NLB — Investor Presentation 2019

Sep 9, 2019

NLB Group Presentation 1H 2019 Results

Disclaimer

This presentation has been prepared by Nova Ljubljanska banka d.d., Ljubljana (the "Company"). This presentation has been prepared solely for the purpose of informative presentation of the business conduct of the Company. This presentation has not been approved by any regulatory authority and does not constitute or form part of any offer to sell or issue or invitation to purchase, or any solicitation of any offer to purchase, any securities of the Company, nor shall it or any part of it nor the fact of its distribution form the basis of, or be relied on in connection with, any contract or investment decision.

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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.

NLB Group Highlights

Key developments in 2019

• On 19 June 2019 privatization process of NLB was successfully completed with RoS's sale of the remaining 10 percent minus 1 share - the shareholding of RoS was reduced to 25% +1.

Release of EC commitments

Initiated strategy refresh.

• The Bank issued subordinated Tier 2 notes in the aggregate nominal amount of EUR 45 million. The fixed coupon of the notes during the first five years is 4.2% p.a.
• Standard and Poor's upgraded NLB to BBB-, a move that takes NLB to the investment grade.
• NLB Pay wallet fully activated in 3 group members (others pending).
• In Slovenia 11% of consumer loans already ubderwritten E2E digitally through M-bank app Klikin.

Key performance indicators of NLB Group

	Medium-term targets set in 2018(1)
	YE 17	YE 18	H1 19	Medium term
Net interest margin(2)	2.57%	2.56%	2.54%	>2.7%
Loans to deposits ratio	70.8%	68.3%	67.7%	<95%
Total capital ratio	15.9%	16.7%	16.5%	~16.25%
Cost-income ratio	58.4%	58.5%	54.9%	~50%
Cost of risk(3)	-62 bps	-43 bps	0 bps	<90bps(6)
Return on equity (RoE)	14.4%	11.8%	11.4%	>12.0%
Dividend payout	84%(5)	70%	/	~70%(7)
ratio(4) NPE	6.7%	4.7%	4.1%	<4.0%

Source: Company information

Note: (1) Target set by NLB management as a part of their financial projections for 2019-2023; (2) Calculated on the basis of interest bearing assets; interest margin data for 2018 are adjusted to new methodology (calculation based on the number of days for the period). (3) Calculated as credit impairments and provisions over average net loans to customers; (4) Based on EBA definition. (5) Payout calculated based on 2017 profit. Total dividend paid for 2017 amounted to EUR 270.6 million (EUR 189.1 million of profit for 2017 and EUR 81.5 million of retained profit from previous years) i.e. dividend payout 120%. (6) CoR < 90bps should be read as NLB Group's limit that should not be exceeded even in deteriorated economic conditions. (7) The payment of dividends by NLB, will depend on NLB's capital structure, risk appetite, profits, financial condition, regulatory requirements, general economic and business conditions, and future prospects.

Revenues and Cost Dynamics

Net interest income (Group, EURm)

Net non-interest income (Group, EURm)

Cost of risk (Group, bps)

Net impairments and provisions (Group, EUR m)

Loan dynamics

Gross loans to individuals Gross loans to corporate

Gross loans to individuals (in EUR billion) Yields - loans to individuals

7.18% 1.5 30 Jun 2018 7.09% 31 Dec 2018 6.80% 31 Mar 2019 6.78% 30 Jun 2019 1.5 1.4 1.4 +12% YoY +6% YtD +3% QoQ Gross loans to individuals (in EUR billion) Yields - loans to individuals

Gross loans to corporate (in EUR billion)

Yields - loans to corporate

1.5 2.0

2.5

1.0

0.0 0.5

1.0

0.5

1.5

0.0

Yields - loans to corporate

NLB d.d.(1)

2.0

1.5 1.0

0.5 0.0

Strategic foreign markets(2)

0.0 0.5 1.0 1.5 2.0 0.0 0.5

1.0 1.5 2.0

3.0

2.5

Income Statement

Result after tax of NLB Group – evolution YoY (EURm)

In H1 2019, NLB Group generated EUR 94.3 million of profit after tax:

• Higher net interest income, mainly due to loan volume growth and lower interest expenses;
• Higher net fee and commission income;
• Net established provisions and impairments were EUR 5.5 million, while release of EUR 14.4 million net impairments and provisions in the same period of previous year.

Net operating income (Group, EURm) Contribution to the NLB Group consolidated result a.t.

Notes: (1) Gains less losses from capital investments in subsidiaries, associates, and joint ventures. (2) NLB Skladi, NLB Vita and Bankart.

Balance sheet structure – NLB Group

Simple client business driven balance sheet

(30 Jun 2019, in EUR million)

NLB Group – performance indicators across SEE countries

	Slovenia	North Macedonia	Bosnia and	Herzegovina	Kosovo	Montenegro	Serbia	NLB Group
	NLB d.d., Ljubljana	NLB Banka Skopje	NLB Banka Banja Luka	NLB Banka Sarajevo	NLB Banka Prishtina	NLB Banka Podgorica	NLB Banka Beograd
				Data on stand-alone	basis			Consolidated data*
Result after tax (EURm)	122.6	14.0	9.6	5.1	9.5	2.7	1.0	94.3
Total assets (EURm)	9,143	1,363	760	613	711	514	527	13,164
RoE a.t.	18.4%	13.7%	21.9%	12.5%	25.2%	8.0%	2.9%	11.4%
Net interest margin(1)	1.91%	3.74%	2.60%	3.02%	4.45%	4.28%	4.21%	2.54%
Cost/income	40.4%	41.3%	42.4%	52.2%	33.6%	50.5%	86.5%	54.9%
Loans/ Deposits % (net)	61.9	77.7	65.1	80.0	85.5	80.9	98.3	67.7
NPL ratio	5.1%	5.2%	2.6%	5.4%	2.1%	4.9%	2.3%	6.0%
NLB ownership (%)	/	86.97%	99.85%	97.34%	81.21%	99.83%	99.99%(6)	/
No. of branches (#)	93	53	55	38	35	18	28	320
Market(2) share %	22.8%	16.0%	18.8%(3)	5.2%(4, 5)	17.3%	11.9%	1.6%	/

Note: Financial data as of June 2019.

*Consolidated data. Including non-core members and other activities and other core members.

(1)Calculated on the basis of interest bearing assets; (2) Market share based on total assets; (3) Market share in the Republika Srpska; (4) Market share in the Federation of BiH; (5) Market share as of 31 Mar 2019; (6) NLB ownership is 99.9975%.

Business Performance

Net interest income & net interest margin

Net interest income increased YoY but remains under pressure

Solid interest income growth YoY Stable net interest margin(1) (Group, %)

Source: Company information Note: (1) Calculated on the basis of interest bearing assets; Interest margins for the Group and Strategic foreign banks for 2018 are adjusted to the new methodology valid from May 2019 (calculation daily averages).

Net interest income drivers – NLB d.d.

Net interest income drivers – Strategic foreign markets(1)

Net non-interest income – NLB Group Good performance in Fee and Commissions

"One-offs" Net fee and commission income Dividend income Regular net income from financial transactions Regular net other income

in EUR million	1-6 2019	1-6 2018	Change YoY
Regular net other income	-7.0	-7.1	0.1	2%
DGS	-9.4	-9.7	0.3	3%
SRF	-2.0	-2.5	0.5	18%
External realisation NLB (IT, vault)	2.0	2.2	-0.2	-11%
Rents	2.8	3.6	-0.8	-21%
Valuation of investment property	-0.1	0.0	-0.1	-
Other	-0.2	-0.7	0.5	72%

Net fee and commission income growing YoY (Group, EURm)

Net non-interest income totaling EUR 98.3 million increased by EUR 7.0 million or 8% YoY, due to the following factors:

• Higher net fee and commission income by EUR 2.7 million or 3% YoY mostly as a result of increased fee and commission income in Retail segment in Slovenia and Strategic foreign markets.

• In H1 2019 positive one-off effects from revaluation of a non-core equity stake was realized in the amount of EUR 6.3 million; whereas in H1 2018, the net non-interest income was positively impacted by the sale of NLB Nov penziski fond, Skopje in the amount of EUR 12.2 million.

• In H1 2019, the net non-interest income was positive impacted by non-recurring income as a partial repayment of a larger exposure measured at fair value through profit and loss in the amount of EUR 5.1 million, and active management of banking book securities in the amount of EUR 3.0 million.

• Regular net other income was affected by the regulatory costs (SRF & DGS) in the total amount of EUR 11.5 million, which were by EUR 0.7 million or 6% lower YoY.

Costs – NLB Group

Cost higher by 1% YoY

• EUR 1.4 million increase in total costs mostly due to higher technology costs (EUR 1.9 million).
• CIR stood at 54.9%.
• Headcount dropped by 19% over 2012-30 June 2019 driven primarily by Slovenia core & non-core members.
• Ongoing closures of unprofitable branches.

Operating expenses (Group, EURm) Employees and branches evolution – stronger rationalisation in tougher Slovenia market (#)

Impairments and provisions & cost of risk

Cost of risk close to 0

Impairments and provisions (Group, EUR m)

In H1 2019, the Group established EUR 5.5 million of net impairments and provisions while in the same period of previous year the Group released EUR 14.4 million net impairments and provisions.

Impairments and provisions for credit risk were net established in the amount of EUR 0.7 million and the cost of risk in H1 2019 was close to 0.

Other impairments and provisions were established in the net amount of EUR 4.8 million of which EUR 2.7 million due to established provisions for pending legal disputes in NLB Banka, Podgorica.

Cost of risk (Group, bps) Impairments and provisions for credit risk – contribution (EURm)

*Other includes: NLB Srbija, NLB Crna gora, Leasing companies, LHB Frankfurt and NLB InterFinanz

Assets and Liabilities

NLB Group Assets

Well diversified loan book, strong liquidity position

Cash, cash balances at central banks, and other demand deposits at banks and Loans to banks

Net loans to customers

Financial Assets

Other

Credit portfolio by segment (Group, 30 Jun 2019)

Banking book portfolio by asset class (Group, 30 Jun 2019)

NLB Group Assets – Loan portfolio

Balanced loan portfolio with loan growth in most of banks

Gross loans to customers by strategic member – contribution (EURm)

Gross loan growth in most subsidiaries banks, especially in NLB Banka, Prishtina, NLB Banka, Beograd, NLB Banka, Sarajevo and NLB Banka, Podgorica.

Gross loans to individuals in subsidiary banks grew by 5.6% and to corporate by 4.2% YtD.

NLB Group Liabilities and Equity

Funding structure driven by stable and price insensitive deposit base

NLB Group Liabilities

Deposit growth; interest rates decreasing

Deposits from customers by strategic member – contribution (EURm)

Deposit growth across all markets, despite low interest rate environment.

NLB d.d. charges minimum 0.03% monthly fee on deposits volume (threshold from January 2019 at EUR 100k) to corporate deposits and account balances.

Decreasing deposit interest rates (%)*

Capital - NLB Group

Total capital slightly up YtD

NLB Group capital ratios (%) Capital structure and ratios

• At the end of June 2019, the Total capital ratio for NLB Group stood at 16.5% (or 0.2 p.p. lower YtD), and for NLB at 22.7% (1.4 p.p. lower YtD).
• In June 2019, NLB paid out dividends in total amount of EUR 142.6 million, which represents EUR 7.13 gross per share. This decreased capital for EUR -43.2 million, nevertheless, the Total capital in 2019 increased by EUR 16.5 million, mainly due to issuance of a Tier 2 instrument (EUR 44.6 million), higher Other Comprehensive Income (EUR 13.8 million) and lower deduction for Intangible assets (EUR 1.5 million).

	NLB Group
(in EUR million)	30.6.2019	31.12.2018MoM	Change YtD
Common Equity Tier 1 capital	1.425,3	1.453,4	-28,1	-1,9%
Additional Tier 1 capital	0,0	0,0	0,0
Tier 1 capital	1.425,3	1.453,4	-28,1	-1,9%
Tier 2 capital	44,6	0,0	44,6
Total capital	1.469,9	1.453,4	16,5	1,1%
Total risk exposure amount (RWA)	8.935,2	8.677,6	257,6	3,0%
Common Equity Tier 1 Ratio	16,0%	16,7%	-0,7 p.p.
Tier 1 Ratio	16,0%	16,7%	-0,7 p.p.
Total Capital Ratio	16,5%	16,7%	-0,2 p.p.

Capital adequacy and local requirements (30 Jun 2019, %)

Capital evolution and requirements

Strong capital position

• Total capital ratio reaching 16.5% on Group level in Jun-19.
• As from 1 March 2019, Pillar 2 Requirement (P2R) is lowered by 0.25 p.p. (to 3.25%) as a result of better overall SREP assessment. Comfortable buffers against 2019 regulatory requirements of 14.75% OCR.
• NLB medium term target set at 16.25% total capital ratio; to be regularly revised by competent bodies to reflect each time applicable capital requirements.
• NLB issued a Tier 2 instrument in the amount of EUR 45 million as part of EC commitments, thereby also exerting its capital optimisation potential.

Note: (1) Increase of RWA for market risk since December 2016 is a result of inclusion of FX structural position of SEE subsidiaries; (2) OCI – Other Comprehensive Income

Solid dividend distribution

Implied payout ratio(%)	48%	58%	84%(1)	70%
NLB Group dividend to shareholder (paid in year after)	44	64	271	142.6
NLB Group profit after tax	92	110	225	204
o/w dividends from subsidiaries, associates and joint ventures to NLB d.d.	14	29	58	50
NLB d.d. profit	44	64	189	165
	2015	2016	2017	2018
				(NLB d.d., EURm)

• The payment of dividends by NLB, will depend on a number of factors, including NLB's capital structure, risk appetite, profits, financial condition, regulatory requirements, general economic and business conditions, and future prospects.

• The Bank targets the payment of dividend in the amount of approximately 70% of its consolidated profit, subject to the decision by the Bank's General Assembly.

Note: (1) 2017 payout (84%) calculated based on 2017 profit.Total dividend paid for 2017 amounted to EUR 270.6 million (EUR 189.1 million of profit for 2017 and EUR 81.5 million of retained profit from previous years) i.e. dividend payout 120%.

Asset Quality

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

Credit portfolio(1) by currency and rate type (Group, Jun 2019)

Source: Company information

• 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 further improvement of credit portfolio
  • Intensive and proactive handling of problematic customers
  • Cautious lending policy
  • Early warning system for detecting increased credit risk
• 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.

Dec-15 Dec-16

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

Credit portfolio(1) by segment (Group, Jun 2019, EURm)

Credit portfolio(1) by geography (Group, Jun 2019, EURm)

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.

NPLs fully covered by provisions and collateral

NPL by geography (Group, Jun 2019) NPL cash coverage(1) (Group, %)

An important Group strength is the NPL cash coverage (CR1), which remains high at 81%. Further, the Group's NPL coverage ratio 2 stands at 66 %, which is well above the EU average as published by the EBA.

As such, it enables a further reduction in NPLs without any material losses..

Source: Company information Note: (1) Cash coverage calculated including both individual and pool provisions.

New NPL formation very low, successfull legacy resolution

Low NPL in Retail segment throughout the economic cycle.

In Corporate segment a considerable reduction of NPL is observed in industries with the highest NPL %.

Top 10 NPL represent 30% of the entire NPL volume; the coverage with provisions remains high, limiting the potential losses.

NPL ratio decreased from 6.9% to 6.0% YtD, while NPE ratio reduced by 0.6 p.p. YtD to 4.1%.

Note: NPL was defined until December 2014 as loan exposure to D and E clients/claims and delays over 90 days from loans to A, B and C classified clients. Since customers with loans (in arrears over) with 90 days past due should be classified in nonperforming grade (D or E), NPL definition changed and from 31.12.2014 include only D and E exposures; NPLs, NPL ratio and NPL cash coverage based on Credit portfolio; (1) Refers to corporate loans issued since 2014 and retail loans issued since 2015.

High % of Stage 1 Loan portfolio (Valued at amortized cost)

Stage portfolio at amortized costs (Group, Jun-19)

Stage 1 loans represent 89% of loan portfolio valued at amortized cost. Due to NPL reduction Strategy the share of Stage 3 loans is decreasing. Share of Stage 2 loans is reducing as well.

Strategy & IT

Track record of innovation

The pioneer of banking innovation in Slovenia

First Slovenian bank to launch contactless ATMs

First Slovenian bank to launch chat and video call functionalities

Only bank with multichannel 24/7 support (through phone, chat and video call)

Only bank with fully mobile express loan capabilities (Consumer & SME)

First Slovenian bank to offer card management functionalities in mobile wallet

Top-ranked financial apps on App Store and Google Play

Demonstrated success in moving to digital

Mobile bank users(1) ('000s) Online bank users(1) ('000s)

^{219 200 226 212 231} Dec-16 Dec-17 Dec-18 H1 2018 H1 2019 (2)

% Penetration of client base

Use of video call functionality (# of contacts)

Mobile wallet users & transactions

Volume of purchase (in kEUR) # of users

Note: All figures are for Slovenia

(1) Individual users (Klikin and NLB Klik); (2) In 2017 ~30,000 inactive NLB Klik users systematically removed.

Clear strategy to address current challenges

Key challenges

Sector and regulation	Macro	Clients	Technology
• Regulatory interventions	• Low interest rate environment	• More demanding and knowledgeable clients	• Competition from fintechs
• Further complexity of new regulations (MREL, Basel IV)	• Potential political and geopolitical risks	• Preference for digital channels	• Enhanced customer insights through data management
• Market consolidation	• Potential economic slowdown		• Impact of social media

Strategic priorities

Source: Company information

Innovative focus on customer experience ✓ Omni-channel product distribution ✓ Partnership programmes ✓ End-to-end customer solutions	Enhanced distribution ✓ Migration to digital channels ✓ Sales process optimisation ✓ Improved value-creating customer insights
Cost containment – Simplicity champion ✓ Optimal operations and workforce ("Lean initiative") ✓ Effective procurement at group level ✓ Investment in IT transformation and shared services	Improved risk management ✓ Optimised risk processes ✓ Improved risk modelling ✓ Streamlined risk governance
Optimised product offering ✓ Pricing optimisation ✓ Simplified product offering ✓ Further focus on fee-based & advisory products	Regional specialist ✓ Exclusive strategic interest in and unique understanding of the region ✓ Consistent strategy across markets

Medium-term objectives in IT and Digital

Leverage digital and data to enhance our business model

Enhance customer experience ✓ Increase customer satisfaction ✓ Create new business opportunities Optimise operations ✓ Full (paperless) digitalization of processes ✓ Increased process automation ✓ Reduction in cost-to-serve ✓ Concentration on value adding activities (advisory, sales) Data insights ✓ Risk scoring models ✓ Behavioral models to inform individualized customer offers ✓ Support of automated decisions ✓ Upgrading digital channels to support full customer journeys ✓ Migration of customers to new digital channels ✓ Idea management implementation ✓ Deploying partnerships to explore new concepts ✓ Open eco-system to become solution Omni-channel Strategic initiatives 1 2 Innovative solutions 3 Increase innovation capacity ✓ Agile development ✓ Pull ideas driven by customer demands ✓ Empowering employees Simplification ✓ Process and product simplification to support digital delivery ✓ Simplified IT enabling digitalization 4 Strategic objectives Improve customer insight ✓ Data collection ✓ Data extrapolation ✓ Advanced analytics

NLB Group synergy opportunities

Group synergies are being addressed in all functional areas

• Established predominantly for subsidiary banks, but will increasingly service also the parent company
• Core banking maintenance and development operating since the beginning of 2018
• Expansion in 2019 to provide additional support:
  • ESB roll-out in
  • Solution for loan origination and approval process roll-out
  • Digital Banking Platform roll-out
  • ETL's and data modelling in EDWH

IT regionalisation activities Procurement

• Regional SIEM(1) and SOC(2) successfully set up by the parent bank in Ljubljana
• Implementation of a modern data management platform is progressing according to the project plan
• Implementation of selected functionalities of the Digital Banking Platform is in preparatory phase
• Activities to achieve regional synergies in selected IT areas have started

IT competence center Process (System) competences

• Loan origination and approval process mapping and standard regional process definition for all 6 subsidiary banks was successfully completed. An RFP to purchase a standard platform is to be launched soon
• Analysis of potential synergies in SWIFT is under way

• Introduction of RPA in 2 banks in the Group

• Upgraded regional standards in procurement were aligned across the region and are being finalized

• Non-FTE cost optimisation project achieved targeted savings 6 months before its conclusion
• Central sourcing in strategic sourcing categories is in place

By actively working on Group synergies, NLB Group leverages on costs (scale), speed of implementation and knowledge sharing

Outlook

Outlook 2019

Macro outlook & risk factors affecting the business outlook

Business outlook

• ✓ Real GDP growth: most countries are likely to grow at around 3% - 4% if supported by loose monetary conditions, fiscal easing and solid domestic demand
• ✓ Public debt in all markets below EU average
• ✓ Low household indebtedness and solid savings performance
• ? Economies will be sensitive to a potential slowdown in the Eurozone
• ? Worsened interest rate outlook
• ? Regulatory & tax measures impacting banks
• ? Geopolitical uncertainties

ASSUMPTIONS:

• Single digit increase of revenues and pre-provision income
• Continued net loan growth in line with GDP dynamics and stable NIM
• Increase of cost of risk, however remaining at low levels
• Costs are expected to moderately increase in short-term period. However, the commitment to cost containment remains strong and the Bank continues to pursue a strong cost agenda

Appendixes

Appendix 1: Segment Analysis	36
Appendix 2: Macro Overview	55
Appendix 3: EC committments	69
Appendix 4: Financial statements	71

Appendix 1

Segment Analysis

NLB Group business segments

	Retail banking in Slovenia	Corporate and investment banking in Slovenia	Strategic foreign markets	Financial markets in Slovenia	Non-core members
	Retail NLB Skladi NLB Vita(1) Bankart(2)	Key corporates SME corporates Investment banking and custody Restructuring and workout	NLB Banka, Skopje NLB Banka, Banja Luka NLB Banka, Sarajevo NLB Banka, Prishtina NLB Banka, Podgorica NLB Banka, Beograd	Treasury activities Trading in financial instruments Asset and liabilities management (ALM)	Non-core members according to EC commitments REAM entities NLB Srbija NLB Crna Gora
(Jun 2019, in EUR million)	• Largest retail banking group in Slovenia by loans, deposits and number of branches • #1 in private banking and asset management • Focused on upgrading customer digital experience and satisfaction	• Market leader in corporate banking with focus on advisory and long-term strategic partnerships • Market leader in Investment Banking and Custody services • Regional know-how and experience in Corporate Finance and #1 lead organiser for syndicated loans in Slovenia • Strong trade finance operations and other fee based business • Market leader at FX and interest rate hedges	• Leading SEE franchise with 6 independent, well capitalised and largely self-funded subsidiaries • The only international banking group with exclusive focus on the SEE region	• Maintaining stable funding base • Management of well diversified liquidity reserves • Managing interest rate positions with responsive pricing policy	• Assets booked non-core subsidiaries funded via NLB d.d. • Controlled wind-down of remaining assets, including collection of claims, liquidation of subsidiaries and sale of assets
Profit b.t.	24.9	26.2	43.4	13.4	0.4
Total assets	2,463	1,950	4,405	3,912	206
total assets(3) % of	19%	15%	33%	30%	2%
CIR	69.5%	47.2%	50.2%	20.4%	110.3%
Cost of risk (bp)	8	-12	10	/	-130

Notes: (1) 50% equity stake, under equity consolidation; (2) 39% minority stake; (3) Other activities 1%.

Estimated effects of segments metodology changes

From 2019, some shifts in reporting of business segments have been applied, following the completion of the restructuring process imposed by the EC and also reflecting strategic streamlining of business operations within the corporate segment as follows:

• Results from Investment Banking and Custody Services have been transferred from Financial Markets in Slovenia to an enlarged Corporate and Investment Banking in Slovenia.
• Micro clients in Slovenia have been transferred from Corporate and Investment Banking in Slovenia to Retail Banking in Slovenia.
• Corporate exposures previously reported in Non-Core Markets and Activities have been transferred to Corporate and Investment Banking in Slovenia given that special reporting requirements from EC commitments have ceased to apply. The remaining segment has been renamed Non-Core Members and contains non-core subsidiaries mostly in liquidation.
• Further, the SPVs established for NPLs from banks in Serbia and Montenegro, NLB Srbija and NLB Crna Gora, have been transferred from the Strategic Foreign Markets to Non-Core Members.

Due to the new methodology, the segment results for 2019 are not directly comparable to the segment results from the previous year. The table below presents the estimated effects due to the segment changes for the full year 2018.

in EUR million	Retail banking in Slovenia	Corporate and Investment banking in Slovenia	Strategic foreign markets	Financial markets in Slovenia	Non-core members	Other
Net interest income	3.1	1.8	0.5	-0.3	-5.1
Net non-interest income	4.6	2.3	-1.8	-8.2	3.2
Total costs*	-6.1	-4.4	1.4	6.1	3.0	no effects
Impairments and provisions*	-0.9	6.6	1.4	0.0	-7.1
Result before tax	0.7	6.3	1.5	-2.4	-6.1
Total assets	37.1	-9.5	-43.5	47.9	-32.1
Gross loans to customers	38.1	111.8	-69.0	-0.1	-80.8	no effects
Deposit from customers	188.1	-107.6	0.0	-71.0	-9.6

Estimated effects of segments methodology changes for 2018(1)

*negative value=increase, positive value=decrease

Note: (1) Investment banking was till 2019 officialy a part of Financial Markets in Slovenia but was presented as a separate segment within Corporate banking in Slovenia in previous reports. Under new segmentation it is included in the segment Corporate and Investment banking in Slovenia.

NLB d.d.

NLB d.d., Ljubljana	"on stand alone basis"
Key financial indicators
	1-6 2019	1-6 2018	YoY
ROE a.t.	18.4%	14.3%	4.1 p.p.
Interest margin	1.91%	1.87%	0.0 p.p.
CIR	40.4%	46.8%	-6.4 p.p.
Cost of risk net (bps)*	-5	-52	47
LTD net (%)	61.9	66.1	-4.2
Income statement			Change
in 000 EUR	1-6 2019	1-6 2018	YoY
Total net operating income	214,985	183,388	31,597	17.2%
Net interest income	79,608	77,220	2,388	3.1%
Net non-interest income	135,377	106,168	29,209	27.5%
o/w net fees and commissions	51,107	50,284	823	1.6%
Total costs	-86,803	-85,818	-985	-1.1%
Employee costs	-51,165	-50,426	-739	-1.5%
Other general and administrative expenses	-26,900	-26,677	-223	-0.8%
Depreciation and amortization	-8,738	-8,715	-23	-0.3%
Result before impairments and provisions	128,182	97,570	30,612	31.4%
Impairments and provisions	4,265	11,970	-7,705	-64.4%
Result after tax	122,569	103,335	19,234	18.6%
Number of employees	2,659	2,746	-87	-3.2%

Change		Balance sheet			Change
YoY		in 000 EUR	30 Jun 2019	31 Dec 2018	YtD
4.1 p.p.		Total assets	9,143,016	8,811,047	331,969	3.8%
0.0 p.p.		Loans to customers (net)	4,462,991	4,478,071	-15,080	-0.3%
-6.4 p.p.		Loans to customers (gross)	4,654,521	4,703,671	-49,150	-1.0%
47 -4.2		Gross loans to corporate	2,137,042	2,190,299	-53,257	-2.4%
Change		Gross loans to individuals	2,286,894	2,241,624	45,270	2.0%
YoY		Gross loans to state	230,585	271,748	-41,163	-15.1%
		Financial assets	3,158,131	2,869,450	288,681	10.1%
		Deposits from customers	7,210,049	7,033,409	176,640	2.5%
		Deposits from corporate	1,318,571	1,392,171	-73,600	-5.3%
		Deposits from individuals	5,764,240	5,522,142	242,098	4.4%
		Deposits from state	127,238	119,096	8,142	6.8%
		NPL gross	274,357	342,900	-68,543	-20.0%
		% NPL	5.1%	6.3%	-1.2 p.p.
		Capital (according to local legislation)
		Capital adequacy ratio	22.7%	24.1%	-1.4 p.p.

*Calculated as credit impairments and provisions over average net loans to customers.

Result after tax and before impairments and provisions (EUR million)

Retail banking in Slovenia

in EUR million consolidated	Retail banking in Slovenia
	1-6 2019	1-6 2018 36.6	Change YoY		Q2 2019	Q1 2019	Change QoQ
Net interest income	44.1		7.6	21%	21.2	23.0	-8%
Net non-interest income	35.2	31.0	4.2	14%	15.1	20.0	-24%
Total net operating income	79.3	67.5	11.8	17%	36.3	43.0	-16%
Total costs	-55.2	-51.2	-4.0	-8%	-28.4	-26.8	-6%
Result before impairments and provisions	24.2	16.4	7.8	48%	7.9	16.2	-51%
Impairments and provisions	-1.8	-2.2	0.4	19%	-0.7	-1.1	33%
Net gains from investments in subsidiaries, associates, and JVs'	2.5	2.5	0.0	-1%	1.4	1.1	23%
Result before tax	24.9	16.7	8.2	49%	8.6	16.3	-47%

	30 Jun 2019	31 Mar 2019	31 Dec 2018	30 Jun 2018	Change YtD		Change YoY		Change QoQ
Net loans to customers	2,296.6	2,277.1	2,217.4	2,143.8	79.2	4%	152.8	7%	1%
Gross loans to customers	2,323.2	2,305.0	2,243.4	2,169.3	79.8	4%	153.9	7%	1%
Housing loans	1,390.2	1,376.8	1,374.6	1,352.1	15.6	1%	38.1	3%	1%
Interest rate on housing loans	2.54%	2.54%	2.50%	2.49%		0.04 p.p.		0.05 p.p.	0.00 p.p.
Consumer loans	656.5	628.4	599.0	564.3	57.5	10%	92.2	16%	4%
Interest rate on consumer loans	6.29%	6.28%	5.88%	5.77%		0.41 p.p.	0.52 p.p.		0.01 p.p.
Other	276.6	299.7	269.9	252.9	6.7	2%	23.6	9%	-8%
Deposits from customers	6,209.6	6,095.4	5,814.5	5,658.7	395.2	7%	551.0	10%	2%
Interest rate on deposits	0.06%	0.06%	0.08%	0.09%		-0.03 p.p.		-0.04 p.p.	0.00 p.p.
Non-performing loans (gross)	43.0	43.9	43.0	46.2	0.0	0%	-3.2	-7%	-2%
	1-6 2019	1-6 2018	Change YoY
Cost of risk (in bps)	8	10	-3
CIR	69.5%	75.8%	-6.2 p.p.
Interest margin	2.10%	1.89%	0.21 p.p.

• The segment recorded EUR 79.3 million of net operating income. The comparison shows EUR 11.8 million increase YoY, of which approximately EUR 3.8 million is assessed as the effect of the transfer of micro clients from Corporate and Investment Banking in Slovenia to Retail Banking in Slovenia segment. In the Q2 2019 segment recorded EUR 36.3 million of net operating income, lower by EUR 6.7 million or 16% QoQ mostly due to DGS and SRF expenses (EUR 5.6 million).
• Net interest income is higher due to higher interest rates and growth in volume of gross loans in the amount of EUR 79.8 million, of which EUR 38.1 million increase relates to the transfer of micro clients from the Corporate and Investment Banking in Slovenia segment. The production of new consumer loans amounted to EUR 198.8 million (EUR 168.5 million in H1 2018), which led to an increase of balance by EUR 57.5 million YtD. The share of consumer loans in all gross loans increased to 28% (from 26% in H1 2018).
• Considering the effect of the change in segment presentation (approximately EUR 3.0 million), the total costs were slightly higher than in the same period of the previous year.
• The increase in deposits from customers is mostly due to the transfer of micro clients from the Corporate and Investment Banking in Slovenia segment (EUR 188.1 million) and an increase in demand deposits.

Retail banking in Slovenia

High and stable market shares across products

Market share of net loans to individuals in Slovenia Market share of deposits from individuals in Slovenia

Upside from fee generating products

NLB Private banking offering NLB Bankassurance GWP (EURm)

Private Banking AuM (EURm)

Clients

1% 19% 8% ^{60 68 73} 37 41 1,9 6,3 7,2 3,6 4,0 62 74 80 41 45 Dec-16 Dec-17 Dec-18 H1 2018 H1 2019 Life Non-life 9%

Long-term deposits Sight deposits Short-term deposits

• Improving macro and low household indebtedness (21% GDP) driving retail banking growth
• More than 60% of the clients already have one of the package from the offer, presenting almost 20% of the Slovenian population

• 1 player in Private Banking(1)

  • Limited competition and strong cross-selling capabilities with Bankassurance and asset management

• 1 player in Slovenian asset management(2) ; market share of NLB Skladi at mutual funds in Slovenia equals 32.9% as of 30 June 2019

  • AuM of 1,381 EUR m as of 30 June 2019 including investments in mutual funds and discretionary portfolios
• Bankassurance business
  • Life: NLB Vita has reached 16% market share by GWP, being #3 largest player in the Slovenian market as of 30 June 2019
  • Non-life: Solid growth, in partnership with #3 non-life company (Generali)

Source: Bank of Slovenia (retail loans and deposits), Company information, Slovenian Fund Management Association Note: (1) Company information; (2) By AuM (Slovenian Fund Management Association).

Corporate and Investment banking in Slovenia

in EUR million consolidated	Corporate and Investment banking in Slovenia
	1-6 2019	1-6 2018		Change YoY	Q2 2019	Q1 2019	Change QoQ
Net interest income	19.7	20.2	-0.5	-2%	8.9	10.8	-18%
Net non-interest income	24.5	15.8	8.7	55%	9.0	15.5	-42%
Total net operating income	44.2	36.0	8.2	23%	17.9	26.3	-32%
Total costs	-20.8	-21.4	0.6	3%	-10.7	-10.2	-5%
Result before impairments and provisions	23.3	14.6	8.8	60%	7.2	16.1	-55%
Impairments and provisions	2.9	10.0	-7.0	-71%	-0.4	3.3	-
Result before tax	26.2	24.5	1.7	7%	6.8	19.4	-65%

	30 Jun 2019	31 Mar 2019	31 Dec 2018	30 Jun 2018		Change YtD		Change YoY	Change QoQ
Net loans to customers	1,947.9	2,011.4	1,950.4	1,991.2	-2.5	0%	-43.3	-2%	-3%
Gross loans to customers	2,110.0	2,183.8	2,061.0	2,121.3	49.1	2%	-11.3	-1%	-3%
Corporate	1,922.1	1,987.7	1,854.4	1,900.9	67.7	4%	21.2	1%	-3%
Key/SMECorporates	1,666.4	1,697.2	1,643.2	1,671.6	23.2	1%	-5.2	0%	-2%
Interest rate on Key/SME Corporates loans	1.85%	1.87%	1.88%	1.93%		-0.03 p.p.		-0.08 p.p.	-0.02 p.p.
Investment banking*	0.1	12.25%	/	/		/	/		0%
Restructuring and Workout	255.6	290.4	211.2	229.3	44.3	21%	26.2	11%	-12%
State	187.6	195.8	206.1	220.5	-18.6	-9%	-32.9	-15%	-4%
Interest rate on State loans	2.19%	2.84%	1.69%	1.89%	0.49 p.p.		0.30 p.p.		-0.66 p.p.
Deposits from customers	992.3	1,111.7	1,120.8	1,069.1	-128.6	-11%	-76.8	-7%	-11%
Interest rate on deposits	0.07%	0.07%	0.07%	0.07%		0.00 p.p.		0.00 p.p.	0.00 p.p.
Non-performing loans (gross)	231.4	262.8	179.7	209.2	51.6	29%	22.2	11%	-12%

	1-6 2019	1-6 2018	Change YoY
Cost of risk (in bps)	-12	-50	38
CIR	47.2%	59.5%	-12.3 p.p.
Interest margin	3.34%	2.46%	0.88 p.p.
*Investment banking w as show n as separate part of this segment before 2019. Profit before tax of Investment banking 1-6 2018 in amount EUR 1.3 million.

• The segment recorded EUR 44.2 million of net operating income, EUR 8.2 million increase YoY of which approximately EUR 3.7 million is assigned to the change in segment presentation. Net non-interest income in Q1 2019 was mainly affected by partial repayment of a larger exposure measured at fair value through profit and loss (EUR 5.1 million) and in Q2 2019 by DGS and SRF expenses (EUR 1.1 million).
• Investment Banking and Custody recorded non-interest income in the amount of EUR 4.5 million and which is an increase of EUR 0.3 million YoY. Total income growth is the result of a larger volume of transactions. The total value of assets under custody in Investment Banking remained at 2018 YE level at EUR 15.6 billion.
• Total costs decreased by EUR 0.6 million YoY, despite the transfer of the costs due to the change in segment presentation.
• Impairments and provisions were released in the amount of EUR 2.9 million, which includes releases on NPL of clients.
• Increase in gross loans to customers is mostly due to the change in segment presentation (EUR 149.8 million due to transfer from NLB Non-core and EUR -38.1 million from transfer of micro clients to Retail Banking in Slovenia). Key and SME corporates portfolio remained stable.

Corporate banking in Slovenia High market shares across products(1)

#1 in corporate and state loans #1 in corporate and state deposits #1 in guarantees and letters of credit

12.9k (2) • Largest bank in the country with high capacity to lend to and service large clients RUP • Serves over 9k corporate clients as of 30 June 2019 • Competitive advantage in SME market due to largest branch network fueled the growth in Mid Corporate and Small Enterprises • Large Corporate portfolio has declined since 2016 mainly due to EC commitments that imposed: • RoE targets, affecting NLB ability to participate in recent issuance by State-owned enterprises and high rated corporate clients(3) • Additional restrictions on cross-border lending (released in Aug-18), leasing and factoring have impacted new business opportunity • In 2018 sizable maturities and prepayments of some larger exposures.

Strong local corporate fee business, across merchant acquiring, investment banking and custody services

POS terminals

36.4% market share(2) in merchant acquiring

EUR 15.6bn assets under custody

Source: Bank of Slovenia, Company information

Note: (1) Data for NLB as per 30 Jun 2019, other banks as per 30 Mar 2018 (latest available); (2) As of 30 June 2019; (3) Based on NLB internal credit rating.

Strategic foreign markets

in EUR million consolidated		Strategic foreign markets
	1-6 2019	1-6 2018		Change YoY	Q2 2019	Q1 2019	Change QoQ
Net interest income	77.9	71.9	5.9	8%	39.2	38.6	2%
Net non-interest income	23.8	37.2	-13.5	-36%	11.7	12.1	-4%
Total net operating income	101.6	109.2	-7.5	-7%	50.9	50.7	0%
Total costs	-51.1	-49.1	-1.9	-4%	-25.7	-25.3	-2%
Result before impairments and provisions	50.6	60.0	-9.5	-16%	25.2	25.4	-1%
Impairments and provisions	-7.1	-1.5	-5.7	-	-3.9	-3.2	-22%
Result before tax	43.4	58.6	-15.1	-26%	21.3	22.2	-4%
o/w Result of minority shareholders	3.8	4.5	-0.8	-17%	1.8	2.0	-7%

	30 Jun 2019	31 Mar 2019	31 Dec 2018	30 Jun 2018	Change YtD		Change YoY		Change QoQ
Net loans to customers	2,835.6	2,753.6	2,718.0	2,575.5	117.6	4%	260.1	10%	3%
Gross loans to customers	2,998.7	2,915.8	2,932.7	2,804.7	66.0	2%	193.9	7%	3%
Retail	1,514.6	1,466.7	1,438.1	1,361.1	76.4	5%	153.5	11%	3%
Interest rate on retail loans	6.78%	6.80%	7.09%	7.18%	-0.31 p.p.		-0.40 p.p.		-0.02 p.p.
Corporate	1,400.0	1,364.6	1,405.0	1,349.7	-5.0	0%	50.3	4%	3%
Interest rate on corporate loans	4.62%	4.71%	4.92%	4.89%	-0.30 p.p.		-0.26 p.p.		-0.08 p.p.
State	84.1	84.4	89.6	94.0	-5.5	-6%	-9.8	-10%	0%
Interest rate on state loans	4.21%	4.23%	4.33%	4.33%		-0.12 p.p.	-0.12 p.p.		-0.03 p.p.
Deposits from customers	3,547.6	3,466.1	3,438.1	3,146.3	109.5	3%	401.3	13%	2%
Interest rate on deposits	0.55%	0.56%	0.61%	0.64%		-0.07 p.p.	-0.10 p.p.		-0.01 p.p.
Non-performing loans (gross)	147.0	146.2	219.9	242.5	-72.8	-33%	-95.4	-39%	1%

	1-6 2019	1-6 2018	Change YoY
Cost of risk (in bps)	10	3	7
CIR	50.2%	45.0%	5.2 p.p.
Interest margin	3.67%	3.81%	-0.13 p.p.

• The segment recorded EUR 101.6 million of net operating income. In 2018, the result was positively affected by the sale of Nov penziski fond. Increase of net interest income of EUR 5.9 million was recorded in all banking members due to a higher volume despite the decreasing trend of interest margins.
• Total costs increased by EUR 1.9 million YoY.
• Impairments and provisions were established in the amount of EUR 7.1 million (EUR 2.7 million due to established provisions for pending lawsuits in NLB Banka, Podgorica), compared to EUR 1.5 million in H1 2018.
• Gross loans in most subsidiary banks increased, the largest increases were recorded in NLB Banka, Prishtina (EUR 46.1 million) and NLB Banka, Beograd (EUR 44.2 million).
• Gross loans to customers increased by EUR 66.0 million YtD, while due to change in segment presentation and transferring exposures from SPVs to Non-Core Members decreased (EUR -69.0 million).
• NPLs decreased mostly due to the same reason.

SEE banks continuing solid performance

• ✓ 8% growth of net interest income YoY
• ✓ Net non-interest income on the same level YoY, if non-recurring income from the sale of NLB Nov Penziski Fond, Skopje in Q1 2018 is excluded
• ✓ Growing credit portfolio in most markets, with aggregate deposits balance marginally up YtD

	Skopje	NLB Banka	NLB Banka Banja Luka		NLB Banka Sarajevo		Prishtina	NLB Banka	Podgorica	NLB Banka	NLB Banka Beograd		Total banks(1) core
B/S (EURm)	30 Jun 2019	31 Dec 2018	30 Jun 2019	31 Dec 2018	30 Jun 2019	31 Dec 2018	30 Jun 2019	31 Dec 2018	30 Jun 2019	31 Dec 2018	30 Jun 2019	31 Dec 2018	30 Jun 2019	31 Dec 2018	Δ
Total assets	1,363	1,350	760	721	613	592	711	668	514	489	527	484	4,489	4,305	4%
Net loans to customers	851	859	392	385	387	359	512	467	329	311	363	319	2,836	2,699	5%
Deposits from customers	1,095	1,076	603	576	485	472	599	586	406	392	370	353	3,558	3,455	3%
P&L (EURm)	1-6 2019	1-6 2018	1-6 2019	1-6 2018	1-6 2019	1-6 2018	1-6 2019	1-6 2018	1-6 2019	1-6 2018	1-6 2019	1-6 2018	1-6 2019	1-6 2018	Δ
NII(2)	24.5	23.7	9.4	8.8	8.9	8.7	15.1	12.9	9.9	8.5	10.1	9.6	77.9	72.2	8%
NNII(2)	7.5	16.1	5.3	5.3	4.5	4.1	3.0	2.3	2.6	2.7	0.8	1.7	23.8	32.2	-26%(4)
OpEx	-13.2	-12.2	-6.2	-6.5	-7.0	-7.0	-6.1	-6.0	-6.3	-5.9	-9.4	-8.7	-48.3	-46.3	4%
PPI	18.8	27.7	8.5	7.6	6.4	5.8	12.0	9.3	6.2	5.2	1.5	2.6	53.4	58.1	-8%
Result a.t.	14.0	22.6	9.6	9.8	5.1	5.5	9.5	7.4	2.7(5)	5.5	1.0(6)	2.5	41.9	53.2	-21%
Ratios	1-6 2019	1-6 2018	1-6 2019	1-6 2018	1-6 2019	1-6 2018	1-6 2019	1-6 2018	1-6 2019	1-6 2018	1-6 2019	1-6 2018
RoE a.t.	13.7%	25.3%	21.9%	22.1%	12.5%	14.9%	25.2%	21.6%	8.0%	16.3%	2.9%	7.8%
Net interest margin(3)	3.74%	3.97%	2.60%	2.64%	3.02%	3.24%	4.45%	4.37%	4.28%	3.95%	4.21%	5.12%
CIR	41.3%	30.5%	42.4%	46.2%	52.2%	54.8%	33.6%	39.2%	50.5%	53.2%	86.5%	77.2%
LTD net (in %)	77.7	83.2	65.1	66.1	80.0	80.5	85.5	83.6	80.9	78.9	98.3	98.9

Source: Company information

Note: (1) Calculated as simple sums for each item; (2) NII: Net interest income; (3) Calculated on the basis of interest bearing assets ; interest margin data for 2018 are adjusted to new methodology (calculation based on the number of days for the period). (4) In Q12018 one-off effect from the sale of Nov Penziski Fond, Skopje (EUR 8.5 milion effect on NLB banka Skopje level). (5) Due to established provisions for legal disputes (EUR 2.7 million). (6) Lower profit due to legal dispute (EUR 1.4 million).

NLB Banka Skopje

NLB Banka AD Skopje	"on stand alone basis"
Key financial indicators			Change YoY		Balance sheet			Change
	1-6 2019	1-6 2018			in 000 EUR	30 Jun 2019 31 Dec 2018		YtD
ROE a.t.	13.7%	25.3%	-11.6 p.p.		Total assets	1,363,345	1,350,054	13,291
Interest margin*	3.74%	3.97%	-0.2 p.p.		Loans to customers (net)	851,340	858,592	-7,252
CIR	41.3%	30.5%	10.8 p.p.		Loans to customers (gross)	912,458	918,140	-5,682
Cost of risk net (bps)**	71	64	7		Gross loans to corporate	361,381	383,212	-21,831
LTD net (%)	77.7	83.2	-5.5		Gross loans to individuals	548,175	531,406	16,769
Income statement			Change		Gross loans to state	2,902	3,522	-620
in 000 EUR	1-6 2019	1-6 2018	YoY		Financial assets	236,753	196,112	40,641
Total net operating income	32,041	39,871	-7,830	-19.6%	Deposits from customers	1,095,231	1,076,154	19,077
Net interest income	24,545	23,745	800	3.4%
Net non-interest income	7,496	16,126	-8,630	-53.5%	Deposits from corporate	293,848	272,060	21,788
o/w net fees and commissions	7,115	7,207	-92	-1.3%	Deposits from individuals	797,118	800,372	-3,254
Total costs	-13,236	-12,152	-1,084	-8.9%	Deposits from state	4,265	3,722	543
Employee costs	-6,820	-6,454	-366	-5.7%	NPL gross	57,375	56,050	1,325
Other general and administrative expenses	-4,424	-4,139	-285	-6.9%	% NPL	5.2%	5.1%	0.1 p.p.
Depreciation and amortization	-1,992	-1,559	-433	-27.8%	Capital (according to local legislation)
Result before impairments and provisions	18,805	27,719	-8,914	-32.2%	Capital adequacy ratio	17.8%	16.7%	1.2 p.p.
Impairments and provisions	-3,256	-2,869	-387	-13.5%
Result after tax	13,991	22,615	-8,624	-38.1%
Number of employees	876	855	21	2.5%

Balance sheet
in 000 EUR	30 Jun 2019	31 Dec 2018	YtD
Total assets	1,363,345	1,350,054	13,291	1.0%
Loans to customers (net)	851,340	858,592	-7,252	-0.8%
Loans to customers (gross)	912,458	918,140	-5,682	-0.6%
Gross loans to corporate	361,381	383,212	-21,831	-5.7%
Gross loans to individuals	548,175	531,406	16,769	3.2%
Gross loans to state	2,902	3,522	-620	-17.6%
Financial assets	236,753	196,112	40,641	20.7%
Deposits from customers	1,095,231	1,076,154	19,077	1.8%
Deposits from corporate	293,848	272,060	21,788	8.0%
Deposits from individuals	797,118	800,372	-3,254	-0.4%
Deposits from state	4,265	3,722	543	14.6%
NPL gross	57,375	56,050	1,325	2.4%
% NPL	5.2%	5.1%	0.1 p.p.
Capital (according to local legislation)
Capital adequacy ratio	17.8%	16.7%	1.2 p.p.

* Interest margin data for 2018 are adjusted to new methodology (calculation based on the number of days for the period).

** Calculated as credit impairments and provisions over average net loans to customers.

Result after tax and before impairments and provisions (EUR million)

NLB Banka Banja Luka

NLB Banka A.D., Banja Luka	"on stand alone basis"
Key financial indicators			Change		Balance sheet			Change
	1-6 2019	1-6 2018 YoY			in 000 EUR	30 Jun 2019	31 Dec 2018	YtD
ROE a.t.	21.9%	22.1%	-0.2 p.p.		Total assets	760,251	720,509	39,742
Interest margin*	2.60%	2.64%	0.0 p.p.		Loans to customers (net)	392,384	384,806	7,578
CIR	42.4%	46.2%	-3.8 p.p.		Loans to customers (gross)	413,127	408,312	4,815
Cost of risk net (bps)**	-103	-193	90
LTD net (%)	65.1	66.1	-1.0		Gross loans to corporate	175,685	176,353	-668
Income statement			Change		Gross loans to individuals	191,859	180,933	10,926
in 000 EUR	1-6 2019	1-6 2018	YoY		Gross loans to state	45,583	51,026	-5,443
Total net operating income	14,711	14,102	609	4.3%	Financial assets	150,559	107,316	43,243
Net interest income	9,388	8,794	594	6.8%	Deposits from customers	602,663	575,775	26,888
Net non-interest income	5,323	5,308	15	0.3%	Deposits from corporate	143,328	135,670	7,658
o/w net fees and commissions	5,306	5,337	-31	-0.6%	Deposits from individuals	421,367	402,203	19,164
Total costs	-6,236	-6,510	274	4.2%	Deposits from state	37,968	37,902	66
Employee costs	-4,030	-4,221	191	4.5%
Other general and administrative expenses	-1,535	-1,726	191	11.1%	NPL gross	15,416	19,199	-3,783
Depreciation and amortization	-671	-563	-108	-19.2%	% NPL	2.6%	3.2%	-0.6 p.p.
Result before impairments and provisions	8,475	7,592	883	11.6%	Capital (according to local legislation)
Impairments and provisions	1,765	3,238	-1,473	-45.5%	Capital adequacy ratio	16.3%	15.6%	0.8 p.p.
Result after tax	9,566	9,767	-201	-2.1%
Number of employees	478	486	-8	-1.6%

Balance sheet
in 000 EUR	30 Jun 2019	31 Dec 2018	YtD
Total assets	760,251	720,509	39,742	5.5%
Loans to customers (net)	392,384	384,806	7,578	2.0%
Loans to customers (gross)	413,127	408,312	4,815	1.2%
Gross loans to corporate	175,685	176,353	-668	-0.4%
Gross loans to individuals	191,859	180,933	10,926	6.0%
Gross loans to state	45,583	51,026	-5,443	-10.7%
Financial assets	150,559	107,316	43,243	40.3%
Deposits from customers	602,663	575,775	26,888	4.7%
Deposits from corporate	143,328	135,670	7,658	5.6%
Deposits from individuals	421,367	402,203	19,164	4.8%
Deposits from state	37,968	37,902	66	0.2%
NPL gross	15,416	19,199	-3,783	-19.7%
% NPL	2.6%	3.2%	-0.6 p.p.
Capital (according to local legislation)
Capital adequacy ratio	16.3%	15.6%	0.8 p.p.

* Interest margin data for 2018 are adjusted to new methodology (calculation based on the number of days for the period).

* * Calculated as credit impairments and provisions over average net loans to customers.

Result after tax and before impairments and provisions (EUR million)

NLB Banka Sarajevo

NLB Banka d.d., Sarajevo	"on stand alone basis"
Key financial indicators			Change		Balance sheet			Change
	1-6 2019	1-6 2018	YoY		in 000 EUR	30 Jun 2019	31 Dec 2018	YtD
ROE a.t.	12.5%	14.9%	-2.4 p.p.		Total assets	612,918	592,166	20,752
Interest margin*	3.02%	3.24%	-0.2 p.p.		Loans to customers (net)	387,499	359,499	28,000
CIR	52.2%	54.8%	-2.5 p.p.
Cost of risk net (bps)**	28	8	20		Loans to customers (gross)	418,896	391,567	27,329
LTD net (%)	80.0	80.5	-0.5		Gross loans to corporate	193,102	176,368	16,734
Income statement			Change		Gross loans to individuals	222,616	211,972	10,644
in 000 EUR	1-6 2019	1-6 2018	YoY		Gross loans to state	3,178	3,227	-49
Total net operating income	13,425	12,749	676	5.3%	Financial assets	46,783	39,337	7,446
Net interest income	8,877	8,659	218	2.5%	Deposits from customers	484,601	472,297	12,304
Net non-interest income	4,548	4,090	458	11.2%	Deposits from corporate	125,101	127,175	-2,074
o/w net fees and commissions	4,207	3,557	650	18.3%	Deposits from individuals	288,115	280,207	7,908
Total costs	-7,012	-6,990	-22	-0.3%
Employee costs	-4,103	-4,168	65	1.6%	Deposits from state	71,385	64,915	6,470
Other general and administrative expenses	-2,207	-2,427	220	9.1%	NPL gross	30,034	30,805	-771
Depreciation and amortization	-702	-395	-307	-77.7%	% NPL	5.4%	5.7%	-0.3 p.p.
Result before impairments and provisions	6,413	5,759	654	11.4%	Capital (according to local legislation)
Impairments and provisions	-593	191	-784	-	Capital adequacy ratio	15.4%	16.4%	-0.9 p.p.
Result after tax	5,090	5,474	-384	-7.0%
Number of employees	446	467	-21	-4.5%

Balance sheet
in 000 EUR	30 Jun 2019	31 Dec 2018	YtD
Total assets	612,918	592,166	20,752	3.5%
Loans to customers (net)	387,499	359,499	28,000	7.8%
Loans to customers (gross)	418,896	391,567	27,329	7.0%
Gross loans to corporate	193,102	176,368	16,734	9.5%
Gross loans to individuals	222,616	211,972	10,644	5.0%
Gross loans to state	3,178	3,227	-49	-1.5%
Financial assets	46,783	39,337	7,446	18.9%
Deposits from customers	484,601	472,297	12,304	2.6%
Deposits from corporate	125,101	127,175	-2,074	-1.6%
Deposits from individuals	288,115	280,207	7,908	2.8%
Deposits from state	71,385	64,915	6,470	10.0%
NPL gross	30,034	30,805	-771	-2.5%
% NPL	5.4%	5.7%	-0.3 p.p.
Capital (according to local legislation)
Capital adequacy ratio	15.4%	16.4%	-0.9 p.p.

* Interest margin data for 2018 are adjusted to new methodology (calculation based on the number of days for the period).

* * Calculated as credit impairments and provisions over average net loans to customers.

Result after tax and before impairments and provisions (EUR million)

NLB Banka Prishtina

NLB Banka sh.a., Prishtine	"on stand alone basis"
Key financial indicators			Change		Balance sheet			Change
	1-6 2019	1-6 2018	YoY		in 000 EUR	30 Jun 2019	31 Dec 2018	YtD
ROE a.t.	25.2%	21.6%	3.5 p.p.		Total assets	710,749	668,127	42,622
Interest margin*	4.45%	4.37%	0.1 p.p.		Loans to customers (net)	512,296	466,854	45,442
CIR	33.6%	39.2%	-5.6 p.p.		Loans to customers (gross)	540,088	493,950	46,138
Cost of risk net (bps)**	27	31	-4
LTD net (%)	85.5	83.6	1.9		Gross loans to corporate	346,633	315,408	31,225
Income statement			Change		Gross loans to individuals	193,455	178,542	14,913
in 000 EUR	1-6 2019	1-6 2018	YoY		Gross loans to state	0	0	0
Total net operating income	18,117	15,246	2,871	18.8%	Financial assets	70,300	64,733	5,567
Net interest income	15,121	12,928	2,193	17.0%	Deposits from customers	599,426	585,851	13,575
Net non-interest income	2,996	2,318	678	29.2%	Deposits from corporate	147,274	154,828	-7,554
o/w net fees and commissions	3,511	2,834	677	23.9%	Deposits from individuals	440,249	421,003	19,246
Total costs	-6,094	-5,982	-112	-1.9%
Employee costs	-3,095	-3,113	18	0.6%	Deposits from state	11,903	10,020	1,883
Other general and administrative expenses	-2,108	-2,272	164	7.2%	NPL gross	13,603	14,361	-758
Depreciation and amortization	-891	-597	-294	-49.2%	% NPL	2.1%	2.4%	-0.3 p.p.
Result before impairments and provisions	12,023	9,264	2,759	29.8%	Capital (according to local legislation)
Impairments and provisions	-1,450	-1,065	-385	-36.2%	Capital adequacy ratio	16.6%	14.6%	2.0 p.p.
Result after tax	9,523	7,398	2,125	28.7%
Number of employees	473	478	-5	-1.0%

YtD
42,622 6.4%
45,442 9.7%
46,138 9.3%
31,225 9.9%
14,913 8.4%
0 -
5,567 8.6%
13,575 2.3%
-4.9%
4.6%
18.8%
-5.3%
-0.3 p.p.
2.0 p.p.
-7,554 19,246 1,883 -758

* Interest margin data for 2018 are adjusted to new methodology (calculation based on the number of days for the period).

* * Calculated as credit impairments and provisions over average net loans to customers.

Result after tax and before impairments and provisions (EUR million)

NLB Banka Podgorica

NLB Banka a.d., Podgorica	"on stand alone basis"
Key financial indicators			Change		Balance sheet			Change
	1-6 2019	1-6 2018	YoY		in 000 EUR	30 Jun 2019	31 Dec 2018	YtD
ROE a.t.	8.0%	16.3%	-8.4 p.p.		Total assets	514,039	489,283	24,756
Interest margin*	4.28%	3.95%	0.3 p.p.		Loans to customers (net)	328,762	310,692	18,070
CIR	50.5%	53.2%	-2.7 p.p.		Loans to customers (gross)	342,093	323,914	18,179
Cost of risk net (bps)**	-22	-32	9		Gross loans to corporate	94,541	90,223	4,318
LTD net (%)	80.9	78.9	2.0
Income statement			Change		Gross loans to individuals	216,744	203,207	13,537
in 000 EUR	1-6 2019	1-6 2018	YoY		Gross loans to state	30,808	30,484	324
Total net operating income	12,464	11,158	1,306	11.7%	Financial assets	45,481	54,781	-9,300
Net interest income	9,854	8,466	1,388	16.4%	Deposits from customers	406,321	391,750	14,571
Net non-interest income	2,610	2,692	-82	-3.0%	Deposits from corporate	120,994	116,364	4,630
o/w net fees and commissions	2,935	2,740	195	7.1%	Deposits from individuals	268,328	256,975	11,353
Total costs	-6,292	-5,936	-356	-6.0%	Deposits from state	16,999	18,411	-1,412
Employee costs	-3,616	-3,547	-69	-1.9%	NPL gross	20,565	20,627	-62
Other general and administrative expenses	-1,901	-1,951	50	2.6%
Depreciation and amortization	-775	-438	-337	-76.9%	% NPL	4.9%	5.2%	-0.3 p.p.
Result before impairments and provisions	6,172	5,222	950	18.2%	Capital (according to local legislation)
Impairments and provisions	-3,137	291	-3,428	-	Capital adequacy ratio	16.6%	16.2%	0.4 p.p.
Result after tax	2,734	5,506	-2,772	-50.3%
Number of employees	297	306	-9	-2.9%

Balance sheet
in 000 EUR	30 Jun 2019	31 Dec 2018	YtD
Total assets	514,039	489,283	24,756	5.1%
Loans to customers (net)	328,762	310,692	18,070	5.8%
Loans to customers (gross)	342,093	323,914	18,179	5.6%
Gross loans to corporate	94,541	90,223	4,318	4.8%
Gross loans to individuals	216,744	203,207	13,537	6.7%
Gross loans to state	30,808	30,484	324	1.1%
Financial assets	45,481	54,781	-9,300	-17.0%
Deposits from customers	406,321	391,750	14,571	3.7%
Deposits from corporate	120,994	116,364	4,630	4.0%
Deposits from individuals	268,328	256,975	11,353	4.4%
Deposits from state	16,999	18,411	-1,412	-7.7%
NPL gross	20,565	20,627	-62	-0.3%
% NPL	4.9%	5.2%	-0.3 p.p.
Capital (according to local legislation)
Capital adequacy ratio	16.6%	16.2%	0.4 p.p.

* Interest margin data for 2018 are adjusted to new methodology (calculation based on the number of days for the period).

* * Calculated as credit impairments and provisions over average net loans to customers.

Result after tax and before impairments and provisions (EUR million)

NLB Banka Beograd

NLB Banka a.d., Beograd	"on stand alone basis"
Key financial indicators			Change		Balance sheet			Change
	1-6 2019	1-6 2018	YoY		in 000 EUR	30 Jun 2019	31 Dec 2018	YtD
ROE a.t.	2,9%	7,8%	-4,9 p.p.		Total assets	527,369	484,492	42,877
Interest margin*	4,21%	5,12%	-0,9 p.p.		Loans to customers (net)	363,343	318,792	44,551
CIR	86,5%	77,2%	9,3 p.p.		Loans to customers (gross)	372,035	327,847	44,188
Cost of risk net (bps)**	20	-3	22
LTD net (%)	98,3	98,9	-0,6		Gross loans to corporate	228,636	198,833	29,803
Income statement			Change		Gross loans to individuals	141,730	127,629	14,101
in 000 EUR	1-6 2019	1-6 2018	YoY		Gross loans to state	1,669	1,385	284
Total net operating income	10.857	11.268	-411	-3,6%	Financial assets	71,476	58,285	13,191
Net interest income	10.070	9.570	500	5,2%	Deposits from customers	369,732	352,940	16,792
Net non-interest income	787	1.698	-911	-53,7%	Deposits from corporate	158,380	160,683	-2,303
o/w net fees and commissions	2.706	2.284	422	18,5%	Deposits from individuals	199,523	182,702	16,821
Total costs	-9.394	-8.703	-691	-7,9%	Deposits from state	11,829	9,555	2,274
Employee costs	-5.022	-4.509	-513	-11,4%
Other general and administrative expenses	-3.050	-3.480	430	12,4%	NPL gross	10,024	9,957	67
Depreciation and amortization	-1.322	-714	-608	-85,2%	% NPL	2.3%	2.4%	-0.1 p.p.
Result before impairments and provisions	1.463	2.565	-1.102	-43,0%	Capital (according to local legislation)
Impairments and provisions	-460	-51	-409	-	Capital adequacy ratio	20.8%	16.7%	4.1 p.p.
Result after tax	1.003	2.488	-1.485	-59,7%
Number of employees	466	444	22	5,0%

Balance sheet
in 000 EUR	30 Jun 2019	31 Dec 2018	YtD
Total assets	527,369	484,492	42,877	8.8%
Loans to customers (net)	363,343	318,792	44,551	14.0%
Loans to customers (gross)	372,035	327,847	44,188	13.5%
Gross loans to corporate	228,636	198,833	29,803	15.0%
Gross loans to individuals	141,730	127,629	14,101	11.0%
Gross loans to state	1,669	1,385	284	20.5%
Financial assets	71,476	58,285	13,191	22.6%
Deposits from customers	369,732	352,940	16,792	4.8%
Deposits from corporate	158,380	160,683	-2,303	-1.4%
Deposits from individuals	199,523	182,702	16,821	9.2%
Deposits from state	11,829	9,555	2,274	23.8%
NPL gross	10,024	9,957	67	0.7%
% NPL	2.3%	2.4%	-0.1 p.p.
Capital (according to local legislation)
Capital adequacy ratio	20.8%	16.7%	4.1 p.p.

* Interest margin data for 2018 are adjusted to new methodology (calculation based on the number of days for the period).

* * Calculated as credit impairments and provisions over average net loans to customers.

Result after tax and before impairments and provisions (EUR million)

Financial markets in Slovenia(1)

in million EUR consolidated	Financial markets in Slovenia
	1-6 2019	1-6 2018		Change YoY	Q2 2019	Q1 2019	Change QoQ
Net interest income	15.9	17.6	-1.8	-10%	9.9	6.0	64%
Net non-interest income	1.5	-0.3	1.8	-	-0.6	2.1	-
Total net operating income	17.4	17.3	0.1	0%	9.3	8.1	14%
Total costs	-3.5	-3.3	-0.2	-6%	-1.8	-1.7	-8%
Result before impairments and provisions	13.8	14.0	-0.1	-1%	7.4	6.4	15%
Impairments and provisions	-0.5	0.0	-0.4	-	-0.1	-0.3	54%
Result before tax	13.4	13.9	-0.6	-4%	7.3	6.1	19%

	30 Jun 2019	31 Mar 2019	31 Dec 2018	30 Jun 2018	Change YtD		Change YoY		Change QoQ
Balances with Central banks	520.2	666.3	575.0	406.2	-54.8	-10%	114.1	28%	-22%
Banking book securities	2,983.4	2,924.1	2,755.2	2,563.9	228.1	8%	419.5	16%	2%
Interest rate on banking book securities	1.07%	1.10%	1.25%	1.27%	-0.17 p.p.		-0.20 p.p.		-0.03 p.p.
Wholesale funding	235.3	244.0	244.1	252.5	-8.9	-4%	261.4	104%	-4%
Interest rate on wholesale funding	0.51%	0.53%	0.48%	0.44%	0.03 p.p.		0.08 p.p.		-0.02 p.p.
Subordinated liabilities	44.9	-	-	-	- 0.0		- 0.0		-
Interest rate on subordinated liabilities	4.20%	-	-	-		-	-		-

• Lower net interest income, EUR 1.8 million YoY, due to lower transformation margin.

• Higher net non-interest income, EUR 1.8 million YoY, mostly due to active management of banking book securities, which positively affected the net income from financial transactions, mostly in Q1 2019. In Q2 2019 net non-interest income was affected with SRF expenses (EUR 0.3 million).

• Decrease in balances with the central banks (EUR 54.8 million YtD) and increase in banking book securities (EUR 228.1 million YtD).

Note: (1) The segment Financial markets in Slovenia was in previous reports shown without Investment banking so the results are comparable with previous year.

Financial markets in Slovenia Strong liquidity position The volume of ECB

Well positioned and funded division

• Strong liquidity buffer provides solid base for future core growth consisting of liquid assets which are not encumbered for operational or regulatory purposes
• Banking book securities portfolio is well diversified in terms of asset class and geography to minimize concentration risk, and is invested predominantly in high quality issuers on prudent tenors

Well diversified banking book by geography (30 June 2019)

Maturity profile of banking book securities(3) (30 June 2019, EURm)

Note: Numbers refer to NLB d.d. only; (1) Incl. trading and banking book securities; (2) Includes other European countries, US, Canada, Australia and Russian federation; (3) Including DARS bonds; ¸ (4) Loans booked under segment Corporate Banking Slovenia.

eligible credit claims decreased due to

Non-core members

in EUR million consolidated	Non-core members
	1-6 2019	1-6 2018	Change YoY		Q2 2019	Q1 2019	Change QoQ
Net interest income	1.6	5.3	-3.8	-71%	0.6	1.0	-40%
Net non-interest income	4.3	4.2	0.1	2%	1.5	2.8	-48%
Total net operating income	5.9	9.6	-3.7	-39%	2.1	3.8	-46%
Total costs	-6.5	-9.4	2.9	31%	-3.4	-3.1	-11%
Result before impairments and provisions	-0.6	0.2	-0.8	-	-1.3	0.7	-
Impairments and provisions	1.0	7.8	-6.8	-87%	0.3	0.7	-53%
Result before tax	0.4	8.0	-7.6	-95%	-1.0	1.4	-
	30 Jun 2019	31 Mar 2019	31 Dec 2018	30 Jun 2018	Change YtD		Change YoY		Change QoQ
Segment assets	205.8	216.9	263.7	345.0	-57.9	-22%	402.8	117%	-5%
Net loans to customers	93.3	103.8	160.9	227.1	-67.6	-42%	294.7	130%	-10%
Gross loans to customers	181.6	196.0	288.6	395.0	-107.0	-37%	502.0	127%	-7%
Investment property and property & equipment received for repayment of loans	44.5	45.1	68.5	42.7	-24.1	-35%	66.8	156%	-1%
Other assets	68.1	68.1	34.3	75.1	33.8	99%	41.3	55%	0%
Deposits from customers	0.0	0.0	9.6	9.2	-9.6	-	18.8	-	-
Non-performing loans (gross)	121.1	126.3	179.7	253.8	-58.7	-33%	312.4	123%	-4%
	1-6 2019	1-6 2018	Change YoY
Cost of risk (in bps)	-130	-348	218
CIR	110.3%	98.3%	31.4 p.p.

• The segment recorded EUR 3.7 million decrease of net operating income, partially due to transfer of NLB Non-core part to Corporate and Investment Banking in Slovenia (approximately EUR -3.3 million) and transfer of NLB Srbija and NLB Crna Gora from Strategic Foreign Markets (EUR 0.6 million); non-recurring effect on net non-interest income from contractual penalty in Q1 2019 (EUR 1.3 million).
• Decrease in total costs, EUR 2.9 million YoY, due to divestment of non-strategic Group members, transfer of NLB Non-core part to Corporate (approximately EUR -2.2 million) and transfer of NLB Srbija and NLB Crna Gora from Strategic Foreign Markets (EUR 0.7 million).
• Gross loans to customers decreased due to divestment of non-strategic Group members, but mostly due to the change in segment presentation, EUR 107.0 million YtD, of which EUR 149.8 million from transfer of NLB Non-core part to Corporate and Investment Banking in Slovenia and EUR 69.0 million from transfer of NLB Srbija and NLB Crna Gora from Strategic Foreign Markets.
• Decrease in deposits from customers, EUR 9.6 million due to transfer of NLB Non-core part to Corporate and Investment Banking in Slovenia.
• NPLs decrease mostly due to the change in segment presentation.

Other(1)

in EUR million consolidated		Other
	1-6 2019	1-6 2018		Change YoY	Q2 2019	Q1 2019	Q2 2018	Change QoQ
Total net operating income	9.7	0.1	9.6	-	7.6	2.1	0.3	-
Total costs	-5.0	-3.5	-1.6	-45%	-2.8	-2.2	-1.6	-25%
Result before impairments and provisions	4.7	-3.3	8.0	-	4.8	-0.1	-1.3	-
Impairments and provisions	0.0	0.3	-0.3	-	0.0	0.0	0.5	-
Result before tax	4.7	-3.0	7.7	-	4.8	-0.1	-0.9

• The segment Other recorded EUR 4.7 million of profit before tax, EUR 7.7 million increase YoY. EUR 9.7 million net operating income was influenced by positive effect from from equity share EUR 6.3 million and EUR 0.2 million from contractual penalty. EUR 5.0 million of total costs, related mostly to IT, cash transport, external realization, restructuring costs and empty business premises.

Appendix 2: Macro Overview

NLB Group – Macro overview

NLB d.d. & 6 subsidiary banks operate in Slovenia (EU member) & 5 SEE countries (convergence to EU)

	EUR
GDP (EURbn)	45.8
Real GDP growth (%)	3.3
Population (m)	2.1
Household indebtedness(1)	22.0%
Credit ratings (S&P / Moody's / Fitch)	AA- / Baa1 / A

	EUR(3)
GDP (EURbn)	17.1
Real GDP growth (%)	2.7
Population (m)	3.5
indebtedness(1) Household	28.4%
Credit ratings (S&P / Moody's / Fitch)	B / B3 / n.a.

	EUR
GDP (EURbn)	4.6
Real GDP growth (%)	3.1
Population (m)	0.6
Household indebtedness(1)	27.6%
Credit ratings (S&P / Moody's / Fitch)	B+ / B1 / n.a.

EUR
45.8
3.3
2.1
22.0%
EUR AA- / Baa1 / A

Kosovo
GDP (EURbn)	6.5
Real GDP growth (%)	4.1
Population (m)	1.8
Household indebtedness(1)	15.4%
Credit ratings (S&P / Moody's / Fitch)	n.a. / n.a. / n.a.

North Macedonia
GDP (EURbn)	10.7
Real GDP growth (%)	3.2
Population (m)	2.1
Household indebtedness(1)	23.7%
Credit ratings (S&P / Moody's / Fitch)	BB- / n.a. / BB+

Source: IMF, World Bank, Central banks data, National Statistics Offices, FocusEconomics.

Note: GDP volume and population for 2018; GDP growth forecasted for 2019 by FocusEconomics Consensus Forecast; (1) Includes households loans as % of GDP, Q1 2019, own calculation; (2) Bosnia and Herzegovina is comprised of 2 entities, The Federation of Bosnia and Herzegovina and Republika Srpska; (3) Official currency is BAM – Bosnia-Herzegovina Convertible Mark, pegged to EUR.

Macro Overview

Economic data Fiscal data Monetary data

• Most countries are likely to grow at around 3% if supported by loose monetary conditions, fiscal easing and solid domestic demand.
• Inflation is likely to remain within target ranges throughout the region.

• Economic growth will be sensitive to the slowdown in the Eurozone and tighter global financial conditions.

• Environment for necessary reforms seen slightly improved.

• Fiscal imbalances should not aggravate general government borrowing position and public debt seems manageable, nevertheless caution still recommended.

• Large current account deficits and geographical contagion are important drivers to capital flows.

• Positive momentum for higher lending volumes seen ahead.

• As loan to deposit ratios remain firm, a future expansion of the regional banking sectors should not be capped from a refinancing perspective.
• A more pronounced slowdown in Europe or larger capital outflows from EM would moderate favourable trends in the region.

Real GDP growth, %

KEY FINDINGS:

Highest YoY increase of economic growth was registered by North Macedonia, growing from 0.2% to 2.7% in 2018, followed by Serbia (from 2% to 4.3% in 2018).

Five countries with above 3% expected growth rate of GDP in 2019.

Growth is decelerating sligthly in 2019, but, overall, real GDP growth in the region will remain strong, well above the Eurozone.

Real GDP growth, %	2014	2015	2016	2017	2018	2019	2020	2021
BiH	0.7	4.1	3.4	3.4	3.0	2.7	3.0	3.1
North Macedonia	3.6	3.9	2.8	0.2	2.7	3.2	3.3	3.2
Kosovo	1.2	4.1	4.1	3.7	3.9	4.1	3.8	3.5
Serbia	-1.6	1.8	3.3	2.0	4.3	3.1	3.2	3.2
Montenegro	1.8	3.4	2.9	4.7	4.9	3.1	2.8	2.8
Slovenia	2.8	2.2	3.1	4.8	4.1	3.3	2.9	2.7
Eurozone	1.4	2.0	1.9	2.6	1.9	1.1	1.2	1.3

Sources: National Statistical Offices, FocusEconomics

Note: Consensus Forecasts for 2019, 2020 and 2021

Average inflation rate, %

KEY FINDINGS:

There seems to be a favourable inflation development in all countries. Minor pressures noted in Kosovo and Serbia, yet with no material impact on the local currency.

CPI continues to be driven by exogenous factors, nonetheless robust domestic demand is expected to lift inflation over the medium term.

The inflation rates are projected to remain stable close to 2.0 %.

Average inflation rate, %	2014	2015	2016	2017	2018	2019	2020	2021
BiH	-0.9	-1.1	-1.6	0.8	1.4	1.4	1.7	1.8
North Macedonia	-0.3	-0.3	-0.2	1.4	1.4	1.6	1.9	2.1
Kosovo	0.4	-0.5	0.3	1.5	1.1	2.3	1.8	1.9
Serbia	2.1	1.4	1.1	3.2	2.0	2.4	2.5	2.7
Montenegro	-0.7	1.5	-0.3	2.4	2.6	1.9	2.0	1.9
Slovenia	0.2	-0.5	-0.1	1.4	1.7	1.5	1.8	1.8
Eurozone	0.4	0.2	0.2	1.5	1.8	1.3	1.4	1.5

Sources: National Statistical Offices, FocusEconomics

Unemployment rate, % 5 0

KEY FINDINGS:

Despite strong growth, unemployment is projected to stay at relatively high levels across the whole region, with the exception of Slovenia.

In 2018, the biggest improvement was recorded by BiH, North Macedonia, Slovenia. Future rates of unemployment are expected to continue to improve at a slower pace.

Official unemployment rates seem to be affected by various factors such as shrinking labour force on one side and permanent unemployment on the other.

Unemployment rate, %	2014	2015	2016	2017	2018	2019	2020	2021
BiH	43.9	43.2	41.7	38.4	36.0	34.3	32.8	32.8
North Macedonia	28.0	26.1	23.7	22.4	20.7	18.7	17.7	17.4
Kosovo	35.3	32.9	27.5	30.5	29.6	28.8	28.0	27.2
Serbia	19.2	17.7	15.3	13.5	12.7	11.5	10.8	10.4
Montenegro	18.0	17.6	17.7	16.1	15.2	14.8	14.4	13.7
Slovenia	9.7	9.0	8.0	6.6	5.1	4.6	4.5	4.8
Eurozone	11.6	10.9	10.0	9.1	8.2	7.7	7.5	7.4

Source: FocusEconomics

Note: BiH data for registered unemployment rate; Consensus Forecasts for 2019, 2020 and 2021

Current account, % GDP

KEY FINDINGS:

Huge difference between countries due to various reasons. Trade deficit is being covered either by capital inflows or remittances.

Montenegro continues to underperform heavily in the region.

In general, no large reductions of current account deficits can be expected in the near future.

Current Account, % GDP	2014	2015	2016	2017	2018	2019	2020	2021
BiH	-7.1	-5.1	-4.5	-4.7	-4.1	-4.8	-4.8	-4.9
North Macedonia	-0.5	-1.9	-2.9	-1.0	-0.3	-1.2	-1.4	-1.3
Kosovo	-6.9	-8.6	-7.9	-6.1	-8.3	-8.3	-8.3	-8.1
Serbia	-5.6	-3.5	-2.9	-5.2	-5.2	-5.4	-5.1	-4.9
Montenegro	-12.4	-11.0	-16.2	-16.1	-17.2	-17.2	-16.2	-15.6
Slovenia	5.1	3.8	4.8	6.1	5.6	6.3	6.0	5.9
Eurozone	2.5	2.7	3.1	3.2	2.9	2.8	2.7	2.5

Source: FocusEconomics

Int. reserves, import coverage in months

KEY FINDINGS:

International reserves expressed as import coverage in months remain stable and seem sufficient.

Favourable trendline adds to the stability of foreign exchange rate in Serbia, North Macedonia and BiH. Unless major geopolitical tensions realize, stable currency regimes remain our baseline scenario.

Int. Reserves (months of imports)	2014	2015	2016	2017	2018	2019	2020	2021
BiH	6.4	7.2	7.7	7.6	7.9	7.8	7.7	7.4
North Macedonia	6.3	5.6	5.9	4.8	5.2	5.0	5.0	4.7
Kosovo	3.3	3.5	2.8	2.9	3.0	3.0	2.9	2.9
Serbia	8.1	8.2	7.7	6.6	6.6	6.2	5.9	5.8
Montenegro	3.8	4.5	4.8	4.8	5.3	5.1	4.8	4.4

Source: FocusEconomics

Macro Overview – Fiscal data

Fiscal Balance, % GDP

KEY FINDINGS:

A slight deterioration in the fiscal performance throughout most of the region expected for 2019-20.

BiH and Slovenia are expected to keep balanced public finances, while budget deficit will stay at relatively high levels in North Macedonia and Kosovo. Levels are expected to improve in Montenegro.

Fiscal balance, % GDP	2014	2015	2016	2017	2018	2019	2020	2021
BiH	-2.0	0.7	1.2	2.6	1.0	0.6	0.5	0.4
North Macedonia	-4.2	-3.5	-2.7	-2.7	-1.8	-2.4	-2.4	-2.2
Kosovo	-2.3	-1.6	-1.1	-1.1	-2.7	-2.1	-2.2	-2.3
Serbia	-6.2	-3.5	-1.2	1.1	0.6	-0.3	-0.7	-0.6
Montenegro	-3.0	-8.0	-3.4	-5.5	-3.4	-2.4	0.6	0.6
Slovenia	-5.5	-2.8	-1.9	0.0	0.7	0.3	0.2	0.2
Eurozone	-2.5	-2.0	-1.6	-1.0	-0.5	-1.0	-1.0	-1.0

Source: FocusEconomics

Macro Overview – Fiscal data

Public Debt, % GDP

KEY FINDINGS:

Public debt varies intensively between the countries.

Slow convergence of public indebtedness is projected. Reduction of public debt is expected in BiH, Serbia, Montenegro and Slovenia, while an increase is forecasted for Kosovo.

All the countries in the region are below the Eurozone level.

Public debt, % GDP	2014	2015	2016	2017	2018	2019	2020	2021
BiH	45.9	45.5	44.1	39.0	37.1	35.9	35.1	33.8
North Macedonia	38.1	38.1	39.9	39.5	40.5	41.2	41.8	40.3
Kosovo	10.7	13.1	14.4	16.2	17.1	19.3	20.9	22.9
Serbia	64.2	69.5	67.6	59.3	53.8	51.9	50.2	48.1
Montenegro	59.9	66.2	64.4	64.2	70.8	69.0	67.8	66.0
Slovenia	80.4	82.6	78.7	74.1	70.1	66.4	63.4	61.1
Eurozone	92.0	90.1	89.2	87.1	85.1	84.4	83.3	81.6

Source: FocusEconomics

Loans growth (NFC + Households), %

KEY FINDINGS:

Encouraging levels of credit growth in both corporate and retail segment, much higher than in Eurozone.

Kosovo (10.9%), Serbia (9.5%) and Montenegro (9.1%) leading the credit growth in the region.

In Serbia and Montenegro healthy loan dynamics driven by rising consumption and fixed investments.

Loan growth (NFC + Households), %	2014	2015	2016	2017	2018	2019*
BiH	1.8	2.4	3.8	7.3	5.5	5.6
North Macedonia	10.0	9.5	0.2	5.3	7.2	8.5
Kosovo	4.2	7.3	10.4	11.4	10.9	11.4
Serbia	0.5	3.3	5.5	3.6	9.5	9.3
Montenegro	-1.1	2.5	5.4	7.7	9.1	8.2
Slovenia	-12.4	-5.1	1.8	4.6	4.7	5.0
Eurozone	-1.9	1.0	1.3	1.9	2.8	2.8

Sources: National Central banks, ECB, Own calculations

Note: May 2019 YoY growth

Total Loans (NBS), % GDP

Total loans, % GDP	2014	2015	2016	2017	2018	2019*
BiH	60.2	59.0	57.5	58.7	59.5	59.8
North Macedonia	49.3	51.0	47.6	48.7	48.8	48.5
Kosovo	33.8	34.9	36.9	38.9	42.4	42.7
Serbia	61.0	62.3	59.1	60.5	57.5	57.4
Montenegro	68.5	65.8	64.0	62.8	63.4	65.1
Slovenia	57.2	52.2	50.9	50.1	48.6	48.6
Eurozone	96.4	94.0	92.6	91.1	90.7	90.7

Sources: National Central banks, ECB, Own calculations

Note: Eurozone Total loans includes only NFC + Households loans; For 2019 Q1 data on loans and GDP;

Deposits growth (NFC + Households), % 1 6

KEY FINDINGS:

There are substantial differences in deposit growth numbers.

Serbia (14.9%) is far ahead of the rest and leads the deposit growth in the region in 2018, followed by strong growth of other countries in the region.

An exception is Montenegro (3.2%), which went from having the highest growth in 2017 to the lowest in 2018 and is the only country with growth under the Eurozone level.

Underdeveloped capital markets participating importantly to deposit growth record.

Deposit growth (NFC + Households), %	2014	2015	2016	2017	2018	2019*
BiH	9.1	8.2	7.8	8.6	8.7	8.4
North Macedonia	10.5	6.4	5.4	5.0	9.5	9.9
Kosovo	2.7	7.5	8.2	4.5	8.9	8.1
Serbia	9.7	7.1	11.5	3.1	14.9	13.4
Montenegro	9.6	11.8	10.5	13.7	3.2	-2.5
Slovenia	6.5	5.6	7.1	6.9	6.8	6.2
Eurozone	3.7	3.0	4.6	4.1	4.2	5.0

Sources: National Central banks, ECB, Own calculations

Note: May 2019 YoY growth. For Montenegro, 2019 data excludes deposits with Atlas Bank, according to CBCG

Total Deposits (NBS), % GDP 9 0

KEY FINDINGS:

Slightly falling, but stable deposit to GDP ratio in Montenegro and Slovenia.

Growing trend in the rest of the region with the highest increase in BiH and Kosovo.

Across the whole region the share of deposits in GDP is lower than in Eurozone.

Total deposits, % GDP	2014	2015	2016	2017	2018	2019*
BiH	56.2	57.8	59.4	62.7	66.4	66.6
North Macedonia	54.2	54.6	53.7	55.0	56.8	56.5
Kosovo	45.6	46.6	47.9	48.5	52.0	51.5
Serbia	45.2	46.6	46.1	47.6	48.2	48.1
Montenegro	66.7	72.4	76.1	76.0	74.9	73.8
Slovenia	64.9	64.7	64.7	64.0	63.3	63.3
Eurozone	82.9	82.5	84	84.4	85.1	85.6

Sources: National Central banks, ECB, Own calculations

Note: Eurozone Total deposits includes only NFC + Households deposits; For 2019 Q1 data on deposits and GDP; For Montenegro, 2019 Q1 deposits data excludes deposits with Atlas Bank, according to CBCG

Appendix 3: EC committments

EC Commitments

Pursuant to EC decision of 10 August 2018, NLB and RoS must comply with certain commitments until specified deadlines.

Following the reduction of RoS shareholding in NLB d.d. to 25 % plus one share (the Blocking Minority) in June 2019, the majority of commitments ceased to apply.

The only remaining commitments for NLB are the following:

• Until 31 December 2019:
  • NLB must not acquire any stake in any undertaking (acquisition ban);
  • NLB must ensure non-discrimination of non-state-owned companies;
  • NLB must maintain the appointment of the Monitoring Trustee.
• NLB also has to divest its insurance subsidiary NLB Vita by a specified deadline.

All other commitments set out for NLB in connection with the EC State Aid proceedings (e.g. Risk management and credit policies commitment, ban on cross-border business, reduction of balance sheet) no longer apply.

RoS Commitments valid until 31 December 2019:

• allocate all of the seats and voting rights on the SB and its committees to independent experts;
• ensure each state-owned bank remains a separate economic unit with independent powers of decision.

Appendix 4: Financial statements

NLB Group Income Statement

(EURm)	1-6 2019	1-6 2018	YoY	Q2 2019	Q1 2019	Q2 2018	QoQ
Interest and similar income	181.3	175.1	4%	90.9	90.4	88.3	0%
Interest and similar expense	-22.3	-23.4	5%	-11.2	-11.1	-11.6	-1%
Net interest income	159.0	151.7	5%	79.7	79.4	76.7	0%
Fee and commission income	111.8	106.0	5%	58.0	53.8	54.4	8%
Fee and commission expense	-29.6	-26.4	-12%	-15.8	-13.8	-14.2	-15%
Net fee and commission income	82.2	79.6	3%	42.1	40.1	40.2	5%
Dividend income	0.2	0.1	86%	0.1	0.1	0.1	28%
Net income from financial transactions	23.0	6.7	-	10.7	12.3	3.9	-13%
Other operating income	-7.0	5.1	-	-9.0	2.0	-8.2	-
Total net operating income	257.4	243.0	6%	123.6	133.8	112.7	-8%
Employee costs	-81.4	-80.9	-1%	-41.4	-40.1	-40.6	-3%
Other general and administrative expenses	-44.6	-45.4	2%	-23.4	-21.2	-23.1	-10%
Depreciation and amortisation	-15.4	-13.6	-13%	-7.7	-7.7	-6.8	1%
Total costs	-141.4	-140.0	-1%	-72.4	-69.0	-70.6	-5%
Result before impairments and provisions	116.0	103.1	13%	51.2	64.8	42.1	-21%
Impairments and provisions for credit risk	-0.7	15.6	-	-4.0	3.3	12.3	-
Other impairments and provisions	-4.8	-1.2	-	-0.8	-3.9	-0.8	79%
Gains less losses from capital investments in subsidiaries, associates and joint ventures	2.5	2.5	-1%	1.4	1.1	1.4	23%
Result before Tax	113.0	120.0	-6%	47.7	65.3	55.0	-27%
Income tax expense
Non Controlling Interests	-14.9	-10.6	-40%	-9.5	-5.4	-6.3	-74%
Net Profit / (Loss) Attributable to Shareholders	3.8 94.3	4.5 104.8	-17% -10%	1.8 36.4	2.0 57.9	1.5 47.2	-7% -37%

NLB Group Statement of Financial Position

(EURm)	30 Jun 2019	31 Dec 2018	YtD
ASSETS
Cash and balances with Central Banks and other demand		1,588.3
deposits at banks	1,460.7		-8%
Financial instruments	3,787.4	3,399.2	11%
o/w Trading Book	116.9	63.6	84%
o/w Non-trading Book	3,670.5	3,335.6	10%
Loans and advances to banks (net)	108.1	118.7	-9%
o/w gross loans	108.2	118.8	-9%
o/w impairments	-0.1	-0.1	-13%
Loans and advances to customers	7,280.8	7,148.4	2%
o/w gross loans	7,721.1	7,627.5	1%
- Corporates	3,565.7	3,540.4	1%
- State	313.3	360.5	-13%
- Individuals	3,842.1	3,726.5	3%
o/w impairments and valuation	-440.2	-479.0	-8%
Investments in associates and JV	42.3	37.1	14%
Goodwill	3.5	3.5	0%
Other intagible assets	29.9	31.4	-5%
Property, plant and equipment	193.8	177.4	9%
Investment property	57.8	58.6	-2%
Other assets	199.9	177.1	13%
Total Assets	13,164.4	12,740.0	3%
LIABILITIES & EQUITY
Deposits from banks and central banks	44.8	26.8	67%
Deposits from customers	10,753.5	10,464.0	3%
- Corporates	2,294.6	2,337.3	-2%
- State	280.0	261.1	7%
- Individuals	8,178.9	7,865.6	4%
Borrowings	306.8	320.3	-4%
Subordinated liabilities	44.9	15.1	198%
Other liabilities	386.8	256.5	51%
Total Liabilities	11,536.7	11,082.6	4%
Shareholders' Equity	1,587.4	1,616.2	-2%
Non Controlling Interests	40.3	41.2	-2%
Total Equity	1,627.7	1,657.4	-2%
Total Liabilities & Equity	13,164.4	12,740.0	3%