%. The Group has settled their financing requirements by closing bilaterally EUR 45m that will still not be evidenced by the end of Q3. Yesterday, NLB issued a note on a successful placement of EUR 120m Tier 2 subordinated notes. With this issuance, the Group has reached their full capacity with Tier 2 capital. It is also worth noting that NLB does not plan to issue additional Tier 1 capital at the time being. The bank currently holds annual ‘’Supervisory Review and Evaluation Process’’ dialogue with ECB and they hope that this current Pillar 2 guidance might come down for 25 to 50 pips.
