NLB

Investor Presentation • Feb 27, 2020

NLB Group presentation Acquisition of Komercijalna banka a.d. Beograd

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NLB is regulated by The Bank of Slovenia i.e. "Banka Slovenije, Slovenska 35, 1505 Ljubljana, Slovenia" and by The Securities Market Agency i.e. "Agencija za trg vrednostnih papirjev, Poljanski nasip 6, 1000 Ljubljana, Slovenia.

Table of contents

Transaction overview	4
Transaction rationale	6
Highlights of acquired entity	12
Financial impact	15

Transaction overview

Transaction structure and purchase considerations

Purchase	• Nova Ljubljanska banka d.d. ("NLB" or "NLB Group") has agreed to acquire the Republic of Serbia's 83.23% ordinary shareholding in Komercijalna banka a.d. Beograd ("KB") for a consideration of EUR387 million (the "Purchase Price"), payable in cash on completion
price	₋ In accordance with Serbian bank privatisation regulations, NLB is not required to launch a tender offer for minorities' shareholdings in KB
Financial terms	₋ NLB's existing operations in Serbia will be merged into KB in the medium-term
	• The Purchase Price constitutes a 100% implied valuation of EUR465 million, representing a multiple of 0.77x KB's IFRS consolidated shareholders' equity as at 30 June 2019
	₋ The Purchase Price will be subject to a 2% annual interest rate between 1 January 2020 and closing under a "locked-box" mechanism
	• Subject to the National Bank of Serbia's discretion and approvals:
	₋ Declared but unpaid dividends and employee benefits for prior financial years will be paid before closing; these will have no impact on KB's shareholders' equity having already been fully provided for
	₋ A dividend equating to 50% of 2019 net profit (up to a maximum of EUR38 million) will be paid to KB's existing shareholders before closing
	• Incremental RWA of c.EUR3.5 billion to be financed from existing resources
	₋ NLB Group reported a CET1 ratio of 15.8% and a total capital ratio of 16.3% (17.7% and 20.8% pro-forma, respectively, for the full recognition of 2019 net income, pending recognition of EUR240 million of Tier 2 instruments issued in Q4 2019 and Q1 2020 and RWA reduction due to third-country equivalence regime with Serbia) at 31 December 2019
	₋ Anticipated capital accretion stemming from retained earnings and / or ongoing RWA optimisation measures, potential AT1 issuance and non controlling interest inclusion in the course of 2020 will ensure capital comfortably in excess of OCR + P2G requirements at closing
Closing requirements	• NLB is striving to maintain a meaningful dividend payment for 2019; timing will be synchronised with regulatory approval processes and the successful implementation of pending capital measures
	• NLB is upholding its current dividend policy which, subject to meeting its target capital ratio (currently 16.25%, review pending due to 50bps lower P2R), envisages a dividend payout ratio of c. 70%
	• Transaction will be EPS accretive from year 2 with run-rate EPS accretion of over 20%
	• One-off pre-tax accounting gain anticipated on closing from negative goodwill, subject to fair value of net assets at that time
	₋ No assumptions have been made on regulatory capital treatment of negative goodwill
	• On 23 December 2019 NLB was invited to exclusive negotiations as the preferred bidder
Transaction	• On 26 February 2020, execution of share purchase agreement
timeline	• Completion is expected in Q4 2020 and is subject to approvals from, amongst others, Bank of Slovenia / the European Central Bank and the National Bank of Serbia

Transaction rationale

Key investment highlights

The transaction will consolidate NLB's position as the largest banking group in SEE, with an exclusive focus on and headquarters in this region

Given the size of KB relative to NLB's existing foreign subsidiaries, Serbia would become NLB's "second home market" accounting for c.24% of NLB Group's enlarged assets compared to c.4% today

Source: Company information

Notes: (1) Assuming Société Générale Srbija, OTP Vojvođanska banka and OTP banka Srbija merged into a single entity (2) Active clients include (a) all clients with loans, (b) clients with overdrafts and credit cards with at least one transaction in the last three months, (c) clients with current accounts with at least one transaction in the last three months, (d) clients with RSD and FX savings with amount higher than the RSD 1,000

Financial rationale

The transaction will create attractive shareholder returns with a manageable capital consumption

Source: Company information Notes: (1) Komercijalna banka's a.d. Beograd shareholders' equity of EUR613mn as at 30 June 2019 (2) Current target of 16.25% is pending revision post reduction of SREP capital requirement by 50bps

Strategic rationale

Enlarged presence in Serbia and two other core foreign growth markets

• Present in fast-growing economies (3.3% expected average real GDP growth in 2019–22 vs 1.6% for EU)
• Large addressable customer base with population of 11.1 million in KB's three operating markets
• Underpenetrated and fragmented markets poised for growth

2019–22 expected real GDP growth (%)

2018 banking sector penetration – loans / GDP

Strategic rationale

Creating a meaningful presence in Serbia

• KB's strong position in Serbia allows NLB to achieve "critical mass" in Serbia
• Addition of the largest network of 203 branches in Serbia (as at 30 June 2019), consolidated with NLB banka a.d. Beograd's network of 28 branches

Strengthening NLB's position in the region

(Total assets, EURbn, as at 31 December 2018)

Notes: (1) Pro-forma for the acquisition of Société Générale Srbija and merger of OTP Vojvođanska banka and OTP banka Srbija; (2) Crnogorska Komercijalna banka is a unit of OTP Bank; adjusted for the acquisition of Montenegrin unit of Société Générale (3) As at 30 June 2019, including agencies and outlets

Strategic rationale

Significant opportunity for value creation

Sources of value creation Transaction synergies

Highlights of acquired entity

Overview of acquired entity

KB has leading market shares in both retail and corporate with c.0.8mn active customers

History:

• Established as Komercijalna banka a.d. Beograd ("KB") in 1970 and transformed into a shareholding company as of 6 May 1992
• Offers banking products and services to retail and corporate customers
  • Headquartered in Belgrade

Foreign regulated banking subsidiaries:

• Bosnia and Herzegovina (FY2018: EUR236mn total assets) and Montenegro (FY18: EUR139mn total assets)

Market position:

• 4 by assets with a market share of 10.6% in Serbia as of 31 December 2018

  • 9.5% / 8.3% market share in corporate and micro segment loans / deposits
  • 18.5% market share in FX deposits
• c.0.8mn active retail customers
• Employed 2,757 FTEs and operated 203 branches in Serbia as at 30 June 2019

Non-banking operations:

• Provides investment fund management services through KomBank Invest a.d. Beograd

Ownership:

• As at 30 November 2019, the main shareholder of ordinary share capital is Republic of Serbia (83.23%) and the residual (16.77%) owned by minority shareholders
• Listed on the Belgrade Stock Exchange since 9 August 2006

Source: Komercijalna banka a.d. Beograd

Note: Average exchange rate as per National Bank of Serbia for the period used for income statement items, period year end exchange rate used for balance sheet items (1) Calculated as net interest income / average assets

(2) Operating expenses less Depreciation and Amortisation divided by total income (3) Incl. micro clients

Overview Key financial information

(EURmn)	2016	2017	2018	1H'19
Income statement
Net interest income	117	111	118	58
Net F&C income	41	45	47	24
Other income	8	9	8	1
Total income	166	165	176	83
Operating expenses	(113)	(105)	(106)	(60)
Pre-provision income	53	60	70	24
Loan loss provision	(106)	0	0	7
Profit before tax	(53)	60	71	31
Net income	(51)	68	71	31
Balance sheet
Net customer loans	1,348	1,471	1,620	1,684
Total assets	3,473	3,377	3,736	3,846
Customer deposits	2,797	2,664	2,970	3,007
Shareholders' equity	480	566	605	613
Ratios (%)
Net interest margin(1)	3.40	3.26	3.31	3.08
Cost-to-income ratio(2)	64.5	60.5	57.0	65.6
Return on average equity	nm	11.6	12.1	10.1
NPL ratio (Serbia only)	19.4	13.8	9.5	9.1
Net loan-to-deposit ratio	48.2	54.9	54.6	56.0
Tier 1 ratio (NBS standard)	26.2	24.6	25.2	26.4

Geographical presence

KB is present in NLB's core foreign markets, with operations in BiH and Montenegro

Serbia (EURmn)	1H'191	Bosnia & Herzegovina (EURmn)	1H'191
	36.7	Profit before tax	0.5
Profit before tax		Operating expenses	(2.5)
		Cost-to-income ratio (%)	75.0
Operating expenses	(43.8)	Profit before tax / total assets (%)	0.2
		Total assets	240
Cost-to-income ratio (%)	58.1	Net customer loans	136
		Customer deposits	162
Profit before tax / total assets (%)	1.0	# branches / agencies	9 / 9
Total assets	3,496
		Montenegro (EURmn)	1H'191
Net customer loans	1,463	Profit before tax	0.5
		Operating expenses	(2.3)
Customer deposits	2,729	Cost-to-income ratio (%)	75.4
		Profit before tax / total assets (%)	0.3
NPL ratio (%)	9.1	Total assets	138
		Net customer loans	85
# branches	203	Customer deposits	116
		# branches / outlets	9 / 1

Acquisition of KB would increase the proportion of NLB Group assets in core foreign markets from c.34% to c.49%

Source: Komercijalna banka a.d. Beograd

Note: (1) Standalone figures prior to consolidation and intragroup movements

Financial impact

Capital impact from the acquisition

Transaction to result in a manageable incremental of c.EUR3.5bn of RWA

NLB Group pro-forma capital position pre-acquisition (31 Dec 2019)

Comments

• Estimated c.EUR3.5bn RWA, excluding any potential regulatory benefits of negative goodwill
• 2019 reported year-end capital does not include unallocated net income (EUR157 million), Tier 2 instruments (EUR240 million, pending regulatory recognition), and the implementation of third country equivalence for Serbia(1)
• Anticipated capital accretion stemming from retained earnings and / or ongoing RWA optimisation measures, potential AT1 issuance and non-controlling interest inclusion in the course of 2020 will ensure capital comfortably in excess of OCR + P2G requirements at closing
• NLB is striving to maintain a meaningful dividend payment for 2019; timing will be synchronised with regulatory approval processes and the successful implementation of pending capital measures
• NLB is upholding its current dividend policy which, subject to meeting its target capital ratio (currently 16.25%, review pending due to 50bps lower P2R), envisages a dividend payout ratio of c. 70%

Combined Group key financials

Transformational transaction creating a regional powerhouse

	Financials as at 30 June 2019, in EURmn, unless otherwise stated			Pro-forma
	Net loans	7,281	1,684	8,965
Balance sheet	Total assets	13,164	3,846	17,010
	Deposits	10,754	3,007	13,761
	Net interest income	159	58	217
	Total income	257	83	341
Income statement	Operating expenses	(141)	(60)	(201)
	Loan loss provisions	(6)	7	1
	Net income to common	94	26(1)	120
	Net loan-to-deposits ratio	67.7	56.0	65.1
	Cost-to-income ratio(2)	49.0	65.6	53.0
Other metrics (%)	Employees (#)	5,823	3,064	8,887
	Branches (#)	320	232(3)	552
	Active clients (million)	1.8	0.8(4)	2.6

Source: Komercijalna banka a.d., Beograd

Notes: (1) Adjusted for 83.23% ordinary shareholding NLB to acquire

(2) Operating expenses less Depreciation and Amortisation divided by total income

(3) Including agencies and outlets

(4) Comprise active retail clients in Serbia as at 31 December 2018

Combined Serbian entity key financials

Creating the third largest banking institution in the country

	Financials as at 30 June 2019, in EURmn, unless otherwise stated			Pro-forma
	Net loans	363	1,463	1,826
Balance sheet	Total assets	527	3,467	4,023
	Deposits	370	2,729	3,099
	Net interest income	10	53(1)	63
	Total income	11	67(1)	78
Income statement	Operating expenses	(9)	(44)(1)	(53)
	Loan loss provisions	(1)	14(1)	13
	Net income to common	1	31(1),(2)	32
	Net loan-to-deposits ratio	98.3	53.6	58.9
Other metrics (%)	Cost-to-income ratio(3)	74.3	59.4	61.5
	Employees (#)	466	2,757	3,223
	Branches (#)	28	203	231
	Active clients (million)	0.1	0.8(4)	0.9

Source: Komercijalna banka a.d. Beograd

Notes: (1) Standalone figures prior to consolidation and intragroup movements

(2) Adjusted for 83.23% ordinary shareholding NLB to acquire

(3) Operating expenses less Depreciation and Amortisation divided by total income

(4) Comprise active retail clients in Serbia as at 31 December 2018