Slovenia’s NLB doubles profits as debate over privatisation rages on

Slovenia’s NLB doubles profits as debate over privatisation rages on
By bne IntelliNews November 30, 2017

Slovenia’s largest financial group NLB Group announced another set of positive results on November 29. The bank remained in profit for the 15th consecutive quarter in Q3 and made a profit after tax of €184mn in January-September which is €92.5mn or 101% more than in the same period of 2016.

Maintaining positive results is important for the future of the bank, which is due to be privatised. Slovenia is obliged to sell off NLB, which was nationalised in a banking sector bail out in 2013, under its commitments to the European Commission (EC). However, plans for an IPO were dropped in June amid a dispute over the pricing of the offer, and discussions over the future of the bank are ongoing.  

“[The] profit generated by the group in the first nine months already announces historic and record results at the end of this year,” said Primoz Karpe, the chairman of NLB’s supervisory board, on November 29.

According to Karpe, this year’s exceptionally good results are increasingly facilitated by the core markets outside Slovenia, which accounted for almost half of total profits — €73.8mn — during the nine months. In these markets, the group can make up for the tough and highly competitive conditions in Slovenia and a much lower margin the parent bank is able to make in its local market, he said. 

The second trend observed lately is that the retail segment in Slovenia as well as other SEE markets tends to increasingly contribute to the final outcome, which means that the bank is further dispersing its risks and improving the structure of its portfolios. Thirdly, this year, for the first time, the non-core companies NLB is exiting made a positive contribution to the bank’s results. 

Meanwhile, the regular operating result before provisions increased by 10%. Return on equity (ROE) after tax increased to 15.9%, including non-recurring events and a negative cost of risk. Net operating income increased by 2% y/y mostly due to higher fees and other regular non-interest income. The continuous growth in the net operating income, can be primarily seen in the core international markets, with a 6% growth in the same period.

The volume of non-performing loans (NPLs) was 16.2% lower and currently stands at 11.9%, while the share of non-performing exposures (internationally recognised NPE ratio) fell to 8.3%. The coverage ratio, which remains high (77.5%), is an important strength of the NLB Group, with the high quality of its loan portfolio remaining one of its key targets, the bank said.

Slovenia had committed to sell 75% of the bank by the end of 2017 in a restructuring plan that served as a basis for the European Commission's approval of state aid to the bank in the 2013 bailout. However, plans for an IPO were dropped in June amid a dispute over the pricing of the offer and an ongoing lawsuit over Yugoslav-era deposits in Croatia.

After Finance Minister Mateja Vranicar Erman discussed the issue with European Commissioner for Competition Margrethe Vestager on November 10, the ministry said that despite favourable market conditions the risk of transferred foreign currency deposits in Croatia raised by the ongoing legal dispute mean it is not possible to optimise the repayment of taxpayer money invested in the bank's rehabilitation. 

Previously, on October 26, the European Commission rejected the Slovenian government’s proposal to extend the deadline for the NLB privatisation by up to three years.

Slovenia is now proposing that NLB pays about €365mn into a fund focused on funding small and medium sized businesses in exchange for being allowed to stay in state hands.

Croatia’s Privredna Banka Zagreb (PBZ) has sued the now-defunct Ljubljanska banka (LB) and its legal successor NLB over savings deposits from the Yugoslav-era, and the case is still being considered in Zagreb. These deposits were repaid to Croatian savers by the Croatian state, which then authorised Croatian commercial banks to recover them in court. The liabilities are estimated at €350mn to €400mn.

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