NLB Group posts EUR 18.3 million net profit despite credit impairments and provisions established in Q1

May 14, 2020

Today, 14 May, the Supervisory Board of NLB d.d. met at its 62nd regular meeting and focused on the business results in the first three months of this year. In this time period, NLB Group generated EUR 18.3 million net profit, which is a EUR 39.6 million decrease YoY, in particular due to credit impairments and provisions established due to the outbreak of the COVID-19 pandemic.

More information on NLB Group operations in Q1 2020 is available in the Interim NLB Group Report published today. On Friday, 15 May at 11:00 am CET, all interested stakeholders are invited to the presentation of business results by the NLB Management Board. The webcast, followed by a Q&A session, will be available here.  

Net interest income of NLB Group in Q1 2020 amounted to EUR 77.4 million, which is a decrease of EUR 2.0 million or 3% YoY, mainly due to higher interest expenses resulting from new Tier 2 instruments issued by the bank, which was partly compensated for by increased loan volumes. 

Net fee and commission income increased 6% YoY and amounted to EUR 42.4 million, in particular in the retail segment in banking members on the markets of SE Europe. In the second half of March 2020, net fee and commission income dropped due to the outbreak of Covid-19 pandemic, especially in card operations, as clients carried out fewer withdrawals and payments due to the lockdown.

Due to lower yields on the securities portfolio and loan book and due to the higher cost of funding, the net interest margin of the Group decreased and stood at 2.29%. CIR amounted to 60.3%, which is an increase of 8.5 p.p. YoY.  

In Q1 2020, NLB Group set aside impairments and provisions totalling EUR 28.3 million, in the same period last year EUR 0.6 million. Additional credit impairments and provisions in the amount of EUR 24.5 million were recognized in Q1 2020 due to the outbreak of COVID-19 and consequential adjustments of macroeconomic scenarios, which are based on the forecasts prepared by the EC, IMF, IMAD, BoS, and other reliable experts and related off-set measures, approved by governments in the region.

Gross loans to customers amounted to EUR 8,125.6 million, a 2% YTD growth. Gross loans to individuals remained flat and gross loans to corporate increased 5% YTD. Strict restrictions of retail lending in Slovenia, imposed by the BoS as at November 2019, and the COVID-19 outbreak in the second half of March, affected the lower new production of loans to individuals, while the demand for working capital facilities of corporate clients increased.

The Group holds a very strong liquidity position, at the Group and individual subsidiary bank level.

Deposits from customers increased moderately YTD.  

The total capital ratio for the Group stood at 18.5%, a 2.2 p.p. YtD increase due to the inclusion of subordinated Tier 2 notes. This represents a solid basis to cover all regulatory requirements, including capital buffers and other currently known requirements, as well as the Pillar 2 Guidance, also in the aggravated circumstances during COVID-19 pandemic.

Credit portfolio quality did not deteriorate in Q1 2020 (the share of non-performing loans and exposures in line with the EBA guidelines remained unchanged at 2.7%). NLB Group expects credit portfolio quality to worsen in 2020 through a downgrade of some clients, including the increase of non-performing loans as a result of the economic slowdown. 

Relaxation of coronavirus preventive measures

The bank is closely monitoring the situation regarding the coronavirus and is constantly adjusting its response. After weeks of reduced number of operating branches and their working hours, most of them were opened at the end of April.

In addition, the return of employees who have been working from home to office buildings, is expected to begin on 18 May. It will take place gradually and in accordance with all preventive health measures.

NLB Group - regional specialist

New circumstances regarding the coronavirus pandemic and economic hibernation have not affected our long-term goal as a market leading regional specialist.

Despite the changed market conditions, resulting in significantly higher challenges, the management upholds its medium-term financial goals. However, unless a better understanding of the eventual implications of the pandemic is established, it has to be assumed that the timeline in achieving some targets might get deferred.

The push on acceleration of digitalisation of the business model and thereby improving client experience while having higher short-term emphasis on cost management will somewhat compensate for softer revenue environments – at least temporarily – in both corporate and retail banking. Our dedication to our clients and our home region as such remains unchanged.  

The changes in the economic environment have also not affected NLB Group’s ambition to strengthen its position in the South-Eastern Europe and to become a systemic player on all the markets where we operate, especially in the Serbian market, which – besides its natural strategic value for NLB Group – also seems to have higher resilience to the pandemic given the structure of its economy. The pending acquisition of Komercijalna Banka, which depends on obtaining the consent of numerous regulators, is underway to be completed by end of 2020. All the necessary procedures are therefore continuing as planned. 

Transition to digital channels

Figures for Slovenia show that with the outbreak of COVID-19 pandemic our clients opted for e-bank and mobile services much more often and changed their user habits very fast and decisively. The number of m-bank Klikin users has for the first time exceeded the number of e-bank NLB Klik users. The total number of payments in the e-bank and m-bank went up by nearly 18% in March when compared to February. During the pandemic, holders of NLB cards performed by a third more online purchases than before the epidemic, and digitalised many more cards in the NLB Pay mobile wallet. The NLB Contact Centre has also considerably gained popularity – in the period from the start of lockdown and by the end of April it recorded 150,000 contacts (via telephone, e-mail, online chat, video call), which is almost twice as much (96%) as before the pandemic. Video call, enabling remote client identification, was used by 25,000 clients in this period.

“It turned out that the period of restrictive measures acted as a sort of an accelerator to transfer clients and overall communication to digital channels and safer contactless transactions. Their biggest advantage, however, is that clients can use them wherever and whenever. The bank, which was well prepared for the new circumstances and client needs, further sped up the processes and extended its set of services available for clients via digital channels,” emphasised Blaž Brodnjak, NLB CEO.   
“COVID-19 pandemic might even be considered an opportunity for major players like NLB Group. On the one hand, us being the largest banking and financial group with headquarters in this region – the Group which calls this region its home – means that people listen to us. And on the other hand, it might just give us an additional push that we need to reach our potential,” added Brodnjak.

NLB Communications