NLB to become the third largest bank in Serbia through the acquisition of an 83.23% ordinary shareholding in Komercijalna Banka a.d. Beograd

The consideration for the 83.23% shareholding amounts to EUR 387 million (“Purchase Price”), which will be payable in cash on completion. In accordance with Serbian bank privatisation regulations, NLB is not required to launch a mandatory tender offer for minorities’ shareholdings in KB.

The Purchase Price implies a valuation of EUR 465 million for 100% of KB’s ordinary share capital, representing a multiple of 0.77 x KB’s IFRS consolidated shareholders’ equity as at 30 June 2019 and a multiple of approximately 6x KB’s estimated earnings for 2019. The Purchase Price will be subject to a 2% annual interest rate between 1 January 2020 and closing, with NLB benefiting from KB's earnings during that period under a "locked-box" mechanism. Subject to National Bank of Serbia approval, declared but unpaid dividends and employee benefits for prior financial years will be paid before closing. These are fully provided for in KB’s IFRS financials. KB’s existing shareholders will also receive a dividend equating to 50% of 2019 net income up to a maximum of EUR38 million before closing.

NLB will at all times exceed the Overall Capital Requirement and Pillar 2 Guidance of 15.25%. To deliver on this objective we will use capital instruments already issued and not yet accounted for (EUR240 million of Tier 2 instruments) and anticipated capital accretion stemming from retained earnings and/or ongoing RWA optimisation measures, potential AT1 issuance and non-controlling interest inclusion. NLB is striving to maintain a material dividend payment for 2019, however timing will be synchronised with the regulatory approval process and the implementation of capital optimisation measures. NLB is upholding its dividend policy which, subject to meeting its target capital ratio (currently 16.25%, review pending due to 50bps lower P2R), envisages a dividend payout ratio of approx. 70%.

The transaction strengthens NLB’s presence and its focus on markets in SEE, consolidating its position as the largest banking group headquartered in the region. Serbia will become the largest foreign subsidiary of the NLB Group, contributing c.24% of the enlarged assets. KB will add more than 770,000 active retail clients and the largest branch network in the country with 203 branches to NLB’s existing operations in Serbia. KB’s subsidiaries in Bosnia-Herzegovina and Montenegro will also complement NLB’s existing operations in those markets.