It is crucial that the NLB base and brains remain here, not somewhere far from the eyes and the heart

Mr Brodnjak, first, what are your thoughts­ about the latest investigations conducted by the National Investigation Office, also at your bank?

An investigation was conducted at the NLB, but it was not directed against the NLB or its employees, as is seen from the court order. The NLB team cooperated constructively in this investigation. The team of investigators was very professional and acted correctly in carrying out the procedures.

How would you reply to the statement by the National Investigation Office indicating a suspicion that with the expropriation­ of subordinate bondholders your bank "acquired great pecuniary gain in the amount of EUR 257 million"?

This topic has been dragging on since the introduction of extraordinary measures in 2013. I suggest that we leave it to the competent authorities, all the way up to the Constitutional Court, to rule on this. The Bank's Management Board is convinced that it acted according to all required authorisations and regulations, and that it protected the interests of the Bank and its savers and above all, is now operating well and is stable, which means that the rehabilitation was successful.

The Chief Prosecutor, Harij Furlan, recently said in Parliament that cooperation with NLB had improved, but was still not good. He said that the police had recently requested the NLB to examine the media’s coverage of the disputed loan to the LHB Frankfurt, while the Bank explained that the loan would soon be superannuated anyhow. What do you know about this?

I am not familiar with this, this is the first time I have heard of it. Not long ago Prosecutor Kozina commended publicly for (our) constructive cooperation, and I find it unusual, because in the past we received different responses from investigating­ authorities. But I would like to emphasise that we are bankers, and after three-and-a-half very stressful years of establishing a regime of integrity and determining liability for past actions we are compelled to focus on the future and our primary business in this demanding market situation, and leave the prosecution to the competent authorities.

This week you were planning to present the NLB to investors in London, together with SDH. You postponed the meeting because of the situation on financial markets. Is Brexit a threat to the privatisation process?

Nothing is ever as bad as it seems. Initial reactions on the financial markets led to great adjustments to the value of bank shares; in the past few days things have calmed down somewhat. It will become clearer by September just what Brexit means and what it signifies for financial markets. We are following the share prices of comparable banks in the region. One of them, for instance, is Moneta, the former GE Money in the Czech Republic, which recently launched a public offering. The share price then dropped, but has already returned back to the pre-launch level.

We expect the markets to consider the potential consequences of Brexit until September, and then calm down. Then we will have an opportunity to present our story. We believe it is not particularly dependent on global markets. The NLB is an easily understandable banking group, with operations on manageable markets, with identified and actively managed risks and a simple business model: taking deposits and granting loans. Our balance sheet mainly includes government securities and almost no derivatives. Compared to international investment banks, our balance sheet is relatively safe. We therefore believe that we have a story that is interesting for investors.

Will privatisation proceed as planned?

All activities at the bank continue as if Brexit never happened. Except for the postponement of the road show, because we realised it was perhaps not the most reasonable time to speak with investors who themselves are dealing with the post-Brexit situation. We expect that everything will calm down, and we are conducting our work according to the original schedule so as to be able to be on the market by the end of the year.

You sat on one of the hottest managerial chairs. Your predecessors, Voljč, Jašovič, Veselinovič and Medja, resigned before the end of their terms. What were the motives behind your candidacy? Are you planning to hold on until the end of the term?

I had already been at the bank and working, I believe, in a way that was proper and beneficial for the bank and the broader environment. I know that this will be good also in the future. That is why I accepted the invitation by the Supervisory Board and the candidacy for President of the Management Board. I follow the principles of fundamental trust and hard work. I believe that such work brings results. I am honoured to have assumed this position, and am aware of the responsibility it brings, and accept it with full ambition and all due humility. This bank has a special role in this system, and is different from any other bank.

We are a banking group with 40 subsidiaries and 6 subsidiary banks, five of which are systemically important in 5 countries. We hold a third of the market’s deposits by the Slovenian population. This is a completely different responsibility from that of other banks in the country. The NLB’s decisions have an impact on a far broader environment. I plan to hold on until the end, but I am aware that if our ambitious goals are not achieved, or we lose the trust of the Supervisory Board or owner[s?] ­ it is logical that those of us responsible will have to step down and leave the bank.

When Janko Medja resigned several names for a potential successor emerged in various networks, particularly in the Gorenjska region. Are you a member of such a network? Who supports you, who stands behind you?

(laughs) That would be my family, without a doubt. They are my only true support environment. And of course my loyal, hardworking, responsible and ambitious colleagues. I am absolutely not a member of any network. I am a career banker with experience in various projects, at various levels, from various banks and groups, that bring with them different types of challenges. I started as a sales person in a Maribor Branch Office, a daughter company of an international banking group. I also worked as head of the office, of a division, and a member of the management board of a daughter bank, as well as head of division and member of the group management board in a total of five banking groups, four of them international.  Since 2002 I have been engaged in crisis management work at commercial banks, where I gained valuable experience. I believe I act in accordance with the basic principles and ethics of the banking industry, and always strive to employ common sense, even though banking is usually perceived as a rather sophisticated business. For me, work, responsibility and goals come first, and rights second. If the goals are achieved, I am always willing to offer praise and recognition.

Your appointment was no surprise, you were seen as a silent favourite.

It is not my place to comment on whether I was a favourite. I was simply here and it was decided, together with my colleagues, to focus on doing business, regardless of any potential new and additional appointments to the Management Board. In spite of all the stress and with only three members, the Management Board carried out all its daily work and was able to complete some important transactions and restructuring operations, sell portfolios, reduce the volume of NPLs, refresh the strategy, launch new products, and believed that our work would yield results and be recognised, ensuring the team would enjoy the necessary trust to continue managing the Bank, also in the future.

You were selected by the supervisors; nevertheless, being the head of a state-owned bank, you also need political support, namely that of the minister, the Government, SDH. Do you enjoy that kind of support?

I will not change or adopt my position in relation to those levels of corporate governance, levels that I respect as was initially agreed or established. My relationship is with the Supervisory Board; with all other stakeholders the relationship is purely commercial. I believe we work in a responsible and constructive manner and within a reasonable professional framework. I am always ready for constructive dialogue with the stakeholders regarding the relevant topics and the Bank’s role, which must nevertheless remain within the framework of the profession and the Bank’s interests.

You have been in the NLB since December 2012. We now have our third government since that time. Have you ever felt any political pressure or pressure from the various interested networks?

The pressures we feel most strongly are those that come from the media, and they are in no way uniquely connected with the prevailing power structures. We abide by the principles of professional conduct and believe that we are working responsibly and in the Bank’s best interest. I see my appointment as a reminder that people with relevant experience should be appointed to positions. I believe my colleagues and I have worked well and the results prove it.

What are your priorities? Privatisation? Anything else?

For the last three-and-a-half years, we have focused on a thorough restructuring of the Bank, and have managed to put it back on stable foundations, so that it can now operate in a sustainable, profitable and stable manner, without requiring further capital injections. I have no illusions that this is enough and allows us to sit down and take a break. We are now facing the standard challenges of contemporary banks and banking, such as digitalisation, disruptions from various branches, etc. It is therefore necessary to consider the future – what strategy and business model to employ when facing the challenges that await us.

I say this because the selected privatisation model assumes that the brains of the institution would remain in Ljubljana. This means that we have to create the strategy and that we, the employees of the NLB Group, are the ones to carry it out and ensure the required results. The strategy is now being revised and I expect it to be approved by the Supervisory Board in August. This strategy will serve as the substantive framework for our mid-term operations, and a key input element in the privatisation process. We will endeavour to convince our investors that we are doing the right thing, moving in the right direction and pursuing goals that can be achieved. A clear strategy is the key.

What is the central focus?

A strategy is required in order that the investors see that the Bank has a clear vision and a strategic framework for focused operation. The focus will be on certain key areas. One of those is efficiency and simplified operations, processes, products and services; the other is migration towards a more innovative development of the Bank, focusing on solutions to offer clients in order to improve their experience and satisfaction. By the same token, we are a regional specialist at the level of a former joint country, and we plan to strengthen this role.

Do you accept the state strategy of managing capital investments, based on which the state retains a controlling role in the NLB?

Some time ago I explained to the newspaper Delo that I was a supporter of privatisation at any price, and that the Bank needed responsible owners. For me, the ownership model is not so important; I think it is crucial for such an important institution, i.e. a systemically important bank, to have its headquarters in Ljubljana. Thus, the brains remain here and the decisions are adopted on the basis of local responsibility, and not somewhere far from the eyes and heart. As long as this is guaranteed, the particular model of privatisation is rather irrelevant. As I have already said, it is crucial that the brains of the group remain in the region, in Ljubljana, and that the management of the NLB is allowed to adopt important decisions. The selected privatisation model guarantees that, and therefore the Management Board supports it. Furthermore, we believe it will provide stable and professional corporate governance in the long run, which is another reason why we support it.

The Supervisory Board appointed you to a five-year term. Alongside you, they also appointed Archibald Kremser, Andreas Burkhardt and László Pelle from Hungary. Were you the mandatary of this Management Board?

The process of appointing a CEO has been carried out, simultaneously with the independent process of finding a member of the Management Board to take over operations as well as information technology – a COO. In this context, a dialogue was held with the supervisors on how to compose an optimal management board, and it was agreed that besides me, the existing members of the Management Board – Andreas Burkhardt as CRO and Archibald Kremser as CFO – were also solid candidates. The Supervisory Board recognised that we have proven ourselves with our past work. We see this as a proof of confidence in us, and we are willing to take on this project with full responsibility, diligence and humility.

What is the atmosphere at the Bank, following the lay-offs of recent years? Some employees left the Bank, some dissatisfied, there were significant changes at the Bank. How did the employees react to the appointment of the Management Board?

You can never make everyone happy. We have some important goals to achieve, which requires that we do more with fewer resources. This is a simple fact. We will continue to be more efficient, which means that in five years we will have some 20% fewer employees at the Bank, but they will be highly qualified and committed.

Are you announcing new lay-offs?

I am announcing that we will work to do our work more efficiently. This means that we will optimise processes and reduce the number of employees required to do the work. We are regularly discussing and communicating this issue within the Bank. I have received many positive responses from colleagues in the last two days. Of course, there are some among them who expected a different outcome, but the general atmosphere is positive and we remain optimistic.

You announced last year that you would sell a package of NPLs worth EUR 800 million. You announced a week ago that you sold NPLs worth EUR 400 million. Does this mean you have only accomplished half the job?

Initially, there were about EUR 800 million worth of NPLs; things have changed due to the specific dynamics and we collected some of them ourselves, some portfolios were adjusted and some repaid by the clients, so that the final amount for sale was between EUR 650 and 670 million. The package concerned has been sold. We are still negotiating the sale of the remaining EUR 250 million. One transaction is in the final stage and I expect it to be signed soon. The negotiations for the third tranche are somewhat more complex, since the parameters have changed due to our successful collection.

Who bought the receivables, and who did not pay them? I am asking this because Mr. Medja is said to be the difficult party, perhaps pain in the neck, for some people, because he decided to sell the receivables.

So I am now this pain in the neck, since we have already sold some of the receivables (laughs). This is a portfolio of mixed receivables considered to be of such a nature that collection would probably fail. These are not receivables we believe can be recovered by curing or restructuring the debtor. The buyers are international funds specialised in such transactions, the process was transparent, carried out together with an external consultancy, which scouted potential buyers at the global level. It took them nine months and the process was conducted in a diligent and professional manner. We believe there is no reason to have any bad feelings about this, since the Bank’s interests were represented in the best possible way. It is in the Bank’s best interest to reduce the volume of NPLs as swiftly as possible, so that it can focus on the future without all the burdens from the past; furthermore, it is also in the interest of the taxpayers, since the bank’s value in the sales process increase.

What is the current volume of NPLs?

The volume of NPLs is being reduced in line with the plan; the exact figures will be published in August, in the semi-annual report.

Will the NLB post a profit this year?

We at the Bank have undertaken the project of justifying the state aid with full responsibility, and if the proposal is confirmed by the General Meeting, we will pay out dividends for the first time in several years, namely in the full amount of the last year’s total profit at NLB d.d. of EUR 43.9 million. This will improve our credibility. The Bank strives for long-term sustainability and profitable  operations, and the end-year result will be positive. I cannot give you the exact number at the moment, but the result will be positive, also after the sale of NPL portfolios. This will serve as a sound basis for the future.

Why have you introduced flat rate fees for corporate deposits?

Companies are forced to keep a certain amount of money in the banks, and we are obliged to handle them in a responsible and diligent manner. We have been paying flat rate fees for our deposits kept by the regulator and on the interbank market for years. In view of that, and given the extremely high liquidity of the banking system, we have been forced to shift this cost to the clients. The duration of this measure depends on the measures taken by the ECB. The Slovenian business sector is obviously recovering, it is accumulating liquid assets, while savings of our retail clients continue to grow. We have noted a significant increase in retail deposits, and Slovenians are obviously very conservative, since only a few of us opt for alternative investment options, such as investment funds, insurance-savings products and similar. There is no serious investment demand by the business sector that would enable the banks to channel these funds into the financing of investments, there is no significant consumption, i.e. people rarely take out consumer loans. The market for housing loans is growing slowly but still lacks a strong impetus.  In private terms, Slovenians are among those nations with the lowest indebtedness, and we are indeed extremely conservative.

Can the NLB do more for the Slovenian business sector?

The NLB has been a key protagonist in the restructuring of the Slovenian business sector for the past three-and-a-half years. We were in charge of all major restructuring processes and acted as a key agent for almost all syndicated transactions on the market, and for the issuing of securities. In this way we fulfilled our role of a system bank. If there are areas where we can do more, we will focus our efforts on them; small business development is considered one such area.  To this end, we have established the Innovative Entrepreneurship Centre. As a system bank, we consider the development of entrepreneurship our long-term mission. In any case, good long-term sustainable performance is the best we can do for the Slovenian business sector. Thus we will ensure not to repeat the situation that we had in the period 2009–2013, when the bank, as a result of self-rehabilitation, not only failed to finance the deteriorating balance sheets but also denied liquid funds to good companies due to the credit crunch.

Can you please comment on the claims that the banks refuse to provide sufficient lending to the business sector?

Such claims will always come from those that are either marginal cases or lack trustworthy business models and good cash flow. Today, the best ones are able to get loans from certain international groups, which I believe to be below the threshold of long-term sustainability.

Such as?

There are loans with fixed rates under one per cent for a period of five to seven years available on the market. The NLB has not won a contract in the public sector for a year and a half, because prices have dropped to levels that are absolutely too low. As for housing loans, it is possible to get loans for periods longer than 20 years at fixed interest rates that are well below the 15-year EURIBOR average.

Did the banks shoot themselves in the foot, so to speak?

This means that as far as price levels are concerned, and in some cases the structure of transactions, some banks have exceeded the sustainability threshold, and this is a situation that cannot be maintained. The only solution to this problem is radical consolidation.

To simplify: there will be fewer banks as a result of imminent mergers and acquisitions?

That is correct. With current prices, many banks will be unable or unwilling to compete, which will lead to the fact that they will have serious problems with profitability – so they will either be the consolidators or the consolidated parties.

Can the state aid regime dictated by the European Commission be seen as a straightjacket for the NLB? You have to cut back on business, you have to complete privatisation processes at a time not appropriate for the sale...

In the framework of state aid, the Republic of Slovenia signed the Catalogue of Commitments with the European Commission. It defines commitments the Bank must abide by. It lists restrictions which prevent aggressive competition on the market on price or dictates withdrawal from certain activities and branches, as well as a reduction of total assets, above all related to reducing the scope of NPLs. If NPLs constitute 30% of your balance sheet, you have to strive to achieve a reasonable level, which is between 5% and 10%. This automatically means reduced total assets. In the core business segments (retail and corporate operations), which forms the future strategic core of the NLB Group, the scope of portfolios is no longer being reduced; what’s more it has been growing, which means that commitments no longer serve as obstructions on the market, and we are looking for a minimum profitability on transactions. Nevertheless, some banks are offering prices that are below such minimum levels. So we are unable and unwilling to participate in transactions that are not economically viable. Those bankers will be able to explain to you that their sophisticated models of assessing the clients’ credit ratings are able to cope with such levels, but I have been seriously wondering why their shares of NPLs n their balance sheets have also reached two-digit figures during the recent crisis.

Unfortunately, patterns see in the period 2005–2008 are being repeated. Being a system-significant bank, we are still looking to act in a responsible and counter-cyclical manner. We are working to understand and pursue good, hygienic[healthy?] business relationships between creditors and borrowers, and the healthy profitability levels required by the owners and the creditors, who are often obliged to assume the financial risks associated with clients’ operations. Some bank players have already reached levels that could be seen as a potential basis for new problems. When the cycle turns downwards, which is actually just a question of time, and the ratings of the companies that are now getting cheap loans drop, the same bankers will again use the same pattern to demand higher prices, additional collateral and stricter repayment schemes. We are trying to point this out publicly whenever we get the chance, namely that the banking sector must act in a counter-cyclical manner, and that the NLB is working and planning to do so, as opposed to merely pursuing short-term goals.

Can you promise taxpayers that they will not have to pay for another NLB capital injection?

The NLB will pay out EUR 43.9 million in dividends. We believe the approach we have chosen will enable us to pay out a healthy dividend each year. It will thus return assets to the taxpayers and not demand more from them.

You have always supported abolishing the “harmful” Lahovnik law. Will you strengthen these efforts now, as CEO of the Bank?

(laughs) My position is that the Slovenian people must ask ourselves what we actually want. I recently participated in a round table discussion, where one of the ministers was also present, and we talked about how Slovenia wanted to become an example of a digital society developing swiftly and flexibly. My question is, what do we have to do to achieve this? I am convinced that in order to do this, Slovenia has to retain and attract key talent, people demonstrating above-average skills. People with high expectations, also as regards remuneration.

Lahovnik’s law limited remuneration in the public sector, specifically in state-owned companies. My question is very similar: do we accept the idea that a different logic could be applied in the public sector and state-owned companies? If we hope to achieve above-average results, I hope that we want to attract above-average talent into such systems and companies; and if that is so, we have to offer them what they expect, and not rely on some idealistic notions trapped in the general negative selection, and then ask ourselves why the expected results were not achieved.

The Bank has access to the balance sheets of all Slovenian companies. Are they better than they have been in the recent past?

I have grown more optimistic over the past 18 months. Companies’ cash flow is improving, and they have repaid a large portion of their debts. The export sector in particular is quite robust, with satisfactory order books, which means that the situation has changed for the better. If the situation can be maintained for some years, I am confident that investments will also thrive. And consumer confidence would return. Today, we have fewer than 100,000 unemployed people, which is encouraging. Once personal spending catches up with export flows, we will be able to return to growth. Brexit will bring with it some uncertainty geopolitically. We were wondering, no more than half-a-year ago, if the borders in Europe would become closed again. We are not any more positive about this.

How do you see the NLB five years from now?

The Bank will consolidate its position among the top banking groups in the territory of the former Yugoslavia, with the registered office of the parent company in the area and its strategic interests limited to this region. The Group’s performance will be solid and stable, with a healthy dividend. It will be focused on simplifying and improving process efficiency and providing user-friendly experiences. It will invest in digitalisation and innovative solutions. It will become an even more important regional specialist. Subsidiaries in the region will gain influence. We expect to be able to maintain our position in Slovenia and generate more than half our profit through oir subsidiaries.

How will you achieve top-level risk management? To ensure that the NLB does not experience a scenario like that of Agroživ in the Balkans?

When I began my term in office, we initiated a detailed reorganisation of the Bank’s key process – crediting. We introduced modern risk management and investment policy. Just yesterday we discussed the quality of [all?] newly-granted loans over the last three years. We established the overall quality of them to be very high, with a very high quality new portfolio. This means that good decisions are being adopted today and do not require any radical changes; nevertheless, we are currently implementing a very ambitious overall programme for additional systemic improvement of risk management. I believe we needn’t be anxious about repeating the bad decisions of the past, which resulted in such a dire need for additional capital.

Your predecessors at the NLB played golf or poker, ran, etc. What does Blaž Brodnjak do when he is not working? You come from Ptuj, and I heard that you like to wear the traditional local costume, that of the ‘Kurent’ character. Is it true?

Yes, it is true. Outside work, my life partner, who has always been my strongest supporter, together with our three magnificent, bright and healthy children, there is little time left for hobbies; if time permits, I enjoy helping my parents out at our family estate. When I leave my career as a banker, you will probably find me in Mali Okič or Veliki vrh in Haloze, in the family vineyard. I believe in and have a big respect for tradition, which is why I am happy to don the ‘Kurent’ costume. I am a real local, a man from Ptuj and Styria. I am also very comfortable in Ljubljana, and a proud Slovenian, and when I take my son to a football match featuring our national team, we’re proud to sing our national anthem.

One more thing: what kind of company car do you drive?

It is a six-and-a-half year-old Volvo XC 60, with 210,000 km on it.

So somebody drove it before you got it?

Yes, Mr Jašovič.

__________________________________________

Text Miha Jenko, Delo d.o.o.
photo: Uroš Hočevar

Blaž Brodnjak, President of the Management Board of NLB

We are available 24 hours a day, every day of the year!