Awards for Excellence 2019
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The successful IPO of Slovenia’s NLB in London and Ljubljana in November marked the end of a six-year restructuring process and set the stage for a new era of expansion by the group.
Along with the rest of Slovenia’s state-owned banks, NLB hit the buffers in 2012 when large portfolios of corporate loans began to turn sour.
The following year the Slovenian government spent €3 billion recapitalizing the country’s public-sector lenders – including market leader NLB – and transferred €5 billion worth of non-performing loans to a newly created bad bank.
Even after selling €2 billion of impaired loans to the state, however, NLB had an non-performing loan ratio of 25.5% at the end of 2014. This was partly due to bad debts in the group’s five-country Balkan network, which were not eligible for purchase by Slovenia’s asset management company.
In Serbia, where NLB had made ill-advised purchases of two small banks before the global financial crisis, NPLs accounted for more than two-thirds of outstanding loans by the end of 2013.
The task of turning the group around and preparing it for privatization – a requirement of the European Commission after the state bailout – fell to a new management board led first by Janko Medja and from 2016 by current president, Blaz Brodnjak.
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| Blaz Brodnjak |
Their efforts quickly showed results. By the end of 2015, all of NLB’s core businesses had returned to profit and NPLs were down to 15.3% of the total. Further work-outs and restructurings over the next three years saw group bad debts reduced to €600 million – from €2.8 billion in 2013 – and the non-performing exposure ratio cut to 4.7%.
The improvement in asset quality allowed for the release of provisions, helping boost NLB’s return on equity to 14.4% in 2017 and 11.8% last year.
“We have benefited from a negative cost of risk during the systematic reduction of NPLs over the past two years,” says chief risk officer Andreas Burkhardt. “The lemon is now squeezed out, but we hope this effect will be partly replaced by increasing revenues from our bank and all our subsidiaries.”
North Macedonia, where NLB owns the third-largest bank by total assets, has been a particularly profitable market for the group, contributing 18.2% of net income last year. NLB’s subsidiaries in Kosovo and Bosnia have also been reliable generators of profits and growth.
Even the group’s Montenegrin operation, which has struggled in the past with bad debts and legal entanglements, posted a return on equity of 14.9% last year on the back of double-digit growth and improved asset quality.
Investment in digitalization has also paid off, with NLB’s Slovenian operation and its core subsidiaries rapidly gaining a reputation as technology leaders in their respective markets. Meanwhile the group’s non-core businesses, which in 2013 accounted for 9.5% of total assets, had been reduced to around 2% by the end of December and fully provisioned.
This impressive turnaround set the stage for the privatization of NLB. Originally scheduled for 2017, in line with EC guidelines, the IPO was postponed after Slovenian politicians rejected the minimum offer price as too low.
A threat by the EC to appoint a divestiture trustee prompted a rethink and in November the Slovenian government finally delivered on its commitments, selling a 59.1% stake in the group via a public listing. Despite challenging market conditions, the deal was successfully completed. Investors included the European Bank for Reconstruction and Development, which took a 6.25% stake.
The privatization triggered the lifting of EC restrictions on NLB’s operations, including a ban on cross-border financing.
“We now have an opportunity to deploy part of our excess liquidity outside Slovenia in our core markets and other European markets,” says Burkhardt.
The successful placement by the Slovenian government of a further 10% stake in NLB in June provided further confirmation of investors’ confidence in the restructured group.
NLB still faces challenges, particularly in its home market where low interest rates continue to squeeze margins. But its progress is impressive.
