We believe in this region's potential

H1 2022 / Interim Report

NLB Group Strategic Members Overview	4
Figures at a Glance	5
Key Financial Indicators	6
Macroeconomic Environment	7
BUSINESS REPORT	9
Key Highlights	10
Key Events	11
NLB Shareholders Structure	13
Financial Performance	14
Profit	14
Net Interest Income	16
Net Non-Interest Income	17
Total Costs	18
Net Impairments and Provisions Financial Position	19 20
Capital and Liquidity	23
Capital	23
Liquidity	25
Related-Party Transactions	27
Segment Analysis	28
Retail Banking in Slovenia	30
Corporate and Investment Banking in Slovenia	33
Strategic Foreign Markets	36
Financial Markets in Slovenia	39
Non-Core Members	41
Risk Factors and Outlook Risk factors	42 42
Outlook	44
Outlook 2022	44
Risk Management	47
Corporate Governance	52
Management Board	52
Supervisory Board	52
General Meeting	52
Guidelines on Disclosure for Listed Companies	53
Events after 30 June 2022	54
Alternative Performance Indicators	55
Reconciliation of Financial Statements in Business and Financial Part of the Report	65

UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS OF NLB GROUP AND NLB	67

Glossary of Terms and Definitions 111

We are – where you are.

Our home is here.

Here are our families, friends, colleagues, neighbours, our favourite athletes, hosts, who know what kind of coffee we like … All this is our home and we believe in it with all our hearts.

Since we are where you are, we know your potential and understand your commitment – even when no one else understands it. Where others merely see a spot on the map, we see a region full of opportunities.

And we believe you deserve each and every one of them.

NLB Group Strategic Members Overview

		Slovenia			Serbia		North Macedonia	Bosnia and Herzegovina		Kosovo	Montenegro
	NLB Group	NLB, Ljubljana	N Banka, Ljubljana	NLB Lease&Go, Ljubljana	NLB Skladi, Ljubljana	NLB Komercijalna Banka, Beograd(ix)	KomBank Invest, Beograd	NLB Banka, Skopje	NLB Banka, Banja Luka	NLB Banka, Sarajevo	NLB Banka, Prishtina	NLB Banka, Podgorica
Market position in H1 2022
Branches	454(i)	71	12	-	-	186	-	48	47	35	33	22
Active clients	1,764,933(ii)	678,942	50,923	-	-	962,095	-	409,384	217,749	131,692	246,106	81,060
Total assets(x) (in EUR million)	22,730	12,558	1,447	174	1,907(iii)	4,622	1	1,744	947	788	979	772
Profit after tax(x) (in EUR million)	287.0	66.9	-3.5	-0.2	4.2	23.7	-0.0	21.5	9.1	5.2	16.7	6.0
Market share (by total assets)	-	26.1%	3.0%	-	37.9%(iv)	10.7%	-	16.8%	19.9%(v, vii)	5.6%(vi, vii)	17.0%	13.9%(viii)

(i) Including NLB Komercijalna Banka, Beograd and N Banka, Ljubljana.

(ii) The total number of active clients for the Group does not include data for NLB Komercijalna Banka, Beograd and N Banka due to different definitions.

(iii) Assets under management.

(iv) Market share of assets under management in mutual funds.

(v) Market share in the Republic of Srpska.

(vi) Market share in the Federation of BiH.

(vii) Data on market share as of 31 March 2022.

(viii) Data on market share as of 31 May 2022.

(ix) Komercijalna Banka, Beograd and NLB Banka, Beograd merged and as of 30 April 2022 the merged bank operates under the new name NLB Komercijalna banka a.d. Beograd.

(x) Data for members on a stand-alone basis as included in the consolidated financial statements of the Group.

Figures at a Glance

Profit a.t. - quarterly (in EUR million)(i) ROE a.t. (in %)(ii)

Cost to income ratio - CIR (in %) Cost of risk net (in bps)(iii)

Net interest margin (in %) Operational business margin (in %)

NPE ratio - EBA def. (in %) Total capital ratio (in %)

1-3 2021 1-6 2021 1-9 2021 1-12 2021 1-3 2022 1-6 2022

(i) Profit in Q1 2022 affected by the acquisition of N Banka.

(ii) ROE for 2022 calculated without negative goodwill from the acquisition of N Banka and effects of EUR 8.9 million of 12-month expected credit losses recognised at the acquisition date for the performing portfolio for N Banka not annualized.

(iii) For CoR 2022 calculation effects of EUR 8.9 million of 12-month expected credit losses recognised at the acquisition date for the performing portfolio for N Banka are not annualized.

Key Financial Indicators¹

Table 1: Key Financial Indicators of NLB Group

						in EUR million / % / bps
	1-6 2022	1-6 2021	Change YoY	Q2 2022	Q1 2022	Q2 2021
Key Income Statement Data
Net operating income	358.1	333.9	7%	183.6	174.5	179.9
Net interest income	226.4	198.6	14%	118.6	107.8	101.1
Net non-interest income	131.7	135.3	-3%	65.0	66.7	78.7
Total costs	-218.7	-197.3	-11%	-116.0	-102.7	-100.7
Result before impairments and provisions	139.3	136.6	2%	67.6	71.8	79.1
Impairments and provisions	-7.7	19.0	-	-3.3	-4.4	3.5
Impairments and provisions for credit risk	-2.4	30.7	-	1.6	-4.0	14.8
Other impairments and provisions	-5.3	-11.8	55%	-4.9	-0.4	-11.3
Negative goodw ill	172.8	0.0	-	0.0	172.8	0.0
Result after tax	287.0	139.8	105%	55.5	231.5	75.2
Key Financial Indicators
Return on equity after tax (ROE a.t.)	10.8%	13.8%	-3.0 p.p.
Return on assets after tax (ROA a.t.)	1.0%	1.4%	-0.3 p.p.
Net interest margin (on interest bearing assets)	2.12%	2.09%	0.04 p.p.
Net interest margin (on total assets - BoS ratio)	2.03%	2.00%	0.04 p.p.
Operational business margin(i)	3.40%	3.29%	0.11 p.p.
Cost to income ratio (CIR)	61.1%	59.1%	2.0 p.p.
Cost of risk net (bps)(ii)	- 6	-68	62
		30 Jun 2022 31 Dec 2021 30 Jun 2021		Change YtD	Change YoY
Key Financial Position Statement Data
Total assets	22,730.3	21,577.5	21,187.3	5%	7%
Gross loans to customers	12,944.2	10,903.5	10,421.8	19%	24%
Net loans to customers	12,620.2	10,587.1	10,071.4	19%	25%
Deposits from customers	19,151.1	17,640.8	17,143.0	9%	12%
Equity (w ithout non-controlling interests)	2,195.6	2,078.7	2,091.4	6%	5%
Other Key Financial Indicators
LTD(iii)	65.9%	60.0%	58.7%	5.9 p.p.	7.1 p.p.
Common Equity Tier 1 Ratio	14.4%	15.5%	14.7%	-1.1 p.p.	-0.3 p.p.
Total capital ratio	16.5%	17.8%	17.0%	-1.3 p.p.	-0.5 p.p.
Total risk exposure amount (RWA)	14,172.5	12,667.4	12,755.6	12%	11%
NPL volume(iv)	370.1	367.4	427.9	1%	-14%
NPL coverage ratio 1(v)	87.8%	86.1%	81.9%	1.7 p.p.	5.9 p.p.
NPL coverage ratio 2(vi)	57.5%	57.9%	59.9%	-0.4 p.p.	-2.5 p.p.
NPL ratio (internal def.)(vii)	2.2%	2.4%	2.9%	-0.2 p.p.	-0.7 p.p.
Net NPL ratio (internal def.)(viii)	0.9%	1.0%	1.2%	-0.1 p.p.	-0.2 p.p.

Employees

Number of employees 8,394 8,185 8,455 209 -61

(i) Operational business net income annualized / average assets.

(ii) Cost of risk = credit impairments and provisions (annualized level) / average net loans to customers. Credit impairments and provisions include impairments on loans from customers and provisions for off balance.

(iii) LTD = Net loans to customers / deposits from customers.

(iv) Non-performing loans include loans to D and E rated clients, i.e. loans at least 90 days past due, or loans unlikely to be repaid without a recourse to collateral (before deduction of loan loss allowances).

(v) Coverage of gross non-performing loans with impairments for all loans.

(vi) Coverage of gross non-performing loans with impairments for non-performing loans.

(vii) NPL ratio as per internal definition is calculated as follows: (i) Numerator: total gross non-performing loans; (ii) Denominator: total gross loans.

(viii) Net NPL ratio as per internal definition is calculated as follows: (i) Numerator: net non-performing loans; (ii) Denominator: total net loans.

(ix) NPL ratio as per EBA definition is calculated as follows: (i) Numerator: gross volume of non-performing loans and advances in Finrep 18 without loans held for sale, cash balances at central banks and other demand deposits; (ii) Denominator: gross volume of loans and advances in Finrep 18 without loans held for sale, cash balances at central banks and other demand deposits.

(x) NPE ratio as per EBA definition is calculated as follows: (i) Numerator: total non-performing exposure in Finrep 18; (ii) Denominator: total exposures in Finrep 18.

International credit ratings NLB	30 Jun 2022	31 Mar 2022	Outlook
Standard & Poor's	BBB	BBB-	Stable
Moody's(i)	Baa1	Baa1	Stable
(i) Unsolicited rating.

NPL ratio (EBA def.)(ix) 2.9% 3.4% 4.0% -0.5 p.p. -1.2 p.p. NPE ratio (EBA def.)(x) 1.6% 1.7% 2.0% -0.1 p.p. -0.4 p.p.

1 ROE and ROA for 2022 calculated without negative goodwill from the acquisition of N Banka and effects of EUR 8.9 million of 12-month expected credit losses recognised at the acquisition date for the performing portfolio for N Banka not annualized; for CoR 2022 calculation effects of EUR 8.9 million of 12-month expected credit losses recognised at the acquisition date for the performing portfolio for N Banka not annualized.

Macroeconomic Environment

Macroeconomic summary and outlook

Global supply pressures continue to equate in positive monthly increments in annual inflation readings. This is increasing the dent in consumer savings which appear to be running out, as toned-down retail trade and consumer confidence readings suggest. The ECB terminated the net Asset Purchase Programme (APP) as of 1 July, reinvestments of the Pandemic Emergency Purchase Programme (PEPP) remain the first line of defence to counter a widening of yield spreads. ECB hiked three key rates by 50 bps at the July monetary policy meeting in an effort to restore credibility to its inflation fighting mandate. The challenge for the ECB is to turn the policy screws in the euro area without causing divergence in borrowing costs for its more heavily indebted economies such as Italy and Greece. The ECB approved the Transmission Protection Instrument (TPI) to ensure the uniform monetary policy transmission, without getting into details. The EUR fell from approximately 1.08 to under 1.00 against the USD, to return to hovering slightly above parity in the second half of July and early August. ECB's bank lending survey for Q2 suggests that risk perceptions related to the economic outlook, industry or firm-specific situation and banks' decreased risk tolerance had a strong tightening impact on credit standards for housing loans and a moderate net tightening for consumer credit. Loan demand from households decreased in net terms for loans for house purchase and continued to increase in net terms for consumer credit. Banks' cost of funds and balance sheet constraints had a tightening impact on credit standards for loans to firms, as monetary policy is becoming less accommodative. The ECB took further steps to incorporate climate change into monetary policy operations. It decided to replace the corporate bonds it holds from highly polluting companies to companies with better climate performance through reinvestment. In Q1, seasonally adjusted GDP increased by 0.2% QoQ and by 5.0% YoY. The euro area annual inflation was 8.6% in June, up from 8.1% in May and 7.4% in April. Energy has the highest annual rate (41.9%, compared with 39.1% in May), followed by food, alcohol and tobacco (8.9%, compared with 7.5% in May). A weaker euro might push it further up by raising import prices. The core inflation in MoM comparison fell by 0.1 p.p. to 3.7% in June. The harmonized unemployment was 6.4% in May, down from 6.8% in April. Consumers have started to be more mindful of their spending as consumption increased at a slower rate (+1.9%) than households' gross disposable income (+2.9%). Spending on discretionary items has been cut as consumers are buying smaller quantities or delaying purchases. Many are trading down, turning to private labels, discounters, or more affordable brands. Due to this difference, the household saving rate was at 15.0% in Q1 (up by 0.9 p.p. QoQ). The premise does not concern the housing market as the House price index rose by 9.8% in the euro area, the highest YoY increase since house prices started to be collected in 2005. In May, the seasonally adjusted industrial production increased by 1.6% YoY (+0.8% MoM), in April it fell by -2.5% (+0.5% MoM) as it did in March by -1.1% (-1.7% MoM). Most of the confidence indicators fell in June (construction, economic, retail and consumer) except for the services and industrial confidence, thereafter the Economic Sentiment Indicator (ESI) decreased by 1 p.p. The confidence fall is in line with the retail data not being too confident regarding future consumption. The euro area composite Purchasing Managers Index (PMI) dropped to 52.0 from 54.8 MoM as both the services and manufacturing components decrease. The Zentrum für Europäische Wirtschaftsforschung (ZEW) Economic Sentiment for Germany tumbled to -53.8 in July from -28 in June, the lowest since December 2011. This notable monthly deterioration implies that the six-months expectations concerning the economy, inflation rates, interest rates, stock markets and exchange rates are at more than a decade-low levels.

Tight labour markets remain a beacon of support to private spending. With limited fiscal space, countries will need to carefully weigh the costs and benefits of new spending commitments in response to higher energy and food prices. Economic growth is set to cool notably this year as fears of recession cloud the outlook especially if Russian natural gas supply comes to a standstill as a part of Russian retaliating sanctions. In this case heating bills would skyrocket during the winter months fuelling inflation further into 2023. The Group's region is seen expanding 4.0% in 2022 and 2.9% in 2023. Global supply constraints persist as the war in Ukraine rages on, impeding growth. The inflation rate is eroding real disposable incomes and consumer confidence, boding poorly for (household) spending and consumption. In Slovenia, the retail sales data confirm private consumption is still going strong (May YoY reading the highest in the euro area). Key factors to watch include the volatile global energy market as well as the new Slovenian government's legislative agenda. The GDP growth should decrease this year to 5.5% on a tougher base effect. In 2023, the Slovenian economy is seen growing 2.1%. Euro area GDP will record a softer pace of growth this year, restrained by high commodity prices, supply shortages, depressed confidence and rising interest rates. The risks of financial instability due to high public debts and the prolongation of the war in Ukraine cloud the outlook. The euro area economy is seen expanding 2.7% in 2022, while in 2023 GDP is seen increasing 1.8%.

	Table 2: Movement of key macroeconomic indicators in the euro area and the NLB Group region
--	---------------------------------------------------------------------------------------------	--	--

expanding 2.7% in 2022, while in 2023 GDP is seen increasing 1.8%.
Table 2: Movement of key macroeconomic indicators in the euro area and the NLB Group region
	GDP (annual grow th rate in %)					Average inflation (in %, aop)				Unemployment rate (in %, aop)
	2021	Q1 2022	2022	2023	2021	H1 2022	2022	2023	2021	Q1 2022	2022	2023
Euro area	5.3	5.4	2.7	1.8	2.6	7.1	7.3	3.9	7.7	7.0	6.8	6.9
Slovenia	8.1	9.8	5.5	2.1	2.0	7.3	8.4	4.4	4.7	4.3	4.2	4.2
BiH	7.5	5.5	2.9	2.8	2.0	11.5	12.0	4.5	17.4	16.7	16.2	15.8
Montenegro	12.4	7.2	2.7	3.4	2.4	9.8	10.5	4.1	16.7	16.8	16.0	16.0
N. Macedonia	4.0	2.4	2.3	3.1	3.2	10.0	11.5	4.5	15.7	14.8	15.0	14.7
Serbia	7.5	4.4	3.5	3.6	4.1	9.7	10.7	5.5	11.1	10.6	10.5	10.0
Kosovo	10.5	4.9	3.3	3.7	3.4	10.4	10.5	4.6	25.4(i)	-	24.4	24.0

Source: Statistical offices, NLB ALM.

Note: NLB Forecasts highlighted in grey; (i) Data for Q1 2021; aop - average of period.

Business Report Business Report

Key Highlights

Financial Performance

performance marked by continuous loan growth which supported net interest income growth and

Strong business

increased fee and commission income

Acquisition of Slovenian Sberbank banka on 1 March and renaming it to N Banka on 11 April. 2 • Profit a.t. of EUR 287.0 million including one-off effects from the acquisition of N Banka. Noteworthy, in H1 recurring profit before impairments and provisions grew 25% YoY excluding N Banka contribution.
EUR 2,040.8 million increase of the Group's gross loans to customers YtD, with EUR 1,092.8 million increase due to the acquisition of N Banka and strong growth of individual and corporate loan book; impressive new loan production with increasing interest rates supported growth of net interest income.
- Increase of the deposit base of the Group YtD, EUR 1,510.3 million, of which EUR 981.4 million due to the acquisition of N Banka.
- Net fee and commission income growth continues with strong momentum 14% YoY growth excluding N Banka's contribution, predominantly due to outstanding results in payment transactions and related services, investment funds and bancassurance products.
- The Bank's annual regulatory charge (SRF, DGS) burdened Q2 in the amount of EUR 9.7 million and together with increasing employee costs and general and administrative expenses led to a QoQ decline in result before impairments and provisions.
- Net impairments and provisions for credit risk were established in the amount of EUR 2.4 million, of which EUR 8.9 million of 12-month expected credit losses were recognised at acquisition date for performing portfolio for N Banka. Other impairments and provisions were established in the amount of EUR 5.3 million, of which EUR 4.6 million for reorganization in NLB Komercijalna Banka, Beograd.

	the bank operates under the new name NLB Komercijalna banka a.d. Beograd.
Leading player in SEE	• The merger of Komercijalna Banka, Beograd and NLB Banka, Beograd was completed and from 30 April 2022
	• Higher availability and use of digital channels – a wider range of 24/7 digital solutions offered to clients.
Business Overview	• Striving to become a regional champion.
	• A robust and sustainable universal business model with an increased focus on digitalisation and ESG.

Asset Quality Good asset quality trends with well diversified portfolio, prudent credit standards and decisive • The credit portfolio remains very stable with increasing Stage 1 exposures and a relatively low percentage of NPLs. Direct and indirect exposure of the Group toward Russia and Ukraine is limited and carefully monitored. • Well-diversified, stable, and robust credit portfolio quality. No large concentration in any specific industry or client segment. • Cost of risk (-6 bps) remains negative, backed by positive contribution due to successful NPL resolution in most of NLB Group members. • Low NPE (EBA def.) of 1.6% with very comfortable NPL coverage ratio 2 of 57.5%.

workout approach
Capital & Liquidity Capital and liquidity position ensuring capital return and continued growth opportunities	• The capital position was above all regulatory requirements (TCR of 16.5%, 1.3 p.p. lower YtD). The acquisition of N Banka had a positive impact on the capital position (its higher RWA was compensated with inclusion of negative goodwill into capital). On the other hand, higher RWAs from an increased lending activity and lower capital due to negative revaluation adjustments had a negative impact on the capital position. • Dividends in the amount of EUR 50 million were paid to shareholders on 28 June. • The liquidity position of the Group remained very strong, with a high level of unencumbered liquid assets in total assets (35.9%). A strong deposit base demonstrated client confidence in the Group.
Strategy Committed to pursue the	• The Group continues to execute its strategic initiatives as well as explore new business opportunities. • The digital leadership position in Slovenia is being applied to other markets where the Group operates. The goal is to become one of the best data science companies in the region to productively use customer data and

workout approach

Capital & Liquidity
Capital and liquidity
position ensuring capital
return and continued growth
opportunities

• The capital position was above all regulatory requirements (TCR of 16.5%, 1.3 p.p. lower YtD). The acquisition
of N Banka had a positive impact on the capital position (its higher RWA was compensated with inclusion of
negative goodwill into capital). On the other hand, higher RWAs from an increased lending activity and lower
capital due to negative revaluation adjustments had a negative impact on the capital position.
• Dividends in the amount of EUR 50 million were paid to shareholders on 28 June.
• The liquidity position of the Group remained very strong, with a high level of unencumbered liquid assets in
total assets (35.9%). A strong deposit base demonstrated client confidence in the Group.

Strategy
Committed to pursue the

• The Group continues to execute its strategic initiatives as well as explore new business opportunities.
• The digital leadership position in Slovenia is being applied to other markets where the Group operates. The
goal is to become one of the best data science companies in the region to productively use customer data and

strategic objectives

evolve a local flexible digital ecosystem offering products and services to clients. • The Group will continue to serve the society by aiming to reduce its carbon footprint and improve the quality of life in this region. It will drive business value through sustainability and commitment to enhance the management of environmental and social risks of its operations as well as meet stakeholders' expectations.

2 Further information is available in the chapter Key Events.

Management Board change

On 20 January, the Supervisory Board appointed Hedvika Usenik, Antonio Argir and Andrej Lasič as members of the Management Board. They received all necessary approvals to assume their office as Management Board members as of 28 April. The Management Board has thus six members.

Swiss Francs Law

On 2 February, the Slovenian National Assembly adopted the Law on Limitation and Distribution of Foreign Exchange Risk Between Creditors and Borrowers Concerning Loan Agreements in Swiss Francs (CHF Law). The CHF Law affects all loan agreements denominated in Swiss francs (regardless of whether the agreements are still in force) concluded between banks operating in Slovenia (including NLB) as lenders and individuals as borrowers in the period from 28 June 2004 to 31 December 2010. The Constitutional Court of the RoS on 10 March adopted a decision to suspend in whole the implementation of the CHF Law until the final decision of the Constitutional Court on the conformity of the CHF Law with the Constitution. During this time the deadlines set for individual liabilities of the banks do not apply. Until the final decision on the constitutionality of the CHF Law is made by the Constitutional Court, the NLB will act in accordance with the applicable legislation and courts' decisions, and will, at the same time, exercise all legal remedies at its disposal.

New SREP Decision

On 2 February, the ECB issued a new SREP decision for the Bank under which it has reduced the P2R from 2.75% to 2.60%, while P2G remains at 1.00%. The new SREP decision applies as of 1 March. Consequently, the Bank is as of that date required to maintain the OCR at the level of 14.10% on a consolidated basis, consisting of (i) 10.60% TSCR, and (ii) 3.5% CBR.

On 29 April, the BoS issued a new Regulation on determining the requirement to maintain a systemic risk buffer for banks and savings banks which will with 1 January 2023 introduce the systemic risk buffer rates for the sectoral exposures. 3

War in Ukraine

In February, the Russian Federation began a military invasion of Ukraine. The NLB Group has limited exposure to the Russian Federation and Ukraine which mainly derives from NLB's investment in Russian sovereign bonds. As of 31 December 2021, the NLB Group held EUR 20 million of Russian government bonds maturing in April 2022 and in September 2023. Bonds maturing in April 2022 in the amount of EUR 13.3 million were fully repaid on 2 May 2022, which decreased the exposure towards Russian government to EUR 7.6 million. The fair value of these bonds, which are classified as measured at fair value through other comprehensive income, is assessed to be EUR 1.8 million and impairments recognised in the profit or loss amount to EUR 6.1 million.

Acquisition of N Banka

On 1 March, the Single Resolution Board (SRB) in coordination with the local regulator, the BoS, decided to adopt a resolution scheme in respect of the Slovenian Sberbank banka. The resolution scheme envisaged the application of the sale of business tool for Sberbank banka and the BoS issued a decision for the sale of 100% shares issued by Sberbank banka. Under the resolution scheme, and following a marketing procedure, the SRB decided to transfer all the shares issued by Sberbank banka to NLB. Therefore, as of 1 March, NLB became a 100% owner of Sberbank banka. On 11 April, Sberbank banka was renamed to N Banka and new supervisory board members of the bank were appointed. Activities for the integration of Sberbank banka with NLB Group are in the process.

³ Further information is available in chapter Capital and Liquidity.

Supervisory and Management Board transactions with NLBR shares

Between 25 February and 23 March, Primož Karpe, President of the Supervisory Board, Sergeja Kočar, Member of the Supervisory Board, Blaž Brodnjak, CEO, and Andreas Burkhardt, Member of the Management Board, together acquired 468 ordinary shares of NLB (ISIN: SI0021117344, LJSE ticker NLBR).

Additionally, between 12 May and 20 May, Blaž Brodnjak, CEO, Antonio Argir, Member of the Management Board, Sergeja Kočar, Member of the Supervisory Board, Andreas Burkhardt, Member of the Management Board, Hedvika Usenik, Member of the Management Board, and Andrej Lasič, Member of the Management Board, together acquired 716 ordinary shares of NLB (ISIN: SI0021117344, LJSE ticker NLBR).

Notifications of major holdings change

On 7 March, the shareholding of Schroders in the Bank changed from 5.061% to 4.95%.

On 3 June, the shareholding of Brandes Investment Partners, L.P. in the Bank changed to 4.78%.

Merger of Serbian subsidiaries

Serbian subsidiaries, Komercijalna Banka, Beograd and NLB Banka, Beograd, merged and from 30 April 2022 the merged bank operates under the new name NLB Komercijalna banka a.d. Beograd.

Rating upgrade

On 11 May, Standard and Poor's rating agency upgraded the NLB's credit rating to BBB/A-2 from BBB-/A-3 with a stable outlook.

NLB became 100% owner of NLB Komercijalna Banka, Beograd

On 23 May, the Bank acquired additional 442,799 ordinary shares of NLB Komercijalna banka a.d. Beograd and combined with the existing shareholding reached the ownership of 90.2155% of the basic capital and 91.7294% of shares with voting rights, effectively reaching the squeeze-out threshold. Through the squeeze-out process, NLB additionally acquired 1,528,110 regular shares and 316,260 preferred shares with a total value of EUR 61.7 million. On 13 July 2022, NLB successfully squeezed out the remaining shareholders of NLB Komercijalna banka a.d. Beograd and thereby became a 100% owner of the bank.

NLB officially became a member of the UN-Convened Net-Zero Banking Alliance

On 6 June, the Bank officially joined the Net-Zero Banking Alliance, an industry-led, UN-convened alliance of banks worldwide, committed to aligning their lending and investment portfolios with net-zero emissions by 2050 or sooner, as set by the most ambitious targets of the Paris Climate Agreement.

General Meeting of Shareholders

The General Meeting of Shareholders of NLB took place on 20 June and among others the shareholders decided that a part of the distributable profit in the total amount of EUR 50 million shall be paid out to the shareholders as dividends, which is EUR 2.50 gross per share. The dividends were paid on 28 June.

NLB Shareholders Structure

The Bank's issued share capital is divided into 20,000,000 shares. The shares are listed on the Prime Market of the Ljubljana Stock Exchange (ISIN SI0021117344, Ljubljana Stock Exchange trading symbol: NLBR) and the Global Depositary Receipts (GDRs), representing ordinary shares of NLB, are listed on the Main Market of the London Stock Exchange (ISIN: US66980N2036 and US66980N1046, London Stock Exchange GDR trading symbol: NLB and 55VX). Five GDRs represent one NLB share.

Table 3: NLB's main shareholders as of 30 June 2022 (i)

Shareholder	Number of shares	Percentage of shares
Bank of New York Mellon on behalf of the GDR holders(ii)	11,054,420	55.27
• of which European Bank for Reconstruction and Development (EBRD)(iii)	n.a.	>5 and <10
Republic of Slovenia (RoS)	5,000,001	25.00
Other shareholders	3,945,579	19.73
Total	20,000,000	100.00

(i) Information is sourced from the NLB shareholders book available at the web services of CSD (Central Security Depository, Slovenian: KDD - Centralna klirinško depotna družba) to the CSD members. Information on major holdings is based on self-declarations by individual holders pursuant to the applicable provisions of the Slovenian legislation, which require that the holders of shares in a listed company notify the company whenever their direct and/or indirect holdings go over the present thresholds of 5%, 10%, 15%, 20%, 25%, 1/3, 50% or 75%. The table provides all self-declared major holders whose notifications have been received. In reliance on this obligation vested in the holders of major holdings, the Bank postulates that no other entities nor any natural persons hold directly and/or indirectly ten or more percent of the Bank's shares.

(ii) The Bank of New York Mellon holds shares in its capacity as the depositary (the GDR Depositary) for the GDR holders and is not the beneficial owner of such shares. The GDR holders have the right to convert their GDRs into shares. The rights under the deposited shares can be exercised by the GDR holders only through the GDR Depositary and individual GDR holders do not have any direct right to either attend the shareholders' meeting or to exercise any voting rights under the deposited shares.

(iii) The information on GDR ownership is based on self-declarations made by individual GDR holders as required pursuant to the applicable provisions of the Slovenian law.

Financial Performance⁴

Table 4: Income statement of NLB Group

										in EUR million
		1-6 2022 1-6 2021		Change YoY o/w N Banka contribution		Q2 2022	Q1 2022	Q2 2021		Change QoQ
Net interest income	226.4	198.6	27.7	9.9	14%	118.6	107.8	101.1	10.8	10%
Net fee and commission income	133.7	114.1	19.6	4.0	17%	69.1	64.5	59.9	4.6	7%
Dividend income	0.1	0.1	0.0	0.0	84%	0.1	0.0	0.0	0.0	46%
Net income from financial transactions	13.7	26.0	-12.4	-0.9	-48%	8.5	5.2	20.8	3.3	64%
Net other income	-15.7	-4.9	-10.8	1.0	-	-12.7	-3.0	-2.0	-9.6	-
Net non-interest income	131.7	135.3	-3.6	4.1	-3%	65.0	66.7	78.7	-1.7	-3%
Total net operating income	358.1	333.9	24.2	14.0	7%	183.6	174.5	179.9	9.1	5%
Employee costs	-122.7	-111.7	-11.1	-6.1	-10%	-65.2	-57.5	-56.5	-7.7	-13%
Other general and administrative expenses	-72.7	-62.4	-10.3	-3.5	-16%	-39.0	-33.7	-32.6	-5.3	-16%
Depreciation and amortisation	-23.3	-23.2	-0.1	-0.7	-1%	-11.8	-11.5	-11.6	-0.3	-2%
Total costs	-218.7	-197.3	-21.4	-10.4	-11%	-116.0	-102.7	-100.7	-13.3	-13%
Result before impairments and provisions	139.3	136.6	2.7	3.7	2%	67.6	71.8	79.1	-4.2	-6%
Impairments and provisions for credit risk	-2.4	30.7	-33.1	-5.8	-	1.6	-4.0	14.8	5.7	-
Other impairments and provisions	-5.3	-11.8	6.5	0.0	55%	-4.9	-0.4	-11.3	-4.6	-
Impairments and provisions	-7.7	19.0	-26.6	-5.9	-	-3.3	-4.4	3.5	1.1	25%
Gains less losses from capital investments in subsidiaries, associates, and joint ventures	1.6	0.4	1.1	0.0	-	1.0	0.6	0.3	0.4	57%
Negative goodw ill	172.8	0.0	172.8	172.8	-	0.0	172.8	0.0	-172.8	-
Result before tax	306.1	156.0	150.1	170.6	96%	65.2	240.8	82.9	-175.6	-73%
Income tax	-10.6	-9.6	-1.1	-1.3	-11%	-5.4	-5.2	-4.8	-0.2	-4%
Result of non-controlling interests	8.4	6.6	1.8	0.0	27%	4.3	4.1	2.9	0.2	5%
Result after tax	287.0	139.8	147.2	169.3	105%	55.5	231.5	75.2	-176.0	-76%

Profit

The Group generated EUR 287.0 million of profit after tax, EUR 147.2 million higher YoY, of which most material positive deviation due to effects related to the acquisition of N Banka. However, noteworthy H1 result was also recorded with a recurring profit before impairments and provisions with 25% YoY growth without N Banka's contribution.

The result was based on the following key drivers:

Negative goodwill from the acquisition of N Banka in the amount of EUR 172.8 million.
Net interest income increased EUR 17.8 million YoY without N Banka's contribution due to a higher volume of loans despite lower interest rates. The increase of net interest income was recorded in all banks; the highest increases were recorded in the Bank (EUR 10.0 million), NLB Komercijalna Banka, Beograd⁵ (EUR 4.2 million), and NLB Banka, Prishtina (EUR 2.8 million).
Net fee and commission income increased 14% YoY without N Banka's contribution; the increase was recorded in all Group banks, mostly in the Bank due to higher fees from investment funds and bancassurance products, high balance deposit fee and higher fees from cards and payments (normalization after COVID-19 restrictions in 2021), and in NLB Komercijalna Banka, Beograd⁵ EUR 5.7 million or 26%, mostly due to repricing of services.
Total costs slightly increased YoY in most Group banking members, due to increasing employee costs and general and administrative expenses, mostly related to the inflation in the region.
Net impairments and provisions for credit risk were established in the amount of EUR 2.4 million, of which EUR 8.9 million of 12-month expected credit losses were recognised at the acquisition date for the performing portfolio for N Banka. Other impairments and provisions were established in the amount of EUR 5.3 million, of which EUR 4.6 million for reorganization in NLB Komercijalna Banka, Beograd.

⁴ YoY data are not comparable due to the acquisition of Slovenian Sberbank banka on 1 March 2022, which was renamed to N Banka on 11 April (thereafter in the report referred to as N Banka or the acquisition of N Banka).

⁵ Komercijalna Banka, Beograd and NLB Banka, Beograd merged and as of 30 April 2022 the merged bank operates under the new name NLB Komercijalna banka a.d. Beograd; data for joined bank also for 2021.

(i) Gains less losses from capital investments in the subsidiaries, associates, and joint ventures.

Net Interest Income

The net interest income totalled EUR 226.4 million, of which EUR 9.9 million was contributed by N Banka. Without N Banka's contribution, a higher level of interest income was achieved YoY in all Group banking members due to a higher volume of loans despite lower yields. Lower interest expenses are related to TLTRO financing with the ECB (repayment by NLB in June) at a very favourable interest rate of -1% p.a. and lower interest rates for customer deposits in SEE

On the QoQ basis the net interest income was higher due to higher volume of loans.

Figure 3: Net interest margin and Operational business margin of NLB Group (quarterly data, in %)

The net interest margin of the Group was 2.16% in Q2 2022, 0.08 p.p. higher QoQ and 0.07 p.p. YoY, mostly due to volume growth, however the Bank started with gradual repricing of the new loan production. The operational business margin of 3.45% increased 0.13 p.p. QoQ and YoY, due to higher operating business net income growth (backed by the net fee and commission growth) compared to the net interest income growth. Due to the inflation in Europe, further growth of interest rates is expected.

banking members.

Net Non-Interest Income

Figure 4: Net non-interest income of NLB Group (in EUR million)

The net non-interest income reached EUR 131.7 million, of which EUR 4.1 million were contributed by N Banka. A major part of the net non-interest income has been derived from the net fee and commission income, which grew YoY, mostly in the Bank (higher fees from investment funds and bancassurance products, high balance deposit fee, higher fees from card and payment services due to normalization after COVID-19 restrictions in 2021, fees for the organization of syndicated loans and advisory services) and in NLB Komercijalna Banka, Beograd⁶ due to repricing of services.

The net non-interest income in H1 2021 was strongly affected by non-recurring valuation income in the amount of EUR 14.8 million from the repayment of exposure classified as non-performing, and EUR 9.0 million of other operation income from the settlement of a legal dispute, while no major one-offs with influence on non-interest income were recorded this year.

Regulatory costs for the Group amounted to EUR 23.2 million in H1 2022, with a one-time yearly payment in the Bank in the amount of EUR 9.7 million (EUR 2.1 million SRF and EUR 7.6 million DGS) made in June.

⁶ Komercijalna Banka, Beograd and NLB Banka, Beograd merged on 30 April 2022.

Total Costs

Figure 5: Total costs of NLB Group (in EUR million)

The total costs amounted to EUR 218.7 million, of which EUR 10.4 million from N Banka. Without the N Banka's contribution the total costs increased YoY by EUR 11.1 million due to an increase in the Bank and in most of the SEE banking members. Banks in the whole region are, as well as all industries, affected by the inflation and rising labour, material, and energy costs, due to the war in Ukraine, which caused an evident growth of employee costs and general and administrative expenses. The Bank's marketing costs also increased due to the acquisition of N Banka in Slovenia and merger of the Group banks in Serbia (NLB Banka, Beograd and Komercijalna Banka, Beograd).

The Group is undertaking several strategic initiatives (channel strategy, digitalisation, paperless, lean process, branch network optimisation etc.) to keep costs low, given the circumstances and economic situation.

CIR stood at 61.1%, a 2.0 p.p. increase YoY.

Net Impairments and Provisions

Figure 6: NLB Group impairments and provisions (in EUR million)

Impairments and provisions for credit risk were net established in the amount of EUR 2.4 million. Additional new impairments and provisions, including 12-month expected credit losses recognised at the acquisition date for the performing portfolio of N Banka were almost fully compensated by positive effects from a successful collection of previously written-off receivables (EUR 19.6 million) and changes in risk parameters/models (EUR 4.3 million, mostly in the corporate segment).

Other impairments and provisions were established in the amount of EUR 5.3 million, of which EUR 4.6 million for reorganization in NLB Komercijalna Banka, Beograd.

Financial Position⁷

											in EUR million
	30 Jun 2022			31 Mar 2022 31 Dec 2021 30 Jun 2021		Change YtD		Change YoY		Change QoQ
		o/w N Banka
ASSETS											#REF!
Cash, cash balances at central banks, and other demand deposits at banks	4,321.1	186.8(i)	4,865.4	5,005.1	4,739.4	-683.9	-14%	-418.2	-9%	-544.3	-11%
Loans to banks	176.8	0.0	162.8	140.7	243.4	36.1	26%	-66.5	-27%	14.1	9%
Net loans to customers	12,620.2	1,084.8	12,108.7	10,587.1	10,071.4	2,033.1	19%	2,548.8	25%	511.6	4%
Gross loans to customers	12,944.2	1,092.8	12,434.6	10,903.5	10,421.8	2,040.8	19%	2,522.4	24%	509.7	4%
- Corporate	6,213.5	666.6	5,884.6	4,996.0	4,772.7	1,217.4	24%	1,440.8	30%	328.9	6%
- Individuals	6,445.0	391.8	6,242.1	5,621.1	5,304.8	824.0	15%	1,140.3	21%	202.9	3%
- State	285.7	34.3	307.9	286.3	344.4	-0.6	0%	-58.6	-17%	-22.2	-7%
Impairments and valuation of loans to customers	-324.0	-8.0	-325.9	-316.3	-350.4	-7.7	-2%	26.4	8%	1.9	1%
Financial assets	4,919.5	69.2	5,219.9	5,208.3	5,490.9	-288.8	-6%	-571.4	-10%	-300.4	-6%
- Trading book	14.9	4.2	10.9	7.7	13.5	7.2	94%	1.4	10%	4.0	37%
- Non-trading book	4,904.6	64.9	5,209.0	5,200.6	5,477.4	-296.1	-6%	-572.8	-10%	-304.4	-6%
Investments in subsidiaries, associates, and joint ventures	13.1	0.0	12.1	11.5	8.4	1.6	14%	4.7	56%	1.0	8%
Property and equipment, investment property	297.9	10.8	302.2	294.6	297.1	3.3	1%	0.8	0%	-4.3	-1%
Intangible assets	55.3	1.3	57.8	59.1	55.7	-3.7	-6%	-0.3	-1%	-2.5	-4%
Other assets	326.3	10.9	290.2	271.1	281.1	55.3	20%	45.3	16%	36.2	12%
TOTAL ASSETS	22,730.3	1,363.8	23,019.1	21,577.5	21,187.3	1,152.8	5%	1,543.0	7%	-288.7	-1%
LIABILITIES
Deposits from customers	19,151.1	981.4	18,525.8	17,640.8	17,143.0	1,510.3	9%	2,008.1	12%	625.3	3%
- Corporate	5,091.8	455.7	4,934.8	4,463.7	4,130.2	628.1	14%	961.7	23%	157.0	3%
- Individuals	13,498.1	433.3	13,097.3	12,680.8	12,477.8	817.3	6%	1,020.3	8%	400.8	3%
- State	561.2	92.5	493.6	496.4	535.0	64.9	13%	26.2	5%	67.6	14%
Deposits form banks and central banks	138.0	5.6	115.0	71.8	78.0	66.2	92%	60.0	77%	23.0	20%
Borrow ings	326.8	171.9	1,241.0	932.6	976.6	-605.8	-65%	-649.8	-67%	-914.2	-74%
Other liabilities	507.6	37.4	474.3	427.6	466.8	80.0	19%	40.8	9%	33.3	7%
Subordinated liabilities	287.8	0.0	287.0	288.5	287.6	-0.8	0%	0.2	0%	0.7	0%
Equity	2,195.6	167.4	2,254.4	2,078.7	2,091.4	116.8	6%	104.1	5%	-58.9	-3%
Non-controlling interests	123.5	0.0	121.6	137.4	143.8	-13.9	-10%	-20.3	-14%	1.9	2%
TOTAL LIABILITIES AND EQUITY	22,730.3	1,363.8	23,019.1	21,577.5	21,187.3	1,152.8	5%	1,543.0	7%	-288.7	-1%

(I)Excluding funding provided by NLB in the amount of EUR 82.5 million.

The Group's total assets were EUR 22,730.3 million, a EUR 1,152.8 million increase YtD due to the acquisition of N Banka (EUR 1,363.8 million).

Cash, cash balances at central banks, and other demand deposits in the banks decreased by EUR 683.9 million YtD. While the balance of banking members on the strategic markets and in N Banka increased, the decrease in the Bank was mainly a result of early repayment of TLTRO in June (EUR 750 million).

In H1 of 2022, unencumbered liquidity reserves decreased by EUR 231 million due to a higher loan growth and lower market value of marketable assets (i.e. debt securities).

The Group's gross loans to customers increased by EUR 2,040.8 million, with a EUR 1,092.8 million increase due to the acquisition of N Banka. Without N Banka, a EUR 948.0 million YtD growth in gross loans to customers was recorded, EUR 432.1 million to individuals and EUR 550.8 million to corporate. An increase of the deposit base of the Group YtD without N Banka's deposits was EUR 528.9 million.

The LTD ratio (net) was 65.9% at the Group level, a 5.9 p.p. increase YtD and 7.1 p.p. YoY, as a result of the acquisition of N Banka, with a higher LTD, as well as a higher increase of gross loans compared to deposits.

⁷ YoY data are not comparable due to the acquisition of Slovenian Sberbank banka on 1 March 2022, which was renamed to N Banka on 11 April (thereafter in the report referred to as N Banka or the acquisition of N Banka).

Figure 7: NLB Group gross loans to customers and interest rates on loans YtD dynamics (in EUR million and %)

(i) On the stand-alone basis.

(ii) Includes the Bank and N Banka; interest rates only for the Bank. (iii) Includes only the banks.

The lending activity is still in the growing trend and gross loans to individuals recorded a 8% YtD increase in the Bank and 7% in the Strategic foreign markets while the gross loans to the corporate and state recorded a 12% and 8% growth in the Bank and in Strategic foreign markets respectively.

The production of new loans in the Group was high, with almost EUR 600 million of new housing loans and nearly EUR 550 million of new consumer loans approved in H1, while over EUR 1.5 billion of new corporate loans were approved in this period. After a long period of low interest rates there are signs of a changing trend as the interest rates on the new production started to increase.

Figure 8: NLB Group deposits from customers and interest rates on deposits YtD dynamics (in EUR million and %)

(i) On stand alone basis.

(ii) Includes NLB and N Banka; interest rates only for NLB.

(iii) Includes only banks.

The deposit base in the Bank increased YtD; to individuals and to corporate and state by 7% and 4% respectively. Growth of deposits from individuals was influenced mostly by seasonality (more savings in the beginning of the year after a higher consumption in December and holiday allowances), social transfers and increase in pensions. On the other hand, an outflow of deposits from individuals (3% YtD) was recorded in the Strategic foreign markets, due to decrease in

Q1 as a response to Ukraine war and its influence on prices and consumer behaviour, with positive trend perceived in Q2.

Off-balance sheet items in the Group amounted to EUR 5,468.0 million and were comprised of commitments to extend credit and other risky commitments (38%), derivatives (35%), guarantees (27%), and letters of credit (0.5%).

Commitments to extend credit and other risky commitments were divided between loans (99% corporate), overdrafts (60% retail and 40% corporate) and cards (89% retail). A majority of the Group's derivatives were concluded by the Bank either for the hedging of the banking book or trading with customers.

Capital and Liquidity Capital

Figure 11: NLB Group capital (in EUR million)

Figure 12: NLB Group capital ratios and regulatory thresholds

The Overall Capital Requirement (OCR) for the Group was 14.10%, consisting of:

10.60% TSCR (8.00% Pillar 1 Requirement and 2.60% Pillar 2 Requirement); and
3.50% CBR (2.50% Capital Conservation Buffer, 1.00% O-SII Buffer⁸ and 0.00% Countercyclical Buffer).

On 29 April 2022, the BoS issued a new Regulation on determining the requirement to maintain a systemic risk buffer for banks and savings banks which will with 1 January 2023 introduce the systemic risk buffer rates for the sectoral exposures:

1.00% for all retail exposures to natural persons secured by residential real estate,
0.50% for all other exposures to natural persons.

Pillar 2 Guidance is 1.00%, which should be comprised entirely of CET1 capital.

The Group's capital covers all the current and announced regulatory capital requirements, including capital buffers and other currently known requirements, as well as the Pillar 2 Guidance.

⁸ As of 1 January 2023, the O-SII Buffer will amount to 1.25%.

		2022	2021	2020
	CET1	4.5%	4.5%	4.5%
Pillar 1 (P1R)	AT1	1.5%	1.5%	1.5%
	T2	2.0%	2.0%	2.0%
	CET1	1.46%	1.55%	1.55%
Pillar 2 (SREP req. - P2R)	Tier 1	1.95%	2.06%	2.06%
	Total Capital	2.60%	2.75%	2.75%
	CET1	5.96%	6.05%	6.05%
Total SREP Capital requirement (TSCR)	Tier 1	7.95%	8.06%	8.06%
	Total Capital	10.60%	10.75%	10.75%
Combined buffer requirement (CBR)
Conservation buffer	CET1	2.5%	2.5%	2.5%
O-SII buffer	CET1	1.0%	1.0%	1.0%
Countercyclical buffer	CET1	0.0%	0.0%	0.0%
	CET1	9.46%	9.55%	9.55%
Overall capital requirement (OCR) = MDA threshold	Tier 1	11.45%	11.56%	11.56%
	Total Capital	14.10%	14.25%	14.25%
Pillar 2 Guidance (P2G)	CET1	1.0%	1.0%	1.0%
	CET1	10.46%	10.55%	10.55%
OCR + P2G	Tier 1	12.45%	12.56%	12.56%
	Total Capital	15.10%	15.25%	15.25%

Table 6: NLB Group capital requirements and buffers

As at 30 June 2022, the TCR for the Group stood at 16.5% (or 1.3 p.p. lower than as at 31 December 2021), and the CET1 ratio for the Group stood at 14.4% (1.1 p.p. lower than as at 31 December 2021). The lower total capital adequacy derives from higher RWA (EUR 1,505.1 million compared to 2021 YE) which was not compensated by higher capital (EUR 83.7 million compared to 2021 YE). The capital is higher mainly due to the inclusion of negative goodwill from acquisition of N Banka in retained earnings in the amount of EUR 172.8 million and a partial inclusion of Q1 2022 profit in the amount of EUR 32.2 million, which compensated the negative revaluation adjustments on FVOCI securities (EUR - 117.1 million compared to the end of 2021).

The capital calculation does not include a part of the 2021 result in the amount of EUR 50 million, still envisaged as the second instalment of dividend distribution in 2022. Therefore, there will be no effect on the capital in case dividends are paid.

					in EUR million
		Change
	30 Jun 2022	31 Dec 2021	30 Jun 2021	YtD	YoY
Total risk exposure amount (RWA)	14,172.5	12,667.4	12,755.6	1,505.1	1,417.0
RWA for credit risk	11,605.7	10,205.2	10,595.4	1,400.5	1,010.2
Central governments or central banks	1,095.8	1,158.5	1,829.6	-62.7	-733.9
Regional governments or local authorities	97.1	99.8	126.9	-2.7	-29.8
Public sector entities	48.9	47.0	245.4	1.9	-196.5
Institutions	288.5	310.2	365.9	-21.7	-77.4
Corporates	3,417.5	2,748.7	2,367.3	668.8	1,050.3
Retail	4,495.5	4,171.0	4,098.3	324.5	397.1
Secured by mortages on immovable property	802.2	453.0	373.1	349.1	429.0
Exposures in default	175.2	179.4	200.6	-4.2	-25.4
Items associated w ith particulary high risk	588.4	442.5	395.7	145.9	192.8
Covered bonds	36.5	41.1	40.8	-4.6	-4.3
Claims in the form of CU	17.1	19.4	17.5	-2.4	-0.4
Equity exposures	93.9	88.5	78.8	5.4	15.1
Other items	449.1	446.0	455.6	3.1	-6.5
RWA for market risk + CVA	1,322.9	1,218.2	1,212.8	104.7	110.1
RWA for operational risk	1,244.0	1,244.0	947.3	0.0	296.7

RWAs in the Group increased by EUR 1,505.1 million YtD. RWAs for credit risk increased by EUR 1,400.5 million, where EUR 858.9 million of the increase relates to N Banka. The remaining part of RWA increase in the amount of EUR 541.6 million was mainly the consequence of increased lending activity in all the banks in the Group, mostly in the Bank and NLB Komercijalna Banka, Beograd. Higher RWAs for high-risk exposures is the result of a new loan given to a venture capital company, new loans for project financing as well as drawing of loans for project financing granted in the previous year. RWA growth was partially mitigated by assuring CRR eligibility for real estate collaterals from Bosnia and Herzegovina, and Serbia. Furthermore, RWA decrease was observed for liquid assets due to a lower exposure to the Serbian central bank and maturity of some Serbian bonds; both in NLB Komercijalna Banka, Beograd. The lower exposure to institutions also resulted in a reduced RWA in almost all Group banks, the most in NLB Komercijalna Banka, Beograd.

The increase in RWAs for market risks and CVA (Credit Value Adjustments) in the amount of EUR 104.7 million YtD is mainly the result of higher RWA for CVA risk in the amount of EUR 62.1 million (a consequence of the conclusion of long-term derivatives) and higher RWA for FX risk in the amount of EUR 42.6 million.

MREL requirement for the Group is based on the Multiple Point of Entry (MPE) approach.

As of 1 January 2022, NLB must comply with MREL requirement on a consolidated basis at resolution group level (i.e., NLB Resolution Group, consisting of NLB and other members of the Group excluding banks) which amounts to: • 28.69% of TREA (consisting of (i) 25.19% of TREA and (ii) 3.5% CBR),

• 8.03% of LRE.

On 30 June 2022, MREL ratio amounts to 29.07%.⁹

NLB has to ensure a linear build-up of own funds and eligible liabilities towards MREL requirement as of 1 January 2024, which amounts to:

31.38% of TREA + applicable CBR,
9.97% of LRE.

Liquidity

The liquidity position of the Group remains strong, with the LTD ratio (net) of 65.9% (31 December 2021: 60.0%), thus meeting the liquidity indicators high above the regulatory requirements, as well as confirming the low liquidity risk tolerance of the Group.

Unencumbered liquidity reserves of the Group amounted to EUR 8.0 billion (35.4% of total assets; 31 December 2021: EUR 8.3 billion, 38.3% of total assets). Encumbered liquidity reserves, used for operational and regulatory purposes, are excluded from the liquidity reserves portfolio; they amount to EUR 0.1 billion (31 December 2021: EUR 0.9 billion); excluding obligatory reserves. The decrease of the encumbered liquidity reserves is due to the early repayment of additional financing via central bank secured funding, hence the amount of unencumbered liquidity reserves has remained practically unchanged, whereas its structure has changed. Nevertheless, the market value of debt securities partly diminished due to the environment of rising yields and disinvestment.

⁹ MREL buffer was strengthened in July 2022 with senior preferred bond issuance of EUR 300 million.

Figure 13: NLB Group unencumbered liquidity reserves structure reflects a robust liquidity position (in EUR million)

The banking book securities, which accounted for 57.4% of the Group's liquidity reserves (31 December 2021: 55.9%), were dispersed across issuers, geographies, and the remaining average maturity profile, with the aim of adequate liquidity and interest risk management. The investment activity continues with a balanced approach which follows a clear focus on finding attractive market opportunities and at the same time pursuing well-managed credit risk and capital consumption.

The customer deposits base grew by EUR 1.5 billion YtD (1.0 billion as a result of the acquisition of N Banka). Sight customer deposits, which account for 72.5% of the total assets (31 December 2021: 71.0%), remain the key funding base.

Related-Party Transactions

A number of banking transactions have been entered into with related parties in the normal course of business. The volume of related-party transactions mainly consists of loans issued and deposits received. Further information on transaction volumes is available in the Financial Part of this report under point 7.

Segment Analysis

	Core Segments
		Retail Banking in Slovenia	Corporate and Investment Banking in Slovenia	Strategic Foreign Markets	Financial Markets in Slovenia	Other	Non-Core Members
		includes banking with individuals and micro companies (the Bank and N Banka), asset management (NLB Skladi), and a part of NLB Lease&Go subsidiary that includes operations with retail clients as well as the contribution to the result of the associated company Bankart.	includes banking with Key Corporate Clients, SMEs, Cross-border corporate financing, Investment Banking and Custody, Restructuring and Workout in the Bank and N Banka and a part of the NLB Lease&Go subsidiary that includes operations with corporate clients.	include the operations of strategic Group banking members in the strategic markets (North Macedonia, Bosnia and Herzegovina, Kosovo, Montenegro, and Serbia) as well as investment company KomBank Invest, Beograd and newly established company NLB DigIT, Beograd, to which IT services from NLB Banka, Beograd were transferred.10	include treasury activities and trading in financial instruments, while they also present the results of asset and liabilities management (ALM) in both, the Bank and N Banka.	in the Bank and N Bank for the categories whose operating results cannot be allocated to specific segments, including negative goodwill from acquiring N Banka in March 2022 as well as subsidiaries NLB Cultural Heritage Management Institute and Privatinvest (acquired in March 2022).	includes the operations of non core Group members, i.e. REAM and leasing entities (except NLB Lease&Go), NLB Srbija, and NLB Crna Gora.
(in EUR million)	NLB Group
Profit b.t.	306.1	21.3	34.1	85.8	9.0	158.3	-2.5
Contribution to Group's profit b.t.	100%	7%	11%	28%	3%	52%	0%
Total assets	22,730	3,524	3,267	9,760	5,711	379	90
% of total assets	100%	16%	14%	43%	25%	2%	0%
CIR	61.1%	71.7%	57.1%	56.4%	21.9%	267.8%	270.1%
Cost of risk (bps)	-6	37	-90	-22	/	/	/

NLB Group's main indicator of a segment's efficiency is net profit before tax. No revenues were generated from transactions with a single external customer that would amount to 10% or more of the Group's revenues.

¹⁰ Komercijalna banka Banja Luka was sold outside the NLB Group on 9 December 2021, so it is not included in the result of the segment for the first half of 2022.

Figure 14: Segment results of NLB Group (in EUR million)

The core markets and activities made a profit before tax of EUR 308.5 million, strongly affected by the segment Other with EUR 158.3 million due to the effects from the acquisition of N Banka (negative goodwill and established 12-month expected credit losses recognised at the acquisition date for the performing portfolio for N Banka). Besides this the Strategic Foreign Markets contributed the most important share to the Group's profit before tax in the amount of EUR 85.8 million, followed by Corporate and Investment Banking in Slovenia with EUR 34.1 million, Retail Banking in Slovenia with EUR 21.3 million, and Financial Markets in Slovenia with EUR 9.0 million. The Non-Core Members recorded a loss of EUR 2.5 million.

Retail Banking in Slovenia

Financial Highlights

Increase of net interest income due to higher volume of loans.
Increase in net fee and commission income deriving from all categories.
The revenue increase was almost nullified by cost increase due to inflation.

Financial Performance

									in EUR million consolidated
	1-6 2022	1-6 2021		Change YoY o/w N Banka contribution		Q2 2022	Q1 2022		Q2 2021 Change QoQ
Net interest income	43.6	38.6	5.0	4.0	13%	22.9	20.7	19.7	10%
Net interest income from Assets(i)	48.3	40.0	8.3	3.5	21%	25.0	23.2	20.4	8%
Net interest income from Liabilities(i)	-4.7	-1.3	-3.4	0.5	-	-2.2	-2.5	-0.7	12%
Net non-interest income	46.7	39.4	7.2	2.7	18%	20.6	26.1	16.7	-21%
o/w Net fee and commmission income	54.6	45.8	8.8	2.7	19%	28.1	26.5	24.0	6%
Total net operating income	90.3	78.1	12.2	6.7	16%	43.4	46.8	36.4	-7%
Total costs	-64.7	-55.2	-9.5	-5.9	-17%	-35.4	-29.3	-28.5	-21%
Result before impairments and provisions	25.5	22.9	2.7	0.8	12%	8.0	17.5	7.8	-54%
Impairments and provisions	-5.8	-2.7	-3.1	1.2	-117%	-3.9	-1.9	-3.4	-113%
Net gains from investments in subsidiaries, associates, and JVs'	1.6	0.4	1.1	0.0	-	1.0	0.6	0.3	57%
Result before tax	21.3	20.6	0.7	2.0	3%	5.0	16.3	4.8	-69%
			30 Jun 2022 31 Mar 2022 31 Dec 2021 30 Jun 2021			Change YtD	Change YoY		Change QoQ
Net loans to customers	3,434.7	3,337.4	2,731.6	2,534.9	703.1	26%	899.8	35%	3%
Gross loans to customers	3,481.5	3,382.3	2,769.7	2,570.6	711.8	26%	910.9	35%	3%
Housing loans	2,037.5	1,908.8	1,815.5	1,666.8	222.0	12%	370.7	22%	7%
Interest rate on housing loans	2.24%	2.24%	2.34%	2.40%		-0.10 p.p.	-0.16 p.p.		0.00 p.p.
Consumer loans	635.3	638.1	635.6	643.0	-0.3	0%	-7.8	-1%	0%
Interest rate on consumer loans	6.92%	6.92%	6.70%	6.66%		0.22 p.p.	0.26 p.p.		0.00 p.p.
N Banka, Ljubljana	481.1	502.7	0.0	0.0	0.0	0 %	0.0	0 %	-4%
NLB Lease&Go, Ljubljana	56.4	48.4	40.4	22.3	16.0	40%	34.0	152%	16 %
Other	271.2	284.3	278.2	238.4	-7.0	-3%	32.8	14%	-5%
Deposits from customers	8,747.4	8,412.6	7,703.6		7,644.9 1,043.7	14%	1,102.5	14%	4%
Interest rate on deposits (ii)	0.03%	0.03%	0.03%	0.03%		0.00 p.p.	0.00 p.p.		0.00 p.p.
N Banka, Ljubljana	519.8	517.5							0%
Non-performing loans (gross)	67.1	65.1	58.1	54.8	9.0	15%	12.3	22%	3%

	1-6 2022		1-6 2021 Change YoY
Cost of risk (in bps)	37	21	16
CIR	71.7%	70.7%	1.0 p.p.
Interest margin(ii)	1.46%		1.55% -0.08 p.p.
(i) Net interest income from assets and liabilities w	ith the use of FTP.
(ii) Interest rates only for NLB.

(ii) Interest rates only for NLB.

Net interest income was EUR 5.0 million higher YoY, of which EUR 4.0 million was contributed by N Banka. The interest income of retail segment increased mostly due to a higher volume of housing loans and overdrafts. The high production of new housing loans continued, with EUR 419.1 million of new loans approved in H1 (EUR 414.8 million without N Banka; H1 2021: EUR 262.8 million) and resulted in the increase of the portfolio. The consumer lending stayed on the same level YtD, with EUR 132.4 million newly approved consumer loans in H1 (EUR 125.3 million without N Banka; H1 2021: EUR 113.3 million). The portfolio of overdrafts and cards recorded YtD decrease due to seasonal components, but increased significantly YoY, due to higher consumption and attractive new products.

Net non-interest income increased YoY due to fee and commission income growth of EUR 8.8 million, with N Banka contributing EUR 2.7 million. The growth derived from all categories, higher fees from the asset management and bancassurance, the income from high balance fee (EUR 0.9 million from private individuals), and normalization after COVID-19-related restrictions in 2021.

Higher costs by EUR 5.9 million without N Banka's contribution, due to higher operating costs resulting from inflationary pressures.

Business Highlights

Introduction of digital only Mastercard debit cards.
Further expanding ESG product portfolio.
Record production of new housing loans.

Net impairments and provisions were established, mostly due to a higher new production of loans and changes in risk parameters/models in June reflecting expected inflationary burden on the households.

Deposits from customers increased by EUR 1,043.7 million YtD and EUR 1,102.5 million YoY, of which N Banka contributed EUR 519.8 million. Growth of deposits from individuals was influenced mostly by seasonality (more savings in the beginning of the year after higher consumption in December and holiday allowances), social transfers and increase in pensions.

Business Performance

The Bank continued to strengthen its leading position with a market share of 25.6% in retail lending (30 June 2021: 24.0%) and 31.5% (30 June 2021: 30.6%) in deposit-taking.

Increase of the market share for housing loans, namely to 25.8% (30 June 2021: 23.6%), was also triggered by market conditions, which contributed to a record production of new housing loans in H1 2022 (58% increase YoY). Dedicated sales teams and successful marketing campaigns also played an important role in boosting the sales results.

Environmental and social sustainability are an important part of the Group mission. Sustainability is being incorporated in the Group and ESG product portfolio is growing. With different financing products the Bank helps its customers in implementation of sustainability measures in development of lasting environmental solutions. An ESG-oriented offer includes NLB Green housing loan to finance construction or purchase of a passive house and finance the purchase of solar panels, heat pumps and central ventilation.

The number of digital users increased in H1 by 14% YoY. The number of m-bank Klikin and e-bank NLB Klik users recorded a YoY increase of 17% (34,149 new users in H1) and 7% (12,770 new users in H1) respectively, which is also well proven by the digital penetration of active clients (see the figure below). The total volume and number of payments processed in the e-bank and m-bank YoY increased by 18% and 13% respectively. To empower elderly population to use digital banking more often, several workshops were organized with excellent response and positive feedback from participants. On top, more digital products were activated, and with the participation of students working part-time in the Bank, the event had an intergenerational component as well.

(i) Share of active e-/m-bank and digital users in # of active clients of the Bank.

The 24/7 Contact Centre is firmly positioned as a sales channel. In H1, its share of concluded basic financing products of the Bank (such as consumer loans and overdrafts) was almost 9%. On the YoY basis, 28% more video calls were processed.

In H1, Mastercard's personal debit card was introduced in a digital form only, enabling the card and PIN to be issued instantly and can be used immediately after the client digitizes their card in the NLB Pay m-wallet. Contactless payments' limit with no PIN needed was raised to 50 EUR also for NLB cards, and with green awareness in mind, payment slip is now issued only on customer's demand.

From May onwards on-line purchases are no longer possible without strong authentication. Therefore the use and download of NLB Pay m-wallet is even more important, and proven with continued increase of usage at a significant pace. The number of users and volume of transactions increased by 77% and 76% YoY.

The market share of NLB Skladi increased to 37.9% (30 June 2021: 36.4%) despite the global geopolitical circumstances. The latter affected net inflows in H1, which experienced a YoY drop of 22%. Nevertheless, the company remains the largest asset management company and mutual funds management company in Slovenia. The total assets under management amounted to EUR 1,906.8 million (30 June 2021: EUR 1,920.6 million) of which EUR 1,463.1 million consisted of mutual funds (30 June 2021: EUR 1,406.5 million) and EUR 443.7 million of the discretionary portfolio (30 June 2021: EUR 514.1 million).

Bancassurance products of the insurance companies Vita with savings and investment insurance products, risk and health insurance products, and GENERALI Zavarovalnica with non-life insurance products, are sold through the Bank's distribution network.

Figure 16: NLB Pay in numbers