NLB Group Presentation FY2019 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

• Acquisition of Komercijalna banka a.d. Beograd

➢ On 26 February, NLB entered into a share purchase agreement with the Republic of Serbia for the acquisition of an 83.23% ordinary shareholding in Komercijalna Banka a.d. Beograd.
➢ The closing of the transaction is expected in Q4 2020 .

• Covid-19 outbreak

➢ Government measures: immediate intervention measures & strategic measures.
➢ NLB Group measures: necessary measures to protect customers and employees by ensuring safety conditions and ensuring services are provided without disruption.

• Total Tier2 issuance EUR 285m

✓ In February 2020, NLB successfully completed the issuance of subordinated Tier 2 notes for inclusion in additional capital in the amount of EUR 120m on the international capital markets, with the interest rate of 3.40% p.a.
✓ November 2019, EUR 120m, subordinated Tier2 notes
✓ May 2019, EUR 45m, subordinated Tier2 notes

• Regulatory changes

➢ BoS restrictions on consumer lending in Slovenia
Divestment of shareholdings in NLB Vita in December 2019
New online application NLB Odkup terjatev for the purchase of recievables

Key performance indicators of NLB Group

	Medium-term targets set in 2018(1)
	YE 17	YE 18	YE19	Medium term
Net interest margin(2)	2.57%	2.56%	2.48%	>2.7%
Loans to deposits ratio	70.8%	68.3%	65.5%	<95%
Total capital ratio	15.9%	16.7%	16.3%	16.25%(8)
Cost-income ratio	58.4%	58.5%	58.7%	~50%
Cost of risk(3)	-62 bps	-43 bps	-20 bps	<90bps(6)
Return on equity (RoE)	14.4%	11.8%	11.7%	~12.0%
Dividend payout	84%(5)	70%		~70%(7)
NPE ratio(4)	6.7%	4.7%	2.7%	<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. (8) Target total capital ratio is regularly revised by the competent bodies to reflect each time the applicable capital requirements.

Revenues and Cost Dynamics

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

3.91% 4.10% 4.11%

2,339.7 2,241.6 2,376.8

+2% QoQ

+6% YoY

31 Dec 2018 30 Sep 2019

Yields - loans to individuals

Gross loans to individuals (in EUR million)

1,500

1,000

500

1,500 1,000

2,000 2,500

31 Dec 2019

Gross loans to corporate (in EUR million)

Yields - loans to corporate

1,000 1,500

2,000 2,500

500

0 500

Note: (1) Without funding of subsidiaries; (2) Only banks also before new segmentation from 2019 on; consolidated data for volumes.

2.0

2.5 3.0

0.0 0.5 1.0 1.5

Income Statement

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

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

In 2019, NLB Group generated EUR 193.6 million of profit after tax:

Higher net interest income, due to an increase of interest income in most of the banks of the Group, supported by loan book growth.
Higher net fee and commission income, mainly from the retail segment in the Bank and in the banking subsidiaries in SEE. Most of the foreign banks recorded an increase in number of customers.
Increase in total costs mostly due to higher employee (adjustments on management board and senior management post-privatization compensation ) and general and administrative costs (licences, consulting and supervision).
EUR 1.0 million of net provisions and impairments were established in 2019, while EUR 23.3 million were released in 2018.
Income tax was EUR 8.2 million lower, mainly due to an increase of recognized deferred tax assets (DTA) (based on stable results and profit projection in the Bank, estimated 5 years DTA utilization increased).

Result before impairments and provisions (Group, EURm) Contribution to the NLB Group consolidated result a.t. (EURm)

Balance sheet structure – NLB Group

Simple client business driven balance sheet

(31 Dec 2019, in EUR million)

Liabilities

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)	176.1	32.9	17.1	9.0	19.5	7.6	4.1	193.6
Total assets (EURm)	9,802	1,462	773	638	801	548	614	14,174
RoE a.t.	11.6%	16.2%	19.9%	11.2%	25.1%	11.2%	5.9%	11.7%
Net interest margin(1)	1.85%	3.66%	2.51%	2.95%	4.33%	4.27%	4.03%	2.48%
Cost/income	53.7%	41.0%	43.2%	53.3%	31.9%	51.4%	78.3%	58.7%
Loans/ Deposits % (net)	59.1%	77.8%	66.6%	77.5%	78.8%	79.3%	94.2%	65.5%
NPL ratio	2.8%	4.2%	1.3%	3.3%	1.5%	4.0%	1.6%	3.8%
NLB ownership (%)	/	86.97%	99.85%	97.35%	81.21%	99.83%	99.997%	/
No. of branches (#)	93	52	53	38	35	19	28	318
Market(2) share %	23.8%	16.0%(3)	18.8%(3, 4)	5.3%(3, 5)	17.6%	11.9%	1.7%(6)	/

Note: Financial data as of December 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) Data for market share as of 30 Sep 2019; (4) Market share in the Republika Srpska; (5) Market share in the Federation of BiH; (6) Data for market share as of 30 Jun 2019;

Business Performance

Net interest income & net interest margin

Net interest income increased YoY but remains under pressure

Interest expenses Interest income

Solid interest income growth YoY (Group, EURm) Stable net interest margin(1) (Group, %) 1-9 2019 1.89% 1-3 2019 1.85% 3.71% 2.56% 1-12 2018 3.63% 3.85% 1.92% 2.56% 1.91% 2.54% 3.67% 1-6 2019 2.48% 1.88% 1-12 2019 3.59% 2.51% NLB d.d. NLB Group Strategic foreign banks

Net interest margin(1) in NLB Group banks (in %)

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.

Note: (1) Without funding of subsidiaries; (2) Includes also other items from presented interest income from loans and interest expense from deposits; (3) Calculated on the basis of interest bearing assets.

2.0% 1.9% 1.9% 1.9%

NIM(3)

Net interest income drivers – Strategic foreign markets(1)

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

(1)

Net non-interest income (Group, EURm)

in EUR million	2019	2018	Change YoY
Recurring other net non-interest income	3.9	5.0	-1.2	-23%
Net income from financial transactions (Fees from Exchange differences)	11.5	10.5	1.0	10%
Net other income	-7.7	-5.5	-2.2	-39%
- external realization (IT, cash logistics)	3.4	3.9	-0.5	-12%
- rents	5.1	6.9	-1.8	-26%
- regulatory charges (SRF, DGS)	-16.2	-16.3	0.1	1%

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

Net non-interest income totaling EUR 195.1 million increased by EUR 14.8 million or 8% YoY, due to the following factors:

• Higher net fee and commission income by EUR 9.7 million or 6%, mainly from the retail segment in the Bank and in the banking subsidiaries in SEE. Most of the foreign banks recorded an increase in number of customers.

• Recurring other net non-interest income amounted to EUR 3.9 million (EUR -1.2 million YoY) and was affected mainly by the regulatory costs (SRF and DGS) in the total amount of EUR 16.2 million and higher net gains from FX trading.

• Net non-interest income was positively impacted by non-recurring income as a partial repayment of a larger exposure measured at fair value through profit and loss and active management of banking book securities in the amount of EUR 4.5 million • In 2019, a positive one-off effect from revaluation of a non-core equity stake was realized in the amount of EUR 6.3 million in Q2; whereas in the same period of 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 and negatively impacted by the sale of 28.13% minority stake in Skupna pokojninska družba in the amount of EUR 0.5 million.

Note: (1) From June 2019 on different presentation of non-recurring items is in use. (2) Includes investment funds, guarantees, investment banking, insurance products and other services.

Costs – NLB Group

Cost higher by 4% YoY

EUR 12.8 million increase in total costs mostly due to higher employee (adjustments on management board and senior management post-privatization compensation ) and general and administrative costs (licences, consulting and supervision).
EUR 1.6 million related to restructuring and EUR 3.0 million of performance rewards paid in December.
CIR stood at 58.7%.
Headcount dropped by 18% over 2012-2019 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 (#)

NLB d.d. Other

Impairments and provisions & cost of risk

Cost of risk negative

Impairments and provisions (Group, EUR m)

In 2019, the Group established EUR 1.0 million of net impairments and provisions while in the same period of previous year EUR 23.3 million were released.

Impairments and provisions for credit risk were net released in the amount of EUR 13.3 million and thus the cost of risk was negative, -20 bps.

Other impairments and provisions in 2019 were net established in the amount of EUR 14.3 million, mostly HR provisions for reorganisation in the Bank (EUR 5.5 million), while on the Group level provisions for pending legal disputes (EUR 5.7 million) and impairments of non-financial assets (EUR 3.2 million).

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

Total assets of NLB Group – structure (EURm)

20% 19% 21% 20% 17% State SME Corporates Institutions Retail mortgages Retail consumer 3%

Credit portfolio by segment (Group, 31 Dec 2019)

Banking book portfolio by asset class (Group, 31 Dec 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 all subsidiaries banks, especially in NLB Banka, Beograd and NLB Banka, Prishtina.

Gross loans to individuals in subsidiary banks grew by 12% and to corporate by 9% YoY.

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.

Capital - NLB Group

Strong capital position

NLB Group capital ratios (%) Capital structure and ratios

At the end of December 2019, the Total capital ratio for NLB Group stood at 16.3% (or 0.5 p.p. lower YtD), and for NLB at 22.6% (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 42.4 million, mainly due to new Tier 2 instrument issued in May (EUR 44.6 million), partial inclusion of 2019 net profit (EUR 35.0 million) and higher Other Comprehensive Income (EUR 10.6 million).

(in EUR million)	31.12.2019 31.12.2018		Change YtD
Common Equity Tier 1 capital	1,451.2	1,453.4	-2.2	-0.2%
Additional Tier 1 capital	0.0	0.0	0.0
Tier 1 capital	1,451.2	1,453.4	-2.2	-0.2%
Tier 2 capital	44.6	0.0	44.6
Total capital	1,495.8	1,453.4	42.4	2.9%
Total risk exposure amount (RWA)	9,185.5	8,677.6	507.9	5.9%
RWA for credit risk	7,720.2	7,179.7	540.6
RWA for market risks + CVA	523.7	544.5	-20.8
RWA for operational risk	941.6	953.5	-11.9
Common Equity Tier 1 Ratio	15.8%	16.7%	-1.0 p.p.
Tier 1 Ratio	15.8%	16.7%	-1.0 p.p.
Total Capital Ratio	16.3%	16.7%	-0.5 p.p.

NLB Group capital ratios and local requirements (31 Dec 2019, %)

Note: *As of 1 January 2020 new SREP capital requirement applicable for NLB Group leading to overall capital requirement of 14.25% (lower by 0.5 p. p.).

Capital evolution and requirements

Strong capital position

Capital position (Group, EURm)

RWA structure (EURm)

Structure of the Overall Capital Requirement (OCR)

Total capital ratio reaching 16.3% on Group level in Dec-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 Tier 2 instruments in total amount of EUR 285 million. The bonds issued on 19 November 2019 and on 5 February 2020, each in the amount of EUR 120 million, are subject to BS/ECB approval process and have therefore not yet been included in the capital at year end. Both instruments have in the first quarter of the year 2020 obtained permission from the regulator for inclusion of both instruments in the calculation of its Tier 2 capital.

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, Intangible assets are deduction item

Solid dividend distribution

				(EURm)
	2016	2017	2018	2019
NLB d.d. profit	64	189	165	176
o/w dividends from subsidiaries, associates and joint ventures to NLB d.d.	29	58	50	71
NLB Group profit after tax	110	225	204	194
NLB Group dividend to shareholder (paid in year after)	64	271	142.6
Implied payout ratio(%)	58%	84%(1)	70%

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, 31 Dec 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, 31 Dec 2019, EURm)

Credit portfolio(1) by geography (Group, 31 Dec 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, 31 Dec 2019) NPL cash coverage(1) (Group, %)

An important Group strength is the NPL cash coverage (CR1), which remains high at 89%. Further, the Group's NPL coverage ratio 2 stands at 65 %, 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.

Top 20 NPLs (Group, 31 Dec 2019)

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 29% of the entire NPL volume; the coverage with provisions remains high, limiting the potential losses.

NPL ratio decreased from 6.9% to 3.8% YtD, while NPE ratio reduced by 2.1 p.p. YtD to 2.7%.

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 & FVTPL)

Stage 1 loans represent 91% of loan portfolio valued at amortized cost and fair value through P&L.

Due to NPL reduction Strategy the share of Stage 3 loans is decreasing.

Limited volume of Stage 2 loans.

Strategy & IT

NLB went through difficult times – A new period is about to start

2016

2013

Strong incumbent heritage
Lagging behind international trends
Limited business/ customer focus

Restructuring

3 years of progressive implementation of the Restructuring Program

PAT back to positive
OPEX reduction by 20%
Rundown of NPL portfolio

Strategy 2020

4 years strategy defining initiatives to improve profitability

13 strategic initiatives successfully closed; 4 major programs started
Targets have been reached: NLB became the most profitable Slovenian group
IPO/ privatization

Strategy update 2025

NOW we are updating the strategy since…

2019

…key restrictions were finally eliminated (state aid process concluded)
… market environment has been changing
… new opportunities emerged
… we would like to identify, detail and operationalize future path for the entire NLB GROUP

We are a successful, geographical niche player with strong foundations to build on

Foundations to benefit from

Strong market positions

Above 10% market share in 5/6 countries with high entry barriers. Wide coverage and accessibility

Regional roots

The only cross-regional player with local HQ: market knowledge and image

Positive brand perception at subsidiaries

High brand equity (except for Slovenia, due to the turbulences in the past years)

Recent successes, local innovation Good recent performance, acknowledged innovations (digital) in Slovenia

Untapped opportunities

Plentiful untapped potential to be exploited in various market segments and in operations

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 and the only bank with multichannel 24/7 support

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)

% Penetration of client base

Use of video call functionality (# of contacts)

Mobile wallet users & transactions

Q4 2018Q1 2019Q2 2019Q3 2019Q4 2019

Volume of purchase (in kEUR) # of users

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 provided additional support:
- ESB roll-out
- Solution for loan origination and approval process roll-out
- ETL's and data modelling in EDWH

IT competence center Process (System) competences

Standardization of the loan origination and approval process and unification of the platform for all 6 subsidiary banks. An RFP to purchase a platform is being concluded
Introduction of RPA in 2 banks in the Group

IT regionalisation activities Procurement

Regional SIEM(1) and SOC(2) successfully set up by the parent bank in Ljubljana
Regional synergies in all major areas of IT infrastructure have been addressed
Regional standards in procurement that provide the framework for optimizations in local and regional procurement are defined
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 2020

Macro outlook & risk factors affecting the business outlook

Business outlook

The macro outlook suggests that the countries where the Group operates are likely to experience growth at around three percent, if supported by loose monetary conditions, fiscal easing and solid domestic demand. The public debt in all those markets is below the EU average, accompanied by low household indebtedness and solid savings performance.
Considering these circumstances, we expect continued loan growth in all geographies, safe for the retail market in Slovenia where new lending restrictions have been put in place by end 2019. Margins are expected to be under further pressure as observed in 2019, with business in retail lending being more resilient compared to corporate lending. NLB group continues to strive for increasing margins over time by emphasizing higher margin activities and pursuing new opportunities such as leasing. Partially losses in rate revenues will be mitigated by further emphasis on fee income.
While it is too early to conclude we expect more challenges to grow revenues in retail business in Slovenia given the new imposed lending restrictions. Strategic foreign markets should grow on similar pace as in 2019. We emphasize that net non-interest income has included non-recurring components in the past years which by nature are unpredictable in nature.
Costs are expected to continue growing with the same magnitude as in 2019 but are expected to plateau after that. Increased spending on IT upgrades, strategy implementation and labor cost inflation should result in similar relative increases in employee costs and other general administrative costs.
We expect cost of risk to continue to normalize, but should stay at a reasonably low level in 2020. Asset quality is stable, and we do not foresee any material deterioration.
NLB is currently in the process of a potential acquisition of Komercijalna banka in Serbia. As the outcome of the transaction is not clear, any potential effects are not included in the outlook.

Covid-19: Macro & business outlook

Macro outlook & risk factors affecting the business outlook

We expect that the global economy will experience a recession in 2020 of around -2%. The Eurozone, with already weak economic growth in 2019, could contract to around -5% this year, which is also our expectation for Slovenia. The economic growth in the NLB Group's region could contract to around -3% this year.
In order to slow down the COVID-19 epidemic, the governments of all countries in which the NLB Group operates are imposing severe restrictions – on one side preventing infection of large number of people and on the other with adverse effect on economic activity which, unless addressed properly, may have long lasting negative consequences for the economy and financial stability of the affected countries.
RoS proposed fiscal package of EUR 3 billion (appx. 6% of total GDP).
The package of intervention measures also requires from banks to grant a 12 months' deferral of the payment of obligations to all borrowers (who apply for such deferral and are able to demonstrate that they are unable to service their debt due to the consequence of the epidemic on their business) and may, consequently, adversely affect the ability of NLB to effectively manage its assets. Similar measures were adopted or are proposed also in other countries were NLB Group operates.
The overall slow-down of the economy will have a negative impact on new loan generation and consequently lower net interest income than previously expected. A negative effect is expected also on fees and commissions (card business and payments, investment funds, bancassurance).
Due to lower consumption we expect the increase in retail deposits in first phase, while in the second phase when the unemployment is expected to increase we expect the drop in retail deposits.
Due to slower business operations linked to the moratorium and the crisis, some of the activities will be cancelled or postponed, which will reflect in lower costs. On the other hand, costs related to protection of health - hygiene, safety products and transportation, coming from the current situation, will increase.
Cost of risk will increase due to impact of worsened macroeconomic environment on risk profile of the loan portfolio.
Due to recent ECB measures taken, NLB Group is expecting to benefit from the lower capital requirements, while due to ECB Recommendation on dividend distributions during the COVID-19 pandemic towards European banks, the dividend distributions timeline and capacity will be adjusted accordingly to reflect the implications of COVID-19.

Business outlook

Appendixes

Appendix 1: Segment Analysis	41
Appendix 2: Macro Overview	61
Appendix 3: Financial statements	75

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
(Dec 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.	47.5	56.8	92.9	27.6	-3.1
Total assets	2,559	2,042	4,731	4,413	169
% of total assets(3)	18%	14%	33%	31%	1%
CIR	71.2%	55.4%	50.5%	21.0%	127.2%
Cost of risk (bp)	19	-103	17	/	-218

Notes: (1) 50% equity stake, under equity consolidation; Divestment of 50% equity stake in December 2019; (2) 39% minority stake; (3) Other activities 2%.

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			Change		Balance sheet			Change
	1-12 2019	1-12 2018	YoY		in 000 EUR	31 Dec 2019	31 Dec 2018	YtD
ROE a.t.	13.3%	11.6%	1.7 p.p.		Total assets	9,801,284	8,811,047	990,237	11.2%
Interest margin	1.85%	1.89%	0.0 p.p.
CIR	53.7%	55.3%	-1.6 p.p.		Loans to customers (net)	4,589,170	4,478,071	111,099	2.5%
Cost of risk net (bps)*	-38	-66	28		Loans to customers (gross)	4,718,049	4,703,671	14,378	0.3%
LTD net	59.1%	63.7%	0.0		Gross loans to corporate	2,154,467	2,190,299	-35,832	-1.6%
Income statement			Change		Gross loans to individuals	2,376,792	2,241,624	135,168	6.0%
in 000 EUR	1-12 2019	1-12 2018	YoY		Gross loans to state	186,790	271,748	-84,958	-31.3%
Total net operating income	353,303	323,401	29,902	9.2%	Financial assets	3,168,624	2,869,450	299,174	10.4%
Net interest income	158,126	158,032	94	0.1%
Net non-interest income	195,177	165,369	29,808	18.0%	Deposits from customers	7,760,737	7,033,409	727,328	10.3%
o/w net fees and commissions	103,955	100,163	3,792	3.8%	Deposits from corporate	1,674,873	1,392,171	282,702	20.3%
Total costs	-189,795	-178,970	-10,825	-6.0%	Deposits from individuals	5,984,982	5,522,142	462,840	8.4%
Employee costs	-108,569	-103,844	-4,725	-4.6%	Deposits from state	100,882	119,096	-18,214	-15.3%
Other general and administrative expenses	-63,180	-57,595	-5,585	-9.7%	NPL gross	169,451	342,900	-173,449	-50.6%
Depreciation and amortization	-18,046	-17,531	-515	-2.9%
Result before impairments and provisions	163,508	144,431	19,077	13.2%	% NPL	2.8%	6.3%	-3.5 p.p.
Impairments and provisions	14,238	33,055	-18,817	-56.9%	Capital (according to local legislation)
Result after tax	176,149	165,299	10,850	6.6%	Total capital ratio	22.6%	24.1%	-1.4 p.p.
Number of employees	2,659	2,690	-31	-1.2%

*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
	2019	2018	Change YoY		Q4 2019	Q3 2019	Change QoQ
Net interest income	87.4	79.3	8.1	10%	21.8	21.4	2%
Net non-interest income	78.2	67.1	11.1	17%	21.4	21.7	-2%
o/w Net fee and commmission income	81.9	73.2	8.8	12%	20.9	21.2	-2%
Total net operating income	165.6	146.4	19.2	13%	43.2	43.1	0%
Total costs	-117.9	-107.3	-10.6	-10%	-33.8	-28.9	-17%
Result before impairments and provisions	47.7	39.1	8.6	22%	9.3	14.2	-34%
Impairments and provisions	-4.4	-3.7	-0.7	-19%	-1.5	-1.1	-44%
Net gains from investments in subsidiaries,	4.2	5.4	-1.2	-23%	0.0	1.6	-97%
associates, and JVs'
Result before tax	47.5	40.9	6.6	16%	7.9	14.8	-47%
			31 Dec 2019 30 Sep 2019 31 Dec 2018		Change YoY	Change QoQ
Net loans to customers	2,385.1	2,347.5	2,217.4	167.7	8%	2%
Gross loans to customers	2,410.2	2,375.3	2,243.4	166.8	7%	1%
Housing loans	1,425.0	1,401.9	1,374.6	50.5	4%	2%
Interest rate on housing loans	2.54%	2.55%	2.50%		0.04 p.p.	-0.01 p.p.
Consumer loans	688.3	682.2	599.0	89.3	15%	1%
Interest rate on consumer loans	6.33%	6.32%	5.88%		0.45 p.p.	0.01 p.p.
Other	296.9	291.1	269.9	27.0	10%	2%
Deposits from customers Interest rate on deposits	6,456.2 0.05%	6,320.0 0.05%	5,814.5 0.08%	641.7	11% -0.03 p.p.	2% 0.00 p.p.
Non-performing loans (gross)	40.8	43.3	43.0	-2.2	-5%	-6%

	2019		2018 Change YoY
Cost of risk (in bps)	19	17	2
CIR	71.2%		73.3% -2.1 p.p.
Interest margin	2.04%		2.02% 0.02 p.p.





million YoY. The share of consumer loans in all gross loans increased to 29% (from 27% at the end 2018).








clients and transfer of micro clients from Corporate segment (EUR 188.1 million).

Profit before tax amounted to EUR 47.5 million, 16% increase YoY, mostly due to higher net interest and net non-interest income.
Net interest income was 10% higher YoY due to higher interest rates and growth in volume of gross loans in the amount of EUR 166.8 million YoY, of which EUR 38.1 million increase relates to the transfer of micro clients from the Corporate segment. The production of new consumer loans amounted to EUR 368.6 million (EUR 336.2 million in 2018), which led to an increase of balance of EUR 89.3 million YoY. Housing loans increased by EUR 50.5 million YoY. The share of consumer loans in all gross loans increased to 29% (from 27% at the end 2018).
The segment recorded EUR 78.2 million of net non-interest income. The comparison shows EUR 11.1 million (17%) increase YoY, EUR 8.8 million due to an increase in net fee and commission income, of which EUR 0.5 million increase is related to NLB Skladi and EUR 0.6 million to bancassurance business. The effect of the transfer of micro clients from Corporate to Retail segment is assessed to amount to EUR 4.6 million.
Considering the effect of the change in segment presentation (approximately EUR 6.1 million) the total costs were EUR 10.6 million higher YoY.
The presentation of the increase in deposits from customers YoY (EUR 641.7 million) is mostly due to an increase in demand deposits from retail

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)

Long-term deposits Sight deposits Short-term deposits

Improving macro and low household indebtedness (21% GDP) driving retail banking growth
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 34.02% as of 31 December 2019
- AuM of 1,513.8 EURm as of 31 December 2019 including investments in mutual funds and discretionary portfolios
Bankassurance business
- Life: NLB Vita has reached 15.7% market share by GWP, being #3 largest player in the Slovenian market as of 31 December 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
	2019	2018	Change YoY		Q4 2019		Q3 2019 Change QoQ
Net interest income	37.3	42.5	-5.3	-12%	8.9	8.7	2%
Net non-interest income	43.0	34.1	8.8	26%	9.6	8.9	8%
o/w Net fee and commmission income	32.4	29.9	2.5	8%	7.7	8.5	-9%
Total net operating income	80.2	76.7	3.6	5%	18.5	17.6	5%
Total costs	-44.4	-43.0	-1.5	-3%	-12.8	-10.8	-19%
Result before impairments and provisions	35.8	33.7	2.1	6%	5.7	6.8	-17%
Impairments and provisions	21.0	26.6	-5.6	-21%	3.2	14.9	-78%
Result before tax	56.8	60.4	-3.5	-6%	8.9	21.7	-59%
		31 Dec 2019 30 Sep 2019 31 Dec 2018			Change YoY	Change QoQ
Net loans to customers	2,049.6	2,031.2	1,950.4	99.2	5%	1%
Gross loans to customers	2,150.9	2,179.5	2,061.0	89.9	4%	-1%
Corporate	1,976.8	1,998.8	1,854.4	122.4	7%	-1%
Key/SMECorporates	1,819.3	1,779.0	1,643.2	176.1	11%	2%
Interest rate on Key/SME Corporates loans	1.82%	1.83%	1.88%		-0.06 p.p.	-0.01 p.p.
Investment banking*	0.1	0.1	0.1		-	-
Restructuring and Workout	157.4	219.7	211.2	-53.8	-25%	-28%
State	173.6	180.3	206.1	-32.5	-16%	-4%
Interest rate on State loans	1.88%	1.98%	1.69%		0.19 p.p.	-0.10 p.p.
Deposits from customers	1,299.1	1,014.5	1,120.8	178.3	16%	28%
Interest rate on deposits	0.07%	0.07%	0.07%		0.00 p.p.	0.00 p.p.
Non-performing loans (gross)	128.7	188.2	179.7	-51.1	-28%	-32%
	2019		2018 Change YoY
Cost of risk (in bps)	-103	-135	32
CIR	55.4%		56.0% -0.6 p.p.
Interest margin	2.20%		2.61% -0.41 p.p.

*Investment banking was shown as separate part of this segment before 2019. Profit before tax of Investment banking for year 2018 in amount EUR 2.4 million.

Profit before tax amounted to EUR 56.8 million, 6% decrease YoY, of which a positive effect of EUR 6.3 million was recorded due to the change in segment presentation.
Net interest income decreased EUR 5.3 million YoY, mostly due to decrease in balances in restructuring and workout loans and partly because of lower interest margins. EUR 89.9 million increase of gross loans to customers was affected by the change in segment presentation in net amount of EUR 111.8 million (EUR 149.8 million due to transfer from NLB Non-Core and EUR -38.1 million from transfer of micro clients to Retail). Key and SME clients recorded the growth in gross loans mostly due to production of new long-term loans, especially in H2 2019. The gross loans to state recorded a decrease of EUR 32.5 million YoY.
Net fee and commission income increased EUR 2.5 million YoY, of which most represents the effect of the change in segment presentation (positive effects of EUR 6.2 million and EUR 0.8 million due to inclusion of Investment Banking and previously Non-Core Corporate exposures in the segment, respectively, and negative effect of EUR -4.8 million due to the transfer of micro clients to Retail).
Total costs increased EUR 1.5 million YoY, mostly due to the change in segment presentation (EUR 4.4 million).
Impairments and provisions were released in the amount of EUR 21.0 million as a result of successful restructuring and sale of pledged real-estate.
The Investment Banking and Custody recorded non-interest income in the amount of EUR 9.0 million and has increased by EUR 0.7 million YoY. Total income growth is the result of a larger volume of transactions and tariff adjustments. The total value of assets under custody decreased to EUR 14.8 billion (EUR 15.9 billion at the end of 2018).

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

#1 in corporate and state loans #1 in corporate and state deposits #2 in guarantees and letters of credit

Largest bank in the country with high capacity to lend to and service large clients serving over 9,000 corporate clients as of 31 December 2019.
Competitive advantage in SME market due to largest branch network fueled the growth in Mid Corporate and Small Enterprises.
After several years of Large Corporate portfolio decline, mainly due to EC commitments, in 2019 increase of the loan portfolio was recorded, based also on transactions in cross-border lending.

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

13.2 k (2) POS terminals

36.6% market share(2) in merchant acquiring

EUR 14.8 bn assets under custody

Strategic foreign markets

in EUR million consolidated		Strategic foreign markets
	2019	2018	Change YoY		Q4 2019	Q3 2019	Change QoQ
Net interest income	157.5	150.1	7.4	5%	40.0	39.7	1%
Net non-interest income	52.9	63.9	-11.0	-17%	15.0	14.1	7%
o/w Net fee and commmission income	55.0	50.1	4.9	10%	14.5	14.7	-2%
Total net operating income	210.4	214.0	-3.6	-2%	55.0	53.8	2%
Total costs	-106.2	-100.0	-6.2	-6%	-28.7	-26.4	-9%
Result before impairments and provisions	104.2	114.0	-9.8	-9%	26.3	27.4	-4%
Impairments and provisions	-11.3	-14.3	3.0	21%	-5.3	1.1	-
Result before tax	92.9	99.7	-6.8	-7%	21.0	28.5	-26%
o/w Result of minority shareholders	8.2	7.9	0.3	4%	2.0	2.4	-15%
		31 Dec 2019 30 Sep 2019 31 Dec 2018			Change YoY	Change QoQ
Net loans to customers	3,024.6	2,907.9	2,718.0	306.6	11%	4%
Gross loans to customers	3,162.1	3,059.9	2,932.7	229.4	8%	3%
Individuals	1,603.8	1,555.2	1,438.1	165.7	12%	3%
Interest rate on retail loans	6.71%	6.76%	7.09%		-0.38 p.p.	-0.05 p.p.
Corporate	1,470.3	1,414.7	1,405.0	65.3	5%	4%
Interest rate on corporate loans	4.49%	4.54%	4.92%		-0.43 p.p.	-0.05 p.p.
State	88.0	90.0	89.6	-1.7	-2%	-2%
Interest rate on state loans	4.00%	4.12%	4.33%		-0.32 p.p.	-0.12 p.p.
Deposits from customers	3,856.7	3,698.6	3,438.1	418.6	12%	4%
Interest rate on deposits	0.53%	0.54%	0.61%		-0.09 p.p.	-0.01 p.p.
Non-performing loans (gross)	111.6	132.6	219.9	-108.3	-49%	-16%

	2019		2018 Change YoY
Cost of risk (in bps)	17	35	-18
CIR	50.5%	46.7%	3.7 p.p.
Interest margin	3.59%		3.85% -0.26 p.p.

Profit before tax amounted to EUR 92.9 million, 7% decrease YoY, due to one-off effect of the sale of NLB Nov penziski fond in Q1 2018.
Increase of net interest income by EUR 7.4 million YoY was recorded on behalf of higher volume (EUR 229.4 million increase of gross loans to customers YoY), despite the decreasing trend of interest margins.
Regular part of net non-interest income net fee and commission income increased by EUR 4.9 million or 10%. Nevertheless, total net non-interest income decreased EUR 11.0 million YoY, due to one-off positive effect of the sale of NLB Nov penziski fond in Q1 2018.
Total costs increased by EUR 6.2 million YoY, despite EUR 1.4 million decrease due to the change in segment presentation.
Net impairments and provisions were established in the amount of EUR 11.3 million in 2019 (of which EUR 3.1 million due to established provisions for pending legal disputes in NLB Banka, Podgorica), while in 2018 in the amount of EUR 14.3 million.
Gross loans to customers increased by EUR 229.4 million YoY due to an increase in gross loans in most subsidiary banks, whereas the largest increases were recorded in NLB Banka, Beograd (EUR 91.7 million) and NLB Banka, Prishtina (EUR 73.2 million). High increase was negatively affected by the change in segment presentation (EUR -69.0 million).

SEE banks continuing solid performance

✓ 5% growth of net interest income YoY
✓ Net non-interest income higher YoY, if non-recurring income from the sale of NLB Nov Penziski Fond, Skopje in Q1 2018 is excluded
✓ Growing credit portfolio in all markets, with aggregate deposits balance up YoY

	NLB Banka Skopje		NLB Banka Banja Luka		NLB Banka Sarajevo		NLB Banka Prishtina		NLB Banka Podgorica		NLB Banka Beograd		Total
													core	banks(1)
B/S (EURm)	31 Dec 2019	31 Dec 2018	31 Dec 2019	31 Dec 2018	31 Dec 2019	31 Dec 2018	31 Dec 2019	31 Dec 2018	31 Dec 2019	31 Dec 2018	31 Dec 2019	31 Dec 2018	31 Dec 2019	31 Dec 2018	Δ
Total assets	1,462	1,350	773	721	638	592	801	668	548	489	614	484	4,837	4,305	12%
Net loans to customers	915	859	412	385	399	359	540	467	346	311	412	319	3,025	2,699	12%
Deposits from customers	1,176	1,076	618	576	515	472	685	586	437	392	437	353	3,868	3,455	12%
P&L (EURm)	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018	Δ
NII(2)	49.0	48.8	18.5	19.1	18.0	17.6	31.0	27.4	20.3	18.0	20.7	19.8	157.5	150.6	5%
NNII(2)	15.9	24.0	11.6	10.9	9.5	8.3	5.8	5.0	6.0	5.8	4.1	3.8	52.9	57.8	-9%(4)
OpEx	-26.6	-25.0	-13.0	-13.0	-14.7	-14.2	-11.7	-11.8	-13.5	-12.3	-19.5	-18.0	-98.9	-94.4	5%
PPI	38.3	47.7	17.1	17.0	12.8	11.7	25.1	20.6	12.8	11.5	5.4	5.6	111.5	114.0	-2%
Result a.t.	32.9	37.1	17.1	16.2	9.0	8.8	19.5	14.8	7.6	10.0	4.1	5.2	90.3	92.1	-2%
Ratios	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018	2019	2018
RoE a.t.	16.2%	19.9%	19.9%	18.7%	11.2%	11.6%	25.1%	21.6%	11.2%	14.9%	5.9%	7.9%
margin(3) Net interest	3.66%	3.98%	2.51%	2.79%	2.95%	3.20%	4.33%	4.44%	4.27%	4.11%	4.03%	4.92%
CIR	41.0%	34.4%	43.2%	43.5%	53.3%	54.8%	31.9%	36.4%	51.4%	51.8%	78.3%	76.2%
LTD net	77.8%	79.8%	66.6%	66.8%	77.5%	76.1%	78.8%	79.7%	79.3%	79.3%	94.2%	90.3%

Source: Company information

Note: (1) Calculated as simple sums for each item; (2) NII: Net interest income; NNII: Net non-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).

NLB Banka Skopje

NLB Banka AD Skopje	"on stand alone basis"
Key financial indicators			Change
	1-12 2019	1-12 2018	YoY
ROE a.t.	16.2%	19.9%	-3.7 p.p.
Interest margin*	3.66%	3.98%	-0.3 p.p.
CIR	41.0%	34.4%	6.5 p.p.
Cost of risk net (bps)**	17	74	-56
LTD net	77.8%	79.8%	-1.9 p.p.
Income statement			Change
in 000 EUR	1-12 2019	1-12 2018	YoY
Total net operating income	64,890	72,753	-7,863	-10.8%
Net interest income	49,022	48,781	241	0.5%
Net non-interest income	15,868	23,972	-8,104	-33.8%
o/w net fees and commissions	14,966	14,334	632	4.4%
Total costs	-26,578	-25,049	-1,529	-6.1%
Employee costs	-13,765	-12,975	-790	-6.1%
Other general and administrative expenses	-9,068	-8,878	-190	-2.1%
Depreciation and amortization	-3,745	-3,196	-549	-17.2%
Result before impairments and provisions	38,312	47,704	-9,392	-19.7%
Impairments and provisions	-2,224	-6,796	4,572	67.3%
Result after tax	32,877	37,068	-4,191	-11.3%
Number of employees	903	893	10	1.1%

Balance sheet			Change
in 000 EUR	31 Dec 2019	31 Dec 2018	YoY
Total assets	1,462,306	1,350,054	112,252	8.3%
Loans to customers (net)	915,149	858,592	56,557	6.6%
Loans to customers (gross)	969,213	918,140	51,073	5.6%
Gross loans to corporate	393,137	383,212	9,925	2.6%
Gross loans to individuals	573,826	531,406	42,420	8.0%
Gross loans to state	2,250	3,522	-1,272	-36.1%
Financial assets	242,360	196,112	46,248	23.6%
Deposits from customers	1,175,612	1,076,154	99,458	9.2%
Deposits from corporate	314,598	272,060	42,538	15.6%
Deposits from individuals	854,135	800,372	53,763	6.7%
Deposits from state	6,879	3,722	3,157	84.8%
NPL gross	48,311	56,050	-7,739	-13.8%
% NPL	4.2%	5.1%	-0.9 p.p.
Capital (according to local legislation)
Total capital ratio	16.4%	16.7%		-0.3 p.p.

* Interest margin data for 2018 are adjusted to new methodology valid from 2019 on (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
	1-12 2019	1-12 2018	YoY
ROE a.t.	19.9%	18.7%	1.2 p.p.
Interest margin*	2.51%	2.79%	-0.3 p.p.
CIR	43.2%	43.5%	-0.3 p.p.
Cost of risk net (bps)**	-48	-45	-2
LTD net	66.6%	66.8%	-0.2 p.p.
Income statement			Change
in 000 EUR	1-12 2019	1-12 2018	YoY
Total net operating income	30,153	29,996	157	0.5%
Net interest income	18,547	19,057	-510	-2.7%
Net non-interest income	11,606	10,939	667	6.1%
o/w net fees and commissions	11,486	10,911	575	5.3%
Total costs	-13,018	-13,046	28	0.2%
Employee costs	-8,396	-8,350	-46	-0.6%
Other general and administrative expenses	-3,256	-3,521	265	7.5%
Depreciation and amortization	-1,366	-1,175	-191	-16.3%
Result before impairments and provisions	17,135	16,950	185	1.1%
Impairments and provisions	1,535	1,387	148	10.7%
Result after tax	17,101	16,184	917	5.7%
Number of employees	480	476	4	0.8%

		Change
31 Dec 2019	31 Dec 2018	YoY
773,410	720,509	52,901	7.3%
411,739	384,806	26,933	7.0%
426,844	408,312	18,532	4.5%
173,476	176,353	-2,877	-1.6%
200,454	180,933	19,521	10.8%
52,914	51,026	1,888	3.7%
148,104	107,316	40,788	38.0%
618,095	575,775	42,320	7.4%
145,915	135,670	10,245	7.6%
435,123	402,203	32,920	8.2%
37,057	37,902	-845	-2.2%
7,620	19,199	-11,579	-60.3%
1.3%	3.2%	-1.9 p.p.

15.9%	15.6%		0.4 p.p.

* Interest margin data for 2018 are adjusted to new methodology valid from 2019 on (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
	1-12 2019	1-12 2018	YoY
ROE a.t.	11.2%	11.6%	-0.3 p.p.
Interest margin*	2.95%	3.20%	-0.2 p.p.
CIR	53.3%	54.8%	-1.5 p.p.
Cost of risk net (bps)**	51	55	-4
LTD net	77.5%	76.1%	1.4 p.p.
Income statement			Change
in 000 EUR	1-12 2019	1-12 2018	YoY
Total net operating income	27,475	25,857	1,618	6.3%
Net interest income	17,962	17,586	376	2.1%
Net non-interest income	9,513	8,271	1,242	15.0%
o/w net fees and commissions	8,760	7,405	1,355	18.3%
Total costs	-14,654	-14,170	-484	-3.4%
Employee costs	-8,379	-8,453	74	0.9%
Other general and administrative expenses	-4,859	-4,910	51	1.0%
Depreciation and amortization	-1,416	-807	-609	-75.5%
Result before impairments and provisions	12,821	11,687	1,134	9.7%
Impairments and provisions	-2,486	-1,965	-521	-26.5%
Result after tax	9,047	8,757	290	3.3%
Number of employees	450	455	-5	-1.1%

Balance sheet			Change
in 000 EUR	31 Dec 2019	31 Dec 2018	YoY
Total assets	637,739	592,166	45,573	7.7%
Loans to customers (net)	399,299	359,499	39,800	11.1%
Loans to customers (gross)	420,236	391,567	28,669	7.3%
Gross loans to corporate	189,476	176,368	13,108	7.4%
Gross loans to individuals	226,355	211,972	14,383	6.8%
Gross loans to state	4,405	3,227	1,178	36.5%
Financial assets	50,054	39,337	10,717	27.2%
Deposits from customers	515,230	472,297	42,933	9.1%
Deposits from corporate	134,566	127,175	7,391	5.8%
Deposits from individuals	300,051	280,207	19,844	7.1%
Deposits from state	80,613	64,915	15,698	24.2%
NPL gross	18,582	30,805	-12,223	-39.7%
% NPL	3.3%	5.7%		-2.4 p.p.
Capital (according to local legislation)
Total capital ratio	16.0%	16.4%	-0.4 p.p.

* Interest margin data for 2018 are adjusted to new methodology valid from 2019 on (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
	1-12 2019	1-12 2018	YoY
ROE a.t.	25.1%	21.6%	3.5 p.p.
Interest margin*	4.33%	4.44%		-0.1 p.p.
CIR	31.9%	36.4%		-4.5 p.p.
Cost of risk net (bps)**	33	89	-56
LTD net	78.8%	79.7%		-0.9 p.p.
Income statement			Change
in 000 EUR	1-12 2019	1-12 2018		YoY
Total net operating income	36,788	32,406	4,382	13.5%
Net interest income	31,014	27,372	3,642	13.3%
Net non-interest income	5,774	5,034	740	14.7%
o/w net fees and commissions	7,373	6,131	1,242	20.3%
Total costs	-11,731	-11,801	70	0.6%
Employee costs	-6,210	-5,961	-249	-4.2%
Other general and administrative expenses	-3,740	-4,662	922	19.8%
Depreciation and amortization	-1,781	-1,178	-603	-51.2%
Result before impairments and provisions	25,057	20,605	4,452	21.6%
Impairments and provisions	-3,069	-3,792	723	19.1%
Result after tax	19,545	14,836	4,709	31.7%
Number of employees	474	476	-2	-0.4%

Balance sheet			Change
in 000 EUR	31 Dec 2019	31 Dec 2018	YoY
Total assets	801,085	668,127	132,958	19.9%
Loans to customers (net)	540,073	466,854	73,219	15.7%
Loans to customers (gross)	567,103	493,950	73,153	14.8%
Gross loans to corporate	359,414	315,408	44,006	14.0%
Gross loans to individuals	207,689	178,542	29,147	16.3%
Gross loans to state	0	0	0	-
Financial assets	77,977	64,733	13,244	20.5%
Deposits from customers	685,385	585,851	99,534	17.0%
Deposits from corporate	196,818	154,828	41,990	27.1%
Deposits from individuals	476,546	421,003	55,543	13.2%
Deposits from state	12,021	10,020	2,001	20.0%
NPL gross	10,939	14,361	-3,422	-23.8%
% NPL	1.5%	2.4%		-0.9 p.p.
Capital (according to local legislation)
Total capital ratio	16.4%	14.6%	1.8 p.p.

* Interest margin data for 2018 are adjusted to new methodology valid from 2019 on (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
	1-12 2019	1-12 2018	YoY
ROE a.t.	11.2%	14.9%	-3.7 p.p.
Interest margin*	4.27%	4.11%		0.2 p.p.
CIR	51.4%	51.8%		-0.4 p.p.
Cost of risk net (bps)**	-8	-41	33
LTD net	79.3%	79.3%		0.0 p.p.
Income statement		Change
in 000 EUR	1-12 2019	1-12 2018		YoY
Total net operating income	26,261	23,818	2,443	10.3%
Net interest income	20,276	18,047	2,229	12.4%
Net non-interest income	5,985	5,771	214	3.7%
o/w net fees and commissions	6,445	5,926	519	8.8%
Total costs	-13,489	-12,340	-1,149	-9.3%
Employee costs	-7,656	-7,180	-476	-6.6%
Other general and administrative expenses	-4,300	-4,301	1	0.0%
Depreciation and amortization	-1,533	-859	-674	-78.5%
Result before impairments and provisions	12,772	11,478	1,294	11.3%
Impairments and provisions	-3,808	-1,267	-2,541	-
Result after tax	7,565	10,033	-2,468	-24.6%
Number of employees	303	318	-15	-4.7%

Balance sheet			Change
in 000 EUR	31 Dec 2019	31 Dec 2018	YoY
Total assets	548,483	489,283	59,200	12.1%
Loans to customers (net)	346,299	310,692	35,607	11.5%
Loans to customers (gross)	359,180	323,914	35,266	10.9%
Gross loans to corporate	100,961	90,223	10,738	11.9%
Gross loans to individuals	231,506	203,207	28,299	13.9%
Gross loans to state	26,713	30,484	-3,771	-12.4%
Financial assets	57,339	54,781	2,558	4.7%
Deposits from customers	436,545	391,750	44,795	11.4%
Deposits from corporate	135,396	116,364	19,032	16.4%
Deposits from individuals	283,091	256,975	26,116	10.2%
Deposits from state	18,058	18,411	-353	-1.9%
NPL gross	18,129	20,627	-2,498	-12.1%
% NPL	4.0%	5.2%		-1.2 p.p.
Capital (according to local legislation)
Total capital ratio	15.0%	16.2%	-1.3 p.p.

* Interest margin data for 2018 are adjusted to new methodology valid from 2019 on (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
	1-12 2019	1-12 2018	YoY
ROE a.t.	5.9%	7.9%	-2.0 p.p.
Interest margin*	4.03%	4.92%		-0.9 p.p.
CIR	78.3%	76.2%		2.1 p.p.
Cost of risk net (bps)**	28	-51	79
LTD net	94.2%	90.3%	3.9 p.p.
Income statement			Change
in 000 EUR	1-12 2019	1-12 2018		YoY
Total net operating income	24,863	23,596	1,267	5.4%
Net interest income	20,722	19,764	958	4.8%
Net non-interest income	4,141	3,832	309	8.1%
o/w net fees and commissions	5,980	4,998	982	19.6%
Total costs	-19,471	-17,981	-1,490	-8.3%
Employee costs	-10,531	-9,498	-1,033	-10.9%
Other general and administrative expenses	-6,345	-7,270	925	12.7%
Depreciation and amortization	-2,595	-1,213	-1,382	-113.9%
Result before impairments and provisions	5,392	5,615	-223	-4.0%
Impairments and provisions	-1,254	-377	-877	-
Result after tax	4,142	5,202	-1,060	-20.4%
Number of employees	479	458	21	4.6%

Balance sheet			Change
in 000 EUR	31 Dec 2019	31 Dec 2018	YoY
Total assets	614,268	484,492	129,776	26.8%
Loans to customers (net)	412,046	318,792	93,254	29.3%
Loans to customers (gross)	419,521	327,847	91,674	28.0%
Gross loans to corporate	253,842	198,833	55,009	27.7%
Gross loans to individuals	164,003	127,629	36,374	28.5%
Gross loans to state	1,676	1,385	291	21.0%
Financial assets	74,781	58,285	16,496	28.3%
Deposits from customers	437,268	352,940	84,328	23.9%
Deposits from corporate	186,376	160,683	25,693	16.0%
Deposits from individuals	249,021	182,702	66,319	36.3%
Deposits from state	1,871	9,555	-7,684	-80.4%
NPL gross	8,004	9,957	-1,953	-19.6%
% NPL	1.6%	2.4%	-0.9 p.p.
Capital (according to local legislation)
Total capital ratio	19.5%	16.7%	2.8 p.p.

* Interest margin data for 2018 are adjusted to new methodology valid from 2019 on (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

Financial markets in Slovenia(1)

in million EUR Financial markets in Slovenia consolidated
	2019	2018		Change YoY	Q4 2019	Q3 2019	Change QoQ
Net interest income	33.6	31.4	2.1	7%	8.4	9.3	-10%
Net non-interest income	2.0	-1.1	3.1	-	0.3	0.2	3%
Total net operating income	35.6	30.3	5.3	17%	8.7	9.5	-9%
Total costs	-7.5	-6.5	-1.0	-15%	-2.3	-1.6	-44%
Result before impairments and provisions	28.1	23.8	4.3	18%	6.3	7.9	-20%
Impairments and provisions	-0.5	0.2	-0.7	-	0.0	0.0	-
Result before tax	27.6	24.0	3.6	15%	6.4	7.9	-20%
		31 Dec 2019 30 Sep 2019 31 Dec 2018			Change YoY	Change QoQ
Balances with Central banks	1,044.1	468.8	575.0	469.1	82%	123%
Banking book securities	3,093.6	3,053.1	2,755.2	338.3	12%	1%
Interest rate on banking book securities	1.03%	1.04%	1.25%		-0.22 p.p.	-0.01 p.p.
Wholesale funding*	161.6	170.6	244.1	-82.6	-34%	-5%
Interest rate on wholesale funding*	0.50%	0.48%	0.50%		0.00 p.p.	0.02 p.p.
Subordinated liabilities	210.6	90.3	0.0		- 0.0	-
Interest rate on subordinated liabilities	4.03%	4.22%	0.00%		-	-

* Item includes only borrowings, till 30 June 2019 it included also deposits from banks.

Profit before tax amounted to EUR 27.6 million, 15% increase YoY, despite negative effect of EUR -2.4 million recorded due to the change in segment presentation.
Net interest income EUR 2.1 million higher YoY, mostly due to higher volumes, since the yields on securities decreased YoY.
Higher net non-interest income, EUR 3.1 million YoY, mostly due to active management of banking book securities, which positively affected the net income from financial transactions mostly in Q1 2019.
Continuation of prudent liquidity reserves management.
Increase in balances with the central bank (EUR 469.1 million YoY) due to high inflow of deposits (one-off item).
Increase in banking book securities (EUR 338.3 million YoY) due to surplus in liquidity.

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

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
Liquidity ratios (as of 31 Dec 2019): LCR 362% (NLB d.d.) and 325% (NLB Group); NSFR 159% (NLB d.d.) and 160% (NLB Group)

The volume of ECB eligible credit claims increased due to the modification in ECB eligibility criterion adopted on 10 May 2019 in ECB Guideline (EU) 2019/1032.

Well diversified banking book by geography (31 Dec 2019)

Maturity profile of banking book securities(3) (31 Dec 2019, EURm) (4)

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.

Non-core members

in EUR million consolidated		Non-core members
	2019	2018	Change YoY		Q4 2019	Q3 2019	Change QoQ
Net interest income	2.7	9.3	-6.6	-71%	0.6	0.6	-10%
Net non-interest income	8.2	5.2	3.0	59%	1.7	2.2	-19%
Total net operating income	11.0	14.5	-3.5	-24%	2.3	2.8	-17%
Total costs	-14.0	-18.2	4.3	23%	-4.0	-3.4	-18%
Result before impairments and provisions	-3.0	-3.7	0.7	19%	-1.7	-0.6	-169%
Impairments and provisions	-0.1	11.9	-12.0	-	-1.4	0.3	-
Result before tax	-3.1	8.2	-11.3	-	-3.2	-0.3	-
		31 Dec 2019 30 Sep 2019 31 Dec 2018			Change YoY	Change QoQ
Segment assets	169.5	192.9	263.7	-94.2	-36%	-12%
Net loans to customers	67.4	83.8	160.9	-93.5	-58%	-20%
Gross loans to customers	137.2	164.7	288.6	-151.4	-52%	-17%
Investment property and property & equipment received for repayment of loans	75.6	81.1	68.5	7.0	10%	-7%
Other assets	26.5	27.9	34.3	-7.8	-23%	-5%
Deposits from customers	0.0	0.0	9.6	-9.6	-	#DIV/0!
Non-performing loans (gross)	93.6	112.2	179.7	-86.1	-48%	-17%

	2019		2018 Change YoY
Cost of risk (in bps)	-218	-705	487
CIR	127.2%	125.5%	1.7 p.p.

The segment recorded EUR 3.5 million decrease of net operating income, which included a transfer of the NLB Non-Core part to Corporate and Investment Banking segment (approximately EUR -3.3 million) and a transfer of NLB Srbija and NLB Crna Gora from Strategic Foreign Markets (EUR 1.3 million); effect on net non-interest income from contractual penalty (EUR 1.3 million) in Q1 2019.
Decrease in total costs, EUR 4.3 million YoY, due to positive effect of divestment of non-strategic Group members, transfer of NLB Non-Core part to Corporate (approximately EUR 4.4 million) and negative effect of transfer of NLB Srbija and NLB Crna Gora from Strategic Foreign Markets (EUR 1.4 million).
A substantial decrease in total assets of the segment YoY (EUR 94.2 million, of which EUR 32.1 million due to the change in segment presentation), which is in line with the divestment strategy of the Non-Core segment..

Other(1)

in EUR million consolidated	Other
	2019	2018		Change YoY	Q4 2019	Q3 2019	Change QoQ
Total net operating income	12.7	4.8	7.9	163%	1.8	1.2	51%
Total costs	-13.4	-9.6	-3.7	-39%	-5.9	-2.5	-135%
Result before impairments and provisions	-0.6	-4.8	4.1	87%	-4.0	-1.3	-
Impairments and provisions	-5.8	2.4	-8.2	-	-5.7	0.0	-
Result before tax	-6.4	-2.3	-4.1	-173%	-9.7	-1.3

The segment Other recorded EUR 6.4 million of loss before tax, EUR 4.1 million decrease YoY. EUR 12.7 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 13.4 million of total costs, related mostly to IT, cash transport, external realization, restructuring costs, empty business premises and consulting.
Establishment of EUR 5.5 million of HR provisions for reorganization.

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)	48.0
Real GDP growth (%)	2.4
Population (m)	2.1
Household indebtedness	22.3%
Credit ratings (S&P / Moody's / Fitch)	AA- / Baa1 / A

	EUR(3)
GDP (EURbn)	17.7
Real GDP growth (%)	3.0
Population (m)	3.5
indebtedness(1) Household	28.2%
Credit ratings (S&P / Moody's / Fitch)	B / B3 / n.a.

	EUR
GDP (EURbn)	4.8
Real GDP growth (%)	4.0
Population (m)	0.6
indebtedness(1) Household	27.0%
Credit ratings (S&P / Moody's / Fitch)	B+ / B1 / n.a.

EUR	Serbia
48.0	GDP (EURbn)
2.4	Real GDP growth (%)
2.1	Population (m)
22.3%	indebtedness(1) Household
EUR AA- / Baa1 / A	Credit ratings (S&P / Moody's / Fitch)

Kosovo
GDP (EURbn)	6.9
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)	11.1
Real GDP growth (%)	4.0
Population (m)	2.1
indebtedness(1) Household	24.4%
Credit ratings (S&P / Moody's / Fitch)	BB- / n.a. / BB+

Source: Central banks, National Statistics Offices, FocusEconomics, NLB.

Note: GDP volume and growth for Slovenia for 2019, else for Q3 2019, annualized; (1) Includes households loans as % of GDP, Q3 2019, annualized; (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 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 trade conditions.
Environment for necessary reforms is still seen favourable.
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.
Loans potential for the credit financing remains solid.
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 estimated economic growth in 2019 was registered by Kosovo (+4.1%), followed by Serbia (+3.7%).

Four countries with above 3% growth of GDP in 2019.

Growth decelerated slightly in 2019, but, overall, real GDP growth in the region will remain strong, well above the Eurozone.

Real GDP growth, %	2015	2016	2017	2018	2019	2020	2021	2022
Bosnia and Herzegovina	4.1	3.4	3.0	3.4	2.7	2.7	3.0	3.0
North Macedonia	3.9	2.8	1.1	2.7	3.3	3.2	3.3	3.2
Kosovo	4.1	4.1	4.2	3.8	4.1	3.9	3.9	3.7
Serbia	1.8	3.3	2.0	4.4	3.7	3.5	3.5	3.3
Montenegro	3.4	2.9	4.7	5.1	3.2	2.8	2.9	3.0
Slovenia	2.2	3.1	4.8	4.1	2.4	2.6	2.7	2.5
Eurozone	2.0	1.9	2.7	1.9	1.2	1.0	1.2	1.3

Sources: FocusEconomics

Average inflation rate, %

KEY FINDINGS:

There seems to be a favourable inflation development in all countries.

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, %	2015	2016	2017	2018	2019	2020	2021	2022
Bosnia and Herzegovina	-1.1	-1.6	0.8	1.4	0.9	1.4	1.7	1.8
North Macedonia	-0.3	-0.2	1.4	1.4	0.8	1.4	1.9	2.1
Kosovo	-0.5	0.3	1.5	1.1	2.7	1.8	1.9	2.0
Serbia	1.4	1.1	3.2	2.0	1.9	2.1	2.3	2.6
Montenegro	1.5	-0.3	2.4	2.6	0.4	1.5	1.7	1.8
Slovenia	-0.8	-0.2	1.6	1.9	1.7	1.7	1.9	2.0
Eurozone	0.2	0.2	1.5	1.8	1.2	1.3	1.4	1.6

Sources: FocusEconomics

Note: HICP for Slovenia, Kosovo and Eurozone, else CPI; Consensus Forecasts for 2020, 2021 and 2022

Unemployment rate, % KEY FINDINGS:

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

In 2019, all the countries showed the improvements. Future rates of unemployment are expected to continue to improve or stay at same levels.

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

Unempoyment rate, %	2015	2016	2017	2018	2019	2020	2021	2022
Bosnia and Herzegovina	43.2	41.7	38.4	36.0	33.1	31.0	29.0	28.7
North Macedonia	26.1	23.7	22.4	20.7	17.5	16.8	16.1	16.0
Kosovo	32.9	27.5	30.5	29.5	25.3	26.0	25.3	24.9
Serbia	17.7	15.3	13.5	12.7	10.7	10.1	9.4	9.7
Montenegro	17.6	17.7	16.1	15.2	14.7	14.3	14.2	13.7
Slovenia	9.0	8.0	6.6	5.1	4.6	4.3	4.2	4.7
Eurozone	10.9	10.0	9.1	8.2	7.6	7.5	7.5	7.4

Sources: FocusEconomics

Note: BiH data for registered unemployment rate; Estimated for 2019; Consensus Forecasts for 2020, 2021 and 2022

Macro Overview – Fiscal data

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 in the region.

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

Currrent Account, % GDP	2015	2016	2017	2018	2019	2020	2021	2022
Bosnia and Herzegovina	-4.9	-4.5	-4.2	-3.6	-4.7	-4.7	-4.6	-4.9
North Macedonia	-1.9	-2.9	-1.1	-0.1	-0.9	-1.2	-1.3	-1.2
Kosovo	-8.6	-7.9	-5.4	-7.6	-3.9	-7.8	-7.8	-7.7
Serbia	-3.5	-2.9	-5.2	-5.2	-6.3	-5.9	-5.7	-5.3
Montenegro	-11.0	-16.2	-16.1	-17.0	-16.0	-15.3	-14.3	-14.3
Slovenia	3.8	4.8	6.1	5.7	5.6	5.2	4.9	4.7
Eurozone	2.6	3.3	3.1	3.1	2.7	2.8	2.6	2.6

Sources: FocusEconomics

Macro Overview – Fiscal data

Fiscal Balance, % GDP

KEY FINDINGS:

A slight deterioration in the fiscal performance is expected in Kosovo.

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

Fiscal balance, % GDP	2015	2016	2017	2018	2019	2020	2021	2022

Bosnia and Herzegovina	0.7	1.2	2.6	2.3	1.0	0.7	0.6	0.8
North Macedonia	-3.5	-2.7	-2.7	-1.8	-2.1	-2.4	-2.4	-2.2
Kosovo	-1.6	-1.1	-1.1	-2.6	-1.1	-2.9	-2.7	-2.7
Serbia	-3.5	-1.2	1.1	0.6	-0.1	-0.4	-0.5	-0.8
Montenegro	-8.0	-3.4	-5.5	-3.6	-2.6	-0.2	1.0	0.5
Slovenia	-2.8	-1.9	0.0	0.8	0.5	0.3	0.3	0.3
Eurozone	-2.0	-1.4	-0.9	-0.5	-0.8	-1.0	-1.1	-1.0

Sources: FocusEconomics

Macro Overview – Fiscal data

Public Debt, % GDP

KEY FINDINGS:

Public debt varies intensively between the countries. Nevertheless, slow convergence of public indebtedness is projected.

In 2020, a reduction of public debt is expected in Serbia, Slovenia, BiH and Montenegro while an increase is expected for Kosovo, and N. Macedonia.

Nonetheless, all the countries in the region are below the Eurozone level.

Public debt, % GDP	2015	2016	2017	2018	2019	2020	2021	2022
Bosnia and Herzegovina	45.5	44.1	39.2	34.3	33.3	31.7	31.3	29.6
North Macedonia	38.1	39.9	39.4	40.6	40.4	42.0	42.4	40.3
Kosovo	13.1	14.4	16.2	17.1	16.9	19.7	21.6	23.8
Serbia	69.5	67.6	59.3	53.7	51.9	49.4	47.5	46.3
Montenegro	66.2	64.4	64.2	70.1	72.3	69.2	64.9	63.0
Slovenia	82.6	78.7	74.1	70.4	66.9	64.0	61.1	58.7
Eurozone	90.8	90.0	87.8	85.9	85.1	84.4	83.1	81.1

Sources: 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 or other bigger asymmetric shocks, stable currency regimes remain our baseline scenario.

Total reserves, import coverage in months	2015	2016	2017	2018	2019	2020	2021	2022
Bosnia and Herzegovina	7.2	7.7	7.6	7.8	8.2	8.0	7.9	7.5
North Macedonia	5.6	5.9	4.8	5.2	5.4	5.1	4.9	4.7
Kosovo	3.5	2.8	2.9	3.0	3.2	3.0	3.1	3.0
Serbia	8.2	7.7	6.6	6.7	7.3	6.4	6.1	5.7
Montenegro	4.2	4.5	4.5	5.1	6.5	5.0	4.5	4.4

Sources: FocusEconomics

Loans growth (NFC + Households), %

KEY FINDINGS:

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

Kosovo (10.0%) and Serbia (8.4%) leading the credit growth in the region in 2019.

In the region healthy loan dynamics driven by rising consumption, tighter labour market, as well as fixed investments.

Loan growth (NFC + Households), %	2014	2015	2016	2017	2018	2019
Bosnia and Herzegovina	1.8	2.4	3.8	7.3	5.5	6.3
North Macedonia	10.0	9.6	-0.1	5.4	7.2	6.1
Kosovo	6.2	7.3	10.6	12.4	10.9	10.0
Serbia	0.5	3.3	5.5	3.6	9.5	8.4
Montenegro	-1.1	2.5	5.4	7.7	9.1	6.6
Slovenia	-12.4	-5.1	1.8	4.6	4.7	5.6
Eurozone	-0.7	0.8	1.7	1.7	2.3	2.5

Sources: National Central Banks, ECB, Own calculations

Total Loans (NBS), % GDP

Total Loans as % of GDP	2014	2015	2016	2017	2018	2019
Bosnia and Herzegovina	60.1	58.9	57.3	58.3	58.3	58.5
North Macedonia	48.6	49.8	47.0	47.4	48.1	48.2
Kosovo	33.5	34.9	37.1	39.2	41.9	42.5
Serbia	56.7	57.5	58.7	56.8	57.0	57.5
Montenegro	69.6	67.8	62.1	63.2	63.6	62.1
Slovenia	58.3	52.3	49.5	49.3	48.6	49.0
Eurozone	92.0	91.4	90.8	90.1	90.5	91.7

Sources: National Central Banks, ECB, Own calculations

Note: Eurozone Total loans includes only NFC + Households loans; Q3 2019 data used for Bosnia and Herzegovina, and Kosovo

Deposits growth (NFC + Households), %

KEY FINDINGS:

There are substantial differences in deposit growth numbers.

Kosovo leading the deposit growth in the region in 2019, followed by strong growth of other countries in the region.

An exception is Montenegro, which is the only country with the negative growth in 2019. Its growth was influenced by the exclusion of deposits from Invest Bank and Atlas Bank due to their bankruptcy proceedings.

Deposit growth (NFC + Households), %	2014	2015	2016	2017	2018	2019
Bosnia and Herzegovina	9.1	8.2	7.8	8.6	8.7	9.0
North Macedonia	10.5	6.4	5.4	5.0	9.5	9.8
Kosovo	2.9	7.4	8.7	4.1	7.3	14.3
Serbia	9.7	7.1	11.5	3.1	14.9	7.8
Montenegro	9.6	11.8	10.5	13.7	3.2	-2.5
Slovenia	6.5	5.6	7.1	6.9	6.8	6.3
Eurozone	3.7	3.0	1.7	1.7	2.3	2.5

Sources: National Central Banks, ECB, Own calculations

Total Deposits (NBS), % GDP

KEY FINDINGS:

In 2019, growing deposits to GDP ratio in the whole region with the exception of Montenegro, though in the latter the ratio is still above its peers in the region.

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

Total Deposits as % of GDP	2014	2015	2016	2017	2018	2019
Bosnia and Herzegovina	55.8	57.5	59.0	62.6	64.6	66.7
North Macedonia	53.1	53.4	52.5	53.2	55.7	57.5
Kosovo	45.3	46.1	47.5	47.8	50.6	52.4
Serbia	41.7	42.7	45.1	44.3	46.1	48.3
Montenegro	65.9	72.4	72.2	74.8	74.1	71.4
Slovenia	65.9	65.5	63.8	63.4	62.7	63.8
Eurozone	80.9	82.1	83.9	85.3	87.1	91.2

Sources: National Central Banks, ECB, Own calculations

Note: Eurozone Total deposits includes only NFC + Households deposits; For Montenegro, deposits data excludes deposits with Invest Bank and Atlas Bank, according to CBCG; Q3 2019 data used for Bosnia and Herzegovina, and Kosovo

Appendix 3: Financial statements

NLB Group Income Statement

(EURm)	1-12 2019	1-12 2018	YoY	Q4 2019	Q3 2019	Q4 2018	QoQ
Interest and similar income	364.8	358.9	2%	92.1	91.4	92.1	1%
Interest and similar expense	-46.3	-45.9	-1%	-12.4	-11.6	-11.1	-6%
Net interest income	318.5	312.9	2%	79.7	79.8	81.0	0%
Fee and commission income	235.0	218.6	8%	61.3	61.9	56.5	-1%
Fee and commission expense	-64.6	-57.9	-12%	-17.8	-17.3	-15.9	-3%
Net fee and commission income	170.3	160.6	6%	43.5	44.6	40.7	-3%
Dividend income	0.2	0.1	76%	0.0	0.0	0.0	55%
Net income from financial transactions	33.8	14.7	130%	5.8	5.1	3.1	14%
Other operating income	-9.3	4.9	-	-0.1	-2.1	-0.5	94%
Total net operating income	513.6	493.3	4%	128.9	127.4	124.3	1%
Employee costs	-171.2	-165.1	-4%	-48.0	-41.8	-43.2	-15%
Other general and administrative expenses	-99.3	-96.3	-3%	-31.4	-23.3	-28.4	-35%
Depreciation and amortisation	-31.0	-27.2	-14%	-7.7	-7.9	-6.7	3%
Total costs	-301.4	-288.7	-4%	-87.0	-73.0	-78.3	-19%
Result before impairments and provisions	212.2	204.6	4%	41.9	54.4	46.0	-23%
Impairments and provisions for credit risk	13.3	30.2	-56%	-2.3	16.4	7.0	-
Other impairments and provisions	-14.3	-6.9	-107%	-8.4	-1.1	-2.7	-
Gains less losses from capital investments in subsidiaries, associates and joint ventures	4.2	5.4	-23%	0.0	1.6	1.3	-97%
Result before Tax	215.4	233.3	-8%	31.2	71.2	51.7	-56%
Income tax expense	-13.6	-21.8	38%	2.2	-0.9	-5.1	-
Non Controlling Interests	8.2	7.9	4%	2.0	2.4	1.2	-15%
Net Profit / (Loss) Attributable to Shareholders	193.6	203.6	-5%	31.3	67.9	45.3	-54%

NLB Group Statement of Financial Position

(EURm)	31 Dec 2019	31 Dec 2018	YtD
ASSETS
Cash and balances with Central Banks and other demand
deposits at banks	2,101.3	1,588.3	32%
Financial instruments	3,829.7	3,399.2	13%
o/w Trading Book	24.0	63.6	-62%
o/w Non-trading Book	3,805.7	3,335.6	14%
Loans and advances to banks (net)	93.4	118.7	-21%
o/w gross loans	93.5	118.8	-21%
o/w impairments	-0.1	-0.1	25%
Loans and advances to customers	7,604.7	7,148.4	6%
o/w gross loans	7,938.3	7,627.5	4%
- Corporates	3,646.3	3,540.4	3%
- State	278.6	360.5	-23%
- Individuals	4,013.5	3,726.5	8%
o/w impairments and valuation	-333.6	-479.0	30%
Investments in associates and JV	7.5	37.1	-80%
Goodwill	3.5	3.5	0%
Other intagible assets	36.0	31.4	15%
Property, plant and equipment	195.6	177.4	10%
Investment property	52.3	58.6	-11%
Other assets	250.0	177.1	41%
Total Assets	14,174.1	12,740.0	11%
LIABILITIES & EQUITY
Deposits from banks and central banks	42.8	26.8	60%
Deposits from customers	11,612.3	10,464.0	11%
- Corporates	2,772.0	2,337.3	19%
- State	257.4	261.1	-1%
- Individuals	8,582.9	7,865.6	9%
Borrowings	234.8	320.3	-27%
Subordinated liabilities	210.6	15.1	-
Other liabilities	342.6	256.5	34%
Total Liabilities	12,443.2	11,082.6	12%
Shareholders' Equity	1,685.9	1,616.2	4%
Non Controlling Interests	45.0	41.2	9%
Total Equity	1,730.9	1,657.4	4%
Total Liabilities & Equity	14,174.1	12,740.0	11%

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NLB

1985_rns_2020-04-03_532aaaf4-0f58-49e4-b7d5-c169d5bd29f8.pdf

NLB Group Presentation FY2019 Results

Disclaimer

NLB Group Highlights

Key developments

• Acquisition of Komercijalna banka a.d. Beograd

• Covid-19 outbreak

• Total Tier2 issuance EUR 285m

• Regulatory changes

Key performance indicators of NLB Group

Revenues and Cost Dynamics

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

Income Statement

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

Result before impairments and provisions (Group, EURm) Contribution to the NLB Group consolidated result a.t. (EURm)

Balance sheet structure – NLB Group

Simple client business driven balance sheet

NLB Group – performance indicators across SEE countries

Business Performance

Net interest income & net interest margin

Net interest income increased YoY but remains under pressure

Net interest margin(1) in NLB Group banks (in %)

Net interest income drivers – NLB d.d.

Net interest income drivers – Strategic foreign markets(1)

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

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

Costs – NLB Group

Cost higher by 4% YoY

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

Impairments and provisions & cost of risk

Cost of risk negative

Assets and Liabilities

NLB Group Assets

Well diversified loan book, strong liquidity position

Banking book portfolio by asset class (Group, 31 Dec 2019)

NLB Group Assets – Loan portfolio

Balanced loan portfolio with loan growth in most of banks

NLB Group Liabilities and Equity

Funding structure driven by stable and price insensitive deposit base

NLB Group Liabilities

Deposit growth; interest rates decreasing

Capital - NLB Group

Strong capital position

NLB Group capital ratios (%) Capital structure and ratios

NLB Group capital ratios and local requirements (31 Dec 2019, %)

Capital evolution and requirements

Strong capital position

Capital position (Group, EURm)

RWA structure (EURm)

Solid dividend distribution

Asset Quality

Credit portfolio(1) by geography (Group, 31 Dec 2019, EURm)

NPLs fully covered by provisions and collateral

Top 20 NPLs (Group, 31 Dec 2019)

Strategy & IT

NLB went through difficult times – A new period is about to start

Restructuring

Strategy 2020

Strategy update 2025

We are a successful, geographical niche player with strong foundations to build on

Foundations to benefit from

Strong market positions

Regional roots

Positive brand perception at subsidiaries

Recent successes, local innovation Good recent performance, acknowledged innovations (digital) in Slovenia

Untapped opportunities

Track record of innovation

Demonstrated success in moving to digital

Use of video call functionality (# of contacts)

Mobile wallet users & transactions

Medium-term objectives in IT and Digital

NLB Group synergy opportunities

Group synergies are being addressed in all functional areas

IT competence center Process (System) competences