NLB

Investor Presentation • Feb 25, 2021

Creating a South Eastern European Banking Leader

Disclaimer

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Executive Summary

Acquisition of Komercijalna banka a.d., Beograd

• Transaction completed in Dec 2020 (final price: EUR 394.7 million for 83.23% of ordinary shares)
• Integration process already started
• First consolidation done no material surprises
• Negative goodwill (NGW) recognised (EUR 137 million) – integration costs fully funded by NGW
• Synergy effects estimated over EUR 20 million p.a. from 2023
• Takeover intention confirming strong investment case
• Dividend capacity confirmed

Preliminary Results for FY 2020

• Better than expected bottom line results
• Strict cost discipline underlines focus on cost excellence
• Pandemic had moderate impact on revenues
• CoR below guidance, given very good asset quality trends in Slovenia and decisive workout approach
• COVID-19 situation shows improvements Slovenia & SEE region
• Stable macroeconomic outlook throughout the region

Supporting NLB communities, clients and employees in the midst of COVID-19

Acquisition of Komercijalna banka - Strategic and Financial Rationale

Strategic Rationale: A Transformational Deal to Become a Leading Player in SEE Franchise value enhancing transaction in Serbia

KB enhances NLB Group's market share and presence across the country
	Before acquisition	After acquisition
% total assets(1) Market share by	1.9%	over 12%
No. of branches	28	231

KB supports growth capacity and funding flexibility with stable core deposits and strong capital position.

KB adds new customer relationships as well as delivers our comprehensive range of products and services to an expanded customer base

	Before acquisition	After acquisition
No. of active clients	141,866	991,354

Financial Rationale: EPS Accreative Acquisition from 2022 whilst Integration Costs Fully Covered by NGW

Takeover offer intention aimed at securing all synergy potential

Dividend Capacity Remains a Key Driver to our Equity Story Dividend distribution in 2021 – 2023 exceeding EUR 300 million

2021 Dividend:

• approval received for EUR 25 million as per ECB's limitation currently in place;
• ambition to distribute 70% of 2020 group profit excl. NGW – EUR 92.2 million.

Ambition to distribute in excess of EUR 300 million in 2021-2023

Acquisition Details

Consolidation of Komercijalna Banka group in NLB Group 2020 Financials P&L and BS materially benefits from acquisition whilst maintaining CET1 well above requirement

(2)

Pro-forma 2020 Capital Position Remains Above Requirements Further capital optimisation measures have been identified

ADDITIONAL CAPITAL IMPACTS:

• After takeover intention published in February 2021 regulatory capital lower by EUR 43m (35 bps);
• Inclusion of negative goodwill to regulatory capital expected by Q3 2021 (115 bps).

RWA OPTIMIZATION ACTIONS:

• Decrease in KB trading book;
• Banking book portfolio optimization;
• Credit risk optimization through further engagement with MIGA;
• Third country equivalence framework for Bosnia and Herzegovina and Northern Macedonia.

(in EURm)	NLB Group	o/w KB
Credit Risk	10,223	2,676
Market Risk	1,251	730
Operational Risk	947	/
RWA	12,421	3,406

Dedicated Team in Charge of Transformation to Become the Leading Bank in the Serbian Market by 2025

Management Board members nominated by NLB

Vlastimir Vuković CEO and CMO

• 16 years Executive Board Member
• Deputy CEO and CMO in Vojvođanska banka
• President of the Executive Board in Intesa Leasing
• Member of the Executive Board of Banca Intesa, Srbija
• CMO in NLB Banka Beograd

25 years of banking experiences 23 years of banking experiences 20 years of banking experiences

• 12 years Executive Board Member
• CMO in ProCredit Bank
• CRO and COO in ProCredit Bank
• Member of the Audit Committee of ProCredit Bank Moldova
• President of the Board of Directors of ProCredit Leasing
• CRO and COO in NLB Bank Belgrade

• 5 years Executive Board Member
• Čačanska banka
• Eximbank
• UniCredit Banka Serbia
• Komercijalna Banka Beograd since 2006

Board of Directors

NLB representative (function in NLB)

Independent representative

Planned Integration of Two Banks in Serbia by Q2 2022

Synergy potential almost fully activated by end 2023

Dec 2020					2022	Apr 2022	Sep 2022
	Q1	Q2	Q3	Q4	Q1	Q2	Q3
Legal and M&A processes	• Merge Regulatory approvals • Ownership consolidation
HR integration	• Organization design • Management nominations • Comp&Bene • Union negotiations • Voluntary leaves	harmonization		• • • Management appointment • Culture integration • Relocation of employees	Organization implementation Implementation of target size
IT Integration	• Migration preparation • Target system architecture design • Gap development • Target business model design				• Clean-up • Stabilization
Sales	• KPIs verification and setup • Branch footprint design		• model • Branch network sizing	Implementation of new sales		• network sizing	Post-integration branch
Marketing and Communications	• Communication on key milestones (organization design, management nominations, regulatory process, integration process) • Townhalls, Q&A sessions with employees and stakeholders					• implemented	Branding approach
Internal controls and Operations, Markets	• Internal controls sys. harmonization (Risk, Compliance, AML, I. Audit) • Securities ptf. adjustment		• Funding strategy implementation			Legal & Operational
	Closing					Merger (Serbia)

Integration Costs are Fully Funded by Negative Goodwill Approximately 2/3 of integration costs will occur in the first year

	Amount	% of total
IT costs	-8.2	26.3%
HR restructuring	-11.4	36.5%
Marketing	-5.9	18.9%
Other	-5.9	18.3%
Total	-31.2

Integration costs between 2021 and 2025 (EURm) Negative goodwill covers all restructuring charges (EURm)

Cost Synergies Play the Lion's Share, Focusing on Operational Excellence Expected efficiency improvements in excess of EUR 20 million p.a. from 2023

Synergies between 2021 and 2025 (EURm) Total synergies by year (EURm)

	Amount (Run-rate 2023)	% of total
Income synergies/attrition	1.2	6%
Cost synergies	20.1	94%
Total	21.3

Cost synergies identified and share in cost synergies:

• HR cost synergies (50.0%)
• Rent HQ Buildings (13.5%)
• G&A cost synergies (32.8%)
• IT synergies (3.5%)

Synergies from KB Banja Luka and KB Podgorica are not included in this calculation and they present further potential for efficiency improvements.

Unaudited FY 2020 Results

Key performance indicators of NLB Group Stable core revenues and strict cost discipline

in EUR million / % / bps	1-12 2020	1-12 2019	Change YoY
Key Income Statement Data
Net operating income(i)	504.5	517.2	-2%
Net interest income	299.6	318.5	-6%
Net non-interest income	204.9	198.7	3%
Total costs(i)	-293.9	-305.0	4%
Result before impairments and provisions	210.5	212.2	-1%
Impairments and provisions	-71.4	-1.0	-
Negative goodwill	137.0	0.0	-
Result after tax	268.9	193.6	39%
Result after tax w/o KB	141.3	193.6	-27%
Key Financial Indicators
Return on equity after tax (ROE a.t.)	8.3%	11.7%	-3.4 p.p.
Return on assets after tax (ROA a.t.)	1.0%	1.5%	-0.5 p.p.
Interest margin (on interest bearing assets)	2.11%	2.48%	-0.4 p.p.
business margin(ii) Operational	3.32%	3.77%	-0.5 p.p.
Cost-to-income ratio (CIR)(iii)	58.3%	59.0%	-0.7 p.p.
Cost of risk net (bps)(iv)	62	-20	82
			Change
in EUR million / % Key Financial Position Statement Data	31 Dec 2020	31 Dec 2019	YoY
Total assets	19,564.7	14,174.1	38%
Gross loans to customers	10,033.3	7,938.3	26%
Net loans to customers	9,644.9	7,604.7	27%
Deposits from customers	16,397.2	11,612.3	41%
Equity (without non-controlling interests)	1,952.0	1,685.9	16%

(i) Data for 2019 are adjusted to changed schemes prescribed by the Bank of Slovenia (relocation of some items from net other income to other general and administrative expenses);

(ii) Net income from operational business (NII - Tier 2 costs + Net fee and commission income + Recurring net income from financial operations) / Average total assets.

(iii) CIR is adjusted to changed schemes prescribed by the Bank of Slovenia.

(iv) Credit impairments and provisions (annualised level) / average net loans to non-banking sector

Result before impairments and provisions (in EURm)

Net fee and commission income (in EURm)

Costs (in EURm)

Operating Income Performance Resilient Despite COVID-19 Bottom line affected primarily by COVID-19 related provisions

Net profit of NLB Group – evolution YoY (in EUR million)

Loan Dynamics

Robust loan growth in subsidiaries continues, with KB acquisition Strategic foreign markets outgrowing Slovenia

Gross loans o/w KB Yields

Decisive Response to COVID-19

By the end 2020 over 80% of moratoria expired

(in EUR)			Covid - 19 Moratorium
NLB Group member	Exposure	o/w expired by 31 Dec. 2020	Outstanding amount	% of Exposure	% of Exposure (excl. expired moratoriums)
NLB d.d.	489,950.9	152,108.6	337,842.3	7.0%	4.8%
NLB Banka, Skopje	347,350.6	292,042.4	55,308.2	27.5%	4.4%
NLB Banka, Banja Luka	20,946.1	17,443.6	3,502.6	3.5%	0.6%
NLB Banka, Sarajevo	35,157.2	26,799.2	8,358.0	6.3%	1.5%
NLB Banka, Prishtina	249,283.2	190,121.7	59,161.5	32.3%	7.7%
NLB Banka, Podgorica	165,046.9	165,046.9	0.0	35.0%	0.0%
NLB Banka, Beograd	251,797.6	251,797.6	0.0	41.5%	0.0%
NLB Leasing d.o.o. - v likv., Ljubljana	3,615.2	3,331.9	283.3	14.1%	1.1%
Komercijalna banka a.d., Beograd	798,057.7	798,057.7	0.0	34.1%	0.0%
Komercijalna banka a.d., Banja Luka	32,073.8	27,604.8	4,469.1	16.1%	2.2%
Komercijalna banka a.d., Podgorica	41,664.3	38,050.2	3,614.1	32.0%	2.8%
NLB Group	2,434,943.6	1,962,404.6	472,539.0	17.7%	3.4%

On NLB Group level (including Komercijalna Banka group) EUR 2,435 million moratorium approved, 45% to Non-financial corporations and 54% to Households. Moratoria were granted for the period between 3 to 12 months. By the end Q4 2020 81% of the granted moratoria already expired.

In Slovenia EUR 493.6 million moratoriums have been approved with outstanding amount EUR 338.1 million at the end of Q4 2020 and represents less than 5% of the total portfolio. Banks in Strategic Foreign Markets have approved EUR 1,941.4 million moratoriums, more than half of them in Serbian Banks as a result of COVID-19 related measures taken at the state level. 93% of the approved moratoriums approved in Strategic Foreign Markets have already expired by the end of Q4 2020.

Apart from moratoriums, the Group is also providing additional liquidity by granting new loans to help with the specific situation due to COVID-19 crisis. The volume of such loans was EUR 20.8 million in the Bank and close to EUR 128.1 million in other banking members of the Group, most of them in Serbia, amounting to 4% of total exposure to Serbia. EUR 134.6 million of the new COVID-19 loans are subject to public guarantee schemes in Serbia and in Slovenia.

Performance of Expired Portfolio and Remaining Moratorium Overview More than 95% of expired moratoria clients are repaying regularly

Structures of non-expired loans under moratorium (31 Dec 2020, in %)

REMAINING MORATORIUM OVERVIEW – solid coverage, small remaining exposure and short duration

• Duration of remaining moratoriums is very short more than 82% or EUR 390 million of exposure will expire by mid-2021 making moratoriums H1 2021 story.
• Structure of the moratorium exposure has shifted from initial 54% exposure to households and 45% to non-financial corporations to remaining exposure of two thirds to non-financial and the rest to households.
• Coverage ratio at 7.05% for total non-expired porfolio is double than coverage ratio for total exposure under moratoriums and what is normal for loan portfolio (3.4% without KB).

PERFORMANCE OF EXPIRED PORTFOLIO – encouraging trends:

• Out of expired portfolio, we observe that more than 95% of exposure have no problems with servicing their obligations.
• Among the non performing exposures, more than two third are in the unlikely to pay or less than 90 days category, indicating that asset quality is behaving as exected and prepared for.

Asset Quality Firmly under control with CoR at 62 bps

Active workout drove gross NPL ratio down (Group, EURm)

Cost of risk at 62 bps, mostly related to COVID-19 provisions. Cost of risk lower than guidance, mainly due to very good asset quality trends in Slovenia and successful NPL workout.

In Q4 NPL inflow due to two one-off events; changed treatment of excluded interest (EUR 34 million) and KB banks acquisition (EUR 40 million). NPLs from regular business within the planned framework. On the other hand, a better recovery of NPLs than planned, mainly on repayments and sold receivables as well as reclassification to performing credit rating (net release of app EUR 18 million in NLB).

NPL ratio decreased from 3.8% to 3.5% YoY, while NPE ratio increased by 0.1 p.p. YoY to 2.8%.

Coverage ratio reduced due to classifications of loans from KB.

Asset Quality of KB Banks After Fair Value Recognition High % of Stage 1 Loan portfolio – asset quality under control – the NLB way

Credit portfolio(1) by Stage (KB Banks, 31 Dec 2020, EURm)

in EUR million	Total credit portfolio				Retail			Corporate
	Stage1	Stage2	Stage3	FVTPL	Stage1	Stage2	Stage3	Stage1	Stage2	Stage3	FVTPL
KB Banks	2,603.2	-	40.4	-	843.7	-	5.8	966.1	-	34.6	-
Komercijalna banka a.d., Beograd	2,279.8	-	35.2	-	766.4	-	3.8	799.4	-	31.4	-
Komercijalna banka a.d., Banja Luka	197.2	-	1.2	-	34.0	-	0.5	117.6	-	0.6	-
Komercijalna banka a.d., Podgorica	126.1	-	4.0	-	43.3	-	1.4	49.1	-	2.6	-

			Credit portfolio				Provisions and FV changes for credit portfolio
	Stage1			Stage2 Stage3 & FVTPL				Stage1 Stage2				Stage3 & FVTPL
	Credit portfolio	Share of Total	Credit portfolio	Share of Total	Credit portfolio	Share of Total	Provision Volume		Provision Coverage	Provision Volume	Provision Coverage	Provisions & FV changes	Coverage with provisions and FV changes
Total Credit portfolio of KB Banks	2,603.2	98.5%	-	-	40.4	1.5%	10.4		0.4%	-	-	0.0	-
o/w Corporate	966.1	96.5%	-	-	34.6	3.5%		8.0	0.8%	-	-	0.0	-
o/w Retail	843.7	99.3%	-	-	5.8	0.7%		2.2	0.3%	-	-	0.0	-
o/w State	629.0	100.0%	-	-	0.0	-		0.2	0.0%	-	-	0.0	-
o/w Institutions	164.4	100.0%	-	-	0.0	-		0.1	0.0%	-	-	0.0	-

All assets, including loans, initially recognised at fair value in NLB Group financial statements.

All loans are classified either in Stage 1 (performing portfolio) or in Stage 3 (non-performing portfolio).

For loans in Stage 1, 12-month expected credit losses are recognised immediately after closing, i.e. already in year 2020.

For Stage 3 loans special rules apply: these loans are called POCI loans (POCI = Purchased or Originated Credit Impaired) initially recognised at fair value, without any additional credit loss allowances.

In subsequent periods, only the cumulative changes in the lifetime expected credit losses since initial recognition will be recognised as a loss allowance for POCI loans (either as additional expenses if expected credit losses increase or as release of impairments if expected credit losses decrease).

Final Remarks

KB accelerates our strategic priorities

Our Customers come first	• Client activation (850k active clients vs 1.1m client base); • Strong potential in corporate SME segment (KB behind market); • Product penetration and X-sell in cash and housing loans, credit cards; • Positioning NLB&KB to gain efficiencies and further invest in customer experience.
Delivery on our Strategy	• Becoming the leading financial institution focused on and headquartered in our home, the SEE region; • Building a modern, digitalized, and efficient bank; • Improving the quality of life in the region through a responsible and sustainable approach to our business operations.
Expanding our Presence in Serbia	• Increasing market share and expanding services to new clients; • Strengthening and leveraging on strong deposit franchise& strong capital base; • New talent pool.
Providing Long-term Value to Shareholders	• Strong contribution of Serbian market to Group's profit; • EPS accretive over >30% (2022 run-rate); • Dividend distribution in 2021-2023 exceeding EUR 300 million.

2021

2023

Regular income	Exceeding EUR 600 million	Exceeding EUR 700 million
Costs	Initial increase in cost base in the year 2021, costs projected around EUR 430 million including restructuring charges.	Costs below EUR 400 million
CoR	70-90 bps	40-60 bps
Loan growth	Mid-single digit loan growth	High single-digit CAGR 2021-2023
Dividend	EUR 92.2 million	Cummulative more than EUR 300 million in 2021-2023
ROE	High single digit	> 10% (RORAC(1) > 12%)

Stronger together against Covid-19

● Strong emphasis on healthcare

◦ The majority of employees (85%) are working from home (except for branch office and contact centre employees) ◦ Preventive withdrawal of employees with health conditions from work environment ◦ Healthy Habits project promoting preventive measures and healthy lifestyle

● Promotion and support for work personal life balance

● Implementation of new communication channels for online meetings and better reach (MS Teams and emergency SMS)

● Healthcare promotion and strict preventive measures in branches

● Implementation of new digital solutions

and enhancement of our digital capacities

• Remote signature feature in mobile bank Klikin
• Biometric authentication in mobile wallet
• Enhanced capacity of NLB Contact Centre 124% more video calls in 2020
• 50% increase of online chats with our banking advisors

◦ Almost 35.000 new users of mobile bank Klikin

● Continuous support of our customers by providing moratoria and liquidity lines

• Donations aimed at mitigating the effects of the epidemic
• To UKC Ljubljana and UKC Maribor
• Heroes of the 3rd floor

● With #HelpFrame Project we

supported local entrepreneurship by offering advertising space to more than 170 local businesses through the NLB Group

● We have committed ourselves to the UN Principles for Responsible Banking

We protected our employees ... … invested in technology, and supported local communities.

Acquisition in Our Home Market

Macroeconomic Environment in Serbia

Robust and diversified economy with resilient COVID-19 response setting pathway for future growth and digital development

Lowest GDP contraction in the region: -1.0%(1) in 2020, compared to -6.8% for Eurozone(2)

FDI into Serbia rose to USD 4.3 billion in 2019 (8.3% of GDP) as a result of the country's improved business climate and equity capital growth. In 2019 the total stock of FDI stood at USD 44 billion.

Main sectors of industry by GDP contribution:

• Services (IT fastest growing) 50.0%
• Industrial 25.5%
• Manufacturing 15.0%
• Agriculture 6.3%

COVID-19 response:

• Government measures for reducing negative effects at 12% GDP
• Serbia ranking No. 1 in Europe by number of people vaccinated

Key Performance Indicators of Komercijalna banka

	Komercijalna Banka, Beograd	Komercijalna Banka, Banja Luka		Komercijalna Banka, Podgorica		Kombank INvest		Komercijalna Banka group (consolidated)
in EUR million	2020	2019	2020	2019	2020	2019	2020	2019	2020	2019
Net interest income	103	107	5	5	5	5			113	117
Net fee and commission income	41	45	2	2	1	2			45	49
Operating costs	98	94	6	6	6	5	0.2	0.2	110	105
Net impairments and provisions	-9	21	0	0	-1	-1	0.001	0.025	-11	13
Result after tax(i)	25	76	1	1	1	1			26	71
Total assets	3,907	3,677	236	250	154	156	1.5	1.4	4,255	4,046
Net loans to customers	1,630	1,579	155	151	104	88			1,866	1,771
Deposits	3,194	2,874	153	177	120	125			3,455	3,155
ROE(ii)	5.6%	11.7%	2.3%	3.8%	2.6%	4.8%	0.4%	1.9%	5.5%	10.2%
Interest margin(iii)	2.7%	3.0%	2.3%	2.2%	3.3%	3.3%			2.7%	3.0%
CIR	68.1%	61.8%	87.6%	86.5%	85.3%	83.6%			69.2%	63.7%
LTD	51.0%	54.9%	101.8%	85.2%	86.7%	70.7%			54.0%	56.1%
NPL ratio(ii)	7.8%	7.2%	2.1%	5.8%	4.9%	5.8%			7.2%	7.0%
# of employees	2,669	2,744	163	159	146	148	5	5	2,983	3,056

(i) Profit before tax for Komercijalna banka, Banja Luka and Komercijalna banka, Podgorica

(iii) Total capital

(iii) Total Assets

Balance Sheet Structure – NLB Group

Increase of total assets by EUR 4.3 billion due to Komercijalna Banka acquisition

Diversified Credit Portfolio of KB Group

Credit portfolio(1) (KB Banks, 31 Dec 2020, EURm)

Credit portfolio (1) by segment

Credit portfolio (1) by geography

INDUSTRY Exposure (%) Wholesale and retail trade 17.9% Agriculture, forestry and fishing 12.5% Manufacturing 11.2% Construction industry 10.6% Electricity, gas, steam and air condition 8.7% Public admin., defence, compulsory social. 8.6% Information and communication 6.9% Mining and quarrying 4.8% Real estate activities 3.9% Transport and storage 3.7% Top 10 industries

Credit portfolio (1) by currency

KB´s Market Share and No. of Clients

MARKET SHARE

Total RETAIL Placements	8.46%
Private individuals	8.00%
Housing loans	10.31%
Consumer loans	6.77%
Overdarfts	14.57%
Agro business	14.85%
Micro business	8.44%
Total RETAIL Savings	17.21%
Total CORPORATE Placements	6.4%
Total CORPORATE Deposits	12.24%

ACTIVE CLIENTS
KB Bank Retail *	842,164
Private individuals	727,104
Agro business	79,180
Micro business	35,880
KB Bank Corporate *	7,324

* Definitions for Active clients:

• ✓ Individuals and farmers: all clients with loans, overdrafts, credit card with at least 3 months, positive balance on current account with at least 1 trnx in the last 3 months or any deposit over RSD 1.000.
• ✓ Micro clients: all clients with exposure of deposits over EUR 10.000.
• ✓ Corporate: all clients (PL+NPL) with total exposure (PL+NPL) >0 and/or deposits above RSD 10.000 and at least 1 trnx on the current account in the last 3 month

Welcome package For existing and new clients NLB & KB in Serbia

From February/March onwards and throughout H1 2021 introduce and strongly promote a Welcome package for existing and new clients which will support the business (especially lending and new customer onboarding).

Welcome Package (set) Free of package fee for new customers for 3-6 months

Welcome Cash loan

Loans w/o origination fees for 3/6 months & refinancing cash loans for loans approved till Mar./Jun. 2020

Welcome Housing loans Loans w/o origination

fees for new loans 3/6 months

Welcome to our

ATMs

Free ATM cash withdrawal within NLB Group (over 330 ATMs in the country and 1,039 in the region)

Key Performance Indicators of NLB Group Stable core revenues and strict cost discipline

				Change
in EUR million / % / bps		1-12 2020	1-12 2019	YoY	Q4 2020	Q3 2020	Q4 2019
Key Income Statement Data
Net operating income(i)		504.5	517.2	-2%	121.2	123.3	129.8
Net interest income		299.6	318.5	-6%	75.1	74.4	79.7
Net non-interest income		204.9	198.7	3%	46.1	48.9	50.1
Total costs(i)		-293.9	-305.0	4%	-77.7	-71.4	-88.0
Result before impairments and provisions		210.5	212.2	-1%	43.5	51.9	41.9
Impairments and provisions		-71.4	-1.0	-	-21.1	-17.0	-10.7
Negative goodwill		137.0	0.0	-	137.0	0.0	0.0
Result after tax		268.9	193.6	39%	164.2	31.0	31.3
Result after tax w/o KB		141.3	193.6	-27%	36.6	31.0	31.3
Key Financial Indicators
Return on equity after tax (ROE a.t.)		8.3%	11.7%	-3.4 p.p.
Return on assets after tax (ROA a.t.)		1.0%	1.5%	-0.5 p.p.
Interest margin (on interest bearing assets)		2.11%	2.48%	-0.4 p.p.
Operational business margin(ii)		3.32%	3.77%	-0.5 p.p.
Cost-to-income ratio (CIR)(iii)		58.3%	59.0%	-0.7 p.p.
Cost of risk net (bps)(iv)		62	-20	82
	31 Dec	30 Sep	31 Dec	Change	Change
in EUR million / %	2020	2020	2019	YoY	QoQ
Key Financial Position Statement Data
Total assets	19,564.7	15,145.7	14,174.1	38%	29%
Gross loans to customers	10,033.3	8,111.1	7,938.3	26%	24%
Net loans to customers	9,644.9	7,749.0	7,604.7	27%	24%
Deposits from customers	16,397.2	12,408.8	11,612.3	41%	32%
Equity (without non-controlling interests)	1,952.0	1,770.8	1,685.9	16%	10%

(i) Data for 2019 are adjusted to changed schemes prescribed by the Bank of Slovenia (relocation of some items from net other income to other general and administrative expenses);

(ii) Net income from operational business (NII - Tier 2 costs + Net fee and commission income + Recurring net income from financial operations) / Average total assets.

(iii) CIR is adjusted to changed schemes prescribed by the Bank of Slovenia.

(iv) Credit impairments and provisions (annualised level) / average net loans to non-banking sector

Net Interest Income Decreased: easing pressure on margins

YoY decrease in interest income mostly related to lower income from financial assets related to reinvestment of debt securities with lower yields, higher cash volumes and balances with the central bank (bearing negative interest in line with the expansionary monetary policy), and continued pressure on interest rates achieved on the loan portfolio in the Bank and Group banking members in the SEE region. Higher interest expenses are related to the subordinated Tier 2 instruments raised by the Bank to optimize the capital structure. Interest expenses for customer deposits were decreasing.

QoQ slight increase of the interest income due to higher volumes of loans, especially to individuals.

Lower yields on securities

Net Fees and Commissions on the same level yoy

• Net fee and commission income on the same level YoY, negative impact of COVID-19 on card operations and payment transactions compensated by increased package fees, higher assets management and bancassurance fees and achieved discounts on card operations.
• 2020 net non-interest income influenced by non-recurring income: sale of NLB Vita (EUR 11.0 million), sale of debt securities in NLB (EUR 17.1 million) and loan revaluation in the amount of EUR 4.9 million. In 2019 partial repayment of a larger exposure measured at fair value through profit and loss and active management of banking book securities in the amount of EUR 5.1 million and revaluation of a non-core equity stake in the amount of EUR 6.3 million.
• QoQ decrease mainly related to modification losses, caused by changes of contractual cashflows for loans under COVID-19 moratoria (o/w EUR 2.1 million in NLB Banka, Skopje and EUR 1.1 million in NLB, Banka Beograd).

Net fee and commission income (in EURm)

Net non-interest income of the NLB Group (in EURm)

Recurring net non-interest income split

	Realization
in EUR million	1-12 2020	1-12 2019	Change YoY
Recurring net non-interest income	171.2	174.5	-3.4	-2%
Net fee and commission income	170.3	170.3	-0.1	0%
Dividends income	0.1	0.2	-0.1	-47%
Net income from financial transactions (Fees from Exchange differences)	10.5	11.5	-1.0	-9%
Net other income	-9.7	-7.5	-2.2	-29%
- external realization (IT, cash logistics)	3.4	3.6	-0.2	-5%
- rents	3.6	5.1	-1.5	-30%
- regulatory charges (SRF, DGS)	-16.7	-16.2	-0.5	-3%

Total Costs: lower employee costs and positive effects from cost racionalization projects

YoY decrease of total costs, mostly employee costs (mainly in NLB, due to lower number of branches and employees), positive effects from cash management and paperless projects, and cost of services (consulting). On the other hand higher IT costs (HOST, ESSO), costs of material (COVID-19 protection), and ECB&BoS supervisory costs in NLB.

QoQ increase of total costs due higher other general and administrative costs (mostly costs of marketing and IT costs) and employee costs (still lower than pre COVID-19 levels).

The Group is undertaking several strategic initiatives (channel strategy, digitalization, paperless, lean process,…) to maintain the sustainable cost base going forward.

CIR stood at 58.3%.

Costs (in EURm)

Effective rationalization of headcount and network

of employees

Additional Impairments and Provisions due to COVID-19 Outbreak and KB Acquisition

Impairmants and provisions (in EUR m)

Establishment

Release

Credit impairments and provisions (1) and CoR by company – contribution (in EURm)

In 2020, the Group established EUR 48.9 million of net impairments and provisions for credit risk, out of which EUR 18.4 million due to changed macroeconomic parameters, that incorporate estimated impacts of COVID-19 outbreak. In addition expected credit losses on performing portfolio for KB banks in the amount of EUR 13.4 million were created.

The Group's cost of risk was positive (62 bps), as was also in all Group bank members, mostly related to established impairments and provisions related to COVID-19 outbreak, although partially neutralized with successful resolution of business cases in restructuring and workout (net release of cca EUR 18 million in NLB).

Other impairments and provisions established in the amount of EUR 9.1 million, of which mainly provisions for legal risks (EUR 4.2 million in NLB) and HR provisions (EUR 3.5 million in NLB).

Asset Quality – NLB Group High % of Stage 1 Loan portfolio (measured at amortized cost & FVTPL)

Credit portfolio(1) by Stage (Group, 31 Dec 2020, EURm)

NLB-G after acquisition of KB Banks

	Credit portfolio									Provisions and FV changes for credit portfolio
	Stage1 Stage2					Stage3 & FVTPL				Stage1		Stage2		Stage3 & FVTPL
(EURm)	Credit portfolio	Share of Total	YTD change	Credit portfolio	Share of Total	YTD change	Credit portfolio	Share of Total	YTD change		Provision Volume	Provision Coverage	Provision Volume	Provision Coverage	Provisions & FV changes	Coverage with provisions and FV changes
Total NLB Group	12,650.8	92.4%	3,703.1	560.1	4.1%	89.0	475.7	3.5%	101.0		75.7	0.6%	40.8	7.3%	271.9	57.2%
o/w Corporate	4,135.7	84.0%	928.5	426.8	8.7%	59.5	358.6	7.3%	73.0		49.0	1.2%	32.7	7.7%	210.8	58.8%
o/w Retail	4,779.2	95.0%	957.0	133.3	2.7%	29.6	117.1	2.3%	29.6		25.2	0.5%	8.2	6.1%	61.2	52.2%
o/w State	3,290.1	100.0%	1,658.0	-	-	-	-	-	-1.7		1.3	0.0%	-	-	-	-
o/w Institutions	445.8	100.0%	159.6	-	-	-	-	-	-		0.2	0.1%	-	-	-	-

NLB-G w/o KB Banks

	Credit portfolio										Provisions and FV changes for credit portfolio
	Stage1			Stage2			Stage3 & FVTPL			Stage1		Stage2		Stage3 & FVTPL
(EURm)	Credit portfolio	Share of Total	YTD change	Credit portfolio	Share of Total	YTD change	Credit portfolio	Share of Total	YTD change	Provision Volume	Provision Coverage	Provision Volume	Provision Coverage	Provisions & FV changes	Coverage with provisions and FV changes
Total NLB Group w/o KB	10,065.6	91.0%	1,117.9	560.1	5.1%	89.0	435.3	3.9%	60.6	65.3	0.6%	40.8	7.3%	271.9	62.5%
o/w Corporate	3,169.6	80.9%	-37.6	426.8	10.9%	59.5	324.0	8.3%	38.4	41.0	1.3%	32.7	7.7%	210.7	65.0%
o/w Retail	3,935.5	94.1%	113.3	133.3	3.2%	29.6	111.4	2.7%	23.9	23.0	0.6%	8.2	6.1%	61.2	54.9%
o/w State	2,661.2	100.0%	1,029.0	-	-	-	-	-	-1.7	1.1	0.0%	-	-	-	-
o/w Institutions	299.4	100.0%	13.2	-	-	-	-	-	-	0.2	0.1%	-	-	-	-

NLB Group Assets by Segment

Well diversified credit portfolio, with substantial retail exposure

Credit portfolio(1) by segment (Group, 31 Dec 2020, EURm)

NLB-G w/o KB Banks NLB-G after acquisition of KB Banks

NLB Group Assets by Industry & Sectors

The portfolio structure comparable to the one before the acquisition of KB

Corporate credit portfolio(1) (Group, 31 Dec 2020, EURm)

Corporate sector	NLB-G
industry sector	w/o KB	%	NLB-G	%	∆
Accommodation and food service activities	113	3%	141	3%	29
Act. of extraterritorial org. and bodies	0	0%	0	0%	0
Administrative and support service activities	108	3%	122	2%	13
Agriculture, forestry and fishing	164	4%	289	6%	125
Arts, entertainment and recreation	18	0%	21	0%	3
Construction industry	268	7%	374	8%	106
Education	14	0%	14	0%	1
Electricity, gas, steam and air condition	171	4%	258	5%	87
Finance	150	4%	168	3%	18
Human health and social w ork activities	39	1%	50	1%	11
Information and communication	164	4%	234	5%	70
Manufacturing	874	22%	986	20%	112
Mining and quarrying	32	1%	80	2%	48
Professional, scientific and techn. act.	149	4%	172	3%	23
Public admin., defence, compulsory social.	133	3%	219	4%	87
Real estate activities	182	5%	222	5%	39
Services	12	0%	14	0%	2
Transport and storage	555	14%	592	12%	37
Water supply	28	1%	41	1%	13
Wholesale and retail trade	744	19%	923	19%	179
Other	1	0%	2	0%	1
Total Corporate sector	3,920	100%	4,921	100%	1,001

Source: Company information

Asset Quality – NLB Group Diversified credit portfolio, focused on core markets and cautious risk taking

Credit portfolio(1) by geography (Group, 31 Dec 2020, EURm)

Source: Company information

Note: (1) Credit portfolio also includes advances to banks and central banks; (2) State includes exposures to central banks; (3) The largest part represent EU members.

Asset Quality – NLB Group

NPLs fully covered by provisions and collateral

NPL by geography (Group, 31 Dec 2020) NPL cash coverage(1) (Group, %)

An important Group strength is the NPL cash coverage (CR1), which remains high at 81.8%. Further, the Group's NPL coverage ratio (CR2) stands at 57.3%, which is well above the EU average as published by the EBA.

The decrease in coverage indicators in Q4 2020 was influenced by the special treatment of NPLs from acquired entities. NPLs of KB Banks are initially recognised at fair value, without any additional credit loss allowances.

Asset Quality – NLB Group

Diversified credit portfolio, focused on core markets and cautious risk taking

Credit portfolio(1) by currency and rate type (Group, 31 Dec 2020)

No large concentration in any specific industry or client segment

Lending strategy focuses primarily on its core markets of retail, SME and selected corporate business activities

Great emphasis is also placed on active monitoring of credit portfolio for early detection od possible credit deterioration:

• Early warning system for detecting increased credit risk
• Close monitoring of clients with COVID-19 moratoria
• Intensive and proactive handling of problematic customers
• Cautious lending policy
• The Group is actively present on the market, financing existing and new creditworthy clients.

Note: (1) Credit portfolio also includes advances to banks and central banks; (2) Rating A, B and C are performing exposures. Rating A: investment grade clients with high financial stability; Rating B: clients with high ability to repay their obligations, a significant aggravation of the economic environment would cause problems to them; Rating C: performing clients with increased level of risk who may encounter problems with settlement of liabilities in the future; Ration D and E are NPLs: Default clients (article 178 of CRR), including clients in delay >90days and other clients considered 'unlikely to pay' with delays below 90 days. Numbers may not add up to 100% due to rounding.

Source: Company information

Sustainability Framework: in 2020, the Group embarked on a path of more intensive integration of sustainability into banking operations

STRONG SUPPORTING FOUNDATIONS:

Pillar 3: CSR

2021 SUSTAINABILITY ROADMAP:

SUSTAINABLE OPERATIONS & SUSTAINABLE FINANCE:

• Upgrading business strategy with UN SDGs and ESG factors orientation.
• NLB Group portfolios impact analysis & target-setting and implementation.
• Implementation of requirements defined in ECB Guide on climate-related and environmental risks in NLB Group Risk Management Framework.
• Development of sustainable product portfolio.
• Adopting Environmental and Social Credit Policy Framework and Environmental and Social Risk Categorization Methodology Framework
• Implementation of the EBRD and MIGA E&S Standards together with E&S management system.
• Establishment of the NLB Sustainability Corporate Governance model.

CSR:

• Upgrading CSR activities with UN SDGs.

The transition to sustainable banking requires the adaptation of most processes in the Group, as well as changes in the banking culture.