Annual
Report
2016
NLB Group Annual Report 2016
ЗаједноЗаедноSë bashkuSkupajZajednoTogetherЗаједноZajedno NLB Group Annual Report 2016
ЗаједноЗаедноSë bashkuSkupajZajednoTogetherЗаједноZajedno Contents
6
Key Financial And Operating Data
Chapter 1.
Chapter 2.
Chapter 3.
Engaged
Modern
10 Statement by the Management
20 Business Report
Board of NLB
14 Report of the Supervisory
Board of NLB
20 Key highlights of NLB Group
22 Overview of 2016 Results
28 NLB Group Strategy
32 Macroeconomic and
Regulatory Environment
Innovative
42 Retail Banking in Slovenia
54 Corporate and Investment
Banking in Slovenia
Chapter 4.
Efficient
66 Core Foreign Markets
90 Financial Markets
100 Non-core Markets and Activities
NLB Group 2016 Annual Report Chapter 5.
Chapter 7.
Chapter 9.
Trustworthy
Commited
Professional
106 Risk Management
132 Overview of NLB Group’s
112 Human Resources
Chapter 6.
Digital
120 IT and Processing Operations
Financial Performance 2016
176 Audited Financial Statements
of NLB Group and NLB d.d.
144 Corporate Governance
Chapter 8.
Responsible
162 Events After the End of the
340 Regulatory Part
352 Risk and Capital Management
410 GRI Standards Disclosure for NLB
126 Internal Audit
2016 Financial Year
416 NLB Group directory
128 Compliance and Integrity
164 NLB Group Chart as at
31 December 2016
167 Organizational Structure of
NLB as at 31 December 2016
168 Corporate and Social Responsibility
NLB Group 2016 Annual Report Bosnia and Herzegovina
NLB Banka, Banja Luka
NLB Banka, Beograd
NLB Banka, Podgorica
634
Total assets
(in EUR million)
18.9%
Market share3
by total assets
498
Total assets
(in EUR million)
5.3%
Market share4
by total assets
Slovenia
NLB, Ljubljana
113
Number of
branches
700,917
Number of
active clients
63.8
Result after tax
(in EUR million)
8,778
Total assets
(in EUR million)
23.7%
Market share
by total assets
60
Number of
branches
209,254
Number of
active clients
14.1
Result after tax
(in EUR million)
NLB Skladi, Ljubljana
NLB Banka, Sarajevo
37
Number of
branches
139,524
Number of
active clients
5.4
Result after tax
(in EUR million)
27.2%
Market share1
(mutual funds)
1,035
Assets under
management
(in EUR million)
2.9
Result after tax
(in EUR million)
NLB Vita, Ljubljana
401
Assets of covered
funds without own
resources (in EUR million)
11.1%
Market share 2
7.4
Result after tax
(in EUR million)
Serbia
31
Number of
branches
133,095
Number of
active clients
2.2
Result after tax
(in EUR million)
276
Total assets
(in EUR million)
1.0%
Market share
by total assets
Macedonia
NLB Banka, Skopje
51
Number of
branches
1,153
Total assets
(in EUR million)
370,842
Number of
active clients
16.2%
Market share
by total assets
25.0
Result after
tax (in EUR million)
Montenegro
18
Number of
branches
57,853
Number of
active clients
5.3
Result after tax
(in EUR million)
NLB Banka, Prishtina
Kosovo
45
Number of
branches
185,315
Number of
active clients
11.3
Result after tax
(in EUR million)
473
Total assets
(in EUR million)
12.5%
Market share
by total assets
516
Total assets
(in EUR million)
14.9%
Market share
by total assets
Note: The result after tax data in the figure above show NLB Group members’ standalone result and not their contribution to the consolidated result after tax.1. Market share of assets under management in mutual funds.2. Market share in traditional life insurances.3. Market share in the Republic of Srpska.4. Market share in the Federation of Bosnia and Herzegovina.
NLB Skladi, Ljubljana
NLB Banka, Sarajevo
Slovenia
NLB, Ljubljana
113
Number of
branches
700,917
Number of
active clients
63.8
Result after tax
(in EUR million)
1,035
Assets under
management
(in EUR million)
2.9
Result after tax
(in EUR million)
8,778
Total assets
(in EUR million)
23.7%
Market share
by total assets
27.2%
Market share1
(mutual funds)
NLB Vita, Ljubljana
401
Assets of covered
funds without own
resources (in EUR million)
11.1%
Market share 2
7.4
Result after tax
(in EUR million)
634
Total assets
(in EUR million)
18.9%
Market share3
by total assets
498
Total assets
(in EUR million)
5.3%
Market share4
by total assets
60
Number of
branches
209,254
Number of
active clients
14.1
Result after tax
(in EUR million)
37
Number of
branches
139,524
Number of
active clients
5.4
Result after tax
(in EUR million)
Bosnia and Herzegovina
Serbia
Montenegro
NLB Banka, Banja Luka
NLB Banka, Beograd
NLB Banka, Podgorica
276
Total assets
(in EUR million)
1.0%
Market share
by total assets
31
Number of
branches
133,095
Number of
active clients
2.2
Result after tax
(in EUR million)
473
Total assets
(in EUR million)
12.5%
Market share
by total assets
18
Number of
branches
57,853
Number of
active clients
5.3
Result after tax
(in EUR million)
Macedonia
NLB Banka, Skopje
51
Number of
branches
1,153
Total assets
(in EUR million)
370,842
Number of
active clients
16.2%
Market share
by total assets
25.0
Result after
tax (in EUR million)
Kosovo
NLB Banka, Prishtina
45
Number of
branches
185,315
Number of
active clients
11.3
Result after tax
(in EUR million)
516
Total assets
(in EUR million)
14.9%
Market share
by total assets
Note: The result after tax data in the figure above show NLB Group members’ standalone result and not their contribution to the consolidated result after tax.1. Market share of assets under management in mutual funds.2. Market share in traditional life insurances.3. Market share in the Republic of Srpska.4. Market share in the Federation of Bosnia and Herzegovina.
6
Table 1: Key financial caption for NLB Group and NLB
2016
2015
2014
NLB Group
NLB
NLB Group
NLB
NLB Group
NLB
Income statement indicators (in EUR million)
Net interest income
Net non-interest income
Regular net non-interest income
Total costs
Provisions and impairments
Net gains/losses from subsidiaries, associates and JV
Result before tax
Minority interest
Result after tax
Financial position statement indicators (in EUR million)
Total assets
Loans and advances to non-banking sector (net)
Deposits from non-banking sector
Equity
Impairments of loans to non-banking sector
Minority interest
Total off-balance sheet items
Key financial indicators
a) Capital adequacy
Total capital ratio
Tier 1 ratio
CET 1 ratio
Total risk weighted assets (in EUR million)
Risk weighted assets / total assets
b) Asset quality
NPL coverage ratio (Coverage of gross non-
performing loans with impairments for all loans)
NPL coverage ratio (Coverage of gross non-performing
loans with impairments for non-performing loans)
Non-performing loans (NPL) / total loans
Net non-performing loans (NPL) / total net loans
Non-performing exposure (NPE) - EBA Definition
Credit impairments and provisions / risk weighted assets
317
158
145
290
61
5
131
6
110
12,039
6,997
9,439
1,495
-903
30
2,922
17.0%
17.0%
17.0%
7,862
65.3%
175
109
96
181
64
29
68
-
64
8,778
4,929
6,617
1,265
-505
-
2,502
23.4%
23.4%
23.4%
4,882
55.6%
340
143
150
298
83
4
107
3
92
11,822
7,088
9,026
1,423
-1,263
28
3,181
16.2%
16.2%
16.2%
7,927
67.1%
208
105
102
187
88
14
52
-
44
8,707
5,221
6,298
1,242
-695
-
2,779
22.6%
22.6%
22.6%
5,028
57.7%
330
181
146
304
141
3
69
3
62
11,909
7,415
8,949
1,343
-1,638
26
3,915
17.6%
17.6%
17.6%
7,038
59.1%
227
137
99
193
93
5
83
-
82
8,886
5,700
6,300
1,205
-998
-
3,607
22.7%
22.7%
22.7%
4,962
55.8%
76.1%
71.7%
72.2%
67.9%
68.7%
70.4%
64.6%
13.8%
5.4%
10.0%
0.3%
60.8%
11.9%
5.1%
8.5%
0.3%
62.8%
19.3%
8.3%
14.3%
0.6%
59.1%
16.5%
7.6%
12.1%
0.6%
61.7%
25.1%
10.7%
18.8%
1.7%
57.0%
21.2%
10.1%
15.6%
1.7%
NLB Group 2016 Annual Report
7
c) Profitability
Interest margin*
Financial intermediation margin
Return on equity before tax (ROE b.t.)
Return on assets before tax (ROA b.t.)
Return on equity after tax (ROE a.t.)
Return on assets after tax (ROA a.t.)
d) Business costs
Operating costs / average total assets
Costs / net income (CIR)
Costs w/o restructuring costs / regular
net income (CIR normalized)
Total costs / risk weighted assets
Total costs / total assets
e) Liquidity
Liquidity assets / short-term financial
liabilities to non-banking sector
Liquidity assets / average total assets
f) Other
Market share in terms of total assets
Loans to non-banking sector / deposits
from non-banking sector (LTD)**
Revenues / risk weighted assets (RWA) ***
Key indicators per share
Shareholders
Shares
Book value (in EUR)
International credit ratings
S&P
Fitch
Employees
2016
2015
2014
NLB Group
NLB
NLB Group
NLB
NLB Group
NLB
2.7%
4.0%
8.6%
1.1%
7.4%
0.9%
2.4%
60.9%
61.8%
3.7%
2.4%
55.7%
40.7%
-
74.2%
5.9%
2.0%
3.6%
5.3%
0.8%
5.0%
0.7%
2.1%
57.9%
59.2%
3.7%
2.1%
63.3%
45.6%
23.7%
74.5%
6.1%
2.9%
4.1%
7.6%
0.9%
6.6%
0.8%
2.5%
61.6%
60.0%
3.8%
2.5%
57.3%
39.3%
-
75.1%
6.2%
2.4%
3.8%
4.2%
0.6%
3.6%
0.5%
2.2%
57.2%
56.8%
3.7%
2.2%
61.0%
41.4%
23.3%
78.0%
6.4%
2.7%
4.2%
5.2%
0.6%
4.8%
0.5%
2.5%
59.4%
62.1%
4.3%
2.5%
57.2%
44.1%
-
75.9%
6.8%
2.5%
4.1%
7.2%
0.9%
7.0%
0.9%
2.1%
52.4%
56.1%
3.9%
2.2%
63.6%
44.0%
22.9%
80.7%
6.7%
-
-
1
20,000,000
-
-
1
20,000,000
-
-
1
20,000,000
74.8
63.2
71.1
62.1
67.2
60.3
BB-
BB-
BB-
B+
BB-
BB-
Number of employees
6,175
2,885
6,372
3,028
6,448
3,093
* Calculated on the basis of average total assets
** Without BAMC bond
*** Recurring income only
NLB Group 2016 Annual Report
Chapter 1.
Engaged
Chapter 1
АнгажираниAngažovaniTë Angazhuar AngažovaniAngažovaniАнгажованиZavzeti Engaged
Chapter 1
АнгажираниAngažovaniTë Angazhuar AngažovaniAngažovaniАнгажованиZavzeti Chapter 1. 1:
Statement by
the Management
Board of NLB
A clear path going forward
In 2016 NLB Group (hereinafter:
the Group) continued to deliver
strong performance. We defined and
initiated implementation of our new
comprehensive strategy. We progressed
in developing new solutions, offered
improved user experience, and eased
accessibility of our services and advisory
capacity to our clients. We remained
committed to our customers, employees,
shareholders, and society as well.
The Group’s 12 consecutive positive
quarters, and the third solidly profitable
business year in a row had an improving
trend of both profitability and business
operations that underscored the fact that
2016 confirmed our powerful presence
in the South Eastern Europe (SEE) region.
This year’s highlights include: further
improvements in our services and market
position; a motivational year introducing
contemporary human talent management
practices and processes; and a breakthrough
effort in setting the new business and
information technology (IT) strategy
through 2020.
The banking system in and beyond the
Eurozone in 2016 faced record low interest
rates and general overliquidity, causing a
significant impact on business performance
of commercial banks. The combination
of increasing regulatory pressure, strong
NLB Group 2016 Annual Report 11
competition on relevant markets for the
Group, still relatively modest loan demand,
and compliance with strict commitments
to the European Commission (EC)
represented a challenging period. Despite
this, the Group worked to successfully
overcome these developments, and the
rating agencies acknowledged this by
upgrading of our rating and/or the
improved outlook.
Our continuous focus on intensive
customer relationships was reflected
in NLB Group’s solid commercial and
financial performance. The group’s net
profit amounted to EUR 110.0 million,
the highest since 2007. We accomplished
this through decisive implementation of a
transformative programme, lasting seven
years. Nowadays we have been proactively
seeking new business opportunities. We
have once again taken an innovative track
(as the first on the market) and introduced
new services, but have also successfully
resolved significant legacy challenges
by continuing the enhancement of risk
management practices/processes, and
very decisively applying the entire toolbox
of reducing non-performing and non-core
exposures/portfolios/entities. In doing so
we have set very firm foundations for a
sustainably profitable and value-creating
future for our stakeholders.
All core banking members in and outside
Slovenia showed profitable and improving
operations in 2016, whereby subsidiary
banks posted EUR 57.7 million in net
profit, thus contributing an increasingly
important part (52.4%) to the Group’s
results. Some Group members delivered
a record-setting performance. We enjoyed
high brand recognition, trust, and
reputation on all of our key markets.
We are strengthening our regional
presence with dynamic pervasiveness
on SEE markets as a distinctive
advantage for the future.
We have been further strengthening
our market position with a special focus
on upgrading client experience and
satisfaction, improvement of services,
tailor-made solutions, proactive sales,
and increasing emphasis on online
banking channels and digitalisation.
In 2016 NLB was awarded the
“Top Employer” certificate by
an independent Dutch institute.
The award honors innovations and
improvements in the field of human
resources processes. We committed to
develop highly-skilled, professional, and
engaged employees. Our remarkable
co-workers ensure that we will be able
to manage the challenges of the future.
We also continued to responsibly
and comprehensively comply with
commitments to the European
Commission regarding State Aid.
Future economic and geopolitical changes
will create new challenges, but also
additional opportunities for our further
growth. Technological development and
digitalisation will considerably reshape
banking and other businesses. We believe
we are well-focused and positioned to
cope with it in our new strategy. One
of our biggest advantages is that we
understand key trends and are
committed to the future.
We are satisfied with NLB Group’s
achievements in 2016. Our clear vision,
financial performance, and strong capital
base position us well for future challenges.
Our strategic direction is concrete and
comprehensive, and will be supported
by taking important steps to transform
our organisation and behaviour to foster
a performance culture. We develop our
position as an innovative bank, creating
simple customer-oriented solutions with
an exclusive strategic focus on countries
in SEE. We will continuously positively
contribute to the well-being of our
stakeholders and society in our markets
with our commitment to responsibility and
sustainability. Now and in the future.
László Pelle
Member of the
Management Board
Archibald Kremser
Member of the
Management Board
Andreas Burkhardt
Member of the
Management Board
Blaž Brodnjak
Chief Executive Officer
NLB Group 2016 Annual Report Blaž Brodnjak
Chief Executive Officer
A ndrea s Bur khar dt
Member of the Management Board
Arc hibal d Kremser
Member of the Management Board
Lás z ló Pelle
Member of the Management Board
Chapter 1. 2:
Report of the
Supervisory
Board of NLB
Dedicated to oversight, detailed
monitoring, and steering of the Bank
towards effective implementation of
its’ transformative strategy and clear
value generation-focused future.
Commercial banking industry has
experienced a reshaping of the industry
faster than anyone would have imagined
a few years ago. A negative interest rate
environment, changing and ever more
demanding regulatory requirements, stiff
competition, general over-liquidity, and
increased commoditisation of core banking
products require an innovative and focused
approach towards the added-value banking
services NLB Group can offer to its wide
regional client base.
We on the NLB Supervisory Board are
convinced that step-by-step, the Group
will achieve its goals over the next five
years’ time. There are no shortcuts, but
the combination of remaining committed
to persistency, a clear vision, and hard
work should and will yield positive results.
NLB Group 2016 Annual Report Primož K arpe
Chairman of the Supervisory Board
15
2016 has been an active year
for NLB’s Supervisory Board
NLB’s Supervisory Board monitors and
supervises the management and operations
of the Group and in so doing, it resolves
to utilise uncompromised principles of
professionalism and expertise on one side,
as well as a strong dedication to integrity,
ethics, and honesty on the other.
The Supervisory Board represents a
balanced, complementary team of experts
focused on the effectiveness of performing
its core functions. The delivery of critical
and assertive opinions has been and will
remain at the core of our decision-making
principles through the expected engaged
participation of all the members at all
times.
Throughout the year, the Supervisory
Board maintained a well-balanced
professional relationship with the
Management Board, and enjoyed timely,
comprehensive, and data-supported
information inputs from the latter,
enabling the Supervisory Board to
adopt all its decisions in line with the
professional interests of the Bank, adhering
at all times to banking regulations and
its statutory powers. The Supervisory
Board has assessed the functioning of the
Management Board in 2016 as successful.
In the framework of operations, 2016
was indeed a busy year from the
corporate governance perspective,
with the Supervisory Board holding 10
regular and eight correspondence sessions.
However, I personally consider that as
of lesser importance. The true value of
active supervision is at the end reflected
NLB Group 2016 Annual Report In accordance with article 34 of the
Articles of Association of NLB d.d., the
Supervisory Board verified the submitted
Annual Report and a proposal for use of
distributable profit, and shall give a report
for the General Meeting. The Supervisory
Board had no objections about the report
of the audit company Ernst & Young,
Ljubljana. Following a careful examination
of the Annual Report for the Business
Year 2016, the Supervisory Board had no
objections, and unanimously approved it.
Yours truly,
The Supervisory Board of NLB d.d.
Primož Karpe
Chairman of the Supervisory Board
16
only through a set of milestones, which
we targeted and also achieved. Apart
from surpassing 2016 budgeted financial
performance targets, the Group has
adopted a new transformational Strategy
for the 2016-2020 period, a positive
risk/return that is balanced, and as well
with concrete operational project plans
supported by the business development
roadmap of the Group that is focused on
the delivery of future results and targets.
The projected targets reflect a commitment
to achieve business excellence, and are
to be shared among all the Group’s
stakeholders, in various output formats,
more specifically in a commitment to:
the satisfaction of our clients, to an
increase in employee satisfaction, to
sustainable and long-term profit growth
and a dividend payout to the shareholders,
and to the society in which we operate.
Throughout the year, we have been
challenged by a myriad of operational
decisions that needed to be adopted,
starting from the long-term stabilisation
and strengthening of the Management
Board, strategic initiatives in the field
of digital transformation, truly active
reductions of the NPL portfolio, various
risk policy adoptions, as well as the
adoption of the 2017 budget. Finally,
NLB Supervisory Board also adopted
information on the NLB d.d.’s sales
process, which was initiated and led by
the Slovenian Sovereign Holding as the
sole shareholder.
I am personally proud of what the
Group achieved in 2016, but I’m also
well aware that there is absolutely no
room for complacency if the trend of
the Group’s value growth is to continue.
Pursuant to the second paragraph of
Article 282 of the Companies Act, the
Supervisory Board has compiled this
written report on the findings of the
verification of the 2016 Annual Report
of NLB Group, and of the proposal
submitted by the Management Board to
use the distributable profit for the general
meeting with the aim of accurately and
authentically presenting the activities of the
Supervisory Board during the year.
In 2016 The Supervisory Board received
expert assistance from its four operational
committees, namely the: Audit, Risk,
Nomination, and Remuneration
Committees.
Review and approval of
the 2016 Annual Report
On 7 April 2017 the Management
Board of NLB d.d. submitted the 2016
Annual Report to the Supervisory Board,
including the Business Report with audited
financial statements of NLB, the audited
financial statements of NLB, the audited
consolidated financial statements of
NLB Group and the auditor’s opinion.
According to the auditor, the financial
statements with notes give a true and fair
view of the financial position of the Bank
and NLB Group as at 31 December 2016
and of their financial performance and
their cash flows for the year then ended in
accordance with the International Financial
Reporting Standards as adopted by the
European Union. It was also established on
the basis of the assessment of the Business
Report that the information contained in
the business section of the Annual Report
is consistent with the audited financial
statements of the Bank and NLB Group.
NLB Group 2016 Annual Report Modern
Chapter 2
СавремениСовремениSavremeniBashkëkohoreSodobniSavremeniSavremeni Modern
Chapter 2
СавремениСовремениSavremeniBashkëkohoreSodobniSavremeniSavremeni Chapter 2. 1:
Key highlights
of NLB Group
NLB Group is the largest banking
and financial group in Slovenia with
a strategic focus on selected markets in
SEE. It covers markets with a population
of approximately 17.4 million people.
NLB Group (hereinafter: the Group)
is comprised of NLB d.d. (hereinafter:
NLB or the Bank) as the main entity in
Slovenia, six subsidiary banks in SEE,
several companies for ancillary services
(asset management, insurance, real
estate management, etc.), and a limited
number of non-core subsidiaries in a
controlled wind-down. NLB is 100%
owned by the Republic of Slovenia (RoS).
NLB Group 2016 Annual Report 21
The largest banking and
financial group in Slovenia
Proven track record of stable and
Demonstrated progress
profitable Group operations
with asset quality
• The largest bank in Slovenia with 113
branches and a 24% market share by
total assets
• Increased profitability for a third
• Substantially improved structure of the
consecutive year with 12 consecutive
positive quarters
credit portfolio with new NPL formation
at consistently low levels
• Very strong retail deposit-taking
• 2016 ROE of 7.4% at a CET 1
• Non-performing exposures (NPE) as
franchise with a market share of 30.4%
ratio of 17%
• Market leader across banking
products and flagship provider of asset
management and life insurance products
• Revenue evolution driven by stable net
interest margin and resilient fee income
• Successful cost-cutting and very
defined by European Banking Authority
(EBA) significantly reduced from 14.3%
in 2015 to 10.0% in 2016 while a
coverage ratio remained very strong
at 64.6%
• Rating improvement in 2016; upgrade
low realised cost of risk
• Further decisive and comprehensive
from B+ to BB- by Fitch, outlook
changed to positive by Standard
and Poorʼs
• Strong increase in contribution of
international operations to revenue
and profit growth
Leading position in selected SEE markets
with significant growth potential
Self funded, and well capitalised
• SEE markets recording solid GDP
growth above the Eurozone average
• Profitable and independent operations
on six markets in five countries
(Macedonia, Kosovo, two entities in
Bosnia and Herzegovina, Montenegro,
and Serbia), with market shares on four
markets exceeding 10%
• 242 branches (in SEE) and 1.1 million
active clients of SEE banking members
• Independent, well capitalised, and
self-funded subsidiaries
• Strong dividend upflow payout from core
subsidiaries to parent bank
franchise, supporting attractive
future dividend payout
• Strong liquidity position, stable and
diversified funding structure with
loan-to-deposit ratio (LTD) of 74.2%
• Robust Common Equity Tier 1
(CET 1) ratio of 17.0% and strong
capital generation supporting growth
in dividends
• 100% of 2015 net profit of the Bank
paid out as a dividend to the RoS in
2016; 2016 net profit to be paid out
in 2017
organic and inorganic NPE
reduction strategy
• Disposal of EUR 597 million
non-performing credit portfolio in
the last 12 months with a portfolio
sale of non-performing portfolio and
other measures
• Determined exit from non-core Group
members and non-core loan portfolios
Clear path going forward
• The new strategy foresees enhancement
of the Bank’s commercial proposition,
rightsizing of costs, and increased
digitalization. Implementation expected
to drive significant efficiency and
profitability improvements
• Mid-term financial targets include
ROE > 10%, CIR at approximately
50%, NPE ratio < 5%, and a 70%
dividend payout ratio of the Group profit
NLB Group 2016 Annual Report Chapter 2. 2:
Overview of
2016 Results
NLB Group increased its profit after
NPL levels were strongly reduced
tax for the third consecutive year to
by 31%, thus, the NPL ratio came
EUR 110 million, up 20% from 2015
down to 13.8% (from 19.3% in
(EUR 91.9 million) in a challenging
2015); the NPE ratio is already at
interest rate environment.
10% - very low new NPL formation
from new business (2014 onwards).
• All core subsidiaries solidly profitable
– some with record results
The Bank remains a stronghold of
• Non-core related losses
substantially reduced
• Strong loan growth in key
business activities
profitability with the core foreign banks
catching up rapidly, and collectively
coming almost even in terms of their
contribution to the Group profits.
Liquidity and capital ratios are
very strong and a solid basis for
• Continued improvement on costs
further growth – fully anticipating
a 100% (EUR 63.8 million) of the
Bank profit dividend payout to
shareholders. ROE stands at 7.4%
whereas the after tax RORAC (on a
normalised capital requirement of
14.75% of RWA) stands at 9.7%.
NLB Group 2016 Annual Report
23
n
o
i
l
l
i
m
R
U
E
n
i
+10
+58
ROE
4.8%
62
2015 impact
2016 impact
6.6%
+6
92
-5
+23
+8
+15
-38
-7
-23
ROE
7.4%
110
∆
∆
∆
∆
2014 PAT
Impairments
Net
interest
income
Non
interest
income
∆
OpEx
∆
Other
/ Tax
∆
∆
∆
∆
2015 PAT
Impairments
Net
interest
income
Non
interest
income
∆
OpEx
∆
Other
/ Tax
∆
2016 PAT
Figure 1: Three consecutive years of increased profitability (in EUR million)
International rating agencies
have acknowledged strong
progress by upgrading the Bank
to BB- (S&P outlook Positive).
NLB Group has defined a new medium-
term strategy to reinforce its regional
specialist leadership position and
ambitious plans for further profitable
growth based on better services to its
clients by leveraging on digital channels,
improved efficiency, and enhanced client
experience, Group synergies, and the
dedication to be a regional solutions
innovation champion – aiming to achieve
above 10% ROE, a CIR of 50%, while
maintaining a strong dividend flow of
approximately 70% of the Group profits.
NLB Group 2016 Annual Report
24
Profitable core part of the Group,
Core markets and activities: 1
improved operations in
non-core members
The Bank contributed the largest share
to the Group’s positive performance with
a net profit of EUR 65.6 million, other
banks in SEE markets EUR 57.7 million,
while non-core members contributed
negatively, but with improving trends.
a significant improvement
in operations in strategic
foreign markets
In 2016, the main commercial activities of
the Group, comprising: Corporate banking
– Slovenia,2 Retail banking – Slovenia
and Strategic foreign markets, collectively
showed positive evolution with profit before
tax increasing from EUR 134.8 million
to EUR 151.6 million normalised by the
non-recurring effects of divesting a larger
Slovenian non-performing portfolio sale.
Both the retail and corporate segments in
Slovenia show solid performance, with the
retail segment in particular – normalised
for the non-performing portfolio sale –
revealing healthy growth with a positive
outlook for the future. The highest growth
in profitability resulted from the strong
development of strategic foreign markets
with record results in Macedonia and
1
Corporate banking in Slovenia, Retail banking
in Slovenia, Financial markets in Slovenia,
Foreign strategic markets
2
Corporate banking in Slovenia includes Key, Mid
and Small Corporate and Restructuring and Workout
67.6
60.9
51.5
42.9*
13.4
29.5
38.7
41.0*
44.7
38.1
9.5
31.5
-18.9
7.0
-11.9*
-18.9
-17.2
Corporate banking
in Slovenia
Retail banking
in Slovenia
Strategic foreign
markets
Financial markets
in Slovenia
Non-core markets
and activities
Other
activities
-70.1
2015
2016
Non-performing portfolio sale effects
* Normalised for non-performing sale effects
Figure 2: Profit before tax of NLB Group by segments (in EUR million)
NLB Group 2016 Annual Report
25
3.98%
2.59%
2.03%
2016
3.06%
2.47%
2.37%
3.64%
2.70%
2.33%
2014
2015
NIM (NLB d.d.)
NIM (NLB Group)
NIM (NLB Group core foreign banks)
Figure 3: Net interest margin (in %)
EUR 24 million (of which approximately
EUR 20 million is in non-core subsidiaries).
In addition, the result of the segment was
burdened by EUR 7 million effect of the
non-performing portfolio sale.
The decline in the interest margin
in Slovenia and the euro area
was partly compensated by the
improved margins in SEE markets
Other activities
Other activities include categories in the
Bank whose operating results cannot
be allocated to individual segments,
restructuring costs, and expenses from
the vacant business premises. In 2016,
the segment was burdened by the HR
provisions in the Bank for strategy
implementation in the amount of EUR
9.4 million and other restructuring charges
in the amount of approximately EUR 7
million on top of the regular contributions
to the European Single Resolution Fund
(SRF) and Slovenian Deposit Guarantee
Scheme (DGS) payments for a total amount
of EUR 8.5 million. The non-recurring
effect of the Visa EU share transaction,
amounting to EUR 7.8 million, increased
the result of the segment.
The net interest margin (NIM) on the
Group level decreased from 2.70% to
2.59% YoY, mostly as a result of the rapidly
falling market interest rates in international
bond markets and ongoing repricing of
the securities investment book, respectively,
and the very competitive environment of
the Slovenian banking market which in the
corporate segment is still in a deleveraging
process. However, a slight reversal of this
trend occurred towards the end of 2016.
Retail lending growth has especially picked
up in Slovenia, due to the improved macro
environment helping to stabilise margins in
this segment. Foreign strategic subsidiaries
still showed growth in margins thanks to
the increased efforts to manage the cost
of funding and the strong performance
of higher yielding activities in consumer
lending throughout the region.
the strong performance of the entities
in Bosnia and Herzegovina and Kosovo.
The solid growth of retail lending with
still-attractive margins was recorded
in all markets, providing support for
implementation of the strategy.
The financial markets segment reflects the
rapid decline in yields on investments in
securities which get reinvested, and so are
repriced over a 3–4 year cycle. In addition,
the higher yielding bonds received in
2013 as compensation for the transfers to
the Bank Asset Management Company
(BAMC; the Slovenian ‘bad bank’) matured
(EUR 300 million as at end of 2015, the
rest with the end of 2016). With the Bank
maintaining a conservative investment
profile in mostly Sovereigns and Financial
Institutions, yields on reinvestments have
considerably declined in recent years,
including 2016. However, a slight reversal
of this trend was seen towards the end
of 2016.
Non-core markets and activities:
a controlled wind down
The process of an intensive reduction in
non-core members and business activities
continued successfully throughout the
year. In most of the remaining non-core
members, liquidation processes were
initiated in 2016 in compliance with the
EC stipulations. Nonetheless, collection
activities from all these entities continue
with full dedication. The loss of this
segment was substantially lower compared
to 2015 thanks to the much strengthened
collection ability, and already quite high
coverage ratios. However, the segment still
accounts for a sizable cost base of some
NLB Group 2016 Annual Report 26
CIR
normalised
CIR
62.1%
59.4%
303.5
35.8
104.8
60.0%
61.6%
61.8%
60.9%
-1.2%
297.8
-2.8%
289.5
31.9
102.8
28.3
95.8
162.9
163.2
165.4
Depreciation and amortisation
Other general administrative costs
Employee costs
The highest growth in
profitability resulted from
the strong development
of strategic foreign
markets with record results
in Macedonia and the
strong performance of
the entities in Bosnia and
Herzegovina and Kosovo.
2014
2015
2016
Figure 4: Total costs of NLB Group (in EUR million)
Cost optimisation is one of the important
pillars of improved profitability
Costs continue to be a focus of
management attention. Costs declined
overall by 3% YoY in 2016. Special
attention was given in 2016 to general and
administrative expenses with substantial
savings achieved (-7% or EUR 7.0 million
YoY). The cost-reduction trend is present
in most members of the Group, especially
the non-strategic ones.
Employee costs were higher mainly
due to the reintroduced payment of
supplementary pension insurance for
employees, the higher holiday allowance
paid in the Bank, and one-off costs incurred
with HR redundancies in NLB Banka
Beograd for a total amount of EUR 0.9
million. The Group also created provisions
totalling EUR 10.6 million in anticipation
of future HR redundancies envisaged in
Slovenia (shown in ‘Other Provisions’ in
the Financial Statements).
As a result, the cost-to-income ratio
(CIR) amounted to 60.9%, namely a
slight improvement (0.8 percentage point)
compared to 2015.
Efficient and proactive risk
management of operations
2016 was an exceptional year due to the
decrease in the volume of NPLs by more
than 30% to just below EUR 1.3 billion
(2015: EUR 1.9 billion) – a reduction of
the NPL ratio to 13.8% (2015: 19.3%),
while the internationally more comparable
NPE ratio (based on EBA guidelines)
already dropped to 10% (2015: 14.3%).
This strong performance in reducing
NPLs was enabled by the strong results in
collection and the continued divestment of
exposures at the asset and portfolio level.
The Group Real Estate Management
function (GREAM) continues to be an
important facilitator/back-stop investor/
NLB Group 2016 Annual Report 27
17.0%
Strong capital ratio (CET 1)
7.4%
Group ROE
9.7%
normalised after-tax
Group RORAC
EUR 4.9 billion
of unencumbered liquidity
reserves in cash and securities
Strong liquidity and capital position
The Group ended 2016 with a very strong
capital ratio (CET 1) of 17.0% – this figure
already assumes the envisaged dividend
payout of EUR 63.8 million (100% of the
2016 result of the Bank and 58% of the
Group result) to the shareholders, and is
still well above regulatory requirements.
The Group ROE stands at 7.4%, while
the normalised after-tax Group RORAC
(calculated on 14.75% of RWAs) stands
at 9.7%.
Liquidity remains extremely strong, with
sizable amounts (EUR 4.9 billion) of
unencumbered liquidity reserves in cash
and securities. Consequently, attention is
placed on the structure and concentration,
as well as the yield generated from liquidity
reserves. The Group’s exposure to interest
rate risk is within the targeted, low-risk
appetite profile.
asset manager for real estate in foreclosures,
respectively, transacting on exposures
backed up with real estate collateral, and
holds approximately EUR 128 million
in foreclosed assets under professional,
dedicated real estate management.
Coverage ratios were further improved to
64.6% (impairments for NPL portfolio/
NPL portfolio stock, 2015: 62.8%) and
76.1% (total impairments/NPL portfolio
stock, 2015: 72.2%).
In 2016, the Group saw the conclusion of
a benchmark sale of part of the non-
performing portfolio (non-performing
portfolio sale) of EUR 500 million in gross
exposures – reducing NPL balances by
EUR 233 million (the difference of having
already been taken off of the balance
sheet). The transaction resulted in realising
a one-off negative effect on the profit and
loss account in the amount of EUR 29.9
million, of which minus EUR 4.1 million
was shown in interest income. This effect
can largely be attributed to the difference
in external investors’ yield expectations
compared to those of the Bank.
New production since 2014 has been
underwritten according to the much
improved credit standards, as evidenced
by the NPL formation from these vintages
being cumulatively very low.
NLB Group 2016 Annual Report Chapter 2. 3:
NLB Group
Strategy
A clear strategy to address
current and future challenges
The Group has been successfully
Mission, values, and the Group vision
implementing necessary restructuring
measures over the last three years,
thereby stabilising its business and
returning to profit in all of its core
markets. Furthermore, after years of
turmoil, the Group is facing more benign
macroeconomic conditions across SEE
markets and improving banking sector
performance. Nevertheless, the Group
is fully conscious of future challenges to
sustain/further enhance its profitability
and achieve growth. To address these
challenges, the Group has reconfirmed
its mission and values, and adopted
a new comprehensive strategy.
The Group is committed to developing
a culture of client focus, risk awareness,
integrity, efficient organisation, and social
responsibility. The trust of the Group’s
clients, employees, shareholders, and the
society in which it works is seen by the
Group as a profound responsibility. The
Group also strives to honour this trust
by working together with its stakeholders
for positive change, mutual benefit, and
growth. By incorporating the Group’s
values into its activities, NLB aims to
contribute to positive change in its
environment.
NLB Group 2016 Annual Report 29
The Group defines its
key values as follows:
Strategy of the Group through 2020
Optimise client offering
Responsibility towards clients,
employees, and the social environment
A clear path going forward
The Group’s new strategy puts forward
strategic initiatives with short- and
medium-term impact that aim to
modernise and improve the Group’s
operations, enhance revenues, reduce
costs, and improve its growth prospects.
Key priorities of the Group’s new
strategy are as follows:
• Through pricing optimisation, list price
levels will be aligned with product value,
pricing levels will be differentiated, and
price realisation will be improved
• Improvements to the Group’s customer
value proposition and approach to sales
should develop, bundle, and combine
products and services to boost lending
across all segments
Commitment to deliver on promises and
objectives
Innovation for customers
• Support to large corporate clients,
Open communication and cooperation
• An omnichannel product distribution
initiative focuses on customer
activities enabled across multiple
digital and traditional channels in
order to reduce costs by encouraging
excellent-user-experience-based
migration to lower
cost remote channels
requiring financial services across SEE,
will be significantly enhanced
• Focus on fee-based products will be
intensified including the exploration
of additional asset management
and insurance products sales within
the Group
Seeking win-win solutions in its activities
Simplicity champion
Efficiency in the fulfilment of
its commitments
Vision:
The Group’s 2020 Vision is to become
innovative bank creating simple
customer-oriented solutions with
an exclusive strategic focus on
Slovenia and countries in SEE.
• Partnership programmes are intended
to be implemented in order to
establish impactful and long-standing
partnerships, which should strengthen
customer relationships by creating
additional products and services for
customers
• End-to-end customer solutions
will differentiate the Bank from its
competition by increasing the Bank
cross-selling potential, and transforming
it from a stand-alone product provider
to a platform offering comprehensive
solutions within an ecosystem of services
• Stricter procurement practices, efficiency
improvements in facility management,
and other cost rationalisation measures
should optimise the operations of the
Group
• Redesigning of end-to-end processes and
elimination of manual workload through
automation of back office activities will
simplify and appropriately scale the
Group’s operations
• Transformation and modernisation
of the Group’s IT operations will
allow IT to more effectively support
business initiatives within the Group’s
overall strategy
NLB Group 2016 Annual Report
30
Smart banking
Medium-term strategic
and financial targets
• Pricing incentives, improvements to the
client’s digital experience, and a focus on
advisory rather than transaction services
in branches will promote customer
migration to digital channels
• Through effective steering of sales tasks,
revisions to incentives and profitability
targets for sales staff, staff-wide trainings
and knowledge-sharing programs, the
sales processes of the Group will be
enhanced
• By extracting value-creating insights
derived from customer data, more
targeted cross-selling, up-selling, and
customer acquisition will be enabled
Measured risk-taking
• Improvements to risk governance, risk
modelling, collection efficiency, and
credit processes will accelerate and
enhance decision-making in risk-taking,
thereby improving customer experience
Engaged employees
• Fostering a cooperative and engaging
working environment should better
motivate the talents and stimulate their
participation in the Group’s evolution
• Skills and capabilities of the talents
will be upgraded
• A culture of cooperation and
collaboration will be promoted
across the Group
Delivering growth, sustainable returns,
and attractive dividend payout
Based on the above-mentioned measures
and improvement potential, the Group’s
management team set the following
medium-term financial targets:
> 2.7%
Net interest margin
< 95%
Loans-to-deposits ratio
~ 16%
Total capital ratio
~ 50%
CIR
< 100 bps
Cost of risk
< 5%
NPE ratio
> 10%
ROE
> 70%
Dividend payout
(as a percentage of the Group profits)
31
The future is digital.
That’s why we have renewed
the strategy of NLB Group
– to improve customer
experience, optimise our
range of products, to simplify
the Bank’s operations, and
enhance its distribution
channels and capabilities.
NLB Group – to improve customer
experience, optimise our range of
Luka Repanšek
General Manager, Strategy
and Business Development
“
The world of banking is changing rapidly.
We are faced with an environment
of ever-increasing competition, low
products, to simplify the Bank’s
interest rates, and more demanding
operations, and enhance its distribution
and knowledgeable customers. Our
channels and capabilities. In addition
customers’ needs and preferences
to supporting target business
for digital channels on the one hand,
improvements, NLB aspires for a
and regulatory interventions and
leaner, more agile, and cost-effective
high costs of operations on the other,
IT systems architecture to be able to
challenge us to change our mind-set.
better respond to digital challenges
The future is digital. That’s why we
of the future banking. Together we
have renewed the strategy of
are committed to that future.
NLB Group 2016 Annual Report Chapter 2. 4:
Macroeconomic
and Regulatory
Environment
Following a prolonged period of
disinflationary pressure, weak
fundamental data, extraordinary
monetary policy, and depressed
expectations, global activity improved
in the second half of the year.
The global economy remained unwavering
in the face of events that carried with
them considerable potential for market
disruption throughout the year. From
terrorist attacks, worries regarding China’s
economy, Europe’s banking system,
Britain’s referendum vote, the United
States (US) presidential election, and
Italy’s referendum in December, 2016 has
certainly been turbulent. The assurance of
central bank response rescuing markets in
case of elevated instability calmed market
participants, and resulted in surprisingly
muted reactions to the significant events
that occurred. Though it could also be
argued that following the steady stream of
potentially disruptive events in past years,
markets have grown somewhat accustomed,
almost complacent, to the intensive media
coverage that usually accompanies them.
Against this turbulent background, the
macroeconomic picture in the US
NLB Group 2016 Annual Report 33
improved markedly by the end of the year,
and resulted in another federal funds rate
increase by the Federal Reserve. Towards
the end of the year a distinct uptick in
inflationary dynamics and macroeconomic
expectations occurred buoyed by promises
of fiscal spending, an output cut agreement
amongst energy producers, and rising
commodity prices. The improved inflation
outlook together with expectations of an
acceleration of rate increases in the US,
and an improving macroeconomic picture,
resulted in a market euphoria that lasted
through the remainder of the year.
With continuing support from the
European Central Bank’s (ECB) monetary
policies, which remained accommodative
and were twice expanded in the year, the
Euro area’s economy expanded by 1.7% in
2016. Economic growth was supported by
improved domestic demand, as continuing
labour market improvement, the
unemployment rate fell to a five-year low,
and resilient consumer confidence, led to
robust private consumption growth in spite
of rising uncertainties within the region.
Monetary policy measures from the ECB,
with support from global developments,
resulted in improving inflationary dynamics
and an acceleration of credit growth
dynamics in the region. With expectations
that monetary policy will remain
accommodative, the macroeconomic
outlook for the Euro area remains positive.
Positive global inflationary dynamics are
expected to continue into 2017, supported
by elevated energy costs, fiscal spending,
and an improving macroeconomic picture.
Signals from the major central banks
indicating that the era of extraordinary
measures may slowly be coming to an
end, and the prospect of significant fiscal
policy stimulus in the US, should be
supportive of an improved rate and yield
environment. There can be no denying
that the baseline macroeconomic outlook
has improved, however, simultaneously
numerous sources of potentially disruptive
risk have arisen, among them: growing
political risks in Europe, together with
Britain’s departure proceedings; significant
uncertainty regarding US policy; pressure
on emerging markets from rising interest
rates; and growing geopolitical tensions.
The aforementioned downside risks
could potentially lead to a reversal of the
positive trends from 2016 and result in a
continuation of the low rate environment,
should they materialise.
Slovenia
Slovenia’s economy continued expanding
at a steady pace throughout the year,
achieving economic growth of 2.5%.
The economic revival continued building
momentum throughout the year, with
several key metrics showing considerable
progress. Industrial production expanded
by 6.6%, among the fastest expansions in
the Euro area, with manufacturing again
contributing significantly to economic
growth. Bolstered by the recovering
labour market, LFS unemployment levels
decreased by 1.1 percentage points to
7.9%, improved consumer sentiment, and
another year of positive economic progress,
private consumption growth accelerated to
2.8% – an increase of 2.3 percentage points
when compared with 2015. The year also
marked the first time since mid 2012 that
the retail sales index expanded above 2010
levels. Trade dynamics remained supportive
through the year, decelerating only slightly
on a yearly basis. After recording deflation
in 2015, consumer prices remained
negative, measuring -0.2%. The year also
marked the first decrease of Slovenia’s
government debt levels as a percentage
of gross domestic product (GDP) since
the start of the global financial crisis in
2008, while the government deficit further
decreased to 82.6% of GDP, as at the third
quarter. Following a credit rating upgrade
from Fitch, Slovenia now enjoys an A-level
credit rating from two of the three major
rating agencies, while remaining one notch
below A with a positive outlook from
Moody’s. The prospect of a continued
recovery in the country’s main trading
partners, and early signs of a revival for
the construction sector means the outlook
for the country remains positive, with the
potential for further economic acceleration
in the coming year.
Banking System in Slovenia
The profitability of Slovenia’s banking
system expanded in the year, achieving an
aggregate profit of EUR 344.3 million,
corresponding to a return on equity of
8.3%. In spite of falling interest income,
the banking system achieved operating
profit growth in the year, while falling
reservation requirements added to the
system’s profitability. Considerable progress
with the credit portfolio cleanup was
achieved in the year, with non-performing
loans (NPLs) decreasing to 6.5% as of
November, a drop of 3.4 percentage
points. Bolstered by the pickup of private
consumption and the nascent revival of
the real estate market, household loan
growth accelerated from 1.2% in 2015,
to 4.6%. The corporate loan portfolio
continued contracting, ending the year
NLB Group 2016 Annual Report 34
Table 2: Movement of key macroeconomic indicators in Slovenia and the Economic and Monetary Union
2016
2015
2014
2013
2012
2.5
-0.2
7.9
(2) 6.7
(1) 82.6
(2) -1.6
1.7
0.2
10.0
3.4
(1) 90.1
(2) -1.8
2.3
-0.8
9.0
5.2
83.1
-2.7
2.0
0.0
10.9
3.1
90.4
-2.1
3.1
0.4
9.7
6.2
80.9
-5.0
1.2
0.4
11.6
2.4
92.0
-2.6
-1.1
1.9
10.1
4.8
71.0
-15.0
-0.3
1.3
12.0
2.2
91.3
-3.0
-2.7
2.8
8.9
2.6
53.9
-4.1
-0.9
2.5
11.4
1.4
89.5
-3.6
Slovenia
GDP (real growth in %)
Average annual inflation rate - HICP (in %)
Surveyed unemployment rate - LFS (in %)
Current account of balance of payments (% of GDP)
Public debt (% of GDP)
Budgetery deficit/surplus (% of GDP)
Euro-area
GDP (real growth in %)
Average annual inflation rate - HICP (in %)
Surveyed unemployment rate - LFS (in %)
Current account of balance of payments (% of GDP)
Public debt (% of GDP)
Budgetery deficit/surplus (% of GDP)
1 Data as at Q3 2016
2 Trailing twelve month average Q4 2015-Q3 2016
Sources: Eurostat, SURS, ECB
120
115
110
105
100
95
90
2011
2012
2013
2014
2015
2016
Index of retail sales
Index of industrial production
100 = 2010
Figure 5: Slovenia: Growth of retail sales and industrial production indicies
Source: Slovenian Statistical Office
NLB Group 2016 Annual Report
35
Slovenia’s economy
continued expanding at
a steady pace throughout
the year, achieving
economic growth of 2.5%.
The economic revival
continued building
mo-mentum throughout
the year, with several
key metrics showing
considerable progress.
Loans to corporate sector
Loans to households
Basel committee, would positively impact
banking system profitability, should they
materialise in the coming year. While
the Euribor futures indicate a gradual
recovery from current low rates, risks from
abroad carry the potential to result in a
postponement of the recovery from the
current rate environment, due to potential
additional reactionary measures from the
ECB. In coming years, continuing high
levels of competitive pressure and excess
liquidity will continue to impart downward
pressure on interest rates, while money
market rates are expected to remain low for
some time. The tough earning environment
will force banks to continue focusing
on increasing non-interest income and
decreasing costs. Further consolidation of
the banking system is expected following a
series of acquisitions and mergers within
the banking system throughout the year.
1.0% lower – a significant improvement
when compared with the previous year’s
contraction of 10.8%. Despite another year
of contraction, the revival of retail trade to
pre-crisis levels, improving sentiment in the
construction sector and strong industrial
production performance, have resulted
in an improved outlook for the portfolio’s
recovery. Overall, total loans to the non-
financial sector grew 1.3% in the year. The
continuing contraction of the loan portfolio
and a growing deposit base resulted in
another contraction of the system’s non-
financial loan-to-deposit ratio, though at a
diminished pace, to 78.6% from 80.6% at
the start of the year.
With support from the improving
macroeconomic picture, the banking
system’s outlook continues to improve.
Expectations of steepening in the European
government bond yield curve, as a result
of the events that occurred in the second
half of the year, as well as the possibility
of lower capital requirements, following
protests from non-US members of the
5%
0%
-5%
-10%
-15%
-20%
-25%
-30%
2011
2012
2013
2014
2015
2016
Figure 6: Annual loan growth in the Slovenian banking system
Source: Bank of Slovenia
NLB Group 2016 Annual Report 36
Table 3: Trends in the key macroeconomic indicators for selected countries in SEE
GDP
(real growth in %)
Average inflation
(in %)
Unemployment rate
(in %)
Current account of the
balance of payments
(as % of GDP)
Budget deficit / surplus
(as % of GDP)
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
BiH
Montenegro
Macedonia
Serbia
Kosovo
(1) 1.8
(1) 2.1
2.4
2.8
(1) 3.6
3.1
3.4
3.8
0.8
4.1
1.1
1.8
3.6
-1.8
1.2
-1.1
-0.3
-0.2
1.1
0.3
-1.0
1.5
-0.3
1.4
-0.6
-0.9
-0.7
-0.3
25.4
27.7
27.5
n.a.
-5.7
-7.4
n.a.
17.1
17.3
18.2
n.a.
-13.4
-15.2
(3)-2.9
23.8
26.1
28.0
(2)-2.5
2.1
15.3
17.7
19.2
-4.0
-2.0
-4.7
-0.6
-6.0
-0.7
-0.2
n.a.
0.4
(1) 27.5
32.9
35.3
n.a.
(4)-8.6
(4)-6.9
0.7
-8.1
-3.5
-2.8
-1.3
-2.0
-3.0
-4.2
-6.3
-2.2
Source: Statistical offices, Central banks.
1 Growth in the first three quarters of 2015;
2 Trailing twelve month average Q4 2015-Q3 2016;
3 Growth in the first half of 2016;
4 Own calculation
SEE Markets
Developments within the Euro area
continue to positively impact the region’s
economies, through positive external
demand and growing tourism, while
rising employment and positive economic
developments have resulted in the return of
positive domestic consumption dynamics.
After returning to economic growth
in 2015, following the flood-induced
economic contraction of 2014, Serbia’s
economic growth accelerated to 3.2%
in 2016. The government solidified its
position in the April elections, ensuring
the necessary stability for continued
reform implementation. Investments made
a significant contribution to growth in
the year, as did strong external demand.
Improved economic growth dynamics
combined with labour market reforms
resulted in employment growth, while
unemployment levels decreased to 15.3%,
from 17.7% at the start of the year.
Continued labour market improvements
and positive economic developments are
expected to be supportive of the nascent
private consumption recovery. The banking
system’s profitability improved in the year,
with a return on equity of 6.9% in the first
nine months of the year. The economic
recovery resulted in a revival of the
corporate credit portfolio, which expanded
by 1.8%, and loans to households grew
10.5%. The fall of high NPL levels
accelerated through the year, they ended
the third quarter 2.1 percentage points
lower at 19.5%.
Kosovo’s economy continued the strong
economic expansion from the previous year,
growing 3.6% in the first three quarters of
2016. In the mid-term, further growth will
be supported by private consumption and
private investment. Due to the importance
of remittances in Kosovo’s economy, it
has generally remained stable and resilient
to regional downturns. In spite of strong
economic performance, unemployment
levels remained elevated due to structural
issues, however, notable progress was made
in 2016, with the unemployment figure
decreasing by 5.4 percentage points to
NLB Group 2016 Annual Report
37
Developments within
the Euro area continue
to positively impact the
region’s economies,
through positive external
demand and growing
tourism, while rising
employment and positive
economic developments
have resulted in the return
of positive domestic
consumption dynamics.
27.5%. The banking system achieved a
return on equity of 22.4%, slightly lower
than in the previous year, primarily due to
a drop of interest income. Credit growth
accelerated from the previous year, with
corporate loans increasing 9.1%, while
household loans expanded by 14.7%. NPL
levels remain the lowest within the region
at 4.9%.
Economic growth in Montenegro will be
driven by considerable public investment
stemming from the Bar Boljare highway
project, this will result in further fiscal strain
and rising public debt in the mid-term.
Tourism has shown notable growth, while
further growth is expected as hotel capacity
and investments increase. Following a
deceleration in the first half of the year,
stemming from highway permit issuance
delays, economic growth accelerated
and amounted to 2.1% in the first nine
months of the year. Tempered growth in
the first two quarters resulted in a slight
deterioration in the labour market, which
reversed in the second half as the economy
picked up. The banking system achieved a
return on equity of 6.6% as of the end of
the third quarter, a notable improvement
compared with the previous year, loans
to households grew by 10.5% in the year,
while the corporate loan portfolio grew by
1.9%. NPLs continued decreasing through
the year and amounted to 10.2% of the
credit portfolio at the end of third quarter,
a notable decrease from the 16.4% figure at
the start of 2014.
Continuing political uncertainty proved
restrictive for Macedonia’s economy,
impacting private investment, and resulting
in a tapering of economic growth to 2.4%
from 3.7% in the prior year. Despite the
noted uncertainty, household consumption
remained robust and was the primary
driver of growth, and it was supported by
increasing employment and household
lending. The banking system’s profitability
increased in the year, rising to a return
on equity of 13.6%. While consumer
loans experienced growth of 7.0% in the
year, political tension negatively impacted
corporate loans, which decreased by 3.7%.
NPLs decreased by 3.4 percentage points
to 7.4% at the end of the third quarter.
The country has a strong economic base
and potential, however, strong growth
projections are predicated on a resolution
of lingering political issues, which the
December elections failed to achieve.
The economy of Bosnia and Herzegovina
grew at a strong pace of 1.8% in the
first three quarters of the year, where net
exports and resurgent private consumption
were the main drivers of growth, and with
a notable contribution from manufacturing.
Economic growth is expected to accelerate
to 4.0% in the mid-term, supported
by consumption, which will in turn be
supported by continued remittance inflows.
Modest export gains are also expected,
while investment in energy, construction,
and tourism will support investment
growth. The banking system was profitable
in the year, achieving a return on equity of
7.1% in the first three quarters of the year,
and profitability increased 6.0 percentage
points compared with the previous year.
Modest credit growth was recorded, with
both household and corporate loans
finishing higher for the year. The quality of
the credit portfolio improved throughout
the year, and NPLs fell by 1.6 percentage
points to 12.1% at the end of the third
quarter.
NLB Group 2016 Annual Report 38
Regulatory environment
During 2016 many changes in the EU and
Slovenian regulatory requirement were
adopted which the Bank implemented in its
daily business. This chapter focuses on the
material ones.
In January 2016, the Regulation 806/2014
establishing uniform rules and a uniform
procedure for the resolution of credit
institutions and certain investment firms
in the framework of a Single Resolution
Mechanism (SRM) and a Single Resolution
Fund (SRF) Regulation entered into force.
The Single Resolution Board (SRB) thereby
undertook the bank resolution powers,
setting of minimum requirement for own
funds and eligible liabilities (MREL), and
preparation of resolution plans of banks
that fall under its direct responsibility,
i.e. also NLB. The SRM Regulation
also established the SRF, which will be
gradually built up to reach the target level
of at least 1% of the amount of covered
deposits of all credit institutions within the
Banking Union by 31 December 2023.
Further, in June 2016, the Resolution
and Compulsory Dissolution of Credit
Institutions Act (ZRPPB) entered into force,
transposing the BRRD Directive (Directive
2014/59/EU establishing a framework
for the recovery and resolution of credit
institutions and investment firms) into
Slovenian national law.
The new Deposit Guarantee Scheme Act
(ZSJV), transposing the Directive 2014/49/
EU on deposit guarantee schemes entered
into force in April 2016. It introduced
ex ante contributions to the Slovenian
deposit guarantee scheme, extends the
scope of guaranteed deposits and depositor
information requirements, as well as the
payout procedures, and thus imposes on
the bank several requirements regarding
financing the scheme as well as reporting
obligations.
The Prevention of Money Laundering
and Terrorist Financing Act (ZPPDFT-1)
was amended in November to transpose
the 4th AML Directive 2015/849 on the
prevention of the use of the financial
system for the purposes of money
laundering or terrorist financing. These
changes present a major step forward in
improving the effectiveness within the EU
to combat the laundering of money from
criminal activities, and countering the
financing of terrorist activities, inter alia,
through implementation of an approach
based on risk (hence the ‘risk-based
approach’), which will lead to increased
efficiency of the implementation of
measures at the person level, as well as
at the national and European levels. The
approach introduces a broader definition
of politically exposed persons, in addition
to those from foreign countries it includes
domestic politically exposed persons (PEPs),
reducing the threshold for reporting cash
transactions from EUR 30,000 to EUR
15,000, introduction of the national central
register of beneficial owners to ensure
transparency of ownership structures of
business entities, and by improving the
system of supervision and sanctioning with
new inspection powers for the Office for
Money Laundering Prevention.
At the beginning of July, Regulation
(EU) No. 596/2014 on market abuse
(Market abuse regulation, MAR), with
implementing regulations which unified
the legislation to prevent trading based
on inside information for the entire EU,
entered into force. Since the Bank is an
issuer of financial instruments the members
of the Management Board (MB) and the
Supervisory Board (SB) are subject to the
new requirements. Article 19 of the MAR
states that the members of the MB and SB
and persons related to them must report
to the supervisory authority (SMA) and
the Bank on all transactions in the Bank
financial instruments when the total value
of transactions in the calendar year exceeds
the amount of EUR 5,000 (the sum of
purchases and sales). The information is
reported no later than three business days
after the transaction. In accordance with
the fifth paragraph of Article 19 persons
discharging managerial responsibilities
must notify the persons closely associated
with them of their reporting obligations
in writing and must keep a copy of this
notification. The MAR also determines
sanctions for natural and legal persons in
the event of infringements.
The Regulation (EU) 2016/679 of the
European Parliament and of the Council
of 27 April 2016 on the protection
of natural persons with regard to the
processing of personal data and on the
free movement of such data and repealing
Directive 95/46/EC (General Data
Protection Regulation, GDPR) was also
published in May 2016 and is applicable
from May 2018. The GDPR is reforming
the data protection area in the EU to follow
the intense development of information
and communication technologies, the
extent, intensity, and transfers of personal
data (e.g. the development and expansion
of the use of cloud computing, social
networking, and smart phones) which all
requires adaptation and modernisation
NLB Group 2016 Annual Report 39
of payment services and their providers,
defines more clearly the exceptions to
these rules, improves cooperation and
the exchange of information between
authorities, and introduces stricter safety
requirements for electronic payments.
The Bank will need to implement the
requirements of the national legislation
implementing the PSD2, as well as several
directly applicable regulatory technical
standards which will further regulate the
PSD2 requirements.
During 2016 many changes
in the EU and Slovenian
regulatory requirement
were adopted which
the Bank implemented
in its daily business.
of the EU legislative framework. Unique
and updated legislation on data protection
is essential to ensure the fundamental
rights of individuals to the protection of
personal data, the development of the
digital economy, and the strengthening of
the fight against international crime and
terrorism. The GDPR regulates the rights
of natural persons whose personal data are
processed. It also establishes the obligation
of persons responsible for data processing
regarding the provision of transparent and
easily accessible information to individuals
about the processing of their data. The
GDPR also specifies the general obligations
of the operators and persons who process
personal data on behalf of processors.
These obligations include the obligation to
implement appropriate security measures
and the obligation to notify personal data
breaches. Inter alia, the GDPR also gives
greater emphasis to (preliminary) analysis
of the effects on the protection of personal
data in the event of incidents, such as
loss of personal data, and establishes the
obligation of reporting to the supervisory
authority and, in some cases, all affected
individuals.
In December, the new Central Credit
Register Act was adopted, according
to which starting from January 2017
the Central Credit Register (CCR) will
be established, a centralised national
database of the debt of private individuals
and business entities. The purpose of
CCR is in improving the processes of
assessing and managing lenders’ credit
risks, encouraging policies and measures
for responsible lending, and sustainable
borrowing to prevent excessive borrowing
by both private individuals and business
entities, and aiding in the performance
of the Bank of Slovenia’s (BoS) tasks (risk
management, macroprudential supervision,
administration of monetary policy,
maintenance of financial stability, etc.). The
establishment of a central credit register in
Slovenia also follows actions in European
banking. In conjunction with the central
banks of the Euro area and certain central
banks of countries that are not members of
the Euro area, in 2011 the ECB launched
the project to establish a dataset with
detailed information on individual bank
loans in the Euro area, ‘The Analytical
Credit Datasets’ (AnaCredit). It will
combine new data and existing national
credit registers into a harmonised database
to support central banking functions, such
as decision-making in monetary policy and
macroprudential supervision. It will also
improve the cross border comparability and
interoperability of credit risk databases.
At the end of June the National Assembly
adopted the amended Payment Services
and Systems Act (ZPlaSS E), which
transposes the Directive 2014/92/EU
on the comparability of fees related to
payment accounts, payment account
switching, and access to payment accounts
with basic features (Payments Account
Directive, PAD). The main novelties include
changes in the calculation of fees for
consumers and adjustment of the process
of ensuring a payment account with basic
features for all customers. Regarding the
Payment Services area, further changes of
national legislation are expected in next
year regarding the implementation of the
Directive 2015/2366 on payment services
in the internal market (Payments Services
Directive, PSD2). PSD2 needs to be
transposed to national laws by 13 January
2018 and, inter alia, extends the scope
NLB Group 2016 Annual Report Innovative
Chapter 3
ИновативниInovativniInovativInovativniInovativni ИновативниInovativni Innovative
Chapter 3
ИновативниInovativniInovativInovativniInovativni ИновативниInovativni Chapter 3. 1:
Retail Banking
in Slovenia
#1 position and strong brand
enabling future growth
The retail banking segment has
clients’ experience and satisfaction
always been a solid anchor for
with investments made particularly
the Bank, maintaining the leading
in its mobile banking offering. The
position in the Slovenian market with
Bank’s branch network – which still
a comprehensive, yet simple service
is by far the largest in the country –
offering. It remains the key pillar of
continues to be the main distribution
the Group’s operations and performed
channel, thus the Bank continued its
well in 2016 despite challenging
reshaping and modernisation effort of
market conditions in Slovenia, as
branch locations. Market shares of the
well as in other EMU countries. In
Bank remained stable in a gradually
2016 the Bank continued to focus on
consolidating market environment.
NLB Group 2016 Annual Report 43
Retail operations
Private banking
716,551
individuals hold a personal
account at NLB
6.7%
more clients in private banking than in
2015
755,120
of clients in total
660,790
active clients
26,171
new clients joined
NLB in 2016
1,077
private banking clients
16.8%
increase in the volume of assets managed
by private banking
EUR 554 million
managed by the private banking
Contact Centre
Cards
1,266,367
contacts were processed
81,178
written replies were prepared
333,800
orders and requests by clients
were executed
536,853
incoming phone calls were processed
170,723
outgoing phone calls were processed
* Data as per 30 June 2016.
1,098,096
payment cards used by the NLB’s clients.
Card structure: BaMaestro (805,292), followed
by MasterCard (171,750), Karanta, and Visa
4.7%
more purchases were made
cumulatively using cards in 2016
36%
Debit cards market share *
POS terminals
12,459
terminals, of which 60% enabling
contactless payments
NLB Group 2016 Annual Report 44
Highlights:
NLB clients are satisfied clients
• Scale advantage
Customer survey ³
Satisfaction with attitude towards clients index
• Strong brand recognition, local
and trusted bank perception and
deeply-rooted customer relationships
• Optimally positioned to benefit from
lending growth in the retail market
given its largest customer base
Competitors
average
Satisfaction with user experience index
• Strategic focus on upgrading
customer experience and delivering
the best products to clients
• Strong presence and high
accessibility for clients with
largest branch (113) and ATM
(558 units) accross Slovenia
and 24/7 Contact Centre
Competitors
average
Trusted brand in Slovenia for 10 consecutive years
84
76
80
75
2
0
1
6
2
0
1
5
2
0
1
4
2
0
1
3
2
0
1
2
2
0
1
1
2
0
1
0
2
0
0
9
2
0
0
8
2
0
0
7
Figure 7: Retail banking leader in Slovenia
3 GfK Slovenia, NLB Client Satisfaction Measurement, 2016
NLB Group 2016 Annual Report 45
Retail banking in Slovenia
in EUR million consolidated
2016*
2015
Growth**
73.2
66.5
139.8
-101.1
38.6
-2.7
5.2
41.0
78.3
72.5
150.7
-106.8
44.0
-9.8
4.5
38.7
1,890.9
1,959.0
1,199.2
489.7
4,901.8
-6%
-8%
-7%
-5%
-12%
-72%
15%
6%
3%
2%
2%
-1%
7%
2016
71.2
66.5
137.8
-101.1
36.6
-10.2
5.2
31.5
1,952.7
1,992.1
1,227.4
486.8
5,224.3
Table 4: Performance of the retail banking segment in Slovenia
Net interest income
Net non-interest income
Total net operating income
Total costs
Result before impairments and provisions
Impairments and provisions
Net gains from investments in subsidiaries, associates and JV
Result before tax
Net loans to NBS
Gross loans to NBS
Housing loans
Consumer loans
Deposits from NBS
* Normalised for the effect of non-performing portfolio sale
** Growth for P&L calculated based on the normalised data
Loans to retail clients in Slovenia rose
by EUR 33.1 million. Normalised by
the effects of the sale of part of non-
performing portfolio (non-performing
portfolio sale) the increase would have
been EUR 87.4 million (+ 4.2% YoY) in
line with the market evolution. Especially
noticeable was a pickup in activities in the
housing loans segment.
In 2016, profit before tax amounted to
EUR 31.5 million, normalised by the
effects of a non-performing portfolio sale,
the before tax profit increased 6% YoY on
the basis of further cost improvements and
a very moderate cost of risk.
Net interest income was under pressure
given the continued low interest
environment with signs of pricing
bottoming out noticed towards the
year-end.
NLB Group 2016 Annual Report
46
#1
Retail net loans
(September 2016)
#1
Retail deposits
(September 2016)
#1
Branch network
(Latest) 2
23.4%
30.4%
113
Nova KBM 1
SKB Banka
12.8%
11.5%
Nova KBM 1
Abanka
Abanka
9.9%
SKB Banka
17.3%
12.2%
8.7%
Nova KBM 1
Abanka
SKB Banka
UniCredit Bank
8.9%
Banka Koper
8.1%
Banka Koper
70
58
56
52
Note: ¹ Includes PBS and KBS Bank; ² NLB d.d., Nova KBM as of Dec-16; Abanka as of Jun-16; SKB and UniCredit as of Dec-15
Source: Bank Association of Slovenia, Financial reports of individual banks
Figure 8: Overview of the market shares in Slovenian banking sector
Segment
Loans (in EUR million)
Deposits (in EUR million) ¹
Assets under management
(in EUR million) ²
Private banking
8.1
8.5
9.9
132
182
197
377
474
554
Personal
Premium personal
Personal
Mass
Active population
Children/students
Seniors
Small Business
2014
2015
2016
2014
2015
2016
2014
2015
2016
1,051
1,232
1,338
1,376
1,815
2,094
1,728
2,268
2,637
2014
2015
2016
2014
2015
2016
2014
2015
2016
894
717
643
3,009
2,633
2,652
3,193
2,792
2,815
2014
2015
2016
2014
2015
2016
2014
2015
2016
1.7
1.7
1.9
260
272
281
260
272
281
2014
2015
2016
2014
2015
2016
2014
2015
2016
Total
1,955
1,959
1,992
4,776
4,902
5,224
5,558
5,806
6,287
2014
2015
2016
2014
2015
2016
2014
2015
2016
Note: ¹ Term + Sight deposits; ² Includes deposits, life insurance, and mutual funds
Figure 9: Evolution of business volumes/segment
NLB Group 2016 Annual Report 47
The Bank clearly remains
the market leader in
deposit-taking, providing
a key strategic funding
pool, valuable source
of client insight and
cross-selling opportunities.
Facts and figures – Retail
banking in Slovenia
Market leader in retail
banking in Slovenia
The Bank maintained a strong and leading
market position while not compromising
on the profitability of new business.
The Bank’s market share in gross loans
slightly increased to 24.0% (2015:
23.9%), normalised by the effect of the
non-performing portfolio sale. Compared
to 2015, the market share in deposits
increased by 0.2 percentage point to 30.4%.
Business volumes have been growing overall
with strong performance in private banking
and solid results in the mass and personal
banking segment.
The Bank maintains a well-diversified
portfolio of secured and unsecured loans
with both segments showing growth in
2016. Loan production has been picking
up, especially in the second half of 2016 –
with demand strongly growing for housing
lending resulting in a record increase in
housing loans segment benefitting from the
improved economic situation and increase
in consumer confidence.
The Bank clearly remains the clear market
leader in deposit-taking, providing a key
strategic funding source valuable source of
client insight and cross-selling opportunities.
Overdrafts
8%
Cards
3%
Purchase of
receivables 3%
Consumer
loans
25%
Housing
loans
61%
Figure 10: NLB’s structure
of retail loan book
NLB Group 2016 Annual Report
48
Segment
Criteria
Number of clients ¹
Service model
Private banking
Assets ≥ EUR 300,000 or
income ≥ EUR 6,000 monthly
Personal
Premium personal
Assets ≥ EUR 30,000 or
income ≥ EUR 1,500 monthly
Personal
Assets ≥ EUR 30,000 and
income ≥ EUR 1,000 monthly
Mass
Active population
Children/students
Seniors
Below income / assets criteria
for Personal Banking
Small Business
No credit exposure
Revenues < EUR 2.5 million
858
1,009
1,077
2014
2015
2016
98,665
129,960
144,541
2014
2015
2016
687,172
635,852
609,502
Large drop in Mass
clients driven by
migration to
Personal Segment
2014
2015
2016
35,260
33,857
30,441
2014
2015
2016
Dedicated private banker
Dedicated personal banker
Branch network
Branch network
P
e
r
s
o
n
a
l
i
s
e
d
t
r
e
a
t
m
e
n
t
B
a
s
i
c
s
e
r
v
i
c
e
s
Note: ¹ "Private banking" and "Mass" clients charts based on alternative scales
Figure 11: Tailored product offerings and servicing models
Innovation in Client Servicing
Simplified and streamlined procedures
and product offering
in the Mass and Personal segments
Retail banking in Slovenia
serves over 755,000 clients.
Offerings tailored to our client segments
Retail banking in Slovenia serves over
755,000 clients. More than a quarter of the
Bank’s clients have a dedicated personal
adviser specialised in tailoring our product
offering and services to meet specific
client needs. The remaining clients are
classified according to their life cycle and
being offered standard services catering to
their respective needs (children, students,
pensioneers, small entrepreneurs, etc.).
The Bank started to concentrate on
simplifying its service offering and
streamlining its procedures, and so
substantially improving the client
experience. As one of the first banks in
Slovenia to do so, the Bank introduced
the ePero (E-pen) solution throughout the
branch network, enabling digital signing
via tablets and access to signed documents
in ‘NLB Klik,’ thus significantly simplifying
and speeding up the process of closing
transactions with clients.
Figure 12: E-pen
NLB Group 2016 Annual Report
49
1,200
1,000
800
600
400
200
0
30%
25%
20%
15%
10%
5%
0
#1 in private banking with
best-in class-advisory and asset
management services
NLB is by far the market leader in private
banking with the largest team of private
banking consultants in Slovenia and over
1,000 clients. Assets under management
have been continuously growing since
inception of the service helped by our
first-class asset management product range
from individual portfolio management
to pre-packaged funds and standard
portfolios.
Complementing banking services
with asset management and insurance
products
NLB Skladi - Asset Management
NLB Asset Management is the leading
Slovenian asset management company,
with its products distributed exclusively by
the Bank with assets under management
increasing in 2016 by 14% to just over
EUR 1 billion. About two thirds (EUR 671
million) are invested in mutual funds and
approximately a third (EUR 364 million)
in discretionary portfolio management
products.
In 2016 it had positive inflows of almost
EUR 60 million in a very difficult market,
which saw all other competitors experience
substantial outflows, which helped increase
our market share to 27%.
NLB has invested 12 years of continuous
effort into educating the salesforce and
client base with this relatively new product
in Slovenia, providing a strong platform for
growth and cross-selling into the client base.
2016/13
+41.3%
2016/13
+80.6%
600
550
500
450
400
350
300
250
2013
2014
2015
2016
Total assets under management (in EUR million)
Number of clients
Figure 13: Assets in management and number of private banking clients
700
600
500
400
300
200
100
0
2012
2013
2014
2015
2016
Market share
Assets under management (in EUR million)
Figure 14: Assets in mutual funds under management
of NLB Asset Management and their market share
NLB Group 2016 Annual Report
50
NLB Vita – Life insurance
NLB Vita is a life insurance company
distributing its products exclusively via
the Bank. In 2016 in Slovenia NLB Vita
was ranked fourth among the classic life
insurance companies, with gross written
premium in excess of EUR 63 million,
achieving 11.1% market share. In 2016
a record net profit exceeded EUR 7.4
million, while total assets exceeded EUR
400 million.
The product range covers the whole risk/
reward spectrum in life insurance including
variants with portfolio linked performance
and guaranteed principal, as well as
complementary travel and health insurance
products.
Cooperation with GENERALI
Zavarovalnica d.d. – non-life insurance
In cooperation with insurance company
GENERALI Zavarovalnica d.d. the Bank
provides non-life insurance products to the
clients including car and home insurances.
In 2016 22.28% more policies were
acquired. Gross written premiums for 2016
amounted to EUR 2.2 million, presenting
29.54% more than in 2015.
450
400
350
300
250
200
2016/15
+3.1 p.p.
2016/15
+10.5%
12%
11%
10%
9%
8%
7%
6%
5%
2012
2013
2014
2015
2016
Market share
Total assets (in EUR million)
Figure 15: NLB Vita total assets and market share in traditional life insurances
NLB Group 2016 Annual Report 51
Strong delivery capabilities across
all channels – the future is digital
The Bank continues to be a leading
provider of banking services, a market
leader in terms of client accessibility and
market coverage with a comprehensive
network of 113 branch offices, 558 ATMs,
online banking services, and the Bank’s
Contact Centre operating 24/7.
• Branch offices continue to be a key area
for maintaining existing and creating
new client relationships. In 2016 the
Bank continued to modernise our branch
locations according to the ‘open space’
concept, enabling simpler and more
convenient interaction with clients.
• NLBs mobile bank ‘Klikin’ – introduced
in 2015 – has already attracted more
than 50,000 users.
• Online banking solution NLB Klik is
used by a third of the Bank’s clients.
• Mobile bankers’ team was established
to enable the Bank higher degree of
flexibility to provide its services at the
time and place of clients’ choice in
a professional, efficient, and discreet
manner.
• With its Contact Centre, NLB is the only
bank in Slovenia to provide clients with
24/7 access to banking services. As a
first in Slovenia the Bank will introduce
a video call and facility allowing for
individualised service on a 24/7 basis.
Distribution network
Description
Migration from branches to alternative
channels to boost efficiency
Branch network
and ATMs
113
branches
1,158
dedicated employees
558
ATMs (33% market share)
219,000
active online retail users
55,000
mobile users within
18 months
1
contact centre
91
specialised agents
Internet and mobile
Call Centre
•
•
•
•
•
•
•
•
•
•
Branches remain an important distribution channel
for all NLB products and third party providers,
focusing on advisory services
# of branches and clients per branch (k)¹
6.0
143
6.8
121
6.6
121
7.0
113
Nationwide network with balanced coverage across
region
Team of 10 mobile bankers offering services outside
branches
NLB’s ATMs have cash-in and bill-pay functionality
2013
2014
2015
2016
Wide range of functionalities on Internet
banking with primary focus on payments
% Klik penetration
32%
33%
34%
Customers can receive, view and pay
electronic invoices
Functionality allows customers to open
new deposit accounts
2014
2015
2016
Contact centre primarily focuses on helping
clients with transactions and providing advice
# of calls (k)
619
675
708
Contact centre is also used to conduct
sales campaigns
Key support channel for future online
and multichannel functionalities²
2014
2015
2016
Note: ¹ Includes Small Business segment ² Online chat and video call to be introduced in H1 2017
Figure 16: Distribution overview
NLB Group 2016 Annual Report
52
The Bank is continuously improving its
client experience through innovative ways
to approach various segments tuned to
their respective expectations.
• The Bank opened a mini-bank branch
office in the creative playing centre for
children, Mini-city in BTC in Ljubljana.
Through play, children can learn about
bank operations, the daily work of a
banker, as well as gain basic financial
literacy.
• The Bank continued to share knowledge
with its clients in the areas of personal
finances and banking. All over Slovenia,
505 local professional and educational
events were organised for retail clients.
The Bank uses various media platforms
and formats to cater to specific client
preferences – including award winning
magazines and e-newsletters.
Customers’ satisfaction and loyalty
The Bank aims to build and maintain
long lasting relationships with customers,
earning their loyalty so that they consider
NLB as the first bank with which they
conduct their financial business.
The last customers’ satisfaction survey
was carried out in December 2016. The
Bank remains the best in attitude towards
clients in retail banking and it is ahead
of the competition in user experience,
comprehensive product range and service
range. Compared to 2015 survey the
reputation of the Bank further improved.
Clients are showing increased trust into
the Bank and remain very loyal.
50
40
60
30
20
10
70
80
78 78 76
90
0
100
NLB result 2016
NLB result 2015
Result for competitors (average) 2016
Figure 17: The Bank overall satisfaction index for retail customers’ in Slovenia
NLB Group 2016 Annual Report 53
We want to be market
innovator and leader in
retail banking. In technology
progressive environment
the evolution of digitalised
products is our first priority.
Tanja Piškur
General Manager, Product
Range Management
Our ambition is clear. We want to be
We were the first bank in Slovenia
During the first half of 2016, we
market innovator and leader in retail
to roll-out contactless credit cards.
developed a new data strategy to
banking. In technology progressive
We launched NFC contactless stickers
consistently govern and manage data
environment the evolution of
for prepaid cards, and we are
across NLB Group. We see the data
digitalised products is our first priority.
planning to launch virtualisations
as an essential part of successfully
We understand digitally supported
of cards in the future.
enhancing the customer experience.
processes to the retail business as a
Managing data properly and using data
must-have. For us, the future is digital.
In year 2016 we launched ‘Klikpro’,
in a smart way will help us innovate
the first mobile bank for companies
and serve our customers better.
In year 2016 we started to implement
on the Slovenian market. Similarly,
the first milestones on the path we are
‘Klikin’, a mobile banking platform for
We are implementing all our efforts
planning to walk in the future. As a
private individuals, was upgraded and
in digitalisation with one single aim:
market pioneer we introduced digital
user-friendly functionalities added.
to offer our clients the best service
innovations in our lending process. We
We completed the implementation
experience in the market. Improving
0
100
established increased automation of the
of E-signature in our branches.
the experience is therefore paramount
loan origination process for the private
Our branches entered a modern,
and enjoys the highest priority.
individual segment, and an effective
digitalised era with this huge step.
scoring system for Small Enterprises. We
today enable our clients loan in minutes
with an extremely quick process.
”
50
40
60
30
20
10
80
78 78 76
70
90
NLB result 2016
NLB result 2015
Result for competitors (average) 2016
NLB Group 2016 Annual Report Chapter 3. 2:
Corporate
and Investment
Banking in
Slovenia
Corporate Banking in Slovenia
Market leader in corporate banking
Highlights:
• Highly professional and specialised
• The bank of choice for corporate
staff, firmly committed to the
business in SEE region, with an ever-
clients, their needs, and requests
growing level of customer satisfaction
• User-friendly, innovative, and
• Broad product coverage of corporate
digitalised banking platforms for
and institutional clients with
providing customers constant
advisory and capital markets services
availability of our service,
whenever and wherever
as well as treasury solutions
• Increasing focus on mid-corporate and
• Unique international desk, leveraging
SME segment despite lower yields still
on NLB Group presence in the region
obvious leader in large corporate
• Extensive range of financing products
• Very strong and growing position
supported by flexible, tailor-made
in trade finance business
products and professional service
NLB Group 2016 Annual Report 55
Table 5: Performance of the corporate banking segment in Slovenia
Net interest income
Net non-interest income
Total net operating income
Total costs
Result before impairments and provisions
Impairments and provisions
Result before tax
Net loans to NBS
Gross loans to NBS
Deposits from NBS
* Normalised for the effect of non-performing portfolio sale
** Growth for P&L calculated based on the normalised data
Corporate banking in Slovenia
in EUR million consolidated
2016*
2015
Growth**
48.0
30.9
78.9
-44.6
34.3
8.6
42.9
55.8
29.4
85.1
-44.0
41.1
10.4
51.5
2,133.6
2,429.3
1,172.8
-14%
5%
-7%
1%
-17%
-17%
-17%
8%
3%
-2%
2016
45.9
30.9
76.8
-44.6
32.2
-2.7
29.5
2,307.4
2,511.3
1,152.0
NPL portfolio sale, otherwise – as in the
bank overall – the cost of risk was even
negative (i.e. impairments and provisions
have been released on a net-basis) mostly
due to continued success in restructuring
and work-out of the still material, although
largely reduced NPL portfolio in this
segment.
The Bank continues to maintain its
leading position as the key bank and
advisor for Slovenian corporates of all
sizes, offering a full spectrum of financial
services to its clients, including lending,
cash management, payment services,
trade finance, as well as advisory on
capital market transactions. Excellent
partnership relationships are based
on a deep and genuine understanding
of our clients businesses. The Bank
continues to be a reliable partner to all
segments of enterprises. The strategic
focus is to increase support for small
and micro enterprises – of which our
Innovative Entrepreneurship Centre (IEC)
in Ljubljana is a successful showcase
of the ability to innovate and create
unique opportunities in engaging
with our client base in this segment.
Very strong loan growth was realised in key,
mid, and small corporate segments in 2016,
showing an increase of EUR 302.3 million
(+15.3% YoY), while the restructuring
and work-out portfolio was reduced by
EUR 158.7 million. Corporate deposits
slightly decreased in 2016, with the Bank
introducing an asset management fee on
larger corporate deposits (>1 million as of
November).
In 2016, the corporate banking segment in
Slovenia realised a profit before tax in the
amount of EUR 29.5 million, normalised
for the effect of the non-performing
portfolio sale the profit before tax would be
EUR 42.9 million. The result was affected
by the low interest environment and the
generally very high liquidity in the market.
The cost of risk was dominated by the
NLB Group 2016 Annual Report
56
21.6%
22.6%
23.6%
23.8%
39.2%
34.5%
32.6%
32.7%
39.2%
43.0%
43.8%
43.5%
2013
2014
2015
2016
NLB
Bank 2 – 5
Other banks
Figure 18: Market share resilient despite deleveraging of the
sector and competition (corporate and state net loans)*
*
Includes PBS and KBS Bank;
Excluding the effect of the non performing portfolio sale of EUR 54 million net
Source: Bank of Slovenia, Company information
Facts and figures – Corporate
banking in Slovenia
Market leader in corporate banking with
the largest client base in the country
and robust market share dynamics
NLB is the leading corporate bank in
Slovenia with the largest client base by far,
servicing more than 48,000 companies,
and maintaining its stronghold in all
client segments. It is especially active and
successful with key clients/large corporates
given the depths and scale of services on
offer and the tailored service model for mid
and small corporates based on a simplified
and more standardised offer.
Companies are supported throughout
their business life cycle with the full range
of banking services and with help of the
Banks experts.
Despite strong competition the Bank
maintained its leading position with a
market share of 22.6%.
Pick up in lending and syndicated
facilities activities
Growing optimism on the Slovenian
market and pick-up of economic growth
– especially strong in the export-oriented
corporate segment-lead to strong volume
growth in this segment.
The loan book is well balanced in short-
and long-term instruments, with a visible
pick-up in long-term and syndicated
facilities in the amount of EUR 1.1 billion,
many of which NLB was leading as agent,
co-arranger, and direct participation of
over EUR 360 million.
NLB Group 2016 Annual Report 57
2,511
265
374
107
378
2,429
175
276
95
382
2,511
57
175
97
442
+5.7%
15.3%
2,281
Key
business
1,387
1,872
1,501
1,978
1,742
2014
2015
2016
Large corporates
Mid corporates
Small enterprises
Restructuring
Workout
Figure 19: Evolution of business volumes/segment (in EUR million)
26%
30%
40%
Investment Loans
Syndicated Loans
Working Capital Loans
40%
30%
26%
Purchase of Loans and Receivables
2%
Account - overdraft
Other
1%
1%
Note: Balance of loan portfolio of key, mid, and small corporate sales
Figure 20: Loans purpose structure
NLB Group 2016 Annual Report 58
The product offerings for the segment
of micro and small enterprises, as well
as sole proprietors are standardised and
streamlined to ensure fast and simple
solutions. Most common products are
grouped in product packages.
The Bank has invested specifically in the
higher availability and ease of access to
its services for small- and medium-sized
companies, including:
• With the automation of the
loan approval process including
creditworthiness check, ‘Quick financing’
up to EUR 100,000 is provided to
small enterprises within 24 hours with
reasonable documentation needed;
• The Bank introduced – as the first
on the Slovenian market to do so
– the ‘All in One POS’ that allows
companies to easily comply with changes
in tax legislation with a direct connection
to the fiscal register, as well as offering
connectivity to all card providers and
the printing of invoices.
Innovation in Client Servicing
and product offering
Offerings tailored to our client segments
The Bank is present in all Slovenian
regions and is servicing its corporate clients
through its network of business centres, as
well as mobile client managers. In 2016
NLB’s corporate bank staff held over eight
thousand meetings, two thirds of which
were on client’s premises.
With a special international desk the Bank
ensures seamless service for Slovenian
clients present in the region where NLB
Group is present.
For large corporates our product range
is comprehensive and client offerings
tailor-made to the more sophisticated needs
of this client segment. The product range
includes lending, payment services, trade
finance and treasury sales products, as
well as the whole range of capital markets
advisory services.
Special attention is given to support the
Slovenian export industry – a stronghold
of the Slovenian economy. NLB supported
their activities with a comprehensive range
of trade finance products and solutions,
such as guarantees, letters of credit,
documentary collection, bank payment
obligations, and supply chain financing.
NLB has shown continued growth in this
service segment with its market share at
almost 27%. The improved rating of NLB
has helped to sustain its large network of
correspondent banks all over the world.
NLB Group 2016 Annual Report 59
Segment
Criteria
Number of clients ²
Customer profile
Service model
Large
corporates
Credit exposure > EUR 10m
Revenue > EUR 50m
632
638
686
Mid
corporates
EUR 10m > credit exposure > EUR 0.5m
EUR 50m > revenue > EUR 2.5m
2,612
2,560
2,580
2014
2015
2016
Small
enterprises ¹
EUR 0.5m > credit exposure > EUR 0m
Revenue > EUR 2.5m
Restructuring
Primarily D and E rated,
sometimes C rated clients
Workout
Primarily D and E rated,
sometimes C rated clients
Total ³
Note:
2014
2015
2016
13,780
13,170
13,449
2014
288
2015
2016
249
164
2014
2015
2016
1,453
1,328
860
2014
2015
2016
19,289
18,434
18,115
2014
2015
2016
•
•
•
•
•
•
•
Large international and
domestic businesses
State, central government
Ministries, city municipalities
HQ
+
Client managers
Medium-sized Slovenian
businesses
Rural municipalities
Business centres
+
Client managers
Small-sized businesses looking
at expansion and customised
banking services
Business centres
+
Client managers
+
Mobile bankers
Non- and sub-performing
exposures identified as viable,
focus on resolution
Restructuring
department
Non-viable exposures, focus
on collection and collateral
liquidation
Workout and legal
department
Tailor-made service
model according to
client profile
¹ Micro businesses or standard sub-segment of small enterprises (defined as small enterprises without lending exposure) are served through the retail (branch) network;
² Refers to active clients only; Active client is defined as a client who has either loan guarantee, trade finance, hedge or deposit transaction for a duration of at least 1 month or a
customer who executed at least 6 transactions (credit / debit) on a business account over the last 3 months or executed at least 1 transaction via a payment card over the last 3 months;
³ Also includes other clients: financial institutions, state, investment funds, foreign companies.
Figure 21: Tailored product offerings and servicing models
NLB Group 2016 Annual Report 60
Focused on client service
Educational events
For mid-sized enterprises regional events
in cooperation with the local Chamber
of Commerce have been organised.
Educational events have been attended
by over 500 business partners. For the
third consecutive year the Bank organised
in different regions traditional business
breakfast client meetings, with topics on
management of liabilities, assets, working
capital, business ethics, and promotion of
good practises of regionally recognised
enterprises.
The Bank has continuously invested
substantial effort in improving its standing
and perception not just among large
corporates – a traditional stronghold – but
also among SMEs and small businesses.
Support to innovative entrepreneurship
As a unique innovation of engaging with
existing and prospective clients from the
entrepreneurial segment, the so-called
Innovative Entrepreneurship Centre (IEC)
was established already in 2015. The IEC
is a physical space and will also become a
virtual community space in the centre of
Ljubljana with flexible facilities for meeting
and organising events – both for the Bank
as well as the entrepreneurial ecosystem.
In this hub the Bank will be connecting
entrepreneurs with investors, off-takers,
and suppliers to deliver practical value
and build a real value chain community,
in addition to offering a physical space
in which companies can be set up in one
stop and even more importantly, organise
know-how sharing, and trainings. In 2016,
the concept was very positively accepted,
as proven by 188 educational and business
events in IEC premises, attended by 5,895
participants, and visited by over 9,000
people.
NLB Group 2016 Annual Report 61
As the largest Slovenian
bank our exclusive strategic
interest in the future remains
supporting good business
stories in the region and
strengthening them with
a solid financial foundation.
loan in the history of Slovenian banking.
We enhanced our business operations
Andrej Lasič
General Manager, Large Corporates
“
2016 was one of the most successful
years for NLB’s corporate division. Our
qualified experts’ close monitoring of
with a full spectrum of financial services
the Slovenian corporate sector, and our
including: lending, cash management,
understanding of the distinctive needs
payment services, guarantees, and also
of our clients as well as the sector at
advisory experience in capital market
large, helped us increase NLB’s loan
transactions. We have continually proven
portfolio by almost 16% compared to
ourselves to be a responsible strategic
the previous year. Once again, we played
partner to the vital part of the Slovenian
a leading role in organising domestic
economy. As the largest Slovenian bank
and international loan syndicates, with
our exclusive strategic interest in the
a total volume of EUR 800 million that
future remains supporting good business
includes a benchmark transaction for
stories in the region and strengthening
Telekom Slovenia – the largest syndicated
them with a solid financial foundation.
NLB Group 2016 Annual Report 62
Investment Banking and Securities Service 4
Table 6: Performance of the investment banking and custody services in Slovenia
Net non-interest income
Total costs
Result before tax
in EUR million consolidated
Investment banking and Custody services
2016
2015
Growth
6.8
-5.6
1.6
5.8
-5.5
0.8
18%
2%
90%
Note: The result of the Investment banking and Custody services in Slovenia is included under the segment result of Financial markets in Slovenia in the Audited Financial Statements of
NLB and NLB Group part of the Annual Report
The result before tax grew strongly in 2016
and reached EUR 1.6 milllion (2015: EUR
0.8 million). The largest contribution to the
results derives from custody services fees
and derivatives.
NLB is a leading provider of Investment
Banking and Securities Services in
Slovenia. In close cooperation with other
business segments, the Bank continued
its successful coverage of corporate and
institutional clients with offerings in
debt and equity capital markets, mergers
and acquisitions (M&A), advisory,
and treasury solutions. The Bank has
traditionally played the role of a gateway
in and out of Slovenia for capital
markets, and is offering the whole range
of Brokerage and Custody Services for
both domestic and international clients.
4 As included in segment Financial markets in Slovenia
NLB Group 2016 Annual Report
63
Custody
The Bank is one of the top players in
custodian services for Slovenian and
international customers. Based on excellent
service and quality the Bank was able to
win new clients, and grew its assets under
custody by approximately EUR 2.5 billion
to a total of EUR 12 billion. The Bank also
acts as a gateway into the region using its
own network and partner institutions for
seamless service to its customers.
The Bank continued to invest in the highest
client service and execution – successfully
managing the transition to the new
Target2-Securities (T2S) standard.
Investment Banking – Capital
markets/M&A advisory
The Bank has a very effective team to
provide our largest customers the whole
range of corporate finance solutions.
The Slovenian market is – although
small – quite active in capital market
instruments, and was helped by the low
interest environment in 2016. A number of
companies chose to broaden their funding
base and issued both long-term and
short-term instruments – most of which
listed on the Ljubljana Stock Exchange.
In 2016 NLB led again in total issue
volumes and number of transactions,
helping to raise a total of EUR 192 million
in debt capital markets, or 80% of total
issued volume. The Bank has by far largest
penetration in terms of ability to adress
issuers and domestic investors – where
appropriate the Bank partners with
international counterparties to work on the
most complex and largest transactions to
the benefit of our clients.
The Bank also led the syndication market
with a total syndicated volume of almost
EUR 800 million (2015: EUR 364 million),
a significant increase in activities. Amongst
others, the Bank organised a benchmark
transaction as co-lead manager of a EUR
400 million refinancing facility for Telekom
Slovenija with a mix of a syndicated loan
(MLA standard) and bond instruments.
The Bank was also active in M&A
and other financial advisory
engagements. As financial advisor it
successfully closed the sales process of
shares and bank receivables of Trimo
Group, which was among the largest and
most complex M&A transactions in 2016
in Slovenia and the largest organised by
Slovenian financial advisors.
Brokerage and Treasury Sales
The Bank is the market leader in brokerage
services to both retail and institutional
clients with an excellent network in
domestic and international markets. The
total brokerage turnover in 2016 amounted
to EUR 997 million, which represents a
30% growth compared to 2015 on the back
of increased activities globally. In 2016 a
substantial number of new retail clients
joined the Bank due to changes in the
set-up of the domestic central depository
to trading accounts at the Bank offering
further opportunities for growth.
The Bank provides standard treasury
products to corporate and institutional
clients for currency and interest exposures.
The volume of transactions in derivatives
and foreign exchange (FX) spot transactions
exceeded EUR 1.3 billion.
NLB Group 2016 Annual Report Chapter 4
ЕфикасниEfikasniEfikasEfikasniEfikasniЕфикасниUčinkoviti Chapter 4
ЕфикасниEfikasniEfikasEfikasniEfikasniЕфикасниUčinkoviti Chapter 4. 1:
Core Foreign
Markets
South Eastern Europe (SEE)
is the Group’s core market
Highlights
• Top market position across targeted
• Unique network of 242 branches
SEE countries with EUR 65.6 billion
and 1.1 million clients
GDP and 17.4 million population
• Independent, well capitalised,
• Leading franchise in the region,
and profitable subsidiaries
high brand recognition (unified NLB
Banka branding), and client loyalty
• Increased profit before tax by almost
on SEE market with an attractive and
51% to EUR 67.6 million, contributing
positive growth markets outlook. The
52% to the NLB Group result
2.6% real GDP growth of SEE region
outpaces the Eurozone average
• Market innovator with focus on
delivering best service experience in
• The only international banking
the market and with the ambition
group with an exclusive
focus on the SEE region
to lead the digital transformation of
the banking industry in the region
NLB Group 2016 Annual Report 67
in EUR million consolidated
Strategic foreign markets
2016
136.9
42.5
179.4
-95.5
83.9
-16.3
67.6
5.6
2,148.0
2,457.2
2,824.4
2015
125.2
40.7
165.9
-93.4
72.5
-27.8
44.7
3.5
1,967.3
2,309.1
2,737.1
Growth
9%
4%
8%
2%
16%
-41%
51%
62%
9%
6%
3%
Table 7: Results of the strategic foreign markets segment
Net interest income
Net non-interest income
Total net operating income
Total costs
Result before impairments and provisions
Impairments and provisions
Result before tax
of which Result of minority shareholders
Net loans to NBS
Gross loans to NBS
Deposits from NBS
The core part of the Group in foreign
Macedonia, and Kosovo, as well as
markets consists of six banks, one
the exceptionally low risk results in all
pension insurance company and two
entities. All entities have been showing
SPVs. They are distinguished by their
positive dynamics in business evolution
strong reputation and recognised for
– operating in markets that also show
their state of the art products, services,
higher GDP and loan growth compared
and distribution channels. In four out of
to Slovenia, as well as still substantially
six markets the Group subsidiaries have
higher margins. Subsidiaries implement
market shares exceeding 10%. Despite a
Group-wide initiatives while ensuring
competitive market environment, 2016
locally anchored organic growth
was successful for all core members
strategy. Within the corporate identity
of the Group in foreign markets – all
renewal of the Group, all banks unified
of them posted a profit before tax,
their brand and corporate image under
contributing in total EUR 67.6 million
the ‘NLB Banka’ brand, facilitating
(2015: EUR 44.7 million) of the profit
the full exploitation of the brand and
before tax of the Group representing
activity synergies on the Group level.
an increase of almost 51% compared
to 2015. This is a result of strong
loan production, especially in Serbia,
NLB Group 2016 Annual Report
68
CAGR
14%
125
14
23
15
16
17
41
137
15
24
17
17
18
46
106
10
18
12
14
16
35
61%
86
17
10
12
13
12
21
CIR
54%
88
15
11
13
14
13
22
51%
89
17
11
13
14
13
22
2014
2015
2016
2014
2015
2016
ROE a.t.
3.5%
10.5%
14.1%
63
2
11
5
5
14
25
43
1
8
6
4
10
13
2015
2016
13
5
4
3
8
11
-18
2014
Macedonia
BiH - Republic of Srpska
Federation of BiH
Montenegro
Kosovo
Serbia
Source: Company disclosure
Note: Figures represent simple sum of individual financials from core foreign banks only (SPV in Serbia and Montenegro are excluded) excluding consolidation adjustments
Figure 22: Net interest
income (in EUR million)
Figure 23: Operating expenses
Figure 24: Profit after tax
(in EUR million)
(in EUR million)
Strategic foreign markets continued their
positive trend, all core members operated
with a profit in 2016. The profit before tax
amounted to EUR 67.6 million, including
the result of minority shareholders. The
contribution to the Group result of the
core foreign banks thus increased to 52%
(2015: 42%).
Compared to 2015, the operating result
improved mainly due to higher operating
income and lower impairments and
provisions. All core foreign banks intensified
their loan activities in the non-banking
sector with an increase in gross loans
by 6%.
NLB Banka, Banja Luka; NLB Banka,
Skopje and NLB Banka, Prishtina have
continued their successful stories. These
banks and NLB Banka, Sarajevo achieved
the highest net profit ever. NLB Banka,
Podgorica and NLB Banka, Beograd posted
a profit for the second year in a row, and
laid down solid foundations for long-
term profitable growth after introducing
changes to improve business efficiency
and completing the implementation of a
restructuring plan aimed at reducing costs,
NPL ratios, and refreshing the team. In
2016, members responded to market needs
in highly competitive local markets by cost
rationalisation of their business.
In 2016, the Bank received dividends from
SEE Group members in the total gross
amount of EUR 23.0 million.
Banking members of the Group in SEE (in
Macedonia, Bosnia and Herzegovina (two
markets), Kosovo, Montenegro, and Serbia)
primarily focus on the retail and SME and
micro enterprise segments. In 2016 the
members streamlined and modernised the
distribution networks, and improved their
digital offering.
NLB Group 2016 Annual Report 69
+27%
952
45
104
148
152
124
1,074
64
124
156
167
142
379
422
847
38
89
144
140
111
325
+7%
993
48
185
105
149
179
1,054
95
206
100
145
186
326
322
984
51
164
129
155
195
290
2014
2015
2016
2014
2015
2016
Macedonia
BiH - Republic of Srpska
Federation of BiH
Montenegro
Kosovo
Serbia
Source: Company disclosure
Note: Figures represent simple sum of individual financials from core foreign banks only (SPV in Serbia and Montenegro are excluded) excluding consolidation adjustments
Figure 25: Net retail loans to
Figure 26: Net corp. loans to
customers (in EUR million)
customers (in EUR million)
The future strategic directions will be the
basis for the future approach and answer
to the requirements of the economic
environment on the SEE markets,
where strategic shifts relating to market
consolidation and further optimisation of
operations have already begun.
Strategic foreign
markets continued their
positive trend. All core
members operated
with a profit in 2016.
The achieved results and efforts made in
2016 therefore created the solid and sound
basis to focus on healthy new business
opportunities, and to respond to client
needs with contemporary up-to-date
solutions.
The aim for 2017 is to capitalise on
synergies among the Group members in
the areas of HR and business development,
client centricity, introduction of modern
technologies and digitalisation, increased
operational excellence, cost efficiency, and
profitability, as well as to assure tight and
effective internal control systems.
NLB Group 2016 Annual Report 71
Excellent results of core Group
bank members contributed
approximately 67.6 million €
to the Group’s profits in
2016 – an increase of
almost 51% from the
previous year – and fills us
with pride and confidence.
of Group synergies, to share our best
practices, and to work even more intently
Jana Benčina Henigman
General Manager, Core Group
Steering and Country Manager
for Serbia and Montenegro
“
The presence of NLB Group on various
markets in the South Eastern European
region is definitely one of our main
together in the future under the “NLB
assets. Excellent results of core Group
Bank” brand. We see a lot of positive
bank members (from Bosnia and
dynamics in business evolution and the
Herzegovina, Kosovo, Macedonia,
resulting unexplored possibilities and
Montenegro, and Serbia) contributed
opportunities for new achievements.
approximately EUR 67.6 million to the
That is why NLB Group has already
Group’s profits in 2016 – an increase of
defined a new medium-term strategy
almost 51% from the previous year –
to reinforce its regional specialist
and fill us with pride and confidence.
leadership position, and set ambitious
At the same time, these results inspire
plans for further profitable growth.
us to be even better, to take advantage
NLB Group 2016 Annual Report 72
NLB Banka, Skopje
Antonio Argir
President of the Management Board
2016 has been a historic year for our bank. We achieved
the highest ever annual profit of EUR 25 million,
accompanied by a growth in sales, increased client
satisfaction, and best brand reputation on the market, with
a market share in retail of 21% and 16% in the corporate
segment. Our core business, lending, increased by 5% and
we realised excellent initial results in sale of non-banking
products such as insurance and pension schemes, while the
number of customers grew by 8%. It was the year that
gave us confidence and confirmation that with the new
business strategy and the organisational culture we are
walking the right path. Our ambition and dedication
also motivates us to continue the trail in the future.
NLB Group 2016 Annual Report 73
network that consists of modern branches
organised as small banks, and also through
investments in modern access channels to
the bank and its products and services.
Constant implementation of educational
and training programmes, as well as
assessment and development of managerial
and professional potential of employees
resulted in enhancement of employee
engagement in delivering the bank’s results.
In 2016 the bank received the award
National Champion in Macedonia granted
by European Business Network for the
second time in a row for its achievements
and successful work.
With the retirement of Gjorgji Janchevski
as long-term chief executive officer (CEO),
as of 1 January 2016, Antonio Argir started
as the President of the Management
Board of NLB Banka, Skopje. Also, Ljube
Rajevski and Damir Kuder were appointed
as members of the Management Board for
the new four-year mandate.
Highlights:
• #3 largest bank (based on total
assets) with 51 branches
• Despite the international
financial crisis, the bank has been
continuously very profitable
• Large active client base of 371,000
• Very high 29% market
share in debit cards
• NLB holds ~87% shareholding
Key strengths and
strategic actions:
• High brand awareness among
the Macedonian population
• Strong upside potential from
country’s future EU entry
• High market concentration (top 3
players control ~60% of total assets)
• Consumer lending, upgraded
with instant loans through
credit intermediaries, remains
the driver of new production
• Substantial dividend payout capacity
NLB Banka, Skopje is the third largest
bank in Macedonia with a market share of
16.2% in terms of total assets on its local
market and the most successful subsidiary
of the Group in terms of the result after
tax. The bank ended the year 2016 with a
net profit of EUR 25 million (2015: 13.1
million), a 90% increase compared to the
previous year on the back of the strong
net income growth (11% YoY), normalised
cost of risk of 73 bps (2015: 218 bps), while
cost efficiency (CIR) improved and reached
excellent 38%. Very solid growth of highly
diversified retail lending at stable attractive
margins has been the basis for further
strong positioning in the market.
The bank, with a tradition going back over
30 years, grew from a small bank to one
of the most recognised banking brands in
Macedonia. The success is a result of the
bank’s established corporate culture and
tradition supported by modern information
technology, professional personnel, and a
successful market strategy, boosted by the
NLB brand.
Faced with a strong banking competition,
the bank improved its competitive edge
with excellent technical support for digital
services. Investments in upgrading the
information system were made, which
resulted in improvement of the quality
of services and automatisation of the
processes.
The bank dedicated special attention to the
enrichment and adjustment of its offering
of products and services according to the
needs of the different market segments
and clients, as well as facilitation of the
access to them by investing in the business
NLB Group 2016 Annual Report
74
Table 8: Key performance indicators of NLB Banka, Skopje
Income statement indicators (in EUR thousand)
Net interest income
Net non-interest income
Total costs
Provisions and impairments
Result after tax
Financial position statement indicators (in EUR thousand)
Total assets
Loans and advances to non-banking sector (net)
Deposits from non-banking sector
Equity
Key financial indicators
Capital adequacy ratio
Interest margin
Return on equity after tax (ROE a.t.)
Return on assets after tax (ROA a.t.)
Costs/net income (CIR)
Market share in terms of total assets*
Loans to non-banking sector (net)/deposits from non-banking sector (LTD)
* as at 31 December 2016
EUR 743m
Retail
57%
EUR 422m
Corporate
43%
EUR 322m
Figure 27: Net non-banking
sector loan book split
2016
2015
Growth
46,327
12,297
22,250
8,747
24,997
41,344
11,651
22,369
16,044
13,129
1,153,091
1,119,678
743,341
704,657
938,496
918,934
12.1%
5.5%
-0.5%
-45.5%
90.4%
3.0%
5.5%
2.1%
129,083
113,977
13.3%
13.9%
4.7%
20.8%
2.3%
38.0%
16.2%
79.2%
14.7%
4.3%
11.8%
1.2%
42.2%
16.4%
76.7%
-0.8 p.p.
0.4 p.p.
9.0 p.p.
1.1 p.p.
-4.2 p.p.
-0.2 p.p.
2.5 p.p.
NLB Group 2016 Annual Report
75
NLB Banka, Banja Luka
Radovan Bajić
President of the Management Board
I am very proud of the remarkable financial performance
that our bank, with great support from NLB d.d. and
in synergy within the Group, delivered in 2016. I am
delighted of the value we created for our shareholders,
customers, society at-large and employees. Despite difficult
market conditions such as decreasing interest rates, modest
economic growth, increasing regulatory requirements,
rapidly evolving customer needs and expectations, as well
as strong competition, we managed to achieve a net profit
in the amount of EUR 14.1 million, ROE of 20%,
and loan growth of 8%. We committed ourselves to
developing a culture of clear focus on the customers, risk
awareness, integrity, efficiency of organisation, and social
responsibility. We committed ourselves to the future.
NLB Group 2016 Annual Report 76
Highlights:
• #3 largest bank in the Republic
of Srpska (based on total assets)
with universal product offering
• High RoE and low CIR
• Large network of 60 branches
• 99.9% owned by NLB
• 9% market share and third position
in the market in Bosnia and
Herzegovina (based on total assets),
combined with NLB Banka, Sarajevo
• Despite the international
financial crisis, the bank has
been continuously profitable
• Large active client base of over 209,000
Key strengths and
strategic actions:
• Solid brand reputation reflected
in stable deposit base, despite
decreasing deposit interest rates
• High customer satisfaction ratings
above competitors (86% retail clients,
89% corporate clients) (Customer
satisfaction study for NLB Group.
Source: GFK Slovenia, Dec-2016)
• Substantial dividend payout capacity
The bank offers a wide range of banking
products and services designed for
individuals, small to medium enterprises
(SMEs) and large corporates to over
209,000 active clients with a growth focus
on retail lending and card operations.
In 2016 special attention was paid to
optimising its branch network, reducing the
number of branches by five, reaching 60
throughout the Republic of Srpska territory
at the year end. The bank invested in
digitalisation as well and launched mobile
banking, while additional improvements
were made in e-banking services, providing
new functionalities and improving customer
experience. It maintains a sizable network
of ATMs. A highly-trained work force
in its IT department and developed core
information system provide support for
customised solutions and improvements to
existing services to attend the market needs.
The bank is the third largest bank on the
market with the largest banking distribution
network in the Republic of Srpska, with
a 18.9% market share in total assets
representing a growth of 80 basis points
compared to 2015. Despite difficult market
conditions, the bank managed to achieve a
net profit of EUR 14.1 million (2015: EUR
9.9 million), a 43.1% increase compared
to 2015. Net interest income increased
by 9.6% due to active interest rate policy
and efficient management of balance
sheet positions. Net non-interest income
grew by 7.2%, representing over 30% of
net income. Maintaining the level of costs
under control resulted in an improved CIR
at 47.2%.
The share in net loans in the Republic
of Srpska market increased by 100 basis
points and now amounts to 15.2%.
The bank’s lending and payment activities
are based on the broad domestic deposit
base, out of which retail deposits represent
a 70% share.
NLB Group 2016 Annual Report 77
2016
2015
Growth
18,255
8,819
12,788
-1,994
14,117
16,656
8,223
12,651
1,473
9,863
634,501
611,748
327,430
303,041
495,438
474,323
74,607
68,058
16.3%
2.9%
20.0%
2.3%
47.2%
18.9%
66.1%
17.5%
2.7%
14.7%
1.6%
50.7%
18.1%
63.9%
9.6%
7.2%
1.1%
-
43.1%
3.7%
8.0%
4.5%
9.6%
-1.2 p.p.
0.2 p.p.
5.3 p.p.
0.7 p.p.
-3.5 p.p.
0.8 p.p.
2.2 p.p.
EUR 327m
Retail
43%
EUR 142m
Corporate
57%
EUR 186m
Figure 28: Net non-banking
sector loan book split
Table 9: Key performance indicators of NLB Banka, Banja Luka
Income statement indicators (in EUR thousand)
Net interest income
Net non-interest income
Total costs
Provisions and impairments
Result after tax
Financial position statement indicators (in EUR thousand)
Total assets
Loans and advances to non-banking sector (net)
Deposits from non-banking sector
Equity
Key financial indicators
Capital adequacy ratio
Interest margin
Return on equity after tax (ROE a.t.)
Return on assets after tax (ROA a.t.)
Costs/net income (CIR)
Market share in terms of total assets*
Loans to non-banking sector (net)/deposits from non-banking sector (LTD)
* Market share in Republic of Srpska, as at 31 December 2016
NLB Group 2016 Annual Report
78
NLB Banka, Sarajevo
Lidija Žigić
President of the Management Board
Although 2016 was marked by strong competition in our
country, we managed to keep focusing our ambitions on
retail business and an intense commitment to our clients.
We put special emphasis on ensuring tailored offers to
clients’ needs, as well as to improved corporate on-site
presence with a clear focus on corporate clients. Every
client counts. Acquisition of new clients, mainly in regions
with growth potential and insufficient bank presence – i.e.
Herzegovina, Sarajevo, and Zenica helped us strengthen
our position in the Federation. We’ve become a reliable
competitor to other banks present on the market. We
have ambition, knowledge, and the will to turn market
challenges into our opportunities. We are pursuing this goal
with the highest commitment each day.
NLB Group 2016 Annual Report 79
The marketing strategy focused on new
and innovative channels such as internet
and mobile, including social networks
and the more traditional marketing
communications.
The bank is paying special attention
to the development of managerial and
professional employee potential which
combined with the introduction of
performance management contributed to
the enhanced performance. Personnel and
talent management, as well as a succession
planning process was initiated using the
performance potential assessment.
As of 1 January 2017 a new Management
Board was appointed, consisting of Lidija
Žigić as president, Denis Hasanić and Jure
Peljhan as members.
Highlights:
• #6 largest bank in the Federation
of Bosnia and Herzegovina (based
on total assets) with 37 branches
• 9% market share and third position in
the market in Bosnia and Herzegovina
(based on total assets), combined
with NLB Banka, Banja Luka
• 97% owned by NLB
• Continously profitable since NLB has
entered into the ownership of the bank
• Increasing cost efficiency
and profitability
• Improved net interest income
despite growing deposits volume
and decreasing interest rates
Key strengths and
strategic actions:
• Market leader in the northern part
of the Federation with potential
for growth in the Sarajevo,
Zenica, and Mostar regions
• Perceived as a local, trusted bank
The bank currently holds sixth place in
the Federation of Bosnia and Herzegovina
in terms of market share in total assets. In
2016 the highest ever net profit of EUR
5.4 million (2015: EUR 4.2 million) was
recorded, and the bank further improved
cost efficiency (CIR of 57.1%).
The net interest income and net non-
interest income of the bank grew by
7.7% and 6.0%, respectively compared
to the previous year, while a substantial
growth in loan and deposit portfolios was
achieved. The bank kept its strong focus on
retail banking, being the main gear in the
achievement of the bank’s overall results.
After moving its headquarters from Tuzla
to Sarajevo in 2015, the bank continued
to upgrade its branch network; opening
a new one in Sarajevo and redesigning
offices in Tuzla, Cazin, Široki Brijeg and
Ljubuški to reinforce a client-centric model
and raise the quality of services. The bank
further strengthened its presence and
appearance in the Federation of Bosnia
and Herzegovina, helping retail operations
to show especially encouraging trends.
The loan portfolio to private individuals
increased by 6% compared to 2015, and
the bank reached excellent results in credit
card sales and utilisation.
The main goal of the bank is continuous
growth and development, with a strong
focus on achieving synergies within the
Group. Communication channels and
services were additionally improved
with particular attention devoted to the
development of client relations. By doing
this the bank managed to gain over 4,500
new clients and enriched its offer by
launching additional products and services.
NLB Group 2016 Annual Report 80
Table 10: Key performance indicators of NLB Banka, Sarajevo
Income statement indicators (in EUR thousand)
Net interest income
Net non-interest income
Total costs
Provisions and impairments
Result after tax
Financial position statement indicators (in EUR thousand)
Total assets
Loans and advances to non-banking sector (net)
Deposits from non-banking sector
Equity
Key financial indicators
Capital adequacy ratio
Interest margin
Return on equity after tax (ROE a.t.)
Return on assets after tax (ROA a.t.)
Costs/net income (CIR)
Market share in terms of total assets*
Loans to non-banking sector (net)/deposits from non-banking sector (LTD)
* Market share in Federation of Bosnia and Herzegovina, as at 30 September 2016
EUR 312m
Retail
53%
EUR 167m
Corporate
47%
EUR 145m
Figure 29: Net non-banking
sector loan book split
2016
2015
Growth
16,927
7,026
13,670
4,286
5,357
15,710
6,626
13,631
3,979
4,182
497,861
476,110
312,012
300,715
406,940
390,491
60,780
55,313
14.2%
13.5%
3.4%
9.1%
1.1%
57.1%
5.3%
76.7%
3.3%
8.1%
0.9%
61.0%
5.5%
77.0%
7.7%
6.0%
0.3%
7.7%
28.1%
4.6%
3.8%
4.2%
9.9%
0.7 p.p.
0.1 p.p.
1.0 p.p.
0.2 p.p.
-3.9 p.p.
-0.2 p.p.
-0.3 p.p.
NLB Group 2016 Annual Report
81
NLB Banka, Prishtina
Albert Lumezi
President of the Management Board
2016 was the most successful year since our establishment,
especially in the aspect of profitability, growth, and new
products. Net profit amounted to EUR 11.3 million in
2016 and was 37% higher than in 2015. An increase
of our loans to non-banking sector was the highest
growth in the banking system of Kosovo. Our reduction
of NPL ratio of the non-banking sector to 4.4% (local
methodology) was 50 basis point below average of the
Kosovo banking system. We proved we are an outstanding
market performer. We are also committed to proving that
in every step in the future.
NLB Group 2016 Annual Report 82
Highlights:
• #3 largest bank (based on total
assets) with 45 branches
• Despite the international
financial crisis, the bank has been
continuously very profitable
• NLB holds 81% shareholding
• Highly profitable with RoE
reaching 19% in 2016
• Consistently lowest NPL
ratio in NLB Group
Key strengths and
strategic actions:
• Increased use of alternative
business channels (POS, contactless
cards, M-banking, E-banking)
• Substantial dividend payout capacity
The bank is the 3rd largest bank in Kosovo
with a market share of 14.9% in total
assets, and enjoys exceptional credit quality
with the lowest NPL ratio in the Group.
2016 was another very successful year
after ending it with a record profit of EUR
11.3 million (2015: EUR 8.2 million), the
highest since it was established in 2008. In
2016 net interest and non-interest income
grew compared to 2015, and already low
CIR ratio improved even further and stood
at 40.1%, while having the lowest NPL
ratio in the Group.
The bank operates across nine major
regions with a branch network of 45
offices and 68 ATM’s. The bank managed
to retain a good client base while facing
strong market competition, utilising its
successful business model and strategy. It
aims to remain innovative and keep pace
with its clients’ demands and expectations
through regular assessments of local market
conditions, demands, and client suitability.
The main activities of the bank have been
focused on achieving the Group standards
regarding development of products and
services. In 2016 the bank implemented
several new products and services such as
introduction of POS terminals (the most
important sales project of the year), mobile
banking M-klik, and a further upgrade of
the e-banking solution E-Klik, being the
major ones.
The bank will continue upgrades of
e-banking and other banking services,
focusing on integral solutions to properly
address client needs. On the other hand,
the bank will continue to strengthen the
skills and competencies of its staff through
training, in order to provide even more
complex financial advice and solutions to
our clients.
The approach of recognising differences
and divergences between clients has been
one of the key components of competitive
advantage. Operating actively with clients
enabled the bank to be closer to them and
deliver client-tailored services.
In 2016, the bank continued to build
strong relationships with domestic and
international financial institutions:
• In cooperation with the IFC, the bank
has developed a SME product for financ-
ing projects in energy efficiency.
• With Kosovo Credit Guarantee Fund
(KCGF) the bank signed the Loan
Portfolio Guarantee Agreement. The
KCGF Guarantee is intended to facilitate
increased lending by the Guaranteed
Party to MSMEs in Kosovo, improving
both the conditions of, and increasing
the quantity of MSME loans, thereby
stimulating economic growth.
• With EBRD the bank signed EUR
5 million credit facility under the
EBRDʼs Trade Facilitation Programme
(TFP). NLB Banka Prishtina will use
the programme to help small- and
medium-sized enterprises (SMEs) trade
across borders. This is the first EBRD
cooperation with NLB Banka Prishtina.
NLB Group 2016 Annual Report 83
2016
2015
Growth
23,545
4,213
11,118
4,088
11,263
22,736
3,611
10,781
6,282
8,242
516,115
464,692
329,608
289,339
442,095
400,245
62,845
59,725
16.6%
5.0%
18.9%
2.4%
40.1%
14.9%
74.6%
17.5%
5.3%
14.9%
1.8%
40.9%
14.5%
72.3%
3.6%
16.7%
3.1%
-34.9%
36.7%
11.1%
13.9%
10.5%
5.2%
-0.9 p.p.
-0.3 p.p.
4.0 p.p.
0.6 p.p.
-0.8 p.p.
0.4 p.p.
2.3 p.p.
EUR 330m
Retail
38%
EUR 124m
Corporate
62%
EUR 206m
Figure 30: Net non-banking
sector loan book split
Table 11: Key performance indicators of NLB Banka, Prishtina
Income statement indicators (in EUR thousand)
Net interest income
Net non-interest income
Total costs
Provisions and impairments
Result after tax
Financial position statement indicators (in EUR thousand)
Total assets
Loans and advances to non-banking sector (net)
Deposits from non-banking sector
Equity
Key financial indicators
Capital adequacy ratio
Interest margin
Return on equity after tax (ROE a.t.)
Return on assets after tax (ROA a.t.)
Costs/net income (CIR)
Market share in terms of total assets*
Loans to non-banking sector (net)/deposits from non-banking sector (LTD)
* as at 31 December 2016
NLB Group 2016 Annual Report
84
NLB Banka, Podgorica
Martin Leberle
President of the Management Board
In 2016 we persuasively continued with our optimisation
process of the bank’s organisation. The first results confirm
we are taking the right path. The bank ended the year
with EUR 5.3 million of net profit and increased its
cost efficiency by six percentage points. We are determined
to lead the changes in the financial industry on the
Montenegro market. Therefore, we put a lot of effort in
the training and development of our team. We started
launching new and innovative products on the market.
With the finalisation of the restructuring process, we are
prepared for future challenges to achieve our ambitious
development goals.
NLB Group 2016 Annual Report 85
E-banking for private persons was
advanced with the aim to further enhance
customer experience. In corporate and
SME segments, the bank improved its
relationship with customers by introducing
new ways of reporting and models of
communication, which led to better results
in the client satisfaction index (CSI) for this
segment to 85 points (increased from 83
in 2015).
Martin Leberle took over as the bank’s
President of the Management Board on
1 February 2016 after the previous
President of the Management Board
retired.
Highlights:
• #2 largest bank (based on total
assets) with 18 branches
• 99% owned by NLB
• Recently introduced
bancassurance offering
Key strengths and
strategic actions:
• High brand awareness among
Montenegrin population
• Efficient business network
in Montenegro
• Upside potential from selectively
increasing credit activity in
the tourism industry, highway
construction and energy industries
The bank is the 2nd largest bank in
Montenegro with a market share of 12.5%
in total assets. After implementation of
the restructuring plan, the main objectives
for 2016 were increased efficiency and
a reduction of the NPL portfolio, while
providing a solid foundation for future
business. The bank recorded a net profit of
EUR 5.3 million (2015: EUR 6.2 million)
and the share of NPLs decreased by 4.7
percentage points to 14.7% (2015: 19.4%),
while contributing to the bank’s net income
at the same time. An important impact
on the result had a creation of additional
provisions and impairments. In a very
competitive market, even seeing new entries
in 2016, the bank confirmed its ability for
the qualitative development of its business
model.
Supported by a strong strategic partner and
as member of NLB Group, it provides a
complete range of traditional and modern
banking services to retail and corporate
clients, as well as other entities engaged in
development projects in Montenegro.
In 2016, several new products were
launched. The bank successfully finished
its participation in approving household
loans in the governmental project 1000+,
by offering household loans to retail
customers. In addition, a new loan facility
for SME’s operating in the tourism sector
and loans for enrolment of students to the
‘Work and Travel in USA’ programme
were launched. In a very competitive
environment the bank has been focusing
on operational efficiencies and will mainly
explore growth opportunities in the
retail segment.
NLB Group 2016 Annual Report 86
Table 12: Key performance indicators of NLB Banka, Podgorica
Income statement indicators (in EUR thousand)
Net interest income
Net non-interest income
Total costs
Provisions and impairments
Result after tax
Financial position statement indicators (in EUR thousand)
Total assets
Loans and advances to non-banking sector (net)
Deposits from non-banking sector
Equity
Key financial indicators
Capital adequacy ratio
Interest margin
Return on equity after tax (ROE a.t.)
Return on assets after tax (ROA a.t.)
Costs/net income (CIR)
Market share in terms of total assets*
Loans to non-banking sector (net)/deposits from non-banking sector (LTD)
*as at 31 December 2016
EUR 256m
Retail
61%
EUR 156m
Corporate
39%
EUR 100m
Figure 31: Net non-banking
sector loan book split
2016
2015
Growth
17,162
4,243
12,570
3,505
5,318
14,866
4,916
12,783
731
6,240
473,058
484,543
255,888
253,710
361,201
379,832
75,787
68,624
15.4%
-13.7%
-1.7%
379.5%
-14.8%
-2.4%
0.9%
-4.9%
10.4%
15.0%
15.9%
-0.9 p.p.
4.3%
7.3%
1.1%
58.7%
12.5%
70.8%
3.3%
9.6%
1.2%
64.6%
14.0%
66.8%
1.0 p.p.
-2.3 p.p.
-0.1 p.p.
-5.9 p.p.
-1.5 p.p.
4.0 p.p.
NLB Group 2016 Annual Report
87
NLB Banka, Beograd
Branko Greganović
President of the Management Board
Year 2016 was an exciting year of accelerated growth
in all key business segments for our bank. We have
significantly increased lending and loan outstanding
amounts in all key segments of our business: retail,
SMEs, and in particular in the agricultural producers
segment. We continued to improve our processes to embrace
and exploit the potential of the rapid development of
digital trends in the banking industry. The successes of
year 2016 are the result of the dedication and commitment
of our high quality team of professionals. On the basis
of a common vision and shared devotion to create a truly
positive experience for our clients, we set the foundation
for our prosperous future. We are ready for the
challenges of tomorrow.
NLB Group 2016 Annual Report 88
Highlights:
• Strong focus on agrobusiness,
consumer finance, and SMEs, as
well as cooperation with large
corporates from Slovenia
• ~100% owned by NLB
• New management in place since 2014
with a strong restructuring mandate
Key strengths and
strategic actions:
• Demonstrated organic growth
potential, being #3 bank in 2016
by gross loans increase (Source:
NBS – Banking sector in Serbia)
• Strong brand name and recognition
as a credible partner
• Ongoing digitalisation of the
bank (new IT platform)
• Development of lean and
efficient processes
The bank recorded a net profit of EUR 2.2
million in 2016 (2015: EUR 1.2 million)
and continued the positive performance
trend for the second consecutive year,
which represents a solid basis for future
growth. After finishing its turnaround and
comprehensive restructuring efforts, which
is also supported by investment in processes
optimisation, improved IT solutions, etc.,
the bank is increasing and repositioning
its presence on the Serbian market with
the opening of new branch offices. All that
led to a temporary increase of CIR, with
a strong awareness of cost efficiency in
the future. With a low market share, the
bank is strictly focusing on select target
segments for the time being, especially
in agrobusiness and consumer finance.
In 2016, the bank significantly increased
its loan production and also expects to
continue its accelerated growth in 2017.
Operating as a universal bank, it provides
a full range of banking products and
services to retail and corporate customers
in Serbia. By offering different types of
payment cards, current accounts, and
financing products, the bank constantly
adapts its services to specific demands and
requirements of its clients. During 2016
‛onlineʼ loans requests were launched,
and additionally preparations for an
omnichannel concept were completed.
The 2016 business year was a year of
significant growth of loan production
and portfolio, the opening of new sales
channels, digitalisation initiatives, and a
strengthening of the market position, in
particular in the segment of agricultural
producers.
Overall, in 2016 the bank placed new loans
in the amount of EUR 155 million, which
is almost three times more than in 2015.
In the retail segment, the bank achieved
excellent results in cash loans production
reaching a YoY growth of portfolio of
44%. Following the trend of increasing
digitalisation in the banking sector, the
bank enabled its clients to process their loan
applications online.
Outstanding results were also achieved in
the corporate segment. In 2016, the bank
doubled its portfolio of loans outstanding
and placed three times more loans than in
2015. However, the absolute outperformer
in 2016 was the segment of agricultural
producers. By using an innovative approach
to customer relationship the bank reached
EUR 22 million in the outstanding amount
at the end of 2016, and gained a market
share of 5% in this growing segment of the
market.
The accelerated growth in loans produced
and outstanding amounts in 2016 was
made possible with a new loan process
and credit risk methodology introduced
in 2016, which enabled efficient and fast
processing of clients’ applications. This
big step marked an introduction of the
omnichannel concept and IT environment.
The main task will continue to be further
improvement of the customer experience.
Emphasis will be placed on cooperation
with market segments where the bank
can develop competitive advantages,
such as agrobusiness, and on pursuing
a more distinct strategy based on digital
distribution.
NLB Group 2016 Annual Report 89
2016
2015
Growth
14,748
2,612
16,980
-1,808
2,152
13,760
3,197
15,470
270
1,181
275,798
235,617
159,363
92,895
189,962
179,788
45,525
44,121
7.2%
-18.3%
9.8%
-
82.2%
17.1%
71.6%
5.7%
3.2%
19.1%
28.0%
-8.9 p.p.
6.0%
4.7%
0.9%
97.8%
1.0%
83.9%
6.2%
2.7%
0.5%
89.9%
0.9%
51.5%
-0.2 p.p.
2.0 p.p.
0.4 p.p.
7.9 p.p.
0.1 p.p.
32.4 p.p.
EUR 159m
Retail
40%
EUR 64m
Corporate
60%
EUR 95m
Figure 32: Net non-banking
sector loan book split
Table 13: Key performance indicators of NLB Banka, Beograd
Income statement indicators (in EUR thousand)
Net interest income
Net non-interest income
Total costs
Provisions and impairments
Result after tax
Financial position statement indicators (in EUR thousand)
Total assets
Loans and advances to non-banking sector (net)
Deposits from non-banking sector
Equity
Key financial indicators
Capital adequacy ratio
Interest margin
Return on equity after tax (ROE a.t.)
Return on assets after tax (ROA a.t.)
Costs/net income (CIR)
Market share in terms of total assets*
Loans to non-banking sector (net)/deposits from non-banking sector (LTD)
* Market share as at 31 December 2016 (preliminary data)
NLB Group 2016 Annual Report
Chapter 4. 2:
Financial Markets
5
Simple balance sheet,
supported by stable funding
and robust liquidity reserves
Simple balance sheet structure reflects
sustainable and transparent business
model. Strong customer franchise
provides stable and price-insensitive
deposit base, in addition, wholesale
market access remains available if
needed. The liquidity risk profile of the
Group remains conservative due to low
LTD and a strong liquidity buffer that can
provide funding of future core growth.
5 As included in segment Financial markets in Slovenia
This segment includes income generated by
the liquidity reserves, as well as the surplus
from fund transfer pricing to other business
segments in Slovenia. Financial markets
in Slovenia recorded a profit before tax of
EUR 36.5 million, in spite of challenging
macroeconomic conditions, a negative
interest rate environment, and low returns
on the international bonds market.
Net interest income in financial markets in
Slovenia decreased by 19% in 2016 due to
decreasing yields in the securities portfolio,
the maturity of the high yield assets and
lower net interest income resulting from the
high level of excess liquidity. The majority
of this negative effect came from maturity
of the BAMC bonds (in December 2015
and December 2016) since reinvestment
yields were much lower. Decreasing LTD
contributed to increased cash equivalent
positions with negative carry. Management
NLB Group 2016 Annual Report 91
in EUR million consolidated
Financial markets Slovenia
2016
2015
Growth
48.3
-5.2
43.0
-6.6
36.4
0.0
36.5
254.7
70.5
59.9
6.9
66.8
-6.8
60.0
0.0
60.1
606.4
110.4
-19%
-175%
-36%
-3%
-39%
-
-39%
-58%
-36%
Table 14: Performance of the Financial markets segment in Slovenia
Net interest income
Net non-interest income
Total net operating income
Total costs
Result before impairments and provisions
Impairments and provisions
Result before tax
Gross loans to NBS
Deposits from NBS
Note: Investment banking and Custody services as a part of Financial markets in Slovenia segment is represented in a separate chapter.
with Risk Management to manage the
balance sheet in line with the Group’s
conservative risk profile. In 2016 further
improvements in the governance process
of Group ALCO have been implemented
by upgrading the balance sheet steering
function in terms of a more holistic and
forward-looking simulation.
of the structure and volume of banking
book securities and hedging derivatives
portfolio is aimed at optimisation of net
interest income that should benefit from
potential improvements of macroeconomic
conditions.
Net non-interest income in financial
markets in Slovenia in 2015 included the
profits from non-recurring event of selling
RoS bonds (EUR 5.2 million), while the
2016 result includes the negative effects
from unwinding hedging derivatives and
fees related to prepayment of selected
wholesale funding in the total amount of
EUR 3.0 million, which will benefit net
interest income in the following years.
NLB Group asset and liability
management (ALM)
The purpose of the Group ALM process
is to manage the Group’s balance sheet
with respect to interest rate, currency,
and liquidity risk. In accordance with
the Group policy, ALM is centrally
managed to support the Group’s business
lines and enables them to fully focus on
their commercial tasks and credit risk
management. By applying a funds transfer
pricing methodology, the Group’s business
lines transfer assets and liabilities risks
to ALM so that they are not affected by
market movements in interest rates or
liquidity spreads.
The Group ALM performs long-term
liquidity and interest rate risk planning,
taking into account expected market and
regulatory developments, while liaising
NLB Group 2016 Annual Report
92
The Group’s balance sheet is very
solid with low LTD (74%), a high share
of liquid assets (44% of total assets),
and strong capital adequacy (17%).
In spite of a low interest rate environment,
the Group managed to maintain a strong
deposit base which proved to be extremely
price insensitive and well-diversified. In
order to keep a conservative risk profile,
the Group invested predominately in high
quality liquidity reserves.
Total liabilities remained broadly
unchanged; an increase of customer
deposits was compensated by regular
repayments and prepayment of certain
more expensive wholesale borrowings.
Total loans to the non-banking sector
did not meet non-banking sector deposit
dynamics, mostly due to the reduction of
the non-performing portfolio.
Regarding the interest rate risk
management, a conservative position in
terms of duration has been kept in response
to market expectations and balance sheet
structure. Exposure to interest rate risk is
being monitored carefully from earnings,
as well as from economic value perspective.
The duration gap between interest-sensitive
assets and liabilities slightly increased to
1.85 years compared to 1.76 years in 2015.
However, positions are in line with the
Group risk profile and within the internal
and regulatory limits. Exposure to interest
rate risk and basis risk is managed via
responsive fund transfer prices and external
pricing policy. When necessary, derivatives
are also used, mainly plain vanilla interest
rate swaps with an application of Hedge
Accounting rules.
411.5
- 0.2
75.3
14.2
- 12.1
11,821.6
- 231.6
- 27.2
- 12.5
12,039.0
5
1
0
2
c
e
D
1
3
s
t
i
s
o
p
e
d
l
i
a
t
e
R
y
t
i
u
q
E
t
b
e
d
d
e
t
a
n
d
r
o
b
u
S
i
s
t
i
s
o
p
e
d
e
t
a
t
S
s
t
i
s
o
p
e
d
e
t
a
r
o
p
r
o
C
i
s
g
n
w
o
r
r
o
b
e
l
a
s
e
l
o
h
W
e
u
s
s
i
n
i
s
e
i
t
i
r
u
c
e
s
t
b
e
D
s
e
i
t
i
l
i
b
a
i
l
r
e
h
t
O
6
1
0
2
c
e
D
1
3
Figure 33: Key changes of NLB Group liabilities and capital in 2016 (in EUR million)
137.0
11,821.6
200.3
3.7
-90.8
- 32.8
12,039.0
5
1
0
2
c
e
D
1
3
s
t
n
e
m
t
s
e
v
n
i
l
a
i
c
n
a
n
i
F
B
C
h
t
i
w
s
e
c
n
a
l
a
b
d
n
a
h
s
a
C
s
k
n
a
b
o
t
s
e
c
n
a
v
d
a
d
n
a
s
n
a
o
L
r
o
t
c
e
s
g
n
i
k
n
a
b
-
n
o
n
o
t
s
n
a
o
L
s
t
e
s
s
a
r
e
h
t
O
6
1
0
2
c
e
D
1
3
Figure 34: Key changes of NLB Group assets in 2016 (in EUR million)
NLB Group 2016 Annual Report
93
Liquidity has been actively managed with
a diversified funding structure and a solid
buffer framework. The Group maintained
a strong liquidity position with liquidity
reserves, accounting for more than 40% of
total assets which can provide the funding
of future core growth. In 2016 further
optimisation of the liability structure was
done as a strong and resilient deposit
base enabled the early repayment of
certain more expensive funding sources
(ECB Targeted Long Term Refinancing
Operations (TLTRO 1), wholesale funding,
etc). The same strategy applied to all
Group banking members as they are fully
self-sufficient in terms of funding.
Active profitability management has been
supported by a highly disciplined deposit
pricing policy, enabling the response to a
very competitive loan market all over the
Group home countries.
FVPL 0.2%
HFT 3%
HTM 22%
EUR
2,778m
AFS 75%
Cash 15%
EUR
1,735m
EUR
6,997m
CB reserves
45%
Retail loans
44%
Placements
with banks
25%
Demand
deposits
at banks 15%
State loans
11%
Corporate
loans
45%
Total balance sheet (Dec-2016): EUR 12,039m
Other assets
4% | EUR 529m
Financial
investments
23%
EUR 2,778m
Cash equivalents
and placements
with banks
14%
EUR 1,735m
Equity 13%
EUR 1,526m
Other liabilities
2% | EUR 272m
Funding
7% | EUR 803m
Subordinated debt 3%
Debt
securities
in issue
35%
EUR
803m
State deposits 4%
Loans /
deposits
74%
EUR
9,439m
Corporate
deposits
23%
Loans / deposits ratio
Deposits
from banks
5%
Wholesale
borrowings
57%
- sight 68%
- term 32%
Retail
deposits
73%
Loans to
non-banking
sector
58%
EUR 6,997m1
Deposits
from
non-banking
sector
78%
EUR 9,439m
100
80
60
40
20
0
76%
75%
74%
2014
2015
2016
Encumbered assets EUR490m
(for deposit guarantee scheme, collateral
managment, service agreement, national
resolution fund, reserve requirment)
Note: ¹ Including EUR 849 million loans eligible with ECB as collateral (liquid assets)
Figure 35: NLB Group balance sheet structure as of 31 December 2016
Assets
Liabilities
NLB Group 2016 Annual Report 94
Discipline in pricing has helped to reduce
interest rates for customer deposits to the
historically low levels; however, the Group
still managed to increase its customer
deposit base, which presented 78% of the
Group’s total liabilities and equity as of
31 December 2016, compared to 76%
as of 31 December 2015. Driven by a
low interest rate environment, the main
change in the funding structure was the
transformation of term deposits to sight
deposit, to which the Group responded
with a conservative liquidity reserves
management approach. The share of sight
deposits in the total balance sheet increased
to 53%, however proved to be very stable
according to the internal methodology for
sight deposit stability.
The Group funding
structure is predominantly
driven by deposits and
complemented by established
wholesale market access.
LtD ratio
104%
85%
76%
75%
74%
14,176
1,145
364
3,549
12,490
1,271
285
2,677
11,909
1,369
305
1,291
11,822
1,450
289
1,062
12,039
1,526
274
803
9,118
8,257
8,944
9,021
9,437
31 Dec 2012
31 Dec 2013
31 Dec 2014
31 Dec 2015
31 Dec 2016
Deposits from non-banking sector
Wholesale funding
Other liabilities
Equity
Figure 36: Evolution of funding structure confirms stable deposit base in NLB Group (in EUR million)
NLB Group 2016 Annual Report 95
kept a constant dialogue with the regulator
regarding future regulatory requirements,
especially the MREL requirement.
In 2016 the Bank and the Group continued
to maintain an active dialogue with its
existing investor base and with a wider
international capital markets community,
also with its fully operative and professional
Investor Relations function.
Measures for the optimisation of long term
liabilities by improvement of financial
conditions were undertaken within the
Group as well.
The Group liquidity buffer acts as a safety
cushion in case of severe market stress
The Group liquid assets mainly comprise
of cash equivalents, transactional money,
a banking book securities portfolio, and
credit claims eligible for central bank
secured funding operations. The liquidity
buffer consists of liquid assets which are not
encumbered for operational and regulatory
purposes.
1.6%
1.4%
1.3%
1.1%
1.0%
1.0%
0.9%
0.9%
0.6%
0.5%
0.4%
0.3%
0.3%
0.3%
0.2%
0.2%
Wholesale funding
Wholesale funding activities in the Group
are conducted with the aim of achieving
diversification, improvement of structural
liquidity, and fulfilment of regulatory
requirements.
Due to a solid liquidity position in
2016, the Bank was not active on the
international financial markets with
borrowing or issuing debt instruments.
Nevertheless, the Bank undertook an
active management approach with the
optimisation of its long-term liabilities by
selected prepayments and improvement
of financial conditions, and analysed
capital structure for potential future
optimisation. The bank regularly monitors
new regulatory developments and has also
2.4%
2.2%
1.2%
1.1%
2.1%
0.9%
1.8%
0.7%
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Slovenia
International
Figure 37: Decreasing deposit interest rates environment in NLB Group
NLB Group 2016 Annual Report 96
portfolio is well-diversified in terms of
asset class and geography to avoid risk
concentration. Attitude to investments
remained conservative focused on prudent
tenors and rating structure.
The necessary volume of the liquidity
buffer is determined by the internal
liquidity risk stress test methodology. The
liquidity gaps remained largely positive in
order to fund larger repayments coming
due in 2017.
Low interest rates and an extensive liquidity
environment throughout 2016 put some
pressure on the financial performance of
the Group. The focus was therefore on the
optimisation of the composition of the
liquidity buffer and positive carry.
The Group banking book securities
Liquid assets
in total assets 32%
6,000
5,000
4,000
3,000
2,000
1,000
0
4,541
19%
52%
0%
9%
20%
44%
5,495
15%
58%
1%
9%
17%
45%
5,413
16%
44%
5,248
15%
44%
5,346
16%
57%
50%
50%
2%
13%
13%
5%
16%
14%
1%
13%
19%
n
o
i
l
l
i
m
R
U
E
n
i
31 Dec 2012
31 Dec 2013
31 Dec 2014
31 Dec 2015
31 Dec 2016
Cash and CB reserves
Placements with banks
Trading book debt securities
Banking book debt securities
ECB eligible credit claims
Encumbered assets
Figure 38: Evolution of NLB Group liquid assets structure reflects robust liquidity position (in EUR million)
NLB Group 2016 Annual Report
97
Other
18%
AAA
10%
AA
13%
BBB
5%
A 54%
Figure 39: Banking book securities by Fitch rating as of 31 December 2016 for NLB Group
Covered
bond 1%
GGB 5%
Agency
3%
Senior
Unsecured
21%
Government
sector 70%
SEE 15%
SI 39%
DE 9%
FR 8%
NL 5%
AT 3%
BE 2%
FI 1%
ES 1%
Other
17%
a.) Banking book debt securities by asset class
b.) Banking book debt securities by geographical structure
Figure 40: Well-diversified NLB Group banking book securities portfolio as of 31 December 2016
NLB Group 2016 Annual Report
98
By nurturing strong
relationships with global
partners the Bank helps
maintain its competitive
advantage to provide high
quality service in the field
of financial instruments.
Fixed income and FX Sales
With many years of experience in trading
with financial instruments the Bank has
a high level of expertise and is constantly
learning and adapting to the changing
market environment and customers’ needs.
By nurturing strong relationships with
global partners the Bank helps maintain
its competitive advantage to provide high
quality service in the field of financial
instruments.
The Bank offers a variety of financial
instruments, from simple money market
instruments to more demanding derivatives
for hedging foreign exchange or interest
rate risk. Besides trading with financial
instruments, the Bank provides banknotes
service to all Slovenian banks and savings.
Yearly turnover is around EUR 350 million
and represents a stable source of income.
The Bank acts as a primary dealer of
treasury bills and bonds for the Ministry
of Finance of the Republic of Slovenia,
enabling the Bank’s customers to purchase
securities on the primary market. In
2016, the Bank participated in seven
auctions for eighteen emissions of 3, 6, 12,
and 18-month treasury bills. The Bank
participated in the new issues and swaps
of bonds of the Republic of Slovenia, and
acted as co-lead in issuing government
bond RS78. All these activities confirm the
role of the Bank as the primary dealer and
official liquidity provider of Eurobonds of
the RoS on the MTS Slovenia market. As
the only bank in Slovenia it also acts as a
co-lead for ESM/EFSF. In 2016 the Bank
actively participated in six bond issues, two
taps, and sixteen treasury bills auctions.
NLB Group 2016 Annual Report Chapter 4. 3:
Non-core Markets
and Activities
NLB Group is following its strategy and
objectives of the Restructuring Plan
which define non-core markets and
activities, and forsee the controlled and
gradual wind down of the non-core
segment. This process entails a wind
down of all portfolios and consequent
reduction of costs. The implementation
of the strategy is pursued by a variety
of measures, including the sales of
entities, portfolios, individual assets,
and the collection or restructuring
of assets, as well as the closing of
subsidiaries by liquidation proceedings.
The result of non-core markets and
activities of the Group improved
significantly in 2016 compared to 2015.
The segment still recorded a loss of EUR
18.9 million, though normalised by the
effects of the non-performing portfolio
sale the loss would amount to EUR 11.9
million. Overall, the result was substantially
reduced compared to the loss of EUR
70.1 million in 2015. The result of 2016
includes additional impairments due to
the non-performing portfolio sale in the
amount of EUR 7.0 million, and the
positive effects of the sale of an equity
investment amounting to EUR 4.9 million.
One of the main achievements of
the non-core segments in 2016 was a
substantial decrease of their cost of
operations which was reduced by as
much as 19% YoY to the level of EUR
24.2 million (2015: EUR 29.8 million).
NLB Group 2016 Annual Report 101
Non-core markets and activities
in EUR million consolidated
2016
15.4
10.9
26.3
-24.2
2.1
-20.9
-18.9
325.1
675.9
26.5
2016*
15.4
10.9
26.3
-24.2
2.1
-13.9
-11.9
2015
21.6
-11.6
9.9
-29.8
-19.8
-50.1
-70.1
481.6
1,038.2
28.1
Growth**
-29%
-194%
164%
-19%
-111%
-72%
-83%
-32%
-35%
-6%
Table 15: Results of the non-core foreign markets and activities segment
Net interest income
Net non-interest income
Total net operating income
Total costs
Result before impairments and provisions
Impairments and provisions
Result before tax
Net loans to NBS
Gross loans to NBS
Deposits from NBS
* Normalised for the effect of non-performing portfolio sale
** Growth for P&L calculated based on the normalised data
Total assets in the segment of non-core
markets and activities of the Group in
2016 amounted to EUR 502.6 million.
Compared to the end of 2015, the figure
was reduced by EUR 249.5 million as
a result of the Restructuring Plan, and
in line with the strategy of non-core
divestment. The non-core portfolio includes
assets booked in the Bank (non-strategic
portfolios of Slovenian and international
exposures) as well as the portfolios of
non-strategic subsidiaries (funded almost
entirely by the Bank). The large majority
of the non-strategic assets comprise loan
exposures (approximately 65%), and a
smaller share of investment properties
(approximately 14%), repossessed real
estate (approximately 9%), equity
exposures (approximately 4%), and others.
The result of non-core markets
and activities of the Group
improved significantly in
2016 compared to 2015.
NLB Group 2016 Annual Report
102
Reduction of the Bank’s credit
Table 16: The Group entities in which liquidation was initiated in 2016
business with foreign clients
The Bank refrains from undertaking any
new credit activities with corporate clients
incorporated outside Slovenia, and who
are not members of the groups whose
headquarters or final beneficiary is in
Slovenia. An important contribution to
reducing the exposure in 2016 came from
assets collected in pre-court and court
proceedings, lowering guarantees exposures
and regular repayments.
Divestment of non-strategic
Group members
With regards to closing the Group non-
core members (most of which operate in
leasing, factoring/trade finance, and real
estate), new business has been stopped
in most non-core subsidiaries, and the
total portfolio has been decreasing
through regular repayments, collections,
restructurings, sales, etc. In 2016 the
liquidation of the leasing subsidiary in
Sofia (Bulgaria) was completed, while the
liquidation proceedings were initiated
in most of the remaining non-strategic
entities, with the exception of the leasing
companies in Slovenia and Bosnia and
Herzegovina, and a few other non-material
subsidiaries.
An important contribution to
reducing the exposure in 2016
came from assets collected in
pre-court and court proceedings,
lowering guarantees exposures
and regular repayments.
Leasing
Factoring/Forefaiting
Real estate
NLB Leasing Beograd
NLB InterFinanz Zürich
NLB Leasing Podgorica
Prvi faktor Ljubljana
OL Nekretnine Zagreb
NLB Lizing Skopje
Prvi faktor Zagreb
PRO-REM Ljubljana
Optima Leasing Zagreb
Prvi faktor Sarajevo
326
247
194
172
350
300
250
200
150
100
50
0
137
120
76
53
124
91
119
110
51
36
47
5
31 26
11 7
NLB Leasing
Ljubljana
NLB
InterFinanz
Other leasing
subsidiaries
Real estate
subsidiaries
Other non-core
subsidiaries*
2013
2014
2015
2016
* NLB Factoring - in liquidation, NLB Propria, Prospera Plus, LHB AG
Figure 41: Asset evolution by activity (in EUR million)
NLB Group 2016 Annual Report
103
Sale of NLB’s equity participations
The Bank is also divesting its equity
participations, and consequently by the
end of 2016 the overall asset volume of
equity participations had been further
reduced to EUR 21.7 million.
Active management of real estate assets
A large portion of NPL in the portfolio is
secured by real estate, and so the Group has
set up a specialised team for repossessing,
managing, and selling real estate.
Management entities were established in
three relevant markets: Croatia, Serbia,
and Montenegro (REAM Zagreb, REAM
Beograd, and REAM Podgorica). In
Slovenia PRO-REM in liquidation was
carved out from NLB Leasing, Ljubljana,
including assets, real estate management,
and staff.
The main task of these management teams
is to ensure value-preserving strategies for
the management of real estate, respectively
the collateral value of NPL claims by
either temporarily repossessing real estate
or ensuring a value-preserving divestment
process of the real estate or a claim. In
2016 the team supported 236 transactions
with a real estate value of approximately
EUR 95 million.
NLB Group 2016 Annual Report Trustworthy
Chapter 5
ДоверливиTë BesueshëmPouzdaniVredni poverenjaДостојни поверењаVredni zaupanjaPouzdani Trustworthy
Chapter 5
ДоверливиTë BesueshëmPouzdaniVredni poverenjaДостојни поверењаVredni zaupanjaPouzdani Chapter 5. 1:
Risk
Management
Strong capital and liquidity position
Risk management in NLB Group is in
charge of assessing, monitoring, and
managing risks within NLB as the main
entity in Slovenia, and the competence
centre for six subsidiary banks.
Furthermore, it is also responsible for
several ancillary services companies
and a number of non-core subsidiaries
which are in a controlled wind down.
During 2016 the focus was on improving
the quality of the credit portfolio with
appropriate portfolio diversification in
order to avoid large concentration, and
to further decrease the volume of NPE
towards average EU banking levels. In this
very low interest rate environment, the
Group is facing large excess liquidity and
putting a lot of attention to the structure
and concentration of the liquidity reserves,
also having in mind potential adverse
negative market movements. Excess
liquidity and market demand for fixed
interest rates products have an important
influence on the potential increase in
interest rate risk exposure. In this sense a
lot of attention was put on interest rate risk
limits for each Group member, whereby
low tolerance toward this risk is reflected.
The Group concluded 2016 well within its
target-risk appetite, with a strong capital
and liquidity position.
NLB Group 2016 Annual Report 107
Risk management principles
The Bank is, as a systemic bank, involved
in the Single Supervisory Mechanism
(SSM), whereby the supervision is under
the jurisdiction of the Joint Supervisory
Team of the ECB and the BoS. ECB
regulations are followed by all Group
members, whereby the Group subsidiaries
operating outside Slovenia are also
compliant with the rules set by the local
regulators. Across the Group, assessments
are made and risks managed in a uniform
fashion, taking into account the specifics
of the markets in which individual Group
members are operating in line with the
Group’s risk management standards.
The Group pays great attention and
importance to the risk culture and
awareness of all relevant risks within the
entire organisation. The main principles
are part of the Group Risk Strategy, where
special focus is put on risk appetite, the
inclusion of risk analysis into the decision-
making process on strategic and operating
levels, focusing on diversification in order
to avoid a large concentration, optimal
capital usage and its allocation, appropriate
risk-adjusted pricing, and the assurance of
overall compliance with internal policies/
rules and relevant regulations.
Proactive risk management in 2016
In 2016 fundamental risk management
documents representing the Group’s Risk
Appetite Statement and Risk Strategy were
updated. Moreover, the Group further
enhanced its risk management system in
order to support the business decision-
making process by upgrading its Internal
Capital Adequacy Assessment Process
(ICAAP), introducing the Internal Liquidity
Adequacy Assessment Process (ILAAP),
enhancing internal stress testing capabilities
and further upgrading comprehensive
steering processes within the revised risk
management framework.
One of the key aims of Risk Management
is to preserve a prudent level of the Group’s
capital adequacy. The Group monitors
its capital adequacy at the Group and
individual subsidiary bank level within the
established ICAAP process under both
normal conditions (regulatory capital
adequacy) and stressed conditions. As
at 31 December 2016, the Group had a
strong level of capital adequacy (CET 1)
of 17%, which is well within the stated
risk appetite limit, and above the EU
average as published by the European
Banking Authority (EBA). In line with
the Supervisory Review and Evaluation
Process (SREP), CET 1 and the total
capital requirement for the Group in 2017
are currently fulfilled in the current and
fully-loaded requirement.
The second key aim is to maintain a
solid level and structure of liquidity. The
Group holds a strong liquidity position
at the Group and individual subsidiary
bank level, which is well above the risk
appetite with the liquidity coverage ratio
(LCR) (according to the delegated act)
of 332% and unencumbered eligible
reserves in the amount of EUR 4,856
million. Even if the stress scenario were
to be realised, the Group has sufficiently
high liquidity reserves in place in the form
of placements at the ECB, prime debt
securities, and money market placements.
The main funding base of the Group
at the Group and individual subsidiary
bank level predominately entails customer
deposits with a comfortable level of LTD
in the amount of 74%, giving the Group
the potential for further customer loan
placements.
The improving quality of the credit
portfolio represents the third and still the
most important key aim, with a focus on
the quality of new placements leading to
a diversified portfolio of customers. The
Group is actively present on the market,
financing existing and new creditworthy
clients. The lower indebtedness of
companies in Slovenia and their successful
restructuring has had a positive influence
on the approval of new loans. In the
retail segment, positive trends were shown
throughout the region in clients’ greater
trust in economic developments and the
related consumption and selective recovery
of the real estate market. The Group puts
considerable emphasis on new corporate
and retail financing, the sustainability of
the credit risk volatility, and the sustainable
size of the subsidiary banking members.
On the Slovenian market, the focus is
on providing appropriate solutions for
retail, medium-sized, and small enterprise
segments, while on the corporate segment
the Bank is reinforcing the cooperation with
selected corporate clients (through different
types of lending/investments instruments).
All other banking members in SEE region,
where the Group is present are universal
banks, mainly focusing on the segment
of medium-sized and small enterprises,
and the retail segment. The Group puts
considerable emphasis on new corporate
and retail financing, sustainability of the
credit risk volatility, and the sustainable size
of the subsidiary banking members.
NLB Group 2016 Annual Report 108
Their primary goal is to provide
comprehensive services to clients by taking
prudent risk management principles into
account. The current structure of gross
exposures (on- and off-balance sheet)
consists of 33.8% of retail clients, 21.0%
of large corporate clients, 27.3% of SMEs
and micro companies, while the remainder
of the portfolio entails other liquid assets.
The efforts resulted in the moderate
formation of new NPLs and a sustainable
cost of risk in 2016, also partly related to
the positive macroeconomic environment
conditions.
The Group developed capacities to
gradually introduce a wide range of
advanced approaches supported by
mathematical and statistical models in the
area of credit risk assessment, while in the
area of stress testing, markets, and liquidity
risk internally-developed models were also
additionally enhanced in connection with
relevant expected macroeconomic factors.
The restructuring, work-out capacities,
and approaches built in the past are
largely still occupied by the legacy of
NPE, although increasingly focused on
actively resolving new cases with a faster
and more active approach to restructuring
and work-out. The structured approach
from the past and successful application
of various restructuring tools resulted in
numerous clients being cured in 2016,
and their transfer to the front office.
The Bank has made substantial progress
in retail restructuring by focusing on a
systematic approach and proactively
using standardised tools for the timely
restructuring of exposures to private
individuals.
Institutions 7%
State
11%
SME
27%
Mortgages
17%
Consumer 17%
Corporates
21%
Note: Gross exposures include also reserves at
Central Banks and demand deposits at banks
Figure 42: NLB Group structure of the credit portfolio
(gross loans and advances) by segment
56%
57% 58%
23%
18%
12%
7% 6% 5%
25%
19%
14%
A
(Highest quality)
B
C
D and E
(Default)
2014
2015
2016
Figure 43: Structure of NLB Group credit portfolio
by client credit ratings as at year end
NLB Group 2016 Annual Report 109
Strong commitment to reduce the NPE
legacy on the Group level continued in
2016. Precisely set targets and constant
monitoring of the realisation enabled a
further substantial reduction in the volume
of the non-performing portfolio to be
achieved. The existing non-performing
credit portfolio stock in the Group was
reduced from EUR 1,896 million to EUR
1,299 million, which does not include the
restructured exposures in the last year,
which hold good potential to be cured
in 2017. The realised sale of the non-
performing portfolio to investors in two
tranches (corporate and retail) resulted in
an NPE reduction of EUR 233.3 million.
The combined result of all effects was that
the share of NPLs decreased from 19.3%
to 13.8%, while the share of NPE by the
EBA methodology was reduced from
14.3% to 10.0%.
An important Group strength is the
coverage ratio, which remains high at
76.1% (an increase of 3.9 percentage
points). Further, the Group’s NPL coverage
ratio grew to 64.6%, which is well above
the EU average as published by the EBA
(44.3%). As such, it enables a further
reduction in NPLs without significantly
influencing the cost of risk in the next
years.
19%
14%
10%
2014
2015
2016
Figure 44: NLB Group NPE ratio
(year-end NPE% by the the EBA)
69%
72%
76%
62%
63%
65%
2014
2015
2016
2014
2015
2016
Note:
Note:
The coverage of the gross non-performing loan
portfolio with impairments on all of the loan portfolio
The coverage of the gross non-performing loan portfolio
with impairments on the non-performing loan portfolio
Figure 45: NLB Group Coverage
Figure 46: NLB Group NPL
ratio (year-end %)
Coverage ratio (year-end %)
When considering market risks, the
Group pursues the orientation that such
risks should not significantly affect a
single Group subsidiary or the whole
operations of the Group. Moreover,
the Group operates its main business
activities in euros, while in the case of the
banking subsidiaries, beside their domestic
currencies, they also partly operate in
euros.
Consequently, the Group’s exposure to
interest rate risk is relatively low, but has
recently increased moderately as a result
of an excess liquidity position and a low
interest rate environment. The Bank’s net
interest income sensitivity in the case of the
Euribor increase by 50 bps would amount
to EUR 14.9 million, while in the case of a
decreased exposure would be lower due to
zero floor clauses. Moreover, the basis point
value (BPV) sensitivity of 200 bps equals
14.8% of capital.
with low risk appetite and mainly limited to
Euro currency.
Exposure towards trading is allowed only in
the Bank as the main entity of the Group,
and is very limited. As such it does not
represent a material risk to the Group’s
operations.
In the area of operational risks, additional
efforts were made with regard to proactive
prevention and the minimisation of
potential damage in the future. Special
attention was paid to developing the stress-
testing system, based on modelling data on
loss events and scenario analysis referring
to potential high severity, low frequency
events. Furthermore, key risk indicators as
an early warning system for the broader
field of operational risks were established
with the aim of improving the existing
internal controls and reacting on time when
necessary.
The net open FX position is very low and
amounts to less than 5.7% of capital. In the
Group’s banking subsidiaries in SEE the
net positions are generally a bit more open
than on the group level, but still in line
In addition, the Group was also diligently
managing other, non-financial risks as
a part of the ICAAP process, including
strategic risk, reputation risk, capital risk,
and profitability risk.
NLB Group 2016 Annual Report 110
Andreas Burkhardt
Member of the Management Board
We reached a decisive point
of the determined, focused,
and responsible path we began
taking three years ago. We put
heathly foundations for our
future operations in place.
NLB Group 2016 Annual Report 111
“
The year 2016 will be remembered as a
Our high coverage ratio, which remains
year when we reached a groundbreaking
at a level of 76.1% (an increase of 3.9
point in managing our NPL. In this
percentage points from 2015) represents
exceptional year we dramatically
additional strength to the Group’s
reduced NPL volume by 31% to a level
performance and stability. The Group’s
of just below EUR 1.3 billion. As a result
NPL coverage ratio grew in 2016 to
our NPL ratio came down from 25.1%
64.6%, which is well above the EU
in 2014 to a much more moderate
average as published by the EBA (44.3%).
13.8%, and the NPE ratio by the EBA is
As such, it enables further reduction of
already at 10%. We reached a decisive
NPLs without significantly influencing
point of the determined, focused, and
the cost of risk in the following periods.
responsible path we began taking three
years ago. We put heathly foundations
In the future, our focus remains
for our future operations in place.
on monitoring the performance of
restructured clients and their upgrade
This strong performance on NPL
to the ‘Cured’ status. We are committed
reduction was possible due to strong
to accompany our clients throughout
results in collection and continued
their life-cyle. We are devoted to be a
divestment of exposures at the asset and
partner in their successes and a helping
portfolio levels. In 2016, NLB concluded
hand in the times of challenges.
two landmark transactions by selling
non-performing portfolios towards
Slovenian corporate clients and towards
Slovenian retail clients. Disposal of
these non-performing portfolios largely
contributed to the improvement of the
NPE ratio, and at the same time freed up
resources for an even faster work-out of
the remaining non-performing exposures.
Chapter 5. 2:
Human Resources
NLB maintains a Labour Council and
Labour Union, and also cooperates with
the Slovenian Banking Union. NLB has
established a cooperative relationship
with, and is not currently in conflict with
any labour unions. There are currently no
material lawsuits, legal disputes, or other
conflicts with employees.
On a pervasive path
toward a leaner and more
efficient organisation
In the past few years, NLB has made
substantial progress in improving its HR
management function by introducing a
system for management by objectives,
development plans, promotion schemes,
objective performance assessment,
remuneration schemes, and an active talent
management programme, that benefits
employees with relevant and regular
trainings and qualifications.
Since 2012, the NLB Group made
determined and complex efforts to
gradually reduce its number of employees
in connection with efforts undertaken
as part of the reorganisation. In last five
years the Group reduced the number
of employees by 17.1% and NLB alone
by 22.3%. This strategically important
step was implemented with the highest
responsibility towards employees and in
dialog with workers representatives.
NLB Group 2016 Annual Report 113
100%
47%
74%
26%
57%
6,175
employees in NLB Group
2,885
employees in NLB d.d.
73.8%
women in NLB Group
26.2%
men in NLB Group
57%
of employees in NLB
Group with VI. level
of education or more
In the past few years,
NLB has made substantial
progress in improving its
HR management function.
= 1 employee
Table 17: NLB Group employees by countries
Country
Slovenia*
Serbia
Bosnia and Herzegovine (Republic of Srpska,
Federation of Bosnia and Herzegovina)
Montenegro
Macedonia
Kosovo
Other
Total (NLB Group)
Total (NLB d.d. only)
* Note: without Bankart, Prvi Faktor, NLB Vita, Skupna PD and Sisbon.
Number of employees (on 31 December 2016)
3,065 (NLB: 2,885, other: 180)
424
942
342
891
489
22
6,175
2,885
NLB Group 2016 Annual Report 114
Becoming a finely-tuned orchestra with
new HR and Organisation strategy
In 2016 the Group adopted new business
strategy and initiated key strategic
initiatives, aiming among others towards
a leaner organisation, an optimisation of
processes, and an implementation of a new
IT strategy that focuses on digitalisation,
simplification, and an adjustment of the
organisational structure. These initiatives
will also result in a decreased number
of employees in the coming years.
Based on this, a new HR strategy was
adopted, and further HR strategies for
each organisational unit (OU) aimed at
employee restructuring, in particular their
knowledge and skills, were adjusted for
future needs and trends.
The Strategy defines nine key basic areas
with their current status, the means on how
to improve and achieve set goals for the
end period (2021), and defines KPIs for
each area with which the progress will be
measured.
Proud to be the first company in Slovenia
to receive ‘Top Employer’ certificate
In 2016, NLB was the first Slovenian
company to receive the ‘Top Employer’
certificate. A survey conducted among
employees in 2016 showed a better
organisational climate and engagement
in all the segments compared to 2015.
NLB pays close attention to talent
management, as well as social responsibility
towards employees. NLB also received the
certificate in 2017, implementing more
than 60 relevant improvements in HR.
HR strategy process
Organizational Capability Development
Leadership
Culture
Organization
Competence
Staffing
Employee
development
Talent
management
Performance
management
Reward
& recognition
Figure 47: HR strategy process
Continuing our longstanding
tradition of education
The Bank has a long tradition in the field
of education, as the Training Centre of
NLB (Training Centre) has been operating
for more than 40 years.
Systematical employee education, a
curiosity for new knowledge areas to
support new processes, and combining
them with new methods for knowledge
transfer from coaching, mentoring,
traineeship, e-education, etc. is being
promoted. Through education, the Bank
creates a new organisational culture and
help shape new business practices since
there is a direct correlation between
education and business strategy.
The purpose of all these activities of
the Training Centre is to empower all
employees to achieve business objectives
and thereby strengthen their personal
development, and to act socially responsibly
towards all stakeholders.
Employees are included in education
consistently based on the current and
future development needs of their working
area, based on yearly development plans or
individual career plans.
The Bank policy aims to develop employees
to the greatest extent possible, and with its
internal experts this is the most efficient
(easier adoption to banking practice and
specific needs of the workplace and work
processes) and most economical way
(flexible time, dedicated to a large number
of employees at a lower cost). In 2016, the
Bank had more than 96.2% of education
opportunities conducted internally and
in cooperation with approximately 120
in-house experts. 583 employees from the
Group were involved in various forms of
education and training in 2016.
NLB Group 2016 Annual Report 115
The purpose of the intensive talent
development is targeted career
development of the best individuals in
the Bank, so that they will be ready in the
future to take on the most demanding
positions in the Group. In contrast,
facilitating career development of talents,
aims to retain the best staff.
With a view to always have highly-skilled
leadership successors for all management
positions, employees were identified to
take part in the development programme
in 2017, where they will work on their
leadership competencies.
Renumeration system as a motivation
for engaged and committed employees
Employees’ salaries in NLB are defined by
a fixed amount, while collective agreements
also offer a variable component which
allows NLB to reward high-performers on
a quarterly basis.
NLB’s business strategy and the goals
of the organisational unit are defined
by the head of the organisational unit
using a top-down approach, and are the
basis for setting an employee’s goals. The
planning of quarterly or semi-annual
goals of each employee is based on the
plan of the organisational unit, presented
to the employees by the head of the
organisational unit, which serves as the
basis for:
Building the foundations for the future
successes with talent management
The Bank made the greatest progress in
2016 in the area of talent management.
It carried out the entire process of
identification and calibration of talents, and
officially launched the programme of talent
development. The on-boarding process was
also launched systematically, HR strategies
that were prepared for all organisational
units were optimised, and new academies
covering specific educational needs of
individual organisational units were
developed and organised.
Upon identification of the talents of
the employees by General Managers,
a calibration of talents was carried out
in cooperation with the Management
Board members and General Managers.
Identified talents were divided into three
groups: talent - leadership; talent – experts;
and young talents. The final list of talents
was formally approved by the Management
Board.
For the purpose of developing talents the
Bank designed development programmes
that are content specific and cover the
needs of all three talent groups. All
programmes combine development
activities to gain knowledge and skills of
strategic management, strategic planning,
and achievement of goal objectives,
project management, wider ‘out of the
box’ thinking, creative thinking, English
learning, etc. This will be achieved by using
various development activities: education,
training, project work, coaching, and
mentoring.
• Semi-annual or quarterly employee
performance assessments;
• Conversations between employees and
their superiors about the achievement,
exceeding and non-achievement of goals;
• Setting of action plans for improvements;
and
• Payment of part of the salary based on
personal performance.
The head of the organisational unit checks
the achievement of the set goals of the
organisational unit and the employee
quarterly or semi-annually, and establishes
any surpassing or lack of achievement
or deviations, of which the superiors are
informed. All of the above serves as the
basis for appropriate planning and setting
of goals for the next assessment period.
The goals are set according to the
‘SMART’ method, meaning that they have
to be (a) specific (the goal shall be defined
briefly and understandably), (b) measurable
(the head of the organisational unit shall
specifically define the result), (c) challenging
(referring to the scope and ability of
attainment of the goal), and (d) realistic,
and timely (with a defined time frame).
Being family-friendly company
The Full Family-Friendly Company
certificate was granted to the Bank
in December 2014 by the non-profit
and independent organisation Ekvilib
Institute, together with the Ministry of
Labour, Family, Social Affairs, and Equal
Opportunities. The aim of the certificate
is easier coordination of the private and
professional lives of employees.
NLB Group 2016 Annual Report 116
A total of 72.36% of NLB’s employees
participated in this survey, which is
considered an above-average participation
level in Slovenia. 71% of employees
responded to the last survey conducted in
NLB in 2015 and 61% in 2014.
> 980
participants in the ‘Healthy Bank’
activities for improvements of health
in the workplace and quality of life
> 118,000
hours of education in 2016
> 1,000
educational programmes
implemented in 2016
Key benefits for the employees:
• A free weekday off to escort children on
their first day of school; escort kids in the
last year of elementary school or high
school to the information open day in
high schools or colleges; move into their
new place; escort a family member in
case of serious illness
• The potential of flexible working hours
or paid leave hours to introduce children
into pre-school
• Paid absence from work due to extraordi-
nary family reasons
• Organisation of childcare activities
during the summer and winter holidays
(NLB Happy holidays) by the Bank
• An offer of additional benefits on bank-
ing services, including financial assistance
for employees
• New Years gifts for children and gifts
for newborns, as well as social aid for
children of deceased employees of the
Bank to aid their studies
• A full day off from work due to the
utilisation of excess working hours even
if they attained them with overtime work
that was not mandatory.
The management staff is annually informed
of the activities and measures of a family-
friendly company and needs to complete
a mandatory e-learning programme. The
respective activities and measures are also
taught in the Bank’s School for leaders.
Managers and directors are assessed by
subordinates with the 360 degrees method,
part of which also includes the evaluation
of the ability of a manager to reconcile the
work and private lives of employees.
Group members need to uphold their
implemented measures and activities that
have been set through the certification
process. Throughout the process, the
work is accompanied by the evaluator/
consultant, on the basis of annual reports
and audited by Ekvilib Institute.
The number of employees benefitting
from measures increases each year. In
2016, 7,974 employees benefitted from the
measures, meaning that on average each
employee benefitted from the measures 2.6
times per year. The Bank also adds new
measures each year.
Improving organisational climate
and employee engagement
The effects of NLB’s HR Strategy are
measured with an organisational climate
and employee engagement survey,
which assesses the motivation level of its
employees and their willingness to invest
effort above expectations, with both
contributing to a successful corporate
performance. The survey showed that the
share of engaged employees in 2016 grew
by 7% compared to 2015. The share of
those actively disengaged decreased by as
much.
When measuring the organisational
climate, NLB focused on individual
perceptions and descriptions of the social
environment. NLB evaluated 16 different
categories, where the highest scores were
achieved in the following categories: quality,
management, and motivation. The greatest
positive change was seen in these categories:
affiliation to the organisation, organisation,
and motivation. Compared to 2015 the
situation improved in all 16 categories.
NLB Group 2016 Annual Report 117
As we evaluate the positive
results of 2016, we must
not forget to praise those who
deserve it – our employees.
Such results can only be
achieved with engaged workers,
who are experts in their
fields, and who constantly
invest in their knowledge.
as well, which is why our bank was
proud to accept this certificate that
Vesna Vodopivec
General Manager, Human Resources
and Organisation Development
“
As we evaluate the positive results
of 2016, we must not forget to praise
those who deserve it – our employees.
recognises that the conditions employers
Such results can only be achieved with
create for their people do matter.
engaged workers, who are experts in
We will continue to support further
their fields, and who constantly invest
development of our employees, and
in their knowledge. This is something
enhance our Talent programme in the
that our bank and the entire NLB Group
entire NLB Group. We are convinced
firmly support. In 2016 NLB d.d. obtained
that strategic goals are more easily
the ‘Top Employer’ certificate for the
achieved through the nurturing of
first time. We are committed to helping
hard-working, dedicated experts.
our employees do excellent work,
and to their continued development
NLB Group 2016 Annual Report Digital
Chapter 6
ДигиталниДигиталниDigitalniDigjitalDigitalniDigitalniDigitalni Digital
Chapter 6
ДигиталниДигиталниDigitalniDigjitalDigitalniDigitalniDigitalni Chapter 6. 1:
IT and
Processing
Operations
Information Technology
Building our competitive advantage
on the basis of a new IT strategy
Technology is the essence of the modern
social and business environment.
Therefore, information technology presents
the cornerstone of all operations in NLB.
An agile IT function plays crucial role
in ensuring high levels of information
security and availability, as well as building
a sustained competitive advantage on the
market.
NLB is on the way to taking one of its
most important transformational steps in
its history. With implementation of new
banking services and functionalities, based
on digitalisation of products, processes,
and customer experience, the Bank is
implementing significant business changes
that will considerably change its operations,
as well as its culture. The cornerstone of
this transformation process is and will be
in IT.
In 2016 the Bank confirmed its new
IT strategy. It includes the following
major aspects: Enterprise Architecture,
Governance & Processes, Financials,
Sourcing, Innovation, and Group
Synergies. The future governance addresses
key points in the existing governance
model, as well as the changes necessary
for successful implementation of IT and
business strategies through 2020.
NLB Group 2016 Annual Report 121
Infrastructure overview in Slovenia
= 10 units
Infrastructure in foreign
bank subsidiaries
2
data centres with
disaster recovery capability
800 TB
of disk storage
2
IBM mainframes
150
physical servers
450
active network devices
International subsidiaries operating
independently based on right-sized
solutions for the market
330
virtual servers
558
ATMs
To achieve its goals defined in the new
strategy, NLB Group plans to initiate a
top-down review of its current technology
architecture and define a transition path
towards a simplified, less complex IT
landscape, which will be able to support
the high demands of a real-time/data-
driven /omnichannel environment. Such
a transition will likely involve long-term
efforts spanning several years in order to
realise anticipated benefits such as the
reduction of certain costs and a defending
the NLB Group’s position as a market
leader. More actively identifying and
pursuing group synergies are also high on
the agenda.
The year of introduction of
innovative products and maintenance
of high security standards
An agile IT function continues to be
seen as the key to a sustained competitive
advantage. In 2016 the Bank retained
high levels of information security and
availability, with the current bank reliability
standing at 99.97%. To maintain a high
level of information security and ensure
compliance with applicable data protection
and privacy laws, NLB pursues the
continued improvement of its technology
and operations.
One of the most important tasks IT
performed in 2016 was the introduction
of ‘Klikpro,’ a mobile bank for companies.
The first version, which was “live” in July,
enabled users to review their accounts’
balances, details of the payments orders,
manual entry of UPN, and as well “take a
photo and pay” functionality, with a value-
added tax (VAT) calculator, and more.
The graphical layout was refreshed as well.
Upgrade of the application in December
2016 additionally enabled payments to
foreign countries, exchange offices, and
certain other new functionalities. The Bank
already had 3,403 users of Klikpro by the
end of 2016.
NLB Group 2016 Annual Report
122
Similarly, ‘Klikin,’ a mobile banking
platform for private individuals, was
upgraded and user-friendly functionalities
such as “take a photo and pay,” automatic
filing of the receiver’s data in a Universal
Payment Form (UPN), and the sending of
payment details to an e-mail address were
enabled. Here as well, the graphical layout
was changed and modernised. Klikin
enjoyed a great client response, and already
had 55,433 users by the end of 2016.
The other significant project the Bank
completed was the implementation of
E-signature in all branches. Beside the
E-signature itself, credit flow processes were
optimised, and all entry documents are
now only available in electronic format. All
documents are stored in a central archive
in real time and are immediately available
to all authorised Bank employees through
the front end systems. This is yet another
step towards advancing digitalisation as a
cornerstone of keeping up and creating
a competitive edge on the market in the
future.
The Bank successfully emphasises its
position as market innovator with the
introduction of unique mobile and
online platforms which enable its clients’
services such as the “take a photo and
pay” function, the ability to transfer
funds through a phone address book, and
the introduction of video calls and chat
features on the Bank’s website. We are
planning to be the first bank to offer an
end-to-end loan process.
Modern infrastructure for
Today’s projects are the
future challenges
foundations for the digital era
Our IT department is putting large
effort in introducing the synergies in the
NLB Group wherever this is applicable.
So far, three areas are defined, CRM,
Omnichannel (Users Experience), and BI
(Business Intelligence). Products which suit
all banks in the Group will be centrally
procured and a support group with a high
level of knowledge will be established in
various banks with the tasks to support
specific areas for all Group members.
The Bank will focus on customer-
oriented scenarios (customer relationship
management (CRM), BPM, or Customer
experience platform) in sourcing the
target architecture components. Tangible
synergies can be achieved across the
Group with strong governance and unified
solutions in the areas of digital frontends,
data management, and CRM.
The Bank’s commitment to following
a path of digitalisation is putting full
attention on establishing modern
infrastructure. In year 2016 we ensured
successful digital support to the largest
Slovenian vault. As a sole financial
institution we achieved the largest market
share in an issued certificate in Slovenia,
and we are planning to introduce the
cloud technology for remote signature in
2017. We provide an effective outsource
of payment processing at the national and
regional levels.
NLB is in the process of setting up a new
data infrastructure and data management
practices which will, over time, provide
standardised global data infrastructure
services to all NLB bank’s core subsidiaries.
This new data ecosystem will allow the
NLB Group to take advantage of synergies
in various areas of banking operations and
business.
The Bank’s commitment
to following a path of
digitalisation is putting full
attention on establishing
modern infrastructure.
NLB Group 2016 Annual Report 123
Through further
optimisation of
processing and by
following the trends
of digitalisation, the
Bank is striving to
provide improved
customer experience.
Processing operations
Retaining the position of leader and
Through process optimisation
most trusted payment service provider
towards agile and dynamic operations
of financial instruments
In 2016, the Bank continued with
rationalisation and optimisation of
operations and implemented a number of
improvements and automations for back
office processes. Most important were in
the process of a supporting brokerage,
where the Bank increased the number of
clients by 150%, due to the mandatory
transfer of client assets from registry
accounts at Central Securities Clearing
Corporation (KDD) to trading accounts.
With engagement and dedication the
Bank provides a comprehensive and
professional service to clients, ensuring
effective operational and settlement risk
management and optimising costs.
As integration of the Slovenian capital
market into TARGET2-Securities (T2S), a
single pan European platform for securities
settlement in central bank money is
taking place in the beginning of 2017, the
majority of adaptations had to be ensured
already in 2016. Beside adaptations of
services for the Bank’s own securities
settlement operations, services for the
clients in the context of T2S Payment Bank
were newly developed (the Bank will be
the only bank in Slovenia offering access to
Dedicated Cash Accounts in T2S to other
clients).
In 2016 the Bank succeeded in retaining
its market position as the leading and
most trusted payment service provider.
Special attention was dedicated to quality,
reliability, and security of payments
services to adequately accommodate
ever-demanding and changing needs of
the Bank’s retail and corporate clients. In
the field of payment processing further
improvements of efficiency and automation
resulted in a higher rate of Straight
through Processing (STP) transactions.
The Bank’s partners are the leading
industry providers offering the highest
level of expertise, even as much as regional
banks that know profoundly well about
the markets important for clients. The
Bank account network was additionally
streamlined in 2016, and the Bank
currently holds 46 accounts with 36 leading
providers. It is likely that this trend shall
continue, not only from a compliance, but
also profitability perspective.
In line with the digitalisation trends
and anticipated regulatory changes, the
Bank has initiated a number of different
development activities (internally and with
stakeholders) in order to timely respond
to new challenges and to make necessary
adaptations. In this respect two projects
were introduced in 2016, namely The
Instant Payments Project and the project
to introduce a quick response (QR) code
on UPN. The objective is to advance
customer experience by faster execution
of their payments (instantly, i.e. in less
than 10 seconds) and simplified initiation
of payment orders and their processing
(using QR code).
NLB Group 2016 Annual Report In 2016 NLB’s Cash
Processing team completed
a substantial investment
project, which was the
Bank’s largest investment
project in recent years. The
largest cash processing
centre in Slovenia has been
constructed in Ljubljana.
124
Establishing the largest cash
processing centre in Slovenia
Cash Processing supplies branches and
ATMs of the Bank with cash, and ensures
constant availability of high quality
banknotes and coins for the whole branch
network. In addition, the Bank’s central
vault supplies cash for branch and ATM
networks of 12 other banks in Slovenia.
In 2016 NLB’s Cash Processing team
completed a substantial investment project,
which was the Bank’s largest investment
project in recent years. The largest cash
processing centre in Slovenia has been
constructed in Ljubljana. It has enabled
automation of processes and consequently
a reduction of costs in this area. To cover
all specifics of cash processing, NLB has
developed its own IT application. This
enables appropriate support for automated
processing of cash, as well as automated
capturing and transfer of data. NLB has
also developed an online environment in
which information about cash orders can
be exchanged with its clients. As a result,
NLB’s clients (banks and companies) are
able to send orders for cash services and
monitor statuses of their orders. The
Bank is continuously developing internal
processes and relationships with customers.
Consequently, in 2016 the majority of
paper work related to cash transportation
was digitalised through implementation of
a mobile phone application.
125
We want to offer novel
approaches and never-before-
seen solutions that facilitate
operations through every
channel. The modern world
is becoming extremely mobile.
We want to be with our
customers every step of the way.
We are rapidly adapting our
In addition to supporting target
information technology to trends in
business improvements, we aspire for a
László Pelle
Member of the Management Board
“
The banking industry is facing real
challenges. Developing new technologies
brings new methods of operations and
banking digitalisation. In 2016 we
leaner, more agile, and cost-effective IT
cutting-edge business models, while
introduced several innovative digital
architecture, so we’ll be able to respond
regulatory institutions keep setting new
product solutions, such as the mobile
to the main digital challenges of the
rules to stay current with that rapid
application ‘NLB Klikpro’ that enables
industry. Through digital technologies,
development. NLB wants customers
companies, entrepreneurs, and private
utilisation of our data warehouse,
who need and seek innovative services.
individuals with small businesses simple
and an agile delivery organisation
We want to offer novel approaches
‘Check – pay – order’ services at their
we are building a solid foundation
and never-before-seen solutions that
fingertips. The incentives set in our
toward being in a more competitive
facilitate operations through every
ambitious 2016 - 2020 strategy are
mid- to long-term position, as well as
channel. The modern world is becoming
essentially based on upgrading and
simplifying our client’s daily business.
extremely mobile. We want to be with
delivering modernised IT capabilities by
our customers every step of the way.
establishing or updating key elements
of our IT application architecture.
NLB Group 2016 Annual Report Chapter 6. 2:
Internal Audit
Internal Audit monitors decision-making
process in all areas of NLB Group, reviews
key risks in its operations, advises
management at all levels, and deepens
understanding of the Bank’s operations.
Furthermore, it provides independent
and impartial assurances regarding the
management of key risks, management
of the Bank, operation of internal
controls, and thereby strengthens
and protects the value of the Bank.
Internal Audit is an independent, objective,
and advisory control body responsible for
a systematic and professional assessment
of the effectiveness of risk management
procedures, completeness and functionality
of internal control systems, and the
management of the Group operations on
an ongoing basis. Internal Audit reports to
the Management Board and directly to the
Supervisory Board. It provides impartial
assurance to the Management Board and
the Supervisory Board that risks in key
areas of the Bank i.e. risk management,
lending, restructuring and NPL, IT and IT
security, divestment of non-core activities,
compliance, corporate governance, and
others are managed properly. The best
practice examples and international
guidelines provided by the Committee of
Sponsoring Organisations of the Treadway
Commission (COSO), Internal Control
(IC) and Enterprise Risk Management
(ERM) represent the main criteria for
the Bank’s internal controls system and
effective risk management.
NLB Group 2016 Annual Report 127
24,454
hours were spent in reviews
57
experts worked on 12 internal
audit services of the Group
42
planned and extraordinary audit
assignments were conducted by
Internal Audit of the Bank in 2016
= 8 hours
Active in the entire Group
Implementation of uniform rules
The highest standards were followed
Internal Audit performs its tasks and
responsibilities based on its own discretion
and in compliance with the annual audit
plan as approved by the Management
Board and confirmed by the Supervisory
Board. Based on its internal methodology
and comprehensive risk analysis plan
for 2016 intended 40 audit reviews,
out of which 36 were conducted. The
number also includes a quality review of
Internal Audit function in all six banking
members of the Group. Furthermore,
six extraordinary audits were conducted,
mainly on the request by the regulator and
the Management Board of the Bank.
In its activities Internal Audit puts a lot of
focus on monitoring the implementation
of the audit recommendations; updating
the internal audit manual, training, and
education; advising management; and
ensuring high quality and professional
operations of the internal audit function
within the Group. Internal audit also
introduces uniform rules of operation of
the internal audit function and regularly
monitors the compliance with these rules
within the Group.
Internal Audit and other internal
audit services in the Group operate in
accordance with the:
• International Standards for the
Professional Practice of Internal
Auditing
• Banking Act or other relevant law which
regulates the operations of a Group
member
• Code of Ethics of Internal Auditors and
• Code of Internal Auditing Principles.
NLB Group 2016 Annual Report
Chapter 6. 3:
Compliance
and Integrity
A key element for long-term success
is to follow reasonably set rules
and agreed values. Therefore,
the Group is strengthening the
compliance function and diligence of
its operations. This is a commitment
of all employees of the Group.
The Bank is constantly building,
strengthening, and supporting a culture
of compliance and diligence. Banking is
a highly regulated industry, which makes
the business operations more and more
demanding. An institution can cope with
this challenge with a systemic approach
toward compliance risk mitigation. It is
important to ensure that employees and
decision-makers know and understand
the purpose and goals of regulations.
Systematically monitoring the legal and
regulatory environment and evaluating its
effects on the Bank has therefore become
a significant part of everyday life and
work. One of the most important tasks in
this area in 2016 was further successful
alignment of the Bank to a new law on
banking which was adopted in 2015, as
well as to other applicable regulations.
To ensure sound information flow and
issue addressing, Compliance function is
reporting to the Management Board and to
the Supervisory Board of the bank.
NLB Group 2016 Annual Report 129
The new compliance
policy, which was
adopted in 2016, is
based on the framework
of internationally
recognised standards
of compliance
management.
In 2016 the BoS closed the order from
2013 under which the Bank had to review
and assess the reasons for past losses. The
Bank has successfully fulfilled the task and
implemented a variety of improvements in
the system and organisation of the Bank,
including the ones that are eliminating
shortcomings identified in the systematic
review of NPL. By completing this chapter
of the past, the Bank is able to be fully
committed to the future.
about issues of compliance, be it from
a regulatory perspective or about ethics
and integrity and prepared workshops
and mandatory e-trainings about business
ethics, prevention of corruption, personal
data protection, and other relevant topics
connected to everyday work. Special
attention is dedicated to advisory support
for employees who have dilemmas about
issues from the compliance field – mainly
connected to regulatory questions, conflict
of interests, acceptance of gifts, etc.
Compliance and Integrity dedicated over
1,000 working hours for advisory support
to employees in 2016.
An anonymous reporting line for whistle
blowers has been established and an
internal investigation process is in place
and running.
A new methodology and process for
assessing enterprise compliance risks were
developed. The assessment is enabling
the Bank to continuously reduce the
compliance risks with already prepared
mitigation measures. The same procedure
for enterprise compliance risk assessment is
being used for other members of the Group
with a goal to identify, assess, and mitigate
compliance risks on the Group level.
6
Directive (EU) 2015/849 of the European Parliament
and of the Council on the prevention of the use
of the financial system for the purposes of money
laundering or terrorist financing.
The Bank complies with national
regulations on Anti-Money Laundering and
Counter-Terrorism Financing (AML/CTF),
including the Guidelines of the BoS. The
RoS is a member of EU and thus subject to
the standards of the Financial Action Task
Force (FATF) and the European legislation
based on them, i.e. the fourth EU directive
in the area of Money Laundering and
Terrorist Financing Prevention (MLTFP).6
Pursuant to the Slovenian MLTFP Act, the
bank is obliged to ensure that its branches
and majority-owned subsidiaries with
head offices in third countries apply the
same measures. The Group members must
fully comply with the Slovenian legislation
on MLTFP (the basis for establishing
compliance in the Group are Minimum
Standards for Compliance and Integrity).
The coordination of the implementation
of the MLTFP system in the Group also
includes the oversight and review of the
MLTFP system.
Every strong compliance programme
reaches beyond pure regulatory issues and
deals also with ethics and integrity within
the organisation. Such a programme
encourages the employees and other
stakeholders to business behaviour that is
aligned with a strong positive organisational
culture. The new compliance policy, which
was adopted in 2016, is based on the
framework of internationally recognised
standards of compliance management.
There is a great emphasis on prevention,
namely preventing the harmful conducts
and incidents in the Bank. In 2016
employees of all levels were informed and
trained on non-acceptance of violations
of rules and other obligations. Periodically,
Compliance and Integrity distributed news
NLB Group 2016 Annual Report Commited
Chapter 7
ПосветениPosvećeniTë Përkushtuar PosvećeniPosvećeniПосвећениPredani Commited
Chapter 7
ПосветениPosvećeniTë Përkushtuar PosvećeniPosvećeniПосвећениPredani Chapter 7. 1:
Overview of NLB
Group’s Financial
Performance 2016
Income statement
The net profit for 2016 was EUR 110.0
million, which is 20% higher than 2015.
The Bank contributed EUR 65.6 million,
other strategic Group banks EUR
57.7 million, while non-core members
contributed negatively, but with lower loss
compared to the previous year.
This result is based on the following key
drivers:
• A successful cost-reduction process with
substantial savings achieved specifically
in general and administrative expenses
(-7% YoY)
• A very solid performance in the cost of
risk, being substantially lower than last
year although fully accommodating the
effects of the non-performing portfolio
sale
• Solid performance in key business areas
• Resilient fee and commission income
and positive results from asset disposals
(Visa shares, Trimo).
with very positive profit evolution,
especially in foreign strategic subsidiaries,
and solid recovery in loan demand in
all key business areas resulting in 8%
asset growth YoY over all key business
segments (retail/corporate Slovenia,
foreign strategic markets)
NLB Group 2016 Annual Report Table 18: Income statement of NLB Group and NLB
NLB Group
NLB d.d.
133
in EUR million
Net interest income
Net fee and commission income
Dividend income
Net income from financial transactions
Net other income
Net non-interest income
Total net operating income
Employee costs
Other general and administrative expenses
Depreciation and amortisation
Total costs
Result before impairments and provisions
Impairments of AFS and HTM financial assets
Credit impairments and provisions
Investments in ass.&JV - using the equity method
Other impairments and provisions
Impairments and provisions
Gains less losses from capital investments in
subsidiaries, associates and joint ventures1
Profit before income tax
Income tax
Result of non-controlling interests
Profit for the period
2016
317.3
145.7
1.2
19.9
-8.3
158.4
475.7
-165.4
-95.8
-28.3
-289.5
186.2
-0.3
-26.1
-12.3
-22.0
-60.6
5.0
130.6
-15.0
5.6
110.0
2015
Change YoY
340.2
147.1
1.3
3.8
-9.1
143.2
483.4
-163.2
-102.8
-31.9
-297.8
185.6
-4.7
-50.9
-
-27.6
-83.1
4.3
106.8
-11.4
3.5
91.9
-7%
-1%
-8%
417%
-8%
11%
-2%
1%
-7%
-11%
-3%
0%
-94%
-49%
-
-20%
-27%
16%
22%
32%
62%
20%
2016
174.9
95.3
1.1
13.3
-0.9
108.8
283.7
-103.2
-58.9
-18.9
-181.0
102.7
-0.3
-15.2
-37.6
-10.8
-64.0
28.9
67.7
-3.9
0.0
63.8
2015
Change YoY
208.0
98.1
1.3
8.9
-2.9
105.3
313.3
-101.8
-64.0
-21.4
-187.2
126.1
-2.6
-28.1
-50.3
-7.0
-88.0
13.7
51.8
-8.0
0.0
43.9
-16%
-3%
-9%
50%
-70%
3%
-9%
1%
-8%
-12%
-3%
-18%
-89%
-46%
-25%
55%
-27%
110%
31%
-51%
-
45%
Note: 1 NLB d.d. includes dividends from subsidiaries, associates and joint ventures
ROE a.t.
6.6%
91.9
+ 15.3
+ 8.3
- 22.9
+ 22.5
+ 0.7
- 3.6
- 2.1
7.4%
110.0
2015
Net
interest
income
Net
non-interest
income
Total
costs
Net impairments
and provisions
Gains and
losses *
Income tax
Result of
non-controling
interests
2016
Note: * Gains less losses from capital investments in subsidiaries, associates and joint ventures
Figure 48: Profit after tax of NLB Group – evolution YoY (in EUR million)
NLB Group 2016 Annual Report
134
63.8
43.9
n
o
i
l
l
i
m
R
U
E
n
i
25.0
13.1
14.1
9.9
11.3
8.2
6.2
5.3
4.2
5.4
NLB
NLB Banka
Skopje
NLB Banka
Banja Luka
NLB Banka
Prishtina
NLB Banka
Podgorica
NLB Banka
Sarajevo
2015
2016
Figure 49: Profit after tax of the NLB Group banks (on a stand alone basis) - evolution YoY (in EUR million)
1.2
2.2
NLB Banka
Beograd
cially in the corporate segment (-14.0%
YoY) with more stable results in retail
(-6.5% YoY normalised by the impact of
the non-performing portfolio sale), where
high growth of new loans in last quarter
of 2016 was recorded and
• The rapid decline in interest income
from financial markets (mostly invested
in medium-term investment grade
securities) and the expiry of higher
yielding bonds received by the BAMC
in 2013.
Most of the banks in the Group increased
their profit after tax compared to 2015 in
spite of an unfavourable market situation
with an extremely low and partially
negative interest rate environment, a
high level of excess liquidity, and fierce
competition for good investment projects.
The result of the Bank increased by 45%
compared to 2015, and includes dividends
from core subsidiaries, associates, and
joint ventures in the amount of EUR 28.7
million. In August 2016, the Bank paid a
dividend of EUR 43.9 million to owner, the
first time since 2009.
Profit before impairments and provisions of
the Group totalled to EUR 186.2 million,
which is EUR 0.7 million higher than
2015.
Non-recurring results turned out to be
EUR 19.9 million higher YoY, of which
EUR 9.4 million is attributable to non-
recurring effects in 2016. The Bank
divested a non-core equity stake (Trimo)
at a profit of EUR 5.5 million (comprising
of a realised gain on equity investment
and fee received as a financial consultant
for the bank syndicate), Visa shares at a
profit of EUR 7.8 million, and recognised a
restructuring charge of EUR 3.8 million.
The recurring results were mainly
influenced by a solid improvement in costs
(-3% YoY) and strong dynamics in the
composition of interest income:
• The stable performance in interest
income in key business activities at EUR
243.0 million (2015: EUR 244.4 million)
– strong growth in strategic foreign mar-
kets (+9.4% YoY to EUR 136.9 million)
offset by lower interest income due to
higher margin pressure in Slovenia, espe-
NLB Group 2016 Annual Report
135
n
o
i
l
l
i
m
R
U
E
n
i
311.4
363.6
Non-recurring effects
EUR +19.9 million
Net effects from reccuring activities
EUR -19.3 million
+9.4
-2.0
+8.7
+10.5
-22.9
-2.0
-1.0
-0.1
185.6
186.2
2015
Non-recurring
effects 2015
Non-recurring
effects 2016
Net profit
from financial
transaction
Total costs
Net interest
income
Fees and
commissions
Other regular
net income
Dividends
received
2016
Figure 50: Profit before impairments and provisions of NLB Group – evolution YoY (in EUR million)
Net interest income
Net interest income of the Group
accounted for 66.8% of the Group’s total
net revenues, decreasing by 6.7% YoY to
EUR 317.3 million, mostly due to falling
interest income in Slovenia – especially in
the financial markets segments given the
historically low yield environment. The
Group continued with the very active
management of its interest expenses,
repaying or repricing some funding
lines and continuously adjusting deposit
pricing to the prevailing low interest
rate environment, thereby substantially
reducing interest expenses (-30.9% YoY).
As a reaction to the negative deposit rates
quoted by the ECB, the NLB partially
introduced asset management fees for
larger deposits placed by corporates in
Slovenia.
340.2
317.3
443.2
388.5
-103.0
2015
-71.2
2016
Interest expenses
Interest income
Figure 51: Net interest income
of NLB Group (in EUR million)
NLB Group 2016 Annual Report
136
Key business activities
2016: 243.0 (2015: 244.4)
136.9
125.2
78.3
73.2*
2.0
71.2
Key/Mid/Small
corporates
40.9
34.9
+
14.9
2.8
13.1*
1.9
11.0
2.1
Restructuring and work-out
2015
2016
Non-performing
portfolio
sale effects
* Normalised for
non-performing
portfolio
sale effects
-0.8
-0.7
60.2
48.5
21.6
15.4
Corporate banking
in Slovenia
Retail banking
in Slovenia
Strategic foreign
markets
Financial markets
in Slovenia
Non-core markets
and activities
Other activities
Figure 52: Net interest income of NLB Group by segments (in EUR million)
Net non-interest income in financial
markets in Slovenia was EUR 11.1 million
lower as the 2015 result included profits
from the non-recurring event of selling
RoS bonds (EUR 5.2 million), while the
2016 result includes the negative effects in
the amount of EUR 3.0 million from the
prepayment of wholesale funding.
Net interest income in key business
activities remained very stable overall,
with the higher pressure from business
in Slovenia being offset by the higher
growth in Strategic Foreign Markets.
Net interest income in financial markets
decreased predominantly due to the
continuous reinvestment of the securities
portfolio at lower yields, and the expiry
of higher yielding securities received
from the BAMC (EUR 300 million
expiring already in 2015, EUR 300
million expiring at the end of 2016).
In line with the strategy of the Group,
non-core markets and activities decreased
and consequently net interest income
was lower.
Non interest income
Net non-interest income of the Group was
EUR 15.3 million higher than 2015 at the
level of EUR 158.4 million (2015: EUR
143.2 million), primarily due to the positive
non-recurring effects from asset disposals
in 2016 (Visa, Trimo), while the negative
non-recurring effects incurred in 2015.
The net non-interest income of Key
business activities continues to be resilient
in both Slovenia and in strategic foreign
markets. Some decline was noted in retail
banking in Slovenia, largely explained by
the new regulation on card pricing.
NLB Group 2016 Annual Report 137
2015
2016
12.7
1.6
10.9
10.1
3.5
-11.7
Key business activities
2016: 138.0 (2015: 139.8)
72.5
66.5
Key/Mid/Small
corporates
29.0
26.6
40.7
42.5
+
2.8
1.9
Restructuring and recovery
Corporate banking
in Slovenia
Retail banking
in Slovenia
Strategic foreign
markets
Financial markets
in Slovenia
Non-core markets
and activities
Other activities
Figure 53: Net non-interest income by segments of NLB Group (in EUR million)
Non-core markets and activities in 2016
include the positive non-recurring income
from the sale of non-strategic equity
investments, while in 2015 the result was
burdened by the non-recurring FX charge.
The other activities segment includes
income from non-bank services for
external customers (EUR 8.8 million),
the non-recurring income from the VISA
EU share transaction (EUR 7.8 million),
and payments to the SRF and the DGS in
the amount of EUR 8.5 million, as well
as restructuring charges recognised in the
Bank (2016: EUR 3.8 million).
NLB Group 2016 Annual Report 138
Net fees and commissions
The most important source of net non-
interest income is net fees and commissions,
which remained very resilient at the level
of EUR 145.7 million (2015: EUR 147.1
million) with the Group making increased
efforts to grow its ancillary revenue base
with fee-based products such as insurance
and asset management. Some decline in
cards and ATM operations was notably due
to the negative effects of the EU Directive
in the area of card operations (MiFiD).
Lower operating costs
Costs continue to be a focus of
management attention. Costs declined
overall by 3% YoY in 2016. Special
attention was given in 2016 to general and
administrative expenses with substantial
savings achieved (-7% or EUR 7.0 million
YoY). The cost-reduction trend is present in
most members of the Group, especially the
non-strategic ones.
Employee costs were higher mainly
due to the reintroduced payment of
supplementary pension insurance for
employees, the higher holiday allowance
paid in the Bank, and one-off costs incurred
with HR redundancies in NLB Banka
Beograd in a total amount of EUR 0.9
million. The Group also created provisions
totalling EUR 10.6 million in anticipation
of future HR redundancies envisaged in
Slovenia (shown in Other Provisions in the
Financial Statement).
147.1
1.2
2.9
13.5
3.8
12.7
39.7
145.7
0.8
3.3
13.8
5.0
11.9
39.9
24.0
21.3
Other
Bancasurrance
Asset management
Investment banking
Guarantees
Basic accounts
49.3
49.6
Cards and ATM operations
Payment transactions
2015
2016
Figure 54: Structure of net fees and commissions of NLB Group (in EUR million)
CIR 61.6%
297.8
2.2
-7.0
-3.5
163.2
102.8
31.9
2015
Employee
costs
Other general
and administrative
expenses
Depreciation
and
administration
60.9%
289.5
165.4
95.8
28.3
2016
Employee costs
Other general and administrative expenses
Depreciation and administration
Figure 55: Total costs of NLB Group – evolution YoY (in EUR million)
NLB Group 2016 Annual Report 139
As a result, the CIR amounted to
60.9%, namely a slight improvement
(0.8 percentage point) compared to 2015.
Going forward, NLB Group will aim to
significantly improve operational efficiency
by focusing on the transition to STP
processing via online channels with the
consequent further rationalisation of the
traditional network, employee, and other
general and administrative costs, while
ensuring a reduction of the remaining non-
core cost base in an accelerated manner.
Low net impairments and provisions
in EUR million
in bps
60
50
40
30
20
10
0
75
51
2015
80
70
60
50
40
30
20
10
0
38
26
2016
Net credit impairments and provisions
Cost of risk (in bps)
Figure 56: NLB Group credit impairments and provisions, costs of risk (in bps)
Net impairments and provisions amounted
to EUR 60.6 million, which is 27% less
than in 2015 due to the improvement in the
quality of the credit portfolio’s structure,
the positive effects from the successful
restructuring, and the resolution of
non-performing receivables. Accordingly,
the net cost of risk decreased from 75
basis points to 38 basis points despite the
additional impairments related to the non-
performing portfolio sale in the amount of
EUR 25.8 million.
Other impairments and provisions were
established in a net amount of EUR 22.0
million, of which most material were
HR provisions (EUR 10.6 million) and
impairments of real-estate assets (EUR 3.3
million).
Figure 54: Structure of net fees and commissions of NLB Group (in EUR million)
Figure 55: Total costs of NLB Group – evolution YoY (in EUR million)
NLB Group 2016 Annual Report 140
Statement of financial position
Table 19: Statement of financial position of NLB Group and NLB
NLB Group
NLB d.d.
in EUR million
31 Dec 2016
31 Dec 2015
Change
31 Dec 2016
31 Dec 2015
Change
Cash, cash balances at central banks and
other demand deposits at banks
1,299.0
1,162.0
Loans to banks
Loans to customers
Gross loans
- corporate
- individuals
- state
- BAMC bonds
Impairments
Financial assets
- Held for trading
- Available-for-sale, held to maturity and designated
at fair value through income statement
Investments in subsidiaries, associates and joint ventures
Property and equipment, investment property
Intangible assets
Other assets
Total assets
Deposits from customers
- corporate
- individuals
- state
Deposits from banks and central banks
Debt securities in issue
Borrowings
Other liabilities
Subordinated liabilities
Equity
Non-controlling interests
Total liabilities and equity
435.5
6,997.4
7,900.8
3,917.4
3,190.7
792.7
-
431.8
7,088.2
8,351.0
4,282.3
3,050.8
708.3
309.6
-903.4
-1,262.8
2,778.0
2,577.7
87.7
267.4
2,690.3
2,310.3
43.2
280.5
34.0
171.4
39.7
301.2
39.3
181.7
12,039.0
11,821.6
9,439.2
2,182.6
6,905.1
351.5
42.3
277.7
455.4
271.6
27.1
9,025.6
2,168.5
6,493.5
363.6
58.0
305.0
671.3
284.1
27.3
1,495.3
1,422.8
30.3
27.6
12,039.0
11,821.6
12%
1%
-1%
-5%
-9%
5%
12%
-100%
-28%
8%
-67%
16%
9%
-7%
-14%
-6%
2%
5%
1%
6%
-3%
-27%
-9%
-32%
-4%
-1%
5%
10%
2%
617.0
408.1
4,928.9
5,433.7
2,769.1
1,990.2
674.4
-
-504.7
2,295.2
87.7
496.8
345.2
5,220.7
5,915.4
3,063.0
1,957.9
585.0
309.6
-694.7
2,086.7
267.9
2,207.6
1,818.8
346.7
98.6
23.3
60.0
8,778.0
6,617.4
1,442.3
4,943.5
231.7
75.0
277.7
342.7
200.3
-
353.1
103.2
29.6
71.5
8,706.8
6,298.3
1,416.0
4,630.1
252.1
96.7
305.0
536.1
228.6
-
1,264.8
1,242.2
-
-
8,778.0
8,706.8
24%
18%
-6%
-8%
-10%
2%
15%
-100%
-27%
10%
-67%
21%
-2%
-4%
-21%
-16%
1%
5%
2%
7%
-8%
-22%
-9%
-36%
-12%
-
2%
-
1%
NLB Group 2016 Annual Report
141
Total assets increased by EUR 217.4
million in 2016 due to excess liquidity in
all core markets and the continued inflow
of deposits. In Slovenia the Bank benefits
from a particularly strong deposit franchise
with a market share in excess of our market
share on total assets.
Gross loans in Key business activities
increased by EUR 483.5 million, or 7.7%
compared to the end of 2015. Very strong
volume growth was shown in the corporate
segment in Slovenia with an increase of
EUR 302.3 million (+15.3% YoY), followed
by growth in strategic foreign markets
(+EUR 148.2 million or 6.4%). This
represents a very solid basis for the future
evolution of the core performing client
portfolios.
Loans to Retail clients in Slovenia rose
by EUR 33.1 million, normalised by the
effects of the non-performing portfolio
sale the increase would have been EUR
87.4 million (+4.2% YoY) in line with the
market evolution a noticeable pickup in
activities in the housing loans segment.
11,909.5
530.3
2,529.3
11,821.6
561.9
2,577.7
12,039.0
529.1
2,778.0
7,451.1
7,088.2
6,997.4
n
o
i
l
l
i
m
R
U
E
n
i
1,398.8
1,593.8
1,734.6
31-Dec-14
31-Dec-15
31-Dec-16
Cash, CB at central banks, demand deposits at banks and loans to banks
Loans to customers Net
Financial Assets
Other
Figure 57: Total assets of NLB Group – structure (in EUR million)
Key business activities in loan book
1,872.4
1,978.3
2,280.7
1,955.0
6,078.1
1,959.0
6,246.3
+ 3% YoY
1,992.1
6,730.0
+ 8% YoY
2,250.7
639.0
954.0
2,309.0
451.0
606.0
2,457.2
230.7
254.7
31-Dec-14
31-Dec-15
31-Dec-16
Restructuring and workout
Financial markets in Slovenia
Strategic foreign markets
Retail banking in Slovenia
Key/mid/small corporates
n
o
i
l
l
i
m
R
U
E
n
i
Figure 58: NLB Group gross loans to customers by core segments (in EUR million)
NLB Group 2016 Annual Report
142
1,038.2
555.8
482.4
311.4
363.6
2,168.5
675.9
363.7
312.2
31-Dec-15
31-Dec-16
Non core members
Non core Bank
Figure 59: Group gross loans to customers by non-core segment (in EUR million)
L/D ratio
75.9%
10,540.2
318.1
580.3
2,031.3
75.1%
10,371.2
311.4
363.6
2,168.5
74.1%
10,513.4
298.7
351.5
2,182.6
6,336.9
6,493.5
6,905.1
359.9
793.7
120.0
31-Dec-14
305.0
609.0
120.2
31-Dec-15
277.7
497.7
31-Dec-16
ECB funding
Bank borrowings
Debt securities
Retail deposits
Corporate deposits
State deposits
Other liabilities
Figure 60: Total liabilities of NLB Group – structure (in EUR million)
Thanks to the continuous efforts to
wind down non-core exposures with a
dedicated taskforce, gross loan volumes
continued to decline to the level of
EUR 675.9 million (-34.9% YoY), now
representing 8.5% of total gross loans
outstanding.
The non-core segment assets continued
to decline substantially to a level of EUR
503 million (2015: EUR 755 million,
-33% YoY).
Total liabilities increased to EUR
10,513.4 million, chiefly due to an
increase in customer deposits.
Deposits from customers rose, accounting
for 90% of the total funding of the
Group. The retail segment deposits
were 6% higher, the corporate ones
remained stable, while government
deposits decreased. Given the negative
ECB deposit rate, the Bank introduced a
fee on larger corporate deposits, with the
threshold being adjusted gradually.
At the end of December 2016, the
LTD (net) was 74% on the Group level,
having decreased by 1.0 percentage
point compared to the end of December
2015. The Group thus shows a robust
self-funding capacity, also supporting the
planned growth predominantly in retail
lending.
NLB Group 2016 Annual Report 143
Capital and Capital Adequacy
17.6%
16.2%
17.0%
Currently applicable legislation prescribes
three capital ratios which express different
levels of capital quality:
• CET 1 ratio (between CET 1 capital and
RWA), which must be at least 4.5%;
• Tier 1 ratio (between Tier 1 capital and
1,240
1,283
1,336
31-Dec-14
31-Dec-15
31-Dec-16
RWA), which must be at least 6%;
Figure 61: NLB Group CET 1 capital (in EUR million) and CET 1 ratio (in %)
CET 1 capital
CET 1 ratio
• Total Capital Ratio (between Total
capital and RWA), which must be at
least 8%.
In addition to the aforementioned ratios,
the Bank must meet other requirements
that are being imposed by the supervisory
institutions or by the legislation:
• Pillar 2 (or SREP Process) requirements:
bank specific, obligatory requirements;
• Capital buffers: system of buffers to
be added on top of capital adequacy
requirement – not obligatory, however
breaching of the buffers triggers
limitations in payment of dividends and
other distributions from capital. Some
of the buffers are prescribed by law for
all banks and some of them are bank
specific (for the Group, other systemically
important institutions buffer (O-SII
buffer) of 1% is prescribed as of 2019);
• Pillar 2 Guidance: bank specific, not
obligatory, and not affecting dividends or
other distributions from capital.
At the end of 2016, the total requirement
regarding CET 1 capital amounted to
12.75% RWA on a consolidated basis. It
consisted of the following requirements:
• SREP requirement of 12.75% RWA
(including Pillar 1 requirement, Pillar
2 requirement and – in line with then
applicable SREP methodology – also the
capital conservation buffer of 0.625%
RWA); and
• Combined buffer requirement of 0%
RWA; as the O-SII buffer is not yet in
force, it consisted only of: Countercyclical
buffer: 0% RWA.
In 2017, a total capital ratio of 12.75%
RWA is required on consolidated basis,
consisting of:
• SREP requirement of 11.50%
RWA (including Pillar 1 and Pillar 2
requirements); and
• Combined buffer requirement estimated
at 1.25% RWA; as the O-SII buffer is not
yet in force, it consists of:
- Capital conservation buffer:
1.25% RWA, and
- Countercyclical buffer:
estimated to 0% RWA.
The Group capital is currently exclusively
comprised of CET 1 capital, i.e. capital
of the highest quality, therefore all three
capital ratios (CET 1 ratio, Tier1 ratio,
and Total capital ratio) are the same.
At the end of 2016, the three capital
adequacy ratios for the Group stood at
17.0% (or 0.8 percentage point higher
than at the end of 2015) and for the Bank
at 23.4% (or 0.8 percentage point higher
than at the end of 2015). The improvement
of the Group’s capital adequacy derives
mainly from retained earnings and to
a lesser degree from drop in RWA.
The capital adequacy of the Group
remains at a level which covers all current
and announced regulatory capital
requirements, including capital buffers
and other currently known requirements.
NLB Group 2016 Annual Report
Chapter 7. 2:
Corporate
Governance
The General Assembly of the Bank
The shareholders exercise their rights
related to the Bank’s affairs at General
Assembly of the Bank. The 100%
shareholder of the Bank is the Republic
of Slovenia, which is represented at
the General Assembly by the Slovenian
Sovereign Holding (SSH).
The Bank’s General Assembly adopts
decisions in compliance with the legislation
and the Bank’s Articles of Association.
The authorisations of the Bank’s General
Assembly are stipulated in the Companies
Act, the Banking Act, and the Articles of
Association of the Bank. The decisions
adopted by the Bank’s General Assembly
include among other: adopting and
amending the Articles of Association, the
use of distributable profit, granting of a
discharge from liability to the Management
and Supervisory Board, changes in the
Bank’s share capital, appointing and
discharging members of the Supervisory
Board, remuneration and profit-sharing
by members of the Supervisory and
Management Boards and the employees,
annual schedules and characteristics of the
issues of securities convertible to shares,
and equity securities of the Bank.
On 10 February 2016 the 26th General
Assembly of the Bank was held, where
rights of the Republic of Slovenia as
the only shareholder of the Bank were
represented by SSH. The General
Assembly adopted amendments to the
Articles of Association of the Bank.
Significant changes included an increase
in the number of Supervisory Board
members from seven to nine.
NLB Group 2016 Annual Report 145
of ‘country managers’ was introduced in
2016 with the main goal to support and
steer the members, as well as to be a strong
link between members and the Bank and to
facilitate best practice sharing on different
levels. Currently, one country manager
is covering Serbia and Montenegro,
another covers both entities in Bosnia and
Herzegovina.
Competences of the management bodies,
the Articles of Association, and other data
related to corporate governance is available
on the following site: https://www.nlb.si/
corporate-governance.
As the parent bank, the
Bank implements corporate
governance of the Group
members in compliance with
the legislation of the RoS
and of the countries in which
the Group members operate,
while also considering internal
rules, the commitments
made to the EC, and the
regulations of the ECB.
The 100% shareholder of
the Bank is the Republic
of Slovenia, which is
represented at the General
Assembly by the Slovenian
Sovereign Holding (SSH).
At the 27th General Meeting dated
4 August 2016 the General Assembly
acknowledged the Annual Report 2015 and
decided on profit distribution for the year
2015 in the amount of EUR 43.9 million,
which was allocated to the sole shareholder
of the Bank (EUR 2.194 per share).
The General Assembly also confirmed
the election of four new members of
the Supervisory Board after four of the
previous members of the Supervisory
Board handed in their resignations. With
this action Supervisory Board of the Bank
was complete.
The Group is governed:
a) In accordance with fundamental
corporate rules through various
bodies of the Group members:
• by voting at general meetings of the
Group members
• with proposals for appointing the man-
agements of the Group members
• with proposals for appointing representa-
tives of the Bank to supervisory bodies
• by exercising supervision through the su-
pervisory bodies of the Group members
• through participation of representatives
of the Bank in various committees and
commissions of the Group members;
b) By mechanisms providing efficient
business control in all business lines,
harmonisation of the operating
standards, and exchange of information
Corporate Governance of the Group
between the Group members according
As the parent bank, the Bank implements
corporate governance of the Group
members in compliance with the legislation
of the RoS and of the countries in
which the Group members operate,
while also considering internal rules, the
commitments made to the EC, and the
regulations of the ECB.
The roles, authorisations, and
responsibilities of individual bodies
and organisational units, as well as the
ensuring of their coordinated operations
to achieve the set business goals are
stipulated comprehensively in the
Corporate Governance Policy of the
Group. In the Bank, these tasks are the
responsibility of Core Group Steering
Department and Non-strategic Equity
Investments Department.
to the Business Line principle;
c) By additional supervision of the Group
members by Internal Audit of the Bank
and Compliance and Integrity of the
Bank, as well as external supervisors
(e.g. the ECB, the Bank of Slovenia,
external auditors, and local regulators).
In recent years the concept of corporate
governance of the Group was upgraded
and the role of members of the
Management Board of the Bank and
management of the Group members
strengthened. The target composition of
supervisory bodies in the Group members
was established, the functioning of the
supervisory bodies optimized, and the
reporting and standards related to the
harmonisation of operations simplified. In
line with strategic aspirations, the concept
NLB Group 2016 Annual Report 146
Ph.D. – Deputy Chairwoman; Uroš Ivanc;
Andreas Klingen; László Urbán, Ph.D.;
David Eric Simon; David Kastelic; Matjaž
Titan; and Alexander Bayr (members).
In accordance with the two-tier governance
system and the authorisations for
supervising the Management Board, the
Bank’s Supervisory Board among other
issues approvals to the Management Board
related to the Bank’s business policy and
financial plan, approves the strategy of the
Bank and the banking group, organisation
of the internal control system, draft audit
plan of the Internal Audit and all financial
transactions (e.g. issuing of own securities,
equity stakes in companies, and other legal
entities), and supervises the work of the
Internal Audit. The Supervisory Board
acts in accordance with the highest ethical
standards of management, considering the
prevention of conflict of interests.
The highest objectives include
solid operations and following
of strategic guidelines, as well
as the trust of the owners
and business partners in the
functioning of the Bank.
Supervisory Board
The highest objectives include solid
operations and following of strategic
guidelines, as well as the trust of the owners
and business partners in the functioning of
the Bank.
The Supervisory Board of the Bank
implements its tasks in compliance with
the provisions of the laws governing the
operations of banks and companies, as well
as with the Articles of Association of the
Bank.
Pursuant to the Articles of Association,
the Supervisory Board of the Bank was
composed of seven members in 2015
that were appointed and recalled by the
General Meeting of the Bank from the
persons nominated by shareholders or the
Supervisory Board. Owing to an enlarged
scope of tasks and the expectations of the
ECB, the Supervisory Board was expanded
to nine members at the 26th General
Meeting held on 10 February 2016. The
General Meeting dismissed the previous
members of the Supervisory Board of
the Bank Gorazd Podbevšek and Miha
Košak, and appointed the following new
members to fill in the vacated positions:
Janko Gedrih, Anton Macuh, and Anton
Ribnikar. Sergeja Slapničar, Ph.D., Tit A.
Erker, Uroš Ivanc, and Andreas Klingen
have remained members of the Bank’s
Supervisory Board. In view of the above
amendment to the Articles of Association
(i.e. increased number of the members
of the Supervisory Board of the Bank to
nine), the General Meeting appointed two
additional members, namely Primož Karpe
and László Urbán, Ph.D.
The Supervisory Board of the Bank held its
31st regular meeting on 19 February 2016.
The Supervisory Board members elected
Janko Gedrih as their Chairman and
Sergeja Slapničar, Ph.D. as his Deputy.
On 15 April 2016, the Bank’s Supervisory
Board acknowledged the resignation
statements of the president and two
members of the Supervisory Board:
Janko Gedrih, Anton Macuh, and Anton
Ribnikar, and agreed to a shorter notice
period entering into force on the same day.
Pursuant to the Bank’s Articles of
Association, the Supervisory Board
then appointed Primož Karpe as the
new chairman, and elected members of
committees of the Supervisory Board and
committee’s chairmen and their deputies.
The Supervisory Board at the time had
six members (Primož Karpe – Chairman,
Sergeja Slapničar, Ph.D. – Deputy
Chairwoman, Tit A. Erker, Uroš Ivanc,
Andreas Klingen, and László Urbán,
Ph.D. (members)). In August 2016 Tit A.
Erker offered his resignation from post.
The Supervisory Board of the Bank
acknowledged his resignation statement
on the session dated 3 August 2016, and
agreed with his proposal to discontinue the
function as member of the Supervisory
Board of the Bank entering into force on
the same day.
As already metioned in the section of the
General Meeting of the Bank at the 27th
General Meeting dated 4 August 2016,
four new members of the Supervisory
Board were elected. Therefore, from the
mentioned date the composition of the
Supervisory Board is as follows: Primož
Karpe – Chairman; Sergeja Slapničar,
NLB Group 2016 Annual Report 147
P r i m o ž K a r p e
Other important positions
Chairman of the Supervisory Board
and achievements:
Term of office: 2016 to 2020
Education:
• Obtained a master’s degree from San
Diego State University (Master of
Science – Business Administration)
• Graduated from the Faculty of
Economics in Ljubljana (majoring in
Finance)
Career:
• Managing Director of Angler Ltd.
Koprivnica, Croatia (since 2015),
• Partner (passive – investor) at Blue Sea
Capital SCSp, Luxembourg (2011 – to
date)
• Partner (active – operational manager)
at Blue Sea Capital SCSp, Luxemburg/
Zagreb (2011-2015)
• Partner in a private equity fund investing
in small- and medium-sized companies
operating in traditionally stable or fast
developing industries in the region of the
former Yugoslavia (primary health care,
nutrition, and niche production)
• His specialities are the preparation,
assessment, negotiating, and structuring
of complex equity and debt transactions,
and restructuring/business management
Membership in the Supervisory
Board committees:
• Nomination Committee (Chairman)
• The Audit Committee (Member)
Membership in management bodies
of related or unrelated companies:
• Co-founder and the leading partner in
• Angler d.o.o. – Director.
company Vafer Ltd. (2008-2010)
• Managing Director of company
Publikum Korpfin d.o.o. (2007-2008)
• Head of the business development
(M&A) department at Telekom Slovenija
d.d. (2006-2007)
• Assistant to CEO of Mobitel d.d.
(2002-2006)
• Chief Operating Officer at Eon d.o.o.
(2000-2002)
• FX trader/head of the assets and
liabilities management department at
SKB banka d.d. (1996-2000)
NLB Group 2016 Annual Report 148
S e r g e j a S l a p n i č a r, P h . D .
Deputy Chairwoman of the
Supervisory Board
Term of office: 2013–2017
Education:
• Ph.D. 2001 (Faculty of Economics,
University of Ljubljana)
• Further training during her master’s,
doctoral, and postdoctoral studies at
the University of Bristol, University of
Glasgow, and the London School of
Economics
and majority shareholders at
squeeze-outs and delisting
• She trains executives at the Business
Excellence Centre of the Faculty of
Economics, the Slovenian Directors’
Association, the Bank Association, and
the SIQ
• Deputy Head of Large Corporates
Department, Deutsche Bank, Austria
(1997-1998)
• Key Customer Account Manager,
Österreichische Volksbanken Ag
(1987-1997)
• Sales Manager, Unilever (1985-1987)
Membership in the Supervisory
Other important functions
Board committees:
and achievements:
• Audit Committee (Chairwoman),
• Risk Committee (Member)
• Master of Science in management and
Membership in management bodies
organisation (MScBA) in 1998
of related or unrelated companies:
• Asperia d.o.o., Lesce (Director).
Career:
• Associate Professor of Accounting and
Auditing at the Faculty of Economics of
the University of Ljubljana
A l e x a n d e r B a y r
Member of the Supervisory Board
Accounting and Auditing
• Chairwoman of the Academic Unit for
Accounting and Auditing (2007-2013)
Education:
• Faculty of Economics in Innsbruck
Other important functions
and achievements:
(1985)
Career:
• She published a number of papers in
• Director of Corporates and Real Estate,
• Coordinator of postgraduate Studies of
Term of office: 2016–2020
U r o š I v a n c
• Member of the Management Board of
the Chamber of Commerce of Slovakia-
Austria (2000-2012)
• Member of the Supervisory Board of
WKBG Bank from Austria (since 2016)
Membership in the Supervisory
Board committees:
• Audit Committee (Member)
Member of the Supervisory Board
Term of office: 2013–2017
Education:
• Master of Science in management
and organisation (MScBA), IMB study
programme (Faculty of Economics,
University of Ljubljana)
renowned international scientific journals
on the effect of performance
measurement and remuneration of
managers on their decision-making;
• A member of the European and
American Academic Accounting
Associations, and Society for
Neuroeconomics
• Was a member of the Supervisory Board
of Krka d.d. between 2010 and 2015,
• A member of the Council of the Agency
for Public Oversight of Auditing from
2008 to 2010, and since 2007 she has
been the chairwoman of the settlement
committee for disputes between minority
BAWAG, Vienna (since 2013)
• CEO, BAWAG banka d.d., Ljubljana
• Since 2004 CFA – Chartered Financial
(2009-2012)
Analyst (CFA Institute)
• Real Estate Projects, BAWAGPSK,
Vienna (2008-2012)
Career:
• Management Board Member, Istrobanka
a.s. Bratislava, Slovakia (BAWAG)
(2004-2008)
• Management Board Member, Ludova
banka a.a., Bratislava, Slovakia
(Volksbank) (2000-2004)
• Member of the Management Board of
Zavarovalnica Triglav d.d. (since July
2014),
• CFO Executive Director for Finance of
Zavarovalnica Triglav d.d (2006-2014
July)
• Sales Manager, Ascom Austria
• Director General of Slovenijales d.d.
(1998-2000)
(in 2008; position held temporarily for a
period of five months)
NLB Group 2016 Annual Report
149
• Portfolio manager of the pension fund
D a v i d K a s t e l i c
Other important functions
Triglav Group in the Republic of Serbia
(2007-2012)
• started to gain experience in leading
positions as head of corporate finance
(2004)
Other important functions
and achievements:
• Member of the Management Board of
Triglav INT d.d. and member of the
Board of Directors Trigal d.o.o.,
• Since 2005 member of many
Supervisory Boards of the companies in
the Triglav Group and outside (Triglav
Skladi d.o.o.; Lovčen Osiguranje, a.d.,
Podgorica; Triglav Osiguranje, a.d.o.,
Beograd; Triglav Osiguruvanje, a.d.,
Skopje, Skupna pokojninska družba d.d.,
and others)
Member of the Supervisory Board
and achievements:
Term of office: 2016–2020
Education:
• Master of Science at the Faculty of
Economics and Business in Maribor
(2010)
• Bachelor of Science in Mechanical
Engineering at the Faculty of
Mechanical Engineering in Maribor
(1994)
Career:
• President of the Management Board,
• Member of the Management Board
of Sava osiguranje in Serbia and in
the same period also a member of the
Management Board of Sava Tabak in
Macedonia (2007-2012)
• Chairman of the Supervisory Board of
Velebit životno osiguranje in Croatia
(2007-2008)
• Member of the Council of the Slovenian
Insurance Association, a member of the
Supervisory Board of the Jedrski pool
and Chairman of the Audit Committee
of the Jedrski pool (since 2014)
Zavarovalnica Sava (since 2016)
• Honorary Consul of the Republic of
• President of the Management Board,
Zavarovalnica Maribor (2013-2016)
• Member of the Management Board,
Zavarovalnica Maribor (2006-2013)
Brazil in Slovenia (since 2013)
Membership in the Supervisory
• President of the CFA Society of Slovenia
• Executive Director of Property
Board committees:
Membership in the Supervisory
Board committees:
Insurances, Zavarovalnica Maribor
(2004-2006)
• Nomination Committee (Deputy
Chairman)
• Assistant Executive Director,
• Remuneration Committee (Member)
• Remuneration Committee (Chairman)
• Audit Committee (Deputy Chairman)
Zavarovalnica Maribor (2002-2004)
• Head of Damages Assessment and
Membership in management bodies
Liquidation (PE Maribor), Zavarovalnica
Maribor (2000-2002)
Membership in management bodies
of related or unrelated companies:
• Jedrski pool, member of the Supervisory
of related or unrelated companies:
• Head of Car Damage, Zavarovalnica
Board;
• Zavarovalnica Triglav d.d., Ljubljana
– member of the Management Board;
• Triglav INT, holdinška družba d.d.,
Ljubljana – member of the Board
of Directors;
Maribor (1998-2000)
• Zavarovalnica Sava d.d., president of the
• Supervisor of Key Account Managers,
Philip Morris Ljubljana (1996-1998)
• Supervisor of Sales Promoters, Philip
Morris Ljubljana (1994-1996)
Management Board.
• Trigal d.o.o. – member of the Board
• Sales Promoter, Philip Morris Ljubljana
of Directors.
(1993-1994)
NLB Group 2016 Annual Report
150
A n d r e a s K l i n g e n
D a v i d E r i c S i m o n
Other important functions
Member of the Supervisory Board
Member of the Supervisory Board
and achievements:
Term of office: 2015-2019
Term of office: 2016–2020
Education:
Education:
• Primary expertise in credit,
restructuring and NPLs
• Master of Business Administration,
Rotterdam School of Management,
Rotterdam, The Netherlands
• Master of Science in Physics, Techniche
• City of London College, UK (1970)
• IFS School of Finance (1974)
Membership in the Supervisory
Board committees:
• Risk Committee (Member)
• Remuneration Committee (Member)
Universität, Berlin, Germany
Career:
Career:
• Independent Banking consultant, entre-
preneur, Berlin, Germany (since 2014)
• Deputy CEO, CFO PC, Erste Bank,
• Chief Restructuring Officer and Advisor
to the General Manager, Czech Export
Bank a.s. (2013-2014)
Membership in management bodies
of related or unrelated companies:
• Jihlavan a.s., President of the
• Advisor, PricewaterhouseCoopers,
Supervisory Board;
Prague (2012-2013)
• Czech Aerospace industries sro, legal
Kiev, Ukraine (2010-2013)
• Advisor (1994-2004), Head of
representatives;
• Central Europe Industry Partners a.s.,
sole member of the Supervisory Board.
Restructuring (2004-2007), Head of
Central Europe Bad Debts Unit (2007
onwards) and Senior Restructuring
Officer (2007-2014), Ceskoslovenska
Obchodni Banka a.s.
• Independent Banking Consultant,
cooperating with USAID and EBRD
(1992-1994)
• International Banking Consultant,
Morgan Grenfell & Co (1993-1994)
• Assistant General Manager Tijari
Finance Limited (wholly owned
subsidiary Commercial Bank of Kuwait),
(1988-1992)
• Joint Branch Manager, Byblos Bank Sal,
London (1986-1988)
• Assistant Vice President, American
Express Bank, London (1980-1986)
• Senior Credit Analyst, Manufacturers
Hanover Trust, London (1978-1980)
• National Westminster Bank, London
(1971-1977)
• Head of Strategic Group Development
in Erste Group Bank, Vienna, Austria
(2005-2010)
• Senior Vice President, Investment
Banking, Financial institutions in JP
Morgan, London, UK (1998-2005)
• Senior Associate in Lazard, Frankfurt/
Paris/London (1993-1998)
Other important functions
and achievements:
• Member of Supervisory Board of
Kyrgyz Investment and Credit Bank
(since December 2016)
• Member of Supervisory Board of Credit
Bank of Moscow (since November 2016)
• Member of the Board of Directors of
Komercialna banka Beograd a.d. (since
November 2014)
• Member of Supervisory Boards of Banks
in Central and Eastern Europe and
Russia (2005-2013)
Membership in the Supervisory
Board committees:
• Nomination Committee (Member)
• Risk Committee (Chairman)
NLB Group 2016 Annual Report
151
M a t j a ž T i t a n
Member of the Supervisory Board
integration of the Slovenian capital
market into T2S (since 2013)
Term of office: 2016-2020
• Member of the working group in
Education:
Eurosystem in relation with the finality
of settlement and insolvency (2015-2016)
• Faculty of Law in Ljubljana,
• Contributor of Market in Financial
Bachelor of Law (2005)
Career:
Instruments Act, Book Entry Securities
Act, Companies Act and Takeover Act.
• Vice President, Business Planning
Director at Citigroup, New York
(2000-2005)
• Deputy CEO and member of the Board
of Directors at Postabank, Hungary
(1998-2000)
• Director of Planning and Chief
Economist at ABN-AMRO Bank,
Hungary (1996-1998)
• Owner and Consultant, Licet, naložbe in
Membership in the Supervisory
svetovanje d.o.o. (since 2012)
Board committees:
Other important functions
• Advisor to the Management Board,
KDD Centralna klirinško depotna
družba d.d. (2009-2012)
• Head of Legal Consulting Department,
KDD - Centralna klirinško depotna
družba d.d. (2007-2008)
• Remuneration Committee (Deputy
and achievements:
Chairman)
• Nomination Committee (Member)
• Visiting Fellow, Economist at The World
Bank, Washington DC (1995-1996)
• Member of Parliament, Hungary
(1993-1994)
L á s z l ó U r b á n , P h . D .
• Associate Professor at Eotvos University
• Intern, Higher Court of Ljubljana
Member of the Supervisory Board
of Budapest (1985-1992)
(2006-2007)
Term of office: 2016–2020
• Lawyer, KDD - Centralna klirinško
depotna družba d.d. (2005-2007)
• Legal practice, Law Firm Miro Senica in
odvetniki, Ljubljana (2003-2005)
Education:
• Completed Advanced Management
Program, Harvard Business School,
Cambridge, MA (2000)
Membership in the Supervisory
Board committees:
• Risk Committee (Member)
Other important functions
and achievements:
• Univ. Doctorate at Budapest University
Membership in management bodies
of Economics, Hungary (1985)
of related or unrelated companies:
• Member of the Supervisory Board of
• Master of Arts, Budapest University of
• none
KDD d.d. (2010-2014)
Economics, Hungary (1982)
• Member of NUG (National User Group)
at the Bank of Slovenia for the
integration of the Slovenian capital
market into T2S
• Arbiter for the Investment Fund
Association and substitute member
of the Committee for the issue of the
licenses to stockbrokers (since 2012)
• has been cooperating with the Ministry
of Finance in the area of transposing the
EU Directives concerning the area of
clearing and settlement, and has been a
member of the High Stakeholder Group
at the Bank of Slovenia supervising the
Career:
• Adjunct Professor at Central European
University Business School (since 2012)
• Member of the Supervisory Board at
European Bank for Reconstruction and
Development (EBRD; 2010-2011)
• Chief Financial Officer and Member
of the Board of Directors at OTP Bank
(2007-2009)
• Director, General Secretariat at National
Bank of Hungary (2005-2006)
NLB Group 2016 Annual Report
Composition of the Committee is as
follows: Uroš Ivanc (Chair), Matjaž Titan
(Deputy Chair), David Kastelic, and David
Eric Simon (Members).
152
Committees of the Bank’s
The Nomination Committee
Supervisory Board
The Supervisory Board appoints
committees that prepare proposals for
resolutions of the Supervisory Board,
ensure their implementation, and perform
other expert tasks. At the end of 2016 the
Bank had four operational committees.
The Audit Committee
monitors and prepares draft resolutions
for the Supervisory Board on accounting
reporting, internal control and risk
management, internal audit, compliance,
external audit, and supervises the
implementation of regulatory measures.
Composition of the Committee is as
follows: Sergeja Slapničar, Ph.D. (Chair),
Uroš Ivanc (Deputy Chair), Primož Karpe,
and Alexander Bayr (Member).
The Risk Committee
monitors and drafts resolutions for the
Supervisory Board in all areas of risk
relevant to the Bank’s operations. In
consults on the current and future risk
appetite and the risk management strategy,
this Committee helps conduct control
over senior management as regards
implementation of the risk management
strategy.
Composition of the Committee is as
follows: Andreas Klingen (Chair), László
Urbán, Ph.D. (Deputy Chair), Sergeja
Slapničar, Ph.D., and David Eric Simon
(Members). There were five sessions of the
Risk committee in 2016.
drafts proposed resolutions for the
Supervisory Board concerning the
appointment and dismissal of the
Management Board members;
recommends candidates for Supervisory
Board members to the General Meeting of
the Bank; recommends to the Supervisory
Board the dismissal of members of the
Management Board and the Supervisory
Board; prepares the content of executive
employment contracts for the President
and members of the Management
Board; evaluates the performance of the
Management Board and the Supervisory
Board; and assesses the knowledge, skills,
and experience of individual members of
the Management Board and Supervisory
Board and the bodies as a whole. The
Committee proposes amendments to
the Management Board’s policy on the
selection and appointment of suitable
candidates for senior management of the
Bank.
Composition of the Committee is as
follows: Primož Karpe (Chair), David
Kastelic (Deputy Chair), Anderas Klingen,
and Matjaž Titan (Members).
The Remuneration Committee
carries out expert and independent
assessments of the remuneration policies
and practices; and gives initiatives for
measures related to improving the
management of the Bank’s risks, capital,
and liquidity; prepares proposals for
decisions of the Supervisory Board in
relation to remuneration; and supervises
the remuneration of senior management
performing the risk management and
compliance functions.
NLB Group 2016 Annual Report 153
We are aware of our tasks in
managing and representing
the Bank. We direct its
operations to make it even
more successful not only
today, but also tomorrow.
We are responsible to the
company, its stakeholders,
and clients, and we fulfill
promises and achieve goals.
Blaž Brodnjak was unanimously appointed
as the President of the Management
Board of the Bank at the Supervisory
Board meeting held on 4 July 2016. In
addition, the Supervisory Board appointed
László Pelle as the Chief Operating
Officer (COO), who started to perform
his function on 26 October 2016. In the
same session the President and members of
the Management Board (Chief Financial
Officer (CFO), Chief Risk Officer (CRO),
and Chief Operating Officer (COO))
were appointed for a new five-year term,
effective 6 July 2016.
The Management Board of the Bank
consists of Blaž Brodnjak (member since
1 December 2012, Deputy President
since 5 February 2016, and president/
Chief Executive Officer (CEO) since 6 July
2016) and members Archibald Kremser
as acting CFO (since 31 July 2013),
Andreas Burkhardt as acting CRO (since
18 September 2013), and László Pelle as
acting COO (since 26 October 2016).
Management Board of the Bank
The Management Board of the
Bank performs daily operations and
represents and acts on behalf of the
Bank – independently and at its own
discretion as provided for by the law and
the Bank’s Articles of Association. The
decisions within the scope of powers of
the Management Board are adopted by
members of the Management Board of the
Bank as a rule unanimously or, failing that,
unless otherwise provided in the Articles of
Association, with a majority of votes cast.
In the case of a tie, the President of the
Management Board of the Bank has the
decisive vote.
The President and members of the
Management Board of the Bank are
appointed by the Supervisory Board for a
period of five years. The Supervisory Board
may also recall them. The selection is not
based only on the legal conditions, but also
the internal acts and the recommended
national and European guidelines on good
practice. Every member has to fit the
professional profile prepared before the
selection procedure.
As a result of certain differences in views
with the Bank’s owner, Janko Medja, the
chief executive officer submitted his letter
of resignation on 5 February 2016. The
Supervisory Board of the Bank adopted on
5 February 2016 the resolution on mutually
agreed early termination of the term of
office of the President of the Management
Board entering into force on the same
day. Until 6 July 2016, the three member
Management Board of the Bank had been
chaired by Blaž Brodnjak as the Deputy
President of the Management Board.
NLB Group 2016 Annual Report
154
Blaž Brodnjak
President and CEO / CMO
Term of office: 2016-2021
Education:
• MBA, IEDC Bled School of
Management (2009)
• Faculty of Economics, University of
Membership in management
or supervisory bodies related
or unrelated companies:
Ljubljana (1998)
Chairman of the Supervisory Board:
Career:
• Head of Group Corporate and Public
Finance Division in the Hypo Alpe Adria
Group in Klagenfurt (2010-2012)
• Proxy of the Management Board of
Zavarovalnica Triglav (2009-2010)
• NLB Banka, Sarajevo
• NLB Banka, Banja Luka
• NLB Banka, Skopje
Member of the Supervisory Board:
• NLB Skladi, Ljubljana
(until 10 January 2017)
• Member of the Management Board of
• NLB Vita, Ljubljana
Bawag banka (2005-2009)
• Head of Corporate Banking at Raiffeisen
Krekova banka (2004–2005)
Other important functions
and achievements:
• Was a chairman or member of the
supervisory boards of 11 banking, 3
insurance, and 1 production company
Direct responsibility:
Executive area of the Bank, for CEO:
• Corporate Communication and Strategy
• Legal and Secretariat
• Human Resources and Organisation
• Core Group Steering
Retail and Private Banking and Corporate
Banking (CMO)
NLB Group 2016 Annual Report 155
Education:
• MBA degree, University of Dayton
(1999)
• University of Augsburg, School of
Business Administration and Economics,
graduation (“Diplom-Kaufmann”) (1999)
Career:
• Head of risk management at Volksbank
in Hungary, involved in the upgrade
and rationalisation of collection and
company restructuring procedures (until
January 2013)
• Member of the Management Board
of Volksbank, Romania, in charge of
finance, restructuring and collection
(2010–2011)
• Member of the Management Board of
Volksbank Bosnia and Herzegovina in
Sarajevo, in charge of the financial part
of operations and risks (2003–2009)
Andreas Burkhardt
Member of the Management Board, CRO
Term of office: 2016-2021
• Since 2000 he has occupied other
functions in the aforementioned bank.
Other important functions
and achievements:
• 16 years of experience in the area of
banking, especially in the area of Central
Europe
Direct responsibility:
• Internal Audit
• Compliance and Integrity
• Risk (CRO)
Membership in management
or supervisory bodies related
or unrelated companies:
Chairman of the Board of Directors:
• NLB Banka, Podgorica
Member of the Supervisory Board:
• NLB Banka, Sarajevo
• NLB Banka, Banja Luka
NLB Group 2016 Annual Report 156
Archibald Kremser
Member of the Management Board, CFO
Term of office: 2016-2021
Education:
Other important functions
• MBA (INSEAD, France), specialising in
and achievements:
• More than 18 years of experience in the
financial services industry in Austria,
Central Eastern Europe, and SEE focus-
ing on finance and asset management,
strategy and corporate development
as well as performance improvement
assignments
Direct responsibility:
• Accounting
• Controlling
• Financial Markets
• Investment Banking and Custody
• Global Real Estate Asset Management
• Non-Core Equities and Subsidiaries
• Accounts Administration and Payroll
Membership in management
or supervisory bodies related
or unrelated companies:
Chairman of the Board of Directors:
• NLB Banka, Beograd
• NLB Banka, Prishtina
bank management and corporate finance
(2004)
• MSc Engineering, University of
Technology in Vienna (1997)
Career:
• Eight years in various senior man-
agement functions/directorships
within Dexia/Kommunalkredit Group
(previously owned by Dexia SA and
Volksbanken Austria AG)
- Supervised the establishment and
operation of subsidiaries of Dexia
Kommunalkredit Bank in Central
Eastern Europe with total assets
of approximately EUR 10 billion
(2005–2008)
- Leading efforts to restructure
Kommunalkredit Group with
establishment of a “bad-bank” and
winding-down/divestment of non-core
assets and businesses (2008–2011)
- Leading efforts to reposition
Kommunalkredit Austria as
an advisory-based specialised
infrastructure bank in preparation
for its subsequent privatisation
(2011–2013)
• Worked in leading international consult-
ing firms Ernst & Young (1997–2004),
Bain & Company (2004–2005), manag-
ing IT and performance improvement
projects for leading financial institutions
in Austria, Germany, Switzerland, and
the entire Central Eastern Europe
NLB Group 2016 Annual Report 157
Education and training:
• Head of Card Department, Project
leader of VISA implementation, initiated
VISA card programme in Hungary.
Rolled-out ATM and POS networks in
branches of Postabank and Savings Bank
Corporation, Hungary (1992-1994)
Other important functions
and achievements:
• 23 years of experience in the
management of banking operations and
IT in various countries of Central and
SEE
Direct responsibility:
Chief Operating Officer:
• Business Analysis
• Procurement and Corporate Real Estate
Management
• Information Technology
• Payments Processing
• Cash Processing
• Treasury and Financial Markets
Processing
• Corporate Banking Processing
• Retail Banking Processing
• Master’s degree in electrical engi-
neering at the Budapest University of
Technology (1991)
• Bachelors’s degree in electrical
engineering, Kandó Kálmán College
of Electrical Engineering in Budapest
(1988)
Career:
• COO, responsible for IT, operations,
premises, and procurement services in
ERSTE Bank Zrt., Hungary (2009-2015)
• COO, HSBC CEE (PL, CZ, SK, HU),
responsible for regional operations of
HSBC Premier in Central and East
Europe. Roll-out of regional platform
for OneBank IT and Operations. HSBC
CEE, Czech Republic (2007-2009)
• Operations and Technology Director,
Corporate and Consumer Bank,
responsible for the management of
overall operations, IT processes, and
client services. Started Citi Shared
Service Centre in Budapest in Citibank
Rt, Budapest, Hungary (2002-2007)
• Operations and Technology Director,
Consumer Bank, responsible for
operations and technology. Set up of
the initial banking infrastructure for
credit cards and consumer banking in
Citibank Handlowy Warszawie, Poland
(1997-2002)
• Regional Business Planning and Analysis
Manager for Card Products, heading
the business planning and analysis
function (Pacific & CEEMEA countries)
in Citibank N.A. Asia Pacific CEEMEA
Regional Office, Singapore (1996-1997)
• Card Operations Manager, Systems
Development and Application Support,
start up the retail bank and card product
platforms (Diners Club) in Citibank
Budapest Rt, Global Consumer Bank,
Hungary (1994-1996)
László Pelle
Member of the Management Board, COO
Term of office: 2016-2021
NLB Group 2016 Annual Report 158
Collective decision-making bodies
Different committees, commissions, boards,
and working bodies may be appointed by
the Management Board of the Bank for
execution of individual tasks within powers
of the Management Board of the Bank.
The Sub Committee meetings are
convened once a week. The Sub
Committee has four members. The
Chairman of the Committee is the
member of the Management Board
responsible for the area of risk (CRO).
NLB Group Assets and
The Corporate Credit Committee
Liabilities Committee
determines credit ratings and makes
decisions on the reclassification of clients,
and approves commercial banking
investment transactions and limits that
exceed the competencies of the Credit
Sub Committee. The Committee adopts
decisions that exceed the powers of the
directors or subcommittee, as well as
decisions on investment transactions in
commercial banking within the statutory
powers in the areas of corporate banking
in the Bank (all companies, banks and
financial institutions), operations with
clients in intensive care and NPL and
operations with non-core clients.
As a rule, Committee meetings are
convened once a week. The Committee
has seven members. The Chairman of
the Committee is the member of the
Management Board responsible for the
area of risk (CRO).
The Corporate Credit Sub Committee
determines credit ratings and makes
decisions on the reclassification of clients
and approves commercial banking
investment transactions and limits that
exceed the competences of B-1 level
directors. The Sub Committee adopts
decisions in the scope of the Bank’s
investment policy and business plan, as well
as statutory powers.
monitors conditions in the macroeconomic
environment and analyses the balance,
changes to, and trends in the assets
and liabilities of NLB and the Group
companies, drafts resolutions, and issues
guidelines for achieving the structure
of the Bank’s and the Group’s balance
sheet. As a rule, Committee meetings are
convened once a month. The Committee
has four members. The Chairman of
the Committee is the member of the
Management Board responsible for the
area of finance (CFO).
The Group Real Estate Asset
Management Committee
is in charge of giving opinions on
acquisition/purchase price of real
property and additional investments in real
property provided as collateral for NPL,
the selling price of own real property, and
the acquisition/purchase price for the
real property mortgaged in the sale of
receivables. As a rule, Committee meetings
are convened once a week. The Committee
has three members. The Chairman of
the Committee is the member of the
Management Board responsible for the
area of finance (CFO).
The Development Council
adopts decisions related to the portfolio
of development with an IT element. As a
rule, the meetings of the Committee are
convened once a month. The Committee
has six members. The Chairman is the
member of the Management Board in
charge of operations (COO).
The Sales Board
adopts decisions on the management of
the range of products and services and
the relations with the clients in the area of
sales. As a rule, Committee meetings are
convened once a week. The Committee has
10 members. The Chairman of the Board
is the member of the Management Board
in charge of Retail and Private Banking
and Corporate Banking (CMO).
NLB Operational Risk Committee
is responsible for monitoring, guiding, and
supervising operational risk management in
NLB, and for transferring this methodology
to the Group members. As a rule, the
Committee meets once every two months.
The Committee has 15 members. The
Chairman of the Committee is the
member of the Management Board
responsible for the area of risk (CRO).
NLB Retail Credit Committee
decides on the approval of loans and
other investment proposals, the conditions
of which deviate from standard banking
products and services, and which represent
additional risks for the Bank. As a rule,
meetings are convened when necessary.
The Committee has five members. The
Chairman of the Committee is the
Director of Credit Analysis – Corporate
and Retail.
NLB Group 2016 Annual Report 159
Advisory bodies of the Bank’s
Management Board
The Watch List Committee
is an advisory body which acknowledges
the activities related to the clients on the
Watch List. As a rule, Committee meetings
are convened quarterly. The Committee
has seven members. The Chairman of
the Committee is the member of the
Management Board responsible for the
area of risk (CRO).
Risk Committee
monitors and periodically reviews matters
related to risk and commercial risk and
prepares materials for the Management
Board in order to obtain decisions.
The Committee has 12 members. The
Chairman of the Committee is the
member of the Management Board
responsible for the area of risk (CRO).
The Management Board is to perform
individual tasks of the Management Board
appointed a working body that operates at
the lowest level, namely:
• The Committee for new and existing
products
• The Group Real Estate Asset
Management Sub Committee.
NLB Group 2016 Annual Report Responsible
Chapter 8
ОдговорниOdgovorniPërgjegjësOdgovorniOdgovorni ОдговорниOdgovorniNLB Group 2016 Annual Report 161
Responsible
Chapter 8
ОдговорниOdgovorniPërgjegjësOdgovorniOdgovorni ОдговорниOdgovorniNLB Group 2016 Annual Report Chapter 8. 1:
Events After the
End of the 2016
Financial Year
In February 2017, NLB d.d. concluded
a sale transaction of its major non-core
equity participation by which the value of
the remaining non-core equity portfolio
was reduced to EUR 0.9 million.
In 2017 activities for the potenctial sale
of the company NLB Nov penziski fond,
Skopje were initiated. Any such sale will be
pursued only upon receipt of an adequate
offer.
NLB received 24 actions for damages from
erased bondholders with a mark NLB26
and ISIN code SI0022103111 in balance
sheet date from the end of year 2016 until
now in total principal amount of EUR
2,116,189.31. Among these, only one
exceeds EUR 1 million. NLB believes that
there are not grounds for such claims.
Sergeja Slapničar, a member of NLB
Supervisory Board tendered her resignation
on 13 March 2017; based on the agreement
of the Supervisory Board her function
terminated on 20 March 2017.
NLB Group 2016 Annual Report 164
NLB Group Chart
as at 31 December 2016
Nova Ljubljanska banka d.d., Ljubljana
Core members
Non-core members
Banks
Financial institutions
Foreign countries
Slovenia
Companies
Slovenia
NLB Banka, Beograd
99.997%
99.997%
NLB Skladi, Ljubljana
Conet - in bankruptcy
84.68%
NLB Vita, Ljubljana
84.68%
100%
100%
50%
50%
Bankart, Ljubljana
Kreditni biro Sisbon,
Ljubljana in liquidation
39.44%
39.44%
29.68%
29.68%
NLB Banka, Podgorica
97.999%
NLB Banka, Prishtina
NLB Banka, Banja Luka
NLB Banka, Sarajevo
NLB Banka, Skopje
97.999%
81.21%
81.21%
99.85%
99.85%
97.35%
97.35%
86.97%
86.97%
NLB Tutunska broker
in liquidation
100%
100%
Skupna pokojninska
družba, Ljubljana
28.13%
28.13%
Foreign countries
Foreign countries
NLB Nov penziski fond, Skopje
51%
NLB Srbija, Beograd
100%
NLB Crna Gora, Podgorica
100%
100%
100%
100%
49%
The chart shows voting rights shares. The Group includes
entities according to the definition in the Financial
Conglomerates Act (Article 2).
Subsidiary
Associate
Joint venture
Company Name
%
%
direct share
indirect share at the Group level
* chart includes percentage share in voting rights
Companies
Slovenia
NLB Propria, Ljubljana
Prospera plus, Ljubljana
ICJ – in bankrupcy,
Domžale
PRO REM, Ljubljana
in liquidation
BH-RE, Sarajevo
OL Nekretnine, Zagreb
in liquidation
ARG Nepremičnine, Horjul
Foreign countries
CBSinvest, Sarajevo
REAM, Beograd
REAM, Zagreb
SR-RE, Beograd
Tara Hotel, Budva
12.71%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
50%
100%
100%
75%
75%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Financial institutions
Slovenia
NLB Leasing, Ljubljana
100%
100%
Optima Leasing, Zagreb
in liquidation
100%
100%
Prvi faktor, Ljubljana
in liquidation
50%
50%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Prvi faktor, Beograd
Prvi faktor, Sarajevo
in liquidation
Prvi faktor, Zagreb
in liquidation
Foreign countries
NLB Factoring
in liquidation
NLB InterFinanz, Zurich
in liquidation
NLB InterFinanz Praha,
Prague
NLB Lizing, Skopje
in liquidation
NLB Leasing, Sarajevo
NLB Leasing, Beograd
in liquidation
NLB Leasing Podgorica,
Podgorica in liquidation
LHB AG, Frankfurt
Sophia Portfolio BV, Sofia *
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
0%
0%
NLB InterFinanz, Beograd
REAM, Podgorica
NLB Group 2016 Annual Report NLB Group Chart
as at 31 December 2016
Nova Ljubljanska banka d.d., Ljubljana
Core members
Non-core members
Banks
Financial institutions
Foreign countries
Slovenia
Companies
Slovenia
NLB Banka, Beograd
NLB Skladi, Ljubljana
Bankart, Ljubljana
Conet - in bankruptcy
84.68%
NLB Vita, Ljubljana
Kreditni biro Sisbon,
Ljubljana in liquidation
NLB Banka, Podgorica
97.999%
Skupna pokojninska
družba, Ljubljana
28.13%
28.13%
NLB Banka, Prishtina
Foreign countries
Foreign countries
NLB Banka, Banja Luka
NLB Nov penziski fond, Skopje
51%
NLB Srbija, Beograd
NLB Banka, Sarajevo
NLB Crna Gora, Podgorica
100%
100%
50%
50%
100%
39.44%
39.44%
29.68%
29.68%
100%
100%
100%
100%
99.997%
99.997%
84.68%
97.999%
81.21%
81.21%
99.85%
99.85%
97.35%
97.35%
86.97%
86.97%
NLB Banka, Skopje
49%
NLB Tutunska broker
in liquidation
100%
100%
The chart shows voting rights shares. The Group includes
entities according to the definition in the Financial
Conglomerates Act (Article 2).
Subsidiary
Associate
Joint venture
Company Name
direct share
%
%
indirect share at the Group level
* chart includes percentage share in voting rights
Financial institutions
Slovenia
NLB Leasing, Ljubljana
100%
100%
Optima Leasing, Zagreb
in liquidation
100%
100%
Prvi faktor, Ljubljana
in liquidation
50%
50%
Prvi faktor, Beograd
Prvi faktor, Sarajevo
in liquidation
Prvi faktor, Zagreb
in liquidation
Foreign countries
100%
100%
100%
100%
100%
100%
NLB Factoring
in liquidation
NLB InterFinanz, Zurich
in liquidation
100%
100%
100%
100%
NLB InterFinanz, Beograd
NLB InterFinanz Praha,
Prague
100%
100%
100%
100%
NLB Lizing, Skopje
in liquidation
NLB Leasing, Sarajevo
NLB Leasing, Beograd
in liquidation
NLB Leasing Podgorica,
Podgorica in liquidation
LHB AG, Frankfurt
Sophia Portfolio BV, Sofia *
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
0%
0%
165
Companies
Slovenia
NLB Propria, Ljubljana
Prospera plus, Ljubljana
ICJ – in bankrupcy,
Domžale
PRO REM, Ljubljana
in liquidation
BH-RE, Sarajevo
OL Nekretnine, Zagreb
in liquidation
ARG Nepremičnine, Horjul
Foreign countries
CBSinvest, Sarajevo
REAM, Podgorica
REAM, Beograd
REAM, Zagreb
SR-RE, Beograd
100%
100%
100%
100%
50%
50%
100%
100%
100%
100%
100%
100%
75%
75%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Tara Hotel, Budva
12.71%
100%
NLB Group 2016 Annual Report Organizational Structure of NLB as at 31 December 2016
CEO
Management Board
Legal and Secretariat
Corporate Communication
and Strategy
Human Resources and
Organization Development
Internal Audit
Compliance
and Integrity
Core Group Steering
CRO
CFO
CMO
COO
Global Risk
Credit Risk
Corporate and Retail
Group Real Estate
Asset Managment
Customer Relationship Managment
and Marketing Communication
Business Analysis and
Project Support
Controlling
Product Range Managment
Procurement and CREM
Evaluation and Control
Financial Accounting
Sales Performance Monitoring
Information Technology
Restructuring
Financial Markets
Small Enterprises
Accounts Administration
and Payroll *
Workout and
Legal Support
Investment Banking
and Custody
Non-Strategic
Equity Investments
Non-Strategic Corporate
Mid Corporates
Cash Processing
Large Corporates
Payments Processing
Trade Finance Services
Treasury and Financial
Markets Processing
Corporate Banking
Processing
Retail Banking
Processing
Private Banking
Distribution Network
Customer Support
and Contact Centre
Area Branch
Osrednjeslovenska - Jug
Area Branch
Osrednjeslovenska - Sever
Area Branch
Domžale, Kamnik in Zasavje
Area Branch
Savinjsko - Koroška
Area Branch
Podravsko - Pomurska
Understanding of the tasks and responsibilities of Global Risk, Compliance
and Integrity and Internal Audit is taken into account in acccordance to the
definitions of the (currently valid) Banking Act-Zban
* According to the responsibilities of the MB members, the organizational
unit falls under the member of the MB, responsible for Finance (CFO)
Area Branch
Dolenjska, Bela krajina in Posavje
Area Branch
Primorska, Goriška in Notranjska
167
Organizational Structure of NLB as at 31 December 2016
CEO
Management Board
Legal and Secretariat
Corporate Communication
and Strategy
Human Resources and
Organization Development
Internal Audit
Compliance
and Integrity
Core Group Steering
CRO
CFO
CMO
COO
Global Risk
Credit Risk
Corporate and Retail
Group Real Estate
Asset Managment
Customer Relationship Managment
and Marketing Communication
Business Analysis and
Project Support
Controlling
Product Range Managment
Procurement and CREM
Evaluation and Control
Financial Accounting
Sales Performance Monitoring
Information Technology
Restructuring
Financial Markets
Small Enterprises
Accounts Administration
and Payroll *
Workout and
Legal Support
Non-Strategic Corporate
Investment Banking
and Custody
Non-Strategic
Equity Investments
Large Corporates
Payments Processing
Mid Corporates
Cash Processing
Trade Finance Services
Treasury and Financial
Markets Processing
Corporate Banking
Processing
Retail Banking
Processing
Private Banking
Distribution Network
Customer Support
and Contact Centre
Area Branch
Osrednjeslovenska - Jug
Area Branch
Osrednjeslovenska - Sever
Area Branch
Domžale, Kamnik in Zasavje
Area Branch
Savinjsko - Koroška
Area Branch
Podravsko - Pomurska
Understanding of the tasks and responsibilities of Global Risk, Compliance
and Integrity and Internal Audit is taken into account in acccordance to the
definitions of the (currently valid) Banking Act-Zban
* According to the responsibilities of the MB members, the organizational
unit falls under the member of the MB, responsible for Finance (CFO)
Area Branch
Dolenjska, Bela krajina in Posavje
Area Branch
Primorska, Goriška in Notranjska
NLB Group 2016 Annual Report
Chapter 8. 2:
Corporate
and Social
Responsibility
Responsible to clients,
employees, society
The Bank has the important social
responsibility mission – in addition to
creating good operating results, it is
actively involved in the environment
of operations in order to contribute
to a higher quality of life for all
residents. The Bank is responsible to
the clients, employees, society as a
whole, and to the environment.
Special attention is given to knowledge and
lifelong learning, which has become a way
of life. By helping young people on their
path to financial independence, various
incentives are directed to act responsibly for
a prosperous future. One such initiative is
the long-lasting support of sports – with an
emphasis on sports for young people.
The Bank is very active in promoting
entrepreneurship, and so the establishment
of NLB IEC in 2015 has actively
contributed to the business climate and
financial mentoring in Slovenia.
Simultaneously, the Bank remains a
supporter of the arts and promotes the
preservation of cultural heritage. We take
special pride in the tradition of being
involved in numerous humanitarian
projects which are supported in
cooperation with clients and employees.
NLB Group 2016 Annual Report 169
Promoting Entrepreneurship
Caring for Employees
Supporting professional sport and
In 2016, IEC, which was established to
improve the business climate and financial
mentoring in Slovenia, hosted close to 200
events organised on its own initiative or
in cooperation with recognised Slovenian
partners. Various business themes were
presented to over 9,000 event participants.
IEC is a premise which is conducive to
socialising and business creation – and also
received the jury award from Zavod Big for
the ‘Best Interior of 2016’.
Promoting Financial Literacy
In January 2016 a mini-bank branch
for children was opened in BTC, called
‘MiniCity Ljubljana.’ There were 10
events, where young children are being
taught about the banking business.
The Bank is expanding a programme called
“Financial Literacy for Young People” in
Slovenian primary and secondary schools.
The Bank’s experienced lecturers teach
about the extremely important skill, how to
wisely deal with money, which is one of the
most important prospect in personal and
business life. In 2016 there were more than
40 lectures of this nature.
The same initiative is an ongoing practice
in NLB Banka, Podgorica, which besides
donations for school equipment, also gives
recurrent lectures to help young people on
the path toward financial independence.
Project ‘Healthy Bank’ was established
years ago to promote health awareness
and encourage a healthy lifestyle
among employees. The emphasis is on
prevention, identification of potential
disease symptoms, and lifestyle changes.
In June 2016 an e-book with instructions
and a calendar of ongoing workshops
was released. In 2016 over 986 employees
were included in the programme and
participated in more than 37 lectures and
18 whole-day workshops.
The Bank is also highly involved in the
education of its employees, and committed
to high quality standards as an ever-
learning organisation. Within the NLB
Training Centre, it educates its employees
to the greatest extent with experts
from their own fields, and transfers the
knowledge to other employees.
The Bank owned a Full Certificate of a
‘Family-Friendly Company’ for the second
full year. It strives to ensure that employees
have a better balance between work and
family obligations, offering numerous
activities.
All these measures were expressed in the
increased satisfaction and motivation
of employees. In 2016 satisfaction of
employees increased by 3% compared
to 2015, and 8% compared to 2014.
Significantly encouraging results are
also recorded in other areas of the
organisational climate, which is reflected
in the increasing share of dedicated
employees. In 2016, the figure was 51%,
while in 2015 it was 44%.
encouraging Sports for Youth
The Bank continues to support top
Slovenian athletes, who are the greatest
ambassadors of Slovenia in the world. As
a Golden sponsor of the Slovenian Alpine
Ski Team’s for the nineteenth year now,
the Bank enhanced the sponsorships in the
past three years to other important sport
federations in Slovenia as well: handball,
sailing, and table tennis. Together with the
federations, the Bank and its employees
shared the excitement of great success at
the 2016 Olympic Games in Rio.
The initiative ‘NLB Sports for Youth’ was
successfully expanded in 2016 in order
to encourage and responsibly educate
young people. The Bank connected and
financially supported more than 70 sports
clubs of various disciplines and regions in
Slovenia. This initiative supports content
of the programme that is rich in fair play
education, promotes responsible behaviour,
and emphasises the importance of
recreation in general. The programme was
also established to connect various local
communities in Slovenia and raise the level
of sports participation, as well as socially
responsible practices among youths.
NLB Banka, Podgorica actively supports
Montenegrin athletes in basketball,
football, and tennis. The tennis NLB Royal
Cup 2016 traditionally brings together
athletes, business partners, and the local
community.
NLB Group 2016 Annual Report The Bank connected and
financially supported
more than 70 sports clubs
of various disciplines
and regions in Slovenia.
This initiative supports
content of the programme
that is rich in fair play
education, promotes
responsible behaviour,
and emphasises
the importance of
recreation in general.
170
Humanitarian projects
raised funds from donors. The total amount
raised exceeded EUR 64,000.
NLB Banka Prishtina in September 2016
organised the event “Dance for Mothers
and Children” in order to raise funds
for pediatric equipment of not yet born
children. Together with a number of
donors almost EUR 40,000 were collected.
Concern for Art and Cultural Heritage
Throughout 2016 five broadly visited
exhibitions were organised and displayed
in NLB Gallery Avla. For the 45th
anniversary of the Bank’s headquarters
in Ljubljana, the Bank in cooperation
with the Museum of Architecture and
Design Centre organised a high profile
international event with prominent
representatives of the design profession,
social sciences, economics, and education,
entitled “Development Potentials and
Strategies - The Way Forward?” The event
symbolically took place in IEC.
The Group has the most recognisable art
gallery in NLB Banka, Skopje. In 2016 a
total of 13 high profile exhibitions of local
and foreign artists were organised.
In June 2016 the Bank successfully carried
out the campaign to raise funds for the
purchase of essential medical equipment
at Slovenian maternity hospitals. By
connecting clients and humanitarian
aspect, the Bank donated funds for each
housing loan sold in June, and raised
in total EUR 55,400. The amount was
donated to six maternity hospitals where it
was cheerfully accepted by staff, mothers,
and their families.
A similar campaign continued in December
2016. Funds were collected for children
patients with cancer of the Pediatric Clinic
in the main Medical Centre in Ljubljana.
The Bank branches installed contribution
boxes where together with other donations
more than EUR 20,000 accumulated
during a month-long period.
The Bank is proud that employees take
part in socially responsible activities.
Entering the summer season it began with
NLB Sports Games with a social touch.
Employees, in addition to sports activities,
took part in renewing the external and
internal premises of local sports and
recreation facilities in Martjanci, thereby
pleasing the village community which has
more than 5,000 inhabitants.
In cooperation with the Red Cross,
a traditional successful blood donor
campaign was conducted, attended by 78
employees. The Bank also participated
in another traditional campaign in the
organisation by the Red Cross called
“Take them to the Sea” and “It’s Nice to
Share.” The NLB Call Centre, with bank
employees and many Slovenian celebrities,
NLB Group 2016 Annual Report 172
List of Figures
Figure 1: Three consecutive years of increased profitability (in EUR million)
Figure 2: Profit before tax of NLB Group by segments (in EUR million)
Figure 3: Net interest margin (in %)
Figure 4: Total costs of NLB Group (in EUR million)
Figure 5: Slovenia: Growth of retail sales and industrial production indicies
Figure 6: Annual loan growth in the Slovenian banking system
Figure 7: Retail banking leader in Slovenia
Figure 8: Overview of the market shares in Slovenian banking sector
Figure 9: Evolution of business volumes/segment
Figure 10: NLB’s structure of retail loan book
Figure 11: Tailored product offerings and servicing models
Figure 12: E-pen
Figure 13: Assets in management and number of private banking clients
Figure 14: Assets in mutual funds under management of NLB Asset Management and their market share
Figure 15: NLB Vita total assets and market share in traditional life insurances
Figure 16: Distribution overview
Figure 17: The Bank overall satisfaction index for retail customers’ in Slovenia
Figure 18: Market share resilient despite deleveraging of the sector and competition (corporate and state net loans)*
Figure 19: Evolution of business volumes/segment (in EUR million)
Figure 20: Loans purpose structure
Figure 21: Tailored product offerings and servicing models
Figure 22: Net interest income (in EUR million)
Figure 23: Operating expenses (in EUR million)
Figure 24: Profit after tax (in EUR million)
Figure 25: Net retail loans to customers (in EUR million)
Figure 26: Net corp. loans to customers (in EUR million)
Figure 27: Net non-banking sector loan book split
Figure 28: Net non-banking sector loan book split
Figure 29: Net non-banking sector loan book split
Figure 30: Net non-banking sector loan book split
Figure 31: Net non-banking sector loan book split
Figure 32: Net non-banking sector loan book split
Figure 33: Key changes of NLB Group liabilities and capital in 2016 (in EUR million)
Figure 34: Key changes of NLB Group assets in 2016 (in EUR million)
Figure 35: NLB Group balance sheet structure as of 31 December 2016
Figure 36: Evolution of funding structure confirms stable deposit base in NLB Group (in EUR million)
Figure 37: Decreasing deposit interest rates environment in NLB Group
Figure 38: Evolution of NLB Group liquid assets structure reflects robust liquidity position (in EUR million)
Figure 39: Banking book securities by Fitch rating as of 31 December 2016 for NLB Group
Figure 40: Well-diversified NLB Group banking book securities portfolio as of 31 December 2016
a.) Banking book debt securities by asset class
b.) Banking book debt securities by geographical structure
Figure 41: Asset evolution by activity (in EUR million)
23
24
25
26
34
35
44
46
46
47
48
48
49
49
50
51
52
56
57
57
59
68
68
68
69
69
74
77
80
83
86
89
92
92
93
94
95
96
97
97
97
97
102
NLB Group 2016 Annual Report 173
108
108
109
109
109
114
133
134
135
135
136
137
138
138
139
141
141
142
142
143
6
34
36
45
55
62
67
74
77
80
83
86
89
91
101
102
113
133
140
Figure 42: NLB Group structure of the credit portfolio (gross loans and advances) by segment
Figure 43: Structure of NLB Group credit portfolio by client credit ratings as at year end
Figure 44: NLB Group NPE ratio (year-end NPE% by the the EBA)
Figure 45: NLB Group Coverage ratio (year-end %)
Figure 46: NLB Group NPL Coverage ratio (year-end %)
Figure 47: HR strategy process
Figure 48: Profit after tax of NLB Group – evolution YoY (in EUR million)
Figure 49: Profit after tax of the NLB Group banks (on a stand alone basis) - evolution YoY (in EUR million)
Figure 50: Profit before impairments and provisions of NLB Group – evolution YoY (in EUR million)
Figure 51: Net interest income of NLB Group (in EUR million)
Figure 52: Net interest income of NLB Group by segments (in EUR million)
Figure 53: Net non-interest income by segments of NLB Group (in EUR million)
Figure 54: Structure of net fees and commissions of NLB Group (in EUR million)
Figure 55: Total costs of NLB Group – evolution YoY (in EUR million)
Figure 56: NLB Group credit impairments and provisions, costs of risk (in bps)
Figure 57: Total assets of NLB Group – structure (in EUR million)
Figure 58: NLB Group gross loans to customers by core segments (in EUR million)
Figure 59: Group gross loans to customers by non-core segment (in EUR million)
Figure 60: Total liabilities of NLB Group – structure (in EUR million)
Figure 61: NLB Group CET 1 capital (in EUR million) and CET 1 ratio (in %)
List of Tables
Table 1: Key financial caption for NLB Group and NLB
Table 2: Movement of key macroeconomic indicators in Slovenia and the Economic and Monetary Union
Table 3: Trends in the key macroeconomic indicators for selected countries in SEE
Table 4: Performance of the retail banking segment in Slovenia
Table 5: Performance of the corporate banking segment in Slovenia
Table 6: Performance of the investment banking and custody services in Slovenia
Table 7: Results of the strategic foreign markets segment
Table 8: Key performance indicators of NLB Banka, Skopje
Table 9: Key performance indicators of NLB Banka, Banja Luka
Table 10: Key performance indicators of NLB Banka, Sarajevo
Table 11: Key performance indicators of NLB Banka, Prishtina
Table 12: Key performance indicators of NLB Banka, Podgorica
Table 13: Key performance indicators of NLB Banka, Beograd
Table 14: Performance of the Financial markets segment in Slovenia
Table 15: Results of the non-core foreign markets and activities segment
Table 16: The Group entities in which liquidation was initiated in 2016
Table 17: NLB Group employees by countries
Table 18: Income statement of NLB Group and NLB
Table 19: Statement of financial position of NLB Group and NLB
NLB Group 2016 Annual Report Chapter 9.
Professional
Chapter 9
ПрофесионалниProfesionalniProfesionalStručniProfesionalni ПрофесионалниStrokovni Professional
Chapter 9
ПрофесионалниProfesionalniProfesionalStručniProfesionalni ПрофесионалниStrokovni Nova Ljubljanska banka d.d., Ljubljana
Audited Financial
Statements of
NLB Group and
NLB d.d. Pursuant
to the International
Financial Reporting
Standards
as adopted by the European Union
2016
178
Contents
Independent Auditor’s Report
Statement of Management’s Responsibility
Income Statement
Statement of comprehensive income
Statement of financial position
Statement of changes in equity
Statement of cash flows
1.
2.
General information
Summary of significant accounting policies
2.1. Statement of compliance
2.2. Basis for presenting the financial statements
2.3. Comparative amounts
2.4. Consolidation
2.5.
Investments in subsidiaries, associates, and joint ventures
2.6. Goodwill and bargain purchases
2.7. A combination of entities or businesses under common control
2.8. Foreign currency translation
2.9.
Interest income and expenses
2.10. Fee and commission income
2.11. Dividend income
2.12. Financial instruments
2.13. Impairment of financial assets
2.14. Forborne loans
2.15. Repossessed assets
2.16. Offsetting
2.17. Sale and repurchase agreements
2.18. Property and equipment
2.19. Intangible assets
2.20. Investment properties
2.21. Non-current assets and disposal groups classified as held for sale
2.22. Accounting for leases
2.23. Cash and cash equivalents
2.24. Borrowings with characteristics of debt
2.25. Other issued financial instruments with characteristics of equity
2.26. Provisions
2.27. Contingent liabilities and commitments
2.28. Taxes
2.29. Fiduciary activities
2.30. Employee benefits
2.31. Share capital
2.32. Segment reporting
2.33. Critical accounting estimates and judgments in applying accounting policies
2.34. Implementation of the new and revised International Financial Reporting Standards
3.
4.
Changes in subsidiary holdings
Notes to the income statement
4.1.
Interest income and expenses
4.2. Dividend income
4.3. Fee and commission income and expenses
180
185
186
187
188
190
191
193
193
193
193
193
193
194
194
194
194
195
195
195
195
198
199
199
200
200
200
200
200
200
201
201
201
201
202
202
202
202
203
204
204
204
206
211
212
212
212
213
NLB Group 2016 Annual Report 4.4. Gains less losses from financial assets and liabilities not classified at fair value through profit or loss
4.5. Gains less losses from financial assets and liabilities held for trading
4.6. Foreign exchange translation gains less losses
4.7. Other operating income
4.8. Other operating expenses
4.9. Administrative expenses
4.10. Depreciation and amortisation
4.11. Provisions for other liabilities and charges
4.12. Impairment charge
4.13. Gains less losses from capital investments in subsidiaries, associates, and joint ventures
4.14. Income tax
4.15. Earnings per share
5.
Notes to the statement of financial position
5.1. Cash, cash balances at central banks, and other demand deposits at banks
5.2. Trading assets
5.3. Financial instruments designated at fair value through profit or loss
5.4. Available-for-sale financial assets
5.5. Derivatives for hedging purposes
5.6. Loans and advances
5.7. Held-to-maturity financial assets
5.8. Non-current assets classified as held for sale
5.9. Property and equipment
5.10. Investment property
5.11. Intangible assets
5.12. Investments in subsidiaries, associates and joint ventures
5.13. Other assets
5.14. Movements in allowance for the impairment of banks, loans, and advances to customers and other financial assets
5.15. Trading liabilities
5.16. Financial liabilities, measured at amortised cost
5.17. Provisions
5.18. Deferred income tax
5.19. Income tax relating to components of other comprehensive income
5.20. Other liabilities
5.21. Share capital
5.22. Accumulated other comprehensive income and reserves
5.23. Capital adequacy ratios
5.24. Off-balance sheet liabilities
5.25. Funds managed on behalf of third parties
6.
7.
Events after the reporting date
Risk management
7.1. Credit risk management
7.2. Market risk
7.3. Liquidity risk
7.4.
Information regarding the quality of debt securities
7.5.
Management of non-financial risks
7.6. Fair value hierarchy of financial and non-financial assets and liabilities
7.7. Offsetting financial assets and financial liabilities
8.
9.
Analysis by segment for NLB Group
Related-party transactions
179
214
215
215
216
216
217
218
218
219
220
220
221
221
221
222
223
224
226
228
232
233
233
235
236
237
242
243
245
246
248
252
254
255
255
255
256
258
259
261
261
263
286
299
314
315
316
325
326
330
NLB Group 2016 Annual Report 180
NLB GROUP 2016 ANNUAL REPORT
NLB GROUP 2016 ANNUAL REPORT
181
182
182
NLB GROUP 2016 ANNUAL REPORT
NLB Group 2016 Annual Report NLB GROUP 2016 ANNUAL REPORT
183183
NLB Group 2016 Annual Report 185
Statement of Management’s Responsibility
The Management Board hereby confirms
its responsibility for preparing the financial
statements of NLB and the consolidated
financial statements of NLB Group for the
year ending on 31 December 2016, and for
the accompanying accounting policies and
notes to the financial statements.
The Management Board is responsible for
the preparation and fair presentation of
these financial statements in accordance
with the International Financial Reporting
Standards as adopted by the European
Union, and with the requirements of the
The Management Board
Slovenian Companies Act and Banking
Act so as to give a true and fair view of
the financial position of NLB Group and
NLB as at 31 December 2016, and their
financial results and cash flows for the year
then ended.
The Management Board also confirms
that the appropriate accounting policies
were consistently applied, and that the
accounting estimates were prepared
according to the principles of prudence
and good management. The Management
Board further confirms that the financial
statements of NLB Group and NLB,
together with the accompanying notes,
have been prepared on a going-concern
basis for NLB Group and NLB, and in line
with valid legislation and the International
Financial Reporting Standards as adopted
by the European Union.
The Management Board is also responsible
for appropriate accounting practices, the
adoption of appropriate measures for
safeguarding assets, and the prevention
and identification of fraud and other
irregularities or illegal acts.
László Pelle
Member of the
Management Board
Archibald Kremser
Member of the
Management Board
Andreas Burkhardt
Member of the
Management Board
Blaž Brodnjak
Chief Executive Officer
NLB Group 2016 Annual Report 186
Income Statement
Interest and similar income
Interest and similar expense
Net interest income
Dividend income
Fee and commission income
Fee and commission expense
Net fee and commission income
Gains less losses from financial assets and liabilities not
classified as at fair value through profit or loss
Gains less losses from financial assets and liabilities held for trading
Gains less losses from financial assets and liabilities
designated at fair value through profit or loss
Fair value adjustments in hedge accounting
Foreign exchange translation gains less losses
Gains less losses on derecognition of assets
Other operating income
Other operating expenses
Administrative expenses
Depreciation and amortisation
Provisions for other liabilities and charges
Impairment charge
Gains less losses from capital investments in
subsidiaries, associates and joint ventures
Net gains or losses from non-current assets held for sale
Profit before income tax
Income tax
Profit for the year
Attributable to owners of the parent
Attributable to non-controlling interests
Notes
4.1.
4.1.
4.2.
4.3.
4.3.
4.4.
4.5.
5.5.a)
4.6.
4.7.
4.8.
4.9.
4.10.
4.11.
4.12.
4.13.
4.14.
NLB Group
NLB
in EUR thousand
2016
388,494
(71,189)
317,305
1,238
194,371
(48,706)
145,665
2015
443,203
(103,001)
340,202
1,346
195,710
(48,640)
147,070
14,788
10,659
6,921
235
(3,239)
1,158
867
24,442
(33,204)
(18,877)
(3)
231
11,831
(624)
27,329
(35,083)
2016
215,550
(40,672)
174,878
1,144
123,014
(27,728)
95,286
14,639
336
-
(2,437)
738
252
12,267
(13,176)
2015
269,000
(60,993)
208,007
1,264
128,896
(30,828)
98,068
10,685
(25,304)
-
231
23,251
(450)
13,234
(15,133)
(261,160)
(265,984)
(162,083)
(165,813)
(28,345)
(4,357)
(56,288)
5,006
(432)
130,600
(14,975)
115,625
110,017
5,608
(31,856)
(18,880)
696
482
(83,801)
(64,433)
28,915
(220)
67,708
(3,925)
63,783
4,312
(690)
106,758
(11,380)
95,378
91,914
3,464
(21,410)
5,153
(93,114)
13,747
(567)
51,849
(7,968)
43,881
63,783
43,881
-
3.2
-
2.2
Earnings per share/diluted earnings per share (in EUR per share)
4.15.
5.5
4.6
The notes are an integral part of these financial statements.
NLB Group 2016 Annual Report
187
Statement of comprehensive income
NLB Group
NLB
in EUR thousand
Notes
Net profit for the year after tax
Other comprehensive income after tax
Items that will not be reclassified to income statement
Actuarial gains/(losses) on defined benefit pensions plans
Share of other comprehensive income/(losses) of
entities accounted for using the equity method
Income tax relating to components of other comprehensive income
5.19.
Items that may be reclassified subsequently to income statement
Foreign currency translation
Translation gains/(losses) taken to equity
Cash flow hedges (effective portion)
Net valuation gains/(losses) taken to equity
Transferred to profit or loss
Available-for-sale financial assets
Valuation gains/(losses) taken to equity
Transferred to profit or loss
5.5.d)
5.5.d)
5.4.c)
4.4. and
4.12.
2016
115,625
6,331
1,515
(6)
(191)
(1,910)
(1,910)
2,703
(343)
3,046
3,899
18,529
(14,630)
2015
95,378
(12,859)
(1,975)
69
738
(2,685)
(2,685)
509
(78)
587
(8,496)
(2,316)
(6,180)
2016
63,783
2,740
1,466
-
(191)
-
-
2,703
(343)
3,046
171
14,652
(14,481)
2015
43,881
(6,650)
(706)
-
740
-
-
509
(78)
587
(8,562)
(314)
(8,248)
Share of other comprehensive income/(losses) of
entities accounted for using the equity method
2,731
(2,804)
-
-
Income tax relating to components of other comprehensive income
5.19.
(2,410)
1,785
(1,409)
1,369
Total comprehensive income for the year after tax
Attributable to owners of the parent
Attributable to non-controlling interests
121,956
116,383
5,573
82,519
79,032
3,487
66,523
66,523
-
37,231
37,231
-
The notes are an integral part of these financial statements.
NLB Group 2016 Annual Report
188
Statement of financial position
Cash, cash balances at central banks, and other demand deposits at banks
Trading assets
Financial assets designated at fair value through profit or loss
Available-for-sale financial assets
Derivatives - hedge accounting
Loans and advances
- debt securities
- loans and advances to banks
- loans and advances to customers
- other financial assets
Held-to-maturity financial assets
Fair value changes of the hedged items in portfolio hedge of interest rate risk
Non-current assets classified as held for sale
Property and equipment
Investment property
Intangible assets
Investments in subsidiaries
Investments in associates and joint ventures
Current income tax assets
Deferred income tax assets
Other assets
Total assets
Trading liabilities
Financial liabilities designated at fair value through profit or loss
Derivatives - hedge accounting
Financial liabilities measured at amortised cost
- deposits from banks and central banks
- borrowings from banks and central banks
- due to customers
- borrowings from other customers
- debt securities in issue
- subordinated liabilities
- other financial liabilities
Provisions
Current income tax liabilities
Deferred income tax liabilities
Other liabilities
Total liabilities
Equity and reserves attributable to owners of the parent
Share capital
Share premium
Accumulated other comprehensive income
Profit reserves
Retained earnings
Non-controlling interests
Total equity
Total liabilities and equity
The notes are an integral part of these financial statements.
NLB Group
NLB
in EUR thousand
Notes
31.12.2016
31.12.2015
31.12.2016
31.12.2015
5.1.
5.2.
5.3.
5.4.a)
5.5.
5.6.a)
5.6.b)
5.6.c)
5.6.d)
5.7.
5.8.
5.9.
5.10.
5.11.
5.12.a)
5.12.b)
5.18.
5.13.
5.15.
5.3.
5.5.
5.16.a)
5.16.b)
5.16.a)
5.16.b)
5.16.c)
5.16.d)
5.16.e)
5.17.
5.18.
5.20.
5.21.
5.22.
5.22.
5.22.
5.22.
1,299,014
1,161,983
87,699
6,694
267,413
7,595
617,039
87,693
2,011
496,806
267,880
4,913
2,072,153
1,737,191
1,594,094
1,248,359
217
1,083
217
1,083
85,315
435,537
394,579
431,775
85,315
408,056
394,579
345,207
6,912,067
6,693,621
4,843,594
4,826,139
61,014
611,449
678
4,263
196,849
83,663
33,970
-
43,248
2,888
7,735
94,558
69,521
565,535
741
4,629
207,730
93,513
39,327
-
39,696
929
9,400
95,354
36,151
611,449
678
1,788
90,496
8,151
23,345
48,944
565,535
741
1,776
94,570
8,613
29,627
339,693
346,001
7,031
2,124
10,622
8,419
7,094
-
9,139
9,779
12,039,011
11,821,615
8,777,966
8,706,785
18,791
2,011
29,024
42,334
371,769
29,920
4,912
33,842
57,982
571,029
18,787
2,011
29,024
74,977
338,467
29,909
4,912
33,842
96,736
519,926
9,437,147
9,020,666
6,615,390
6,293,339
83,619
277,726
27,145
110,295
100,914
3,146
727
8,703
100,267
304,962
27,340
75,307
122,639
7,514
313
14,539
4,274
277,726
-
68,784
79,546
-
-
4,186
16,168
304,962
-
47,346
105,137
6,681
-
5,676
10,513,351
10,371,232
7,513,172
7,464,634
200,000
871,378
29,969
13,522
380,444
200,000
871,378
23,603
13,522
314,307
200,000
871,378
34,581
13,522
145,313
200,000
871,378
31,841
13,522
125,410
1,495,313
1,422,810
1,264,794
1,242,151
30,347
27,573
1,525,660
1,450,383
12,039,011
11,821,615
-
1,264,794
8,777,966
-
1,242,151
8,706,785
NLB Group 2016 Annual Report
The Management Board has approved the release of the financial statements and the accompanying notes.
189
László Pelle
Member of the
Management Board
Archibald Kremser
Member of the
Management Board
Andreas Burkhardt
Member of the
Management Board
Blaž Brodnjak
Chief Executive Officer
Ljubljana, 28 March 2017
NLB Group 2016 Annual Report 190
Statement of changes in equity
NLB Group
Share capital
Share premium
Accumulated
other
comprehensive
income
Profit reserves Retained earnings
in EUR thousand
Equity
attributable
to owners of
the parent
Equity
attributable to
non-controlling
interests
Total equity
Balance as at 1 January 2015
200,000
871,378
36,485
13,522
221,676
1,343,061
26,234
1,369,295
- Net profit for the year
- Other comprehensive income
Total comprehensive
income after tax
Dividends paid
Transactions with
non-controlling interests
-
-
-
-
-
-
-
-
-
-
-
(12,882)
(12,882)
-
-
-
-
-
-
-
91,914
91,914
3,464
95,378
-
(12,882)
23
(12,859)
91,914
79,032
3,487
82,519
-
717
-
717
(1,048)
(1,048)
(1,100)
(383)
Balance as at 31 December 2015
200,000
871,378
23,603
13,522
314,307
1,422,810
27,573
1,450,383
- Net profit for the year
- Other comprehensive income
Total comprehensive
income after tax
Dividends paid
-
-
-
-
-
-
-
-
-
6,366
6,366
-
-
-
-
-
110,017
110,017
-
6,366
110,017
116,383
5,608
(35)
5,573
115,625
6,331
121,956
(43,880)
(43,880)
(2,799)
(46,679)
Balance as at 31 December 2016
200,000
871,378
29,969
13,522
380,444
1,495,313
30,347
1,525,660
NLB
Share capital
Share premium
Accumulated
other
comprehensive
income
Profit reserves Retained earnings
Total equity
in EUR thousand
200,000
871,378
38,491
13,522
81,529
1,204,920
Balance as at 1 January 2015
- Net profit for the year
- Other comprehensive income
Total comprehensive income after tax
Balance as at 31 December 2015
200,000
871,378
- Net profit for the year
- Other comprehensive income
Total comprehensive income after tax
Dividends paid
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(6,650)
(6,650)
31,841
-
2,740
2,740
-
-
-
-
43,881
-
43,881
43,881
(6,650)
37,231
13,522
125,410
1,242,151
-
-
-
-
63,783
-
63,783
63,783
2,740
66,523
(43,880)
(43,880)
Balance as at 31 December 2016
200,000
871,378
34,581
13,522
145,313
1,264,794
The notes are an integral part of these financial statements.
NLB Group 2016 Annual Report Statement of cash flows
Cash flows from operating activities
Interest received
Interest paid
Dividends received
Fee and commission receipts
Fee and commission payments
Realised gains from financial assets and financial liabilities
not at fair value through profit or loss
Realised losses from financial assets and financial liabilities
not at fair value through profit or loss
Net gains/(losses) from financial assets and liabilities held for trading
191
NLB Group
NLB
in EUR thousand
2016
2015
2016
2015
413,337
(78,401)
1,233
192,295
(51,996)
467,091
(121,143)
1,346
194,133
(48,713)
240,789
(44,510)
1,139
119,296
(27,056)
13,296
10,964
13,147
294,113
(72,613)
1,264
126,371
(30,993)
10,886
(40)
3,246
(234)
(40)
(234)
(23,110)
(2,785)
(28,335)
Payments to employees and suppliers
(262,202)
(271,456)
(165,579)
(174,051)
Other income
Other expenses
Income tax paid
Cash flows from operating activities before changes in operating assets and liabilities
(Increases)/decreases in operating assets
Net (increase)/decrease in trading assets
Net (increase)/decrease in financial assets designated at fair value through profit or loss
Net (increase)/decrease in available-for-sale financial assets
Net (increase)/decrease in loans and advances
Net (increase)/decrease in other assets
Increases/(decreases) in operating liabilities
Net increase/(decrease) in financial liabilities designated at fair value through profit or loss
Net increase/(decrease) in deposits and borrowings measured at amortised cost
Net increase/(decrease) in securities measured at amortised cost
Net increase/(decrease) in other liabilities
Net cash used in operating activities
Cash flows from investing activities
Receipts from investing activities
Proceeds from sale of property and equipment and investment property
Proceeds from dividends from subsidiaries and associates
Proceeds from non-current assets held for sale
Proceeds from disposals of held-to-maturity financial assets
Payments from investing activities
Purchase of property and equipment and investment property
Purchase of intangible assets
Purchase of subsidiaries and increase in subsidiaries' equity
Increase in associates and joint ventures' equity
Purchase of held-to-maturity financial assets
Net cash flows used in investing activities
Cash flows from financing activities
Proceeds from financing activities
Issue of subordinated debt
Payments from financing activities
Dividends paid
Net cash from financing activities
Effects of exchange rate changes on cash and cash equivalents
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
The notes are an integral part of these financial statements.
26,352
(26,132)
(19,991)
210,997
(139,839)
163,609
1,026
(344,588)
37,715
2,399
197,351
(2,801)
227,842
(26,913)
(777)
268,509
77,903
5,536
3,587
128
68,652
(153,178)
(17,896)
(6,981)
-
(12,250)
(116,051)
(75,275)
-
-
(46,655)
(46,655)
(46,655)
693
146,579
1,302,003
1,449,275
31,129
(28,935)
(4,980)
206,092
(143,429)
(135,235)
(880)
(45,544)
33,155
5,075
(200,359)
-
(146,993)
(53,469)
103
(137,696)
178,923
3,718
35
170
175,000
(51,377)
(11,404)
(7,685)
(404)
-
(31,884)
127,546
9,900
9,900
(977)
(977)
8,923
10,246
(1,227)
1,292,984
1,302,003
13,256
(14,857)
(14,489)
118,311
30,540
164,609
2,795
(353,677)
214,615
2,198
101,342
(2,801)
130,815
(26,913)
241
250,193
98,095
400
28,915
128
68,652
(161,064)
(10,990)
(4,466)
(17,307)
(12,250)
(116,051)
(62,969)
-
-
(43,880)
(43,880)
(43,880)
1,507
143,344
525,831
670,682
14,136
(16,487)
(678)
123,379
(34,116)
(135,235)
-
(88,304)
189,680
(257)
(208,931)
-
(155,700)
(53,469)
238
(119,668)
188,913
68
13,747
98
175,000
(70,863)
(5,672)
(5,577)
(27,730)
-
(31,884)
118,050
-
-
-
-
-
8,226
(1,618)
519,223
525,831
NLB Group 2016 Annual Report
192
Statement of cash flows
Cash and cash equivalents comprise:
Cash, cash balances at central banks, and other demand deposits at banks
Loans and advances to banks with original maturity up to 3 months
Trading assets with original maturity up to 3 months
Available for sale financial assets with original maturity up to 3 months
NLB Group
NLB
in EUR thousand
Notes
2016
2015
2016
2015
5.1.
5.6.
5.2.
5.4.
1,299,014
1,161,983
85,103
-
65,158
64,137
4,575
71,308
617,039
53,643
-
-
496,806
24,450
4,575
-
Total
1,449,275
1,302,003
670,682
525,831
NLB Group 2016 Annual Report
193
Notes to the Financial Statements
1. General information
Nova Ljubljanska banka d.d. Ljubljana
(hereinafter: NLB) is a joint-stock entity
providing universal banking services.
NLB Group consists of NLB and its
subsidiaries located in 10 countries.
NLB is incorporated and domiciled in
Slovenia. The address of its registered
office is Trg Republike 2, Ljubljana. NLB’s
shares are not listed on the stock exchange.
The ultimate controlling party of NLB is
the Republic of Slovenia, which was the
sole shareholder as at 31 December 2016
and 31 December 2015.
All amounts in the financial statements
and in the notes to the financial statements
are expressed in thousands of euros unless
otherwise stated.
2. Summary of significant
accounting policies
The principal accounting policies adopted
for the preparation of the separate and
consolidated financial statements are set out
below. The policies have been consistently
applied to all the years presented.
2.1. Statement of compliance
The principal accounting policies applied
in the preparation of the separate
and consolidated financial statements
were prepared in accordance with the
International Financial Accounting
Standards (hereinafter: the IFRS)
as adopted by the European Union
(hereinafter: EU). Additional requirements
under the national legislation are included
where appropriate.
The separate and consolidated financial
statements are comprised of: the income
statement and statement of comprehensive
income, the statement of financial position,
the statement of changes in equity,
the statement of cash flows, significant
accounting policies, and the notes.
2.2. Basis for presenting the
financial statements
The financial statements have been
prepared on a going-concern basis, under
the historical cost convention as modified
by the revaluation of available-for-sale
financial assets and financial assets, and
the financial liabilities at fair value through
profit or loss, including all derivative
contracts and investment property.
The preparation of financial statements
in accordance with the IFRS requires the
use of estimates and assumptions that
affect the reported amounts of assets and
liabilities, the disclosure of contingent
assets and liabilities at the date of the
financial statements, and the reported
amounts of revenue and expenses during
the reporting period. Although these
estimates are based on management’s best
knowledge of current events and activities,
actual results may ultimately differ from
those estimates. Accounting estimates and
underlying assumptions are reviewed on
an ongoing basis. Revisions of accounting
estimates are recognised in the period
in which the estimate is revised. Critical
accounting estimates and judgements in
applying accounting policies are disclosed
in note 2.33.
2.3. Comparative amounts
Except when a standard or an
interpretation permits or requires
otherwise, all amounts are reported or
disclosed in comparative amounts. Where
IAS 8 applies, comparative figures have
been adjusted to conform to changes in
presentation in the current year. In 2016
the presentation of deposit guarantees
changed, and the data for 2015 were
adjusted. Before the change, deposit
guarantees were included in the item ‘Fee
and Commission Expenses’, in the amount
of EUR 8,259 thousand (note 4.3.) while
after the change it is included in the item
‘Other Operating Expenses’ (note 4.8.).
The change only affects the presentation of
the financial statements.
2.4. Consolidation
In the consolidated financial statements
subsidiaries which are directly or indirectly
controlled by NLB have been fully
consolidated. Subsidiaries are consolidated
from the date on which effective control is
transferred to NLB Group.
NLB controls an entity when all three
elements of control are met:
• it has power over the entity;
• it is exposed or has rights to variable
returns from its involvement with the
entity; and
• it has the ability to use its power over the
entity to affect the amount of the entity’s
returns.
NLB reassesses whether it controls an entity
if facts and circumstances indicate there
are changes to one or more of the three
elements of control. If the loss of control
of a subsidiary occurs, the subsidiary is
no longer consolidated from the date that
control ceases.
Where necessary, the accounting policies
of subsidiaries have been amended to
ensure consistency with the policies
adopted by NLB. The financial statements
of consolidated subsidiaries are prepared
as at the parent entity’s reporting date.
Non-controlling interests are disclosed in
the consolidated statement of changes in
equity. Non-controlling interest is that part
of the net results, and of the equity of a
subsidiary attributable to interests which
NLB Group 2016 Annual Report 194
NLB does not own, directly or indirectly.
NLB Group measures non-controlling
interest on a transaction-by-transaction
basis, either at fair value, or the
non-controlling interest’s proportionate
share of net assets of the acquiree.
Joint ventures are those entities over whose
activities NLB Group has joint control,
as established by contractual agreement.
In the consolidated financial statements,
investments in joint ventures are accounted
for using the equity method of accounting.
Inter-company transactions, balances, and
unrealised gains on transactions between
NLB Group entities are eliminated.
Unrealised losses are also eliminated
unless the transaction provides evidence of
impairment of the asset transferred.
NLB Group treats transactions with
non-controlling interests as transactions
with equity owners of NLB Group.
For purchases of subsidiaries from
non-controlling interests, the difference
between any consideration paid and the
relevant share acquired of the carrying
value of net assets of the subsidiary is
deducted from the equity. Gains or losses
on sales to non-controlling interests
are recorded in the equity. For sales to
non-controlling interests, the differences
between any proceeds received and the
relevant share of non-controlling interests
are also recorded in the equity. All
effects are presented in the item ‘Equity
Attributable to Non-controlling Interest’.
2.5. Investments in subsidiaries,
associates, and joint ventures
In the separate financial statements,
investments in subsidiaries, associates, and
joint ventures are accounted for with the
cost method. Dividends from subsidiaries,
joint ventures, or associates are recognised
in the income statement when NLB’s right
to receive the dividend is established.
In the consolidated financial statements,
investments in associates are accounted for
using the equity method of accounting.
These are generally undertakings in
which NLB Group holds between 20%
and 50% of voting rights, and over which
NLB Group exercises significant influence,
but does not have control.
NLB Group’s share of its associates’
and joint ventures’ post-acquisition
profits or losses is recognised in the
consolidated income statement, and its
share of other comprehensive income
is recognised in other comprehensive
income. The cumulative post-acquisition
movements are adjusted against the
carrying amount of the investment. When
NLB Group’s share of losses in an associate
and joint venture equals or exceeds its
interest in the associate and joint venture,
including any other unsecured receivables,
NLB Group does not recognise further
losses unless it has incurred obligations or
made payments on behalf of the associate
and joint venture. NLB Group resumes
recognising its share of those profits only
after its share of the profits equals the share
of losses not recognised (note 5.12.b).
NLB Group’s subsidiaries, associates, and
joint ventures are presented in note 5.12.
2.6. Goodwill and bargain purchases
Goodwill is measured as the excess of the
aggregate of the consideration measured at
fair value and transferred to the acquiree,
the amount of any non-controlling interest
in the acquire, and the fair value of an
interest in the acquiree held immediately
before the acquisition date over the
net amounts of the identifiable assets
acquired and the liabilities assumed. Any
negative amount, a gain on a bargain
purchase, is recognised in profit or loss
after management reassesses whether it
identified all the assets acquired and all
liabilities and contingent liabilities assumed,
and reviews the appropriateness of their
measurement.
The consideration transferred is measured
at the fair value of the assets transferred,
equity interest issued, and liabilities
incurred or assumed, including the fair
value of assets or liabilities from contingent
consideration arrangements. However,
this excludes acquisition-related costs such
as advisory, legal, valuation, and similar
professional services. Transaction costs
incurred for issuing equity instruments
are deducted from the equity and all
other transaction costs associated with the
acquisition are expensed.
The goodwill of associates and joint
ventures is included in the carrying value
of investments.
2.7. A combination of entities or
businesses under common control
A merger of entities within NLB Group is
a business combination involving entities
under common control. For such mergers,
members of NLB Group apply merger
accounting principles and use the carrying
amounts of merged entities as reported
in the consolidated financial statements.
No goodwill is recognised on mergers of
NLB Group entities.
Mergers of entities within NLB Group
do not affect the consolidated financial
statements.
2.8. Foreign currency translation
Functional and presentation currency
Items included in the financial statements
of each of NLB Group’s entities are
measured using the currency of the
primary economic environment in which
the entity operates (i.e. the functional
currency). The financial statements are
presented in euros, which is NLB Group’s
presentation currency.
Transactions and balances
Foreign currency transactions are translated
into the functional currency at the
exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and
losses resulting from the settlement of such
transactions and from the translation of
monetary assets and liabilities denominated
NLB Group 2016 Annual Report in foreign currencies are recognised in the
income statement, except when deferred in
other comprehensive income as qualifying
cash flow hedges.
Translation differences resulting from
changes in the amortised cost of monetary
items denominated in foreign currency
and classified as available-for-sale financial
assets are recognised in the income
statement.
Translation differences on non-monetary
items, such as equities at fair value through
profit or loss, are reported as part of
the fair value gain or loss in the income
statement. Translation differences on
non-monetary items, such as equities
classified as available for sale, are included
together with valuation reserves in the
valuation (losses)/gains taken to other
comprehensive income and accumulated in
the equity.
Gains and losses resulting from foreign
currency purchases and sales for trading
purposes are included in the income
statement as gains less losses from financial
assets and liabilities held for trading.
NLB Group entities
The financial statements of all NLB Group
entities that have a functional currency
different from the presentation currency are
translated into the presentation currency as
follows:
• assets and liabilities for each statement
of financial position presented are
translated at the closing rate on the
reporting date;
• income and expenses for each income
statement are translated at average
exchange rates; and
• components of equity are translated at
the historical rate.
Goodwill and fair value adjustments arising
from the acquisition of a foreign entity
are treated as assets and liabilities of the
foreign entity and translated at the closing
rate.
In the consolidated financial statements,
exchange differences arising from the
translation of the net investment in
foreign operations are transferred to
other comprehensive income. When
control over a foreign operation is lost,
the previously recognised exchange
differences on translations to a different
presentation currency are reclassified from
other comprehensive income to profit and
loss for the year as part of the gain or loss
on disposal. On the partial disposal of
a subsidiary without loss of control, the
related portion of accumulated currency
translation differences is reclassified as a
non-controlling interest within the equity.
2.9. Interest income and expenses
Interest income and expenses are
recognised in the income statement for
all interest-bearing instruments on an
accrual basis using the effective interest
rate method. The effective interest rate
method is used to calculate the amortised
cost of a financial asset or financial liability,
and to allocate the interest income or
interest expense over the relevant period.
The effective interest rate is the rate that
precisely discounts estimated future cash
payments or receipts over the expected life
of the financial instrument, or a shorter
period (when appropriate) on the net
carrying amount of the financial asset or
financial liability. Interest income includes
coupons earned on fixed-yield investments
and trading securities, and accrued
discounts and premiums on securities.
The calculation of the effective interest
rate includes all fees and points paid or
received by parties to the contract and
all transaction costs, but excludes future
credit risk losses. Once a financial asset or
a group of similar financial assets has been
impaired, interest income is recognised by
the rate of interest used to discount future
cash flows for the purpose of measuring the
impairment loss.
2.10. Fee and commission income
Fees and commissions are generally
recognised when the service has been
195
provided. Fees and commissions mainly
consist of fees received from credit cards
and ATMs, customer transaction accounts,
payment services, investment funds, and
commissions from guarantees. Fees and
commissions that are integral to the
effective interest rate of financial assets
and liabilities are presented within interest
income or expenses.
2.11. Dividend income
Dividends are recognised in the income
statement when NLB Group’s right to
receive payment is established and an
inflow of economic benefits is probable.
Dividend income from subsidiaries,
associates, and joint ventures is included in
the item ‘Gains Less Losses from Capital
Investments in Subsidiaries, Associates,
and Joint Ventures’, while other dividend
income is included in the item ‘Dividend
Income’. In the consolidated financial
statement, dividends received from
associates and joint ventures reduce the
carrying value of the investment.
2.12. Financial instruments
a) Classification
The classification of financial instruments
upon initial recognition depends on
the instrument’s characteristics and
management’s intention. In general, the
following criteria are taken into account:
Financial instruments at fair
value through profit or loss
This category has two sub-categories:
financial instruments held for trading and
financial instruments designated at fair
value through profit or loss at inception.
A financial instrument is classified in
this group if acquired principally for the
purpose of selling it in the short term, or if
so designated by management.
NLB Group designates financial
instruments at fair value through profit or
loss if:
• it eliminates or significantly reduces
a measurement or recognition
inconsistency that would otherwise arise
NLB Group 2016 Annual Report 196
from measuring assets or liabilities on a
different basis;
• a group of financial assets, financial
liabilities, or both is managed and its
performance is evaluated on a fair value
basis in accordance with a documented
risk management or investment strategy,
and information about the group is
provided internally on that basis to
NLB Group’s key management; or
• a financial instrument contains one or
more embedded derivatives that could
significantly modify the cash flows
otherwise required by the contract.
Derivatives are categorised as held for
trading unless they are designated as
hedging instruments.
Loans and advances
Loans and advances are non-derivative
financial instruments with fixed or
determinable payments that are not
quoted on an active market, other than:
(a) those that NLB Group intends to sell
immediately or in the short term and which
are classified as held for trading, and those
that NLB Group, upon initial recognition,
classifies at fair value through profit or
loss; (b) those that NLB Group, upon
initial recognition, classifies as available
for sale; or (c) those for which NLB Group
may not recover substantially all of its
initial investment for reasons other than a
deterioration in creditworthiness.
Held‑to‑maturity financial assets
Held-to-maturity financial assets are
non-derivative financial instruments that
are traded on an active market with fixed
or determinable payments and a fixed
maturity that NLB Group has both the
intention and ability to hold to maturity.
An investment is not classified as a
held-to-maturity financial asset if
NLB Group has the right to require the
issuer to repay or redeem the investment
before its maturity, because paying for such
a feature is inconsistent with expressing an
intention to hold the asset until maturity.
Available‑for‑sale financial assets
c) Day one gains or losses
Available-for-sale financial assets are those
intended to be held for an indefinite period
of time, which may be sold in response to
liquidity needs or changes in interest rates,
exchange rates, or prices.
b) Measurement and recognition
Financial assets are initially recognised
at fair value plus transaction costs for all
financial assets not carried at fair value
through profit or loss.
Financial assets carried at fair value
through profit or loss are initially
recognised at fair value, and transaction
costs are expensed in the income statement.
Regular way purchases and sales of
financial assets at fair value through
profit or loss, and assets held-to-maturity
and available-for-sale, are recognised on
the trade date. Loans and advances are
recognised when cash is advanced to the
borrowers.
Financial assets at fair value through profit
or loss and available-for-sale financial
assets are subsequently measured at fair
value. Gains and losses from changes in the
fair value of financial assets at fair value
through profit or loss are included in the
income statement in the period in which
they arise. Gains and losses from changes
in the fair value of available-for-sale
financial assets are recognised in other
comprehensive income until the financial
asset is derecognised or impaired, at which
time the cumulative amount previously
included in other comprehensive income is
recycled in the income statement. Interest
calculated using the effective interest rate
method, and foreign currency gains and
losses on monetary assets classified as
available-for-sale are recognised in the
income statement.
Loans and held-to-maturity financial assets
are carried at an amortised cost.
The best evidence of fair value at initial
recognition is the transaction price (i.e.
the fair value of the consideration given
or received), unless the fair value of that
instrument is evidenced by a comparison
with other observable current market
transactions in the same instrument (i.e.
without modification or repackaging), or
based on a valuation technique whose
variables only include data from observable
markets.
If the transaction price on a non-active
market is different than the fair value
from other observable current market
transactions in the same instrument,
or is based on a valuation technique
whose variables only include data from
observable markets, the difference between
the transaction price and fair value is
recognised immediately in the income
statement (“day one gains or losses”).
In cases where the data used for valuation
are not fully observable in financial
markets, day one gains or losses are not
recognised immediately in the income
statement. The timing of recognition
of deferred day one gains or losses is
determined individually. It is either
amortised over the life of the transaction,
deferred until the instrument’s fair value
can be determined using market observable
inputs, or realised through settlement.
d) Reclassification
Financial assets that are eligible for
classification as loans and advances can
be reclassified out of the held-for-trading
category if they are no longer held for the
purpose of selling or repurchasing them
in the near term. Financial assets that
are not eligible for classification as loans
and receivables may be transferred from
the held-for-trading category only in rare
circumstances. In addition, instruments
designated at fair value through profit and
loss cannot be reclassified.
NLB Group 2016 Annual Report e) Derecognition
A financial asset is derecognised when the
contractual rights to the cash flows from the
financial asset expire, or when the financial
asset is transferred and the transfer qualifies
for derecognition. A financial liability is
derecognised only when it is extinguished,
i.e. when the obligation specified in the
contract is discharged, cancelled, or expires.
instrument and, if so, the nature of the
item being hedged. NLB Group designates
certain derivatives as either:
• hedges of the fair value of recognised
assets or liabilities or firm commitments
(fair value hedge);
• hedges of highly probable future cash
flows attributable to a recognised asset or
liability, or a highly probable forecasted
transaction (cash flow hedge); or
f) Fair value measurement principles
• hedges of a net investment in a foreign
The fair value of financial instruments
traded on active markets is based on the
price that would be received to sell the
assets or transfer liability (exit price) being
measured at the reporting date, excluding
transaction costs. If there is no active
market, the fair value of the instruments
is estimated using discounted cash flow
techniques or pricing models.
If discounted cash flow techniques are
used, estimated future cash flows are based
on management’s best estimates; and
the discount rate is a market-based rate
at the reporting date for an instrument
with similar terms and conditions. If
pricing models are used, inputs are based
on market-based measurements at the
reporting date.
operation (net investment hedge).
Hedge accounting is used for derivatives
designated in this way provided certain
criteria are met.
At the inception of the transaction
NLB Group documents the relationship
between hedged items and hedging
instruments, as well as its risk management
objective and strategy for undertaking
various hedge transactions. NLB Group
also documents its assessment, both at
hedge inception and on an ongoing basis,
of whether the derivatives used in hedging
transactions are highly effective in offsetting
changes in fair values or cash flows of
hedged items. The actual results of a
hedge must always fall within a range of
80-125%.
g) Derivative financial instruments
and hedge accounting
Fair value hedge
Derivative financial instruments, including
forward and futures contracts, swaps,
and options, are initially recognised in
the statement of financial position at fair
value. Derivative financial instruments
are subsequently re-measured at their
fair value. Fair values are obtained from
quoted market prices, discounted cash flow
models or pricing models, as appropriate.
All derivatives are carried at their fair
value within assets when the derivative
position is favourable to NLB Group, and
as well within liabilities when the derivative
position is unfavourable to NLB Group.
Changes in the fair value of derivatives
that are designated and qualify as fair
value hedges are recognised in the income
statement, together with any changes
in the fair value of the hedged asset
or liability that are attributable to the
hedged risk. Effective changes in the fair
value of hedging instruments and related
hedged items are reflected in “fair value
adjustments in hedge accounting” in the
income statement. Any ineffectiveness
from derivatives is recorded in “Gains Less
Losses on Financial Assets and Liabilities
held for Trading.”
The method of recognising the resulting
fair value gain or loss depends on whether
the derivative is designated as a hedging
If a hedge no longer meets the hedge
accounting criteria, the adjustment to the
carrying amount of the hedged item for
197
which the effective interest rate method
is used is amortised to profit or loss
over the remaining period to maturity.
The adjustment to the carrying amount
of a hedged equity security is included in
the income statement upon disposal of the
equity security.
Cash flow hedge
The effective portion of changes in the fair
value of derivatives that are designated and
qualify as cash flow hedges is recognised
in other comprehensive income. The gain
or loss relating to the ineffective portion
is recognised immediately in the income
statement in “Gains less losses on financial
assets and liabilities held for trading.”
Amounts accumulated in equity are
recycled as a reclassification from other
comprehensive income to the income
statement in the periods when the hedged
item affects profit or loss.
When a hedging instrument expires or
is sold, or when a hedge no longer meets
hedge accounting criteria, any cumulative
gain or loss existing in other comprehensive
income and previously accumulated
in equity at that time remains in other
comprehensive income and in equity, and
is recognised in profit or loss only when
the forecasted transaction is ultimately
recognised in the income statement.
When a forecasted transaction is no
longer expected to occur, the cumulative
gain or loss that was reported in other
comprehensive income is immediately
transferred to the income statement in
line with fair value adjustments in hedge
accounting.
Hedge of a net investment
in a foreign operation
Hedges of net investments in foreign
operations are accounted for similarly
to cash flow hedges. Any gain or loss on
the hedging instrument relating to the
effective portion of the hedge is recognised
directly in equity. The gain or loss relating
to the ineffective portion is recognised
NLB Group 2016 Annual Report 198
immediately in the consolidated income
statement in “Gains Less Losses on
Financial Assets and Liabilities Held for
Trading.” Gains and losses accumulated in
other comprehensive income are included
in the consolidated income statement when
the foreign operation is disposed of as part
of the gain or loss on the disposal.
In the separate financial statements, the
hedge of the net investment in a foreign
operation is accounted for as a fair value
hedge.
2.13. Impairment of financial assets
a) Assets carried at amortised cost
NLB Group assesses impairments
of financial assets separately for all
individually significant assets where there is
objective evidence of impairment. All other
financial assets are impaired collectively.
According to the Regulation on credit risk
loss assessment of the Bank of Slovenia, a
financial asset or off-balance sheet liability
is individually significant if total exposure
to a customer exceeds 0.5% of a bank’s
equity. In 2016, all exposures to banks, all
exposures to other legal entities exceeding
EUR 100 thousand and all exposures to
individuals exceeding EUR 100 thousand
were deemed individually significant
assets requiring individual assessment. If
NLB Group determines that no objective
evidence exists for an individually assessed
financial asset, the asset is included in
a group of related financial assets with
similar credit risk characteristics and
collectively assessed for impairment.
At each reporting date NLB Group assesses
whether there is objective evidence that a
financial asset or group of financial assets
is impaired. A financial asset or group of
financial assets is impaired and impairment
losses are incurred if, and only if, there
is objective evidence of impairment as a
result of one or more events that occurred
after the initial recognition of the asset,
and that event has an impact on the future
cash flows of the financial asset or group
of financial assets that can be reliably
estimated.
The criteria NLB Group uses to determine
whether objective evidence of an
impairment loss exists include:
• delays in the payment of contractual
interest or principal;
• a breach of other contractual covenants
or conditions;
• difficulties in the financial condition of
the borrower;
• restructuring of a borrower’s financial
liabilities, whereby a material loss is
recognised;
• initiation of bankruptcy or insolvency
proceedings; and
• other arrangements having an adverse
effect on the bank’s or company’s
position.
If there is objective evidence that an
impairment loss on loans and advances
or held-to-maturity financial assets has
been incurred, the amount of the loss is
measured as the difference between the
asset’s carrying amount and the present
value of estimated future cash flows.
The carrying amount of the asset is
reduced through an allowance account
and the loss is recognised in the income
statement. With regard to impairments for
customers in default, where the payment of
existing liabilities is only possible through
the redemption of collateral, the expected
payment from the collateral is taken into
account. This value is calculated from the
appraised market value of the collateral
and the discount used as defined in the
Collateral Manual. Off-balance sheet
liabilities are also assessed individually and,
where necessary, related provisions are
recognised as liabilities.
For the purpose of the collective assessment
of impairment, NLB Group uses transition
matrices which illustrate the expected
transition of customers between internal
rating categories. The probability of
transition is assessed on the basis of past
years’ experience, i.e. the annual transition
matrices for different types or segments
of customers. This data may be adopted
for projected future trends as historical
experience does not necessarily reflect
actual economic movements. Exposures
to individuals are further analysed with
regard to the type of product. Based on
the expected transition of customers to
D and E credit-rating categories, and an
assessment of the average repayment rate
for D- and E-rated customers (treated
as customers in default), NLB Group
recognises collective impairments.
If the amount of impairment decreases
subsequently due to an event occurring
after the impairment was recognised
(e.g. repayment in the collection process
exceeds the assessed expected payment
from collateral), the reversal of the loss is
recognised as a reduction in the allowance
for loan impairment.
NLB Group writes off financial assets
measured at amortised cost if during the
collection process it assesses that the assets
in question will not be repaid and that the
conditions for derecognition have been
met.
b) Assets classified as available for sale
NLB Group assesses at each reporting
date whether there is objective evidence
that available-for-sale financial assets are
impaired. In the case of equity investments
classified as available for sale, a significant
or prolonged decline in the fair value of
an investment below its cost is considered
in determining whether the assets are
impaired. If any such evidence exists
for available-for-sale financial assets, the
cumulative loss is reclassified from other
comprehensive income and recognised in
the income statement as an impairment
loss. Impairment losses recognised in the
income statement on equity investments are
not reversed through the income statement;
subsequent increases in their fair value
after impairment are recognised in other
comprehensive income.
NLB Group 2016 Annual Report If, in a subsequent period, the fair value
of a debt instrument classified as available
for sale increases and the increase can be
objectively related to an event occurring
after the impairment loss was recognised,
the impairment loss is reversed through the
income statement.
The following factors are considered in
determining impairment losses on debt
instruments:
• default or delinquency in interest or
principal payments;
• liquidity difficulties of the issuer;
• a breach of contract covenants or
conditions;
• bankruptcy of the issuer;
• deterioration of economic and market
conditions; and
• deterioration in the credit rating of the
issuer below an acceptable level.
Impairment losses recognised in the income
statement are measured as the difference
between the carrying amount of the
financial asset and its current fair value.
The current fair value of the instrument
is its market price or discounted future
cash flows when the market price is not
obtainable.
2.14. Forborne loans
A forborne loan (or restructured financial
asset) arises as a result of a debtor’s inability
to repay a debt under the originally agreed
terms, either by modifying the terms of
the original contract (via an annex) or by
signing a new contract (refinancing) under
which the contracting parties agree the
partial or total repayment of the original
debt. If receivables due from the client
have the status of restructuring, the debtor
must be classified in the rating group C, D,
or E.
The definitions of forborne loans closely
follow definitions that were developed
by the European Banking Authority
(EBA). These definitions aim to achieve
comprehensive coverage of exposures to
which forbearance measures have been
extended.
Accounting treatment of forborne loans
depends on the type of restructuring. When
NLB Group is embarking on a forborne
loan via modified terms of repayment
proceeding from extending the deadline
for the repayment of the principal and/
or interest and/or a forbearance of the
repayment of the principal and/or interest
or a reduction in the interest rate and/
or other expenses, it adjusts the carrying
amount of the forborne loan on the basis
of the discounted value of the estimated
future cash flows under the modified terms,
and recognises the resulting effect in profit
or loss as an impairment. In the event of
the reduction of a claim against the debtor
via the reduction in the amount of the
claims as a result of a contractually agreed
debt waiver and ownership restructuring
or debt to equity swap, NLB Group
derecognises the claim in the part relating
to the write-down or the contractually
agreed debt waiver. The new estimate
of the future cash flows for the residual
claim, not yet written down, is based on
an updated estimate of the probability of
loss. NLB Group takes into account the
debtor’s modified position, the economic
expectations and the collateral of the
forborne loan. When NLB Group is
embarking on the forborne loan by taking
possession of other assets (property, plant
and equipment, securities, and other
financial assets), including investments
in the equity of debtors obtained via
debt-to-equity swaps, it recognises the
acquired assets in the statement of financial
position at fair value, recognising the
difference between the disclosed fair value
of the asset and the carrying amount of the
eliminated claim in profit or loss.
Forborne exposures may be identified in
both the performing and non-performing
parts of the portfolio. Where the forborne
loan is classified in the non-performing
part of the portfolio, it can be reclassified
to the performing part if forbearance does
199
not lead to a recognition of impairment or
non-performance, if one year has passed
since the forbearance has been introduced
and after the introduction of forbearance
there have been no overdue amounts
or doubts concerning the repayment
of the entire exposure, under the terms
and conditions after the forbearance.
The absence of doubt is confirmed by
analysis of the financial situation of the
debtor.
The forborne status is withdrawn when:
• an analysis of the debtor’s financial
position shows that the conditions to
deem the exposure a non-performing
exposure are no longer met;
• at least a 2-year probation period has
passed since the forborne exposure was
deemed performing;
• regular payments of the principal or
interest were made, in a substantial
total amount, during at least half the
probation period; and
• no exposure to the debtor is more than
30 days in default at the end of the
probation period.
2.15. Repossessed assets
In certain circumstances, assets are
repossessed following the foreclosure on
loans that are in default. Repossessed assets
are initially recognised in the financial
statements at their fair value and classified
in the appropriate category according
to their purpose and are sold as soon as
practical in order to reduce exposure (note
7.1.n). After initial recognition, repossessed
assets are measured and accounted
for in accordance with the policies
applicable to the relevant asset categories.
Repossessed assets mainly represent items
of real estate that NLB Group classifies
within investment properties measured
in accordance with IAS 40 Investment
property (note 2.20), and other assets,
measured in accordance with IAS 2
Inventories.
Real estate obtained from the foreclosure
of loans and receivables within other assets
NLB Group 2016 Annual Report 200
are initially recognised at fair value less
costs to sell (realisable value) wherein only
the direct costs of sales can be taken into
account. At subsequent measurement the
realisable value is verified at least annually.
Valuations of the fair value of real estate
are performed by certified real-estate
appraisers. The real estate is impaired
when the carrying value exceeds the
realisable value. The effect of impairment
is presented as the impairment of other
assets and the reversal of impairment
as income from the reversal of the
impairment of other assets.
2.16. Offsetting
Financial assets and liabilities are offset and
the net amount reported in the statement
of financial position when there is a legally
enforceable right to offset the recognised
amounts, and there is an intention to settle
on a net basis, or to realise the asset and
settle the liability simultaneously.
2.17. Sale and repurchase agreements
Securities sold under sale and repurchase
agreements (repos) are retained in the
financial statements and the counterparty
liability is included in financial liabilities
associated with the transferred assets.
Securities sold subject to sale and
repurchase agreements are reclassified
in the financial statements as pledged
assets when the transferee has the right
by contract or custom to sell or re-pledge
the collateral. Securities purchased under
agreements to resell (reverse repos) are
recorded as loans and advances to other
banks or customers, as appropriate.
The difference between the sale and
repurchase price is in the financial
statements treated as interest and accrued
over the life of the repo agreements using
the effective interest rate method.
2.18. Property and equipment
All items of property and equipment
are initially recognised at cost. They
are subsequently measured at cost less
accumulated depreciation and any
accumulated impairment loss.
Each year, NLB Group assesses whether
there are indications that property and
equipment may be impaired. If any such
indication exists, the recoverable amounts
are estimated. The recoverable amount
is the higher of the fair value less costs to
sell and value in use. If the recoverable
amount exceeds the carrying value, the
assets are not impaired. If the carrying
amount exceeds the recoverable amount,
the difference is recognised as a loss in the
income statement.
Items of property and equipment which
do not generate cash flows that are
largely independent are included in the
cash-generating unit and later tested for
possible impairment.
Depreciation is calculated on a straight-line
basis over the assets’ estimated useful lives.
The following annual depreciation rates
were applied:
NLB Group and NLB
Buildings
Leasehold improvements
Computers
Furniture and equipment
Motor vehicles
in %
2 - 5
5 - 25
14.3 - 50
10 - 33.3
12.5 - 25
Depreciation does not begin until the assets
are available for use.
The assets’ residual values and useful lives
are reviewed, and adjusted if appropriate,
on each reporting date. Gains and losses
on the disposal of items of property and
equipment are determined as the difference
between the sale proceeds and their
carrying amount, and are recognised in the
income statement.
Maintenance and repairs are charged to
the income statement during the financial
period in which they are incurred.
Subsequent costs that increase future
economic benefits are recognised in the
carrying amount of an asset and the
replaced part, if any, is derecognised.
2.19. Intangible assets
Intangible assets include software licenses
and goodwill (note 2.6.). Intangible
assets are stated at cost, less accumulated
amortisation and impairment losses.
Amortisation is calculated on a straight-line
basis at rates designed to write down the
cost of an intangible asset over its estimated
useful life. The core banking system is
amortised over a period of 10 years, and
other software over a period of three to five
years.
Amortisation does not begin until the assets
are available for use.
2.20. Investment properties
Investment properties include buildings
held for leasing and not occupied by
NLB Group or to increase the value
of a long-term investment. Investment
properties are stated at fair value
determined by a certified appraiser. Fair
value is based on current market prices.
Any gain or loss arising from a change
in fair value is recognised in the income
statement.
2.21. Non-current assets and disposal
groups classified as held for sale
Non-current assets and disposal groups are
classified as held for sale if their carrying
amount will be recovered through a sale
transaction rather than through continuing
use. This condition is deemed to be met
only when the sale is highly probable and
the asset is available for immediate sale in
its present condition. Management must
be committed to the sale, which should
be expected to qualify for recognition as a
completed sale within one year from the
date of classification. Non-current assets
and disposal groups classified as held for
sale are measured at the lower of the assets’
previous carrying amount and fair value
less costs to sell.
NLB Group 2016 Annual Report During subsequent measurement, certain
assets and liabilities of a disposal group
that are outside the scope of IFRS 5
measurement requirements are measured
in accordance with the applicable standards
(e.g. deferred tax assets, assets arising from
employee benefits, financial instruments,
investment property measured at fair value,
and contractual rights under insurance
contracts). Tangible and intangible
assets are not depreciated. The effects
of sale and valuation are included in the
income statement as a gain or loss from
non-current assets held for sale.
Liabilities directly associated with disposal
groups are reclassified and presented
separately in the statement of financial
position.
2.22. Accounting for leases
A lease is an agreement whereby the
lessor conveys to the lessee, in return for a
payment or series of payments, the right
to use an asset for an agreed period of
time. Lease agreements are accounted
for in accordance with their classification
as finance leases or operating leases
at the inception of the lease. The key
classification factor is the extent to
which the risks and rewards incidental to
ownership of a leased asset lie with the
lessor or lessee.
NLB Group as a lessee
Leases in which a significant portion of the
risks and rewards of ownership are retained
by the lessor are classified as operating
leases. Payments made under operating
leases are charged to the income statement
on a straight-line basis over the period
of the lease. When an operating lease is
terminated before the lease period has
expired, any payment required to be made
to the lessor by way of penalty is recognised
as an expense in the period in which the
termination takes place.
the present value of the minimum lease
payments. Leased assets are depreciated
in accordance with NLB Group’s policy
over the shorter of the estimated useful
life of the asset and the lease term, if
there is no reasonable certainty that
NLB Group will obtain ownership by the
end of the lease term. Lease payments are
apportioned between interest expenses and
the reduction of the outstanding liability
so as to produce a constant periodic rate
of interest on the remaining balance of the
liability.
NLB Group as a lessor
Payments under operating leases are
recognised as income on a straight-line
basis over the period of the lease. Assets
leased under operating leases are presented
in the statement of financial position as
investment property or as property and
equipment.
NLB Group classifies a lease as a finance
lease when the risks and rewards incidental
to ownership of a leased asset lie with the
lessee. When assets are leased under a
finance lease, the present value of the lease
payments is recognised as a receivable.
Income from finance lease transactions
is amortised over the lifetime of the lease
using the effective interest rate method.
Finance lease receivables are recognised
at an amount equal to the net investment
in the lease, including the unguaranteed
residual value.
Sale‑and‑leaseback transactions
NLB Group also enters into
sale-and-leaseback transactions (in which
NLB Group is primarily a lessor) under
which the leased assets are purchased
from and then leased back to the lessee.
These contracts are classified as finance
leases or operating leases, depending on
the contractual terms of the leaseback
agreement.
Finance leases are recognised as an asset
and liability at amounts equal to the
fair value of the leased asset or, if lower,
2.23. Cash and cash equivalents
For the purpose of the statement of cash
flows, cash and cash equivalents comprise
201
cash and balances with central banks and
other demand deposits at banks, debt
securities held for trading, loans to banks,
and debt securities not held for trading with
an original maturity of up to 90 days. Cash
and cash equivalents are disclosed under
the cash flow statement.
2.24. Borrowings with
characteristics of debt
Loans and deposits received and issued
debt securities are initially recognised at fair
value, which is typically equal to historical
cost less transaction costs. Borrowings are
subsequently measured at the amortised
cost. The difference between the value
at initial recognition and the final value
is recognised in the income statement as
interest expense, applying the effective
interest rate.
Repurchased own debt is disclosed as a
reduction in liabilities in the statement of
financial position. The difference between
the book value and the price at which own
debt was repurchased is disclosed in the
income statement.
2.25. Other issued financial instruments
with characteristics of equity
Upon initial recognition, other issued
financial instruments are classified in
part or in full as equity instruments if
the contractual characteristics of the
instruments are such that NLB Group
must classify them as equity instruments
in accordance with IAS 32 Financial
Instruments: Disclosure and Presentation.
An issued financial instrument is only
considered an equity instrument if that
instrument does not represent a contractual
obligation for payment.
Issued financial instruments with
characteristics of equity are recognised
in equity in the statement of financial
position. Transaction costs incurred for
issuing such instruments are deducted from
equity reserves. The corresponding interest
is recognised directly in profit reserves.
NLB Group 2016 Annual Report 202
The carrying value of an issued financial
instrument with characteristics of equity
is presented in the statement of changes
in equity in the item ‘Other Equity
Instruments.’
2.26. Provisions
Provisions are recognised when
NLB Group has a present legal or
constructive obligation as a result of past
events, and it is probable that an outflow
of resources embodying economic benefits
will be required to settle the obligation, and
a reliable estimate of the amount of the
obligation can be made.
2.27. Contingent liabilities
and commitments
Financial and non‑financial guarantees
Financial guarantees are contracts
that require the issuer to make specific
payments to reimburse the holder for a loss
it incurs because a specific debtor fails to
make payments when due, in accordance
with the terms of debt instruments. Such
financial guarantees are given to banks,
financial institutions, and other bodies on
behalf of the customer to secure loans,
overdrafts and other banking facilities.
The issued guarantees covering
non-financial obligations of the clients
represent the obligation of the Bank
(guarantor) to pay if the client fails to
perform certain works in accordance with
the terms of the commercial contract.
Financial and non-financial guarantees are
initially recognised at fair value, which is
normally evidenced by the fees received.
The fees are amortised to the income
statement over the contract term using
the straight-line method. NLB Group’s
liabilities under guarantees are
subsequently measured at the greater of:
• the initial measurement, less amortisation
calculated to recognise fee income over
the period of guarantee; or
• the best estimate of the expenditure
required to settle the obligation.
Documentary letters of credit
Documentary (and standby) letters of
credit constitute a written and irrevocable
commitment of the issuing (opening) bank
on behalf of the issuer (importer) to pay
the beneficiary (exporter) the value set out
in the documents by a defined deadline:
• if the letter of credit is payable on sight; and
• if the letter of credit is payable for
deferred payment, the bank will pay
according to the contractual agreement
when and if the beneficiary (exporter)
presents the bank with documents that
are in line with the conditions and
deadlines set out in the letter of credit.
A commitment may also take the form
of a letter of credit confirmation,
which is usually done at the request or
authorisation of the issuing (opening) bank
and constitutes a firm commitment by the
confirming bank, in addition to that of the
issuing bank, which independently assumes
a commitment to the beneficiary under
certain conditions.
Other contingent liabilities and
commitments
Other contingent liabilities and
commitments represent commitments to
extend credit, uncovered letters of credit,
and other commitments.
2.28. Taxes
Income tax expense comprises current and
deferred income tax.
carrying amounts for financial reporting
purposes.
Deferred tax assets are recognised if it is
probable that future taxable profit will be
available in the foreseeable future against
which the temporary differences can be
utilised.
Deferred tax related to the fair value
re-measurement of available-for-sale
investments, cash flow hedges, and actuarial
gains and losses on defined benefit pension
plans is charged or credited directly to
other comprehensive income.
Deferred tax assets and liabilities
are measured at tax rates enacted or
substantively enacted at the end of the
reporting period that are expected to
apply to the period when the asset is
realised or the liability is settled. At each
reporting date, NLB Group reviews the
carrying amount of deferred tax assets
and assesses future taxable profits against
which temporary taxable differences can be
utilised.
Deferred tax assets for temporary
differences arising from investments in
subsidiaries, associates, and joint ventures
are recognised only to the extent that it is
probable that:
• the temporary differences will be
reversed in the foreseeable future; and
• taxable profit will be available.
Current corporate income tax in
NLB Group is calculated on taxable profits
at the applicable tax rate in the respective
jurisdiction. The corporate income tax rate
for 2016 in Slovenia was 17% (2015: 17%).
In accordance with the change of tax
legislation, the corporate income tax rate
from 2017 onwards will be 19%.
A tax on financial services, which imposes
a tax on fees paid for prescribed financial
services rendered, is paid in Slovenia.
The tax rate is 8.5% (2015: 8.5%) and the
tax is paid monthly. Given that the tax on
financial services is classified as a sales tax,
it reduces accrued revenues in the financial
statements.
Deferred income tax is calculated using
the balance sheet liability method for
temporary differences arising between the
tax bases of assets and liabilities and their
2.29. Fiduciary activities
NLB Group provides asset management
services to its clients. Assets held in a
fiduciary capacity are not reported in
NLB Group’s financial statements as they
NLB Group 2016 Annual Report 203
gains and losses from the effect of changes
in actuarial assumptions and experience
adjustments (differences between the
realised and expected payments) are
recognised in other comprehensive income
under the item ‘Actuarial Gains/(Losses)
on Defined Benefit pensions plans’ and will
not be recycled to the income statement.
NLB Group pays contributions to the state
pension schemes according to the local
legislation. NLB contributes 8.85% of gross
salaries. Once contributions have been
paid, NLB Group has no further obligation.
Contributions constitute costs in the period
to which they relate and are disclosed in
employee costs in the income statement.
do not represent assets of NLB Group.
Fee and commission income charged for
this type of service is broken down by
items in note 4.3.b. Further details on
transactions managed on behalf of third
parties are disclosed in note 5.25.
According to legislation, employees retire
after 35-40 years of service when, if they
fulfil certain conditions, they are entitled to
a lump-sum severance payment. Employees
are also entitled to a long-service bonus for
every 10 years of service in NLB
Based on the requirements of Slovenian
legislation, NLB Group has additionally
disclosed in note 5.25. assets and liabilities
on accounts used to manage financial assets
from fiduciary activities, i.e. information
related to the receipt, processing, and
execution of orders and related custody
activities.
2.30. Employee benefits
Employee benefits include jubilee
long-service benefits and retirement
indemnity bonuses. Provisions for employee
benefits are calculated by an independent
actuary. The main assumptions included in
the actuarial calculation are as follows:
These obligations are measured at the
present value of future cash outflows
considering future salary increases and
other conditions, and then apportioned to
past and future employee service based on
benefit plan terms and conditions.
Service costs are included in the income
statement in the item administrative
expenses as defined benefit costs, while
interest expenses on the defined benefit
liability are recognised in the item interest
and similar expenses. These interest
expenses represent the change during the
period in the defined benefit liability that
arises from the passage of time. Actuarial
Actuarial assumptions
Discount factor
Wage growth based on inflation, promotions and
wage growth based on past years of service
Other assumptions
NLB Group
2016
2015
0.8% - 6.0%
1.7% - 7.0%
1.6% - 4.0%
2.0% - 3.0%
NLB
2016
0.8%
2.5%
2015
1.7%
3.0%
Number of employees eligible for benefits
5,584
5,658
2,876
2,915
Sensitivity analysis of significant
actuarial assumptions
31.12.2016
Discount rate
Future salary increases
Discount rate
Future salary increases
Impact on employee benefits provisions -
post-employment benefits (in %)
(5.6)
6.1
6.1
(5.6)
(5.8)
6.3
6.2
(5.7)
+0.5 b.p.
-0.5 b.p.
+0.5 b.p.
-0.5 b.p.
+0.5 b.p.
-0.5 b.p.
+0.5 b.p.
-0.5 b.p.
NLB Group
NLB
NLB Group 2016 Annual Report
204
2.31. Share capital
2.33. Critical accounting estimates and
Stress testing for credit risk predicting the
Dividends on ordinary shares
judgments in applying accounting policies
impact of unfavourable macroeconomic
Dividends on ordinary shares are
recognised in equity in the period in which
they are approved by NLB’s shareholders.
Treasury shares
If NLB or another member of NLB Group
purchases NLB’s shares, the consideration
paid is deducted from total shareholders’
equity as treasury shares. If such shares
are subsequently sold, any consideration
received is included in equity. If NLB’s
shares are purchased by NLB itself or other
NLB Group entities, NLB creates reserves
for treasury shares in equity.
Share issue costs
Costs directly attributable to the issue of
new shares are recognised in equity as a
reduction in the share premium account.
2.32. Segment reporting
Operating segments report in a manner
consistent with internal reporting to the
Management Board which is the executive
body that makes decisions regarding the
allocation of resources and assesses the
performance of a specific segment.
All transactions between business segments
are conducted as part of the normal course
of business. Interest income is reallocated
between sub-segments of the Bank (NLB)
on the basis of multiple transfer prices
(fund transfer prices hereinafter: FTP).
The amount of net interest income arising
from transactions between segments is
disclosed in the item intersegment net
interest income. Net income from external
customers corresponds to the consolidated
net income of NLB Group. Income taxes
are not allocated to segments (note 8.a).
In accordance with IFRS 8, NLB Group
has the following reportable segments:
Corporate Banking in Slovenia, Retail
Banking in Slovenia, Financial Markets
in Slovenia, Foreign Strategic markets,
Non-strategic Markets and Activities, and
Other Activities.
NLB Group’s financial statements
are influenced by accounting policies,
assumptions, estimates and management’s
judgment. NLB Group makes estimates
and assumptions that affect the reported
amounts of assets and liabilities within
the next financial year. All estimates and
assumptions required in conformity with
the IFRS are best estimates undertaken in
accordance with the applicable standard.
Estimates and judgments are evaluated on
a continuing basis, and are based on past
experience and other factors, including
expectations with regard to future events.
a) Impairment losses on
loans and advances
NLB Group monitors and checks
the quality of the loan portfolio at
the individual and portfolio levels to
continuously estimate the necessary
impairments. NLB Group creates
individual impairments for individually
significant financial assets where objective
evidence of impairment exists. Such
evidence is based on information regarding
the fulfilment of contractual obligations
or other financial difficulties of the debtor
and other important facts defined in note
2.13. Individual assessments are based on
the expected discounted cash flows from
operations and/or the assessed expected
payment from collateral, as verified by the
Credit Analyses and Control Division.
Impairments are assessed collectively for
financial assets for which no objective
evidence of impairment exists, or for
financial assets with lower exposure
amounts. The future cash flows in this
group of assets are estimated on the basis
of past experience and losses from assets
with a similar credit risk as the assets in the
group. The methodology and assumptions
used to estimate future cash flows are
reviewed regularly in order to make loss
estimations as realistic as possible.
conditions on default and loss rates
Stress testing is structured to take into
account a probable scenario and a stress
scenario in the testing of each stress
situation. It is assumed that the risk in the
probable scenario is covered by regulatory
capital, while the stress scenario assumes a
deteriorating stress exceeding expectations.
The stress scenario predicts a slowdown
of economic conditions, which results in
an increase of the default rate (DR), as
well as the loss rate (LR). Based on the
historic experience the connection between
the macroeconomic factors and the risk
factors is assessed and benchmarks are
applied to the existing exposures to assess
the additional impairments and provisions
required to cover the risk. For the purpose
of ICAAP the scenario predicts two levels
of severity consequently, we have results for
the Baseline and Adverse scenario.
The difference between the two scenarios
is the amount of additionally required
impairments that must be created by the
Bank in the event of their realisation.
The assumption in these scenarios is that
exposure does not change over one year.
The results of the stress scenario for
NLB Group shows an increase of
impairments of EUR 84.2 million (2015:
EUR 90.4 million) and an increase in
the coverage of the credit portfolio by
impairments by 1.01 percentage points
(2015: 1.03 percentage points).
The methodology for this stress scenario
is referring to the ICAAP methodological
approach, which was renewed in 2016
accordingly NLB Group adjusted the
comparative amounts for 2015.
b) Fair value of financial instruments
The fair values of financial investments
traded on the active market are based on
current bid prices (financial assets) or offer
prices (financial liabilities).
NLB Group 2016 Annual Report The fair values of financial instruments
that are not traded on the active market
are determined by using valuation models.
These include a comparison with recent
transaction prices, the use of a discounted
cash flow model, valuation based on
comparable entities, and other frequently
used valuation models. These valuation
models pretty much reflect current
market conditions at the measurement
date, which may not be representative of
market conditions either before or after the
measurement date. Management reviewed
all applied models as at the reporting date
to ensure they appropriately reflect current
market conditions, including the relative
liquidity of the market and applied credit
spread. Changes in assumptions regarding
these factors could affect the reported fair
values of financial instruments held for
trading and available-for-sale financial
assets.
The fair values of derivative financial
instruments are determined on the
basis of market data (mark-to-market),
in accordance with NLB Group’s
methodology for the valuation of derivative
financial instruments. The market exchange
rates, interest rates, yield, and volatility
curves used in valuation are based on the
market snapshot principle. Market data are
saved daily at 4 p.m. and later used for the
calculation of the fair values (market value,
NPV) of financial instruments. NLB Group
applies market yield curves for valuation,
and fair values are additionally adjusted for
credit risk of the counterparty.
The fair value hierarchy of financial
instruments is disclosed in note 7.6.
c) Available-for-sale equity instruments
Available-for-sale equity instruments are
impaired if there has been a significant or
prolonged decline in their fair value below
historical cost. The determination of what
is significant or prolonged is based on
assessments. In making these assessments,
NLB Group takes several factors into
account, including share price volatility.
Impairment may also be indicated by
evidence regarding deterioration in the
financial position of the instrument issuer,
deterioration in sector performance,
changes in technology, and a decline in
cash flows from operating and financing
activities.
If all the declines in fair value below
cost had been considered significant
or prolonged, NLB Group would have
incurred additional impairment losses
of EUR 257 thousand (2015: EUR 221
thousand) from the reclassification of the
negative valuation from the statement
of comprehensive income to the income
statement for the current year, while NLB
would not have additional impairment
losses in 2016 (2015: EUR 15 thousand).
d) Held-to-maturity financial assets
NLB Group classifies non-derivative
financial assets with fixed or determinable
payments and a fixed maturity as
held-to-maturity financial assets. Before
making this classification, NLB Group
assesses its intention and ability to
hold such investments to maturity. If
NLB Group is unable to hold these
investments until maturity, it must reclassify
the entire group as available-for-sale
financial assets. The investments would
therefore be measured at fair value,
resulting in an increase in the value of
investments of EUR 59,895 thousand
(31 December 2015: an increase by
EUR 59,442 thousand) and corresponding
other comprehensive income.
e) Impairment of investments in
subsidiaries, associates, and joint ventures
The process of identifying and assessing
the impairment of goodwill and other
intangible assets is inherently uncertain,
as the forecasting of cash flows requires
the significant use of estimates, which
themselves are sensitive to the assumptions
used. The review of impairment represents
management’s best estimate of the facts
and assumptions such as:
205
• Future cash flows from individual
investments present the estimated cash
flow for periods for which adopted
plans are available. For core members,
estimated cash flows are based on a
five-year business plan. For non-core
members, estimated cash flows are
based on a period in line with the
strategy of divestment. The business
plans of individual entities are based
on an assessment of future economic
conditions that will impact an individual
member’s business and the quality of the
credit portfolio.
• The growth rate in cash flows for the
period following the adopted business
plan is between 1 and 1.5%.
• A target capital adequacy ratio of an
individual bank is between 13 and 17%.
• The discount rate derived from the
capital asset pricing model and that is
used to discount future cash flows is
based on the cost of equity allocated to
an individual investment. The discount
rate reflects the impact of a range
of financial and economic variables,
including the risk-free rate and risk
premium. The value of variables
used is subject to fluctuations outside
management’s control. A pre-tax
discount rate is between 9.52 and
18.78% (31 December 2015: between
10.31 and 18.94%).
For strategic NLB Group members in 2016
and 2015 there were no indications of
impairment for equity investments.
In 2016, NLB impaired equity investments
in non-core members which are in the
process of divestment in the amount of
EUR 37.65 million – of which EUR 26.13
million refers to the immediate impairment
of recapitalisation to cover the operating
losses and EUR 11.52 million refers
to impairments on the basis of the net
present value of the future cash flows. If
the discount rate in the discounted cash
flows model differs by +/- 1 percentage
point, the net present value in use of the
equity investments would be lower in the
NLB Group 2016 Annual Report 206
case of the increased discount rate by a
maximum of EUR 0.6 million. In the case
of a decreased discount rate the net present
value in use of equity investments would
be higher by a maximum of EUR 0.6
million. If the forecasted cash flows in
the discounted cash flows model differ by
+/- 10%, the estimated value in use of the
equity investments would be higher in the
case of increased forecasted cash flows by
a maximum of EUR 2.4 million. In the
case of decreased forecasted cash flows, the
value in use of equity investments would be
lower by a maximum of EUR 2.4 million.
f) Goodwill
In the consolidated financial statements
goodwill is allocated to cash-generating
units (hereinafter: CGUs), which represent
the lowest level within NLB Group at which
these assets are monitored by management.
Each NLB Group entity presents a
separate CGU. The recoverable amount
of each CGU was determined based on
value-in-use calculations.
NLB Group performed a test for the
impairment of goodwill at the end of
the year for all subsidiaries. The review
of the impairment of goodwill is based
on the same facts and assumptions as the
review of impairment of investments in
subsidiaries, associates, and joint ventures
(note 2.33.e).
g) Taxes
NLB Group operates in countries
governed by different laws. The deferred
tax assets recognised as at 31 December
2016 are based on profit forecasts and
take the expected manner of recovery of
the assets into account, i.e. whether the
value will be recovered through use, sale,
or liquidation. Changes in assumptions
regarding the likely manner of recovering
assets could lead to the recognition of
currently unrecognised deferred tax assets
or derecognition of previously created
deferred tax assets. NLB Group will adjust
deferred tax assets accordingly in the event
of changes to assumptions regarding future
operations (notes 4.14. and 5.18.).
h) Classification of issued financial
instruments as debt or equity
NLB Group issues non-derivative financial
instruments where a specific judgment
is required to determine whether these
instruments are classified as a liability or as
equity. When the delivery of cash depends
on the outcome of uncertain future events
that are beyond the control of NLB Group,
and management anticipates that these
future events are extremely rare, highly
abnormal, and unlikely to occur, these
instruments are classified as equity.
2.34. Implementation of the
new and revised International
Financial Reporting Standards
During the current year, NLB Group
adopted all new and revised standards and
interpretations issued by the International
Accounting Standards Board (hereinafter:
the IASB) and the International Financial
Reporting Interpretations Committee
(hereinafter: the IFRIC), and that are
endorsed by the EU that are effective for
annual accounting periods beginning on
1 January 2016.
Accounting standards and amendments
to existing standards effective for
annual periods beginning on 1
January 2016 that were endorsed by
the EU and adopted by NLB Group
• IAS 19 (amendment) – Employee
Benefits (effective for annual periods
beginning on or after 1 February 2015).
The amendment applies to contributions
from employees or third parties to
defined benefit plans. The objective
of the amendment is to simplify the
accounting for contributions that are
independent of the number of years of
employee service. The amendment does
not have an impact on NLB Group’s
consolidated financial statements.
• Annual Improvements to IFRSs
2010–2012 Cycle. The improvements
are comprised of a mixture of
substantive changes and clarifications,
and are effective for annual periods
beginning on or after 1 February
2015. The amendment to IFRS 2 –
Share-based Payment includes the
definitions of vesting conditions and
market conditions, and adds definitions
for performance conditions and service
conditions. The amendment to IFRS
3 – Business Combinations clarifies that
a contingent consideration classified as
an asset or liability shall be measured
at fair value through profit and loss,
irrespective of whether the contingent
consideration is a financial instrument
within the scope of IAS 39 and IFRS
9 or not. The amendment to IFRS
8 – Operating Segments requires
the disclosure of judgments made by
management in applying aggregation
criteria to operating segments, and
also a reconciliation of the total of
the reportable segments’ assets if the
segment assets are reported regularly
to the chief operating decision-maker.
The amendment to IAS 16 – Property,
Plant, and Equipment, and IAS 38 –
Intangible Assets clarifies that when an
item of property, plant, and equipment
or an intangible asset is revaluated,
the gross carrying amount is adjusted
in a manner that is consistent with the
revaluation of the carrying amount.
The amendment to IAS 24 – Related
Party Disclosures clarifies that an
entity providing key management
personnel services to the reporting
entity is a related party of the reporting
entity. The amendments do not have
a significant impact on NLB Group’s
consolidated financial statements.
• Annual Improvements to IFRSs
2012–2014 Cycle. The improvements
comprise a mixture of substantive
changes and clarifications, and are
effective for annual periods beginning on
or after 1 January 2016. The amendment
to IFRS 5 Non-current Assets Held
for Sale and Discontinued Operations
NLB Group 2016 Annual Report 207
clarifies that when the asset or disposal
group is reclassified from ‘held for
sale’ to ‘held for distribution,’ or vice
versa, the change of the original
plan of disposal or distribution is not
needed. The amendments to IFRS
7 Financial Instruments: Disclosures
clarify whether a servicing contract for
a transferred financial asset leads to
continuing involvement, and remove
the requirement of disclosing offsetting
financial assets and liabilities in
condensed interim financial statements.
The amendment to IAS 19 Employee
Benefits requires usage of market
yields on government bonds for the
discount rate for a post-employment
benefit obligation in currency in
which the post-employment benefit
obligation is denominated, if for the
currency there is no deep market
of highly quality corporate bonds.
The amendment to IAS 34 Interim
financial reporting clarifies that interim
disclosures must be included in interim
financial statements or cross-referenced
between interim financial statements
and other parts of interim reports
(management commentary or risk
report). The amendments do not have
a significant impact on NLB Group’s
consolidated financial statements.
• IAS 27 (amendment) - Equity Method
in Separate Financial Statements
is effective from annual periods
beginning on or after 1 January 2016.
The amendments include the option for
an entity to account for its investments
in subsidiaries, joint ventures, and
associates using the equity method
in its separate financial statements.
The amendment does not have an
impact on NLB Group’s consolidated
financial statements.
• IAS 16 and IAS 38 (amendment) –
Clarification of Acceptable Methods
of Depreciation and Amortisation
is effective from annual periods
beginning on or after 1 January
2016. The amendment clarifies that
a revenue-based method should not
generally be used as a basis for the
depreciation of property, plant, and
equipment, and may only be used in
very limited circumstances to amortise
intangible assets. The amendment does
not have an impact on NLB Group’s
consolidated financial statements.
• IFRS 11 (amendment) – Accounting
for Acquisition of Interests in Joint
Operations is effective from annual
periods beginning on or after 1 January
2016. The amendment requires that
a joint operator accounting for the
acquisition of an interest in a joint
operation, in which the activity of the
joint operation constitutes a business,
must apply the relevant IFRS 3
principles for business combinations
accounting. The amendments also clarify
that a previously held interest in a joint
operation is not re-measured upon the
acquisition of an additional interest
in the same joint operation while joint
control is retained. The amendment does
not have an impact on NLB Group’s
consolidated financial statements.
• IFRS 10, IFRS 12, and IAS 28
(amendment) - Investment Entities:
Applying the Consolidation Exception
is effective from annual periods
beginning on or after 1 January 2016.
The amendments address issues arising
in practice in the application of the
investment entities consolidation
exception. The amendments clarify
that the exemption from presenting
consolidated financial statements
applies to a parent entity that is a
subsidiary of an investment entity,
when the investment entity measures
all of its subsidiaries at fair value.
The amendments also clarify that only
a subsidiary that is not an investment
entity itself and provides support services
to the investment entity is consolidated.
All other subsidiaries of an investment
entity are measured at fair value.
The amendments allow the investor,
when applying the equity method,
to retain the fair value measurement
applied by the investment entity
associate or joint venture to its interests
in subsidiaries. The amendments do
not have an impact on NLB Group’s
consolidated financial statements.
• IAS 1 (amendment) - Disclosure
Accounting standards and
Initiative is effective from annual periods
beginning on or after 1 January 2016.
The amendments further encourage
companies to apply professional
judgment in determining what
information to disclose and how to
structure it in their financial statements.
The narrow-focus amendments to
IAS clarify, rather than significantly
change, the existing IAS 1 requirements.
The amendments relate to materiality,
order of the notes, subtotals and
disaggregation, accounting policies,
and presentation of items of other
comprehensive income arising
from equity accounted Investments.
The amendments do not have
significant impact on the presentation
of NLB Group’s consolidated financial
statements.
amendments to existing standards
that were endorsed by the EU, but
not adopted early by NLB Group
• IFRS 9 Financial Instruments
In July 2014, the IASB issued IFRS 9
Financial Instruments to replace IAS
39 Financial Instruments: Recognition
and Measurement. IFRS 9 introduces a
new approach to financial instruments
classification and measurement, a new
more forward-looking expected loss
model, and amends the requirements for
hedge accounting. IFRS 9 is mandatorily
effective for annual periods beginning
on or after 1 January 2018 with early
application permitted. NLB and
NLB Group will apply the new standard
on 1 January 2018.
NLB Group 2016 Annual Report 208
Classification and measurement
of financial instruments
From a classification and measurement
perspective, the new standard will require
all debt financial assets to be assessed
based on a combination of the Group’s
business model for managing the assets
and the instruments’ contractual cash flow
characteristics. The IAS 39 measurement
categories will be replaced by:
• fair value through profit or loss (FVPL),
• fair value through other comprehensive
income (FVOCI),
• amortised cost, and
• financial instruments designated as FVPL
Equity instruments that are not held for
trading may be irrevocably designated as
FVOCI, with no subsequent reclassification
of gains or losses to the income statement.
The accounting for financial liabilities will
be the same as the requirements of IAS 39,
except for the treatment of gains or losses
arising from an entity’s own credit risk
relating to liabilities designated at FVPL.
Having completed the initial assessment
of business model and cash flow
characteristics test, NLB and NLB Group
assess the following:
• the majority of loans and advances to
banks and customers that are classified
as loans and receivables under IAS
39 are expected to be measured at the
amortised cost under IFRS 9,
• financial assets held for trading and
financial assets designated as FVPL are
expected to continue to be measured at
FVPL,
• debt securities classified as available
for sale under IAS 39 are expected to
be measured at the amortised cost or
FVOCI and
• debt securities classified as held to
maturity are expected to continue to be
measured at the amortised cost.
Hedge accounting
IFRS 9 allows entities to continue with
the hedge accounting under IAS 39 even
when other elements of IFRS 9 become
mandatory on 1 January 2018. Based
on performed analysis, NLB Group
has decided to continue to apply hedge
accounting under IAS 39.
Impairment of financial instruments
IFRS 9 requires the movement from an
incurred loss in model to an expected loss
model, requiring NLB Group to recognise
not only credit losses that have already
occurred, but also losses that are expected
to occur in the future. An allowance for
expected credit losses (ECL) is required
for all loans and other debt financial assets
not held at FVPL, together with loan
commitments and financial guarantee
contracts.
The allowance is based on the expected
credit losses associated with the probability
of default in the next 12 months unless
there has been a significant increase in
credit risk since initial recognition, in
which case, the allowance is based on the
probability of default over the life of the
financial asset (LECL). When determining
whether the risk of default increased
significantly since initial recognition,
the Group considers reasonable and
supportable information that is relevant
and available without undue cost or
effort. This includes both quantitative
and qualitative information and analysis,
based on the Group’s historical data,
experience, and expert credit assessment
and incorporation of forward-looking
information.
Classification into stages
NLB Group prepared a methodology for
ECL defining the criteria for classification
into stages, transition criteria between
stages, risk indicators calculation, and
validation of models. The Group will
classify financial instruments into stage 1,
stage 2, and stage 3, based on the applied
impairment methodology as described
below:
• stage 1 – performing portfolio: no
significant increase of credit risk since
initial recognition, Group recognises an
allowance based on 12-month ECL,
• stage 2 – underperforming portfolio:
significant increase in credit risk since
initial recognition, Group records an
allowance for LECL, and
• stage 3 – impaired portfolio: Group
recognises LECL for these financial
instruments.
A significant increase in credit risk is
assumed:
• when a credit rating decreases at the
reporting date, in comparison to the
credit rating at initial recognition,
• when a financial asset has material delays
over 30 days (days-past due are also
included in credit rating assessment),
• if NLB and NLB Group expects to grant
the borrower forbearance or
• if the facility is placed on the watch list.
ECL for stage 1 financial instruments is
calculated on the basis of 12-month PDs
or shorter period PDs, if the maturity
of the financial asset is shorter than 1
year. The 12-month PD already includes
macroeconomic impact effect. Impairment
losses in stage 1 are designed to reflect
impairment losses that had been incurred
in the performing portfolio, but have not
been identified.
LECL for stage 2 financial instruments
is calculated on the basis of lifetime
PDs (LPD) because their credit risk has
increased significantly since their initial
recognition. This calculation is also
based on forward-looking assessment that
takes into account number of economic
scenarios in order to recognise the
probability or losses associated with the
predicted macro-economic forecasts.
For financial instruments in stage 3 the
same treatment as those considered to be
credit impaired in accordance with IAS 39
is expected. Financial instruments will be
transferred out of stage 3 if they no longer
meet the criteria of credit-impaired after a
probation period. Special treatment applies
NLB Group 2016 Annual Report for purchased or originated credit-impaired
financial instruments (POCI), where only
the cumulative changes in the lifetime
expected losses since initial recognition will
be recognised a loss allowance.
Interest income recognition
Interest income on financial assets in stage
1 and stage 2 are recognised on a gross
basis (amortised costs before allowance),
whereas interest income for financial assets
in stage 3 are recognised on amortised costs
net of allowances.
Forward looking information
The Group will incorporate
forward-looking information in both
the assessment of significant increase in
credit risk and the measurement of ECL.
The Group considers forward-looking
information such as macroeconomic
factors (e.g., unemployment rate, GDP
growth, interest rates, and housing prices)
and economic forecasts. The baseline
scenario represents the more likely outcome
resulting from the Group’s normal financial
planning and budgeting process, while the
better and worse case scenarios represent
more optimistic or pessimistic outcomes
(similar as by ICAAP).
Recalculation of all parameters is
performed annually or more frequently, if
the macro environment changes more than
it was incorporated in previous forecasts,
in such a case all the parameters are
recalculated according to new forecasts.
Implementation strategy
and progress update
Taking into account the dimensions of the
IFRS 9 requirements and its impact on the
overall banking system, implementation
of the standard is organised as a project
on the level of NLB Group. The project
is divided into sub-projects with clear
work streams for classification and
measurement of financial instruments,
impairment of financial instruments, and
disclosures. Sub-projects for classification
and measurement are run by Financial
Accounting, while the impairment is
run by Global Risk. Other relevant
departments are involved in a supporting
role. The Project is sponsored by the Chief
Financial and Risk officers. A project
Steering Committee has been nominated
for internal monitoring of progress in the
implementation and adoption of relevant
decisions, meeting on at least a quarterly
basis.
Gap analysis in current methodologies,
processes, accounting and business policies,
IT systems, and identified disclosure
requirements are completed. Currently,
NLB Group is in the implementation
phase. In second half of the year 2017
NLB Group will finish the implementation
phase, testing and parallel run. This
includes accounting and business policies
for classification and measurement of
financial instruments, recognition of
expected credit losses, disclosures, and
reporting.
• IFRS 15 (new standard) – Revenue from
Contracts with Customers is effective
from annual periods beginning on or
after 1 January 2018. IFRS 15 replaces
all existing revenue requirements
in the IFRS (IAS 11 Construction
Contracts, IAS 18 Revenue, IFRIC 13
Customer Loyalty Programmes, IFRIC
15 Agreements for the Construction
of Real Estate, IFRIC 18 Transfers
of Assets from Customers, and SIC
31 Revenue – Barter Transactions
Involving Advertising Services) and
applies to all revenue arising from
contracts with customers. The standard
specifies the principles an entity must
apply to measure and recognise revenue.
The core principle is that an entity will
recognise revenue at an amount that
reflects the consideration to which the
entity expects to be entitled in exchange
for transferring goods or services to a
customer. NLB Group does not expect
a material impact on its consolidated
financial statements.
209
Accounting standards and
amendments to existing standards,
but not endorsed by the EU
• IFRS 14 (new standard) - Regulatory
Deferral Accounts is an optional
standard, effective for annual periods
beginning on or after 1 January 2016.
The European Commission has decided
not to launch the endorsement process
of this interim standard and to wait
for the final standard. The standard
allows an entity whose activities are
subject to rate-regulation to continue
applying most of its existing accounting
policies for regulatory deferral account
balances upon its first-time adoption
of IFRS. Existing IFRS preparers are
prohibited from adopting this standard.
The amendment does not have an
impact on NLB Group’s consolidated
financial statements.
• IFRS 16 (new standard) – Leases is
effective from annual periods beginning
on or after 1 January 2019. IFRS
16 replaces the old lease accounting
Standard IAS 17 Leases. IFRS 16 sets
out the principles for the recognition,
measurement, presentation and
disclosure of leases, and requires lessees
to account for all leases under a single
on-balance sheet model similar to the
accounting for finance leases under
IAS 17. The standard includes two
recognition exemptions for lessees
– leases of ’low-value’ assets and
short-term leases. At the commencement
date of a lease, a lessee will recognise
a liability to make lease payments, and
an asset representing the right to use
the underlying asset during the lease.
The term ‘Lessor Accounting’ under
IFRS 16 is substantially unchanged
from today’s accounting under IAS 17.
NLB Group is evaluating the impact
of the standard on NLB Group’s
consolidated financial statements.
• IFRS 10 and IAS 28 (amendment) –
The IASB has deferred the effective
dates of Sale or Contribution of Assets
NLB Group 2016 Annual Report 210
between an Investor and its Associate or
Joint Venture amendments indefinitely.
The amendments address a conflict
between the requirements of IFRS 10
Consolidated financial statements and
IAS 28 Investments in associates and
joint ventures. The main consequence of
the amendments is that a full gain or loss
is recognised when a transaction involves
a business (whether it is housed in a
subsidiary or not). A partial gain or loss
is recognised when a transaction involves
assets that do not constitute a business,
even if these assets are housed in a
subsidiary. NLB Group does not expect
an impact on its consolidated financial
statements.
• IAS 12 (amendment) – Recognition
of Deferred Tax Assets for Unrealised
Losses is effective from annual periods
beginning on or after 1 January 2017.
The amendments clarify that an entity
needs to consider whether tax law
restricts the sources of taxable profits
against which it may make deductions
on the reversal of that deductible
temporary difference. Furthermore, the
amendments provide guidance on how
an entity should determine future taxable
profits and explain the circumstances
in which taxable profit may include the
recovery of some assets for more than
their carrying amount. NLB Group does
not expect an impact on its consolidated
financial statements.
• IAS 7 (amendment) – Disclosure
Initiative - the amendment to IAS 7
Statement of Cash Flows is effective
from annual periods beginning on or
after 1 January 2017. The amendments
require companies to provide
information about changes in their
financing activities, including changes
from cash flows and non-cash changes
(such us foreign exchange gains or
losses). The amendments will impact
the presentation of NLB Group’s
consolidated financial statements.
• IFRS 15 (amendment) – Clarifications
to Revenue from Contracts with
Customers are effective from annual
periods beginning on or after 1 January
2018. The amendments to the Revenue
Standard do not change the underlying
principles of the Standard, but clarify
how those principles should be applied.
They also clarify how to identify a
performance obligation in a contract,
determine whether a company is a
principal, and determine whether the
revenue from granting a licence should
be recognised at a point in time or over
time. In addition to the clarifications,
the amendments include two additional
reliefs to reduce cost and complexity for
a company when it first applies the new
Standard. NLB Group does not expect
a material impact on its consolidated
financial statements.
• IFRS 2 (amendment) – Classification and
Measurement of Share-based Payment
Transactions is effective from annual
periods beginning on or after 1 January
2018. The amendments clarify how to
account for certain types of share-based
payment transactions. They provide
requirements that address three main
areas: the accounting for the effects of
vesting and non-vesting conditions on the
measurement of cash-settled share-based
payments, the classification of
share-based payment transactions with
a net settlement feature for withholding
tax obligations, and accounting where a
modification to the terms and conditions
of a share-based payment transactions
changes its classification from cash-settled
to equity-settled. NLB Group does not
have share-based payments transactions.
• IFRS 4 (amendment) – Applying IFRS
9 Financial Instruments with IFRS 4
Insurance Contracts is effective from
annual periods beginning on or after
1 January 2018. The amendments
address concerns arising from
implementing the new financial
instruments Standard, IFRS 9, before
implementing the new replacement
Standard IFRS 4. The amendments
introduce two approaches: an overlay
approach and a temporary exemption
from applying IFRS 9. NLB Group does
not expect an impact on its consolidated
financial statements.
• Annual Improvements to IFRSs
2014–2016 Cycle. The improvements
are minor amendments that clarify,
correct, or remove redundant wording
in a Standards. The amendments refer
to three Standards: IFRS 12 Disclosure
of Interests in Other Entities effective
from annual periods beginning on
or after 1 January 2017, and IFRS 1
First-time Adoption of International
Financial Reporting Standards and IAS
28 Investments in Associates and Joint
Ventures effective from annual periods
beginning on or after 1 January 2018.
• IFRIC Interpretation 22 Foreign
Currency Transactions and Advance
Consideration is effective from annual
periods beginning on or after 1 January
2018. The interpretation addresses the
exchange rate to use in transactions that
involve advance consideration paid or
received in a foreign currency. It covers
foreign currency transactions when an
entity recognises a non-monetary asset
or non-monetary liability arising from
the payment or receipt of advance
consideration before the entity recognises
the related asset, expense, or income. It
does not apply when an entity measures
the related asset, expense, or income
on initial recognition at fair value.
NLB Group is evaluating the impact
of the amendments on NLB Group’s
consolidated financial statements.
• IAS 40 (amendment) – Transfers of
Investment Property is effective from
annual periods beginning on or after
1 January 2018. The amendments
clarify the requirements on transfers
to, or from, investment property. An
entity shall transfer a property to,
NLB Group 2016 Annual Report or from, investment property when,
and only when, there is evidence of a
change in use. A change of use occurs
if property meets, or ceases to meet, the
definition of ‘investment property.’ A
change in management’s intentions for
the use of a property by itself does not
constitute evidence of a change in use.
NLB Group is evaluating the impact
of the amendments on NLB Group’s
consolidated financial statements.
3. Changes in subsidiary holdings
Changes in 2016
Capital changes:
• An increase in share capital in the form
of cash contributions in the amount of
EUR 2,503 thousand in SR-RE d.o.o.,
Beograd; REAM d.o.o., Podgorica;
and REAM d.o.o., Beograd due to an
increase of business operations.
• An increase in share capital in the form
of cash contributions in the amount of
EUR 13,050 thousand in NLB Leasing
Podgorica, Podgorica; NLB Lizing,
Skopje; and Prvi Faktor, Ljubljana to
ensure capital adequacy until the end of
liquidation.
• An increase in share capital in the form
of a loan conversion in the amount of
EUR 1,719 thousand in NLB Leasing,
Beograd to ensure capital adequacy until
the end of liquidation.
• An increase in share capital in the form
of cash contributions in the amount of
EUR 7,004 thousand in NLB Leasing,
Ljubljana to cover the loss from selling
the portfolio of non-performing loans
(“Project Pine”), and in the amount of
EUR 7,000 thousand to ensure capital
adequacy until the end of liquidation in
Optima Leasing, Zagreb.
211
Other changes:
Other changes:
• REAM d.o.o., Zagreb; REAM d.o.o.,
Beograd; REAM d.o.o., Podgorica;
PRO-Avenija d.o.o., Ljubljana; and
SR-RE d.o.o., Beograd were established
and will manage certain real estate in
NLB Group. NLB’s ownership is 100%.
• LHB Trade d.o.o., Zagreb was liquidated
in accordance with a court order, and the
company was removed from the court
register.
• NLB Group became a 100% owner
of Tara Hotel d.o.o., Budva upon
realisation of the collateral.
• NLB Banka, Beograd sold its 100%
ownership in Convest d.o.o., Novi Sad.
• FIN-DO d.o.o., Domžale and
PRO-Avenija d.o.o., Ljubljana are
merged with PRO-REM d.o.o.,
Ljubljana. The merger was formally
registered on 1 July 2016, with the
accounting date of merger as at
31 December 2015.
• BH-RE d.o.o., Sarajevo was
established and will manage certain
real estate in NLB Group. PRO-REM
d.o.o., Ljubljana’s ownership is 100%.
• Kreditni biro SISBON d.o.o., Ljubljana;
Optima Leasing, Zagreb; NLB
Leasing, Beograd; NLB Lizing, Skopje;
PRO-REM, Ljubljana; OL Nekretnine,
Zagreb; NLB Leasing Podgorica,
Podgorica; and NLB Interfinanz Zürich
are formally in liquidation; and also NLB
Propria, Ljubljana from 1 January 2017.
• Prvi faktor, Skopje and NLB Leasing
Sofia were liquidated. In accordance
with a court order, the companies were
removed from the court register.
Changes in 2015
Capital changes:
• An increase in share capital in the form
of cash contributions in the amount of
EUR 7,669 thousand in NLB Banka,
Sarajevo due to stricter regulatory
requirements for capital adequacy.
Ownership interest increased from
96.30% to 97.34%.
• On the basis of an option contract,
NLB acquired shares of NLB Banka,
Podgorica and thereby increased its
ownership from 98.00% to 99.36%.
The increase in the capital investment
was recognised in the amount of
EUR 364 thousand. NLB has no voting
rights regarding the newly acquired
shares.
• NLB Leasing, Ljubljana increased its
ownership interest in Optima Leasing,
Zagreb from 99.97% to 100%.
Consideration was paid in the amount
of EUR 40 thousand.
NLB Group 2016 Annual Report 212
4. Notes to the income statement
4.1. Interest income and expenses
Analysis by type of assets and liabilities
Interest and similar income
Loans and advances to customers
Available-for-sale financial assets
Held-to-maturity financial assets
Financial assets held for trading
Loans and advances to banks and central banks
Derivatives - hedge accounting
Deposits with banks and central banks
Other assets
Total
Interest and similar expenses
Due to customers
Debt securities in issue
Financial liabilities held for trading
Derivatives - hedge accounting
Borrowings from banks and central banks
Borrowings from other customers
Subordinated liabilities
Negative interest from deposits with banks and central banks
Provisions for defined employee benefits (note 2.30. and 5.17.c)
Deposits from banks and central banks
Other financial liabilities
Total
Net interest
NLB Group
NLB
in EUR thousand
2016
2015
2016
2015
327,055
372,604
166,718
211,250
31,426
17,997
9,180
1,249
831
755
1
33,232
21,656
11,663
1,302
1,487
1,215
44
17,881
17,997
9,273
2,407
831
442
1
19,692
21,656
11,792
2,437
1,487
642
44
388,494
443,203
215,550
269,000
40,797
9,376
5,923
5,688
3,699
1,857
1,840
1,429
357
75
148
65,425
10,454
8,420
5,952
7,501
2,271
1,548
381
751
105
193
15,281
9,376
5,923
5,688
2,713
10
-
1,307
205
70
99
29,426
10,454
8,420
5,952
5,546
109
-
361
550
39
136
71,189
103,001
40,672
60,993
317,305
340,202
174,878
208,007
In 2016, interest income on individually impaired loans amounted to EUR 31,059 thousand (2015: EUR 47,853 thousand) for NLB Group,
and to EUR 15,940 thousand for NLB (2015: EUR 28,783 thousand).
4.2. Dividend income
Available-for-sale financial assets
Total
NLB Group
2016
1,238
1,238
2015
1,346
1,346
in EUR thousand
2015
1,264
1,264
NLB
2016
1,144
1,144
NLB Group 2016 Annual Report
4.3. Fee and commission income and expenses
a) Fee and commission income and expenses relating to activities of NLB Group and NLB
213
Fee and commission income
Fee and commission income relating to financial instruments
not at fair value through profit or loss
Credit cards and ATMs
Customer transaction accounts
Other fee and commission income
Payments
Investment funds
Guarantees
Agency of insurance products
Other services
Total
Fee and commission expenses
Fee and commission expenses relating to financial instruments
not at fair value through profit or loss
Credit cards and ATMs
Other fee and commission expenses
Payments
Insurance for holders of personal accounts and golden cards
Investment banking
Guarantees
Other services
Total
Net activity fee and commission income
NLB Group
NLB
in EUR thousand
2016
2015
2016
2015
55,798
39,878
54,987
13,831
12,225
3,321
6,008
59,427
39,668
54,274
13,534
13,322
2,873
5,501
37,568
31,015
44,139
31,638
28,149
28,278
3,615
8,250
3,302
4,399
4,235
8,687
2,873
3,187
186,048
188,599
116,298
123,037
34,539
35,415
21,430
24,457
5,363
2,108
1,018
354
3,038
46,420
139,628
4,970
1,757
941
592
2,545
46,220
142,379
775
1,427
279
290
1,361
25,562
90,736
788
1,449
263
541
1,020
28,518
94,519
Income from other services includes income from servicing of non-performing loans sold in Project Pine in the amount of EUR 1,543
thousand, income from deposit valuables, administrative services and safe custody, and other agency services.
NLB Group 2016 Annual Report
214
b) Fee and commission income and expenses relating to fiduciary activities
Fee and commission income related to fiduciary activities
Receipt, processing, and execution of orders
Management of financial instruments portfolio
Initial or subsequent underwriting and/or placing of financial
instruments without a firm commitment basis
Custody and similar services
Management of clients’ account of non-materialised securities
Safe-keeping of clients’ financial instruments
Advice to companies on capital structure, business strategy, and related matters,
advice, and services relating to mergers and acquisitions of companies
NLB Group
NLB
in EUR thousand
2016
2015
2016
2015
1,250
1,502
184
4,190
549
-
648
781
1,527
444
3,791
553
5
10
1,231
-
184
4,104
549
-
648
859
-
444
4,003
553
-
-
Total
8,323
7,111
6,716
5,859
Fee and commission expenses related to fiduciary activities
Fee and commission related to Central Securities Clearing
Corporation and similar organisations
Fee and commission related to stock exchange and similar organisations
Total
Net fee income related to fiduciary activities
Total fee and commission income
Total fee and commission expenses
Total a) and b)
2,241
45
2,286
6,037
194,371
48,706
145,665
2,368
52
2,420
4,691
195,710
48,640
147,070
2,121
45
2,166
4,550
123,014
27,728
95,286
2,267
43
2,310
3,549
128,896
30,828
98,068
4.4. Gains less losses from financial assets and liabilities not classified at fair value through profit or loss
Available-for-sale financial assets
- gains
- losses
Financial liabilities measured at amortised cost
- gains
- losses
Total
NLB Group
NLB
in EUR thousand
2016
2015
2016
2015
14,861
(33)
-
(40)
10,964
(125)
54
(234)
14,712
(33)
-
(40)
10,886
(21)
54
(234)
14,788
10,659
14,639
10,685
In April 2016, NLB Group successfully disinvested a non-strategic equity investment and realised a gain in the amount of EUR 4,803 thousand.
In June 2016 Visa Inc. completed its acquisition of Visa Europe to create a single global payments business under the Visa brand. In this
transaction, NLB Group realised a gain in the amount of EUR 7,753 thousand as a result of the disposal of its investment in Visa Europe
shares. This represents the difference between the cost of the Visa Europe shares derecognised and the fair value of the consideration received.
The latter comprises the received cash consideration, the present value of the deferred cash consideration receivable in year 2019, and fair
value of the received 2,246 preferred Visa Inc. Class C shares. At a future date and under certain conditions these shares are convertible into
Class A shares.
NLB Group 2016 Annual Report
4.5. Gains less losses from financial assets and liabilities held for trading
Equity instruments
- gains
- losses
Foreign exchange trading
- gains
- losses
Debt instruments
- gains
- losses
Derivatives
- currency
- interest rate
- cross currency interest rate
- securities
Total
4.6. Foreign exchange translation gains less losses
Financial assets and liabilities not classified as at fair value through profit or loss
Financial assets designated at fair value through profit or loss
Other
Total
215
NLB Group
NLB
in EUR thousand
2016
2015
2016
2015
26
(26)
23,023
(13,244)
4,474
(6,862)
506
(1,238)
(29)
291
-
(12)
34,009
(23,355)
2,008
(3,223)
(7,083)
(4,334)
(16,794)
(93)
6,921
(18,877)
26
(26)
15,767
(12,415)
4,474
(6,862)
288
(1,178)
(29)
291
336
-
(12)
25,935
(21,850)
2,005
(3,223)
(6,844)
(4,428)
(16,794)
(93)
(25,304)
NLB Group
NLB
in EUR thousand
2016
1,449
(246)
(45)
1,158
2015
11,153
752
(74)
11,831
2016
1,014
(246)
(30)
738
2015
22,579
753
(81)
23,251
NLB Group 2016 Annual Report
216
4.7. Other operating income
Income from non-banking services
- IT services
- cash transportation
- operating leases of movable property
- other
Rental income from investment property
Revaluation of investment property to fair value (note 5.10.)
Other operating income
Total
4.8. Other operating expenses
Deposit guarantee
Revaluation of investment property to fair value (note 5.10.)
Single Resolution Fund
Other taxes and compulsory public levies
Expenses related to issued service guarantees
Membership fees and similar fees
Other operating expenses
Total
NLB Group
NLB
in EUR thousand
2016
14,552
5,208
3,608
3,132
2,604
5,942
155
3,793
2015
15,657
6,013
3,823
3,477
2,344
6,399
1,342
3,931
24,442
27,329
2016
9,911
5,208
3,608
484
611
260
22
2,074
12,267
2015
11,061
6,013
3,823
508
717
86
171
1,916
13,234
NLB Group
NLB
in EUR thousand
2016
13,134
8,067
3,894
3,055
1,728
889
2,437
2015
8,259
8,262
4,340
2,327
6,376
1,397
4,122
2016
4,567
484
3,894
1,026
1,728
317
1,160
2015
-
52
4,340
1,001
6,376
740
2,624
33,204
35,083
13,176
15,133
In April 2016, the Law on the deposit guarantee scheme entered into force in Slovenia, according to which the Bank of Slovenia sets up and
operates the deposit guarantee scheme in Slovenia. The target fund level is 0.8% of the sum of all guaranteed deposits in the Republic of
Slovenia as at 31 December of the previous year, and until the Fund reaches this level, banks are obliged to pay regular annual contributions.
In other banking members of the NLB Group, which operate outside the EU, similar schemes had already been in place in previous years. Item
“Deposits Guarantee” also includes the amount of EUR 359 thousand which relates to NLB’s payment of guaranteed investors’ claims at a
brokerage company against which bankruptcy proceedings started.
NLB Group 2016 Annual Report
4.9. Administrative expenses
Employee costs
- gross salaries, compensations and other short-term benefits
- defined contribution scheme
- social security contributions
- defined benefit expenses (note 5.17.c)
- post-employment benefits
- other employee benefits
Total
Other general and administrative expenses
- other services
- maintenance
- intellectual services
- materials
- rents
- property
- software
- movable property
- advertising
- insurance
- education, scholarships and tuition fees
- travel costs
- other costs
Total
217
NLB Group
NLB
in EUR thousand
2016
2015
2016
2015
140,961
11,460
9,028
3,930
379
3,551
138,283
11,124
9,093
4,683
319
4,364
88,277
86,800
6,639
5,441
2,843
473
2,370
6,570
5,592
2,813
312
2,501
165,379
163,183
103,200
101,775
36,978
15,557
14,116
9,501
7,934
5,347
2,104
483
4,999
3,112
1,384
1,384
816
38,961
16,124
16,635
11,031
7,790
5,398
1,773
619
5,288
3,321
1,420
1,449
782
25,127
11,547
9,429
4,359
2,636
940
1,396
300
2,386
1,510
999
619
271
27,144
12,271
9,689
5,729
2,876
1,193
1,403
280
2,700
1,578
1,124
637
290
95,781
102,801
58,883
64,038
Total administrative expenses
261,160
265,984
162,083
165,813
Number of employees
6,175
6,372
2,885
3,028
Costs of other services include asset protection costs, asset management costs, archiving services, postal services, and communication costs.
NLB Group 2016 Annual Report
218
In 2016, NLB Group paid EUR 566 thousand (2015: EUR 716 thousand) and NLB EUR 200 thousand (2015: EUR 208 thousand) to a
statutory auditor for auditing the annual report. In addition, NLB Group and NLB paid the following expenses to the statutory auditor:
Other audit services
Tax and other consulting
Other non-audit services
Total
4.10. Depreciation and amortisation
Amortisation of intangible assets (note 5.11.)
Depreciation of property and equipment (note 5.9.)
Total
4.11. Provisions for other liabilities and charges
Guarantees and commitments (note 5.17.b)
Restructuring provisions (note 5.17.d)
Provisions for legal issues (note 5.17.e)
Other provisions (note 5.17.f)
Total
NLB Group
NLB
in EUR thousand
2016
236
-
-
236
2015
29
88
24
141
2016
236
-
-
236
2015
7
-
-
7
NLB Group
NLB
2016
11,694
16,651
28,345
2015
14,334
17,522
31,856
2016
9,657
9,223
18,880
NLB Group
NLB
2016
2015
(10,432)
10,644
4,252
(107)
4,357
(10,847)
4
7,475
2,672
(696)
2016
(9,897)
9,377
145
(107)
(482)
in EUR thousand
2015
12,400
9,010
21,410
in EUR thousand
2015
(11,219)
(15)
3,409
2,672
(5,153)
NLB Group 2016 Annual Report
4.12. Impairment charge
Impairment of financial assets
Available-for-sale financial assets (note 5.4.b)
Held-to-maturity financial assets (note 5.7.b)
Loans and advances to banks (note 5.14.b)
Loans to government (note 5.14.b)
Loans to financial organisations (note 5.14.b)
Loans to individuals (note 5.14.a)
Granted overdrafts
Loans for houses and flats
Consumer loans
Other loans
Loans to other customers (note 5.14.b)
Loans to large corporate customers
Loans to small and medium size enterprises
Other financial assets (note 5.14.c)
219
NLB Group
NLB
in EUR thousand
2016
2015
2016
2015
198
83
74
(2,604)
(14,842)
12,800
2,587
4,436
3,261
2,516
40,526
(16,052)
56,578
625
4,659
-
2,557
1,285
7,780
14,766
4,889
3,241
3,016
3,620
29,120
(6,598)
35,718
6,220
198
83
(196)
(163)
(5,005)
10,245
2,303
5,495
1,930
517
19,909
5,065
14,844
356
2,617
-
67
1,359
15,446
10,583
4,675
2,440
2,305
1,163
10,114
(29,283)
39,397
1,721
Total
36,860
66,387
25,427
41,907
Impairment of investments in subsidiaries, associates and JV
Investments in subsidiaries
Investments in associates and joint ventures
Total
Impairment of other assets
Property and equipment (note 5.9.)
Other assets
Total
Total impairment
-
12,250
12,250
3,307
3,871
7,178
-
-
-
1,122
16,292
17,414
25,334
12,313
37,647
1,127
232
1,359
50,271
33
50,304
344
559
903
56,288
83,801
64,433
93,114
In 2016, NLB impaired equity investments in non-core subsidiaries and joint ventures in a total amount of EUR 37,647 thousand. Of that,
EUR 7,004 thousand relates to the recapitalisation of subsidiary participating in a sale of a package of non-performing loans (‘Project Pine’).
The funds from the capital increases were used to repay the loan obligations to NLB. Due to a release of the loan loss impairments, the net
effect of impairments on profit or loss was EUR 14,127 thousand lower. Impairments of investments in subsidiaries and joint ventures are
included in the segment Non-core markets and activities.
NLB Group and NLB recorded additional impairments of principal due to a sale of non-performing loans (‘Project Pine’) in the amount of
EUR 25.817 thousand and EUR 4,102 thousand impairment of interest (note 4.1.). The total negative effect from a sale of non-performing
loans amounted to EUR 29,919 thousand.
NLB Group 2016 Annual Report
220
4.13. Gains less losses from capital investments in subsidiaries, associates, and joint ventures
Dividends from investments in subsidiaries, associates, and joint ventures
Gains less losses on derecognition of subsidiaries
Share of net gains less losses of associates and joint ventures
accounted for using the equity method (note 5.12.c)
Total
4.14. Income tax
Current income tax
Deferred tax (note 5.18.)
Total
NLB Group
NLB
in EUR thousand
2016
-
(153)
5,159
5,006
2015
-
(173)
4,485
4,312
2016
28,915
-
-
2015
13,747
-
-
28,915
13,747
NLB Group
NLB
2016
14,758
217
14,975
2015
12,767
(1,387)
11,380
2016
7,008
(3,083)
3,925
in EUR thousand
2015
8,260
(292)
7,968
Income tax differs from the amount of tax determined by applying the Slovenian statutory tax rate as follows:
Profit before tax
Tax calculated at prescribed rate of 17%
Effect of change in tax rate in the reconciliation
Income not assessable for tax purposes
Expenses not deductible for tax purposes
Effect of unrecognised deferred tax assets on impairment of subsidiaries and associates
Tax allowances
Effect of unrecognised deferred tax assets on tax losses
Effects of different tax rates in other countries
Changes in recognition and measurement of deferred taxes
Withholding tax suffered in other countries for which no tax credit was available in Slovenia
Adjustment to tax in respect of prior periods
Other
Adjustment of deferred tax assets
Total
NLB Group
NLB
in EUR thousand
2016
2015
130,600
22,202
(1,666)
(2,900)
2,930
(2,083)
(1,391)
3,906
(4,543)
(6,870)
974
842
2
3,572
14,975
106,758
18,149
-
(2,781)
3,885
(25,276)
(1,456)
6,477
(2,965)
32,827
771
(210)
201
(18,242)
11,380
2016
67,708
11,510
(2,006)
(5,796)
816
3,375
(1,032)
-
-
(7,077)
974
842
2
2,317
3,925
2015
51,849
8,814
-
(2,929)
734
4,557
(1,040)
-
-
73
771
(210)
201
(3,003)
7,968
Income tax rates within NLB Group range from 9-30%. A tax rate of 17% was applied in Slovenia in 2015 and 2016. In accordance with the
change of tax legislation, the corporate income tax rate from 2017 onwards will be 19%.
NLB Group 2016 Annual Report
221
The majority of non-taxable income relates to dividends and income deemed to be dividends. NLB excluded EUR 29,592 thousand in dividend
income and income deemed to be dividends from its tax base in 2016 (2015: EUR 16,968 thousand).
NLB recognised deferred tax assets accrued on the basis of temporary differences in an amount that, given future profit estimates, is expected
to be reversed in the foreseeable future (i.e. within five years). Due to some uncertainties regarding external factors (regulatory environment,
market situation, etc.), as well as not yet defined tax treatment of transition to IFRS 9, a lower range of expected outcomes was considered
for purposes of deferred tax assets calculation. Other NLB Group members did not recognise deferred tax assets for tax losses where there is
uncertainty about whether the tax losses can be utilised, because it is not probable that future taxable profits will be available against which the
deferred tax assets can be utilised and where the utilisation of unused tax losses is limited to five years.
Deferred tax assets were not recognised on temporary differences arising from the impairment of investments in subsidiaries, where it is not
probable that the temporary difference will reverse in the foreseeable future amounting in NLB to EUR 530,302 thousand as at 31 December
2016 (31 December 2015: EUR 542,989 thousand).
In November 2016 the tax inspection of corporate income tax for the period from 2009 till 2014 in NLB was finished. In this respect EUR 841
thousand in expenses for income tax were recorded, and EUR 39,434 thousand deferred tax assets for tax losses were reduced. A reduction of
deferred tax assets has no impact on statement of financial position, as the bank recognised deferred tax assets based on future profit estimates
only on temporary differences that were envisaged to be utilised in the foreseeable future.
4.15. Earnings per share
Earnings per share are calculated by dividing the net profit by the weighted average number of ordinary shares in issue, less treasury shares.
Diluted earnings per share are the same as basic earnings per share for NLB Group and NLB, since subordinated loans and issued debt
securities have no future conversion options, and consequently there are no dilutive potential ordinary shares.
NLB Group
NLB
2016
110,017
20,000
5.5
5.5
2015
91,914
20,000
4.6
4.6
2016
63,783
20,000
3.2
3.2
2015
43,881
20,000
2.2
2.2
Net profit attributable to the owners of the parent (in EUR thousand)
Weighted average number of ordinary shares (in thousand)
Basic earnings per share (in EUR per share)
Diluted earnings per share (in EUR per share)
5. Notes to the statement of financial position
5.1. Cash, cash balances at central banks, and other demand deposits at banks
Cash
Balances and obligatory reserves with central banks
Demand deposits at banks
Total
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
260,612
776,648
261,754
228,156
527,156
406,671
1,299,014
1,161,983
128,519
375,561
112,959
617,039
128,682
155,160
212,964
496,806
Slovenian banks are required to maintain a compulsory reserve with the Bank of Slovenia relative to the volume and structure of their customer
deposits. Other banks in NLB Group maintain a compulsory reserve in accordance with local legislation. NLB and other banks in NLB Group
fulfil their compulsory reserve deposit requirements.
NLB Group 2016 Annual Report
222
5.2. Trading assets
Derivatives, excluding hedging instruments
Swap contracts
- currency swaps
- interest rate swaps
- currency interest rate swaps
Options
- currency options
- securities options
Forward contracts
- currency forward
Total derivatives
Securities
Bonds
- Republic of Slovenia
- other issuers
Shares
Treasury bills - Republic of Slovenia
Commercial papers - foreign banks
Total securities
Total
- quoted securities
of these equity instruments
of these debt instruments
- unquoted securities
of these debt instruments
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
15,185
397
14,551
237
405
-
405
3,352
3,352
18,942
19,735
19,735
-
-
30,012
19,010
68,757
26,855
191
26,421
243
151
37
114
3,035
3,035
30,041
43,555
39,460
4,095
10
42,636
151,171
237,372
15,179
391
14,551
237
405
-
405
3,352
3,352
18,936
19,735
19,735
-
-
30,012
19,010
68,757
27,322
191
26,888
243
151
37
114
3,035
3,035
30,508
43,555
39,460
4,095
10
42,636
151,171
237,372
87,699
267,413
87,693
267,880
49,747
-
49,747
19,010
19,010
85,208
10
85,198
152,164
152,164
49,747
-
49,747
19,010
19,010
85,208
10
85,198
152,164
152,164
The notional amounts of derivative financial instruments are disclosed in note 5.24.b.
During 2009, NLB Group and NLB reclassified certain bonds from the trading category to loans and receivables. NLB Group and NLB
reclassified high quality corporate bonds that are not traded on the active market, and for which it has a positive intent and ability to hold for
the foreseeable future - or until maturity rather than trade in the short term. Reclassified bonds meet the definition of loans and receivables.
NLB Group 2016 Annual Report
223
Carrying amount
in EUR thousand
Fair value
The following table illustrates the carrying values and fair values of the assets reclassified:
NLB Group and NLB
the date of reclassification
as at 31 December 2009
as at 31 December 2010
as at 31 December 2011
as at 31 December 2012
as at 31 December 2013
as at 31 December 2014
as at 31 December 2015
as at 31 December 2016
72,030
75,928
84,429
86,501
80,218
87,667
85,009
85,315
The effective interest rates, determined on the day the bonds were reclassified, range from 4.15-4.23%.
NLB Group and NLB
Interest income in period
Financial assets held for trading
reclassified to loans and receivables
2016
2015
2014
2013
2012
2011
2010
2,079
2,053
2,103
2,153
2,449
3,446
4,471
NLB Group and NLB
Gains/(losses) that would have been recognised if the assets had not been reclassified
Financial assets held for trading
reclassified to loans and receivables
2016
2015
2014
2013
2012
2011
2010
2009
2,695
3,272
17,726
1,302
(52)
(11,078)
1,722
(4,647)
5.3. Financial instruments designated at fair value through profit or loss
a) Financial assets designated at fair value through profit or loss
Private equity fund
Other investments
Total
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
2,011
4,683
6,694
4,913
2,682
7,595
2,011
-
2,011
4,913
-
4,913
69,766
65,278
67,000
55,922
53,958
55,260
72,986
76,258
78,953
in EUR thousand
2009
2,836
in EUR thousand
NLB Group 2016 Annual Report
224
b) Financial liabilities designated at fair value through profit or loss
Structured deposit
Total
in EUR thousand
NLB Group and NLB
31.12.2016
31.12.2015
2,011
2,011
4,912
4,912
In NLB, financial assets in the amount of EUR 2,011 thousand (31 December 2015: EUR 4,913 thousand) are designated at fair value through
profit or loss to reduce the accounting mismatch that would otherwise arise. Financial liability, designated at fair value through profit or loss
in the amount of EUR 2,011 thousand (31 December 2015: EUR 4,912 thousand) is the structured deposit from customers from which the
returns depend on the returns from private equity funds, classified as financial assets, that are measured at fair value through profit or loss.
In NLB Group, in addition to the aforementioned, financial assets that are designated at fair value through profit or loss represent investments
in other funds that are managed and evaluated on a fair value basis.
5.4. Available-for-sale financial assets
a) Analysis by type of available-for-sale financial assets
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
Bonds
- governments
- Republic of Slovenia
- other EU members
- non-EU members
- banks
- other issuers
Cash certificates
Shares
National Resolution Fund
Treasury bills
- Republic of Slovenia
- other EU members
- non-EU members
Commercial bills
Total
- quoted securities
of these equity instruments
of these debt instruments
- unquoted securities
of these equity instruments
of these debt instruments
1,619,228
1,350,942
1,262,363
1,146,150
1,050,770
401,405
343,295
306,070
284,141
16,031
77,939
30,943
44,519
81,680
24,997
2,001
54,682
789,285
380,411
405,655
3,219
453,179
19,899
-
22,737
44,570
55,093
55,093
-
-
999,781
699,609
354,406
340,628
4,575
284,141
16,031
-
25,893
44,519
26,998
24,997
2,001
-
442,802
405,655
297,693
453,179
19,899
199
29,050
44,570
104,617
57,096
-
47,521
274,489
151,168
209,331
151,168
2,072,153
1,737,191
1,594,094
1,248,359
1,533,697
1,263,070
1,334,925
1,045,797
24,312
21,334
20,927
19,018
1,509,385
1,241,736
1,313,998
1,026,779
538,456
49,308
489,148
474,121
54,128
419,993
259,169
46,380
212,789
202,562
51,394
151,168
NLB Group 2016 Annual Report
b) Movements of available-for-sale financial assets
225
NLB Group
NLB
in EUR thousand
2016
2015
2016
2015
Balance as at 1 January
1,737,191
1,672,952
1,248,359
1,182,748
Effects of translation of foreign operations to presentation currency
(2,048)
(54)
-
-
Additions
Disposals and maturity
Interest income (note 4.1.)
Exchange differences on monetary assets
Changes in fair values
Impairment (note 4.12.)
- impairment of equity securities
- impairment of debt securities
Disposal of subsidiary
Balance as at 31 December
1,766,455
1,661,860
666,304
437,390
(1,463,553)
(1,612,917)
(336,736)
(375,407)
31,426
1,260
1,620
(198)
(198)
-
-
33,232
1,867
(15,004)
(4,659)
(4,788)
129
(86)
17,881
594
(2,110)
(198)
(198)
-
-
19,692
1,554
(15,001)
(2,617)
(2,746)
129
-
2,072,153
1,737,191
1,594,094
1,248,359
As at 31 December 2016, the value of equity instruments obtained by NLB Group taking possession of collateral held as security and
recognised in the statement of financial position is EUR 24,162 thousand (31 December 2015: EUR 21,277 thousand), and by NLB it
amounted to EUR 20,832 thousand (31 December 2015: EUR 18,977 thousand) (note 7.1.n).
By selling equity securities available for sale, NLB Group realised a net gain in the amount of EUR 13,478 thousand (2015: EUR 731
thousand), and NLB a net gain in the amount of EUR 13,472 thousand (2015: EUR 748 thousand). This gain is included in ‘Gains Less Losses
from Financial Assets and Liabilities not Classified at Fair Value through Profit or Loss (note 4.4.).’
c) Accumulated other comprehensive income related to available-for-sale financial assets
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Net gains/(losses) from changes in fair value
Gains/losses transferred to net profit on disposal or impairment
Deferred income tax (note 5.18.)
Share of other comprehensive income of associates and joint ventures
Balance as at 31 December
- debt securities
- equity securities
NLB Group
NLB
in EUR thousand
2016
48,321
(3)
18,532
(14,630)
(1,207)
1,988
53,001
41,989
11,012
2015
57,750
(19)
(2,297)
(6,180)
1,413
(2,346)
48,321
36,984
11,337
2016
37,996
-
14,652
(14,481)
(949)
-
2015
45,103
-
(314)
(8,248)
1,455
-
37,218
37,996
28,574
8,644
27,950
10,046
NLB Group 2016 Annual Report
226
5.5. Derivatives for hedging purposes
NLB Group entities measure exposure to interest rate risk using a repricing gap analysis and by calculating the sensitivity of the statement of
financial position and off-balance-sheet items in terms of the economic value of equity. Portfolio duration is used as a measure of risk in the
management of securities in the banking book.
NLB Group entities use various derivatives such as interest rate swaps (IRS) and currency interest rate swaps (CIRS) to close open positions
in an individual maturity bucket. Micro and macro fair value hedges are used for that purpose, i.e. the swapping of a fixed interest rate on a
hedged item for a variable interest rate. Micro cash flow hedges are also used, i.e. the swapping of a variable interest rate on a hedged item for a
fixed interest rate. All cash flow hedges were made on liability items, while fair value hedges were used on both liability and asset items.
Hedge accounting rules (fair value and cash flow hedging) were applied in the hedging of interest rate risk using interest rate swaps. These
hedge relationships are created in such a way that the characteristics of the hedge instrument and those of the hedged item match (i.e. the
principal terms match), while the dollar-offset method is used to regularly measure hedge effectiveness retrospectively. Prospective testing of
hedge effectiveness is carried out regularly for macro hedges where the characteristics of both items in the hedge relationship do not fully match
by comparing the change in the fair value of both items with the shift in the yield curve.
Hedge accounting rules were not applied in economic hedges using CIRS. Thus, the effects of valuation are disclosed in the income statement
in the line ‘Gains Less Losses from Financial Assets and Liabilities Held for Trading.’
a) Fair value adjustment in hedge accounting recognised in profit or loss
Fair value hedge
Net effects from hedging instruments
Net effects from hedged items
Cash flow hedge
Transfer from other comprehensive income
Total
NLB Group
NLB
in EUR thousand
2016
(770)
715
(1,485)
(2,469)
(2,469)
(3,239)
2015
231
7,698
(7,467)
-
-
231
2016
32
715
(683)
(2,469)
(2,469)
(2,437)
2015
231
7,698
(7,467)
-
-
231
In 2016 NLB Group terminated a fair value hedge of fix interest rate loan due to expected early repayment. The net effects from hedged items
include a reversal of the previously accumulated positive effect in the amount of EUR 802 thousand.
In 2016 NLB terminated a cash flow hedge of borrowing with a variable interest rate due to expected prepayment in the amount of
EUR 37,234 thousand. Negative valuation effects, previously accumulated in other comprehensive income were transferred in the income
statement. Prepayment of funding was realised in January 2017.
As of December 2016 NLB Group and NLB have no relationships designated for cash flow hedge accounting.
NLB Group 2016 Annual Report
227
b) Notional amounts of interest rate swaps
Notional amount
Fair value
in EUR thousand
NLB Group and NLB
Asset
Liability
Fair value hedge
31.12.2016
31.12.2015
Cash flow hedge
31.12.2015
Total
31.12.2016
31.12.2015
108,554
159,259
217
1,083
29,024
31,065
12,964
-
2,777
108,554
172,223
217
1,083
29,024
33,842
c) Future cash flows of interest rate swaps for cash flow hedge
NLB Group and NLB
Up to 1 Month 1 Month to 3 Months
3 Months to 1 Year
1 Year to 5 Years
Over 5 Years
in EUR thousand
31.12.2015
- Outflow
- Inflow
-
-
(166)
-
(407)
1
(1,772)
81
(889)
263
d) Accumulated other comprehensive income related to cash flow hedging
Balance as at 1 January
Net losses on hedging instruments
Transfer to income statement
Deferred income tax (note 5.18.)
Balance as at 31 December
in EUR thousand
NLB Group and NLB
2016
(2,243)
(343)
3,046
(460)
-
2015
(2,666)
(78)
587
(86)
(2,243)
There was no hedge ineffectiveness that neither NLB nor NLB Group should have recognised in the income statement.
NLB Group 2016 Annual Report
228
5.6. Loans and advances
Analysis by type of loans and advances
Debt securities
Loans to banks
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
85,315
435,537
394,579
431,775
85,315
408,056
394,579
345,207
Loans and advances to customers
6,912,067
6,693,621
4,843,594
4,826,139
Other financial assets
Total
a) Debt securities
Analysis of debt securities by sector
Government
Companies
Total
b) Loans and advances to banks
Analysis by type of loans and advances
Loans
Time deposits
Purchased receivables
Allowance for impairment (note 5.14.b)
Total
61,014
69,521
36,151
48,944
7,493,933
7,589,496
5,373,116
5,614,869
in EUR thousand
NLB Group and NLB
31.12.2016
31.12.2015
-
85,315
85,315
309,570
85,009
394,579
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
945
433,883
1,058
435,886
(349)
435,537
3,825
427,195
997
432,017
(242)
431,775
19,399
387,599
1,058
408,056
-
408,056
29,391
315,016
997
345,404
(197)
345,207
NLB Group 2016 Annual Report
c) Loans and advances to customers
Analysis by type of loans and advances
Loans
Finance lease receivables
Overdrafts
Credit card business
Called guarantees
Reverse sale and repurchase agreements
229
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
7,198,486
7,254,266
5,098,336
5,266,143
192,923
298,351
112,106
13,577
25
253,205
320,514
111,673
16,773
25
-
-
178,899
183,406
60,338
10,744
25
59,820
11,463
25
7,815,468
7,956,456
5,348,342
5,520,857
Allowance for impairment (note 5.14.)
(903,401)
(1,262,835)
(504,748)
(694,718)
Total
6,912,067
6,693,621
4,843,594
4,826,139
Analysis of loans and advances by sector
Government
Financial organisations
Companies
Individuals
Total
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
775,986
74,344
688,474
139,852
668,300
273,310
578,184
391,911
2,970,229
2,957,304
1,950,869
1,966,361
3,091,508
2,907,991
1,951,115
1,889,683
6,912,067
6,693,621
4,843,594
4,826,139
NLB Group 2016 Annual Report
230
Finance leases
Loans and advances to customers in NLB Group include finance lease receivables:
NLB Group
The gross investment in finance leases by maturity
- not later than 1 year
- later than 1 year and not later than 5 years
- later than 5 years
Unearned future finance income on finance leases
Net investment in finance leases
- present value of minimum lease payments
The net investment in finance leases by maturity
- not later than 1 year
- later than 1 year and not later than 5 years
- later than 5 years
Total
in EUR thousand
31.12.2016
31.12.2015
71,291
127,319
12,808
211,418
(18,495)
192,923
121,065
137,575
19,011
277,651
(24,446)
253,205
192,923
253,205
64,337
116,944
11,642
192,923
111,965
124,104
17,136
253,205
Finance and operating lease transactions are carried out by NLB Group through specialised subsidiaries that offer car leasing, leasing of
commercial and production equipment, and others.
The majority of the lease agreements entered into by NLB Group as lessor contracts are finance lease agreements (operating leases account for
less than 10% of all lease agreements). The majority of agreements are concluded for a non-cancellable period of between 48 and 60 months,
with an unguaranteed residual value representing a purchase option typically between 1 and 2% of the gross investment.
Finance and operating leases of motor vehicles and operating leases of business premises represent the majority of agreements in which
NLB Group acts as a lessee.
As at 31 December 2016 the allowance for unrecoverable finance lease receivables included in the allowance for loan impairment amounted to
EUR 42,511 thousand (31 December 2015: EUR 75,386 thousand).
NLB Group 2016 Annual Report d) Other financial assets
Analysis by type of other financial assets
Credit card receivables
Receivables in the course of collection
Debtors
Fees and commissions
Prepayments
Receivables from purchase agreements for equity securities
Other financial assets
Allowance for impairment (note 5.14.c)
Total
231
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
21,961
13,235
11,934
7,311
2,217
164
19,645
76,467
(15,453)
61,014
11,739
15,416
20,415
7,548
4,289
16,920
20,272
96,599
(27,078)
69,521
17,375
11,481
929
5,699
-
164
4,274
39,922
(3,771)
36,151
8,346
13,033
1,213
5,384
-
16,920
9,171
54,067
(5,123)
48,944
Receivables in the course of collection are temporary balances which will be transferred to the appropriate item in the days following their
occurrence.
Other financial assets include receivables to pension funds for prior pension payments, receivables from insurance companies, deposit facilities,
claims and enforcement procedures, paid duties, and legal costs.
Analysis of other financial assets by sector
Banks
Government
Financial organisations
Companies
Individuals
Total
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
14,058
13,708
10,969
6,632
15,647
61,014
9,170
12,181
1,923
30,242
16,005
69,521
8,377
1,753
8,364
3,168
14,489
36,151
3,565
1,748
5,470
23,424
14,737
48,944
NLB Group 2016 Annual Report
232
e) Movement of called non-financial guarantees
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Called guarantees
Paid guarantees
Write-offs
Balance as at 31 December
5.7. Held-to-maturity financial assets
a) Analysis by type of held-to-maturity financial assets
Bonds
- governments
- Republic of Slovenia
- other EU members
- banks
- other issuers
Treasury bills of Republic of Slovenia
Allowance for impairment
Total
- quoted
b) Movements of held-to-maturity financial assets
Balance as at 1 January
Additions
Decreases
Interest income (note 4.1.)
Change of interest income due to reclassification of available-for-sale to held-to-maturity financial assets
Impairment (note 4.12.)
Balance as at 31 December
NLB Group
NLB
in EUR thousand
2016
5,678
(13)
2,520
(1,525)
(2,431)
4,229
2015
8,494
1
8,663
(9,999)
(1,481)
5,678
2016
4,838
-
1,595
(493)
(2,431)
3,509
2015
5,648
-
7,881
(7,210)
(1,481)
4,838
in EUR thousand
NLB Group and NLB
31.12.2016
31.12.2015
611,532
591,468
411,914
179,554
16,729
3,335
-
611,532
(83)
545,561
532,235
363,566
168,669
13,326
-
19,974
565,535
-
611,449
565,535
611,449
565,535
in EUR thousand
NLB Group and NLB
2016
565,535
116,897
(88,897)
17,997
-
(83)
2015
711,648
32,224
(199,926)
21,656
(67)
-
611,449
565,535
NLB Group 2016 Annual Report
5.8. Non-current assets classified as held for sale
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Transfer from property and equipment (note 5.9.)
Transfers into other assets
Disposals
Valuation
Balance as at 31 December
233
NLB Group
NLB
in EUR thousand
2016
4,629
(53)
481
-
(217)
(577)
4,263
2015
5,643
(14)
-
(140)
(167)
(693)
4,629
2016
1,776
-
418
-
(128)
(278)
1,788
2015
2,580
-
-
(140)
(98)
(566)
1,776
In 2016 and 2015, NLB Group did not recognise any repossessed assets as non-current assets classified as held for sale.
5.9. Property and equipment
2016
Cost
NLB Group
NLB
in EUR thousand
Land &
Buildings
Computers
Other
equipment
Total
Land &
Buildings
Computers
Other
equipment
Total
Balance as at 1 January 2016
329,096
73,285
123,775
526,156
202,303
51,279
65,307
318,889
Effects of translation of foreign operations
to presentation currency
Additions
Disposals
Impairment (note 4.12.)
Transfer to/from non-current assets
held for sale (note 5.8.)
(674)
(91)
(207)
(972)
-
-
-
-
1,845
7,260
3,528
12,633
1,548
4,168
1,245
6,961
(949)
(754)
(1,324)
(6,929)
(19,028)
(26,906)
-
-
-
-
(823)
(150)
(754)
(1,324)
(1,260)
(4,788)
(7,276)
(12,887)
-
-
-
-
(150)
(1,260)
Balance as at 31 December 2016
327,240
73,525
108,068
508,833
201,618
50,659
59,276
311,553
Depreciation and impairment
Balance as at 1 January 2016
153,877
63,148
101,401
318,426
122,884
45,059
56,376
224,319
Effects of translation of foreign operations
to presentation currency
Disposals
Depreciation (note 4.10.)
Impairment (note 4.12.)
Transfer to/from non-current assets
held for sale (note 5.8.)
(205)
(71)
(172)
(448)
-
-
-
-
(606)
(10,733)
(13,016)
(24,355)
4,662
4,310
16,651
-
-
-
-
2,553
(843)
(842)
(572)
5,263
977
(8,601)
(3,447)
(12,620)
3,122
838
-
-
-
-
9,223
977
(842)
7,679
2,553
(843)
Balance as at 31 December 2016
162,455
57,006
92,523
311,984
127,710
39,580
53,767
221,057
Net carrying value
Balance as at 31 December 2016
164,785
16,519
15,545
196,849
73,908
11,079
5,509
90,496
Balance as at 1 January 2016
175,219
10,137
22,374
207,730
79,419
6,220
8,931
94,570
NLB Group 2016 Annual Report
234
2015
Cost
NLB Group
NLB
in EUR thousand
Land &
Buildings
Computers
Other
equipment
Total
Land &
Buildings
Computers
Other
equipment
Total
Balance as at 1 January 2015
334,570
74,658
125,725
534,953
205,866
53,270
65,269
324,405
Effects of translation of foreign operations
to presentation currency
Additions
Disposals
(88)
13
82
7
-
-
-
-
2,810
4,618
14,098
21,526
2,272
2,882
4,789
9,943
(1,186)
(5,983)
(16,130)
(23,299)
(65)
(4,873)
(4,751)
(9,689)
Transfer to/from investment property (note 5.10.)
Disposal of subsidiary (note 3.)
(6,788)
(222)
-
(21)
-
-
(6,788)
(5,770)
(243)
-
-
-
-
-
(5,770)
-
Balance as at 31 December 2015
329,096
73,285
123,775
526,156
202,303
51,279
65,307
318,889
Depreciation and impairment
Balance as at 1 January 2015
148,823
64,679
106,276
319,778
119,872
47,217
59,986
227,075
Effects of translation of foreign operations
to presentation currency
Disposals
Depreciation (note 4.10.)
Impairment (note 4.12.)
(42)
(977)
7,739
1,122
Transfer to/from investment property (note 5.10.)
(2,758)
Disposal of subsidiary (note 3.)
(30)
(16)
12
70
40
-
-
-
-
(5,923)
(10,332)
(17,232)
(49)
(4,849)
(4,635)
(9,533)
4,396
5,387
17,522
-
-
5,294
344
1,122
(2,758)
(2,577)
(46)
-
-
-
-
2,691
1,025
-
-
-
-
-
-
9,010
344
(2,577)
-
Balance as at 31 December 2015
153,877
63,148
101,401
318,426
122,884
45,059
56,376
224,319
Net carrying amount
Balance as at 31 December 2015
175,219
10,137
22,374
207,730
79,419
6,220
8,931
94,570
Balance as at 1 January 2015
185,747
9,979
19,449
215,175
85,994
6,053
5,283
97,330
Assets leased under finance leases in NLB Group as at 31 December 2016 amounted to EUR 6 thousand for motor vehicles (31 December
2015: EUR 21 thousand). NLB had no assets held under finance leases as at 31 December 2016 and 31 December 2015.
The value of assets received by taking possession of collateral and included in property and equipment by NLB Group amounted to EUR 1,523
thousand (31 December 2015: EUR 1,839 thousand) and in NLB amounted to EUR 7 thousand (31 December 2015: EUR 7 thousand) (note
7.1.n).
The net carrying value of assets leased out by NLB Group under operating leases was EUR 2,842 thousand as at 31 December 2016
(31 December 2015: EUR 5,250 thousand). A total of 61.9% of assets leased out relates to motor vehicles (31 December 2015: 62.8%).
NLB Group 2016 Annual Report 5.10. Investment property
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Acquisition of subsidiaries
Additions
Disposals
Transfer (to)/from property and equipment (note 5.9.)
Transfer from/(to) other assets
Net valuation to fair value (note 4.7. and 4.8.)
Balance as at 31 December
235
in EUR thousand
2015
1,458
-
-
3,843
-
3,193
-
119
8,613
NLB
2016
8,613
-
-
-
-
-
-
(462)
8,151
NLB Group
2016
93,513
-
-
2,632
(4,661)
-
91
(7,912)
83,663
2015
41,472
8
22,290
6,295
(478)
4,030
26,816
(6,920)
93,513
The value of assets received by taking possession of collateral and included in investment property by NLB Group amounted to
EUR 48,658 thousand (31 December 2015: EUR 57,599 thousand). The value of assets received by taking possession of collateral and
included in investment property by NLB amounted to EUR 3,750 thousand (31 December 2015: EUR 3,750 thousand) (notes 5.13. and
7.1.n).
NLB Group has no interests in properties held under operating leases that were classified and accounted for as investment property. NLB Group
incurred operating expenses arising from investment properties leased to others in the amount of EUR 15 thousand (2015: EUR 58 thousand),
and operating expenses arising from investment properties not leased to others in the amount of EUR 0 (2015: EUR 23 thousand).
NLB Group earned rental income arising from investment properties in the amount of EUR 5,942 thousand (2015: EUR 6,399 thousand) and
NLB in the amount of EUR 260 thousand (2015: EUR 86 thousand).
NLB Group 2016 Annual Report
236
5.11. Intangible assets
2016
Cost
NLB Group
in EUR thousand
NLB
Software licenses
Goodwill
Total
Software licenses
Balance as at 1 January 2016
216,723
32,336
249,059
193,080
Effects of translation of foreign operations to presentation currency
Additions
Write-offs
(124)
6,418
(412)
-
-
-
(124)
6,418
(412)
-
3,375
-
Balance as at 31 December 2016
222,605
32,336
254,941
196,455
Amortisation and impairment
Balance as at 1 January 2016
Effects of translation of foreign operations to presentation currency
Amortisation (note 4.10.)
Write-offs
180,925
28,807
209,732
163,453
(90)
11,694
(365)
-
-
-
(90)
11,694
(365)
-
9,657
-
Balance as at 31 December 2016
192,164
28,807
220,971
173,110
Net carrying value
Balance as at 31 December 2016
Balance as at 1 January 2016
2015
Cost
30,441
35,798
3,529
3,529
33,970
23,345
39,327
29,627
NLB Group
in EUR thousand
NLB
Software licenses
Goodwill
Total
Software licenses
Balance as at 1 January 2015
210,137
32,336
242,473
188,851
Effects of translation of foreign operations to presentation currency
Additions
Disposals
Write-offs
(9)
12,809
(1,293)
(4,921)
-
-
-
-
(9)
12,809
(1,293)
(4,921)
-
10,149
(1,293)
(4,627)
Balance as at 31 December 2015
216,723
32,336
249,059
193,080
Amortisation and impairment
Balance as at 1 January 2015
Effects of translation of foreign operations to presentation currency
Amortisation (note 4.10.)
Write-offs
170,915
28,807
199,722
155,108
(7)
14,334
(4,317)
-
-
-
(7)
14,334
(4,317)
-
12,400
(4,055)
Balance as at 31 December 2015
180,925
28,807
209,732
163,453
Net carrying value
Balance as at 31 December 2015
Balance as at 1 January 2015
35,798
39,222
3,529
3,529
39,327
29,627
42,751
33,743
NLB Group 2016 Annual Report
In 2016 and 2015 NLB Group did not record an impairment of goodwill.
Information regarding the impairment testing of goodwill is disclosed in note 2.33.f.
5.12. Investments in subsidiaries, associates and joint ventures
a) Analysis by type of investment in subsidiaries
NLB
Banks
Other financial organisations
Enterprises
Total
237
in EUR thousand
31.12.2016
31.12.2015
267,071
267,071
19,900
52,722
26,595
52,335
339,693
346,001
In 2016 the subsidiary NLB Leasing Sofia, Sofia was liquidated. A loss in the amount of EUR 153 thousand was recognised, and is included in
the item ‘Gains Less Losses from Capital Investments in Subsidiaries, Associates, and Joint Ventures’ (2015: a loss in the amount of EUR 183
thousand due to lost control in the subsidiary LHB Trade, Zagreb and sell of the subsidiary Convest, Novi Sad).
NLB Group 2016 Annual Report 238
Data on subsidiaries as included in the consolidated financial statements of NLB Group as at 31 December 2016:
Nature of
Business
Country of
Incorporation
Equity as at
31 December
2016
Profit/(loss)
for 2016
NLB’s
shareholding
%
NLB’s voting
rights%
NLB Group’s
shareholding
%
NLB Group’s
voting
rights%
in EUR thousand
Core members
NLB Banka a.d., Skopje
Banking
Republic of Macedonia
129,083
24,997
NLB Banka a.d., Podgorica
Banking
Republic of Montenegro
75,787
5,318
86.97
99.36
86.97
98.00
86.97
99.36
86.97
98.00
NLB Banka a.d., Banja Luka
Banking
Republic of Bosnia
and Herzegovina
74,607
14,117
99.85
99.85
99.85
99.85
NLB Banka sh.a., Prishtina
Banking
Republic of Kosovo
62,845
11,263
81.21
81.21
81.21
81.21
NLB Banka d.d., Sarajevo
Banking
Republic of Bosnia
and Herzegovina
60,780
5,357
97.34
97.35
97.34
97.35
NLB Banka a.d., Beograd
Banking
Republic of Serbia
45,526
2,152
99.997
99.997
99.997
99.997
NLB Srbija d.o.o., Beograd
Real estate
Republic of Serbia
27,906
NLB Skladi d.o.o., Ljubljana
Finance
Republic of Slovenia
NLB Nov penziski fond a.d., Skopje
Insurance
Republic of Macedonia
NLB Crna Gora d.o.o., Podgorica
Real estate
Republic of Montenegro
7,948
6,155
1,238
555
2,951
979
305
Non-core members
NLB Leasing d.o.o., Ljubljana
Finance
Republic of Slovenia
10,112
(18,316)
Optima Leasing d.o.o., Zagreb - "u likvidaciji"
Finance
Republic of Croatia
4,716
(3,115)
NLB Leasing Podgorica d.o.o.,
Podgorica - "u likvidaciji"
Finance
Republic of Montenegro
853
NLB Leasing d.o.o., Beograd - u likvidaciji
Finance
Republic of Serbia
4,495
NLB Leasing d.o.o., Sarajevo
Finance
Republic of Bosnia
and Herzegovina
NLB Lizing d.o.o.e.l., Skopje - vo likvidacija
Finance
Republic of Macedonia
(724)
873
(754)
(215)
(150)
8
100
100
51
100
100
-
100
100
100
100
100
100
51
100
100
-
100
100
100
100
Tara Hotel d.o.o., Budva
Real estate
Republic of Montenegro
16,899
(5,946)
12.71
12.71
PRO-REM d.o.o., Ljubljana - v likvidaciji
Real estate
Republic of Slovenia
19,812
OL Nekretnine d.o.o., Zagreb - u likvidaciji
Real estate
Republic of Croatia
BH-RE d.o.o., Sarajevo
Real estate
Republic of Bosnia
and Herzegovina
REAM d.o.o., Zagreb
Real estate
Republic of Croatia
REAM d.o.o., Podgorica
Real estate
Republic of Montenegro
REAM d.o.o., Beograd
Real estate
Republic of Serbia
653
3
37
443
105
SR-RE d.o.o., Beograd
Real estate
Republic of Serbia
1,837
NLB Propria d.o.o., Ljubljana - v likvidaciji
Real estate
Republic of Slovenia
CBS Invest d.o.o., Sarajevo
Real estate
Republic of Bosnia
and Herzegovina
880
12
(216)
(173)
(9)
(90)
(83)
(104)
(163)
67
(40)
NLB InterFinanz AG, Zürich in Liquidation
NLB InterFinanz Praha s.r.o., Prague
Finance
Finance
Czech Republic
Switzerland
8,976
(4,716)
NLB InterFinanz d.o.o., Beograd
Finance
Republic of Serbia
Prospera plus d.o.o., Ljubljana
Tourist and
catering trade
Republic of Slovenia
LHB AG, Frankfurt
Finance
Republic of Germany
2,316
NLB Factoring a.s. - “v likvidaci,” Brno
Finance
Czech Republic
93
(94)
1
373
23
(40)
6
(428)
(280)
100
100
-
-
100
100
100
100
100
100
100
-
-
100
100
100
-
-
100
100
100
100
100
100
100
-
-
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
NLB Group 2016 Annual Report Data on subsidiaries as included in the consolidated financial statements of NLB Group as at 31 December 2015:
239
in EUR thousand
Nature of
Business
Country of
Incorporation
Equity as at
31 December
2015
Profit/(loss)
for 2015
NLB’s
shareholding
%
NLB’s voting
rights%
NLB Group’s
shareholding
%
NLB Group’s
voting
rights%
Core members
NLB Banka a.d., Skopje
Banking
Republic of Macedonia
113,977
13,129
NLB Banka a.d., Podgorica
Banking
Republic of Montenegro
68,624
6,240
86.97
99.36
86.97
98.00
86.97
99.36
NLB Banka a.d., Banja Luka
Banking
Republic of Bosnia
and Herzegovina
68,058
9,863
99.85
99.85
99.85
NLB Banka sh.a., Prishtina
Banking
Republic of Kosovo
59,725
8,242
81.21
81.21
81.21
NLB Banka d.d., Sarajevo
Banking
Republic of Bosnia
and Herzegovina
55,313
4,182
97.34
97.35
97.34
86.97
98.00
99.85
81.21
97.35
NLB Banka a.d., Beograd
Banking
Republic of Serbia
44,121
1,181
99.997
99.997
99.997
99.997
NLB Srbija d.o.o., Beograd
Real estate
Republic of Serbia
27,891
NLB Skladi d.o.o., Ljubljana
Finance
Republic of Slovenia
NLB Nov penziski fond a.d., Skopje
Insurance
Republic of Macedonia
NLB Crna Gora d.o.o., Podgorica
Real estate
Republic of Montenegro
7,112
6,015
933
822
2,455
789
416
100
100
51
100
100
100
51
100
Non-core members
NLB Leasing d.o.o., Ljubljana
Finance
Republic of Slovenia
14,402
(3,672)
100
100
NLB Leasing Sofija E.o.o.d., Sofia
Finance
Republic of Bulgaria
Optima Leasing d.o.o., Zagreb
Finance
Republic of Croatia
NLB Leasing Podgorica d.o.o., Podgorica
Finance
Republic of Montenegro
NLB Leasing d.o.o., Beograd
Finance
Republic of Serbia
(85)
856
1,106
3,063
(77)
(3,806)
(825)
(2,599)
NLB Leasing d.o.o., Sarajevo
Finance
Republic of Bosnia
and Herzegovina
(575)
(3,271)
NLB Lizing d.o.o.e.l., Skopje
Finance
Republic of Macedonia
567
(1,470)
-
-
100
100
100
100
-
-
100
100
100
100
Tara Hotel d.o.o., Budva
Real estate
Republic of Montenegro
22,845
555
12.71
12.71
PRO-REM d.o.o., Ljubljana
Real estate
Republic of Slovenia
11,273
(14,583)
OL Nekretnine d.o.o., Zagreb
Real estate
Republic of Croatia
REAM d.o.o., Zagreb
Real estate
Republic of Croatia
REAM d.o.o., Podgorica
Real estate
Republic of Montenegro
REAM d.o.o., Beograd
Real estate
Republic of Serbia
SR-RE d.o.o., Beograd
Real estate
Republic of Serbia
817
126
126
112
3
(126)
(66)
(71)
(130)
(4)
PRO-Avenija d.o.o., Ljubljana
Real estate
Republic of Slovenia
8,609
(1,385)
NLB Propria d.o.o., Ljubljana
Real estate
Republic of Slovenia
FIN-DO d.o.o., Domžale
Real estate
Republic of Slovenia
CBS Invest d.o.o., Sarajevo
Real estate
Republic of Bosnia
and Herzegovina
741
126
49
(120)
(814)
(2,062)
NLB InterFinanz AG, Zürich
NLB InterFinanz Praha s.r.o., Prague
Finance
Finance
Switzerland
12,734
(5,030)
Czech Republic
(119)
NLB InterFinanz d.o.o., Beograd
Finance
Republic of Serbia
Prospera plus d.o.o., Ljubljana
Tourist and
catering trade
Republic of Slovenia
41
506
LHB AG, Frankfurt
Finance
Republic of Germany
2,841
NLB Factoring a.s. - "v likvidaci", Brno
Finance
Czech Republic
374
(1,649)
(65)
4
24
243
100
-
100
100
100
100
100
100
100
100
100
-
-
100
100
100
100
-
100
100
100
100
100
100
100
100
100
-
-
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Changes in ownership interest in subsidiaries of NLB Group in 2016 and 2015 are presented in note 3. Significant effects of changes in
ownership interests are presented in the statement of changes in equity in the item Equity attributable to non-controlling interest.
NLB Group 2016 Annual Report 240
Data on subsidiaries with significant non-controlling interests, before intercompany eliminations
NLB Banka, Skopje
NLB Banka, Prishtina
in EUR thousand
Non-controlling interest in equity in %
Non-controlling interest's voting rights in %
Income statement and statement of comprehensive income
Revenues
Profit/(loss) for the year
Atributable to non-controlling interest
Other comprehensive income
Total comprehensive income
Atributable to non-controlling interest
Statement of financial position
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Equity
Atributable to non-controlling interest
b) Analysis by type of investment in associates and joint ventures
Other financial organisations
Enterprises
Total
NLB Group’s associates
2016
13.03
13.03
80,036
24,997
3,257
(427)
24,570
3,201
574,520
578,569
810,619
213,387
129,083
16,820
2015
13.03
13.03
76,394
13,129
1,711
118
13,247
1,726
574,807
544,871
787,045
218,656
113,977
14,851
2016
18.79
18.79
32,815
11,263
2,116
88
11,351
2,133
297,485
218,630
363,590
89,680
62,845
11,809
2015
18.79
18.79
32,117
8,242
1,549
28
8,270
1,554
276,495
188,197
333,350
71,617
59,725
11,222
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
43,008
240
43,248
39,402
294
39,696
6,600
431
7,031
6,600
494
7,094
2016
2015
in EUR thousand
Nature of Business
Country of
Incorporation
Shareholding %
Voting rights % Shareholding %
Voting rights %
Bankart d.o.o., Ljubljana
Card processing Republic of Slovenia
Skupna pokojninska družba d.d., Ljubljana
Insurance Republic of Slovenia
Kreditni biro SISBON, d.o.o., Ljubljana - v likvidaciji
Credit bureau Republic of Slovenia
ARG - Nepremičnine d.o.o., Horjul
Real estate Republic of Slovenia
39.44
28.13
29.68
75.00
39.44
28.13
29.68
75.00
39.44
28.13
29.68
75.00
39.44
28.13
29.68
75.00
By contractual agreement between the shareholders, NLB does not control ARG-Nepremičnine, Horjul, but does have a significant influence.
Therefore, the entity is accounted as an associate.
NLB Group 2016 Annual Report
Carrying amount of interests in associates included in the consolidated financial statements of NLB Group:
NLB Group
Carrying amount of the NLB Group's interest
NLB Group's share of:
- Profit for the year
- Other comprehensive income
- Total comprehensive income
241
2016
13,009
1,462
(234)
1,228
in EUR thousand
2015
11,825
935
(54)
881
In 2016 NLB Group did not recognise a share of profit of an associate in the amount of EUR 48 thousand (31 December 2015: unrecognised
profit EUR 56 thousand), as it still has the cumulative unrecognised share of losses of an associate that as at 31 December 2016 amounted to
EUR 2,402 thousand (31 December 2015: EUR 2,450 thousand).
NLB Group’s joint ventures
NLB Vita d.d., Ljubljana
Prvi Faktor Group, Ljubljana
2016
2015
Nature of Business
Country of
Incorporation
Voting rights%
Voting rights%
Insurance
Republic of Slovenia
Finance
Republic of Slovenia
50
50
50
50
Data on material joint venture NLB Vita, Ljubljana as included in the consolidated financial statements of NLB Group:
NLB Vita d.d., Ljubljana
Revenues
Interest income
Interest expense
Depreciation and amortisation
Income tax
Profit for the year
Other comprehensive income
Total comprehensive income
NLB Group's share of:
- Profit for the year
- Other comprehensive income
Total assets
Cash and cash equivalents
Total liabilities
Financial liabilities
Equity
NLB Group's ownership interest in joint venture
Carrying amount of the NLB Group's interest in joint venture
2016
74,342
7,038
(1)
(241)
(1,422)
7,394
4,434
11,828
3,697
2,216
in EUR thousand
2015
72,903
6,800
(2)
(253)
(1,365)
7,089
(4,450)
2,639
3,545
(2,225)
31.12.2016
31.12.2015
409,513
2,541
349,035
1,606
60,478
30,239
30,239
370,586
915
314,847
2,921
55,739
27,870
27,870
NLB Group 2016 Annual Report 242
c) Movements of investments in associates and joint ventures
NLB Group
Balance as at 1 January
Share of results before tax
Share of tax
Net gains/(losses) not recognised in the income statement
Dividends received
Other
Balance as at 31 December
5.13. Other assets
Assets, received as collateral (note 7.1.n)
Inventories
Deferred expenses
Claim for taxes and other dues
Prepayments
Total
2016
39,696
6,097
(938)
1,982
(3,587)
(2)
43,248
in EUR thousand
2015
37,525
5,299
(814)
(2,279)
(35)
-
39,696
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
79,059
8,913
4,597
1,305
684
75,652
10,497
5,133
2,453
1,619
94,558
95,354
4,263
460
3,096
389
211
8,419
3,371
390
3,392
1,385
1,241
9,779
Assets received as collateral and inventories on NLB Group in the amount of EUR 76,416 thousand (31 December 2015: EUR 72,433
thousand) and on NLB in the amount of EUR 4,263 thousand (31 December 2015: EUR 3,371 thousand) consists of real estate, and the rest
are other assets received as collateral.
NLB Group 2016 Annual Report
5.14. Movements in allowance for the impairment of banks, loans, and advances to customers and other financial assets
a) Impairment of loans and advances to individuals
243
in EUR thousand
NLB Group
Granted overdrafts
Loans for
houses and flats
Consumer loans
Other loans
Total
Balance as at 1 January 2015
19,468
47,191
59,151
28,849
154,659
Effects of translation of foreign operations
to presentation currency
Impairment (note 4.12.)
Write-offs
Repayments of written-off receivables
Exchange differences
Other
Balance as at 31 December 2015
Effects of translation of foreign operations
to presentation currency
Impairment (note 4.12.)
Write-offs
Repayments of written-off receivables
Exchange differences
Other
(2)
4,889
(5,799)
-
-
-
18,556
(32)
2,587
(4,973)
-
-
-
3
3,241
(1,421)
-
337
-
(2)
3,016
(8,896)
139
3
(10)
915
3,620
(12,112)
487
(216)
(32)
914
14,766
(28,228)
626
124
(42)
49,351
53,401
21,511
142,819
(49)
4,436
(123)
3,261
(21,900)
(20,369)
-
29
-
199
2
(5)
3
2,516
(10,241)
1,143
(87)
-
(201)
12,800
(57,483)
1,342
(56)
(5)
Balance as at 31 December 2016
16,138
31,867
36,366
14,845
99,216
NLB
Balance as at 1 January 2015
Impairment (note 4.12.)
Write-offs
Exchange differences
Balance as at 31 December 2015
Impairment (note 4.12.)
Write-offs
Exchange differences
Balance as at 31 December 2016
Granted overdrafts
Loans for
houses and flats
Consumer loans
Other loans
16,063
4,675
(5,778)
-
14,960
2,303
(4,509)
-
12,754
31,541
2,440
(790)
241
33,432
5,495
(20,513)
8
18,422
22,589
2,305
(7,087)
1
17,808
1,930
(13,527)
-
6,211
4,613
1,163
(4,126)
326
1,976
517
(811)
-
1,682
in EUR thousand
Total
74,806
10,583
(17,781)
568
68,176
10,245
(39,360)
8
39,069
NLB Group 2016 Annual Report 244
b) Impairment of loans and advances to legal entities
NLB Group
Loans and
advances to
government
Loans and
advances to banks
Loans and
advances
to financial
organisations
Loans and
advances to
large corporate
customers
Loans and
advances to
small- and
medium-sized
enterprises
in EUR thousand
Total
Balance as at 1 January 2015
18,916
24,722
38,481
484,374
941,874
1,508,367
Effects of translation of foreign operations
to presentation currency
Impairment (note 4.12.)
Write-offs
Repayments of written-off receivables
Exchange differences
Other
Balance as at 31 December 2015
Effects of translation of foreign operations
to presentation currency
Impairment (note 4.12.)
Write-offs
Repayments of written-off receivables
Exchange differences
Other
14
1,285
(371)
32
1
(5)
19,872
(7)
(2,604)
(690)
110
-
(5)
2,932
2,557
(28,957)
130
(1,142)
-
242
(1)
74
(1)
35
-
-
1
7,780
(754)
-
1
(126)
45,383
8,712
(6,598)
10,943
35,718
22,602
40,742
(151,230)
(264,221)
(445,533)
774
(6,808)
-
4,795
(3,546)
(26)
5,731
(11,494)
(157)
329,224
725,537
1,120,258
-
(318)
(703)
(14,842)
(16,052)
56,578
(1,029)
23,154
(710)
(72,990)
(273,891)
(348,282)
-
4
(2)
3,354
(719)
-
7,581
241
(166)
11,080
(474)
(173)
Balance as at 31 December 2016
16,676
349
29,833
242,499
515,177
804,534
NLB
Balance as at 1 January 2015
Impairment (note 4.12.)
Write-offs
Repayments of written-off receivables
Exchange differences
Balance as at 31 December 2015
Impairment (note 4.12.)
Write-offs
Repayments of written-off receivables
Exchange differences
Balance as at 31 December 2016
in EUR thousand
Total
924,258
26,986
Loans and
advances to
government
Loans and
advances to banks
Loans and
advances
to financial
organisations
Loans and
advances to
large corporate
customers
Loans and
advances to
small- and
medium-sized
enterprises
5,779
1,359
(371)
32
-
6,799
(163)
(689)
110
-
6,057
682
67
(737)
130
55
197
(196)
(1)
-
-
-
164,213
15,446
308,658
(29,283)
444,926
39,397
(126,379)
(80,757)
(123,313)
(331,557)
-
2,951
56,231
(5,005)
(446)
-
17
774
608
200,000
5,065
1,402
1,100
363,512
14,844
2,338
4,714
626,739
14,545
(39,415)
(138,831)
(179,382)
1,486
6
2,149
9
3,745
32
50,797
167,142
241,683
465,679
NLB Group 2016 Annual Report c) Impairment of other financial assets
Balance as at 1 January 2015
Effects of translation of foreign operations to presentation currency
Impairment (note 4.12.)
Write-offs
Exchange differences
Repayments of written-off receivables
Balance as at 31 December 2015
Effects of translation of foreign operations to presentation currency
Impairment (note 4.12.)
Write-offs
Exchange differences
Repayments of written-off receivables
Other
Balance as at 31 December 2016
5.15. Trading liabilities
Derivatives, excluding hedges
Swap contracts
- currency swaps
- interest rate swaps
- currency interest rate swaps
Options
- currency options
- interest rate options
Forward contracts
- currency forward
Total
245
NLB Group
42,680
31
6,220
in EUR thousand
NLB
17,521
-
1,721
(22,158)
(14,271)
137
168
27,078
43
625
-
152
5,123
-
356
(12,417)
(1,726)
(39)
165
(2)
(1)
19
-
15,453
3,771
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
15,555
328
15,227
-
-
-
-
3,236
3,236
18,791
26,929
169
24,460
2,300
47
37
10
2,944
2,944
29,920
15,552
325
15,227
-
-
-
-
3,235
3,235
18,787
26,929
169
24,460
2,300
47
37
10
2,933
2,933
29,909
The notional amounts of derivative financial instruments are disclosed in note 5.24.b.
NLB Group 2016 Annual Report
246
5.16. Financial liabilities, measured at amortised cost
Analysis by type of financial liabilities, measured at amortised cost
Deposits from banks and central banks
Borrowings from banks and central banks
Due to customers
Borrowings from other customers
Debt securities in issue
Subordinated liabilities
Other financial liabilities
Total
a) Deposits from banks and amounts due to customers
Deposits on demand
- banks and central banks
- other customers
- governments
- financial organisations
- companies
- individuals
Other deposits
- banks and central banks
- other customers
- governments
- financial organisations
- companies
- individuals
Total
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
42,334
371,769
57,982
571,029
74,977
338,467
96,736
519,926
9,437,147
9,020,666
6,615,390
6,293,339
83,619
277,726
27,145
110,295
100,267
304,962
27,340
75,307
4,274
277,726
-
16,168
304,962
-
68,784
47,346
10,350,035
10,157,553
7,379,618
7,278,477
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
34,828
55,599
74,434
95,962
6,415,927
5,544,323
4,781,616
4,092,767
200,629
124,918
180,746
72,282
83,745
101,536
79,848
45,127
1,584,892
1,542,725
1,015,371
993,058
4,505,488
3,748,570
3,580,964
2,974,734
7,506
2,383
543
774
3,021,220
3,476,343
1,833,774
2,200,572
150,835
122,401
350,431
182,804
109,122
444,365
147,914
78,767
246,584
172,290
74,616
303,226
2,397,553
2,740,052
1,360,509
1,650,440
9,479,481
9,078,648
6,690,367
6,390,075
NLB Group 2016 Annual Report
b) Borrowings from banks and other customers
Loans
- banks and central banks
- other customers
- governments
- financial organisations
- companies
Total
247
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
371,769
83,619
20,063
56,728
6,828
571,029
100,267
29,982
61,335
8,950
455,388
671,296
338,467
4,274
-
-
4,274
342,741
519,926
16,168
10,009
-
6,159
536,094
As at 31 December 2016, NLB Group and NLB had EUR 347,434 thousand in undrawn borrowings (31 December 2015: EUR 345,762
thousand).
c) Debt securities in issue
Carrying amount of issued securities
- traded on active markets
Bonds (in %)
- fixed rated
d) Subordinated liabilities
NLB Group
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
277,726
304,962
277,726
304,962
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
31.12.2016
in EUR thousand
31.12.2015
Currency
Due date
Interest rate Carrying amount
Nominal value Carrying amount
Nominal value
Subordinated loans
Total
EUR
EUR
EUR
30/6/2018
6 months EURIBOR + 6.3% p.a. to 22.09.2016,
thereafter 6 months EURIBOR +5% p.a.
30/6/2020
6 months EURIBOR + 7.7% p.a.
26/6/2025
6 months EURIBOR + 7.5% p.a. to 15.12.2016,
thereafter 6 months EURIBOR + 6.25% p.a.
12,103
12,000
12,219
12,000
5,151
9,891
27,145
5,000
10,000
27,000
5,176
9,945
27,340
5,000
10,000
27,000
NLB Group 2016 Annual Report
248
e) Other financial liabilities
Debit or credit card payables
Items in the course of payment
Accrued expenses
Suppliers
Accrued salaries
Fees and commissions due
Other financial liabilities
Total
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
32,704
28,671
13,382
11,781
8,537
1,440
13,780
110,295
15,502
13,835
12,695
14,515
8,274
1,341
9,145
29,350
8,499
5,593
8,393
6,583
1,398
8,968
14,231
4,580
4,615
11,371
6,913
1,305
4,331
75,307
68,784
47,346
Other financial liabilities mainly include liabilities to insurance companies, liabilities to employees, received warranties and temporary accounts.
5.17. Provisions
a) Analysis by type of provisions
Provisions for financial guarantees (note 5.24.a)
Provisions for non-financial guarantees (note 5.24.a)
Provisions for other credit commitments (note 5.24.a)
Employee benefit provisions
Restructuring provisions
Provisions for legal issues
Other provisions
Total
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
25,327
22,745
5,609
19,758
10,014
15,194
2,267
47,737
31,034
3,228
21,265
3,477
13,465
2,433
23,131
21,777
4,957
15,384
8,750
3,282
2,265
44,583
29,863
3,197
16,559
3,429
5,075
2,431
100,914
122,639
79,546
105,137
Provisions for legal issues are recognised based on expectations regarding the probable outcome of legal disputes.
As at 31 December 2016, NLB Group was involved in 43 (31 December 2015: 45) legal disputes with material claims against group members
in the total amount of EUR 646,639 thousand, excluding accrued interest (31 December 2015: EUR 627,917 thousand). As at 31 December
2016, NLB was involved in 19 (31 December 2015: 21) legal disputes with material monetary claims against NLB. The total amount of these
claims, excluding accrued interest, was EUR 417,041 thousand (31 December 2015: EUR 419,277 thousand).
The biggest amount within material monetary claims relates to civil claims filed by Privredna banka Zagreb (the PBZ) and Zagrebačka banka
(the ZaBa) against NLB, referring to the old savings of LB Branch Zagreb savers, which were transferred to these two banks in the principal
amount of EUR 172,212 thousand. Due to the fact the proceedings have been pending for such a long time, the penalty interest already exceeds
the principal amount. As NLB is not liable for the old foreign currency savings, based on numerous process and content-related reasons, NLB
has all along objected to these claims. Two key reasons NLB is no longer liable for the old foreign currency savings are that it was only founded
on the basis of the Constitutional Act on 27 July 1994 (at the time the savings were deposited with LB Branch Zagreb, NLB did not exist yet),
and NLB did not assume any of its obligations. Moreover, this is a former Yugoslavia succession matter as the governments of the Republic of
Slovenia and the Republic of Croatia agreed in a Memorandum of Understanding signed in 2013 to find a solution to the transferred foreign
currency savings of Ljubljanska banka in Croatia (LB) on the basis of the Agreement on Succession Issues and that the Republic of Croatia
NLB Group 2016 Annual Report
249
would stay all the proceedings commenced by the PBZ and the ZaBa in relation to the transferred foreign currency savings until the issue is
finally resolved.
Despite the agreement in the Memorandum of Understanding (Memorandum) to stay all the proceedings commenced, in May 2015 the Court
of Appeal, the County Court of Zagreb, ruled in one claim to reject the complaints raised by the LB and NLB. NLB then filed a constitutional
appeal against the aforementioned final judgement. In this case the ruled claim was enforced in the enforcement proceeding from the account
of NLB with the Croatian bank. In the other cases, with respect to the court procedures described above, are still pending, and final judgments
have not yet been issued.
Conversely, in another case, a claim filed by the PBZ became final in favour of NLB.
In the last case on 29 March 2016, the court of second instance allowed the appeal and returned the case to the Court of first instance, which
initially decided in favour of the ZaBa. The appeal court explained in its decree that the Court of first instance will have to assess what the
position of the Memorandum is in the hierarchy of legal acts of the Republic of Croatia, and if it notices that the Memorandum in the specific
case takes precedence, it will have to determine what was the intention of the parties in concluding the Memorandum.
Provisions for these claims are not formed since NLB believes there are no legal grounds for them.
b) Movements in provisions for guarantees and commitments
Financial guarantees
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Additional provisions/provisions released (note 4.11.)
Utilised during year
Exchange differences
Balance as at 31 December
Non‑financial guarantees
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Additional provisions/provisions released (note 4.11.)
Exchange differences
Balance as at 31 December
NLB Group
NLB
in EUR thousand
2016
47,737
(16)
(4,521)
(17,894)
21
25,327
2015
48,733
(3)
(1,000)
-
7
2016
44,583
-
(3,565)
(17,894)
7
2015
46,023
-
(1,445)
-
5
47,737
23,131
44,583
NLB Group
NLB
in EUR thousand
2016
31,034
(2)
(8,295)
8
22,745
2015
32,876
(1)
(1,865)
24
31,034
2016
29,863
-
(8,093)
7
21,777
2015
31,568
-
(1,727)
22
29,863
NLB Group 2016 Annual Report
250
Other credit commitments
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Additional provisions/provisions released (note 4.11.)
Exchange differences
Balance as at 31 December
c) Movements in employee benefit provisions
Post‑employment benefits
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Additional provisions (note 4.9.)
Provisions released (note 4.9.)
Interest expenses (note 4.1.)
Utilised during year (payments)
Actuarial gains and losses
Balance as at 31 December
Other employee benefits
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Additional provisions (note 4.9.)
Provisions released (note 4.9.)
Interest expenses (note 4.1.)
Utilised during year
Balance as at 31 December
NLB Group
NLB
in EUR thousand
2016
3,228
(1)
2,384
(2)
5,609
NLB Group
2016
14,205
(2)
594
(215)
274
(210)
(1,516)
13,130
2015
11,190
(1)
(7,982)
21
3,228
2015
12,275
(2)
543
(224)
576
(938)
1,975
14,205
2016
3,197
-
1,761
(1)
4,957
NLB
2016
11,786
-
473
-
171
(78)
(1,466)
10,886
2015
11,212
-
(8,047)
32
3,197
in EUR thousand
2015
10,925
-
334
(22)
431
(588)
706
11,786
NLB Group
NLB
in EUR thousand
2016
7,060
(2)
4,065
(514)
83
(4,064)
6,628
2015
6,720
(1)
4,379
(15)
175
(4,198)
7,060
2016
4,773
-
2,628
(258)
34
(2,679)
4,498
2015
4,816
-
2,509
(8)
119
(2,663)
4,773
Other employee benefits include NLB Group’s obligations for jubilee long-service benefits and unused annual leave.
NLB Group 2016 Annual Report
d) Movements in restructuring provisions
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Additional provisions (note 4.11.)
Provisions released (note 4.11.)
Utilised during year
Balance as at 31 December
251
NLB Group
NLB
in EUR thousand
2016
3,477
(3)
10,644
-
(4,104)
10,014
2015
5,871
-
19
(15)
(2,398)
3,477
2016
3,429
-
9,377
-
(4,056)
8,750
2015
5,824
-
-
(15)
(2,380)
3,429
NLB Group has adopted a new business strategy and initiated key strategic initiatives, aiming among others towards a leaner organisation,
optimisation of processes, implementation of a new IT strategy with focus on digitalisation and simplification, and adjustment of the
organisational structure. These initiatives will result in a decreased number of employees in the coming years, therefore the Group formed
restructuring provisions in the amount of EUR 10,644 thousand (NLB EUR 9,377 thousand) , which are expected to be used for redundancy
payments in the next two years.
e) Movements in provisions for legal issues
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Additional provisions (note 4.11.)
Provisions released (note 4.11.)
Utilised during year
Exchange differences
Balance as at 31 December
f) Movements in other provisions
Balance as at 1 January
Additional provisions (note 4.11.)
Provisions released (note 4.11.)
Utilised during year
Balance as at 31 December
NLB Group
NLB
in EUR thousand
2016
13,465
(74)
5,291
(1,039)
(2,462)
13
15,194
2015
6,774
(21)
8,176
(701)
(765)
2
13,465
2016
5,075
-
401
(256)
(1,949)
11
3,282
2015
1,666
-
3,409
-
(2)
2
5,075
NLB Group
NLB
in EUR thousand
2016
2,433
-
(107)
(59)
2,267
2015
2,535
2,928
(256)
(2,774)
2,433
2016
2,431
-
(107)
(59)
2,265
2015
2,531
2,928
(256)
(2,772)
2,431
NLB Group 2016 Annual Report
252
5.18. Deferred income tax
a) Analysis by type of deferred income taxes
Deferred income tax assets
Valuation of financial instruments and capital investments
75,917
59,683
75,895
59,534
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
Impairment provisions
Employee benefit provisions
Depreciation and valuation of non-financial assets
Tax losses
Reduction of deferred tax assets
Total deferred income tax assets
Deferred income tax liabilities
Valuation of financial instruments
Depreciation and valuation of non-financial assets
Impairment provisions
Other
3,956
3,208
1,113
4,219
2,385
1,130
3,571
2,736
175
3,673
2,246
182
206,866
229,229
208,678
232,371
(267,051)
(275,098)
(268,718)
(278,020)
24,009
21,548
22,337
19,986
12,233
1,278
3,471
19
11,249
1,056
129
27
11,463
252
-
-
10,608
239
-
-
Total deferred income tax liabilities
17,001
12,461
11,715
10,847
Net deferred income tax assets
Net deferred income tax liabilities
Included in the income statement for the current year
- valuation of financial instruments and capital investments
- impairment provisions
- employee benefit provisions
- depreciation and valuation of non-financial assets
- tax losses
- adjustment of deferred tax assets
- other
Included in other comprehensive income for the current year
- valuation of available-for-sale financial assets
- cash flow hedges
- actuarial assumptions and experience
7,735
(727)
NLB Group
2016
(217)
16,915
(3,601)
1,016
(239)
17,071
(31,387)
8
(1,858)
(1,207)
(460)
(191)
9,400
(313)
2015
1,387
6,742
(28,299)
(261)
(181)
5,167
18,242
(23)
2,067
1,413
(86)
740
10,622
-
NLB
2016
3,083
16,915
(102)
681
(20)
15,741
(30,132)
-
(1,600)
(949)
(460)
(191)
9,139
-
2015
292
6,741
(201)
(212)
(107)
(8,925)
3,003
(7)
2,109
1,455
(86)
740
Slovenian law does not set limits or deadlines by which uncovered tax losses must be utilised.
As at 31 December 2016, NLB recognised EUR 22,337 thousand deferred tax assets (31 December 2015: EUR 19,986 thousand).
Unrecognised deferred tax assets amounts to EUR 268,718 thousand (31 December 2015: EUR 278,020 thousand) of which the majority
relates to unrecognised deferred tax assets from tax losses in the amount of EUR 208,678 thousand (31 December 2015: EUR 232,371
thousand) and to unrecognised deferred tax assets from impairments of capital investments.
NLB Group 2016 Annual Report
253
b) Movements in deferred income taxes
Deferred income tax assets
NLB Group
Valuation
of financial
instruments
and capital
investments
Depreciation
and
valuation of
non-financial
assets
Employee
benefit
provisions
Impairment
provisions
Tax losses
Reduction
of deferred
tax assets
Other
Total
in EUR thousand
Balance as at 1 January 2015
1,906
53,865
1,364
32,452
224,062
(293,340)
Effects of translation of foreign operations
to presentation currency
(Charged)/credited to profit and loss
(Charged)/credited to other comprehensive income
-
(261)
740
-
-
1
-
-
6,660
(842)
(234)
(28,234)
5,167
18,242
-
-
-
-
Balance as at 31 December 2015
2,385
59,683
1,130
4,219
229,229
(275,098)
Effects of translation of foreign operations
to presentation currency
Write-offs
(Charged)/credited to profit and loss
(Charged)/credited to other comprehensive income
Balance as at 31 December 2016
(2)
-
1,016
(191)
3,208
(1)
-
16,900
(665)
(1)
-
(16)
-
(4)
-
-
-
(39,434)
39,434
(259)
17,071
(31,387)
-
-
-
75,917
1,113
3,956
206,866
(267,051)
35
-
(35)
-
-
-
-
-
-
-
20,344
1
1,305
(102)
21,548
(8)
-
3,325
(856)
24,009
Valuation
of financial
instruments
and capital
investments
Depreciation
and
valuation of
non-financial
assets
Employee
benefit
provisions
Impairment
provisions
Tax losses
Reduction
of deferred
tax assets
Other
Total
in EUR thousand
NLB
Balance as at 1 January 2015
(Charged)/credited to profit and loss
(Charged)/credited to other comprehensive income
1,718
53,819
(212)
740
6,657
(942)
Balance as at 31 December 2015
2,246
59,534
Write-offs
(Charged)/credited to profit or loss
(Charged)/credited to other comprehensive income
-
681
(191)
-
16,900
(539)
295
(113)
-
182
-
(7)
-
3,874
241,296
(281,023)
(201)
(8,925)
3,003
-
-
-
3,673
232,371
(278,020)
-
(39,434)
39,434
(102)
15,741
(30,132)
-
-
-
Balance as at 31 December 2016
2,736
75,895
175
3,571
208,678
(268,718)
7
(7)
-
-
-
-
-
-
19,986
202
(202)
19,986
-
3,081
(730)
22,337
NLB Group 2016 Annual Report 254
Deferred income tax liabilities
NLB Group
Balance as at 1 January 2015
Charged/(credited) to profit and loss
Charged/(credited) to other comprehensive income
Balance as at 31 December 2015
Effects of translation of foreign operations
to presentation currency
Charged/(credited) to profit and loss
Charged/(credited)to other comprehensive income
Balance as at 31 December 2016
NLB
Balance as at 1 January 2015
Charged/(credited) to profit and loss
Charged/(credited) to other comprehensive income
Balance as at 31 December 2015
Charged/(credited) to profit and loss
Charged/(credited) to other comprehensive income
Balance as at 31 December 2016
Impairment
provisions
Valuation of financial
instruments and
capital investments
Depreciation
and valuation of
non-financial assets
64
65
-
129
-
3,342
-
3,471
13,500
(82)
(2,169)
11,249
(3)
(15)
1,002
12,233
1,109
(53)
-
1,056
(1)
223
-
1,278
Other
39
(12)
-
27
-
(8)
-
19
Valuation of financial
instruments and
capital investments
Depreciation
and valuation of
non-financial assets
13,003
(84)
(2,311)
10,608
(15)
870
11,463
245
(6)
-
239
13
-
252
in EUR thousand
Total
14,712
(82)
(2,169)
12,461
(4)
3,542
1,002
17,001
in EUR thousand
Total
13,248
(90)
(2,311)
10,847
(2)
870
11,715
5.19. Income tax relating to components of other comprehensive income
2016
Actuarial gains and lossess
Available-for-sale financial assets
Cash flow hedge
Share of associates and joint ventures
Total
10,842
(2,601)
NLB Group
NLB
in EUR thousand
Before tax
amount
Tax expense
Net of tax
amount
Before tax
amount
Tax expense
Net of tax
amount
1,515
3,899
2,703
2,725
(191)
(1,207)
(460)
(743)
1,324
2,692
2,243
1,982
8,241
1,466
171
2,703
-
(191)
(949)
(460)
-
4,340
(1,600)
1,275
(778)
2,243
-
2,740
NLB Group 2016 Annual Report 255
in EUR thousand
2015
Actuarial gains and lossess
Available-for-sale financial assets
Cash flow hedge
Share of associates and joint ventures
NLB Group
NLB
Before tax
amount
Tax expense
Net of tax
amount
Before tax
amount
Tax expense
Net of tax
amount
(1,975)
(8,496)
509
(2,735)
740
1,413
(86)
456
(1,235)
(7,083)
423
(2,279)
(706)
(8,562)
509
-
740
1,455
(86)
-
34
(7,107)
423
-
Total
(12,697)
2,523
(10,174)
(8,759)
2,109
(6,650)
5.20. Other liabilities
Taxes payable
Deferred income
Payments received in advance
Total
5.21. Share capital
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
3,699
2,964
2,040
8,703
4,982
7,579
1,978
14,539
3,049
661
476
4,186
3,817
1,693
166
5,676
The share capital of NLB amounts to EUR 200,000 thousand and did not change during 2016. It comprises of 20,000,000 no-par-value
ordinary registered shares, with the corresponding value of EUR 10.0 for one share. All issued shares are fully paid and there are no un-issued
authorised shares. As at 31 December 2016 and 31 December 2015, the Republic of Slovenia was the only shareholder of NLB. NLB Group
does not own treasury shares.
The book value of a NLB share on a consolidated level as at 31 December 2016 was EUR 74.8 (31 December 2015: EUR 71.1) and on solo
level was EUR 63.2 (31 December 2015: EUR 62.1). It is calculated as the ratio of net assets’ book value without other equity instruments
issued and the number of shares.
Distributable profit as at 31 December 2016 amounts to EUR 145,313 thousand (31 December 2015: EUR 125,410 thousand) and consists of a
net profit for 2016 in the amount of EUR 63,783 thousand and retained earnings from previous years in the amount of EUR 81,530 thousand.
Its allocation will be subject to a decision by the Bank’s Annual General Meeting.
In 2016 NLB paid dividends for previous year in the amount of EUR 2,194 per share (2015: 0 EUR) which decreased retained earnings for
EUR 43,880 thousand.
5.22. Accumulated other comprehensive income and reserves
a) Reserves
The share premium account as at 31 December 2016 and 31 December 2015 comprises paid-up premiums in the amount of EUR 822,173
thousand and the revaluation of share capital from previous years in the amount of EUR 49,205 thousand.
As at 31 December 2016 and 31 December 2015 profit reserves in the amount of EUR 13,522 thousand relate entirely to legal reserves in
accordance with the Companies Act.
NLB Group 2016 Annual Report
256
b) Accumulated other comprehensive income
Available-for-sale financial assets - debt securities
Available-for-sale financial assets - equity securities
Actuarial defined benefit pension plans
Foreign currency translation
Hedge of a net investment in a foreign operation
Cash flow hedging
Total
5.23. Capital adequacy ratios
Paid up capital instruments
Share premium
Retained earnings - from previous years
Profit or loss eligible - from current year
Accumulated other comprehensive income
Other reserves
Minority interest
Prudential filters: Cash flow hedge reserve
Prudential filters: Value adjustments due to the requirements for prudent valuation
(-) Goodwill
(-) Other intangible assets
(-) Deferred tax assets that rely on future profitability and do not arise
from temporary differences net of associated tax liabilities
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
41,954
11,017
(3,617)
36,982
11,342
(4,935)
(20,139)
(18,297)
754
-
29,969
754
(2,243)
23,603
28,574
8,644
(2,637)
-
-
-
34,581
27,950
10,046
(3,912)
-
-
(2,243)
31,841
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
200,000
871,378
246,656
49,890
(6,053)
13,522
-
-
(2,213)
(3,529)
200,000
871,378
207,004
39,599
(4,090)
13,522
-
897
(3,134)
(3,529)
200,000
871,378
81,530
-
5,205
13,522
-
-
200,000
871,378
81,529
-
2,815
13,522
-
897
(1,734)
(2,649)
-
-
(30,397)
(35,745)
(23,345)
(29,627)
(3,013)
(2,755)
(4,626)
(2,886)
(-) Investments in CET1 instruments of financial sector - significant share
-
-
-
-
Common Equity Tier 1 Capital (CET1)
1,336,241
1,283,147
1,141,930
1,134,979
Additional Tier 1 capital
Tier 1 capital
Tier 2 capital
Total capital (own funds)
RWA for credit risk
RWA for market risks
RWA for credit valuation adjustment risk
RWA for operational risk
Total risk exposure amount (RWA)
Common Equity Tier 1 Ratio
Tier 1 Ratio
Total Capital Ratio
-
-
-
-
1,336,241
1,283,147
1,141,930
1,134,979
-
-
-
-
1,336,241
1,283,147
1,141,930
1,134,979
6,864,737
6,849,633
4,292,262
4,353,619
104,175
463
892,753
137,351
9,313
930,688
27,975
463
68,988
9,313
561,091
596,127
7,862,128
7,926,985
4,881,791
5,028,047
17.0%
17.0%
17.0%
16.2%
16.2%
16.2%
23.4%
23.4%
23.4%
22.6%
22.6%
22.6%
NLB Group 2016 Annual Report
257
European capital legislation, comprising the CRR regulation and CRD IV directive is based on the Basel III guidelines. Legislation defines
three capital ratios reflecting a different quality of capital:
• Common Equity Tier 1 ratio (ratio between common or CET1 capital and weighted risk exposure amount or RWA), which must be at least
4.5%;
• Tier 1 capital ratio (Tier 1 capital to RWA), which must be at least 6%; and
• Total capital ratio (total capital to RWA), which must be at least 8%.
In addition to the aforementioned ratios, the Bank must meet other requirements and recommendations that are being imposed by the
supervisory institutions or by the legislation:
• Pillar 2 Requirement (SREP requirement): bank specific, obligatory requirement;
• Capital buffers: system of buffers to be added on top of capital adequacy requirement – not obligatory, however breaching of the buffers
triggers limitations in payment of dividends and other distributions from capital. Some of the buffers are prescribed by law for all banks and
some of them are bank specific
• Pillar 2 Guidance: bank specific, not obligatory, and not affecting dividends or other distributions from capital.
The capital adequacy of the NLB Group and NLB remains at a level which covers all current and announced regulatory capital requirements,
including capital buffers and other currently known requirements.
In 2016, the capital of the Bank and the Group consists merely of the components of top quality CET1 capital (no subordinated instruments
that would rank in lower capital categories) which is why all three capital ratios are the same.
In the scope of regulatory risks, which include credit risk, operational risk, and market risk, NLB Group uses the standardised approach for
credit and market risks, while the calculation of capital requirement for operational risks is made according to the basic indicator approach.
The same approaches are used for calculating the capital requirements for NLB on a standalone basis, except for the calculation of the capital
requirement for operational risks where the standardised approach is used.
In preparation of the internal capital adequacy assessment, bank members of NLB Group and NLB identify risks not included in the
calculation under the regulatory approach (Pilar 1) which have a significant impact on their operation. The scope of additional credit risks also
includes the concentration risk – to individual clients and groups of related parties, at the level of activity – and collateral concentration risk.
NLB Group calculates the capital requirement for non-financial risks (which include capital risk, profitability risk, strategic risk, divestment risk
and reputation risk) if it assesses that an individual risk is crucial for NLB Group. In addition, the non-regulatory risks include the effects of
stress scenarios for credit (deterioration of the credit-rating structure, decrease in real-estate market prices), currency, liquidity, interest rate risk
in the banking book, credit spread risks, and market risks arising from securities.
NLB Group 2016 Annual Report 258
5.24. Off-balance sheet liabilities
a) Contractual amounts of off-balance sheet financial instruments
Short-term guarantees
- financial
- non-financial
Long-term guarantees
- financial
- non-financial
Commitments to extend credit
Letters of credit
Other
Provisions (note 5.17.b)
Total
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
162,535
109,412
53,123
586,895
222,869
364,026
190,705
124,080
66,625
599,865
233,706
366,159
1,075,940
1,101,241
17,485
8,329
19,402
7,289
87,957
49,611
38,346
447,125
140,031
307,094
881,198
3,761
118
97,543
50,844
46,699
489,163
162,973
326,190
923,755
3,567
117
1,851,184
1,918,502
1,420,159
1,514,145
(53,681)
(81,999)
(49,865)
(77,643)
1,797,503
1,836,503
1,370,294
1,436,502
Fee income from all issued non-financial guarantees amounted to EUR 5,643 thousand (2015: EUR 5,665 thousand) in NLB Group, and to
EUR 5,224 thousand (2015: EUR 5,192 thousand) at NLB.
b) Analysis of derivative financial instruments by notional amounts
Swaps
- currency swaps
- interest rate swaps
- currency interest rate swaps
Options
- currency options
- interest rate options
- securities options
Forward contracts
- currency forward
Futures
- currency futures
Total
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
Short-term
Long-term
Short-term
Long-term
Short-term
Long-term
Short-term
Long-term
57,188
810,972
90,258
1,023,123
57,188
810,972
90,258
1,026,002
57,188
-
90,258
3,312
57,188
-
90,258
3,312
-
-
10,703
-
-
808,898
2,074
1,495
-
-
997,810
22,001
-
-
15,085
4,763
10,703
808,898
2,074
1,495
-
-
1,000,689
22,001
15,085
4,763
-
7,093
-
1,495
-
4,763
-
-
-
7,093
-
1,495
-
4,763
10,703
-
7,992
-
10,703
-
7,992
-
192,950
7,468
114,030
12,188
191,280
7,468
114,393
12,188
192,950
7,468
114,030
12,188
191,280
7,468
114,393
12,188
2,400
2,400
-
-
2,500
2,500
-
-
2,400
2,400
-
-
2,500
2,500
-
-
263,241
819,935
221,873
1,040,074
261,571
819,935
222,236
1,042,953
1,083,176
1,261,947
1,081,506
1,265,189
The notional amounts of derivative financial instruments that qualify for hedge accounting at NLB Group and NLB amount to EUR 108,554
thousand (31 December 2015: EUR 172,223 thousand). Derivatives that qualify for hedge accounting are used to hedge interest rate risk.
The fair values of derivative financial instruments are disclosed in notes 5.2., 5.5., and 5.15.
NLB Group 2016 Annual Report
259
c) Operating lease commitments
The future minimum lease payments under non-cancellable operating leases are as follows:
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
Real estate
Not later than one year
Later than one year and not later than five years
Later than five years
Other
Not later than one year
Later than one year and not later than five years
Total
d) Operating lease income
Future minimum operating lease income:
NLB Group
Not later than one year
Later than one year and not later than five years
Later than five years
Total
1,775
6,283
1,666
383
772
10,879
1,833
5,977
1,921
399
1,085
11,215
957
3,668
1,709
259
373
6,966
2016
3,775
6,004
197
9,976
980
3,802
1,842
251
454
7,329
in EUR thousand
2015
6,619
14,069
35,957
56,645
In 2016 the expected future operating lease income is lower due to the expected sale of investment properties.
e) Capital commitments
Capital commitments for purchase of:
- property and equipment
- intangible assets
Total
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
179
1,363
1,542
1,193
2,408
3,601
92
1,260
1,352
1,099
2,285
3,384
5.25. Funds managed on behalf of third parties
Funds managed on behalf of third parties are accounted separately from NLB Group’s funds. Income and expenses arising with respect to these
funds are charged to the respective fund, and no liability falls on NLB Group in connection with these transactions. NLB Group charges fees for
its services.
NLB Group 2016 Annual Report
260
Funds managed on behalf of third parties
Fiduciary activities
Settlement and other services
Total
Fiduciary activities
Assets
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
21,511,615
11,056,208
20,518,240
10,167,040
1,509,864
1,110,667
1,482,693
1,079,281
23,021,479
12,166,875
22,000,933
11,246,321
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
Clearing or transaction account claims for client assets
21,452,329
11,006,524
20,463,466
10,124,884
- from financial instruments
21,444,586
10,999,108
20,456,016
10,117,536
- receipt, processing, and execution of orders
9,292,661
1,261,293
8,786,845
808,071
- management of financial instruments portfolio
380,344
339,607
-
-
- custody services
11,771,581
9,398,208
11,669,171
9,309,465
- to Central Securities Clearing Corporation or bank settlement account for sold financial instrument
- to other settlement systems and institutions for bought financial instrument (debtors)
Clients' money
- at settlement account for client assets
- at bank transaction accounts
Liabilities
820
6,923
59,286
33,940
25,346
191
7,225
49,684
20,715
28,969
527
6,923
54,774
29,428
25,346
123
7,225
42,156
13,187
28,969
Clearing or transaction liabilities for client assets
21,511,615
11,056,208
20,518,240
10,167,040
- to client from cash and financial instruments
- receipt, processing, and execution of orders
21,500,968
11,041,371
20,508,917
10,152,750
9,297,620
1,263,851
8,791,804
810,629
- management of financial instruments portfolio
383,825
346,656
-
-
- custody services
11,819,523
9,430,864
11,717,113
9,342,121
- to Central Securities Clearing Corporation or bank settlement account for bought financial instrument
- to other settlement systems and institutions for bought financial instrument (creditors)
- to bank or settlement bank account for fees and costs, etc.
75
10,030
542
126
14,363
348
75
8,706
542
126
13,816
348
Fee income for funds managed on behalf of third parties
Fiduciary activities (note 4.3.b)
Settlement and other services
Total
NLB Group
NLB
2016
8,323
796
9,119
2015
7,111
966
8,077
2016
6,716
633
7,349
in EUR thousand
2015
5,859
848
6,707
NLB Group 2016 Annual Report
6. Events after the reporting date
There were no events after 31 December
2016 that could materially significant
influence the presented financial
statements.
7. Risk management
a) Risk management
strategies and processes
The key goal of NLB Group’s Risk
Management Department is to assess,
monitor, and manage risks within the
group. NLB Group proactively develops
methodologies and models to evaluate,
monitor, and define mitigation criteria for
all relevant risk types. Sound and holistic
understanding of risk management is
embedded into the entire organisation,
to proactively monitor and mitigate
risks, and to ensure the prudent and
economic use of its capital. Key risk
guidelines of NLB Group are defined
by its Risk Appetite and Risk Strategy,
which are regularly revised and enhanced.
The Strategy of NLB Group, the Risk
Appetite and Risk Strategy guidelines and
the key internal policies of NLB Group -
which are approved by the Management
Board and by the Supervisory Board
- specify the strategic goals, risk appetite
guidelines, approaches, and methodologies
for monitoring, measuring, and managing
all types of risk.
The management of credit risk, which
is the most important risk category in
NLB Group, concentrates on taking
moderate risks and ensuring an optimal
return given the risks assumed, beside
the continuity of a strong commitment
to reduce the legacy of non-performing
exposures towards average EU levels.
As regards liquidity risk, the activities
are geared towards constantly ensuring
an appropriate level of liquidity, both
short- and long-term. Concerning market
and operational risks, NLB Group follows
the orientation that such risks must
not significantly impact its operations.
The tolerance for other risk types is low,
and focuses on minimising their possible
impacts on NLB Group’s entire operations.
NLB regularly monitors its target Risk
Appetite profile, both for NLB Group and
NLB, representing the key component of
the risk mitigation process. Risk profile
enables detailed monitoring and proactive
management of exposure to credit, market,
interest, liquidity, operational risk, while
non-financial and other risks are managed
within ICAAP process. The usage of risk
profile limits and potential deviations
from limits and target values are reported
regularly to the respective committees and/
or the Management Board of the Bank,
a comprehensive Risk Report is reviewed
quarterly both by the Management Board,
the Risk Committee of the Supervisory
Board, and the Supervisory Board of the
Bank. The banking subsidiaries within
NLB Group have adapted a corresponding
approach to monitor their target risk
profiles. Additionally, the Group has set up
early warning systems in different risk areas
with the intention of strengthening existing
internal controls and timely responses when
necessary.
For the purpose of an efficient risk
mitigation process, NLB Group applies
a single set of standards to retail and
corporate loan collateral, representing a
secondary source of repayment with the
aim of efficient credit risk management
and consuming capital economically.
The Group has a system for monitoring
and reporting collateral at fair (market)
value in accordance with the International
Valuation Standards (IVS). When
hedging market risks NLB Group follows
the principle of natural hedge or using
derivatives in line with hedge accounting
principles.
NLB Group pays great attention and
importance to the risk culture and
awareness of all relevant risks within
the entire organisation. Pursuant to
the new EBA guidelines, the Group is
261
constantly upgrading the existing ICAAP
process by enhancing its inclusion into
the decision-making process at strategic
and operating levels, and the formally
established ILAAP process that refers to the
comprehensive assessment of liquidity risk.
The internal risk management policies of
NLB Group members include aligned key
risk management guidelines at the level of
the Group, along with the requirements
arising from the local regulations.
The policies are approved by the members’
management and also discussed by their
supervisory boards. They define in detail
the approaches and methodologies for
monitoring, measuring and managing all
types of risks, with an emphasis on:
• monitoring the credit portfolio and
minimising losses arising from credit risk,
which considering its business model is
the principal risk of NLB Group;
• ensuring a sufficient level of liquidity;
• minimising negative income effects
arising from market risks; and
• minimising potential losses arising from
operational risks.
b) Risk management structure
and organisation
Risk management in NLB Group is in
charge of assessing, monitoring and
managing risks within NLB as the main
entity in Slovenia, and the competence
centre for six banking subsidiary banks.
Furthermore, NLB Group is also
responsible to several companies for
ancillary services, and a number of
non-core subsidiaries which are in a
controlled wind-down.
Risk monitoring in NLB Group is
centralised within the specialised
Business-line Risk, encompassing several
organisational units of NLB. This
business line is in charge of formulating
and controlling the risk management
policies, coordinating activities related to
the harmonisation of risk management
in NLB Group, monitoring NLB Group’s
exposure to all types of business risk,
NLB Group 2016 Annual Report 262
and preparation of external and internal
reports. Credit ratings of materially
important clients and the issuing of credit
risk opinions (credit advice as part of the
co-decision principle) are centralised via the
Credit Committee of NLB. All members
of NLB Group which are included in
the consolidated financial statements of
NLB Group report their exposure to risks
to the competent organisational units
in NLB. These report all the relevant
information to the Assets and Liabilities
Committee (ALCO) of NLB Group,
the Management Board, and the Risk
Committee of the Supervisory Board,
which adopt the required measures
or decisions.
The primary responsibility for managing
the risks assumed by NLB Group members
within the framework of their business
strategy lies with their management
teams, which are obliged to pursue the
strategic goals and implement the planned
business results as well as monitor and
manage risks in accordance with the
guidelines at the NLB Group level. For
this purpose, the members must adopt
appropriate risk management policies.
The supervisory board of a member
gives approval to objectives and policies,
and within its competence monitors their
implementation as well as assesses their
effectiveness. The member’s management
or the management board and its
committees may in accordance with their
authorisations delegate certain tasks,
particularly operating responsibilities in risk
management, to lower management levels.
Risk monitoring in NLB Group members
is centralised within an independent
and/or separate organisational unit.
The centralised monitoring of risks ensures
the establishment of standardised and
systemic approaches to risk management,
and thus a comprehensive overview
of events in the Group’s and each
member’s statement of financial position.
In compliance with the Risk Management
Standards of NLB Group, this is organised
in all members in such a manner that
risk measurement and monitoring is
separated from its management and/or
business function, which is important due
to the objectivity required when assessing
business decisions. The organisational
unit for managing risks is directly
responsible to the Management Board or
its committees (Credit Committee, ALCO
and Operational Risk Committee), which
report to the Supervisory Board (Risk
Committee of the Supervisory Board or
Board of Directors).
The organisation and delimitation of
competencies in the risk management area
are designed to prevent conflicts of interest
and ensure a transparent and documented
decision-making process, subject to an
appropriate upward and downward flow
of information.
c) Risk measurement and
reporting systems
NLB is as a systemic bank involved in the
Single Supervisory Mechanism, whereby
the supervision is under the jurisdiction
of the Joint Supervisory Team of the
European Central Bank and the Bank of
Slovenia. ECB regulations are followed
by all NLB Group members, while
NLB Group subsidiaries operating outside
Slovenia are also compliant with the rules
set by the local regulators.
The measurement systems and the risk
management principles are crucial elements
of the risk management policies which, for
the purpose of consolidated control, are
aligned with all regulatory requirements
of the Bank of Slovenia and the European
Central Bank, taking into account the
provisions of the Directive (CRD), Decision
(CRR), and EBA guidelines. Referring to
capital adequacy, NLB Group applies the
standardised approach to credit and market
risk, and the basic approach to operational
risks - with the exception of NLB which
applies the standardised approach.
NLB Group performs a uniform assessment
and management of risks across the entire
Group, taking into account the specifics
of the markets in which individual Group
members are operating in line with the
Group’s Risk management standards.
For the internal needs of measuring
of exposure to credit, market, interest,
operational, and non-financial risks
in NLB Group, besides the prescribed
regulations internal methodologies and
approaches are used that enable more
detailed monitoring and management of
risks. Moreover common group guidelines
for ICAAP and ILAAP process are
established. All of them are aligned with
the Basel and EBA guidelines as well as the
best methodological approaches in banking
practice. A more detailed description of the
methodologies for monitoring individual
types of risks is provided in the following
sections related to each individual risk
separately.
In NLB Group, reporting complies with
the internal guidelines which, in terms of
the substance and frequency of reporting
and, besides internal requirements, take
into account the requirements of the Bank
of Slovenia and the European Central
Bank. At the individual level, members
of NLB Group also comply with the
requirements of the local regulations.
Reporting is carried out in the form of
standardised reports. This is enabled by risk
management policies reasonably aligned
with the methodologies for measuring
and harmonising exposure to risks,
appropriately established databases and the
automation of report preparation at the
NLB Group level, which also ensures their
quality and reduces the possibility of errors.
d) Main emphasis of risk
management in 2016
NLB Group was further strengthening the
robustness of its risk management system
in all respective risk categories in order
to manage them comprehensively and
prudently. In 2016 NLB Group upgraded
Risk Appetite Statement and Risk Strategy,
NLB Group 2016 Annual Report 263
representing NLB Group’s fundamental
risk management documents. NLB Group
further enhanced its risk management
system by additional upgrading of
comprehensive steering processes within
the revised risk management framework.
Furthermore, the ICAAP process was
upgraded with the aim of supporting the
business decision-making process, ILAAP
was introduced and internal stress testing
capabilities were enhanced. To support
these activities internally, developed
models were additionally upgraded, also
in connection with relevant expected
macroeconomic factors.
The most important risk in NLB Group,
in line with strategic orientations, remains
the credit risk category. NLB Group gives
great emphasis to constantly improving the
credit portfolio quality, where the quality
of new financing of corporate and retail
clients, and a well-diversified portfolio
structure represent the key goals. Such
efforts have so far resulted in a sustainable
cost of risk, and the modest formation
of new non-performing exposures in the
year 2016, partially also due to the positive
macroeconomic conditions. The Group
managed to further reduce the volume
of non-performing exposures towards
average EU banking levels with a wide
range of tools, while at the same time
actively participated in the restructuring of
clients in the past has brought additional
positive results. The emphasis is on the
development of internal scoring models
for different client segments in order to
consistently detect risks and achieve better
responsiveness in relations with clients.
In a very low interest rate environment,
with severe competition on the market,
NLB Group is faced with excess liquidity.
Consequently, a lot of attention is being
put on the structure and concentration
of liquidity reserves, while keeping in
mind potential adverse negative market
movements. The Group has sufficient
liquidity reserves even in the event of
possible realisation of liquidity stress
scenarios. NLB Group maintains a
conservative policy for market risks.
The Group’s exposure towards interest
rate risk has recently slightly increased as a
result of an excess liquidity position and a
low interest rate environment, but remains
within the targeted low risk appetite profile.
in accordance with NLB Group’s risk
management standards in order to ensure
meaningfully uniform procedures at the
consolidated level.
NLB Group manages credit risk at two
levels:
There is also a large emphasis on the
management of operational risks, where
NLB Group follows the guideline that
such risk may not considerably influence
its operations. Special attention has been
paid to the development of a stress testing
system, based on modelling data on loss
events and a scenario analysis referring
to high severity/low frequency events.
Furthermore, key risk indicators were
established as an early warning system for
the broader field of operational risks, with
the aim of improving existing internal
controls and timely responding when
necessary.
Nevertheless, NLB Group places great
importance on regularly monitoring
novelties in the regulations, effective
approaches in banking practice, and their
implementation so as to further improve
supervision over the assumption of risks
and their management in practice.
• At the level of the individual customer/
group of customers, where appropriate
procedures are followed in various
phases of the relationship with a
customer prior to, during, and after the
conclusion of an agreement. Prior to
concluding an agreement, a customer’s
performance, financial position,
and past cooperation with NLB are
assessed. It is also important to secure
high-quality collateral that does not
affect a customer’s credit rating. This is
followed by various forms of monitoring
a customer, in particular an assessment
of its ability to generate sufficient cash
flows for the regular settlement of its
liabilities and contractual obligations. As
regards this detection of risks, regular
monitoring of clients within the Early
Warning System (EWS) is important.
For the purpose of objectively assessing
a client’s operation comprehensively,
internal scoring models for particular
client segments have been developed.
7.1. Credit risk management
• The quality of the credit portfolio,
a) Introduction
In its operations, NLB Group is exposed
to credit risk or the risk of losses due to the
failure of a debtor to settle its liabilities to
NLB Group. For that reason, it proactively
and comprehensively monitors and assesses
the aforementioned risk. In that process,
NLB Group follows the International
Financial Reporting Standards, regulations
issued by the Bank of Slovenia, and the
EBA guidelines. This area is governed in
greater detail by the internal methodologies
and procedures set out in internal acts.
Through regular reviews of the business
practices and the credit portfolios of NLB
entities, NLB ensures that the credit risk
management of those entities functions
including on-balance and off-balance
sheet exposures, is actively monitored
and analysed at the level of the
overall portfolio of NLB Group and
NLB. Comprehensive analyses are
regularly performed in terms of
client segmentation (depending on
the client type and size), credit rating
structure, arrears and/or volume
of non-performing/past due and
restructured receivables, coverage
with impairments and provisions,
collateral received, concentrations
arising from a group of related clients
and concentrations within an industry,
currency exposure, and other indicators
of risks in the credit portfolio. A lot of
attention is put on regular monitoring
NLB Group 2016 Annual Report 264
of new deals and other changes or
trends, with the emphasis on the early
detection of increased risks and their
optimisation in relation of profitability.
NLB Group appropriately diversifies its
portfolio to mitigate specific components
of credit risk (i.e. the risk deriving from
operations with a specific customer,
sector, positions in financial instruments,
or other specific events). Increasing
emphasis is also placed on stress tests
that forecast the effects of negative
movements in the portfolio on the level
of impairments and provisions, and
on capital adequacy within the second
pillar. Capital requirements for credit
risk at NLB Group level within the first
pillar are calculated according to the
standardised approach, while within
the second pillar stress testing and
concentration risk assessment are carried
out.
NLB and other NLB Group members
assess the level of credit risk losses on an
individual basis for material claims, which
are reviewed individually, and at the group
level for the rest of the portfolio.
The primary aim of an individual review is
to determine whether objective evidence of
impairment exists. Such evidence includes
information regarding significant financial
problems encountered by a customer,
regarding actual breaches of contractual
obligations such as arrears in the settlement
of liabilities, whether financial assets will
be restructured for economic or legal
reasons, and the likelihood that a customer
will enter into bankruptcy or a financial
reorganisation. Expected future cash flows
(from ordinary operations and the possible
redemption of collateral) are assessed
following an individual review. If their
discounted value differs from the book
value of the financial asset in question,
impairment must be recognised. If
objective evidence of impairment does not
exist, losses are assessed at the group level.
Collective impairments are made for the
remainder of the portfolio, which is not
assessed on an individual basis. To that
end, the portfolio is broken down into
groups of similar claims, and then further
into sub-groups with respect to their credit
rating. Here, impairments are created
regarding the probability of default (PD)
and regarding the average rate of default
or loss given default (LGD) associated with
non-performing claims. The probability of
default is determined by transition matrices
which illustrate the migration of customers
between rating categories, using an
unweighted moving average. The average
rate of default or loss given default, which
indicates how much we will lose on average
when a claim becomes non-performing,
is determined based on the amount of
impairments created for non-performing
loans as the non-weighted average of loss
given a default. When creating collective
provisions for commitments, on the basis of
empirical data regarding the redemption
of guarantees in the past, the probability of
the redemption of guarantees is taken into
account when creating collective provisions.
Activities related to meeting the IFRS
9 requirements, which will enter into
force at the beginning of 2018, including
quantitative impact study and foreseen
methodological adaptations, are underway
(note 2.34.).
b) Main emphasis in 2016
In the process of constantly enhancing
credit risk management NLB Group
focuses on taking moderate risks and
simultaneously ensuring an optimal
return considering the risks assumed. To
ensure long-term profitable operations,
NLB Group endeavours for a gradual
improvement in the quality of the credit
portfolio with a new, sound portfolio, and
simultaneously focuses on a proactive
resolving of non-performing exposures,
including established structured approaches
in restructuring and work-out areas.
Constant improvement of credit portfolio
quality represents the most important
key aim, with a focus on the quality of
new placements leading to a diversified
portfolio of customers. NLB Group
puts considerable emphasis on new
corporate and retail financing. The lower
indebtedness of companies and their
successful restructuring had a positive
influence on the approval of new loans.
In the retail segment, positive trends were
shown in the larger trust of clients in
economic developments and the related
consumption, the reduced unemployment
rate and partial recovery of the real-estate
market. In comparison with the previous
period, a larger volume of new loans
was approved to this segment of clients.
Beside the structure of the credit portfolio
(the share of the portfolio with an A or
B rating) is constantly improving. Efforts
resulted in sustainable cost of risk and
modest formation of new non-performing
exposures in the current year, also partially
due to the positive macroeconomic
conditions.
The restructuring and work-out capacities
and approaches built in the past are
partly still occupied with the legacy
of non-performing loans, although
increasingly focused on actively resolving
new cases with a faster and more active
approach to restructuring and work-out.
In addition to the organic reduction of
non-performing exposures, NLB Group
was able to sell off part of the receivables
due to investors in two tranches (corporate
and retail) resulted in a non-performing
exposure reduction of EUR 233.3 million.
As at 31 December 2016 the share
of non-performing exposure by EBA
methodology was 10.0%. Moreover the
coverage ratio remains high at 64.6%,
which is well above the EU average
published by EBA (44.3%).
NLB Group 2016 Annual Report c) Internal rating system and authorisations
265
in EUR thousand
31.12.2016
31.12.2015
Gross loans
and advances
Loans and
advances (%)
Impairment
provision
Impairment
provision (%)
Gross loans
and advances
Loans and
advances (%)
Impairment
provision
Impairment
provision (%)
4,872,072
1,852,289
410,975
1,201,333
58.4
22.2
4.9
14.4
23,763
60,619
64,451
0.5
3.3
4,816,101
1,564,895
15.7
650,739
54.8
17.8
7.4
22,773
54,140
106,585
754,917
62.8
1,751,317
19.9
1,079,579
8,336,669
100.0
903,750
10.8
8,783,052
100.0
1,263,077
0.5
3.5
16.4
61.6
14.4
31.12.2016
31.12.2015
in EUR thousand
Gross loans
and advances
Loans and
advances (%)
Impairment
provision
Impairment
provision (%)
Gross loans
and advances
Loans and
advances (%)
Impairment
provision
Impairment
provision (%)
3,581,311
1,087,449
454,477
718,476
61.3
18.6
7.8
12.3
11,653
24,464
45,873
0.3
2.2
3,540,605
934,586
10.1
737,199
422,758
58.8
1,048,450
56.5
14.9
11.8
16.8
11,727
20,643
64,653
597,892
5,841,713
100.0
504,748
8.6
6,260,840
100.0
694,915
0.3
2.2
8.8
57.0
11.1
NLB Group
A
B
C
D and E
Total
*Other financial assets are not included.
NLB
A
B
C
D and E
Total
*Other financial assets are not included.
NLB Group 2016 Annual Report 266
The basis for the client credit rating classification in NLB Group is an internally developed methodology. It is based on internal statistical
analyses, good banking practices, as well as regulations of the Bank of Slovenia (Decision of the Bank of Slovenia on the Assessment of Credit
Risk Losses of Banks and Savings Banks) and requirements of the European Banking Authority (EBA). The rating methodology is used across
the entire NLB Group. A uniform credit grade scale of 12 rating classes was implemented in 2015, while before other members of NLB Group
were using a narrower credit grade scale. The rating methodology consists of 12 credit rating classes for classifying legal persons, whereby nine
of the credit rating classes represent a going concern, i.e. performing clients, and three of them non-performing clients, i.e. ‘defaulters.’
Grade A (AAA-A) includes the best clients with a low degree of default probability, and which is characterised by high capital adequacy and a
high coverage of financial liabilities with free cash flow. Grade B (BBB-B) includes clients with a low credit risk, one class lower than A-grade
clients. The clients operate successfully, have a sufficient cash flow to settle their obligations, but some are more sensitive to changes in the
industry or the economy. C (CCC-C) grade clients are exposed to a higher and above-average level of credit risk. The Bank reasonably restricts
cooperation with such clients and decreases its exposure. For some of these clients, the specialised restructuring unit must participate in the
process.
The D-, DF- and E-grades represent defaulters or clients with a high probability of default. Besides clients in insolvency proceedings and
with arrears of over 90 days, this category includes clients where the Bank, based on past operations and future projections, assesses a high
probability of default (“unlikely to pay”). D- and E-grade clients are ordinarily handled by the specialised units for restructuring or workout and
legal support or by the specialised working groups.
Authorisations, procedures, and the detailed rating methodology, as well as the setting of a maximum borrowing limit and the impairment of
claims, are formalised in NLB Group’s internal acts. A standard customer rating methodology, with the prescribed set and quality of input data
and elements of a rating analysis, applies to all NLB Group entities. Here it should be noted that decisions regarding the limits and internal
ratings of materially-significant customers of NLB Group are harmonised and performed in line with the responsibility of centralised credit
analysis function and NLB Credit Committee.
NLB regularly reviews the business practices and credit portfolios of NLB Group entities to make sure they are operating in accordance with the
minimum risk management standards of NLB Group. This ensures appropriate standard processes for managing and reporting credit risks at
the consolidated level.
NLB Group 2016 Annual Report 267
d) Maximum exposure to credit risk
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
Cash, cash balances at central banks, and other demand deposits at banks
1,299,014
1,161,983
Debt securities classified as loans and receivables
Loans to government
Loans to banks
Loans to financial organisations
Loans to individuals
Granted overdrafts
Loans for houses and flats
Consumer loans
Other loans
Loans to other customers
Loans to large corporate customers
85,315
775,986
435,537
74,344
394,579
688,474
431,775
139,852
617,039
85,315
668,300
408,056
273,310
496,806
394,579
578,184
345,207
391,911
3,091,508
2,907,991
1,951,115
1,889,683
182,322
185,912
147,779
152,042
1,589,762
1,503,814
1,208,996
1,165,800
1,090,120
229,304
962,884
255,381
480,626
113,714
471,889
99,952
2,970,229
2,957,304
1,950,869
1,966,361
1,534,628
1,645,169
1,296,126
1,263,055
Loans to small- and medium-sized enterprises
1,435,601
1,312,135
654,743
Other financial assets
Trading assets
Financial assets designated at fair value through profit or loss
61,014
87,699
734
69,521
267,403
753
36,151
87,693
-
703,306
48,944
267,870
-
Available-for-sale financial assets
Held-to-maturity financial assets
Derivatives - hedge accounting
Total net financial assets
Guarantees
Financial guarantees
Non-financial guarantees
Loan commitments
Other potential liabilities
Total contingent liabilities
Total maximum exposure to credit risk
1,998,533
1,661,729
1,526,787
1,177,947
611,449
217
565,535
1,083
611,449
217
565,535
1,083
11,491,579
11,247,229
8,216,301
8,124,110
749,430
332,281
417,149
790,570
357,786
432,784
1,075,940
1,101,241
25,814
26,691
535,082
189,642
345,440
881,198
3,879
586,706
213,817
372,889
923,755
3,684
1,851,184
1,918,502
1,420,159
1,514,145
13,342,763
13,165,731
9,636,460
9,638,255
Maximum exposure to credit risk is a presentation of NLB Group’s exposure to credit risk separately by individual types of financial assets and
conditional obligations. Exposures stated in the above table are shown for the balance sheet items in their net book value as reported in the
statement of financial position, and for off-balance sheet items in the amount of their nominal value.
NLB Group has 92.9% (31 December 2015: 85.8%) of loans and advances that are neither past due nor impaired, 1.7% (31 December 2015:
5.4%) of loans and advances past due but not impaired, 5.4% (31 December 2015: 8.8%) of impaired loans. NLB has 94.5% (31 December
2015: 86.6%) of loans and advances that are neither past due nor impaired, 0.5% (31 December 2015: 0.6%) of loans and advances past due
but not impaired, 5.0% (31 December 2015: 12.8%) of individually impaired loans.
NLB Group 2016 Annual Report
268
e) Collateral from loans and advances
31.12.2016
Debt securities
Loans to government
Loans to banks
Loans to financial organisations
Loans to individuals
Granted overdrafts
Loans for houses and flats
Consumer loans
Other loans
Loans to other customers
Loans to large corporate customers
Loans to small- and medium-sized enterprises
Other financial assets
Total
31.12.2015
Debt securities
Loans to government
Loans to banks
Loans to financial organisations
Loans to individuals
Granted overdrafts
Loans for houses and flats
Consumer loans
Other loans
Loans to other customers
Loans to large corporate customers
Loans to small- and medium-sized enterprises
Other financial assets
Total
NLB Group
in EUR thousand
Fully/over collateralised
loans and advances
Loans and advances not or not
fully covered with collateral
Net value of loans
and advances
Fair value of
collateral
Net value of loans
and advances
Fair value of
collateral
85,315
251,551
6
19,431
85,315
317,715
14
71,350
-
524,435
435,531
54,913
1,908,266
3,568,947
1,183,242
-
-
1,372,758
2,759,543
479,756
55,752
710,314
99,090
182,322
217,004
610,364
173,552
1,782,319
4,175,647
1,187,910
898,439
883,880
659
1,659,912
2,515,735
7,634
636,189
551,721
60,355
-
33
532
296
82,845
958
60,596
9,643
11,648
403,571
155,478
248,093
355
4,047,547
8,226,622
3,446,386
487,632
NLB Group
in EUR thousand
Fully/over collateralised
loans and advances
Loans and advances not or not
fully covered with collateral
Net value of loans
and advances
Fair value of
collateral
Net value of loans
and advances
Fair value of
collateral
394,579
106,460
29
31,724
394,579
175,914
106
79,141
1,964,725
3,919,693
-
-
1,283,725
2,827,096
623,828
57,172
970,322
122,275
-
582,014
431,746
108,128
943,266
185,912
220,089
339,056
198,209
1,874,743
5,130,963
1,082,561
1,081,843
2,455,629
792,900
2,675,334
2,965
38,713
563,326
519,235
66,556
-
7
610
7,145
150,360
-
95,683
16,820
37,857
683,433
304,934
378,499
417
4,375,225
9,739,109
3,214,271
841,972
NLB Group 2016 Annual Report 269
NLB
in EUR thousand
Fully/over collateralised
loans and advances
Loans and advances not or not
fully covered with collateral
Net value of loans
and advances
Fair value of
collateral
Net value of loans
and advances
Fair value of
collateral
85,315
223,474
-
85,315
230,986
-
18,826
68,974
1,491,043
2,463,534
-
-
1,089,934
2,018,702
401,096
444,816
13
16
1,128,371
2,196,939
745,588
382,783
1,188,052
1,008,887
82
2,429
-
444,826
408,056
254,484
460,072
147,779
119,062
79,530
113,701
822,498
550,538
271,960
36,069
-
-
77
-
41,862
-
41,214
648
-
320,580
139,999
180,581
285
2,947,111
5,048,177
2,426,005
362,804
NLB
in EUR thousand
Fully/over collateralised
loans and advances
Loans and advances not or not
fully covered with collateral
Net value of loans
and advances
Fair value of
collateral
Net value of loans
and advances
Fair value of
collateral
394,579
70,046
-
394,579
76,041
-
28,274
74,746
1,411,275
2,342,930
-
-
1,013,194
1,895,187
398,047
447,701
34
42
1,164,744
2,473,144
796,995
367,749
294
1,360,792
1,112,352
3,403
-
508,138
345,207
363,637
478,408
152,042
152,606
73,842
99,918
801,617
466,060
335,557
48,650
-
-
153
6,791
67,162
-
63,388
3,774
-
498,112
225,583
272,529
412
3,069,212
5,364,843
2,545,657
572,630
31.12.2016
Debt securities
Loans to government
Loans to banks
Loans to financial organisations
Loans to individuals
Granted overdrafts
Loans for houses and flats
Consumer loans
Other loans
Loans to other customers
Loans to large corporate customers
Loans to small- and medium-sized enterprises
Other financial assets
Total
31.12.2015
Debt securities
Loans to government
Loans to banks
Loans to financial organisations
Loans to individuals
Granted overdrafts
Loans for houses and flats
Consumer loans
Other loans
Loans to other customers
Loans to large corporate customers
Loans to small- and medium-sized enterprises
Other financial assets
Total
NLB Group 2016 Annual Report 270
f) Credit protection policy
NLB Group applies a single set of standards to retail and corporate loan collateral, as developed by the members through the collateral
harmonisation project. The master document regulating loan collateral in NLB Group is the Loan Collateral Policy in NLB Group and NLB.
The Policy has been adopted by the Management Board of NLB and by the supervisory bodies of respective members for other members of
NLB Group. The Policy represents the basic orientations bank employees must take into account when signing, evaluating, monitoring, and
reporting collateral, with the aim of reducing credit risk.
NLB Group primarily accepts collateral complying with the Basel II requirements with the aim of improving credit risk management and
consuming capital economically. In accordance with Basel II, collateral may consist of pledged deposits, government guarantees, bank
guarantees, debt securities issued by central governments and central banks, bank debt securities, and real-estate mortgages (the real estate must
be located in the European Economic Area for the effect on capital to be recognised).
Loans made to companies and sole proprietors may be secured by other forms of collateral as well (for example, a lien on movable property,
a pledge of an equity stake, collateral by pledged/assigned receivables, etc.) if it is assessed that the collateral could generate a cash flow if it
were needed as a secondary source of payment. In the case of a lower probability that such an item of collateral would generate a cash flow, a
conservative approach is followed, namely, such collateral can be taken, but for reporting purposes the value is zero.
g) The processes for valuing collateral
Pursuant to the law, NLB Group has set up a system for monitoring and reporting collateral at fair (market) value.
The market value of real estate or movable property used as collateral is obtained from valuation reports of licensed appraisers or, for low
contract amounts, from sales agreements not older than one year. The market value of financial instruments held by NLB Group is obtained
from the organised market – the stock exchange – for listed financial instruments or determined in accordance with the internal methodology for
unlisted financial instruments (such collateral is used exceptionally and on a small scale in loans granted to companies and sole proprietors).
NLB has compiled a reference list of licensed appraisers. All appraisals must be made for the purpose of secured lending and in accordance with
the International Valuation Standards (IVS). Appraisals related to retail loans are generally ordered only from appraisers with whom the Bank
has a contract for real-estate valuations. For corporate loans, appraisals are usually submitted by clients. If a client submits an appraisal not made
by an appraiser included on the Bank’s reference list, the expert department employing licensed appraisers (certified appraisers in construction
with licences granted by the Ministry of Justice, and certified real-estate value appraisers with licences granted by the Slovenian Institute of
Auditors) will verify the appraisal. The expert department is also responsible for reviewing valuations of real estate serving as collateral for large
loans.
Other NLB Group members obtain valuations from in-house appraisers and outsourced appraisers, all having the necessary licences.
NLB Group has compiled a reference list of appraisers for valuations of real estate located outside Slovenia. Appraisals must be made in
accordance with the IVS. For larger loans, real-estate evaluations must be reviewed by an internal licensed appraiser with knowledge of the local
real-estate market.
When assuring collateral, NLB Group follows the internal regulations which define the minimum security or pledge ratios. NLB Group strives
to obtain collateral with a higher value than the underlying exposure (depending on the borrower’s rating, loan maturity etc.) with the aim
of reducing negative consequences resulting from any major swings in market prices of the assets used as collateral. In the case of a reduced
value of collateral and/or deteriorated debtor credit rating, additional collateral is sought as necessary and in accordance with the contractual
provisions.
If real estate, movable property, and financial instruments serve as collateral, the Bank’s lien should be entered as top ranking. Exceptionally,
where the value of the mortgaged real estate is large enough, the lien can be entered with a different priority order.
NLB Group monitors the value of collateral during the loan repayment period in accordance with the mandatory periods and internal
instructions. For example, the value of collateral using mortgaged real estate is monitored annually by either preparing individual assessments or
using the internal methodology for preparing an own value appraisal of real estate (which applies to Slovenia, Serbia, and Montenegro) based
on public records and indexes of real-estate value published by the relevant government authorities (the Surveying and Mapping Authority in
Slovenia).
NLB Group 2016 Annual Report 271
h) The main types of collateral taken by the Bank
NLB Group accepts different forms of material and personal security as loan collateral.
Material loan collateral gives the right in case of the debtor (borrower) defaulting on their contractual obligations to sell specific property to
recover claims, keep specific non-cash property or cash, or reduces or offsets the amount of exposure against the counterparty’s debt to the Bank.
NLB Group accepts the following material types of loan collateral:
• asset-backed collateral:
- collateral backed by business and residential real estate;
- collateral backed by movable property;
- cash receivable collateral;
• collateral by a pledge of financial assets (bank deposits or cash-like instruments, debt securities of different issuers, investment fund units,
equity securities, or convertible bonds);
• pledge of an equity stake;
• pledge or assignment of receivables as collateral; and
• other material forms of loan collateral (life insurance policies pledged to the Bank, etc.).
Personal loan collateral is a method for reducing credit risk whereby a third party undertakes to pay the debt in case of the primary debtor
(borrower) defaulting.
NLB Group accepts the following types of personal loan collateral:
• joint and several guarantees by retail and corporate clients;
• bank guarantees;
• government guarantees (e.g. of the Republic of Slovenia);
• guarantees by national and regional development agencies; and
• insurance with an insurance company, etc.
Loans are very often secured by a combination of collateral types.
The general recommendations on loan collateral are specified in the internal instructions and include the elements specified below. The decision
on the type of collateral and the coverage of loan by collateral depends on the analysis of data on the debtor (the debtor’s credit rating and
creditworthiness) and loan maturity; the difference arises from whether the loan is granted to retail or a corporate client. Corporate clients
(companies and sole proprietors) must submit bills of exchange with written authorities for the creditor to fill them in for every loan.
NLB has also created, in the area of real-estate loan collateral, an ‘on-line’ connection with the Surveying and Mapping Authority in Slovenia
which allows direct and immediate verification of the existence of property.
NLB Group strives to ensure the best possible collateral for long-term loans, namely mortgages in most cases. Thus, the mortgaging of real
estate is the most frequent form of loan collateral of corporate and retail clients. In corporate loans, it is followed by government and corporate
guarantees. In retail loans, it is followed by insurance companies and guarantors.
i) Evaluation risk of collateral
Client/counterparty credit risk is the key decision parameter when approving exposures. Collateral is a secondary source of repayment, and
therefore decisions on approvals of exposures should not primarily be based on the provided collateral. However, collateral is an important
comfort element in the approval process and, depending on the credit rating of the client, a prerequisite. NLB Group has prescribed the
minimum ratios between the value of collateral and the loan amount, depending on the type of collateral and the client rating. The ratios are
based on experience, regulatory guidelines, and are prescribed in the Collateral Manual.
NLB Group pays particular attention to closely monitoring the fair value of collateral, and to receiving regular and independent revaluations by
applying the International Valuation Standards. Through a detailed examination of all collateral received, NLB has ensured that only collateral
is taken into account from which payment can be realistically expected if it is liquidated.
NLB Group has the largest concentration on collaterals arising from mortgages on real-estate, which is a comparatively reliable and quality type
NLB Group 2016 Annual Report 272
of collateral; however, among others due to the falling real-estate market prices in recent history, the Bank is closely monitoring the real-estate
collateral values and, where required, is establishing higher amounts of impairments and provisions for non-performing loans secured by real
estate, based on estimated discounts of the real-estate value (specified in the Collateral Manual) which are expected to be achieved in a sale
(expected payment from collateral).
Collateral consisting of securities entails market risk, specifically the risk of changes in the prices of securities on capital markets. To limit such
risks and restrict the possibility of the value of instruments received as collateral falling below approved limits, the Rules determine minimum
pledge ratios for securing loans on the basis of pledged securities and equity shares in NLB. Any deviation from the Rules is subject to the prior
approval of the respective decision bodies of the Bank. The ratio between the loan amount and the securities’ value is determined with regard to
the securities’ liquidity, maturity, correlation with changes in market indexes, i.e. by considering the key features reflecting the level of volatility of
market prices, and the ability to sell the securities at the market price. For certain types of securities, the ratio is also determined by considering
the issuer’s credit rating, which reflects the credit risk entailed in collateral-using securities. In the case of adverse changes in the capital markets,
the loan-to-collateral ratio may fall below the prescribed limit; in such a case, the debtor will be asked to provide additional securities or another
type of collateral.
Collateral consisting of sureties of corporate clients, sureties of private individuals, and bank guarantees entail the credit risk of the provider of
the collateral. NLB Group includes the amount of the guarantees received in the exposure limit of the guarantor, and guarantees are only taken
into account as collateral if the guarantor has sufficient overall creditworthiness.
The Collateral Manual regulates which forms of collateral are acceptable, and which preconditions a type of collateral needs to fulfil to be able
to be considered.
NLB Group 2016 Annual Report 273
in EUR thousand
D and E
Total
-
-
-
-
-
-
-
-
-
85,315
662,177
408,056
272,510
1,896,633
141,534
1,181,625
469,532
103,942
j) Net loans and advances neither past due nor impaired
31.12.2016
Debt securities
Loans to government
Loans to banks
NLB Group
A
85,315
B
-
C
-
D and E
Total
A
-
85,315
85,315
NLB
B
-
C
-
566,017
186,441
15,020
20
767,498
541,763
117,206
3,208
Loans to financial organisations
38,473
4,562
30,300
337,639
97,798
81
-
-
435,518
320,201
87,774
81
73,335
33,873
2,096
236,541
Loans to individuals
Granted overdrafts
2,922,528
31,441
24,684
90 2,978,744 1,878,392
2,710
15,531
168,673
1,576
3,844
-
174,093
137,655
221
3,658
Loans for houses and flats
1,529,074
7,563
12,389
3 1,549,029 1,169,230
2,003
10,392
Consumer loans
Other loans
1,028,158
18,250
196,624
4,052
5,539
2,912
11 1,051,958
468,478
76
203,664
103,029
128
358
926
555
Loans to other customers
853,188 1,433,753
241,794
33,353 2,562,089
689,070
850,513
148,625
30,146
1,718,354
Loans to large corporate customers
622,397
689,474
77,223
15,493 1,404,587
603,429
546,134
27,984
13,920
1,191,467
Loans to small- and medium-sized enterprises
230,792
744,279
164,571
17,860 1,157,502
85,641
304,379
120,641
16,226
526,887
Other financial assets
Total
44,634
9,996
1,847
56
56,533
25,229
7,629
1,602
-
34,460
4,847,794 1,763,991
313,726
33,519 6,959,030 3,573,843 1,067,928
405,588
30,146
5,077,505
31.12.2015
Debt securities
Loans to government
Loans to banks
NLB Group
A
394,579
B
-
C
-
D and E
Total
A
-
394,579
394,579
NLB
B
-
C
-
445,382
190,291
33,936
29
669,638
439,997
125,097
3,662
300,464
126,084
-
-
426,548
202,097
141,694
-
in EUR thousand
D and E
Total
-
-
-
394,579
568,756
343,791
Loans to financial organisations
27,101
1,889
75,339
48
104,377
23,629
189
99,422
48
123,288
Loans to individuals
Granted overdrafts
2,575,773
14,822
25,400
61 2,616,056 1,781,889
5,230
19,333
157,312
466
2,599
-
160,377
141,486
309
2,538
Loans for houses and flats
1,364,783
6,508
16,569
3 1,387,863 1,100,006
4,402
14,893
Consumer loans
Other loans
864,481
7,163
5,246
58
876,948
450,740
189,197
685
986
-
190,868
89,657
192
327
1,552
350
-
-
-
-
-
1,806,452
144,333
1,119,301
452,484
90,334
Loans to other customers
854,318 1,066,181
294,123
26,904 2,241,526
663,035
638,834
258,197
21,041
1,581,107
Loans to large corporate customers
681,411
574,717
158,243
19,348 1,433,719
595,135
415,879
121,089
15,927
1,148,030
Loans to small- and medium-sized enterprises
172,907
491,464
135,880
7,556
807,807
67,900
222,955
137,108
5,114
433,077
Other financial assets
Total
55,480
3,142
1,287
21
59,930
38,455
2,371
1,162
1
41,989
4,653,097 1,402,409
430,085
27,063 6,512,654 3,543,681
913,415
381,776
21,090
4,859,962
* The loans and advances disclosed in the above tables are not individually impaired since they are fully or over collateralised.
NLB Group 2016 Annual Report 274
k) Net loans and advances past due but not individually impaired
31.12.2016
Loans to government
Loans to banks
Loans to financial organisations
Loans to individuals
Granted overdrafts
Loans for houses and flats
Consumer loans
Other loans
Loans to other customers
Loans to large corporate customers
Loans to small- and medium-sized enterprises
Other financial assets
Total
NLB Group
NLB
in EUR thousand
Up to 30 days Up to 90 days Over 90 days
Total Up to 30 days Up to 90 days Over 90 days
Total
401
19
207
1,345
-
-
-
-
2
1,746
19
209
-
-
-
56,097
10,782
1,216
68,095
21,758
3,856
10,040
22,567
19,634
40,889
5,361
35,528
2,136
1,141
2,212
4,850
2,579
8,203
474
7,729
46
26
174
549
467
5,600
323
5,277
170
5,023
12,426
27,966
22,680
54,692
6,158
48,534
2,352
2,204
4,889
6,028
8,637
2,378
124
2,254
54
-
-
-
4,229
1,057
1,115
1,484
573
106
-
106
2
99,749
20,376
6,988
127,113
24,190
4,337
-
-
-
-
-
-
-
-
24
24
-
1
25
-
-
-
25,987
3,261
6,004
7,512
9,210
2,508
148
2,360
57
28,552
31.12.2015
Loans to government
Loans to banks
Loans to financial organisations
Loans to individuals
Granted overdrafts
Loans for houses and flats
Consumer loans
Other loans
NLB Group
NLB
in EUR thousand
Up to 30 days Up to 90 days Over 90 days
Total Up to 30 days Up to 90 days Over 90 days
Total
8,468
29
79
56
-
28
-
-
34
8,524
29
141
1
-
-
-
-
-
203,459
14,770
1,957
220,186
28,005
1,867
20,055
66,899
64,930
51,575
840
2,905
1,725
9,300
69
591
413
884
20,964
70,395
67,068
61,759
2,591
7,689
9,452
8,273
1,508
-
1,508
88
743
389
133
602
177
-
177
1
-
275
33
-
-
-
-
-
1,888
24
1,864
18
1
275
33
29,872
3,334
8,078
9,585
8,875
3,573
24
3,549
107
365,236
28,781
15,838
409,855
29,602
2,045
2,214
33,861
Loans to other customers
149,789
13,698
13,464
176,951
Loans to large corporate customers
40,384
1,842
2,179
44,405
Loans to small- and medium-sized enterprises
109,405
11,856
11,285
132,546
3,412
229
383
4,024
Other financial assets
Total
* The loans and advances disclosed in the above tables are not individually impaired since they are fully or over collateralised.
NLB Group 2016 Annual Report l) Individually impaired loans and advances
31.12.2016
Loans to government
Loans to financial organisations
Loans to individuals
Granted overdrafts
Loans for houses and flats
Consumer loans
Other loans
Loans to other customers
Loans to large corporate customers
Loans to small- and medium-sized enterprises
Other financial assets
Total
31.12.2015
Loans to government
Loans to banks
Loans to financial organisations
Loans to individuals
Granted overdrafts
Loans for houses and flats
Consumer loans
Other loans
Loans to other customers
Loans to large corporate customers
Loans to small- and medium-sized enterprises
Other financial assets
Total
NLB Group
Gross value
Impairment
provision
Net value
Gross value
12,556
26,261
113,027
10,974
50,730
35,351
15,972
1,008,733
323,493
685,240
14,225
(5,814)
(25,461)
(68,358)
(7,768)
(22,423)
(25,155)
(13,012)
(655,285)
(199,610)
(455,675)
(12,096)
1,174,802
(767,014)
6,742
800
44,669
3,206
28,307
10,196
2,960
353,448
123,883
229,565
2,129
407,788
NLB
Impairment
provision
(3,137)
(25,429)
(23,564)
(4,941)
(13,785)
(3,902)
(936)
(370,629)
(148,337)
(222,292)
(3,112)
9,260
26,229
52,059
7,925
35,152
7,484
1,498
600,636
252,848
347,788
4,746
692,930
(425,871)
NLB Group
Gross value
Impairment
provision
Net value
Gross value
16,836
5,439
72,282
(6,524)
(241)
(36,948)
184,308
(112,559)
15,182
85,150
62,339
21,637
1,475,971
438,867
1,037,104
31,711
(10,611)
(39,594)
(43,471)
(18,883)
(937,144)
(271,822)
(665,322)
(26,144)
10,312
5,198
35,334
71,749
4,571
45,556
18,868
2,754
538,827
167,045
371,782
5,567
12,754
1,338
314,078
105,041
11,984
66,093
24,940
2,024
895,611
285,868
609,743
11,340
NLB
Impairment
provision
(3,327)
(197)
(45,488)
(51,682)
(7,609)
(27,672)
(15,120)
(1,281)
(513,930)
(170,867)
(343,063)
(4,492)
1,786,547
(1,119,560)
666,987
1,340,162
(619,116)
275
in EUR thousand
Net value
6,123
800
28,495
2,984
21,367
3,582
562
230,007
104,511
125,496
1,634
267,059
in EUR thousand
Net value
9,427
1,141
268,590
53,359
4,375
38,421
9,820
743
381,681
115,001
266,680
6,848
721,046
NLB Group 2016 Annual Report 276
m) Net loans analysis
31.12.2016
Debt securities
Loans to government
Loans to banks
Loans to financial organisations
Loans to individuals
Granted overdrafts
Loans for houses and flats
Consumer loans
Other loans
Loans to other customers
Loans to large corporate customers
Loans to small- and medium-sized enterprises
Other financial assets
Total
31.12.2015
Debt securities
Loans to government
Loans to banks
Loans to financial organisations
Loans to individuals
Granted overdrafts
Loans for houses and flats
Consumer loans
Other loans
Loans to other customers
Loans to large corporate customers
Loans to small- and medium-sized enterprises
Other financial assets
Total
NLB Group
in EUR thousand
Loans and advances
neither past due
nor impaired
Loans and advances past
due but not impaired
Individually impaired
loans and advances
85,315
767,498
435,518
73,335
2,978,744
174,093
1,549,029
1,051,958
203,664
2,562,089
1,404,587
1,157,502
56,533
6,959,032
-
1,746
19
209
68,095
5,023
12,426
27,966
22,680
54,692
6,158
48,534
2,352
127,113
-
6,742
-
800
44,669
3,206
28,307
10,196
2,960
353,448
123,883
229,565
2,129
407,788
Total
85,315
775,986
435,537
74,344
3,091,508
182,322
1,589,762
1,090,120
229,304
2,970,229
1,534,628
1,435,601
61,014
7,493,933
NLB Group
in EUR thousand
Loans and advances
neither past due
nor impaired
Loans and advances past
due but not impaired
Individually impaired
loans and advances
394,579
669,638
426,548
104,377
2,616,056
160,377
1,387,863
876,948
190,868
2,241,526
1,433,719
807,807
59,930
6,512,654
-
8,524
29
141
220,186
20,964
70,395
67,068
61,759
176,951
44,405
132,546
4,024
409,855
-
10,312
5,198
35,334
71,749
4,571
45,556
18,868
2,754
538,827
167,045
371,782
5,567
666,987
Total
394,579
688,474
431,775
139,852
2,907,991
185,912
1,503,814
962,884
255,381
2,957,304
1,645,169
1,312,135
69,521
7,589,496
NLB Group 2016 Annual Report NLB
Loans and advances
neither past due
nor impaired
Loans and advances past
due but not impaired
Individually impaired
loans and advances
85,315
662,177
408,056
272,510
1,896,633
141,534
1,181,625
469,532
103,942
1,718,354
1,191,467
526,887
34,460
5,077,505
-
-
-
-
25,987
3,261
6,004
7,512
9,210
2,508
148
2,360
57
28,552
-
6,123
-
800
28,495
2,984
21,367
3,582
562
230,007
104,511
125,496
1,634
267,059
277
in EUR thousand
Total
85,315
668,300
408,056
273,310
1,951,115
147,779
1,208,996
480,626
113,714
1,950,869
1,296,126
654,743
36,151
5,373,116
NLB
in EUR thousand
Loans and advances
neither past due
nor impaired
Loans and advances past
due but not impaired
Individually impaired
loans and advances
394,579
568,756
343,791
123,288
1,806,452
144,333
1,119,301
452,484
90,334
1,581,107
1,148,030
433,077
41,989
4,859,962
-
1
275
33
29,872
3,334
8,078
9,585
8,875
3,573
24
3,549
107
33,861
-
9,427
1,141
268,590
53,359
4,375
38,421
9,820
743
381,681
115,001
266,680
6,848
721,046
Total
394,579
578,184
345,207
391,911
1,889,683
152,042
1,165,800
471,889
99,952
1,966,361
1,263,055
703,306
48,944
5,614,869
31.12.2016
Debt securities
Loans to government
Loans to banks
Loans to financial organisations
Loans to individuals
Granted overdrafts
Loans for houses and flats
Consumer loans
Other loans
Loans to other customers
Loans to large corporate customers
Loans to small- and medium-sized enterprises
Other financial assets
Total
31.12.2015
Debt securities
Loans to government
Loans to banks
Loans to financial organisations
Loans to individuals
Granted overdrafts
Loans for houses and flats
Consumer loans
Other loans
Loans to other customers
Loans to large corporate customers
Loans to small- and medium-sized enterprises
Other financial assets
Total
NLB Group 2016 Annual Report 278
n) Repossessed assets
NLB Group and NLB received the following assets by taking possession of collateral held as security and held them at the reporting date:
Nature of assets
Securities (note 5.4.b)
Investment property (note 5.10.)
Property and equipment (note 5.9.)
Investments in subsidiaries and associates
Other assets (note 5.13.)
Total
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
Net value
Net value
24,162
48,658
1,523
-
79,059
153,402
21,277
57,599
1,839
-
75,652
156,367
20,832
3,750
7
2,484
4,263
18,977
3,750
7
3,248
3,371
31,336
29,353
Other assets on NLB Group in the amount of EUR 76,416 thousand (31 December 2015: EUR 72,433 thousand) and on NLB in the amount
of EUR 4,263 thousand (31 December 2015: EUR 3,371 thousand) consist of real estate, and the rest are other assets received as collateral.
o) Analysis of loans and advances by industry sectors
31.12.2016
31.12.2015
in EUR thousand
Gross loans
Impairment
provisions
Net loans
(%)
Gross loans
Impairment
provisions
Net loans
435,886
(349)
435,537
132,156
(27,863)
104,293
176,230
(19,754)
156,476
260,537
(109,189)
151,348
852,257
(168,205)
684,052
15,314
43,309
(696)
(9,515)
14,618
33,794
364,764
(12,270)
352,494
5.81
1.39
2.09
2.02
9.13
0.20
0.45
4.70
432,017
(242)
431,775
202,661
(38,300)
164,361
134,658
(29,576)
105,082
319,901
(164,532)
155,369
911,548
(241,932)
669,616
18,036
(1,263)
67,071
(24,400)
16,773
42,671
424,955
(15,831)
409,124
(%)
5.69
2.17
1.38
2.05
8.82
0.22
0.56
5.39
3,190,724
(99,216)
3,091,508
41.25
3,050,810
(142,819)
2,907,991
38.32
31,913
99,715
(6,300)
(6,642)
25,613
93,073
0.34
1.24
86,915
(14,202)
103,205
(16,617)
72,713
86,588
962,743
(156,285)
806,458
10.76
1,208,684
(246,164)
962,520
0.96
1.14
12.68
10.41
8.98
0.31
0.92
Transport and communications
869,779
(39,908)
829,871
11.07
829,706
(39,330)
790,376
Trade industry
873,406
(242,743)
630,663
27,936
(4,815)
76,467
(15,453)
23,121
61,014
8.42
0.31
0.81
964,366
(282,832)
681,534
28,519
(5,037)
96,599
(27,078)
23,482
69,521
8,413,136
(919,203)
7,493,933
100.00
8,879,651
(1,290,155)
7,589,496
100.00
NLB Group
Industry sector
Banks
Finance
Electricity, gas, and water
Construction industry
Heavy industry
Education
Agriculture, forestry, and fishing
Public sector
Individuals
Mining
Entrepreneurs
Services
Health care and social security
Other financial assets
Total
NLB Group 2016 Annual Report
279
in EUR thousand
31.12.2016
31.12.2015
Gross loans
Impairment
provisions
Net loans
(%)
Gross loans
Impairment
provisions
Net loans
408,056
-
408,056
341,644
(45,910)
295,734
112,083
(6,279)
105,804
136,071
(71,294)
64,777
569,022
(88,472)
480,550
10,643
15,437
(54)
(1,223)
10,589
14,214
248,993
(2,265)
246,728
7.59
5.50
1.97
1.21
8.94
0.20
0.26
4.59
345,404
(197)
345,207
461,704
(48,575)
413,129
86,984
(16,559)
163,190
(91,144)
70,425
72,046
652,104
(138,005)
514,099
13,342
(402)
27,611
(10,492)
12,940
17,119
301,481
(2,647)
298,834
(%)
6.15
7.36
1.25
1.28
9.16
0.23
0.30
5.32
1,990,184
(39,069)
1,951,115
36.31
1,957,859
(68,176)
1,889,683
33.65
25,332
46,148
(5,297)
(2,587)
20,035
43,561
782,110
(91,419)
690,691
11,439
39,922
(1,223)
(3,771)
10,216
36,151
0.37
0.81
12.85
14.15
4.37
0.19
0.67
30,910
(5,860)
64,181
(10,502)
25,050
53,679
988,569
(144,690)
843,879
756,836
(26,859)
729,977
393,574
(127,080)
266,494
17,091
54,067
(3,727)
(5,123)
13,364
48,944
0.45
0.96
15.03
13.00
4.75
0.24
0.87
5,881,635
(508,519)
5,373,116
100.00
6,314,907
(700,038)
5,614,869
100.00
NLB
Industry sector
Banks
Finance
Electricity, gas, and water
Construction industry
Heavy industry
Education
Agriculture, forestry, and fishing
Public sector
Individuals
Mining
Entrepreneurs
Services
Health care and social security
Other financial assets
Total
Transport and communications
777,964
(17,903)
760,061
Trade industry
366,587
(131,753)
234,834
p) Analysis of net loans and advances by geographical sectors
Country
Republic of Slovenia
Other European Union members
Other countries
Total
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
4,633,952
4,752,525
4,663,239
4,869,768
468,887
439,839
2,391,094
2,397,132
393,858
316,019
357,823
387,278
7,493,933
7,589,496
5,373,116
5,614,869
NLB Group 2016 Annual Report 280
q) Analysis of debt securities and derivative financial instruments by geographical sectors
in EUR thousand
31.12.2016
NLB Group
NLB
Country
Loans and
advances
Trading
assets
Financial
assets
designated
at fair value
through
profit or
loss
Available-
for-sale
financial
assets
Held-to-
maturity
financial
assets
Derivative
financial
instruments
Loans and
advances
Trading
assets
Available-
for-sale
financial
assets
Held-to-
maturity
financial
assets
Derivative
financial
instruments
Republic of Slovenia
85,315
49,747
-
544,187
415,165
13,347
85,315
49,747
479,792
415,165
13,347
Other members of
European Union
- Italy
- Ireland
- France
- Belgium
- Netherlands
- Austria
- Germany
- Finland
- Sweden
- Denmark
- Luxembourg
- Great Britain
- Slovakia
- Spain
- Other
United States of America
Other countries
- Macedonia
- Serbia
- Bosnia and Herzegovina
- Montenegro
- Kosovo
- Other
Total
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19,010
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19,010
734
1,031,073
196,284
5,399
-
42,203
35,935
160
64,610
67,722
-
-
-
-
149,327
48,720
45,511
16,031
102,420
26,123
29,609
40,878
200,358
43,533
39,220
3,247
57,222
16,729
113,675
20,583
25,930
-
-
-
36,748
1,023
9,074
414,199
159,993
54,568
72,384
54,765
65,641
6,848
-
-
-
-
-
-
-
-
471
103
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10
98
240
1
146
-
-
-
-
4,904
-
-
-
-
413
-
6
-
-
405
2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19,010
1,031,073
196,284
5,399
-
-
-
-
-
42,203
35,935
-
-
149,327
48,720
45,511
16,031
102,420
26,123
19,010
29,609
40,878
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
200,358
43,533
39,220
3,247
64,610
67,722
-
-
57,222
16,729
113,675
20,583
25,930
-
-
-
36,748
1,023
9,074
6,848
-
-
-
-
-
6,848
-
-
-
-
-
-
-
-
-
-
10
98
240
1
146
-
-
-
-
4,904
-
-
-
-
407
-
-
-
-
405
2
85,315
68,757
734
1,998,533
611,449
19,159
85,315
68,757
1,526,787
611,449
19,153
NLB Group 2016 Annual Report 281
in EUR thousand
31.12.2015
NLB Group
NLB
Country
Loans and
advances
Trading
assets
Financial
assets
designated
at fair value
through
profit or
loss
Available-
for-sale
financial
assets
Held-to-
maturity
financial
assets
Derivative
financial
instruments
Loans and
advances
Trading
assets
Available-
for-sale
financial
assets
Held-to-
maturity
financial
assets
Derivative
financial
instruments
Republic of Slovenia
394,579
82,096
-
470,881
383,540
10,172
394,579
82,096
423,884
383,540
10,639
154,273
753
740,851
181,995
20,835
Other members of
European Union
- Italy
- Ireland
- France
- Belgium
- Netherlands
- Austria
- Germany
- Finland
- Sweden
- Denmark
- Luxembourg
- Great Britain
- Slovakia
- Spain
- Other
United States of America
Other countries
- Macedonia
- Serbia
- Bosnia and Herzegovina
- Montenegro
- Kosovo
- Other
Total
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
20,007
73,156
-
-
25,001
-
33,008
3,101
-
-
-
993
-
-
-
-
-
993
-
23,333
6,933
5,064
5,161
78,656
21,958
58,054
3,527
1,083
73,039
36,494
14,357
52,914
37,592
161,928
52,519
38,928
3,273
163
37,036
6,450
-
-
-
-
1
-
597
-
-
-
-
99,102
-
4,797
15,801
2,059
14,745
-
5,755
1,022
15,879
434,118
175,366
81,491
59,712
49,786
67,763
-
-
-
-
-
-
-
-
-
-
-
-
-
117
3
-
-
-
114
-
486
104
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
154,273
738,184
181,995
20,835
-
-
-
-
-
23,333
6,933
5,064
5,161
78,656
21,958
-
-
1
55,388
3,527
1,083
73,039
36,494
14,357
20,007
52,914
37,592
73,156
161,928
52,519
38,928
3,273
-
-
37,036
-
-
25,001
6,450
-
597
-
-
-
-
33,008
99,102
-
4,797
3,101
15,801
2,059
-
-
-
993
-
-
-
-
-
993
14,745
-
5,754
1,022
15,879
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
117
-
1
-
-
116
-
68,177
13,326
-
68,177
13,326
394,579
237,362
753
1,661,729
565,535
31,124
394,579
237,362
1,177,947
565,535
31,591
NLB Group 2016 Annual Report 282
r) Internal rating of derivatives counterparties
NLB Group and NLB
A
B
C
D and E
Total
31.12.2016
31.12.2015
in %
76.66
22.17
0.11
1.06
100.00
in %
81.27
15.84
1.24
1.65
100.00
All derivatives in the banking book are entered into with counterparties with an external investment-grade rating.
When derivatives are entered into on behalf of NLB Group’s customers, such customers usually do not have an external rating, but all such
transactions are covered through back-to-back transactions involving third parties with an external investment-grade rating.
s) Debt securities in NLB’s and NLB Group’s portfolio that represent subordinated liabilities for the issuer
31.12.2016
Internal rating
Available-for-sale financial assets
Loans and advances
- loans and advances to banks
- loans and advances to customers
Total
31.12.2015
Internal rating
Available-for-sale financial assets
Loans and advances
- loans and advances to banks
- loans and advances to customers
Total
NLB Group
B
-
-
-
-
NLB Group
B
-
-
-
-
C
-
-
-
-
C
-
1,136
132
1,268
A
583
-
-
583
A
601
-
-
601
Total
583
A
583
NLB
B
-
-
-
10,961
3,989
-
-
583
11,544
3,989
NLB
B
-
A
601
10,946
3,982
-
-
11,547
3,982
Total
601
1,136
132
1,869
in EUR thousand
Total
583
14,950
5,898
21,431
in EUR thousand
Total
601
16,064
6,435
23,100
C
-
-
5,898
5,898
C
-
1,136
6,435
7,571
NLB Group 2016 Annual Report t) Presentation of net financial instruments by measurement category
NLB Group
31.12.2016
Trading assets
Financial assets
designated at fair
value through
profit or loss
Available-for-sale
financial assets
Loans and
receivables
Financial leases
Held-to-maturity
financial assets
Derivatives
for hedge
accounting
Cash and obligatory reserves with central
banks, and other demand deposits at banks
-
-
-
1,299,014
Securities
- Bonds
- Shares
- Commercial bills
- Cash certificates
- Treasury bills
- Private equity fund
- Reverse sell and repurchase agreements
- Other investments
Derivatives
Loans and receivables
- Loans to government
- Loans to banks
- Loans to financial organisations
- Loans to individuals
Granted overdrafts
Loans for houses and flats
Consumer loans
Other loans
- Loans to other customers
Loans to large corporate customers
Loans to small- and
medium-sized enterprises
Other financial assets
68,757
19,735
-
19,010
-
30,012
-
-
-
18,942
-
-
-
-
-
-
-
-
-
-
-
-
-
6,694
2,072,153
734
1,619,228
85,340
85,315
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
25
-
-
7,197,167
150,412
765,154
10,832
435,537
74,312
-
32
3,027,652
63,856
182,322
1,589,762
1,090,120
165,448
2,894,512
1,530,194
-
-
-
63,856
75,692
4,409
1,364,318
71,283
61,014
-
-
611,449
611,449
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,011
-
3,949
-
-
-
-
-
-
-
-
-
-
-
-
-
-
73,620
274,489
199
104,617
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
283
in EUR thousand
Total
1,299,014
2,844,393
2,336,461
73,620
293,499
199
134,629
2,011
25
3,949
-
-
-
-
-
-
-
-
-
-
217
19,159
-
-
-
-
-
-
-
-
-
-
-
-
-
7,347,579
775,986
435,537
74,344
3,091,508
182,322
1,589,762
1,090,120
229,304
2,970,204
1,534,603
1,435,601
61,014
Total financial assets
87,699
6,694
2,072,153
8,642,535
150,412
611,449
217
11,571,159
NLB Group 2016 Annual Report 284
NLB Group
in EUR thousand
31.12.2015
Trading assets
Financial assets
designated at fair
value through
profit or loss
Available-for-sale
financial assets
Loans and
receivables
Financial leases
Held-to-maturity
financial assets
Derivatives
for hedge
accounting
Cash and obligatory reserves with central
banks, and other demand deposits at banks
-
-
-
1,161,983
237,372
7,595
1,737,191
394,604
43,555
753
1,350,942
394,579
Securities
- Bonds
- Shares
- Commercial bills
- Certificates of deposits
- Treasury bills
- Private equity fund
- Reverse sell and repurchase agreements
- Other investments
Derivatives
Loans and receivables
- Loans to government
- Loans to banks
- Loans to financial organisations
- Loans to individuals
Granted overdrafts
Loans for houses and flats
Consumer loans
Other loans
- Loans to other customers
Loans to large corporate customers
Loans to small- and
medium-sized enterprises
Other financial assets
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
25
-
-
6,947,552
177,819
675,094
13,380
431,775
139,559
-
293
2,843,107
64,884
185,912
1,503,814
962,884
190,497
2,858,017
1,615,919
-
-
-
64,884
99,262
29,225
1,242,098
70,037
69,521
-
-
565,535
545,561
-
-
-
19,974
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
10
151,171
-
42,636
-
-
-
30,041
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,913
-
1,929
-
-
-
-
-
-
-
-
-
-
-
-
-
-
75,462
151,168
77,939
81,680
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
1,161,983
2,942,297
2,335,390
75,472
302,339
77,939
144,290
4,913
25
1,929
-
-
-
-
-
-
-
-
-
-
1,083
31,124
-
-
-
-
-
-
-
-
-
-
-
-
-
7,125,371
688,474
431,775
139,852
2,907,991
185,912
1,503,814
962,884
255,381
2,957,279
1,645,144
1,312,135
69,521
Total financial assets
267,413
7,595
1,737,191
8,573,660
177,819
565,535
1,083
11,330,296
NLB Group 2016 Annual Report 31.12.2016
Trading assets
Financial assets
designated at fair
value through
profit or loss
Available-for-sale
financial assets
Loans and
receivables
Held-to-maturity
financial assets
Derivatives for
hedge accounting
NLB
Cash and obligatory reserves with central
banks, and other demand deposits at banks
Securities
- Bonds
- Shares
- Commercial bills
- Treasury bills
- Private equity fund
- Reverse sell and repurchase agreements
Derivatives
Loans and receivables
- Loans to government
- Loans to banks
- Loans to financial organisations
- Loans to individuals
Granted overdrafts
Loans for houses and flats
Consumer loans
Other loans
- Loans to other customers
Loans to large corporate customers
Loans to small- and
medium-sized enterprises
Other financial assets
Total financial assets
-
68,757
19,735
-
19,010
30,012
-
-
18,936
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
617,039
-
2,011
1,594,094
-
-
-
-
2,011
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,262,363
67,307
209,331
55,093
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
85,340
85,315
611,449
611,449
-
-
-
-
25
-
5,251,625
668,300
408,056
273,285
1,951,115
147,779
1,208,996
480,626
113,714
1,950,869
1,296,126
654,743
36,151
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
87,693
2,011
1,594,094
5,990,155
611,449
217
8,285,619
285
in EUR thousand
Total
617,039
2,361,651
1,978,862
67,307
228,341
85,105
2,011
25
-
-
-
-
-
-
-
-
217
19,153
-
-
-
-
-
-
-
-
-
-
-
-
-
5,251,625
668,300
408,056
273,285
1,951,115
147,779
1,208,996
480,626
113,714
1,950,869
1,296,126
654,743
36,151
NLB Group 2016 Annual Report 286
NLB
in EUR thousand
31.12.2015
Trading assets
Financial assets
designated at fair
value through
profit or loss
Available-for-sale
financial assets
Loans and
receivables
Held-to-maturity
financial assets
Derivatives for
hedge accounting
Cash and obligatory reserves with central
banks, and other demand deposits at banks
-
-
-
496,806
-
Securities
- Bonds
- Shares
- Commercial bills
- Treasury bills
- Private equity fund
- Reverse sell and repurchase agreements
Derivatives
Loans and receivables
- Loans to government
- Loans to banks
- Loans to financial organisations
- Loans to individuals
Granted overdrafts
Loans for houses and flats
Consumer loans
Other loans
- Loans to other customers
Loans to large corporate customers
Loans to small- and
medium-sized enterprises
Other financial assets
237,372
43,555
10
151,171
42,636
-
-
30,508
-
-
-
-
-
-
-
-
-
-
-
-
-
4,913
1,248,359
394,604
565,535
-
-
-
-
4,913
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
999,781
394,579
545,561
70,412
151,168
26,998
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
25
-
5,171,321
578,184
345,207
391,911
1,889,683
152,042
1,165,800
471,889
99,952
1,966,336
1,263,030
703,306
48,944
-
-
19,974
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
496,806
2,450,783
1,983,476
70,422
302,339
89,608
4,913
25
-
-
-
-
-
-
-
-
1,083
31,591
-
-
-
-
-
-
-
-
-
-
-
-
-
5,171,321
578,184
345,207
391,911
1,889,683
152,042
1,165,800
471,889
99,952
1,966,336
1,263,030
703,306
48,944
Total financial assets
267,880
4,913
1,248,359
6,111,675
565,535
1,083
8,199,445
As at 31 December 2016 and 31 December 2015, all of NLB Group’s financial liabilities, except for derivatives designated as hedging
instruments, trading liabilities and financial liabilities designated at fair value through profit or loss, were carried at amortised cost.
7.2. Market risk
NLB defines market risk as the risk of potential financial losses due to changes in rates and/or market prices (exchange rates, credit spreads, and
equity prices) or in parameters that affect prices (volatilities and correlations). Losses may impact profit or loss directly, for example in the case of
trading book positions. However, for the banking book positions they are reflected in the revaluation reserve. The exposure to the market risk is
to a certain degree integrated into the banking industry and offers an opportunity to create financial results and value.
The Global Risk Department of NLB is independent from the trading activities and reports to the bank’s committee ALCO. They also monitor
and manage exposure to market risks separately for the banking and the trading book. Exposures and limits are monitored daily and reported to
the ALCO committee on a regular basis.
The bank uses a wide selection of quantitative and qualitative tools for measuring, managing, and reporting market risks such as value-at-risk
(VaR), sensitivity analysis, stress testing, back-testing, scenarios, other market risk mitigants (concentration of exposures, gap limits, stop-loss
NLB Group 2016 Annual Report 287
limits, etc.), net interest income sensitivity, economic value of equity, and economic capital. Stress testing provides an indication of the potential
losses that could occur in severe market conditions.
In the area of currency risk, NLB Group pursues the goal of low exposure. NLB monitors the open position of NLB Group on an ongoing
basis. The orientation of NLB Group in interest rate risk management is to prevent negative effects on the net revenues arising from changed
market interest rates. In line with this, the tolerance for this risk is low. The conclusion of transactions involving derivatives at NLB is limited
to the servicing of the clients’ and hedging of the Group’s own open positions. In accordance with the provisions of the Strategy on trading
in financial instruments in NLB Group, the trading activities in other NLB Group members are very restricted. Thus, NLB is the only Group
member with a trading book in accordance with CRR requirements.
Monitoring and managing NLB Group’s exposure to market risks is decentralised. However, uniform guidelines and exposure limits for
each type of risk are set for individual NLB Group entities. The methodologies are in line with regulatory requirements on individual and
consolidated levels, while reporting to the regulator on the consolidated level is carried out using the standardised approach. Pursuant to the
relevant policies, NLB Group entities must monitor and manage exposure to market risks and report to NLB accordingly. The exposure of an
individual NLB Group entity is regularly monitored and reported to the Assets and Liabilities Committee of NLB Group (NLB Group ALCO).
7.2.1. Currency risk (FX)
Foreign currency risk (FX) is a risk of the potential losses from the open FX positions due to the changes of the foreign currency rates.
The exposures of NLB to the movement of the FX rates have impact on the financial position and cash flows of the bank. The bank measures
and manages the FX risk with a usage of combination of sensitivity analysis, VaR, scenarios and stress testing.
In the trading book, similar to the other market risks, risk is managed on the basis of VaR limits which are approved by the Management Board
and in accordance to the adopted Policy of managing market risk in the trading book of NLB.
NLB monitors and manages FX risk in the banking book according to the Policy of managing FX risk in NLB. The policy is primarily
composed to protect Common Equity Tier 1 against the negative effects of the volatility of the FX rates.
Currency risk management in NLB Group is decentralised. Each member is responsible for its own currency risk policy, which also includes a
limit system and is in line with local regulatory requirements as well as the parent Bank’s guidelines and standards. Policies are confirmed by
local committees. NLB monitors and manages NLB Group currency risk exposure on a monthly basis for each member and on the consolidated
level.
The positions of all currencies in the statement of financial position of NLB, for which a daily limit is set, are monitored daily. Exposure
to currency risks is managed by the Financial Markets Department on the basis of a report obtained from the Global Risk Department.
The Financial Markets Department manages FX positions on the currency level so that they are always within the limits or close.
Exposure to currency risks is discussed at daily liquidity meetings and monthly meetings of the Assets and Liabilities Committee of NLB Group.
NLB Group 2016 Annual Report 288
a) The amount of financial instruments denominated in euros and in foreign currency
31.12.2016
Financial assets
Cash, cash balances at central banks, and
other demand deposits at banks
Trading assets
Financial assets designated at fair value through profit or loss
NLB Group
in EUR thousand
EUR
USD
CHF
Other
Total
855,746
63,403
38,516
341,349
1,299,014
87,693
6,694
-
-
-
-
6
-
87,699
6,694
Available-for-sale financial assets
1,824,890
30,151
3,330
213,782
2,072,153
Derivatives - hedge accounting
Loans and advances
- debt securities
- loans and advances to banks
- loans and advances to customers
- other financial assets
Held-to-maturity financial assets
Fair value changes of the hedged items in
portfolio hedge of interest rate risk
217
85,315
322,404
6,013,998
42,037
611,449
678
-
-
79,204
55,829
91
-
-
-
-
-
90,670
28
-
-
-
-
33,929
751,570
18,858
-
-
217
85,315
435,537
6,912,067
61,014
611,449
678
Total financial assets
9,851,121
228,678
132,544
1,359,494
11,571,837
Financial liabilities
Trading liabilities
Financial liabilities designated at fair value through profit or loss
Derivatives - hedge accounting
Financial liabilities measured at amortised cost
- deposits from banks and central banks
- borrowings from banks and central banks
18,788
2,011
29,024
18,835
328,348
-
-
-
6,798
25,285
- due to customers
8,110,708
192,654
- borrowings from other customers
- debt securities in issue
- subordinated liabilities
- other financial liabilities
Total financial liabilities
Net on-balance sheet financial position
Derivative financial instruments
Net financial position
31.12.2015
Total financial assets
Total financial liabilities
Net on-balance sheet financial position
Derivative financial instruments
83,619
277,726
27,145
90,732
8,986,936
864,185
26,519
890,704
9,688,316
8,871,950
816,366
53,173
-
-
-
1,454
226,191
2,487
2,077
4,564
204,996
208,203
(3,207)
1,998
-
-
-
8,800
18,130
73,334
-
-
-
3
-
-
7,901
6
18,791
2,011
29,024
42,334
371,769
1,060,451
9,437,147
-
-
-
83,619
277,726
27,145
110,295
1,873
16,236
102,137
1,084,597
10,399,861
30,407
274,897
1,171,976
(21,417)
(13,954)
(6,775)
8,990
260,943
1,165,201
151,560
103,304
48,256
(45,057)
1,286,165
11,331,037
1,042,770
10,226,227
243,395
(16,964)
1,104,810
(6,850)
Net financial position
869,539
(1,209)
3,199
226,431
1,097,960
NLB Group 2016 Annual Report 289
in EUR thousand
NLB
EUR
USD
CHF
Other
Total
531,072
36,647
11,289
38,031
617,039
31.12.2016
Financial assets
Cash, cash balances at central banks, and
other demand deposits at banks
Trading assets
Financial assets designated at fair value through profit or loss
87,693
2,011
-
-
Available-for-sale financial assets
1,563,577
28,148
Derivatives - hedge accounting
Loans and advances
- debt securities
- loans and advances to banks
- loans and advances to customers
- other financial assets
Held-to-maturity financial assets
Fair value changes of the hedged items in
portfolio hedge of interest rate risk
217
85,315
335,806
4,693,213
36,060
611,449
678
-
-
52,274
51,882
65
-
-
-
-
-
-
-
377
88,281
1
-
-
-
-
87,693
2,011
2,369
1,594,094
-
-
19,599
10,218
25
-
-
217
85,315
408,056
4,843,594
36,151
611,449
678
Total financial assets
7,947,091
169,016
99,948
70,242
8,286,297
Financial liabilities
Trading liabilities
Financial liabilities designated at fair value through profit or loss
Derivatives - hedge accounting
Financial liabilities measured at amortised cost
- deposits from banks and central banks
- borrowings from banks and central banks
18,787
2,011
29,024
30,443
295,052
-
-
-
22,030
25,285
- due to customers
6,415,472
120,909
- borrowings from other customers
- debt securities in issue
- other financial liabilities
4,274
277,726
67,301
-
-
960
Total financial liabilities
7,140,090
169,184
Net on-balance sheet financial position
Derivative financial instruments
Net financial position
31.12.2015
Total financial assets
Total financial liabilities
Net on-balance sheet financial position
Derivative financial instruments
807,001
26,519
833,520
7,839,819
7,057,066
782,753
53,260
(168)
2,077
1,909
157,334
158,946
(1,612)
1,998
-
-
-
12,112
18,130
47,802
-
-
94
78,138
21,810
-
-
-
10,392
-
18,787
2,011
29,024
74,977
338,467
31,207
6,615,390
-
-
429
4,274
277,726
68,784
42,028
7,429,440
28,214
856,857
(21,417)
(13,954)
(6,775)
393
14,260
850,082
123,931
82,194
41,737
(44,678)
79,102
48,934
30,168
(17,427)
8,200,186
7,347,140
853,046
(6,847)
Net financial position
836,013
386
(2,941)
12,741
846,199
NLB Group 2016 Annual Report 290
b) Sensitivity analysis for currency risk
NLB Group and NLB
Scenarios
USD
CHF
CZK
RSD
MKD
JPY
AUD
HUF
HRK
31.12.2016
Appreciation of
USD
CHF
CZK
RSD
MKD
Other
Effects on comprehensive income
Depreciation of
USD
CHF
CZK
RSD
MKD
Other
Effects on comprehensive income
Total
31.12.2016
31.12.2015
+/-8%
+/-4%
+/-1%
+/-2%
+/-1%
+/-13%
+/-4%
+/-1%
+/-3%
+/-0.4%
+/-12.5%
+/-10.5%
+/-11%
+/-5%
+/-2%
+/-15%
+/-7%
+/-1%
NLB Group
NLB
in EUR thousand
Effects on income
statement
Effects on other
comprehensive
income
Effects on income
statement
Effects on other
comprehensive
income
271
(205)
(8)
(3)
1
(16)
40
(229)
187
7
2
(1)
23
(11)
29
-
227
23
1,567
-
2,053
3,870
-
(208)
(22)
(1,506)
-
(2,001)
(3,737)
133
72
13
2
2
1
70
160
(61)
(12)
(2)
(2)
(1)
(60)
(138)
22
7
-
-
-
-
-
7
(6)
-
-
-
-
-
(6)
1
NLB Group 2016 Annual Report 291
in EUR thousand
NLB Group
NLB
Effects on income
statement
Effects on other
comprehensive
income
Effects on income
statement
Effects on other
comprehensive
income
(11)
(434)
(7)
(5)
1
(27)
(483)
8
397
6
5
(1)
35
450
(33)
-
384
38
2,391
782
718
4,313
-
(351)
(37)
(2,235)
(771)
(709)
(4,103)
210
45
(9)
9
1
1
65
112
(35)
8
(9)
(1)
(1)
(52)
(90)
22
10
-
-
-
-
-
10
(8)
-
-
-
-
-
(8)
2
31.12.2015
Appreciation of
USD
CHF
CZK
RSD
MKD
Other
Effects on comprehensive income
Depreciation of
USD
CHF
CZK
RSD
MKD
Other
Effects on comprehensive income
Total
c) Value at Risk analysis
The methodology for measuring currency risk at NLB Group level is based on the net open foreign exchange position principle and monitoring
of the nominal limits (for the total open position by currency), related to the capital size of an NLB Group member. The internal CVaR
method described above is used for the illustration below of exposure to currency risk which derives from the quarterly net open positions of
NLB Group entities. CVaR was the result of exchange rate volatility, which affected the potential loss or the level of CVaR.
NLB Group
CVaR
2016
2015
in EUR thousand
Average
Maximum
Minimum
Average
Maximum
Minimum
Currency risk (trading book and banking book)
1,291
1,495
1,034
6,019
21,564
3,480
NLB uses an internal ‘Conditional Value at Risk’ (CVaR) model to calculate currency risk arising from open positions. The calculation of the
CVaR value is adjusted to Basel standards (99% confidence interval, monitored period of 300 business days, 10-day holding position period),
and based on the historical simulation method. CVaR is calculated for currency risk for the whole open bank position (e.g. the position of the
trading and banking book together) as NLB’s total open position is managed by the Treasury Department.
NLB
CVaR
2016
2015
in EUR thousand
Average
Maximum
Minimum
Average
Maximum
Minimum
Currency risk (trading book and banking book)
157
414
52
307
4,353
7
NLB Group 2016 Annual Report 292
7.2.2. Managing market risks in the trading book
Market risk exposure in the trading book arises mostly as a result of the changes in interest rates, credit spreads, FX rates, and equity prices.
The Management Board determines total risk appetite and limits by the risk type. The limits are monitored daily by the Global Risk
Department.
NLB uses an internal VaR model based on the variance-covariance method for other market risks. The daily calculation of the VAR value is
adjusted to Basel standards (99% confidence interval, monitored period of 250 business days, 10-day holding position period).
In 2016, FX risk in the trading book amounted to an average of EUR 104 thousand (2015: EUR 182 thousand). Compared to the previous
year, the average VaR ratio is lower. An occasionally higher VaR mainly arises from SPOT deals with companies with the trading date t+0, and
a closing deal with the trading date t+2.
In 2016, interest rate risks in the trading book amounted to an average of EUR 232 thousand (2015: EUR 346 thousand), and is lower
compared to the previous year. At the end of 2016, the market value of the debt securities portfolio amounted to EUR 68,757 thousand (2015:
EUR 237,372 thousand).
NLB Group and NLB
VaR
FX risk trading book
Interest rate risk in trading book
2016
2015
in EUR thousand
Average
Minimum
Maximum
Average
Minimum
Maximum
104
232
5
63
771
538
182
346
18
151
893
717
The average, maximum, and minimum values in the upper table are calculated on the basis of daily VaR calculations, which are based on
daily open positions and movements in market data during the past monitored period (250 working days). The “average” value represents the
arithmetic mean of daily VaR values in 2016, while the “maximum” and “minimum” values represent the highest and lowest values of daily
VaR calculations in 2016, respectively.
NLB Group 2016 Annual Report 293
7.2.3. Managing interest rate risk
The management of interest rate risks in the NLB banking book is separated from the measurement and monitoring of those risks. In the past,
NLB implemented an interest rate risk management policy that reflects a conservative strategy for assuming interest rate risks and is based on
general Basel risk management standards and EBA guidelines.
NLB manages interest rate risk in conjunction with credit, currency foreign exchange, and liquidity risks as there is a close correlation between
those risks that can have a significant impact on the stability of the interest rate margin. NLB also stabilises its interest rate margin through an
appropriate pricing policy, a fund transfer pricing policy, and the securities portfolio of the banking book.
The management of interest rate risk arising from banking book transactions is facilitated by managing the interest rate maturity of all on- and
off-balance sheet items in individual maturity buckets. It takes into account the positions in each currency, adjusted to credit risk. The maturity
calculation model for interest-insensitive liability items and interest-sensitive items without maturity (e.g. available capital and stable sight
deposits) was approved by the national regulator. An important part of managing interest rate risk is the securities portfolio of the banking book,
which is subject to strict internal rules and policies. The primary purpose of the portfolio is to maintain adequate liquidity reserves, while it also
contributes to the stability of the interest rate margin.
Several analyses are performed in the management of interest rate risks (limited positions in individual maturity buckets, modified duration,
BPV limits, and interest rate margin). The BPV (basis point value) method helps to estimate changes in the market value of a banking book
position due to a parallel shift in the yield curve. The BPV is calculated for different segments of the banking book and for the banking book as
a whole. NLB also prepares calculations of the impact of changes in interest rates on net interest income.
The basic tool for managing interest rate risk in the banking book is the management of items from NLB’s statement of financial position.
The strategies that foresee appropriate adjustments to items from the statement of financial position are discussed and adopted at the executive
level of NLB, or within the scope of NLB’s Assets and Liabilities Committee. If the management of interest rate risk using items from the
statement of financial position is not possible, NLB manages risk by using the following derivative financial instruments:
• interest rate swaps,
• overnight index swaps,
• cross currency swaps, and
• forward rate agreements.
The management of NLB Group’s interest rate exposure is not performed at the consolidated level. However, NLB monitors the risk
positions of individual members of NLB Group on a regular basis in accordance with the Standards for Risk Management in NLB Group.
The aforementioned document comprises guidelines for uniform and effective interest rate risk management.
NLB Group measures Interest Rate Risk in the Banking Book (IRRBB) from an economic view of, as well as earnings sensitivity. Exposure is
monitored weekly on the NLB solo level and monthly on the Group level. Measurement and management is done on the basis of maturity gaps,
BPV analyses, NII sensitivity stress tests, and limits. Guidelines regarding the limitation and management of interest risks within individual
NLB Group members are approved by the ALCO. Beside the prescribed scenario of parallel 200 bp shock on market interest rates, NLB Group
also performs other relevant stress scenarios.
IRRBB measurement includes interest-sensitive performing assets and liabilities. Measurement and management of IRRBB include
assumptions about non-maturing deposits in line with the valid regulation. The Bank regularly monitors effects of prepayment and early
redemption risk on IRRBB exposure, and includes results in stress testing. Beside this hypothesis, banks in monitoring of IRRBB also include
other relevant behavioural assumptions.
NLB Group 2016 Annual Report 294
a) Analysis of financial instruments according to the exposure to interest rate risk
Illustrated below are the carrying amounts of financial instruments categorised by the earlier of contractual reprising or residual maturity.
NLB Group
in EUR thousand
Non-interest
bearing
Total
Interest
bearing
Up to 1
Month
1 Month to
3 Months
3 Months
to 1 Year
1 Year to
5 Years Over 5 Years
31.12.2016
Financial assets
Cash, cash balances at central banks, and
other demand deposits at banks
1,299,014
450,644
848,370
848,370
-
-
-
Trading assets
87,699
6
87,693
19,220
49,085
9,168
10,220
Financial assets designated at fair
value through profit or loss
6,694
5,960
734
-
-
-
734
Available-for-sale financial assets
2,072,153
73,620
1,998,533
110,145
267,093
494,924
759,436
366,935
Derivatives - hedge accounting
217
217
-
Loans and advances
- debt securities
- loans and advances to banks
85,315
435,537
-
7
85,315
-
-
-
-
-
1,891
-
-
-
83,424
435,530
114,962
42,138
276,794
1,636
-
- loans and advances to customers
6,912,067
54,612
6,857,455
1,816,432
1,387,083
2,524,693
840,204
289,043
- other financial assets
61,014
61,014
-
-
-
-
-
-
Held-to-maturity financial assets
611,449
-
611,449
37,691
63,047
16,866
264,360
229,485
Fair value changes of the hedged items in
portfolio hedge of interest rate risk
678
678
-
-
-
-
-
-
Total financial assets
11,571,837
646,758
10,925,079
2,946,820
1,808,446
3,324,336
1,876,590
968,887
Financial liabilities
Trading liabilities
Financial liabilities designated at fair
value through profit or loss
Derivatives - hedge accounting
29,024
29,024
Financial liabilities measured at amortised cost
18,791
-
18,791
18,791
2,011
2,011
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- deposits from banks and central banks
42,334
332
42,002
41,439
563
- borrowings from banks and central banks
371,769
-
371,769
6,779
134,777
203,215
26,381
- due to customers
9,437,147
61,672
9,375,475
7,035,752
572,913
1,342,213
417,065
- borrowings from other customers
- debt securities in issue
- subordinated liabilities
83,619
277,726
27,145
-
-
-
277,726
27,145
- other financial liabilities
110,295
110,295
-
83,619
1,298
8,769
26,878
40,966
-
200
-
-
277,726
11,938
15,007
-
-
-
-
-
Total financial liabilities
10,399,861
203,334
10,196,527
7,104,259
728,960
1,865,039
484,412
13,857
Total interest repricing gap
(4,157,439)
1,079,486
1,459,297
1,392,178
955,030
-
-
-
-
-
-
-
617
7,532
5,708
-
-
-
NLB Group 2016 Annual Report 295
in EUR thousand
NLB Group
Non-interest
bearing
Total
Interest
bearing
Up to 1
Month
1 Month to
3 Months
3 Months
to 1 Year
1 Year to
5 Years Over 5 Years
31.12.2015
Financial assets
Cash, cash balances at central banks, and
other demand deposits at banks
1,161,983
505,720
656,263
656,263
-
-
-
1
-
-
-
Trading assets
267,413
10
267,403
40,184
32,940
194,278
Financial assets designated at fair
value through profit or loss
7,595
4,913
2,682
1,929
-
-
753
Available-for-sale financial assets
1,737,191
75,462
1,661,729
140,587
110,575
293,237
809,994
307,336
Derivatives - hedge accounting
1,083
1,083
-
Loans and advances
- debt securities
- loans and advances to banks
394,579
431,775
-
25
394,579
-
-
-
-
-
311,466
-
-
-
83,113
431,750
61,550
46,699
322,784
717
-
- loans and advances to customers
6,693,621
51,431
6,642,190
1,969,369
1,345,506
2,463,505
662,116
201,694
- other financial assets
69,521
69,521
-
-
-
-
-
-
Held-to-maturity financial assets
565,535
-
565,535
46,620
17,440
51,696
263,554
186,225
Fair value changes of the hedged items in
portfolio hedge of interest rate risk
741
741
-
-
-
-
-
-
Total financial assets
11,331,037
708,906
10,622,131
2,916,502
1,553,160
3,636,966
1,737,135
778,368
Financial liabilities
Trading liabilities
Financial liabilities designated at fair
value through profit or loss
Derivatives - hedge accounting
33,842
33,842
Financial liabilities measured at amortised cost
- deposits from banks and central banks
- borrowings from banks and central banks
57,982
571,029
60
-
29,920
-
29,920
29,920
4,912
4,912
-
-
-
-
57,922
56,986
-
-
-
-
-
-
-
-
-
-
722
214
-
-
-
-
571,029
5,517
176,629
349,694
36,254
2,935
- due to customers
9,020,666
79,603
8,941,063
6,244,768
666,622
1,563,576
428,403
37,694
- borrowings from other customers
- debt securities in issue
- subordinated liabilities
- other financial liabilities
100,267
304,962
27,340
-
-
-
304,962
27,340
75,307
75,307
-
100,267
1,323
3,019
21,284
46,637
28,004
-
-
-
-
29,917
275,045
12,219
15,121
-
-
-
-
-
-
-
Total financial liabilities
10,226,227
193,724
10,032,503
6,338,514
858,489
1,980,314
786,553
68,633
Total interest repricing gap
(3,422,012)
694,671
1,656,652
950,582
709,735
NLB Group 2016 Annual Report 296
31.12.2016
Financial assets
Cash, cash balances at central banks, and
other demand deposits at banks
NLB
in EUR thousand
Non-interest
bearing
Total
Interest
bearing
Up to 1
Month
1 Month to
3 Months
3 Months
to 1 Year
1 Year to
5 Years Over 5 Years
617,039
128,519
488,520
488,520
-
-
-
Trading assets
87,693
-
87,693
19,220
49,085
9,168
10,220
Financial assets designated at fair
value through profit or loss
2,011
2,011
-
-
-
-
-
Available-for-sale financial assets
1,594,094
67,307
1,526,787
27,709
195,730
371,601
569,219
362,528
Derivatives - hedge accounting
217
217
-
Loans and advances
- debt securities
- loans and advances to banks
85,315
408,056
-
7
85,315
-
-
-
-
-
1,891
-
-
-
-
83,424
-
408,049
77,061
28,596
302,392
- loans and advances to customers
4,843,594
43,021
4,800,573
1,422,972
1,316,675
1,682,375
227,870
150,681
- other financial assets
36,151
36,151
-
-
-
-
-
-
Held-to-maturity financial assets
611,449
-
611,449
37,691
63,047
16,866
264,360
229,485
Fair value changes of the hedged items in
portfolio hedge of interest rate risk
678
678
-
-
-
-
-
-
Total financial assets
8,286,297
277,911
8,008,386
2,073,173
1,653,133
2,384,293
1,071,669
826,118
Derivatives - hedge accounting
29,024
29,024
Financial liabilities
Trading liabilities
Financial liabilities designated at fair
value through profit or loss
Financial liabilities measured at amortised cost
- deposits from banks and central banks
- borrowings from banks and central banks
- due to customers
- borrowings from other customers
- debt securities in issue
- other financial liabilities
18,787
-
18,787
18,787
2,011
2,011
-
-
-
-
74,977
74,977
-
-
-
-
-
-
-
-
-
-
-
-
74,977
338,467
6,615,390
4,274
277,726
-
-
-
-
-
68,784
68,784
-
338,467
4,708
133,117
186,846
13,796
6,615,390
5,281,645
408,851
744,327
174,193
6,374
4,274
277,726
-
-
-
-
-
-
-
4,265
277,726
-
-
-
9
-
-
Total financial liabilities
7,429,440
99,819
7,329,621
5,380,117
541,968
1,208,899
192,254
6,383
Total interest repricing gap
(3,306,944)
1,111,165
1,175,394
879,415
819,735
-
-
-
-
-
-
-
-
NLB Group 2016 Annual Report 297
in EUR thousand
Non-interest
bearing
Total
Interest
bearing
Up to 1
Month
1 Month to
3 Months
3 Months
to 1 Year
1 Year to
5 Years Over 5 Years
NLB
31.12.2015
Financial assets
Cash, cash balances at central banks, and
other demand deposits at banks
Trading assets
267,880
10
267,870
40,651
32,940
194,278
Financial assets designated at fair
value through profit or loss
4,913
4,913
-
-
-
-
496,806
128,682
368,124
368,124
-
-
-
1
-
-
-
-
Available-for-sale financial assets
1,248,359
70,412
1,177,947
39,489
60,220
184,845
590,844
302,549
Derivatives - hedge accounting
1,083
1,083
-
Loans and advances
- debt securities
- loans and advances to banks
394,579
345,207
-
10
394,579
-
-
-
-
-
311,466
-
-
-
83,113
345,197
20,507
23,904
300,626
160
-
- loans and advances to customers
4,826,139
41,199
4,784,940
1,595,772
1,263,047
1,659,100
178,044
88,977
- other financial assets
48,944
48,944
-
-
-
-
-
-
Held-to-maturity financial assets
565,535
-
565,535
46,620
17,440
51,696
263,554
186,225
Fair value changes of the hedged items in
portfolio hedge of interest rate risk
741
741
-
-
-
-
-
-
Total financial assets
8,200,186
295,994
7,904,192
2,111,163
1,397,551
2,702,011
1,032,603
660,864
Derivatives - hedge accounting
33,842
33,842
Financial liabilities
Trading liabilities
Financial liabilities designated at fair
value through profit or loss
Financial liabilities measured at amortised cost
- deposits from banks and central banks
- borrowings from banks and central banks
- due to customers
- borrowings from other customers
- debt securities in issue
- other financial liabilities
29,909
-
29,909
29,909
4,912
4,912
-
-
-
-
96,736
96,731
-
-
-
-
-
-
-
5
-
-
-
-
-
-
-
-
96,736
519,926
6,293,339
16,168
304,962
-
-
-
-
-
47,346
47,346
-
519,926
1,821
174,298
327,414
14,853
1,540
6,293,339
4,719,557
505,119
865,732
191,889
11,042
16,168
304,962
-
-
-
-
-
-
10,009
6,149
29,917
275,045
-
-
10
-
-
Total financial liabilities
7,347,140
86,100
7,261,040
4,848,018
679,417
1,233,077
487,936
12,592
Total interest repricing gap
(2,736,855)
718,134
1,468,934
544,667
648,272
NLB Group 2016 Annual Report 298
b) Net interest income sensitivity analysis and an economic view of interest rate risk in the banking book
The analysis of interest income sensitivity assumes a move in interest rates by 50 basis points in the short term. The analysis is based on the
assumption that the positions used remain unchanged, and that the yield curve shift is parallel. The assessment of the impact of a change in
interest rates of 50 basis points on the amount of net interest income of the banking book position:
2016
Interest income sensitivity
EUR
USD
CHF
Other
2015
Interest income sensitivity
EUR
USD
CHF
Other
NLB Group
NLB
in EUR thousand
Average
(assessment)
Minimum
(assessment)
Maximum
(assessment)
Average
(assessment)
Minimum
(assessment)
Maximum
(assessment)
12,009
11,154
13,121
12,025
11,155
12,699
417
161
1,238
319
78
1,058
507
247
1,390
311
166
45
182
83
31
407
248
50
NLB Group
NLB
in EUR thousand
Average
(assessment)
Minimum
(assessment)
Maximum
(assessment)
Average
(assessment)
Minimum
(assessment)
Maximum
(assessment)
11,788
10,481
12,763
11,408
10,247
12,316
120
282
1,112
9
95
1,000
296
608
1,310
107
171
47
13
68
36
212
277
61
The values in the table are calculated on the basis of monthly calculations of short-term interest rate gaps, where the applied parallel shift of
the yield curve by 50 basis points represents a realistic and practical scenario. The “average” value represents the arithmetic mean of monthly
calculations, while the “maximum” and “minimum” values represent the highest and lowest values calculated during the period.
The BPV (Basis Point Value) method is a measure of sensitivity of financial instruments to market interest rates, i.e. changes of the required
return. The BPV method is used to assess the change in the value of a position in case market interest rates change by +/- 200 basis points.
In this method, a parallel shift of the yield curve is assumed. The basis point value is the measurement of the change in the market value of a
position in the case of an assumed change in market interest rates by a certain number of basis points, which is expressed in monetary units.
NLB weekly calculates the absolute value of potential negative economic effects that would result from a parallel shift in interest rates by 200 bp.
NLB Group 2016 Annual Report 299
The assessment of the impact of a change in interest rates of 200 basis points on the economic value of the banking book position:
2016
Average
(assessment)
Minimum
(assessment)
Maximum
(assessment)
Average
(assessment)
Minimum
(assessment)
Maximum
(assessment)
NLB Group
NLB
in EUR thousand
Interest risk in banking book - BPV
162,224
145,727
198,017
120,515
105,469
Interest risk in banking book - BPV, as % of equity
12.59%
11.36%
14.82%
10.60%
9.29%
153,501
13.48%
in EUR thousand
2015
Average
(assessment)
Minimum
(assessment)
Maximum
(assessment)
Average
(assessment)
Minimum
(assessment)
Maximum
(assessment)
Interest risk in banking book - BPV
134,423
127,415
146,900
103,878
Interest risk in banking book - BPV, as % of equity
10.80%
10.24%
11.79%
9.27%
89,619
7.90%
115,005
10.39%
NLB Group
NLB
The values in the table have been calculated on the basis of weekly calculations of interest rate gaps for NLB and monthly on the Group level.
The applied parallel shift of the yield curve is by 200 basis points. The “average” value represents the arithmetic mean of monthly calculations,
while the “maximum” and “minimum” values represent the highest and lowest values calculated during the period. The calculation does not
take the allocation of the stable part of sight deposits into account.
Exposure to interest rate risk mainly arises from investments in high quality debt securities, which are held primarily for liquidity risk
management purposes. Due to low/negative interest rate environment in 2016 the bank has also recorded an increase of fixed interest rate
mortgage loans. Long-term interest positions of other members in NLB Group, from which present a majority of their exposure to interest-rate
risk (economic point of view), mainly arise from a portfolio of mortgage loans with a fixed interest rate.
7.2.4. Risk of changes in prices in the portfolio of equity securities in the banking book
NLB Group’s financial instruments trading strategy includes guidelines for the effective management of risks associated with equity investments.
Trading with equity securities is not permitted in subsidiaries. Only stock broking services are provided. The majority of the equity securities
portfolio in the banking book derives from NLB’s position, while smaller positions are also held by certain NLB Group entities.
In terms of equity security investments, NLB has adopted policies for managing these investments that were approved by the Management and
the Supervisory Board. The policies relate to the investment structure of the portfolio, its diversification, and the monitoring and measurement
of risks. In addition to a standardised methodology, NLB also uses an internal model, which has been adapted in accordance with the
requirements of the Basel standards for monitoring and measuring risks related to the equity portfolio.
The carrying value of the equities portfolio in the banking book of NLB Group and NLB is represented in note 5.4.
7.3. Liquidity risk
Liquidity risk is the risk that the bank is unable to meet all of its payment obligations, as well as the risk that the bank is unable to fund the
growth of assets at reasonable prices, or at all.
Risk tolerance for liquidity risk is low, therefore NLB Group maintains an adequate level of liquidity to provide sufficient funds for settling its
liabilities at all times, even if a specific stress scenario is realised. The Bank measures and manages its liquidity in three stages:
• Current exposure and compliance,
• Forward-looking and stress testing,
• Liquidity in exceptional circumstances.
NLB Group 2016 Annual Report 300
Overall assessment of the liquidity position of NLB Group is assessed in Internal Liquidity Adequacy Assessment Process (ILAAP) at least
once per year for NLB Group, and it includes a clear formal statement on liquidity adequacy, supported by an analysis of ILAAP outcomes.
NLB Group maintains a sufficient amount of liquidity reserves in the form of high credit quality debt securities that are eligible for refinancing
via the ECB or on the interbank market. In the current situation, NLB Group also strives to follow as closely as possible the long-term trend of
diversification on both the liability and asset sides of the balance sheet. NLB Group regularly performs stress tests with the aim of testing the
liquidity stability and availability of liquidity reserves in various stress situations. In addition, special attention is given to the fulfilment of the
liquidity regulation (CRR/CRD), with monitoring and reporting of the liquidity coverage ratio (LCR) according to the Delegated Act (DA) and
net stable funding ratio (NSFR). This also includes monitoring and reporting of Additional Liquidity Monitoring Metrics (ALMM) on solo and
consolidated levels. In accordance with the Commission Implementing Regulation (EU), NLB Group regularly monitors and issues quarterly
reports on asset encumbrance (AE). Increase in the volume of encumbered assets boosts liquidity risk and the risk of financing, since the Bank
has fewer available assets as a liquidity reserve for unexpected liquidity needs.
NLB prepares a monthly static liquidity mismatch table by residual maturity and dynamic liquidity projections taking several cash-flow scenarios
into account, to ensure monitoring over the liquidity position of each NLB Group member.
NLB manages its liquidity position (liquidity within one day) daily, for a period of several days or weeks, based on the planning and monitoring
of cash flows. Each NLB Group member is responsible for its own liquidity position and carries out the following activities:
• managing intraday liquidity;
• planning and monitoring cash flows;
• monitoring and complying with the liquidity regulations of the central bank;
• adopting business decisions;
• managing liquidity reserves; and
• performing intraday liquidity stress test to define liquidity buffer for smooth functioning of payment system in stressed circumstances.
The Bank actively manages liquidity over the course of a day, taking into account the characteristics of payment settlements to ensure the
timely settlement of liabilities in normal and stressed circumstances.
NLB Group has defined a liquidity management plan for exceptional circumstances that lays down guidelines and a plan of activities for
recognising problems, searching for solutions, and handling exceptional circumstances. It also provides for the establishment of a system of
liquidity management that ensures the maintenance of NLB Group’s liquidity and protects the commercial interests of its customers and
shareholders.
Liquidity risk management in NLB Group is decentralised under strict monitoring by NLB as a parent bank. Standardised reporting to NLB
by all group members is done on a monthly basis. Global Risk gives guidelines and defines minimal standards for group members regarding
liquidity risk management in NLB Group Risk Management Standards. Each group member is responsible for ensuring adequate liquidity
via the necessary sources of funding and their appropriate diversification and maturity, and by managing liquidity reserves and fulfilling the
requirements of regulations governing liquidity. The exposure of an individual NLB Group entity is regularly monitored and reported to the
Assets and Liabilities Committee of NLB Group (NLB Group ALCO).
The objectives of monitoring and managing liquidity risk in NLB Group are as follows:
ensuring a sufficient level of liquid assets;
• minimising the costs of maintaining liquidity;
• optimising the amount of liquidity reserves;
• ensuring an appropriate level of liquidity for different situations and stress scenarios; and
• anticipating emergencies or crisis conditions, and implementing contingency plans in the event of extraordinary circumstances.
• preparing dynamic projections of liquidity taking several cash-flow scenarios into account;
• preparing proposals for establishing additional financial assets as collateral for sources of funding
NLB Group 2016 Annual Report 301
a) Managing NLB Group’s liquidity reserves
NLB Group has liquidity reserves available to cover liabilities that fall or may become due. Liquidity reserves must become available on short
notice following the realisation of a stress scenario (immediately, i.e. within one week). Liquidity reserves comprise cash, the settlement account
at the central bank, sight deposits and short-term deposits at banks, debt securities and loans eligible as collateral for Eurosystem claims, on
the basis of which the Bank may generate the requisite liquidity at any time. Available liquidity reserves are liquidity reserves decreased by the
reserve requirement, required balances for the continuous performance of payment transactions, encumbered securities, and credit claims for
different purposes (secured funding).
The structure of liquidity reserves is shown in the following table.
Structural liquidity reserves
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
Liquidity reserves
Cash, cash balances at central banks, and other demand deposits at banks
1,299,014
1,161,983
Placements with banks
Trading book securities
Banking book securities
ECB eligible loans
Total liquid assets
Encumbered liquid assets
Unencumbered liquid assets
433,883
68,757
427,195
237,362
617,039
387,599
68,757
496,806
315,016
237,362
2,695,297
2,621,843
2,223,551
2,138,061
849,080
799,757
849,080
799,757
5,346,031
5,248,140
4,146,026
3,987,002
489,775
588,333
161,786
345,398
4,856,256
4,659,807
3,984,240
3,641,604
As at 31 December 2016, 75.8% (31 December 2015: 87.5%) of debt securities in the banking book of NLB Group were government securities
and 24.2% (31 December 2015: 12.5%) were bonds from financial organisations. On 15 December 2016, the second of the two GGB securities
issued by BAMC in 2013 matured in the amount of EUR 309 million.
The purpose of banking book securities is to provide liquidity, along with stabilisation of the interest margin and interest rate risk management
simultaneously. When managing the portfolio, NLB Group uses conservative principles, particularly with respect to the portfolio’s structure in
terms of issuers’ ratings and asset class. The framework for managing the banking book securities are the Policy for managing debt securities
in the Financial markets’ banking book and the Policy for the management of domestic (Slovenian) corporate debt securities by the Large
Corporate Division, which clearly define the objectives and characteristics of the associated portfolio.
The ECB-eligible credit claims comprise loans which fulfil the high eligibility criteria set by the ECB itself and for domestic loans are specified
in the Resolution about general rules on Eurosystem monetary policy instruments and procedures (Chapter 4) adopted by the Bank of Slovenia.
NLB is the only member of NLB Group that complies with the conditions set by the Eurosystem to classify as an eligible counterparty. This is
why these ECB credit claims are included among liquidity reserves.
NLB has encumbered liquid assets for different purposes; the biggest proportion represents ECB-eligible loans and debt securities encumbered
for secured funding at the ECB. Members of NLB Group manage their liquidity reserves on a decentralised basis in compliance with the local
liquidity regulation and valid policies of NLB Group.
NLB Group 2016 Annual Report
302
b) Encumbered liquid assets
2016
NLB Group
NLB
in EUR thousand
Carrying
amount of
encumbered
assets
Fair value of
encumbered
securities
Carrying
amount of
unencumbered
assets
Fair value of
unencumbered
securities
Carrying
amount of
encumbered
assets
Fair value of
encumbered
securities
Carrying
amount of
unencumbered
assets
Fair value of
unencumbered
securities
Loans on demand
Equity instruments
Debt securities
-
-
-
-
1,038,402
-
79,580
79,580
-
-
-
-
488,520
-
69,318
69,318
94,340
102,049
2,670,448
2,712,588
94,340
102,049
2,197,968
2,243,792
Loans and advances other than loans on demand
44,557
Other assets
Total
-
138,897
-
-
7,364,061
747,623
11,900,114
-
-
37,987
-
132,327
-
-
5,249,814
640,019
8,645,639
-
-
2015
NLB Group
NLB
in EUR thousand
Carrying
amount of
encumbered
assets
Fair value of
encumbered
securities
Carrying
amount of
unencumbered
assets
Fair value of
unencumbered
securities
Carrying
amount of
encumbered
assets
Fair value of
encumbered
securities
Carrying
amount of
unencumbered
assets
Fair value of
unencumbered
securities
Loans on demand
Equity instruments
Debt securities
-
-
-
-
933,827
-
82,314
82,314
-
-
-
-
368,124
-
75,335
75,335
158,700
166,533
2,701,258
2,755,369
158,700
166,533
2,216,723
2,270,834
Loans and advances other than loans on demand
169,180
Other assets
Total
-
327,880
-
-
7,025,737
750,599
11,493,735
-
-
169,180
-
327,880
-
-
5,051,110
667,613
8,378,905
-
-
NLB Group 2016 Annual Report c) Collateral received - unencumbered
The nominal amount of collateral received or own debt securities issued not available for encumbrance is shown in the table below:
303
NLB Group
NLB
in EUR thousand
2016
2015
2016
2015
174,680
168,393
161,636
150,419
-
106
-
46
50,627
Equity instruments
Debt securities
Loans and advances other than loans on demand
127,851
148,303
39,846
Other assets
Total
7,380,987
8,016,021
3,755,558
4,222,727
7,683,518
8,332,823
3,957,040
4,423,819
Neither NLB Group nor NLB has collateral received or own debt securities issued available for encumbrance.
d) Source of encumberance
NLB Group
NLB
in EUR thousand
2016
2015
2016
2015
Collateralised
liability
Assets given
as collateral
Collateralised
liability
Assets given
as collateral
Collateralised
liability
Assets given
as collateral
Collateralised
liability
Assets given
as collateral
Derivatives
Deposits and loans
35,755
37,987
32,519
29,087
35,755
37,987
32,519
29,087
5,099,974
94,340
4,899,112
298,793
5,099,974
94,340
4,899,112
298,793
Other securities of encumbrance
6,570
6,570
-
-
-
-
-
-
Total
5,142,299
138,897
4,931,631
327,880
5,135,729
132,327
4,931,631
327,880
As at 31 December 2016, NLB Group and NLB had a large share of unencumbered assets. On the NLB Group level the amount of
encumbered assets equalled EUR 138.9 million, relating to the deposit guarantee scheme and to secure funding received from international
financial organisations. Due to a very good liquidity position NLB repaid total secured funding in January 2017, therefore encumbered assets
decreased even more.
The difference between encumbered liquidity reserves and encumbered assets is presented by a deposit placed as collateral for derivative
instruments transactions in accordance with CSA contracts. This deposit does not constitute part of the liquidity reserves. Other sources of
encumbrance also represent deposits placed as collateral for issued counter-guarantees.
NLB Group 2016 Annual Report
304
e) Non-derivative cash flows
The tables below illustrate the cash flows from non-derivative financial instruments by residual maturities at the end of the year. The amounts
disclosed in the table are the undiscounted contractual cash flows determined on the basis of spot rates at the end of the reporting period.
31.12.2016
Financial liabilities and credit-related commitments
NLB Group
in EUR thousand
Up to 1 Month
1 Month to
3 Months
3 Months
to 1 Year 1 Year to 5 Years
Over 5 Years
Total
Financial liabilities designated at fair value through profit or loss
-
-
1,457
Financial liabilities measured at amortised cost
- deposits from banks and central banks
- borrowings from banks and central banks
41,947
4,984
167
7,015
554
222
-
172,540
137,280
- due to customers
6,912,469
461,621
1,349,330
704,753
- borrowings from other customers
1,343
3,276
10,960
45,228
-
-
56,492
59,223
30,170
2,011
42,336
378,311
9,487,396
90,977
- debt securities in issue
- subordinated liabilities
- other financial liabilities
-
-
-
532
98,829
3,522
282,348
-
-
282,348
2,193
7,668
23,569
12,013
38,307
276
-
110,295
Credit risk related commitments
511,700
185,749
402,635
242,572
Non-financial guarantees
17,217
38,617
103,531
191,815
91,378
65,970
1,434,034
417,150
Total
7,588,489
700,499
2,332,662
1,346,269
315,246
12,283,165
Total financial assets
2,422,252
744,482
2,308,621
4,488,567
2,782,468
12,746,390
31.12.2015
Financial liabilities and credit related commitments
NLB Group
in EUR thousand
Up to 1 Month
1 Month to
3 Months
3 Months
to 1 Year 1 Year to 5 Years
Over 5 Years
Total
Financial liabilities designated at fair value through profit or loss
-
1,390
1,460
2,062
Financial liabilities measured at amortised cost
- deposits from banks and central banks
- borrowings from banks and central banks
57,046
3,189
-
738
214
21,433
166,225
310,960
- due to customers
6,198,264
590,519
1,519,765
712,502
- borrowings from other customers
1,346
3,119
- debt securities in issue
- subordinated liabilities
- other financial liabilities
-
-
-
597
60,622
5,620
21,493
35,409
1,524
4,291
47,840
282,986
17,772
4,774
-
-
83,358
55,571
28,077
-
18,341
-
4,912
57,998
585,165
9,076,621
101,875
318,395
38,234
75,307
Credit risk related commitments
518,261
170,080
444,414
217,214
135,749
1,485,718
Non-financial guarantees
14,718
41,207
107,763
196,183
72,913
432,784
Total
6,853,446
833,965
2,303,082
1,792,507
394,009
12,177,009
Total financial assets
2,446,251
554,541
2,538,232
4,358,254
2,610,207
12,507,485
NLB Group 2016 Annual Report 31.12.2016
Financial liabilities and credit-related commitments
Up to 1 Month
1 Month to
3 Months
3 Months
to 1 Year 1 Year to 5 Years
Over 5 Years
Total
NLB
305
in EUR thousand
Financial liabilities designated at fair value through profit or loss
-
Financial liabilities measured at amortised cost
- deposits from banks and central banks
- borrowings from banks and central banks
74,977
3,173
-
-
1,457
554
-
-
5,211
161,423
118,333
- due to customers
5,205,105
314,863
780,567
270,662
- borrowings from other customers
- debt securities in issue
- other financial liabilities
-
-
-
-
282,348
-
4,265
65,854
2,930
-
-
-
Credit risk-related commitments
437,335
165,656
274,160
166,079
Non-financial guarantees
14,225
32,702
83,194
171,579
-
-
55,868
55,392
9
-
-
31,489
43,740
2,011
74,977
344,008
6,626,589
4,274
282,348
68,784
1,074,719
345,440
Total
5,800,669
521,362
1,583,149
731,472
186,498
8,823,150
Total financial assets
1,250,372
534,380
1,614,007
3,317,296
2,248,475
8,964,530
31.12.2015
Financial liabilities and credit-related commitments
NLB
in EUR thousand
Up to 1 Month
1 Month to
3 Months
3 Months
to 1 Year 1 Year to 5 Years
Over 5 Years
Total
Financial liabilities designated at fair value through profit or loss
-
1,390
1,460
2,062
Financial liabilities measured at amortised cost
- deposits from banks and central banks
96,732
-
5
-
- borrowings from banks and central banks
173
19,361
151,090
279,229
- due to customers
4,640,241
412,545
912,190
298,736
- borrowings from other customers
- debt securities in issue
- other financial liabilities
-
-
-
-
42,098
5,248
10,019
35,409
-
6,149
282,986
-
Credit risk-related commitments
472,311
126,881
317,253
155,197
Non-financial guarantees
12,771
32,335
86,952
181,766
-
-
81,949
47,663
10
-
-
69,614
59,065
4,912
96,737
531,802
6,311,375
16,178
318,395
47,346
1,141,256
372,889
Total
5,264,326
597,760
1,514,378
1,206,125
258,301
8,840,890
Total financial assets
1,291,636
349,793
1,872,826
3,350,224
2,048,505
8,912,984
When determining the gap between the financial liabilities and financial assets in the maturity bucket of up to one month, it is necessary to
take account of the fact that financial liabilities include total demand deposits, and that NLB may apply a stability weight of 60% to demand
deposits when ensuring compliance with the central bank’s regulations concerning calculation of the liquidity position. To ensure NLB Group’s
and NLB’s liquidity, and based on its approach to risk, in previous years NLB Group compiled a substantial amount of high-quality liquid
investments, mostly government securities and selected loans, which are accepted as adequate financial assets by the ECB.
Liabilities and credit-related commitments are included in maturity buckets based on their residual contractual maturity.
NLB Group 2016 Annual Report 306
f) An analysis of the statement of financial position by residual maturity
31.12.2016
Cash, cash balances at central banks, and
other demand deposits at banks
Trading assets
Financial assets designated at fair value through profit or loss
NLB Group
in EUR thousand
Up to 1 Month
1 Month to
3 Months
3 Months
to 1 Year 1 Year to 5 Years
Over 5 Years
Total
1,299,014
-
-
-
19,226
3,949
49,085
9,168
10,220
-
-
734
2,011
-
-
1,299,014
87,699
6,694
Available-for-sale financial assets
200,080
243,215
454,698
735,882
438,278
2,072,153
Derivatives - hedge accounting
Loans and advances
- debt securities
217
-
-
-
-
1,891
-
-
-
217
-
83,424
85,315
- loans and advances to banks
115,030
42,157
276,758
1,592
-
435,537
- loans and advances to customers
682,223
301,455
1,372,325
2,858,422
1,697,642
6,912,067
- other financial assets
Held-to-maturity financial assets
Fair value changes of hedged in portfolio
hedge of interest rate risk
Non-current assets classified as held for sale
Property and equipment
Investment property
Intangible assets
Investments in associates, and joint ventures
Current income tax assets
Deferred income tax assets
Other assets
Total assets
Trading liabilities
Financial liabilities designated at fair value through profit or loss
Derivatives - hedge accounting
Financial liabilities measured at amortised cost
- deposits from banks and central banks
- borrowings from banks and central banks
- debt securities in issue
- subordinated liabilities
- other financial liabilities
Provisions
Current income tax liabilities
Deferred income tax liabilities
Other liabilities
Total liabilities
Credit risk related commitments
Non-financial guarantees
58,801
4,471
164
-
-
-
-
-
490
-
40,419
281
63,056
-
-
-
-
-
-
244
-
655
1,460
17,200
-
4,263
-
-
-
240
2,124
-
23,257
472
-
61,014
297,206
229,516
611,449
180
-
23,368
43,999
10,818
-
30
7,553
27,314
334
-
678
4,263
173,481
196,849
39,664
23,152
43,008
-
182
83,663
33,970
43,248
2,888
7,735
2,913
94,558
2,424,084
700,148
2,163,384
4,017,790
2,733,605
12,039,011
18,791
29,024
41,947
4,855
-
-
165
6,920
-
1,457
-
-
-
554
-
222
171,008
133,715
-
-
-
166
98,829
3,522
912
1,522
-
6,975
827
284
-
152
277,726
177
7,668
35,886
1,340
-
1,093
-
16,938
276
62,474
-
614
483
-
-
-
55,271
57,677
27,850
18,791
2,011
29,024
42,334
371,769
9,437,147
83,619
-
277,726
9,864
-
815
-
113
-
27,145
110,295
100,914
3,146
727
8,703
7,113,830
471,748
1,838,219
937,964
151,590
10,513,351
476,421
114,272
273,914
173,064
64,082
1,101,753
17,217
38,617
103,531
191,815
65,969
417,149
- due to customers
6,909,677
456,725
1,331,996
681,072
- borrowings from other customers
1,298
2,987
9,868
41,616
Total liabilities and credit-related commitments
7,607,468
624,637
2,215,664
1,302,843
281,641
12,032,253
NLB Group 2016 Annual Report 307
in EUR thousand
NLB Group
31.12.2015
Cash, cash balances at central banks, and
other demand deposits at banks
Trading assets
Financial assets designated at fair value through profit or loss
Up to 1 Month
1 Month to
3 Months
3 Months
to 1 Year 1 Year to 5 Years
Over 5 Years
Total
1,161,983
-
-
39,191
1,929
32,940
194,278
-
-
-
994
753
-
10
4,913
1,161,983
267,413
7,595
Available-for-sale financial assets
209,965
105,128
293,249
750,640
378,209
1,737,191
Derivatives - hedge accounting
Loans and advances
- debt securities
1,083
-
-
-
-
311,466
-
-
- loans and advances to banks
61,556
45,394
322,216
2,609
-
1,083
83,113
-
394,579
431,775
- loans and advances to customers
900,979
305,796
1,159,058
2,691,095
1,636,693
6,693,621
- other financial assets
Held-to-maturity financial assets
Fair value changes of hedged in portfolio
hedge of interest rate risk
Non-current assets classified as held for sale
Property and equipment
Investment property
Intangible assets
Investments in associates, and joint ventures
Current income tax assets
Deferred income tax assets
Other assets
Total assets
Trading liabilities
Financial liabilities designated at fair value through profit or loss
Derivatives - hedge accounting
Financial liabilities measured at amortised cost
- deposits from banks and central banks
- borrowings from banks and central banks
- debt securities in issue
- subordinated liabilities
- other financial liabilities
Provisions
Current income tax liabilities
Deferred income tax liabilities
Other liabilities
Total liabilities
Credit risk-related commitments
Non-financial guarantees
52,531
7,573
-
-
-
-
-
-
423
-
705
822
15,463
-
69,521
17,440
57,916
296,381
186,225
565,535
187
-
-
-
-
-
475
-
-
4,629
-
-
-
-
31
4,876
46,815
-
-
20,835
90,598
12,819
294
-
4,524
10,100
554
-
741
4,629
186,895
207,730
2,915
26,508
39,402
-
-
93,513
39,327
39,696
929
9,400
2,990
95,354
32,988
2,461
2,470,201
510,526
2,395,356
3,897,105
2,548,427
11,821,615
29,920
-
33,842
57,045
3,050
-
1,390
-
-
-
1,460
-
-
2,062
-
723
214
21,047
163,144
303,381
-
-
60,622
616
-
-
11,234
-
212
5,620
240
512
-
480
21,124
29,917
33
4,291
34,330
7,002
251
1,750
46,828
275,045
12,184
4,774
86,006
-
62
1,075
-
-
-
-
80,407
53,909
27,992
-
14,911
-
29,920
4,912
33,842
57,982
571,029
9,020,666
100,267
304,962
27,340
75,307
1,447
122,639
-
-
-
7,514
313
14,539
6,392,164
616,789
1,761,587
1,422,026
178,666
10,371,232
518,261
14,718
170,080
41,207
444,414
107,763
217,214
196,183
135,749
1,485,718
72,913
432,784
- due to customers
6,194,532
584,268
1,497,562
690,395
- borrowings from other customers
1,303
3,020
Total liabilities and credit-related commitments
6,925,143
828,076
2,313,764
1,835,423
387,328
12,289,734
NLB Group 2016 Annual Report 308
31.12.2016
Cash, cash balances at central banks, and
other demand deposits at banks
NLB
in EUR thousand
Up to 1 Month
1 Month to
3 Months
3 Months
to 1 Year 1 Year to 5 Years
Over 5 Years
Total
617,039
-
-
-
Trading assets
19,220
49,085
9,168
10,220
Financial assets designated at fair value through profit or loss
-
-
-
-
2,011
Available-for-sale financial assets
27,709
195,730
371,601
569,219
429,835
1,594,094
Derivatives - hedge accounting
Loans and advances
- debt securities
217
-
-
-
-
1,891
-
-
- loans and advances to banks
76,786
28,708
289,795
1,816
-
217
83,424
10,951
85,315
408,056
- loans and advances to customers
481,337
177,014
832,452
2,080,704
1,272,087
4,843,594
-
-
617,039
87,693
2,011
- other financial assets
Held-to-maturity financial assets
Fair value changes of hedged in portfolio
hedge of interest rate risk
Non-current assets classified as held for sale
Property and equipment
Investment property
Intangible assets
Investments in subsidiaries, associates, and joint ventures
Current income tax assets
Deferred income tax assets
Other assets
Total assets
Trading liabilities
Financial liabilities designated at fair value through profit or loss
Derivatives - hedge accounting
Financial liabilities measured at amortised cost
- deposits from banks and central banks
- borrowings from banks and central banks
- borrowings from other customers
- debt securities in issue
- other financial liabilities
Provisions
Other liabilities
Total liabilities
Credit risk related commitments
Non-financial guarantees
35,400
4,471
164
-
-
-
-
-
-
-
3,423
29
492
230
-
36,151
63,056
17,200
297,206
229,516
611,449
-
-
-
-
-
-
-
-
-
-
1,788
-
-
-
79
2,124
180
-
334
-
16,588
73,908
8,151
9,883
-
13,462
678
1,788
90,496
8,151
23,345
38,361
308,284
346,724
-
10,622
4,996
-
1,265,766
513,622
1,531,586
3,043,180
2,423,812
8,777,966
-
-
-
-
-
-
2,124
10,622
8,419
-
-
-
-
54,653
54,165
9
-
-
-
-
18,787
2,011
29,024
74,977
338,467
6,615,390
4,274
277,726
68,784
79,546
4,186
18,787
-
29,024
74,977
3,167
-
-
-
-
-
1,457
-
-
-
554
-
-
5,140
160,295
115,212
-
-
-
-
277,726
-
4,265
65,854
2,930
-
166
3,626
475
7
25,730
53,175
70
483
5,400,219
321,707
1,241,951
440,468
108,827
7,513,172
437,335
165,656
274,160
166,079
31,489
1,074,719
14,225
32,702
83,194
171,579
43,740
345,440
- due to customers
5,204,618
313,155
776,673
266,779
Total liabilities and credit related commitments
5,851,779
520,065
1,599,305
778,126
184,056
8,933,331
NLB Group 2016 Annual Report 309
in EUR thousand
Up to 1 Month
1 Month to
3 Months
3 Months
to 1 Year 1 Year to 5 Years
Over 5 Years
Total
NLB
496,806
-
-
31.12.2015
Cash, cash balances at central banks, and
other demand deposits at banks
Trading assets
39,658
32,940
194,278
Financial assets designated at fair value through profit or loss
Available-for-sale financial assets
Derivatives - hedge accounting
Loans and advances
- debt securities
-
39,489
1,083
-
-
-
-
-
-
311,466
-
-
- loans and advances to banks
19,645
21,290
283,551
9,790
-
994
-
-
10
4,913
496,806
267,880
4,913
-
1,083
83,113
10,931
394,579
345,207
60,220
184,845
590,844
372,961
1,248,359
- loans and advances to customers
677,932
195,689
726,807
2,057,805
1,167,906
4,826,139
- other financial assets
Held-to-maturity financial assets
Fair value changes of hedged in portfolio
hedge of interest rate risk
Non-current assets classified as held for sale
Property and equipment
Investment property
Intangible assets
Investments in subsidiaries, associates, and joint ventures
Deferred income tax assets
Other assets
Total assets
Trading liabilities
Financial liabilities designated at fair value through profit or loss
Derivatives - hedge accounting
Financial liabilities measured at amortised cost
- deposits from banks and central banks
- borrowings from other customers
- debt securities in issue
- other financial liabilities
Provisions
Current income tax liabilities
Other liabilities
Total liabilities
Credit risk-related commitments
Non-financial guarantees
33,764
7,573
-
-
-
-
-
-
-
6,017
45
5
15,130
-
48,944
17,440
57,916
296,381
186,225
565,535
187
-
-
-
-
-
-
-
-
1,776
-
-
-
-
4,692
3,762
-
-
15,151
8,613
11,681
34,420
4,447
-
554
-
79,419
-
17,946
741
1,776
94,570
8,613
29,627
318,675
353,095
-
-
9,139
9,779
1,321,967
327,811
1,769,098
3,045,256
2,242,653
8,706,785
29,909
-
33,842
96,731
-
1,390
-
-
-
1,460
-
5
-
2,062
-
-
-
-
-
-
42,098
5,248
-
-
3,989
-
-
78
10,009
29,917
-
6,149
275,045
-
27,494
77,643
6,681
570
-
1,039
-
-
-
-
79,012
46,403
10
-
-
-
-
-
29,909
4,912
33,842
96,736
519,926
6,293,339
16,168
304,962
47,346
105,137
6,681
5,676
4,846,270
436,060
1,129,641
927,238
125,425
7,464,634
472,311
12,771
126,881
32,335
317,253
86,952
155,197
181,766
69,614
59,065
1,141,256
372,889
- borrowings from banks and central banks
166
19,194
148,818
272,736
- due to customers
4,639,535
410,150
904,687
292,564
Total liabilities and credit-related commitments
5,331,352
595,276
1,533,846
1,264,201
254,104
8,978,779
NLB Group 2016 Annual Report 310
g) Derivative cash flows
The table below illustrates cash flows from derivatives, broken down into the relevant maturity buckets based on residual maturities.
The amounts disclosed in the table are the contractual undiscounted cash flows prepared on the basis of spot rates on the reporting date.
31.12.2016
Foreign exchange derivatives
- Forwards
- Outflow
- Inflow
- Swaps
- Outflow
- Inflow
- Futures
- Outflow
- Inflow
Interest rate derivatives
- Interest rate swaps and cross-currency swaps
- Outflow
- Inflow
Total outflow
Total inflow
NLB Group
in EUR thousand
Up to 1 Month
1 Month to
3 Months
3 Months
to 1 Year 1 Year to 5 Years
Over 5 Years
Total
(118,175)
(11,542)
(70,553)
118,256
11,541
70,625
(52,543)
52,656
(2,386)
2,400
(3,205)
3,202
(1,329)
1,330
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(200,270)
200,422
(57,077)
57,188
(2,386)
2,400
(809)
348
(1,411)
957
(9,409)
6,205
(29,866)
(18,562)
(60,057)
13,729
10,018
31,257
(173,913)
(16,158)
(81,291)
(29,866)
(18,562)
(319,790)
173,660
15,700
78,160
13,729
10,018
291,267
NLB Group 2016 Annual Report 311
in EUR thousand
Up to 1 Month
1 Month to
3 Months
3 Months
to 1 Year 1 Year to 5 Years
Over 5 Years
Total
NLB Group
(38,548)
(42,424)
(45,561)
38,572
42,477
45,610
(67,211)
(25,255)
67,157
25,256
(1,156)
1,157
(1,833)
1,833
-
-
(5,515)
5,260
(2,518)
2,500
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(126,533)
126,659
(93,622)
93,570
(7,348)
7,093
(2,518)
2,500
(1,469)
(1,412)
(32,516)
(44,167)
(35,015)
(114,579)
474
923
27,624
27,686
24,198
80,905
(109,061)
(77,124)
(79,233)
(44,167)
(35,015)
(344,600)
108,036
76,416
74,391
27,686
24,198
310,727
31.12.2015
Foreign exchange derivatives
- Forwards
- Outflow
- Inflow
- Swaps
- Outflow
- Inflow
- Options
- Outflow
- Inflow
- Futures
- Outflow
- Inflow
Interest rate derivatives
- Interest rate swaps and cross-currency swaps
- Outflow
- Inflow
Total outflow
Total inflow
NLB Group 2016 Annual Report 312
31.12.2016
Foreign exchange derivatives
- Forwards
- Outflow
- Inflow
- Swaps
- Outflow
- Inflow
- Futures
- Outflow
- Inflow
Interest rate derivatives
- Interest rate swaps and cross-currency swaps
- Outflow
- Inflow
Total outflow
Total inflow
NLB
in EUR thousand
Up to 1 Month
1 Month to
3 Months
3 Months
to 1 Year 1 Year to 5 Years
Over 5 Years
Total
(116,500)
(11,542)
(70,553)
116,581
11,541
70,625
(52,543)
52,656
(2,386)
2,400
(3,205)
3,202
(1,329)
1,330
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(198,595)
198,747
(57,077)
57,188
(2,386)
2,400
(809)
349
(1,411)
957
(9,409)
6,205
(29,866)
(18,562)
(60,057)
13,729
10,018
31,258
(172,238)
(16,158)
(81,291)
(29,866)
(18,562)
(318,115)
171,986
15,700
78,160
13,729
10,018
289,593
NLB Group 2016 Annual Report 313
in EUR thousand
Up to 1 Month
1 Month to
3 Months
3 Months
to 1 Year 1 Year to 5 Years
Over 5 Years
Total
NLB
(37,951)
(42,944)
(45,558)
37,972
42,999
45,610
(67,211)
(25,255)
67,157
25,256
(1,156)
1,156
(1,833)
1,833
-
-
(5,515)
5,260
(2,518)
2,500
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(126,453)
126,581
(93,622)
93,569
(7,348)
7,093
(2,518)
2,500
(1,469)
(1,412)
(32,516)
(44,178)
(35,069)
(114,644)
483
943
27,707
28,010
24,368
81,511
(108,464)
(77,644)
(79,230)
(44,178)
(35,069)
(344,585)
107,445
76,958
74,473
28,010
24,368
311,254
31.12.2015
Foreign exchange derivatives
- Forwards
- Outflow
- Inflow
- Swaps
- Outflow
- Inflow
- Options
- Outflow
- Inflow
- Futures
- Outflow
- Inflow
Interest rate derivatives
- Interest rate swaps and cross-currency swaps
- Outflow
- Inflow
Total outflow
Total inflow
NLB Group 2016 Annual Report 314
7.4. Information regarding the quality of debt securities
The portfolio of debt securities in the banking book is intended to provide liquidity and manage NLB Group’s interest rate risk.
When managing the portfolio, NLB Group uses conservative principles, particularly with respect to issuers’ ratings and the maturity of the
portfolio.
a) Geographical analysis of the debt securities portfolio in the banking book
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
Carrying
value
in %
Carrying
value
in %
Carrying
value
in %
Carrying
value
70,487
198,047
243,891
128,543
61,542
2.6
7.3
9.0
4.8
2.3
90,506
100,718
214,447
109,533
61,581
3.5
3.9
8.2
4.2
2.4
70,487
198,047
243,891
128,543
61,542
3.2
8.9
90,506
100,615
11.0
214,447
5.8
2.8
109,533
58,914
1,044,751
38.8
1,248,999
47.6
980,357
44.1
1,202,003
159,995
54,566
5.9
2.0
172,807
81,110
6.6
3.1
-
-
-
-
-
-
in %
4.3
4.7
10.0
5.1
2.8
56.2
-
-
733,475
27.2
542,142
20.6
540,684
24.3
362,043
16.9
2,695,297
100.0
2,621,843
100.0
2,223,551
100.0
2,138,061
100.0
Country
Austria
France
Germany
Netherlands
Belgium
Slovenia
Macedonia
Serbia
Other
Total
*The analysis includes all debt securities in the banking book regardless of their measurement category (note 7.1.t).
b) Structure of the banking book according to the Fitch credit rating agency
NLB Group
NLB
in EUR thousand
31.12.2016
31.12.2015
31.12.2016
31.12.2015
Carrying
value
in %
Carrying
value
in %
Carrying
value
in %
Carrying
value
271,157
349,839
1,455,401
10.1
13.0
54.0
349,987
249,074
232,667
138,366
5.1
1,278,201
480,534
17.8
511,914
13.3
271,157
9.5
8.9
48.7
19.5
349,839
1,455,401
132,254
14,900
12.2
15.7
65.5
5.9
0.7
349,987
245,718
232,667
1,271,873
37,816
in %
16.4
11.5
10.9
59.5
1.7
2,695,297
100.0
2,621,843
100.0
2,223,551
100.0
2,138,061
100.0
Rating
AAA
AA
A
BBB
Other
Total
NLB Group 2016 Annual Report
c) Structure of the trading book according to the Fitch credit rating agency
NLB Group and NLB
Rating
A
BBB
Other
Total
315
31.12.2016
31.12.2015
in %
in %
72.3
-
27.7
100.0
36.7
36.3
27.0
100.0
7.5. Management of non-financial risks
a) Operational risk
When assuming operational risks, NLB Group follows the guideline that such risks may not materially impact its operations and, therefore,
the risk appetite for operational risks is low to moderate. Currently, the complexity of NLB Group operations is on a moderate level, although
it is constantly reducing through the divestment of non-core activities. The Group has set up a system of collecting loss events, identification,
assessment, and management of operational risks, all with the aim of ensuring quality management of operational risks.
All core members of NLB Group monitor the upper limit of tolerance to operational risk, defined as the limit amount of net loss that an
individual member still allows in its operations. If the sum of net loss exceeds the tolerance limit, a special treatment of major loss events is
required and, if necessary, taking of additional measures for the prevention of the same or similar loss events. The critical limit of loss events is
also defined, representing the limit above which the member considers a possible increase in the capital requirement for operational risk within
ICAAP and other possible risk management measures. The key risk indicators are regularly monitored (at least quarterly) within NLB Group’s
Risk Profile. In addition, the Bank has developed special methodology for monitoring key risk indicators, which could indicate increasing of
operational risk. Indicators are defined at the level of the Bank.
As the highest authority in the area of operational risk management, NLB appointed an Operational Risk Committee. Relevant operational
risk committees were also appointed at other NLB Group banks. The management board serves in this role at other subsidiaries. The main
task of the aforementioned bodies is to discuss the most significant operational risks and loss events, and to monitor and support the effective
management of operational risks within an individual entity. All NLB Group entities included in the consolidation have adopted relevant
documents that are in line with NLB standards. In core members, these documents are in line with the development of operational risk
management and regularly updated. The whole NLB Group uses uniform software support, which is also regularly upgraded.
In NLB Group, the reported incurred net loss arising from loss events in 2016 was considerably lower than in the previous year, and represents
a relatively small part of the capital requirement for operational risk. In general, considerable attention is paid to reporting loss events and
defining operational risks in all segments. To treat major loss events appropriately and as soon as possible, the Bank has introduced an escalation
scale for reporting loss events to the top levels of decision-making at NLB and the Supervisory Board of NLB. Additional attention is paid to the
reporting of potential loss events in order to improve the internal controls, and thus minimise those and similar events.
Through comprehensive identification of operational risks, possible future losses are identified, estimated, and appropriately managed.
The major operational risks are actively managed with the measures taken to reduce them. An operational risk profile is prepared once a year
on the basis of the operational risk identification. Special emphasis is put on the most topical risks, among which in particular are those with a
low probability of occurrence and very high potential financial influence. For this purpose the Bank has developed the methodology of stress
testing for operational risk. The methodology is a combination of modelling loss event data and scenario analysis for exceptional, but plausible
events. Scenario analysis will be made based on experience and knowledge of experts from various critical areas.
The capital requirement for operational risk is calculated using the basic indicator approach at NLB Group and using the standardised
approach at the NLB level.
NLB Group 2016 Annual Report 316
b) Business Continuity Management (BCM)
In NLB Group, business continuity management is carried out to protect lives, goods, and reputation. Business continuity plans are prepared to
be used in the event of natural disasters, IT disasters, and undesired effects of the environment to mitigate their consequences.
The concept of the action plan, prepared each year, is such that the activities contribute to the upgrading or improvement of the system of
business continuity management. The basis for modernising the business continuity plans is the regular annual analysis of the impact on
operations (BIA). On its basis, the adequacy of the plans for office buildings and IT plans is checked. The best indicator of the adequacy of the
business continuity plans is testing. In 2016, 44 tests were carried out at NLB (37 internal ones and 7 with external business partners). No major
deviations were discovered.
In NLB Group, know-how and methodologies are transferred to the members (except small members). The members have adopted appropriate
documents which are in line with the standards of NLB and revised in accordance with the development of business continuity management.
The activity of the members is monitored throughout the year, and expert assistance is provided if necessary. For more efficient functioning
of the business continuity management system in NLB Group, training courses and visits to individual banking members are also provided.
In 2016, NLB thus carried out e-education for all NLB employees, a training course for members of the Crisis Management Team and the
Crisis Teams of office buildings. Upon IT disasters/failures, the Bank successfully used the IT plans and instructions for manual procedures,
and thus also ensured business operations in emergency situations.
c) Management of other types of non-financial risks – capital risk, strategic risks, reputation risk and profitability risk
Risks not included in the calculation of capital requirements by the regulatory approach but which are also important for NLB Group
are adequately discussed in the context of the internal capital adequacy assessment process (ICAAP). NLB has established the relevant
methodologies for identifying and assessing specific types of risk (capital, strategic, reputation and profitability risk); the methodologies are
subject to regular review. The calculation of internal capital requirements for non-financial risks is made quarterly at NLB Group level. If
a certain risk is assessed as a key risk, capital requirements are created. Individual capital requirements for non-financial risks are calculated
by certain NLB Group banks in accordance with their national regulations. Significant and material changes in the calculation of capital
requirements for individual NLB Group entities could discretionarily result in an increase in relevant capital requirements at NLB Group level.
7.6. Fair value hierarchy of financial and non-financial assets and liabilities
Fair value is the price that would be received when selling an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. NLB Group uses various valuation techniques to determine fair value. IFRS 13 specifies a fair value
hierarchy with respect to the inputs and assumptions used to measure financial and non-financial assets and liabilities at fair value. Observable
inputs reflect market data obtained from independent sources, while unobservable inputs reflect the assumptions of NLB Group. This hierarchy
gives the highest priority to observable market data when available, and the lowest priority to unobservable market data. NLB Group considers
relevant and observable market prices in its valuations, where possible. The fair value hierarchy comprises the following levels:
• Level 1 – Quoted prices (unadjusted) on active markets. This level includes listed equities, debt instruments, derivatives, units of investment
funds, and other unadjusted market prices of assets and liabilities. When an asset or liability may be exchanged in multiple active markets,
the principal market for the asset or liability must be determined. In the absence of a principal market, the most advantageous market for the
asset or liability must be determined.
• Level 2 – A valuation technique where inputs are observable, either directly (i.e. prices) or indirectly (i.e. derived from prices). Level 2 includes
prices quoted for similar assets or liabilities in active markets and prices quoted for identical or similar assets, and liabilities in markets that
are not active. The sources of input parameters for financial instruments, such as yield curves, credit spreads, foreign exchange rates, and the
volatility of interest rates and foreign exchange rates, are Reuters and Bloomberg.
• Level 3 – A valuation technique where inputs are not based on observable market data. Unobservable inputs are used to the extent that
relevant observable inputs are not available. Unobservable inputs must reflect the assumptions that market participants would use when
pricing an asset or liability. This level includes non-tradable shares and bonds, and derivatives associated with these investments and other
assets and liabilities for which fair value cannot be determined with observable market inputs.
Wherever possible, fair value is determined as an observable market price in an active market for an identical asset or liability. An active market
is a market in which transactions for an asset or liability are executed with sufficient frequency and volume to provide pricing information on
an ongoing basis. Assets and liabilities measured at fair value in active markets are determined as the market price of a unit (e.g. share) at the
measurement date, multiplied by the quantity of units owned by NLB Group. The fair value of assets and liabilities whose market is not active
is determined using valuation techniques. These techniques bear a different intensity level of estimates and assumptions, depending on the
NLB Group 2016 Annual Report 317
availability of observable market inputs associated with the asset or liability that is the subject of the valuation. Unobservable inputs shall reflect
the estimates and assumptions that other market participants would use when pricing the asset or liability.
For non-financial assets measured at fair value and not classified at Level 1, fair value is determined based on valuation reports provided by
certified valuators. Valuations are prepared in accordance with the International Valuation Standards (IVS).
a) Financial and non-financial assets and liabilities measured at fair value in the financial statements
31.12.2016
Financial assets
NLB Group
NLB
in EUR thousand
Level 1
Level 2
Level 3
Total fair
value
Level 1
Level 2
Level 3
Total fair
value
Financial instruments held for trading
49,747
37,547
Debt instruments
Derivatives
Derivatives - hedge accounting
Financial assets designated at fair
value through profit or loss
Debt instruments
Equity instruments
49,747
19,010
-
-
6,694
734
5,960
18,537
217
-
-
-
405
-
405
-
-
-
-
87,699
49,747
37,541
68,757
49,747
19,010
18,942
217
-
-
18,531
217
6,694
2,011
734
5,960
-
2,011
-
-
-
405
-
405
-
-
-
-
87,693
68,757
18,936
217
2,011
-
2,011
Financial assets available-for-sale
1,648,721
417,527
5,903
2,072,151
1,330,150
262,134
1,810
1,594,094
Debt instruments
Equity instruments
Financial liabilities
Financial instruments held for trading
Derivatives
Derivatives - hedge accounting
Financial liabilities designated at fair
value through profit or loss
Non-financial assets
Investment properties
Non-current assets classified as held for sale
Non-financial assets impaired during the year
Recoverable amount of property, plant, and equipment
Recoverable amount of investments in
subsidiaries, associates, and joint ventures
1,627,608
370,924
-
1,998,532
1,309,223
217,564
-
1,526,787
21,113
46,603
5,903
73,619
20,927
44,570
1,810
67,307
-
-
-
-
-
-
-
-
18,791
18,791
29,024
2,011
83,662
4,263
4,762
-
-
-
-
-
-
-
-
-
18,791
18,791
29,024
2,011
83,662
4,263
4,762
-
-
-
-
-
-
-
-
-
18,787
18,787
29,024
2,011
8,151
1,788
967
-
-
-
-
-
-
-
18,787
18,787
29,024
2,011
8,151
1,788
967
16,663
20,198
36,861
NLB Group 2016 Annual Report 318
31.12.2015
Financial assets
NLB Group
NLB
in EUR thousand
Level 1
Level 2
Level 3
Total fair
value
Level 1
Level 2
Level 3
Total fair
value
Financial instruments held for trading
85,208
181,098
1,107
267,413
85,208
181,565
1,107
267,880
Debt instruments
Equity instruments
Derivatives
Derivatives - hedge accounting
Financial assets designated at fair
value through profit or loss
Debt instruments
Equity instruments
85,198
151,171
993
237,362
85,198
151,171
993
237,362
10
-
-
7,595
753
6,842
-
29,927
1,083
-
-
-
-
114
-
-
-
-
10
30,041
1,083
10
-
-
7,595
4,913
753
6,842
-
4,913
-
30,394
1,083
-
-
-
-
114
-
-
-
-
10
30,508
1,083
4,913
-
4,913
Financial assets available-for-sale
1,344,175
383,056
9,960
1,737,191
1,037,876
203,609
6,874
1,248,359
Debt instruments
Equity instruments
Financial liabilities
Financial instruments held for trading
Derivatives
Derivatives - hedge accounting
Financial liabilities designated at fair
value through profit or loss
Non-financial assets
Investment properties
Non-current assets classified as held for sale
Non-financial assets impaired during the year
Recoverable amount of property, plant, and equipment
Recoverable amount of investments in
subsidiaries, associates, and joint ventures
1,324,978
336,751
-
1,661,729
1,018,857
159,090
-
1,177,947
19,197
46,305
9,960
75,462
19,019
44,519
6,874
70,412
-
-
-
-
-
-
-
-
29,920
29,920
33,842
4,912
93,513
4,629
13,296
-
-
-
-
-
-
-
-
-
29,920
29,920
33,842
4,912
93,513
4,629
13,296
-
-
-
-
-
-
-
-
-
29,909
29,909
33,842
4,912
8,613
1,776
-
-
-
-
-
-
-
-
29,909
29,909
33,842
4,912
8,613
1,776
-
-
23,146
11,273
34,419
NLB Group 2016 Annual Report 319
b) Significant transfers of financial instruments between levels of valuation
NLB Group’s policy of transfers of financial instruments between levels of valuation is illustrated in the table below.
Fair value hierarchy
Equities
Equity stake
Funds
Fixed income
Equities
Currency
Interest
1
2
3
market value from
exchange market
regular valuation by
fund management
company
market value from
exchange market
valuation model
valuation model
valuation model
valuation model
valuation model
valuation model
(underlying in level 1)
valuation model
(underlying in level 3)
valuation model
valuation model
Derivatives
Transfers
from level 1 to level 3
from level 1 to level 3 from level 1 to level 2 from level 2 to level 3
equity excluded from
exchange market
fund management
stops publishing
regular valuation
fixed income excluded
from exchange market
underlying excluded
from exchange market
from level 1 to level 3
from level 3 to level 1 from level 1 to level 2 from level 3 to level 2
companies
in insolvency
proceedings
from level 3 to level 1
equity included to
exchange market
fund management
starts publishing
regular valuation
fixed income not
liquid (no trading
for 6 months)
underlying included
into exchange market
from level 1 to
level 3 and from
level 2 to level 3
companies
in insolvency
proceedings
from level 2 to
level 1 and from
level 3 to level 1
start trading with
fixed income on
exchange market
from level 3 to level 2
until valuation
parameters are
confirmed on
ALCO (at least on
quarterly basis)
For 2016 and 2015, neither NLB Group nor NLB had any significant transfers of financial instruments between levels of valuation.
c) Financial and non-financial assets and liabilities at Level 2 regarding the fair value hierarchy
Financial instruments on Level 2 of the fair value hierarchy at NLB Group and NLB include:
• debt securities: bonds not quoted on active markets and valuated by a valuation model;
• equities;
• derivatives: derivatives except forward derivatives and options on equity instruments that are not quoted on active markets;
• the National Resolution Fund; and
• structured deposits.
When valuing bonds classified on Level 2, NLB Group primarily uses the income approach based on an estimation of future cash flows
discounted to the present value.
The input parameters used in the income approach are the risk-free yield curve and the spread over the yield curve (credit, liquidity, country).
Fair values for derivatives are determined using a discounted cash flow model based on the risk-free yield curve. Fair values for options are
determined using valuation models for options (Garman and Kohlhagen model, binomial model, and Black-Scholes model).
NLB Group 2016 Annual Report 320
At least three valuation methods are used for the valuation of investment property. The majority of investment property is valued using the
income approach where the present value of future expected returns is assessed. When valuing an investment property, average rents at similar
locations and capitalisation ratios such as: the risk-free yield, risk premium, liquidity premium, risk premium to account for the management of
the investment, and the risk premium to account for capital preservation are used. Rents at similar locations are generated from various sources,
like data from lessors and lessees, web databases, and own databases. NLB Group has observable data for all investment property at its disposal.
If observable data for similar locations are not available, NLB Group uses data from wider locations and appropriately adjusts such data.
Non-current assets held for sale represent property, plant, and equipment that are measured at fair value less costs to sell because it is lower than
the previous carrying amount of those assets.
d) Financial and non-financial assets and liabilities at Level 3 of the fair value hierarchy
Financial instruments on Level 3 of the fair value hierarchy in NLB Group and NLB include:
• debt securities: structured debt securities from inactive emerging markets;
• equities: mainly Slovenian corporate and financial equities that are not quoted on active markets; and
• derivative financial instruments: forward derivatives and options on equity instruments that are not quoted on an active organised market.
Fair values for forward derivatives are determined using the discounted cash flow model. Fair values for equity options are determined using
valuation models for options (Garman and Kohlhagen model, binomial model and Black-Scholes model). Unobservable inputs include the
fair values of underlying instruments determined using valuation models. The source of observable market inputs is the Reuters information
system.
NLB Group uses three valuation methods for the valuation of equity financial assets: the income approach, market approach, and cost
approach.
The most commonly used valuation technique is the income approach. The income approach is based on an estimation of future cash flows
discounted to the present value. One of the key elements of the valuation is the projection of the cash flows the company is able to generate
in the future. Based on that, the projection of the future cash flow is generated. The key variables that affect the amount of cash flows, and
thus the estimated fair value of the financial asset also include an assumption regarding the long-term EBITDA margin. A discount rate that
is appropriate for the risks associated with the realisation of these benefits is used to discount cash flows. The discount rate is determined
as the weighted average cost of capital. A forecast of future cash flows and a calculation of the weighted average cost of capital is prepared
for an accurate forecasting period (usually 10 years from the date of the prediction value), and for a period following the period of accurate
forecasting. Assumptions of long-term stable growth in the amount of 2.5% are used for the period following the period of accurate forecasting.
NLB Group can select values of unobservable input data within a reasonable possible range, but uses those input data that other market
participants would use.
NLB Group 2016 Annual Report Movements of financial assets and liabilities at Level 3
NLB Group
Debt instruments
Derivatives
Equity instruments
Financial instruments held for trading
Financial assets
available-for-sale
Total financial assets
Balance as at 1 January 2015
Exchange differences
Disposal of subsidiary
Valuation:
- through profit or loss
- recognised in other comprehensive income
Increases
Decreases
Transfer out of level 3
Balance as at 31 December 2015
Exchange differences
Valuation:
- through profit or loss
- recognised in other comprehensive income
Increases
Decreases
Balance as at 31 December 2016
892
101
-
-
-
-
-
-
993
(37)
-
-
-
(956)
-
120
-
-
(6)
-
-
-
-
114
-
291
-
-
-
405
6,742
(32)
(48)
(4,732)
3,584
4,357
(22)
111
9,960
29
(178)
1,431
1,066
(6,405)
5,903
7,754
69
(48)
(4,738)
3,584
4,357
(22)
111
11,067
(8)
113
1,431
1,066
(7,361)
6,308
321
in EUR thousand
Financial liabilities
held for trading
Derivatives
4,171
-
-
87
-
-
(4,258)
-
-
-
-
-
-
-
-
Financial instruments held for trading
Financial assets
available-for-sale
Total financial assets
in EUR thousand
Financial liabilities
held for trading
NLB
Debt instruments
Derivatives
Equity instruments
Balance as at 1 January 2015
Exchange differences
Valuation:
- through profit or loss
- recognised in other comprehensive income
Decreases
Balance as at 31 December 2015
Exchange differences
Valuation:
- through profit or loss
- recognised in other comprehensive income
Increases
Decreases
Balance as at 31 December 2016
892
101
-
-
-
993
(37)
-
-
-
(956)
-
120
-
(6)
-
-
114
-
291
-
-
-
405
5,925
-
6,937
101
(2,705)
(2,711)
3,676
(22)
6,874
-
(178)
453
1,066
(6,405)
1,810
3,676
(22)
7,981
(37)
113
453
1,066
(7,361)
2,215
Derivatives
4,171
-
87
-
(4,258)
-
-
-
-
-
-
-
NLB Group 2016 Annual Report 322
NLB Group and NLB recognise the effects from the valuation of trading instruments in the income statement item ‘Gains Less Losses from
Financial Assets and Liabilities not classified at Fair Value through Profit or Loss’ and exchange differences recognised in the income statement
item ‘Foreign Exchange Translation Gains Less Losses.’ Effects from the valuation of available-for-sale financial assets are recognised in the
income statement item ‘Impairment Charge’ and in the accumulated other comprehensive income item ‘Available-for-sale Financial Assets.’
In 2016, NLB Group and NLB recognised the following unrealised gains or losses for financial instruments that were at Level 3 as at
31 December 2016:
31.12.2016
Items of Income statement
Gains/(losses) from financial assets and liabilities held for trading
Impairment charge
Item of Other comprehensive income
Available-for-sale financial assets
31.12.2015
Items of Income statement
Gains/(losses) from financial assets and liabilities held for trading
Impairment charge
Foreign exchange translation gains/(losses)
Item of Other comprehensive income
Available-for-sale financial assets
NLB Group
NLB
in EUR thousand
Trading assets
Available-for-sale
financial assets
Trading assets
Available-for-sale
financial assets
291
-
-
-
178
1,364
291
-
-
-
178
386
NLB Group
NLB
in EUR thousand
Trading assets
Available-for-sale
financial assets
Trading assets
Available-for-sale
financial assets
(6)
-
101
-
4,732
-
(6)
-
101
-
2,705
-
-
3,584
-
3,676
NLB Group 2016 Annual Report e) Fair value of financial instruments not measured at fair value in financial statements
323
in EUR thousand
NLB Group
NLB
31.12.2016
31.12.2015
31.12.2016
31.12.2015
Carrying
value
Fair value
Carrying
value
Fair value
Carrying
value
Fair value
Carrying
value
Fair value
Loans and advances
- debt securities
85,315
78,953
394,579
397,079
85,315
78,953
394,579
397,079
- loans and advances to banks
435,537
434,958
431,775
431,736
408,056
415,771
345,207
354,369
- loans and advances to customers
6,912,067
6,962,419
6,693,621
6,685,798
4,843,594
4,884,828
4,826,139
4,838,561
- other financial assets
61,014
61,014
69,521
69,521
36,151
36,151
48,944
48,944
Held-to-maturity investments
611,449
671,344
565,535
624,977
611,449
671,344
565,535
624,977
Financial liabilities measured at amortised cost
- deposits from banks and central banks
42,334
42,314
57,982
58,008
74,977
74,977
96,736
96,736
- borrowings from banks and central banks
371,769
377,037
571,029
566,144
338,467
348,331
519,926
513,719
- due to customers
9,437,147
9,461,925
9,020,666
9,036,023
6,615,390
6,626,851
6,293,339
6,299,181
- borrowings from other customers
83,619
83,851
100,267
101,197
4,274
4,258
16,168
15,783
- debt securities in issue
- subordinated liabilities
- other financial liabilities
277,726
280,278
304,962
308,989
277,726
280,278
304,962
308,989
27,145
28,777
27,340
27,585
-
-
-
-
110,295
110,295
75,307
75,307
68,784
68,784
47,346
47,346
Loans and advances to banks
The estimated fair value of deposits is based on discounted cash flows using prevailing money market interest rates for debts with similar credit
risk and residual maturities. The fair value of overnight deposits equals their carrying value.
Loans and advances to customers
Loans and advances are the net of the allowance for impairment. The estimated fair value of loans and advances represents the discounted
amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates for debts with similar
credit risk and residual maturities to determine their fair value.
Deposits and borrowings
The fair value of sight deposits and overnight deposits equals their carrying value. However, their actual value for NLB Group depends on
the timing and amounts of cash flows, current market rates, and the credit risk of the depository institution itself. A portion of sight deposits is
stable, similar to term deposits. Therefore, their economic value for NLB Group differs from the carrying amount.
The estimated fair value of other deposits and borrowings from customers is based on discounted cash flows using interest rates for new deposits
with similar residual maturities.
Held‑to‑maturity financial assets and issued debt securities
The fair value of held-to-maturity financial assets and issued debt securities is based on their quoted market price, or value calculated by using a
discounted cash flow method and prevailing money market interest rates.
Other financial assets and liabilities
The carrying amount of other financial assets and liabilities is a reasonable approximation of their fair value as they mainly relate to short-term
receivables and payables.
NLB Group 2016 Annual Report
324
Fair value hierarchy of financial instruments not measured at fair value in financial statements
NLB Group
NLB
in EUR thousand
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Total fair
value
31.12.2016
Loans and advances
- debt securities
- loans and advances to banks
- loans and advances to customers
- other financial assets
-
-
-
-
78,953
434,958
6,962,419
61,014
Held-to-maturity investments
671,344
-
Financial liabilities measured at amortised cost
- deposits from banks and central banks
- borrowings from banks and central banks
- due to customers
- borrowings from other customers
- debt securities in issue
- subordinated liabilities
- other financial liabilities
-
-
-
-
42,314
377,037
9,461,925
83,851
280,278
-
-
-
28,777
110,295
31.12.2015
Loans and advances
- debt securities
- loans and advances to banks
- loans and advances to customers
- other financial assets
-
-
-
-
397,079
431,736
6,685,798
69,521
Held-to-maturity investments
624,977
-
Financial liabilities measured at amortised cost
- deposits from banks and central banks
- borrowings from banks and central banks
- due to customers
- borrowings from other customers
- debt securities in issue
- subordinated liabilities
- other financial liabilities
-
-
-
-
58,008
566,144
9,036,023
101,197
308,989
-
-
-
27,585
75,307
Total fair
value
78,953
434,958
6,962,419
61,014
-
-
-
-
78,953
415,771
4,884,828
36,151
671,344
671,344
-
42,314
377,037
9,461,925
83,851
-
-
-
-
280,278
280,278
28,777
110,295
-
-
74,977
348,331
6,626,851
4,258
-
-
68,784
Total fair
value
397,079
431,736
6,685,798
69,521
-
-
-
-
397,079
354,369
4,838,561
48,944
624,977
624,977
-
58,008
566,144
9,036,023
101,197
-
-
-
-
308,989
308,989
27,585
75,307
-
-
96,736
513,719
6,299,181
15,783
-
-
47,346
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
78,953
415,771
4,884,828
36,151
671,344
74,977
348,331
6,626,851
4,258
280,278
-
68,784
in EUR thousand
-
-
-
-
-
-
-
-
-
-
-
-
397,079
354,369
4,838,561
48,944
624,977
96,736
513,719
6,299,181
15,783
308,989
-
47,346
NLB Group
NLB
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Total fair
value
NLB Group 2016 Annual Report 325
7.7. Offsetting financial assets and financial liabilities
NLB Group has entered into foreign exchange netting arrangements with certain banks and companies. Cash flows from all FX derivatives with
counterparties that are due on the same day are settled on a net basis, i.e. a single cash flow for each currency. Assets and liabilities related to
these FX netting arrangements are not presented in a net amount in the statement of financial position because netting rules apply to cash flows
and not to an instrument as a whole.
In accordance with the European Market Infrastructure Regulation (EMIR), NLB Group also novated certain standardised derivative financial
instruments to a central counterparty in 2013. A system of daily margins assures the mitigation and collateralisation of exposures, as well as the
daily settlement of cash flows for each currency.
31.12.2016
Financial assets/liabilities
Derivatives - assets
Derivatives - liabilities
31.12.2015
Financial assets/liabilities
Derivatives - assets
Derivatives - liabilities
31.12.2016
Financial assets/liabilities
Derivatives - assets
Derivatives - liabilities
31.12.2015
Financial assets/liabilities
Derivatives - assets
Derivatives - liabilities
NLB Group
Amounts not set-off on the statement
of financial position
Gross amounts of
recognised financial
assets/liabilities
Impact of master
netting agreements
Financial instruments
collateral
18,746
39,663
5,335
5,335
300
31,180
Gross amounts of
recognised financial
assets/liabilities
29,918
47,454
Gross amounts of
recognised financial
assets/liabilities
18,746
39,663
NLB Group
Amounts not set-off on the statement
of financial position
Impact of master
netting agreements
Financial instruments
collateral
7,844
22,882
10,100
10,100
NLB
Amounts not set-off on the statement
of financial position
Impact of master
netting agreements
Financial instruments
collateral
300
31,180
5,335
5,335
NLB
Amounts not set-off on the statement
of financial position
Gross amounts of
recognised financial
assets/liabilities
Impact of master
netting agreements
Financial instruments
collateral
30,385
47,454
10,100
10,100
7,844
22,881
in EUR thousand
Net amount
13,111
3,148
in EUR thousand
Net amount
11,974
14,472
in EUR thousand
Net amount
13,111
3,148
in EUR thousand
Net amount
12,441
14,473
NLB Group and NLB have no financial assets/liabilities set off in the statement of financial position.
NLB Group 2016 Annual Report 326
8. Analysis by segment for NLB Group
a) Segments
2016
Total net income
NLB Group
in EUR thousand
Corporate
banking in
Slovenia
Retail
banking in
Slovenia
Financial
markets in
Slovenia
Foreign
strategic
markets
Non-core
markets and
activities
Other
activities Unallocated
Total
76,768
137,757
50,171
179,370
26,293
Net income from external customers
85,060
130,120
43,997
180,629
26,173
Intersegment net income
(8,292)
7,637
6,174
(1,259)
120
Net interest income
45,891
71,222
48,536
136,909
15,404
Net interest income from external customers
54,183
63,918
42,416
139,240
17,854
Intersegment net interest income
(8,292)
7,304
6,120
(2,331)
(2,450)
9,415
9,765
(350)
(657)
(306)
(351)
Administrative expenses
(40,159)
(90,794)
(11,118)
(87,477)
(21,884)
(13,758)
Depreciation and amortisation
(4,394)
(10,350)
(1,036)
(8,013)
(2,290)
(2,262)
32,214
36,612
38,017
83,880
2,119
(6,604)
Reportable segment profit/(loss) before
impairment and provision charge
Other net gains/(losses) from equity investments
in subsidiaries, associates and joint ventures
Impairment and provisions charge
(2,680)
(10,245)
-
5,159
-
53
-
(153)
-
(16,290)
(20,857)
(10,626)
Profit/(loss) before income tax
29,534
31,527
38,070
67,590
(18,891)
(17,230)
Owners of the parent
Non-controlling interests
Income tax
Profit for the year
29,534
31,527
38,070
61,982
(18,891)
(17,230)
-
-
-
-
-
-
5,608
-
-
-
-
-
Reportable segment assets
2,338,698
2,074,736
3,375,667
3,540,474
502,610
163,578
Investments in associates and joint ventures
-
43,248
-
-
-
-
Reportable segment liabilities
1,198,058
5,229,761
907,159
3,038,921
57,935
81,517
Additions to non-current assets
2,305
7,286
363
7,882
2,928
463
-
-
-
-
-
-
-
-
-
-
-
-
-
-
479,774
475,744
4,030
317,305
317,305
-
(265,190)
(28,345)
186,238
5,006
(60,645)
130,600
124,992
5,608
(14,975)
(14,975)
110,017
11,995,763
43,248
10,513,351
21,227
-
-
-
-
NLB Group 2016 Annual Report 327
in EUR thousand
NLB Group
Corporate
banking in
Slovenia
Retail
banking in
Slovenia
Financial
markets in
Slovenia
Foreign
strategic
markets
Non-core
markets and
activities
Other
activities Unallocated
Total
2015
Total net income
85,149
150,746
72,909
165,946
10,025
Net income from external customers
95,627
136,337
65,944
168,818
13,853
Intersegment net income
(10,478)
14,409
6,965
(2,872)
(3,828)
Net interest income
55,783
78,253
60,192
125,208
21,579
Net interest income from external customers
66,261
59,210
57,583
128,858
28,816
Intersegment net interest income
(10,478)
19,043
2,608
(3,650)
(7,237)
2,526
2,812
(286)
(813)
(527)
(286)
Administrative expenses
(39,211)
(94,818)
(11,068)
(85,396)
(26,404)
(12,997)
Depreciation and amortisation
(4,833)
(11,934)
(1,192)
(8,036)
(3,423)
(2,438)
Reportable segment profit/(loss) before
impairment and provision charge
Other net gains/(losses) from equity investments
in subsidiaries, associates and joint ventures
41,105
43,994
60,649
72,514
(19,802)
(12,909)
-
4,486
-
-
(174)
-
Impairment and provisions charge
10,351
(9,795)
218
(27,807)
(50,103)
(5,969)
Profit/(loss) before income tax
51,456
38,685
60,867
44,707
(70,079)
(18,878)
Owners of the parent
Non-controlling interests
Income tax
Profit for the year
51,456
38,685
60,867
41,243
(70,079)
(18,878)
-
-
-
-
-
-
3,464
-
-
-
-
-
Reportable segment assets
2,160,440
2,015,459
3,350,804
3,389,032
752,137
114,047
Investments in associates and joint ventures
-
39,696
-
-
-
-
Reportable segment liabilities
1,193,660
4,906,699
1,139,738
2,942,463
114,111
74,561
Additions to non-current assets
4,673
12,127
762
10,129
8,747
4,104
-
-
-
-
-
-
-
-
-
-
-
-
-
-
487,301
483,391
3,910
340,202
340,202
-
(269,894)
(31,856)
185,551
4,312
(83,105)
106,758
103,294
3,464
(11,380)
(11,380)
91,914
11,781,919
39,696
10,371,232
40,541
-
-
-
-
Segment reporting is presented in accordance with the strategy on the basis of the organisational structure used in management reporting of
NLB Group’s results.
NLB Group’s segments are business units that focus on different customers and markets. They are managed separately because each business unit
requires different strategies and service levels.
Other NLB Group members are, based on their business activity, included in only one segment. The business activities of NLB are divided into
several segments. Interest income is reallocated between segments on the basis of multiple internal transfer rates (fund transfer pricing – FTP).
Description of NLB Group’s segments:
• Retail banking in Slovenia represents banking with individuals in NLB and assets management – NLB Skladi. It also includes the contribution
to the financial result of the joint venture NLB Vita and the associates Skupna pokojninska družba and Bankart;
• Corporate banking in Slovenia, which includes: operations with large (key), medium-sized (mid-market), micro and small businesses, and
Intensive Care and Non-performing loans;
• Financial markets in Slovenia, which include treasury activities, asset liability management, trading in financial instruments, brokerage, and
custody of securities, as well as financial advisory;
• Foreign strategic markets represent all business activities of NLB Group members in strategic markets of NLB Group (Bosnia and Herzegovina,
Montenegro, Kosovo, Macedonia and Serbia), except leasing entities;
• Non-strategic markets and activities represent total activities of NLB Group members in non-strategic markets of NLB Group (Croatia,
Germany, Switzerland, and Czech Republic) and all leasing entities. It also includes the operating result of non-financial entities (NLB Propria,
Prospera Plus) and the performance of the Internal restructuring unit of NLB; and
• Other represents items of NLB income statement not related to reportable segments.
NLB Group 2016 Annual Report 328
NLB Group is primarily a financial group, and net interest income represents the majority of its net revenues. NLB Group’s main indicator of a
segment’s efficiency is net profit before tax.
There was no income from transactions with a single external customer that amounted to 10% or more of NLB Group’s income.
b) Geographical information
Geographical analysis includes a breakdown of items with respect to the country in which individual NLB Group entities are located.
Revenues
Net income
Profit/(loss) before
income tax
Income tax
in EUR thousand
NLB Group
Slovenia
2016
2015
2016
2015
2016
2015
2016
2015
348,961
405,711
297,495
322,343
70,094
95,721
(7,854)
(7,198)
South East Europe
234,014
231,515
176,148
171,269
60,900
33,749
(7,115)
(4,188)
Macedonia
Serbia
Montenegro
Croatia
83,364
79,578
61,824
55,944
28,533
13,927
(2,755)
(1,549)
21,585
22,463
18,822
19,025
30,186
30,986
16,484
21,661
1,733
(794)
(1,199)
6,414
181
840
(125)
707
(3,250)
(4,321)
(152)
(116)
(1)
(35)
(126)
-
Bosnia and Herzegovina
65,882
65,531
51,698
47,865
22,098
9,759
(2,802)
(1,436)
Bulgaria
Kosovo
Western Europe
Germany
Switzerland
Czech Republic
Total
-
-
-
(1)
84
(77)
-
-
32,816
32,117
27,445
26,068
12,496
9,246
(1,289)
(1,042)
1,127
3,033
2,105
(10,185)
19
2
474
250
(137)
(248)
(20,997)
243
1,108
3,031
1,631
(10,435)
111
(21,240)
1
-
(4)
(36)
(257)
(1,715)
(6)
-
(6)
-
5
-
5
1
584,103
640,259
475,744
483,391
130,600
106,758
(14,975)
(11,380)
The column ‘Revenues’ includes interest and similar income, dividend income, and fee and commission income. The column ‘Net Income’
includes net interest income, dividend income, net fee and commission income, the net effect of financial instruments, foreign exchange
translation, effect on derecognition of assets, and net operating income.
NLB Group 2016 Annual Report 329
in EUR thousand
Non-current assets
Total assets
Number of employees
31.12.2016
31.12.2015
31.12.2016
31.12.2015
31.12.2016
31.12.2015
225,643
240,592
8,393,754
8,289,804
130,949
138,513
3,602,358
3,469,279
3,065
3,104
3,225
3,136
33,448
24,822
29,476
2,568
27,222
-
33,919
1,147,375
1,117,708
24,778
35,580
3,623
316,023
280,274
478,682
495,044
27,164
33,032
27,031
1,116,169
1,077,299
1
-
333
13,413
13,581
516,945
465,589
247
222
25
891
296
240
56
865
39,742
2,782
36,960
3,157
58,961
3,273
55,688
3,571
891
424
342
16
942
-
489
6
1
5
-
875
480
341
16
930
2
492
11
2
9
-
357,730
380,266
12,039,011
11,821,615
6,175
6,372
NLB Group
Slovenia
South East Europe
Macedonia
Serbia
Montenegro
Croatia
Bosnia and Herzegovina
Bulgaria
Kosovo
Western Europe
Germany
Switzerland
Czech Republic
Total
The table below presents data on NLB Group members before intercompany eliminations and consolidation journals.
Revenues
Net income
Profit/(loss) before
income tax
Income tax
in EUR thousand
NLB Group
Slovenia
2016
2015
2016
2015
2016
2015
2016
2015
390,240
435,691
333,099
342,489
52,829
34,302
(4,554)
(8,516)
South East Europe
234,257
231,869
179,677
167,159
66,530
34,943
(7,083)
(4,057)
Macedonia
Serbia
Montenegro
Croatia
83,422
79,638
61,078
54,737
28,739
13,997
(2,755)
(1,549)
21,748
22,685
19,235
19,005
30,199
30,887
21,073
20,267
2,304
4,456
(686)
6,292
152
813
(695)
(383)
(3,378)
(4,015)
(119)
(116)
(1)
(53)
23
-
Bosnia and Herzegovina
65,921
65,729
51,228
47,187
22,087
10,148
(2,803)
(1,436)
Bulgaria
Kosovo
Western Europe
Germany
Switzerland
Czech Republic
Total
-
-
-
(1)
(230)
(77)
-
-
32,815
32,117
27,758
26,347
12,552
9,284
(1,289)
(1,042)
1,197
4,036
1,455
5,534
(4,958)
(4,792)
20
1,177
107
3
4,033
108
466
989
2
242
5,292
(217)
(247)
243
(4,711)
(5,035)
(257)
(1,715)
(6)
-
(6)
-
5
-
5
1
625,801
671,704
514,233
514,965
114,144
62,738
(11,643)
(12,567)
NLB Group 2016 Annual Report 330
9. Related-party transactions
A related party is a person or entity that is related to NLB Group in such a manner that it has control or joint control, has a significant
influence, or is a member of the key management personnel of the reporting entity. Related parties of NLB Group and NLB include: key
management personnel (Management Board, other key management personnel and their family members); the Supervisory Board; companies
in which members of the Management Board, key management personnel or their family members have control, joint control, or a significant
influence; the ultimate parent; subsidiaries, associates, and joint ventures.
A number of banking transactions are entered into with related parties in the normal course of business. The volume of related-party
transactions and the outstanding balances are as follows:
Management Board and
other Key management
personnel
Family members of
the Management
Board and other key
management personnel
in EUR thousand
Companies in which
members of the
Management Board, key
management personnel
or their family members
have control, joint control
or a significant influence
Supervisory Board
NLB Group and NLB
2016
2015
2016
2015
2016
2015
2016
2015
Loans issued
Balance as at 1 January
Increase
Decrease
Balance as at 31 December
Interest income
Deposits received
Balance as at 1 January
Increase
Decrease
Balance as at 31 December
Interest expense
Other financial liabilities
Guarantees issued and credit commitments
Fee income
Other income
Other expenses
1,953
1,367
2,102
1,046
468
445
347
326
375
368
451
89
(1,210)
(1,195)
(421)
(205)
(372)
(165)
2,110
1,953
41
44
2,158
3,038
1,958
3,042
(3,117)
(2,842)
2,079
(14)
1,536
248
13
2
(2)
2,158
(20)
794
223
11
-
-
492
9
729
725
(757)
697
(4)
-
83
6
-
-
468
12
1,136
971
(1,378)
729
(10)
-
83
6
-
-
371
9
106
464
(90)
480
-
2
147
9
-
-
375
10
199
191
(284)
106
-
1
14
7
-
-
2
-
(2)
-
-
223
146
(239)
130
(1)
-
3
-
-
-
18
30
(46)
2
-
115
485
(377)
223
(1)
-
17
1
-
-
NLB Group 2016 Annual Report 331
in EUR thousand
NLB Group
NLB
Ultimate parent
Ultimate parent
2016
2015
2016
2015
227,341
7,520
(56,272)
178,589
5,896
233,895
32,384
(38,938)
227,341
7,648
220,646
7,355
(54,841)
173,160
5,732
225,971
32,177
(37,502)
220,646
7,441
Ultimate parent company of NLB is the Republic of Slovenia.
Loans issued
Balance as at 1 January
Increase
Decrease
Balance as at 31 December
Interest income
Deposits received
Balance as at 1 January
110,001
375,102
110,001
375,102
Increase
Decrease
Balance as at 31 December
Interest expense
Investments in securities
Balance as at 1 January
Exchange difference on opening balance
Increase
Decrease
Valuation
Balance as at 31 December
Interest income
Other financial assets
Other financial liabilities
Guarantees issued and credit commitments
Fee income
Fee expense
Other income
Other expense
12,803,693
47,400,068
12,803,693
47,400,068
(12,843,689)
(47,665,169)
(12,843,689)
(47,665,169)
70,005
(5)
891,576
-
390,860
(345,457)
(2,643)
934,336
28,019
153
6
849
129
(39)
5
(1)
110,001
(43)
1,094,826
(1)
405,541
(594,698)
(14,092)
891,576
28,889
168
9
824
113
(55)
32
(2)
70,005
(5)
845,039
-
366,845
(339,544)
(2,399)
869,941
27,224
1
6
849
129
(39)
5
(1)
110,001
(43)
1,015,263
-
343,435
(499,873)
(13,786)
845,039
28,602
16
9
824
113
(55)
32
(2)
NLB Group 2016 Annual Report 332
NLB Group and NLB disclose all transactions with the ultimate controlling party. For transactions with other government-related entities,
NLB Group discloses individually significant transactions.
NLB Group and NLB
Amount of significant transactions
concluded during the year
Number of significant transactions
concluded during the year
in EUR thousand
Loans
Borrowings, deposits and business accounts
Commitments to extend credit
2016
158,136
-
140,004
2015
200,000
48,669
-
2016
2015
1
-
2
1
1
-
Year-end balance of all significant transactions
Number of significant transactions at year-end
2016
2015
2016
2015
Loans
Debt securities classified as loans and advances
Borrowings, deposits and business accounts
Commitments to extend credit
770,407
85,315
135,020
140,000
617,185
394,579
134,798
-
5
1
3
2
5
1
3
-
Interest income from loans
Interest income from debt securities
classified as loans and receivables
Interest expense from borrowings,
deposits and business accounts
Interest income from commitments to extend credit
Effects in income statement during the year
2016
3,796
16,425
(225)
894
2015
3,291
25,066
(517)
294
NLB Group 2016 Annual Report 333
in EUR thousand
Associates
Joint ventures
2016
1,625
124
(331)
1,418
48
16
1,179
-
6,945
(2,286)
5,838
-
-
(17)
30
-
927
-
40
-
126
(11,502)
233
(1,092)
2015
2016
2015
1,942
1,453
(1,770)
1,625
65
(23)
1,642
-
6,503
(6,966)
1,179
(1)
569
(23)
32
-
1,025
-
43
-
113
(9,903)
367
(1,119)
93,823
109,548
(183,514)
19,857
932
9,730
6,036
(37)
182,990
(183,791)
5,198
(25)
-
-
141
(1)
92
-
28
-
3,689
(2,055)
580
(89)
104,590
37,215
(47,982)
93,823
2,681
(5,794)
4,116
(17)
138,099
(136,162)
6,036
(139)
-
-
208
(1)
203
(132)
29
776
3,301
(1,905)
560
-
NLB Group
Loans issued
Balance as at 1 January
Increase
Decrease
Balance as at 31 December
Interest income
Impairment
Deposits received
Balance as at 1 January
Exchange difference on opening balance
Increase
Decrease
Balance as at 31 December
Interest expense
Debt securities in issue
Interest expense
Other financial assets
Impairment
Other financial liabilities
Interest expense
Guarantees issued and credit commitments
Income provisons for guaranties and commitments
Fee income
Fee expense
Other income
Other expense
NLB Group 2016 Annual Report 334
NLB
Loans issued
Balance as at 1 January
Increase
Decrease
Balance as at 31 December
Interest income
Impairment
Deposits
Balance as at 1 January
Increase
Decrease
Balance as at 31 December
Interest income
Impairment
Deposits received
Subsidiaries
Associates
Joint ventures
in EUR thousand
2016
2015
2016
2015
2016
2015
381,746
608,748
105,439
289,100
(166,461)
(516,102)
320,724
381,746
7,453
(9,272)
10,679
(18,626)
3,438
12,328
298,795
193,746
(273,802)
(202,636)
28,431
9
-
3,438
251
6,796
1,625
124
(331)
1,418
48
16
-
-
-
-
-
-
1,179
6,945
(2,286)
5,838
-
-
(17)
-
-
30
-
849
-
40
-
-
126
1,942
1,453
93,799
103,972
109,508
33,985
(1,770)
(183,485)
(44,158)
1,625
19,822
65
(23)
931
9,730
93,799
2,679
(5,794)
-
-
-
-
-
-
1,642
6,503
(6,966)
1,179
(1)
569
(23)
-
-
28
-
948
-
43
-
-
113
-
-
-
-
-
-
-
-
-
-
-
-
3,438
77,034
770
45,232
(76,029)
(42,564)
4,443
-
-
-
-
-
140
(1)
1
-
27
-
-
3,419
(1,427)
540
(89)
3,438
(2)
-
-
-
-
207
(1)
176
(132)
28
776
-
3,040
(1,413)
481
-
(10,182)
(9,903)
233
(845)
367
(1,119)
Balance as at 1 January
59,407
48,380
Increase
Decrease
11,271,052
8,128,118
(11,275,903)
(8,117,091)
Balance as at 31 December
54,556
59,407
Interest expense
Debt securities in issue
Interest expense
Derivatives
Fair value
Contractual amount
Other financial assets
Impairment
Other financial liabilities
Interest expense
(29)
-
-
-
-
723
11
296
-
(20)
-
-
469
3,836
5,054
(11)
357
-
Guarantees issued and credit commitments
34,451
38,660
Income/(expense) provisons for guaranties and commitments
Received loan commitments and financial guarantees
Fee income
Fee expense
Other income
Other expense
442
500
4,336
(75)
527
46
750
4,935
(109)
478
(2,830)
(2,914)
NLB Group 2016 Annual Report 335
Key management compensation
The performance of key management is defined by financial and non-financial criteria. They are entitled to the annual variable part of the
salary based on their achievement of the financial and non-financial performance criteria, which encompass the goals of NLB Group or NLB,
the goals of the organisational unit, and the personal goals of the employee performing special work.
Members of the Management Board are entitled to contractual gross salary considering the limitations of the Slovenian and European
legislation.
Simultaneously, under the contract, members of the Management Board are entitled to a performance bonus based on criteria set by the
Supervisory Board. Each year, the Supervisory Board determines the criteria of remuneration upon the adoption of the Bank’s annual business
plan. The Supervisory Board determines the performance bonuses with the conclusion of each business year. In accordance with the legislation,
the annual performance bonus cannot in any case exceed 30 percent of gross salaries in a business year of members of the Management
Board. In addition, members of the Management Board are entitled to performance bonuses only proportionally, depending on their actual
employment in the Bank for the period for which the performance bonus relates. The first 50 percent of the performance bonus is due for
payment within 15 days of the General Meeting of Shareholders that voted on use of the previous year’s profit and the discharge of the
Management Board. Payment of the remaining 50 percent of the performance bonus is deferred.
Upon the conclusion of the General Meeting of Shareholders, members of the Supervisory Board receive payment for their performance
and attendance, while the previously mentioned amounts are limited to a decision of the General Meeting of Shareholders, and are in full
compliance with the applicable recommendations of corporate governance.
NLB Group and NLB
Short-term benefits
Cost refunds
Long-term bonuses:
- severance pay
- other benefits
- variable part of payments
Total
Management Board Other key management personnel
Supervisory Board
in EUR thousand
2016
504
4
-
5
78
591
2015
579
7
-
3
77
666
2016
4,866
112
-
76
499
2015
4,372
113
36
40
536
2016
245
74
-
-
-
2015
182
77
-
-
-
5,553
5,097
319
259
Short-term benefits include:
• monetary benefits (gross salaries, supplementary insurance, holiday allowances, other bonuses); and
• non-monetary benefits (company cars, health care, apartments etc.).
The reimbursement of cost comprises food allowances and travel expenses.
NLB Group 2016 Annual Report 336
Payments to individual members of the Management Board
Member
Blaž Brodnjak
01.12.2012
Andreas Burkhardt
18.09.2013
Archibald Kremser
31.07.2013
Laszló Pelle
26.10.2016
Janko Medja
2.10.2012 - 5.2.2016
Short-term benefits:
- gross salary and holiday allowance
- benefits and other short-term bonuses
Costs refunds
Long-term bonuses:
- other benefits
- variable part of payments
Total
Short-term benefits:
- gross salary and holiday allowance
- benefits and other short-term bonuses
Costs refunds
Long-term bonuses:
- other benefits
- variable part of payments
Total
Short-term benefits:
- gross salary and holiday allowance
- benefits and other short-term bonuses
Costs refunds
Long-term bonuses:
- other benefits
- variable part of payments
Total
Short-term benefits:
- gross salary and holiday allowance
- benefits and other short-term bonuses
Costs refunds
Long-term bonuses:
- other benefits
Total
Short-term benefits:
- gross salary and holiday allowance
- benefits and other short-term bonuses
Costs refunds
Long-term bonuses:
- other benefits
- variable part of payments
Total
2016
137,586
3,049
1,267
1,410
19,621
162,933
137,586
26,148
1,157
1,410
19,621
185,922
137,586
19,150
1,151
1,410
19,621
178,918
13,570
3,278
115
470
17,433
25,033
166
538
235
19,621
45,593
in EUR
2015
131,601
4,109
1,230
763
19,246
156,949
131,601
27,364
1,169
763
19,246
180,143
131,601
20,037
1,187
763
19,246
172,834
-
-
-
-
-
131,601
1,652
3,299
763
19,246
156,561
The above table shows earnings paid to individuals in the year when they were members of the Management Board.
NLB Group 2016 Annual Report Payments to individual members of the Supervisory Board
Member
Sergeja Slapničar
12.06.2013
Uroš Ivanc
12.06.2013
Andreas Klingen
22.06.2015
Primož Karpe
11.02.2016
László Zoltan Urbán
11.02.2016
Matjaž Titan
04.08.2016
David Kastelic
04.08.2016
Alexander Bayr
04.08.2016
David Eric Simon
04.08.2016
Janko Gedrih
10.2.2016 - 15.4.2016
Anton Macuh
10.2.2016 - 15.4.2016
Anton Ribnikar
10.2.2016 - 15.4.2016
Session fees
Annual compensation
Costs refunds
Session fees
Annual compensation
Costs refunds
Session fees
Annual compensation
Costs refunds
Session fees
Annual compensation
Costs refunds
Session fees
Annual compensation
Costs refunds
Session fees
Annual compensation
Costs refunds
Session fees
Annual compensation
Costs refunds
Session fees
Annual compensation
Costs refunds
Session fees
Annual compensation
Costs refunds
Session fees
Annual compensation
Costs refunds
Session fees
Annual compensation
Costs refunds
Session fees
Annual compensation
Costs refunds
337
in EUR
2015
6,600
21,619
1,562
6,655
21,619
214
2,420
10,365
8,051
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2016
7,370
27,547
898
6,930
25,096
404
7,370
25,744
13,833
6,600
28,585
5,591
5,280
16,563
5,341
1,430
8,750
-
1,155
8,750
-
1,650
7,440
3,564
1,375
8,750
1,958
1,045
6,261
180
1,485
3,324
60
1,705
4,499
267
NLB Group 2016 Annual Report 338
Member
Miha Košak
12.6.2013 - 10.2.2016
Gorazd Podbevšek
12.6.2013 - 10.2.2016
Tit A. Erker
12.6.2013 - 3.8.2016
Peter Groznik
4.11.2014 - 27.8.2015
Session fees
Annual compensation
Costs refunds
Session fees
Annual compensation
Costs refunds
Session fees
Annual compensation
Costs refunds
Session fees
Annual compensation
Costs refunds
2016
1,210
3,950
3,536
1,210
3,362
-
5,720
14,826
38,598
-
-
-
in EUR
2015
7,931
26,749
22,955
6,886
24,894
1,306
6,831
25,556
42,262
2,915
11,085
616
The above table shows earnings paid to individuals in the year when they were members of the Supervisory Board.
NLB Group 2016 Annual Report Regulatory Part
342
Statement of Management’s
Responsibility
The Management Board hereby confirms
the statements made in the business
report, which are in accordance with
the attached financial statements as at
31 December 2016, and represent the
actual and fair financial standing of the
Bank and the NLB Group as well as their
operating results in the year that ended
31 December 2016.
The Management Board confirms that
the business report includes a fair view of
developements and operating results of the
Bank and the Group and their financial
standings, including a description of the
key types of risks and the companies under
consolidation are exposed as a whole.
Managmenet Board of the NLB d.d.
László Pelle
Member of the
Management Board
Archibald Kremser
Member of the
Management Board
Andreas Burkhardt
Member of the
Management Board
Blaž Brodnjak
Chief Executive Officer
NLB Group 2016 Annual Report 343
The Bank may perform the following
additional financial services pursuant to
Article 6 of the ZBan-2:
1. Insurance policy brokerage in
accordance with the act governing the
insurance sector,
2. Custodian services in accordance with
the act governing investment funds and
management companies,
3. Credit brokerage for consumer and
other credits.
Types of Services for Which
NLB d.d. Holds Authorisation
Pursuant to the provisions of Article 14 of
the Regulation on the Books of Account
and Annual Reports of Banks and Savings
Banks, which the Bank of Slovenia adopted
on the basis of the authorisation from
Article 93 of the ZBan-2, NLB lists all
types of financial services it performed in
the period for which the business report
has been compiled in accordance with the
authorisation of the Bank of Slovenia.
NLB d.d., Ljubljana holds the authorisation
to perform banking services pursuant
to Article 5 of the Banking Act (Official
Gazette of the RS, no. 25/12; hereinafter:
ZBan-2). The banking services include the
services of accepting deposits and other
repayable funds from the public, and
lending for its own account.
3. Payment services;
4. Issuing and managing other payment
instruments (e.g. travellers cheques
and bank bills of exchange) in the part
where this service is not included in the
service from item 4 of this Article;
5. Issuing of guarantees and other
sureties;
6. Trading for own account or for account
of customers in:
• money market instruments,
• foreign exchange, including currency
exchange transactions,
• standard futures contracts and
options,
• currency and interest-rate
instruments, and
• transferable securities, cooperation
in the issue of securities and services
related thereto,
The Bank is also authorised for provision of
mutually-recognised financial services and
additional financial services.
7. Participation in the issuing of securities
and related services;
8. Offering advice to companies
The Bank may perform the following
mutually recognised financial services
pursuant to Article 5 of the ZBan-2:
concerning capital structure, business
strategy and related matters, as well as
advice and services related to mergers
and acquisitions;
9. Monetary intermediation on inter-bank
markets,
1. Accepting deposits and other repayable
10. Consultancy related to asset
funds;
management;
2. Lending, which also includes:
11. Safekeeping of securities and other
• consumer loans,
• mortgage loans,
• factoring, with or without recourse,
• financing of commercial transactions,
including export financing on the basis
of discount, non-recourse purchase
of long-term outstanding receivables
secured with a financial instrument
(forfeiting);
services related thereto,
12. Ratings services: collection, analysis,
and provision of information on
credit-worthiness;
13. Safe custody services;
14. Investment and ancillary investment
services and operations under the law
on Financial Instruments Market.
NLB Group 2016 Annual Report
344
Corporate Governance
Statement of NLB d.d.
Pursuant to the fifth paragraph of
Article 70 of the Companies Act1,
Nova Ljubljanska banka d.d., Ljubljana
(hereinafter: NLB) hereby gives the
following Corporate Governance
Statement as a part of the Business Report
of the Annual Report.
1. References to the two codes, the
recommendations, and other internal
regulations on corporate governance
In 2016 NLB abided by the following
recommended standards in its conduct of
business:
• Corporate Governance Code for
Joint-Stock companies, 8 December
2009, available on http://www.ljse.si;
• Corporate Governance Code for
Companies with a State Capital
Investment, 19 December 2014 and
March 2016, available on the website of
the Slovenian Sovereign Holding d.d.
(hereinafter: SSH) http://www.sdh.si and
• Recommendations and Expectations
of the Slovenian Sovereign Holding,
adopted by SSH on 19 December 2014
and February 2016, available on the SSH
website http://www.sdh.si.
In implementation of corporate
governance in 2016 NLB also respected
the Catalogue of Commitments made by
the Republic of Slovenia to the European
Commission in relation to the state aid
procedure concerning NLB (the public
version dated 18 December 2013 is
available on the website of the European
Commission
http://ec.europa.eu/competition/
state_aid/cases/245268/
245268_1518816_267_7.pdf).
Corporate governance of NLB is also
defined by the Articles of Association of
NLB (adopted by the General Assembly
on 4 August 2016) and NLB Management
Policy (approved by the Supervisory
Board of NLB on 18 December 2015).
Corporate governance of the NLB Group
in 2016 NLB and NLB Group members
is regulated by the Corporate Governance
Policy of the NLB Group (Version
10, December 2015). The Corporate
Governance system is explained on
the NLB website (http:// www.nlb.si/
corporate-governance). The documents
referred to in this paragraph are published
there.
In subsidiaries of the NLB Group,
NLB mostly follows the principles and
recommendations of both mentioned codes
through the Corporate Governance Policy
of the NLB Group (minimum standards
by particular business area), depending on
the local legislation and the organisational
possibilities in the companies.
2. The corporate governance of nlb
deviates from the following provisions:
Particular deviations from the
aforementioned codes and
recommendations, and the underlying
reasoning for them are disclosed below.
a) Corporate Governance Code
for Joint-Stock Companies
Item 12:
In our opinion, the Bank is not providing
payment to the Supervisory Board
members that would correspond to their
responsibilities and the fines threatened by
the new banking law.
Items 16 and 16.1.
NLB deviates from the proposed provision
in the Code because the Act Regulating
the Incomes of Managers of Companies
Owned by the Republic of Slovenia and
Municipalities (“ZPPOGD”) restricts
executive pay, which has posed a severe
impediment to the winning over, and
retaining of suitable staff. It results in a
high level of operational risk and poses,
in the Bank’s opinion, one of the main
obstacles to a suitable restructuring of
Slovenian businesses (and state-owned
enterprises). The Bank will therefore
continue to promote public discussion and
the abolishment of restrictions.
1 The Companies Law (ZGD- 1; Official Gazette of the RS, No. 65/09 – official consolidated text, 33/11, 91/11, 32/12, 57/12, 44/13 – decision of the
Constitutional Court, 82/13 and 55/15);
NLB Group 2016 Annual Report 345
Item 20.4:
NLB deviates from the proposed provision
of the Code by not publishing in
advance the dates of General Meetings.
The method and rules of convocations
of general meetings are laid down by the
Articles of Association of NLB.
committee members for the performance
of the office in accordance with a
resolution of the General Meeting of
NLB. Based on a resolution of the General
Meeting of NLB, payments have been
supplemented by a meal allowance.
Item 6.10:
Item 22.7:
NLB discloses net and gross receipts, but
does not disclose all elements in item 22.7
of the Code.
The recommendation of the Supervisory
Board of NLB does not specify the extent
to which the self-assessment has contributed
to changes.
b) Corporate Governance
Code for Companies with a
State Capital Investment
Item 5.1.1.
The recommendation is implemented
in full in the part relating to operations.
Nevertheless, we wish to point out the
anomaly and the deprivileged position
of NLB, since we believe that the Code
recommendation on the arm’s length
conditions for NLB as for the other
non-state-owned companies is not
met, since NLB is subject to numerous
limitations or additional obligations that do
not apply to privately-owned companies
(limited receipts of the management
bodies and the obligation to report certain
confidential information in accordance
with the provisions of the (ZDIJZ-1) Law
on Access to Public Information).
Item 6.5.1:
A competence profile is prepared by the
Supervisory Board but is not published.
Item 6.9:
The recommendations under items 6.9.1.
is followed only partly, as no restriction
applies to additional payments to
Item 6.11:
Due to the fact that in 2016 considerable
changes were made to the composition of
the Supervisory Board, the assessment of
the new composition of the Supervisory
Board in the year 2016 was not done.
Namely, considerable changes were
made from last year’s composition of the
Supervisory Board as only three members
still perform the function. Apart from that,
the term in office of the four new members
of the Supervisory Board has been short,
as they started to perform function from 4
August 2016 on. The Supervisory Board
will take all necessary steps to fulfill this
recommendation in due time.
Item 7.3:
So far, the Bank had not approved the
Policy on the Remuneration of the
Members of the Management Board at
the General Meeting of Shareholders.
In accordance with the provisions of the
Slovenian Sovereign Holding Act, the
Management Board and the Supervisory
Board of the NLB will strive to obtain
approval of the Policy at the General
Meeting of Shareholders.
Item 8.3:
Remunerations of the NLB Group
members are not published in the Annual
Report of the NLB Group.
Item 9.2.7:
As a rule, recommendations are being
implemented in line with the set deadlines.
The Management Board and the
Supervisory Board monitor the status of
audit recommendations and the reasons for
late implementation quarterly.
c) Recommendations and Expectations
of the Slovenian Sovereign Holding
NLB also takes a position on the adopted
Recommendations and Expectations of the
SSH.
Recommendation no. 1.1:
NLB tries to meet expectations in this
recommendation in due time, while also
observing valid legislation.
Recommendation no 1.2:
NLB tries to meet expectations in this
recommendation in due time, while also
observing valid legislation.
Recommendation no 1.3:
NLB tries to meet expectations in this
recommendation in due time, while also
observing valid legislation.
Recommendation no. 3.7:
NLB has signed some flat-rate agreements
with the outsourced contractors for
various needs, following the agreed cost
optimisation and continuous reduction of
the costs of outsourced providers.
NLB Group 2016 Annual Report 346
Recommendation no. 4.3:
NLB did not disclose the information on
the planned holiday allowance payment on
intranet site. For NLB Group members a
system of reporting on realised payments
from 4.2.2. was set in the COGNOS
system, however information on realised
payments was not published on NLB’s
intranet site.
Recommendation no. 4.4:
The Bank does not publish the text of
collective agreements on its website because
the two applicable collective agreements
are available on the website of the NLB
Trade Union representing the Bank’s
employees.
Recommendation no. 5.1:
Due to the activities of refreshing the
Business and IT/digital strategies,
self-assessment using the recognised
European excellence model was not
carried out in 2016. With the aim of
achieving higher quality the new strategy
is introducing a new initiative on lean
organisation and processes. The bank
started with introduction of the ownership
of the processes and achievements of KPI
in the direction of optimisation, and with
the goal to achieve higher quality.
Recommendation no. 6.2:
SSH Expectations were sent to NLB Group
members. There also might be local
regulations requesting a discharge in d.o.o.
(in Croatia).
3. The main features of internal
control and risk management systems
in relation to financial reporting
NLB is governed by the Companies Act
and the Banking Act regulating, among
other, the Bank’s obligation to set up and
maintain appropriate internal control and
risk management systems. Concerning
this subject, the Bank of Slovenia as the
supervisory authority of banks issues
specific implementing regulations by which
the NLB abides as applicable. The Bank
also complies with the commitments
made to the European Commission, in
accordance with the Commission Decision
of 18 December 2013 on state aid
SA.33229(2012/C) – NLB Restructuring
– Slovenia. Due to the above, the NLB
maintains a steady and reliable corporate
governance system encompassing the
following:
• well-defined organisation with clear-cut,
transparent, and consistent internal
relations in the area of responsibility;
• efficient procedures to determine,
measure or assess, control, and monitor
risks to which the NLB is exposed or
could be exposed in its operations;
• immediate action of the competent
departments towards eliminating any
established irregularities, particularly in
the area of credit risk management;
• an appropriate system of internal
controls comprising exact accounting
procedures (reporting, work procedures,
responsibilities, and automatic and
manual controls in all stages of the
accounting process).
Moreover, in compliance with the
legislation, NLB also has an independent
internal audit department which conducts
audits, issues recommendations, and draws
up reports in line with its authorisations
in addition to reporting to the General
Meeting of Shareholders about its work.
The NLB devotes special attention to the
internal control and risk management
systems in the scope of the NLB Group
and its members. Corporate governance
of the Group is separately presented in
the chapter NLB Corporate Governance,
subchapter Corporate Governance of the
NLB Group, page 144 The risk profile
of the NLB Group in conjunction with
the business strategy is presented in detail
under the Risk Management section in the
financial report of the Annual Report, page
261
3.1. Financial reporting
With the aim of ensuring appropriate
financial reporting procedures, NLB
pursues the adopted Policy on Accounting
Controls. The accounting controls are
provided through the operation of the
complete accounting function with the
purpose of ensuring quality and reliable
accounting information, and thereby
accurate and timely financial reporting.
The principal identified risks in this
area are managed with an appropriate
system of authorisations, a segregation of
duties, compliance with accounting rules,
documenting of all business events, custody
system, posting on the day of a business
event, in-built control mechanisms in
source applications, and archiving pursuant
to the laws and internal regulations.
Furthermore, the policy precisely defines
primary accounting controls, performed
in the scope of analytical bookkeeping,
and secondary accounting controls, i.e.
checking the efficiency of implementation
of primary accounting controls. With
efficient mechanism of controls in the area
of accounting reporting, NLB ensures:
• a reliable decision-making and operation
support system,
• accurate, complete, and timely
accounting data and the resulting
accounting and other reports of the
Bank,
• compliance with legal and other
requirements.
4. Information concerning
takeover legislation
All data concerning the takeover legislation
can be found in the chapter Corporate
Governance, sub-chapter General Meeting,
page 145, and in other chapters of the
Annual Report.
NLB Group 2016 Annual Report 347
violations, and taking the necessary
measures.
In the framework of the preventive and
development pillar of the compliance
function, we consolidated the: (i)
management of regulatory compliance,
(ii) the procedure of preventive reviews
of processes, and set up the (iii) general
assessment of integrity and compliance risk
system (SOTIS), including (iv) the second
in the row survey of compliance and ethics
and implementation of workshops with
groups of employees with the topic of the
renewed NLB Group Code. We continued
with the activities of investigations,
information protection, and money
laundering prevention.
The Bank compiles an annual
self-assessment of corporate identity which
contains a comparison, a progress report,
and a description of the current situation.
This Corporate Governance Statement
of the NLB is publicly available also on
NLB’s web page (http://www.nlb.si/
corporate-governance).
5. Information on the work and key
7. Corporate integrity
powers of the general meeting and
a description of shareholders’ rights
and the means to exercise them
All data concerning the functioning
and key authorisations of the General
Meeting of Shareholders and description
of shareholders’ rights can be found
in the chapter Corporate Governance,
sub-chapter General Meeting, on page
144 and under point 3.3. (Capital
instruments included in the capital) on page
page 365.
6. Data on the composition and
functioning of the management or
supervisory bodies and their committees
All data concerning the composition
and functioning of the management or
supervisory bodies or their committees can
be found in the chapter NLB Corporate
Governance, in the sections Supervisory
Board and Management Board, on page
146 and page 145
Ljubljana, 7 April 2017
In accordance with the provisions of
Item 3.4.1 of the Corporate Governance
Code for Companies with a State Capital
Investment the NLB included a description
of the company’s corporate integrity in the
Corporate Governance Statement.
Within a year of adopting the Slovenian
corporate integrity guidelines (adopted in
January 2014), the Bank further upgraded
its compliance and integrity program.
From this point of view, the focus was on
the establishment and consolidation of
the system of identifying, monitoring, and
assessing the risks in this area including
adoption of new Compliance Policy,
renewal of the Code of Ethics, and
execution of Enterprise Compliance Risk
Assessment.
Therefore, NLB can identify itself with
all statements in the preamble and can
adopt the general commitment about the
corporate integrity and zero tolerance
to illegal and non-ethical conduct by
appropriately handling the perceived
NLB Supervisory Board
NLB Management Board
Primož Karpe
Chairman of the
Supervisory Board
László Pelle
Member of the
Management Board
Archibald Kremser
Member of the
Management Board
Andreas Burkhardt
Member of the
Management Board
Blaž Brodnjak
Chief Executive Officer
NLB Group 2016 Annual Report
348
Statement on the
Management of Risk
NLB d.d.’s Management Board and
Supervisory Board provide herewith a
concise statement of risk management
according to Article 17 of the Regulation
on Internal Governance Arrangements,
the Management Body and the Internal
Capital Adequacy Assessment Process for
Banks and Savings Banks (Official Gazette
of the RS, no. 73/2015 and 49/2016),
Regulation (EU) 575/2013 (date of
publication 21 December 2015), article
435 (Risk Management Objectives and
Policies), point (e) and (f), as well as EBA
Guidelines on Disclosure requirements
(EBA GL/2016/11).
Risk management at NLB d.d. and
in the NLB Group is implemented in
accordance with established internal
policies and procedures which take into
account European banking regulations,
the regulations adopted by the Bank of
Slovenia, the current EBA guidelines, and
relevant good banking practices.
Furthermore, NLB’s risk management
framework is defined and organised with
regard to the Group’s risk profile, business,
and the risk strategy of the Group.
The NLB Group plans for a prudent risk
appetite and optimally profitable operations
in the long run, considering the risks
assumed, while at the same time meeting
all regulatory requirements. The Strategy
of NLB Group, the risk appetite, the risk
strategy, and the key internal risk policies of
NLB Group approved by the Management
Board and the Supervisory Board of NLB
d.d. specify the strategic objectives and
guidelines concerning: risk assumption;
and the approaches and methodologies
for monitoring, measuring, mitigating, and
managing all types of risk. NLB Group
regularly monitors its target risk appetite
profile, representing the key component of
the risk mitigation process. The risk profile
enables detailed monitoring and proactive
management. The usage of risk profile
limits and potential deviations from limits
and target values are reported regularly
to the respective committees and/or the
Management Board of the Bank, the Risk
Committee of the Supervisory Board,
and the Supervisory Board of the Bank.
Additionally, NLB Group has set up early
warning systems in different risk areas in
order to strengthen the existing internal
controls and timely responding when
necessary.
In accordance with the Risk Appetite
Statement, NLB Group, as the largest
Slovenian banking and financial group,
intends to be a sustainably profitable
banking group, predominantly working
with clients in those core markets.
Management of credit risk, which is the
most important risk in the NLB Group,
focuses on the taking of moderate risks,
and also ensuring an optimal return
considering the risks assumed. Moreover,
the Group’s liquidity risk tolerance is
low. The NLB Group must maintain an
appropriate level of liquidity at all times
to meet its short-term liabilities, even if a
specific stress scenario is realised. Further,
with the aim of minimising this risk, the
Group pursues an appropriate structure
of sources of financing. In the area of
currency risk, the NLB Group thus pursues
the goals of low to moderate exposure.
The NLB Group’s basic orientation in
the management of interest rate risk is to
prevent negative effects on revenues that
would arise from changed market interest
rates and, therefore, a low tolerance
for this risk is stated. The conclusion
of transactions in derivative financial
instruments at NLB d.d. is primarily
limited to servicing customers and hedging
NLB d.d.’s own positions. When assuming
operational risk, the NLB Group pursues
the orientation that such risk must not
significantly impact its operations and,
therefore, the risk appetite for operational
risks is low to moderate. The tolerance for
all other risk types (for example, reputation
risk, profitability risk, and others) is low,
and focuses on minimising their possible
impacts on the Group’s operations. These
also include non-financial risks.
The main NLB Group risk appetite points
include:
• Preservation of a prudent level of
capital adequacy, including regulatory
requirements and capital buffers;
• Maintenance of a solid level and
structure of liquidity minimising
potential shortfalls;
• Customers’ deposits as the main funding
base;
• A gradual improvement in the quality
of the credit portfolio by reducing
non-performing exposures and
preservation of adequate level of
provisions;
• Ensuring sustainable and limited credit
risk volatility;
• Stable income by increasing share of
non-interest income;
• Ensuring sustainable profitability;
• Ensuring sustainable and limited size of
subsidiary banks.
NLB Group 2016 Annual Report 349
The values of the most important risk
appetite indicators of the NLB Group
as at the end of 2016, reflecting the
interconnection between business strategy
and targeted risk profile, were the following:
• Capital adequacy ratio (CET1) 17.0%,
• Loan-to-deposit ratio (LTD) 74%,
• LCR: 332%,
• NSFR:147%,
• The share of non-performing exposure
by EBA 10.0%,
• Return on equity (ROE) after tax 7.4%.
Consequently, NLB Group concluded the
year 2016 within its target risk appetite,
with a strong capital and liquidity position.
The Condensed Statement of the
management of risk is also published on
the NLB intranet with the aim of strict
adherence of the Banks’ employees in daily
operations of the Bank, as regards the
definition and importance of a consistent
tendency of the adopted risks, and ways to
take into account when adopting its daily
business decisions.
Ljubljana, 7 April 2017
NLB Supervisory Board
NLB Management Board
Primož Karpe
Chairman of the
Supervisory Board
László Pelle
Member of the
Management Board
Archibald Kremser
Member of the
Management Board
Andreas Burkhardt
Member of the
Management Board
Blaž Brodnjak
Chief Executive Officer
NLB Group 2016 Annual Report
350
Statement on the Arrangement
of Internal Governance
NLB d.d. pursues internal governance,
including corporate governance, according
to the legislation applicable in the Republic
of Slovenia, adhering also to its internal
acts.
NLB d.d. fully complies with the acts
referred to in Article 9, paragraph two of
the Banking Act.2
With the aim of strengthening internal
governance, the Bank operates especially in
compliance with:
1. The provisions of the Banking Act
defining the internal governance
arrangements, especially the provisions
of Chapter 3.4 (Governance System
of a Bank) and Chapter 6 (Internal
Governance Arrangements and Internal
Capital Adequacy), in the part referring
to bank/savings bank or members of a
management body;
2. Regulation on internal governance
arrangements, the management body,
and the internal capital adequacy
assessment process for banks and savings
banks,3 and
3. EBA Guidelines on internal governance,
on the assessment of the suitability of
members of the management body
and key function holders, and the
remuneration policies and practices,
based on the relevant regulations of the
Bank of Slovenia on the application of
these Guidelines.4
By signing this statement we undertake
to continue with proactive activities to
strengthen and promote further internal
governance arrangement and corporate
integrity in wider professional, financial,
corporate, and other publics.
Ljubljana, 7 April 2017
NLB Supervisory Board
NLB Management Board
Primož Karpe
Chairman of the
Supervisory Board
László Pelle
Member of the
Management Board
Archibald Kremser
Member of the
Management Board
Andreas Burkhardt
Member of the
Management Board
Blaž Brodnjak
Chief Executive Officer
2 Banking Act (ZBan-2), Official Gazette of the RS, no. 25/15 and 44/16;
3 Regulation of the Bank of Slovenia on internal management arrangements, management body, and the internal capital adequacy assessment process for
banks and savings banks, Official Gazette of the RS, no. 73/15 and 49/16;
4 http://www.bsi.si/zakoni-in-predpisi.asp?MapaId=1906
NLB Group 2016 Annual Report
Risk and Capital
Management
(Disclosures in Accordance with Pillar 3 of the Basel Standards)
Contents
1.
2.
3.
Introduction
Scope of application
Capital
3.1. Capital adequacy
3.2. Reconciliation of items with financial statements
3.3. Capital instruments included in the capital
3.4. Detailed presentation of capital elements
4.
5.
Capital buffers
Capital requirements
5.1. Summary of the approach to assessing the internal capital needed for current and planned activities
5.2. Capital requirements
6.
Exposure to counterparty credit risk
6.1. The methodology used to assign internal capital and credit limits for counterparty credit exposures, and the measures for
exposure value under the method used
6.2. Policies for collateralisation and the establishment of credit reserves, and impact of the amount of collateral the institution
would have to provide in case of a downgrading of its credit rating
6.3. Discussion of policies with respect to wrong-way risk exposures
6.4. Gross positive fair value of contracts, netting benefits, netted current credit exposure, collateral held, and net derivatives
credit exposure
7.
Credit risk adjustments
7.1. Breakdown of exposures and loan collaterals by exposure category
7.2. Geographical distribution of exposures broken down in significant areas by material exposure classes
7.3. Distribution of exposures by counterparty type or industry broken down by exposure classes
7.4. Residual maturity breakdown of all exposures broken down by exposure classes
7.5. Past due exposures and the volume of impairments for significant industries and significant geographical areas
8.
9.
Use of ratings by external rating institutions (ECAI)
Leverage
10. Remuneration policy
10.1. Information on the decision-making process used for determining the Remuneration Policy
10.2. Information on the link between pay and performance
10.3. The essential components of the policy of remuneration for employees performing special work
10.4. The ratio between fixed and variable remuneration
10.5. Information on the performance criteria on which the entitlement to shares, options, or variable components of
remuneration are based
10.6. Main parameters and rationale for any variable component scheme and any other non-cash benefits
10.7. Quantitative information on remuneration
11.
Information regarding governance arrangements
353
354
355
360
360
361
365
367
372
373
373
374
376
376
376
376
377
377
377
382
384
388
389
391
391
395
395
396
398
400
401
401
403
404
11.1. The recruitment policy for the selection of members of the management body and their actual knowledge, skills, and expertise 404
11.2. The policy on diversity with regard to selection of members of the management body, its objectives and any relevant targets
set out in that policy, and the extent to which these objectives and targets have been achieved
12.
List of all disclosures required under Part 8 of Regulation (EU) No 575/2013
404
406
NLB Group 2016 Annual Report 354
1. Introduction
The European legislation on capital requirements, based on the Basel II and III principles, introduced, among other items, requirements
regarding the transparency of bank operations. European banks are bound to disclose certain information which should provide sufficient
information for potential investors about the risks assumed by banks in their operations.
The requirements for mandatory disclosures from the sphere of risks and capital adequacy are listed in Part Eight of the European Regulation
on prudential requirements for credit institutions and investment firms (Regulation (EU) No 575/2013), which is directly binding in all member
states. When preparing the disclosures, the Bank considered relevant implementing and regulatory technical standards, as well as guidelines
from the European bank authority (EBA):
• Commission Implementing Regulation (EU) No 1423/2013 of 20 December 2013 laying down implementing technical standards with
regard to disclosure of own funds requirements for institutions according to Regulation (EU) No 575/2013 of the European Parliament and
of the Council;
• Commission Delegated Regulation (EU) No 2015/1555 of 28 May 2015 supplementing Regulation (EU) No 575/2013 of the European
Parliament and of the Council with regard to regulatory technical standards for the disclosure of information in relation to the compliance of
institutions with the requirement for a countercyclical capital buffer in accordance with Article 440;
• Commission Implementing Regulation (EU) 2016/200 of 15 February 2016 laying down implementing technical standards with regard to
disclosure of the leverage ratio for institutions, according to Regulation (EU) No 575/2013 of the European Parliament and of the Council;
• Guidelines EBA/GL/2014/03 on disclosure of encumbered and unencumbered assets;
• Guidelines EBA/GL/2014/14 on materiality, proprietary, and confidentiality and on disclosure frequency under Articles 432(1), 432(2) and
433 of Regulation (EU) No 575/2013; and
• Guidelines EBA/GL/2015/22 on sound remuneration policies under Articles 74(3) and 75(2) of Directive 2013/36/EU and disclosures
under Article 450 of Regulation (EU) No 575/2013.
In accordance with the capital legislation, NLB d.d. has the position of an “EU parent bank” and is therefore obliged to disclose information on
a consolidated basis.
The table in Chapter 12 presents the entire list of necessary disclosures by article of the Regulation, together with an indication of the part of
the Annual Report in which the relevant contents are disclosed.
The numerical data disclosed in the accounting part of the Annual Report (Audited Financial Statements) is based on a different consolidation
method as envisaged by the Regulation on these disclosures. Nevertheless, some information is not disclosed according to both consolidation
methods as owing to the immateriality of the differences (shown in the table under Chapter 2), their duplication would not improve
transparency in terms of the risks involved. This concerns the following information:
• disclosures in relation to exposures in equities not included in the trading book (Article 447 a, b, c, and d), and
• disclosures in relation to impairments of financial assets measured at amortised cost (Article 442 a, b and i).
Some of the prescribed disclosures are not relevant for NLB Group as they relate to alternative approaches for calculation of capital
requirements, or since they relate to types of transactions that NLB Group is currently not involved in.
NLB Group uses the following approaches for the calculation of capital requirements:
• credit risk – standardised approach,
• market risk – standardised approach, and
• operational risk – basic indicator approach.
Thus, the disclosures relating to other approaches not used by NLB Group are not applicable:
• disclosures related to the IRB approach in relation to credit risk (Articles 452 and 438 d),
• disclosures related to the advanced measurement approach for operational risk (Article 454), and
• disclosures related to internal models for the calculation of market risk capital requirements (Article 455).
NLB Group 2016 Annual Report 355
In addition, the following disclosures are also not relevant for NLB Group because they relate to types of transactions currently not performed
by NLB Group, or for other reasons (a consolidation method that is not used, disclosures only upon request of the competent authority, etc.):
• disclosures related to securitisation (Article 449),
• disclosures related to credit derivatives (Article 439 g, h, and i),
• disclosures related to on- and off-balance sheet netting (Article 453 a),
• disclosures related to the application of the provisions of Articles 7 and 9 of the Regulation (concerning the application of prudential
requirements on an individual basis and the individual consolidation method) (Article 436 e),
• disclosures related to a capital buffer for global systemically important institutions (G-SII buffer) (Article 441),
• disclosures related to the result of the institution’s internal capital adequacy assessment process (Article 438 b), and
• disclosures related to capital instruments issued prior to 31 December 2011 which, in accordance with the new legislation, are no longer
eligible to be included in the capital and must be gradually excluded from the capital in the transitional period (Article 492(4)).
The figures in this part of the Annual Report have been prepared based on the COREP reports submitted to the supervisory authorities. As
amounts are rounded off to one thousand Euros, minimum deviations can occur in the sums of individual categories and between tables.
2. Scope of application
(Articles 436 a, b, c, and d of Regulation (EU) No 575/2013)
In accordance with the capital legislation, NLB d.d. has the position of an “EU parent bank” and is therefore obliged to disclose information
regarding risk and capital management (pursuant to Part Eight of Regulation (EU) No 575/2013) only on a consolidated basis. Disclosures are
thus prepared and published for NLB Group using a prudential consolidation pursuant to the provisions of Regulation (EU) No 575/2013, Part
One, Title II, Chapter 2.
The differences between consolidation for prudential purposes and consolidation for accounting purposes (pursuant to the IFRS) are in the list
of included companies, based on activity and in the method of consolidation:
• List of companies:
The consolidation for accounting purposes comprises all subsidiaries (i.e. entities controlled by the Bank or the banking group), all
associated companies (in which it directly or indirectly holds between 20% and 50% of voting rights, has a material impact but does not
control them), and jointly controlled companies (i.e. jointly controlled by NLB Group based on a contractual agreement). From among
the subsidiaries, associated companies, and jointly controlled companies, the prudential consolidation only includes credit institutions,
financial institutions, ancillary service undertakings, and asset management companies (in accordance with the definitions under Article 4 of
Regulation (EU) No 575/2013). As regards NLB Group, this means that the prudential consolidation does not include companies operating
in the area of insurance.
• Consolidation method:
In consolidation for accounting purposes, subsidiaries are consolidated according to the method of full consolidation, while associated
companies and jointly controlled companies are consolidated according to the capital method. Prudential consolidation requires a different
treatment of jointly controlled companies, which have to be consolidated in line with the proportional method.
The table below shows the list of NLB Group companies (subsidiaries, associated companies, and jointly controlled companies), their main
characteristics, and the consolidation method. More details about individual companies are given in the accounting part of the Annual Report
(Audited Financial Statements) under Chapter 5.12.
NLB Group 2016 Annual Report NLB Group members as at 31 December 2016 and method of their inclusion in consolidated reports
Nature of business
NLB Group's
voting rights
Country of incorporation
Accounting
consolidation
method
Prudential
consolidation
method
357
Finance
100.00%
Republic of Germany
Subsidiaries:
LHB AG, Frankfurt
NLB Banka a.d., Skopje
NLB Banka a.d., Podgorica
NLB Banka a.d., Beograd
NLB Banka d.d., Sarajevo
NLB Banka a.d., Banja Luka
NLB Banka sh.a., Prishtina
NLB Leasing d.o.o., Ljubljana
Optima Leasing d.o.o., Zagreb in liquidation
PRO-REM d.o.o., Ljubljana in liquidation
OL Nekretnine d.o.o., Zagreb in liquidation
BH-RE d.o.o., Sarajevo
NLB Leasing Podgorica d.o.o. in liquidation
NLB Leasing d.o.o., Beograd in liquidation
NLB Leasing d.o.o., Sarajevo
NLB Lizing d.o.o.e.l., Skopje in liquidation
NLB InterFinanz AG, Zürich in liquidation
NLB InterFinanz Praha s.r.o., Praga
NLB InterFinanz d.o.o., Beograd
NLB Factoring a.s., Brno in liquidation
Banking
Banking
Banking
Banking
Banking
Banking
Finance
Finance
Real estate
Real estate
Real estate
Finance
Finance
Finance
Finance
Finance
Finance
Finance
Finance
NLB Skladi d.o.o., Ljubljana
Asset management
NLB Nov penziski fond a.d., Skopje
NLB Crna gora d.o.o., Podgorica
NLB Propria d.o.o., Ljubljana in liquidation
NLB Srbija d.o.o., Beograd
CBS Invest d.o.o., Sarajevo
REAM d.o.o., Beograd
REAM d.o.o., Podgorica
REAM d.o.o., Zagreb
SR-RE d.o.o., Beograd
Tara Hotel d.o.o., Budva
Insurance
Real estate
Real estate
Real estate
Real estate
Real estate
Real estate
Real estate
Real estate
Real estate
Prospera plus d.o.o., Ljubljana
Tourist and catering trade
Associates:
Bankart d.o.o., Ljubljana
Skupna pokojninska družba d.d., Ljubljana
Kreditni biro SISBON d.o.o., Ljubljana in liquidation
ARG - Nepremičnine d.o.o., Horjul
Joint ventures:
NLB Vita d.d., Ljubljana
Skupina Prvi faktor, Ljubljana in liquidation
Card processing
Insurance
Credit bureau
Real estate
Insurance
Finance
86.97%
98.00%
99.997%
Republic of Macedonia
Republic of Montenegro
Republic of Serbia
97.35%
Republic of Bosnia and Herzegovina
99.85%
Republic of Bosnia and Herzegovina
81.21%
100.00%
100.00%
100.00%
100.00%
Republic of Kosovo
Republic of Slovenia
Republic of Croatia
Republic of Slovenia
Republic of Croatia
100.00%
Republic of Bosnia and Herzegovina
100.00%
100.00%
Republic of Montenegro
Republic of Serbia
100.00%
Republic of Bosnia and Herzegovina
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Republic of Macedonia
Switzerland
Czech Republic
Republic of Serbia
Czech Republic
Republic of Slovenia
Republic of Macedonia
Republic of Montenegro
Republic of Slovenia
Republic of Serbia
100.00%
Republic of Bosnia and Herzegovina
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
39.44%
28.13%
29.68%
75.00%
50.00%
50.00%
Republic of Serbia
Republic of Montenegro
Republic of Croatia
Republic of Serbia
Republic of Montenegro
Republic of Slovenia
Republic of Slovenia
Republic of Slovenia
Republic of Slovenia
Republic of Slovenia
Republic of Slovenia
Republic of Slovenia
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
-
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Equity
Equity
Equity
Equity
Equity
Equity
Equity
-
Equity
Equity
-
Proportional
None of NLB Group’s investments in subsidiaries, associated companies, and jointly controlled companies represents a deduction from capital.
The total amount of investments that could become deductions from capital is relatively low and remains under the statutory thresholds.
Below a comparison is given of financial statements of NLB Group according to both consolidation methods.
NLB Group 2016 Annual Report 358
Statement of financial position of NLB Group – comparison of the two consolidation methods
31.12.2016
31.12.2015
in EUR thousand
Accounting
consolidation
Prudential
consolidation
Difference
Accounting
consolidation
Prudential
consolidation
Difference
Cash, cash balances at central banks and other demand deposits at banks
1,299,014
1,299,313
-299
1,161,983
1,162,931
-948
Trading assets
Financial assets designated at fair value through profit or loss
Available for sale financial assets
Derivatives - hedge accounting
Loans and advances
Debt securities
Loans and advances to banks
Loans and advances to customers
Other financial assets
Held to maturity financial assets
Fair value changes of hedged items in portfolio hedge of interest rate risk
Non-current assets classified as held for sale
Property and equipment
Investment property
Intangible assets
Investments in associates and joint ventures
Current income tax assets
Deferred income tax assets
Other assets
Total assets
Trading liabilities
Financial liabilities designated at fair value through profit or loss
Derivatives - hedge accounting
0
0
2,555
0
-9,154
0
-789
668
87,699
6,694
87,699
6,694
0
0
267,413
267,413
7,595
7,595
2,072,153
2,068,470
3,683
1,737,191
1,734,636
217
217
0
1,083
1,083
7,493,933
7,489,784
4,149
7,589,496
7,598,650
85,315
85,315
435,537
434,597
6,912,067
6,904,216
61,014
65,656
611,449
611,449
678
4,263
678
4,263
196,849
196,869
83,663
33,970
43,248
2,888
7,735
84,206
33,926
16,024
3,942
7,740
94,558
94,438
0
940
7,851
-4,642
0
0
0
-20
-543
44
27,224
-1,054
-5
120
394,579
431,775
394,579
432,564
6,693,621
6,692,953
69,521
78,554
-9,033
565,535
565,535
741
4,629
741
4,629
207,730
207,801
93,513
39,327
39,696
929
9,400
94,205
39,274
14,988
1,602
9,543
95,354
95,159
0
0
0
-71
-692
53
24,708
-673
-143
195
12,039,011
12,005,712
33,299
11,821,615
11,805,785
15,830
18,791
2,011
29,024
18,791
2,011
29,024
0
0
0
29,920
4,912
33,842
29,920
4,912
33,842
0
0
0
Financial liabilities measured at amortized cost
10,350,035
10,358,105
-8,070
10,157,553
10,197,456
-39,903
Deposits from banks and central banks
42,334
42,334
0
57,982
57,982
0
Borrowings from banks and central banks
371,769
380,732
-8,963
571,029
611,214
-40,185
Fair value changes of the hedged items in portfolio hedge of interest rate risk
0
0
Due to customers
Borrowings from other customers
Debt securities in issue
Subordinated liabilities
Other financial liabilities
Provisions
Current income tax liabilities
Deferred income tax liabilities
Other liabilities
Total liabilities
Share capital
Share premium
Other equity instruments issued
Accumulated other comprehensive income
Profit reserves
Retained earnings
Treasury shares
Non-controlling interests
Total equity
9,437,147
9,436,195
952
9,020,666
9,020,104
562
83,619
83,619
277,726
277,726
27,145
27,145
110,295
110,354
0
0
0
-59
0
100,267
304,962
27,340
75,307
0
100,267
304,962
27,340
75,587
0
0
0
0
-280
0
100,914
89,716
11,198
122,639
98,784
23,855
3,146
727
8,703
3,117
711
8,764
29
16
-61
7,514
313
7,534
289
14,539
14,602
-20
24
-63
10,513,351
10,510,239
3,112
10,371,232
10,387,339
-16,107
200,000
871,378
0
29,969
13,522
200,000
871,378
0
20,102
13,522
0
0
0
9,867
0
200,000
871,378
0
23,603
13,522
200,000
871,378
0
15,693
13,522
380,444
360,329
20,115
314,307
290,484
0
0
30,347
30,142
0
205
0
0
27,573
27,369
1,525,660
1,495,473
30,187
1,450,383
1,418,446
0
0
0
7,910
0
23,823
0
204
31,937
15,830
Total liabilities and total equity
12,039,011
12,005,712
33,299
11,821,615
11,805,785
NLB Group 2016 Annual Report 359
Income statement of NLB Group – comparison of the two consolidation methods
31.12.2016
31.12.2015
in EUR thousand
Accounting
consolidation
Prudential
consolidation
Difference
Accounting
consolidation
Prudential
consolidation
Difference
Interest and similar income
Interest and similar expense
Net interest income
Dividend income
Fee and commission income
Fee and commission expenses
Net fee and commission income
Gains less losses from financial assets and liabilities not
classified as at fair value through profit or loss
388,494
389,422
-71,189
-71,593
317,305
317,829
1,238
1,238
194,371
191,383
-48,706
-48,210
145,665
143,173
14,788
14,788
Gains less losses from financial assets and liabilities held for trading
6,921
6,920
-928
404
-524
0
2,988
-496
2,492
0
1
0
0
443,203
446,962
-103,001
-104,136
340,202
342,826
1,346
1,346
195,710
193,010
-56,899
-56,309
138,811
136,701
10,659
10,659
-18,877
-18,882
-3
231
-3
231
-468
-25
11,831
12,383
-624
-622
Gains less losses from financial assets and liabilities
designated at fair value through profit or loss
Fair value adjustments in hedge accounting
Foreign exchange translation gains less losses
Gains less losses on derecognition of assets
Other operating income
Other operating expenses
Administrative expenses
Depreciation and amortization
Provisions for other liabilities and charges
235
235
-3,239
1,158
867
-3,239
1,626
892
24,442
26,022
-1,580
27,329
27,432
-33,204
-33,772
-261,160
-262,070
-28,345
-28,344
-4,357
-4,488
568
910
-1
131
-26,824
-26,902
-265,984
-267,232
1,248
-31,856
-31,870
696
247
Impairment charge
-56,288
-51,416
-4,872
-83,801
-87,867
Gains less losses from capital investments in
subsidiaries, associates, and joint ventures
Net losses from non-current assets held for sale
5,006
-432
5,282
-432
-276
0
4,312
-690
1,145
-690
Profit or loss before income tax
130,600
134,244
-3,644
106,758
98,902
Income tax
Profit or loss for the year
Attributable to owners of the parent
Attributable to non-controlling interests
-14,975
-14,975
0
-11,380
-11,964
115,625
119,269
110,017
113,673
5,608
5,596
-3,644
-3,656
12
95,378
91,914
3,464
86,938
83,480
3,458
In NLB Group, there are no substantial practical or legal impediments to the prompt transfer of capital or repayment of liabilities between the
parent undertaking and its subsidiaries.
In the case of a capital transfer, it is necessary to follow the provisions regarding the minimum capital. Also, for subsidiary banks, provisions
regarding liquidity, capital adequacy, and the level of capital to cover all risks are taken into account, all in accordance with the local legislature.
In an asset management company (NLB Skladi), provisions regarding capital adequacy and level of capital to cover arise from the Law on
Investment Funds and Management Companies, while in pension company (Nov penziski fond) provisions regarding capital adequacy and the
level of capital to cover arise from the Law on Pension Insurance.
-3,759
1,135
-2,624
0
2,700
-590
2,110
0
5
0
0
-552
-2
-103
78
14
449
4,066
3,167
0
7,856
584
8,440
8,434
6
NLB Group 2016 Annual Report 360
For several non-core leasing companies that are in the liquidation process there is a restriction according to a local Companies Law stipulating
that over the duration of the liquidation process dividends are not paid out, nor are assets disbursed to stakeholders until all claims are paid.
The liquidation process cannot be concluded until all the court disputes are brought to an end.
There are also contractual restrictions that are to be taken into account and arise from subordinated loans that NLB d.d. granted to two of the
subsidiary banks, namely NLB Banka, Skopje and NLB Banka, Podgorica. According to the nature of the subordinated loan, in the event of
a bankruptcy or liquidation procedure of the above mentioned subsidiary banks, such a loan cannot be repaid on the due date but only after
claims arising from all unsubordinated obligations are settled, and to the extent permitted by the rest of the bank’s assets in the bankruptcy or
liquidation procedure.
All subsidiaries of the NLB Group not included in the prudential consolidation met the minimum capital requirements as at 31 December
2016. The total amount of capital deficit was EUR 0.
3. Capital
3.1. Capital adequacy
Pursuant to Regulation (EU) No 575/2013, banks and banking groups must within the scope of regulatory calculations (Pillar 1) monitor three
different capital adequacy ratios. The capital is divided into three subcategories that differ according to their quality in terms of their ability to
cover risks. The system of three minimum ratios ensures an appropriate qualitative structure of these elements, i.e. their mutual proportions.
The minimum ratios banks must achieve within the scope of Basel Pillar 1 (regulatory requirements) are the following:
• Common Equity Tier 1 (CET1) capital ratio: 4.5%,
• Tier 1 capital ratio: 6%, and
• Total capital ratio: 8%.
The needed level of capital ratios is also influenced by other requirements and recommendations that are being imposed to each bank by the
supervisory institutions or by the legislation:
• Pillar 2 Requirements (SREP requirement): bank/group specific, set by supervisory authority, obligatory;
• Capital buffers: some are prescribed by law for all banks and some are bank-specific; not obligatory, but their breaching triggers limitations in
payment of dividends and other distributions from capital (more details in Chapter4);
• Pillar 2 Guidance: set by the supervisory authority for the individual bank/group, not obligatory, and not affecting dividends or other
distributions from capital.
According to SREP decision, at the end of 2016, NLB was obliged to maintain a CET1 ratio on a consolidated basis on the level of 12.75%
(covering Pillar 1 and Pillar 2 requirement and also capital conservation buffer).
From 1 January 2017, the new SREP decision applies, prescribing NLB to maintain a total capital ratio on a consolidated basis on the level
of 11.5% (Pillar 1 + Pillar 2 requirement; before capital buffers).
In 2016, the capital adequacy ratios of NLB Group remained at a level which exceeded all current and announced regulatory capital
requirements, including capital buffers and Pillar 2 Guidance.
NLB Group calculates capital and capital ratios fully in line with the EU legislation, which also includes discretionary measures prescribed by
the Bank of Slovenia.
In 2016, the capital of NLB d.d. and NLB Group consists merely of the components of top-quality CET1 capital (no subordinated instruments
that would rank in lower capital categories), which is why all three capital ratios are the same.
At the end of 2016, the three capital adequacy ratios for NLB Group stood at 17.0% (or 0.8 percentage point higher than at the end of 2015),
and for NLB d.d. at 23.4% (or 0.8 percentage point higher than at the end of 2015). The improvement of NLB Group’s capital adequacy
derives mainly from retained earnings, and to a lesser degree from a drop in risk-weighted assets.
NLB Group 2016 Annual Report Capital adequacy of NLB Group:
Paid up capital instruments
Share premium
Retained earnings - from previous years
Current result
Accumulated other comprehensive income
Other reserves
Minority interest
Prudential filters: Cash flow hedge reserve
Prudential filters: Additional Valuation Adjustments (AVA)
(-) Goodwill
(-) Other intangible assets
(-) Deferred tax assets that rely on future profitability and do not arise from temporary differences net of associated tax liabilities
Common Equity Tier 1 Capital (CET1)
Additional Tier 1 capital
Tier 1 capital
Tier 2 capital
Total capital
Risk exposure amount for credit risk
Risk exposure amount for market risks
Risk exposure amount for CVA
Risk exposure amount for operational risk
Total risk exposure amount (RWA)
Common Equity Tier 1 Ratio
Tier 1 Ratio
Total Capital Ratio
361
in EUR thousand
31.12.2016
31.12.2015
200,000
871,378
246,656
49,890
-6,053
13,522
0
0
-2,213
-3,529
-30,397
-3,013
200,000
871,378
207,004
39,599
-4,090
13,522
0
897
-3,134
-3,529
-35,745
-2,755
1,336,241
1,283,147
0
0
1,336,241
1,283,147
0
0
1,336,241
1,283,147
6,864,737
6,849,633
104,175
463
892,753
137,351
9,313
930,688
7,862,128
7,926,985
17.0%
17.0%
17.0%
16.2%
16.2%
16.2%
3.2. Reconciliation of items with financial statements
(Articles 437 a and f, and 447 e of Regulation (EU) No 575/2013)
Calculations of the capital and capital ratios are based on the financial statements of NLB Group prepared according to prudential consolidation
as described in Part One, Title II, Chapter 2 of Regulation (EU) No 575/2013. Essentially, the capital of NLB Group consists of the elements of
equity of the balance sheet (not all elements and not fully) and, in addition, it is reduced by deduction items and prudential filters.
The table below shows to what extent individual balance sheet items are included in the calculation of capital and capital adequacy. In addition
to the amounts actually included in the capital calculation for the end of the year (second column), the amounts of these items in their full
extent are also presented, i.e. the amounts that would have been taken into account in the calculation of capital adequacy had there been no
transitional period arrangements (third column).
Because of the gradual introduction of certain provisions, the capital actually taken into account in the calculation of capital adequacy for the
end of 2016 is EUR 25,940 thousands lower than it would have been had all the requirements fully entered into force. The difference primarily
arises from accumulated comprehensive income, where temporarily we excluded more unrealised gains than losses, and also partially from the
deduction item for deferred taxes.
NLB Group 2016 Annual Report 362
Mapping of the balance sheet items (statement of financial position items) and capital for the purpose of capital adequacy of NLB Group
in EUR thousand
31.12.2016
31.12.2015
Prudential
consolidation
Included in
capital (CAR)
as reported
Fully-loaded
capital
(transitional
agreements
not applied)
Prudential
consolidation
Included in
capital (CAR)
as reported
Fully-loaded
capital
(transitional
agreements
not applied)
Cash, cash balances at central banks
and other demand deposits at banks
1,299,313
1,162,931
Trading assets
Financial assets designated at fair
value through profit or loss
87,699
6,694
-88
-7
-88
267,413
-267
-267 Prudential filter; Article 34 - AVA, 0.1% of book value
-7
7,595
-8
-8 Prudential filter; Article 34 - AVA, 0.1% of book value
Available for sale financial assets
2,068,470
-2,068
-2,068
1,734,636
-1,735
-1,735 Prudential filter; Article 34 - AVA, 0.1% of book value
Derivatives - hedge accounting
Loans and advances
217
7,489,784
Held to maturity financial assets
611,449
Fair value changes of hedged items in
portfolio hedge of interest rate risk
Non-current assets classified
as held for sale
Property and equipment
Investment property
Intangible assets
Goodwill
678
4,263
196,869
84,206
1,083
7,598,650
565,535
741
4,629
207,801
94,205
33,926
-33,926
-33,926
39,274
-39,274
-39,274
3,529
-3,529
-3,529
3,529
-3,529
-3,529 Deduction item, Article 36.b - total amount
Other intangible assets
30,397
-30,397
-30,397
35,745
-35,745
-35,745 Deduction item, Article 36.b - total amount
Investments in associates
and joint ventures
Current income tax assets
16,024
3,942
14,988
1,602
Deferred income tax assets
7,740
-3,013
-5,021
9,543
-2,755
-6,888
That do not rely on future profitability
0
0
That rely on future profitability and do
not arise from temporary differences
That rely on future profitability and
arise from temporary differences
Other assets
Total assets
Trading liabilities
Financial liabilities designated at
fair value through profit or loss
Derivatives - hedge accounting
Financial liabilities measured
at amortized cost
Fair value changes of the hedged items
in portfolio hedge of interest rate risk
Provisions
Current income tax liabilities
Deferred income tax liabilities
Other liabilities
Total liabilities
5,021
-3,013
-5,021
6,888
-2,755
-6,888
Deduction item, Article 36.c - 60% of the amount
in 2016 (40% in 2015) (transitional period)
-30 Prudential filter; Article 34 - AVA, 0.1% of book value
-5 Prudential filter; Article 34 - AVA, 0.1% of book value
2,719
94,438
2,655
95,159
12,005,712
11,805,785
18,791
2,011
29,024
-30
-5
-30
-5
-30
-5
29,920
4,912
33,842
10,358,105
10,197,456
0
89,716
3,117
711
8,764
0
98,784
7,534
289
14,602
10,510,239
10,387,339
NLB Group 2016 Annual Report 363
in EUR thousand
31.12.2016
31.12.2015
Prudential
consolidation
Included in
capital (CAR)
as reported
Fully-loaded
capital
(transitional
agreements
not applied)
Prudential
consolidation
Included in
capital (CAR)
as reported
Fully-loaded
capital
(transitional
agreements
not applied)
Share capital
Share premium
Accumulated other
comprehensive income
200,000
200,000
200,000
200,000
200,000
200,000 Included in total amount, Article 26
871,378
871,378
871,378
871,378
871,378
871,378 Included in total amount, Article 26
20,102
-6,053
21,895
15,693
-4,090
15,693
From debt securities
32,063
1,124
33,856
29,065
1,259
29,065
AFS exposures to central
governments - positive effectss
AFS exposures to central
governments - negative effectss
30,190
0
30,190
29,070
-1,793
-1,076
-1,793
-3,152
0
0
29,070
Not included in capital according to BoS dis-
cretion, Article 467 (in transitional period)
-3,152
In 2016 only 60% of book value is included (0%
in 2015), Article 467 (transitional period)
Other exposures
3,666
2,200
3,666
3,147
1,259
3,147
From equity securities
11,017
6,610
11,017
11,342
4,537
11,342
In 2016 only 60% of book value is included (40%
in 2015), Articles 467 and 468 (transitional period)
In 2016 only 60% of book value is included (40%
in 2015), Articles 467 and 468 (transitional period)
From consolidation capital adjustment
From cashflow hedges
From hedge of net investment
in foreign operation
0
0
0
0
0
0
0
0
0
In 2016 only 60% of book value is included (40%
in 2015), Articles 467 and 468 (transitional period)
-2,243
-897
-2,243
60% of value is included in 2016 (40%
in 2015) (Article 467) and then exclud-
ed as deduction item (Article 33 a)
754
452
754
754
302
754
In 2016 only 60% of book value is included (40%
in 2015), Articles 467 and 468 (transitional period)
Other
-23,732
-14,239
-23,732
-23,225
-9,290
-23,225
In 2016 only 60% of book value is included (40%
in 2015), Articles 467 and 468 (transitional period)
Profit reserves
Retained earnings
Retained earnings - from
previous years
13,522
13,522
13,522
13,522
13,522
13,522 Included in total amount, Article 26
360,329
296,546
296,546
290,484
246,603
246,603 Included in total amount, Article 26
246,656
246,656
246,656
207,004
207,004
207,004
Retained earnings - current results
113,673
49,890
49,890
83,480
39,599
39,599 Included only remaining sum after dividends, Article 26
Treasury shares
Non-controlling interests
Total equity
0
30,142
1,495,473
0
0
Total liabilities and equity
12,005,712
0
0
0
0
0
27,369
1,418,446
11,805,785
0
0 Not eligible for inclusion in capital (Articles 81 to 84)
1,336,270
1,362,210
1,283,339
1,298,990 Sum of balance sheet items
-29
-29
-1,090
-1,090
Prudential filter; Article 34 - AVA for off-bal-
ance items, 0.1% of book value
1,336,241
1,362,181
1,283,147
1,300,143 Capital
NLB Group 2016 Annual Report
364
Differences between the accounting capital and the capital for the calculation of capital adequacy of NLB Group as at 31 December 2016
Exclusion
of 100% of
unrealised
profits from
exposures
to central
governments
(in
transitional
period)
Exclusion
of 40% of
unrealised
losses from
exposures
to central
governments
(in
transitional
period)
Exclusion
of 40% of
unrealised
losses from
exposures
to central
governments
(in
transitional
period)
Exclusion
of minority
interests
not eligible
according
to CRR
requirements
-30,190
717
3,318
Equity in
balance sheet
(prudential
consolidation)
Dividends
200,000
871,378
20,102
13,522
246,656
113,673
-63,783
31.12.2016
Share capital
Share premium
Accumulated other
comprehensive income
Profit reserves
Retained earnings -
from previous years
Rretained earnings
- current results
Non-controlling interests
30,142
-30,142
in EUR thousand
Prudential
filters and
deduction
items from
capital
Capital
(included in
calculation
of capital
adequacy)
Capital item (in capital
adequacy calculation)
200,000 Paid in capital instruments
871,378 Share premium
-6,053
Accumulated other
comprehensive income
13,522 Other reserves
246,656
Retained earnings -
from previous years
49,890 Current results
0
0 Minority interest
0
Prudential filter: Cash
flow hedges reserve
(Article 33.a)
-2,213
-2,213
-3,529
-3,529
-30,397
-30,397
-3,013
-3,013
Total equity
1,495,473
-63,783
-30,142
-30,190
717
3,318
-39,152
1,336,241
Prudential filter: Additional
valuation adjustment
(AVA) (Article 34)
Deduction item:
Goodwill (Article 36.b)
Deduction item: Other
intangible assets
(Article 36.b)
Deduction item: Deferred
tax assets that rely on
future profitability and do
not arise from temporary
differences net of associat-
ed liabilities (Article 36.c)
Common Equity Tier
1 (CET1) capital
0 Additional Tier 1 capital
1,336,241 Tier 1 capital
0 Tier 2 capital
1,336,241 Total capital
NLB Group 2016 Annual Report Differences between the accounting capital and the capital for the calculation of capital adequacy of NLB Group as at 31 December 2015
365
Exclusion
of 100% of
unrealised
profits from
exposures
to central
governments
(in
transitional
period)
Exclusion
of 60% of
unrealised
losses from
exposures
to central
governments
(in
transitional
period)
Exclusion
of minority
interests
not eligible
according
to CRR
requirements
-25,918
6,135
31.12.2015
Share capital
Share premium
Accumulated other
comprehensive income
Profit reserves
Retained earnings - from
previous years
Rretained earnings -
current results
Equity in
balance sheet
(prudential
consolidation)
Dividends
200,000
871,378
15,693
13,522
207,004
83,480
-43,881
Non-controlling interests
27,369
-27,369
in EUR thousand
Prudential
filters and
deduction
items from
capital
Capital
(included in
calculation
of capital
adequacy)
Capital item (in capital
adequacy calculation)
200,000 Paid in capital instruments
871,378 Share premium
-4,090
Accumulated other com-
prehensive income
13,522 Other reserves
207,004
Retained earnings - from
previous years
39,599 Current results
0 Minority interest
897
897
Prudential filter: Cash flow
hedges reserve (Article 33.a)
-3,134
-3,134
Prudential filter: Additional valuation
adjustment (AVA) (Article 34)
-3,529
-3,529
Deduction item: Goodwill
(Article 36.b)
-35,745
-35,745
Deduction item: Other intan-
gible assets (Article 36.b)
Total equity
1,418,446
-43,881
-27,369
-25,918
6,135
-44,266
1,283,147
-2,755
-2,755
Deduction item: Deferred tax
assets that rely on future prof-
itability and do not arise from
temporary differences net of
associated liabilities (Article 36.c)
Common Equity Tier
1 (CET1) capital
0 Additional Tier 1 capital
1,283,147 Tier 1 capital
0 Tier 2 capital
1,283,147 Total capital
3.3. Capital instruments included in the capital
(Article 437 b and c of Regulation (EU) No 575/2013)
In 2016 the capital of NLB Group solely consisted of Common Equity Tier 1 capital; the only instruments included in Common Equity Tier 1
capital were the ordinary shares of the parent company NLB d.d.
In 2016 NLB Group had no capital instruments issued that would be eligible for inclusion in Additional Tier 1 capital or Tier 2 capital. Some
subsidiary banks in NLB Group do have subordinated instruments which they themselves use as a capital component, but because of the
non-comparability of the legislation these instruments do not meet the conditions for inclusion in the capital of NLB Group.
NLB Group 2016 Annual Report Issuer
NOVA LJUBLJANSKA BANKA d.d., Ljubljana
Amount recognised in regulatory capital (Currency in million, as of most recent reporting date)
Paid up capital and related share premium: 1.071.377
Nominal amount of instrument
N/A – No par value shares (20,000,000 shares)
366
The main characteristics of the ordinary shares of NLB Group:
Unique identifier (eg CUSIP, ISIN or Bloomberg identifier for private placement)
Governing law(s) of the instrument
Regulatory treatment
Transitional CRR rules
Post-transitional CRR rules
Eligible at solo/(sub-)consolidated/ solo&(sub-)consolidated
Instrument type (types to be specified by each jurisdiction)
Issue price
Redemption price
Accounting classification
Original date of issuance
Perpetual or dated
Original maturity date
Issuer call subject to prior supervisory approval
Optional call date, contingent call dates and redemption amount
Subsequent call dates, if applicable
Coupons / dividends
17
18
19
Fixed or floating dividend/coupon
Coupon rate and any related index
Existence of a dividend stopper
20a
Fully discretionary, partially discretionary or mandatory (in terms of timing)
20b
Fully discretionary, partially discretionary or mandatory (in terms of amount)
Existence of step up or other incentive to redeem
Noncumulative or cumulative
Convertible or non-convertible
If convertible, conversion trigger(s)
If convertible, fully or partially
If convertible, conversion rate
If convertible, mandatory or optional conversion
If convertible, specify instrument type convertible into
If convertible, specify issuer of instrument it converts into
Write-down features
If write-down, write-down trigger(s)
If write-down, full or partial
If write-down, permanent or temporary
If temporary write-down, description of write-up mechanism
1
2
3
4
5
6
7
8
9
9a
9b
10
11
12
13
14
15
16
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
SI0021116502
Slovene
Common Equity Tier 1
Common Equity Tier 1
Solo and Consolidated
Ordinary share
EUR 77.55
N/A
Shareholders’ equity
18.12.2013
Perpetual
No maturity
N/A
N/A
N/A
N/A
N/A
N/A
Fully discretionary
Fully discretionary
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Position in subordination hierarchy in liquidation (specify instrument type immediately senior to instrument)
First loss absorbent instrument subordinated to all instruments
Non-compliant transitioned features
If yes, specify non-compliant features
No
N/A
N/A – not relevant for this instrument
NLB Group 2016 Annual Report 367
The ordinary shares are fully included in the Common Equity Tier 1 capital of NLB Group as the only source. The shares meet all the
conditions for inclusion in the capital as stated under the relevant provisions of Regulation (EU) No 575/2013.
3.4. Detailed presentation of capital elements
(Article 437 d and e, and 492.3 of Regulation (EU) No 575/2013)
The table below shows in detail the elements of the calculation of the capital of NLB Group at the end of the years 2016 and 2015 in the
form prescribed by the EBA implementing technical standards, published as Commission Implementing Regulation (EU) No 1423/2013 of 20
December 2014 (Annex VI – presentation of items in the transitional period). A summarised substantive presentation of the elements relevant
for NLB Group is given in Chapter 3.1.
In line with the instructions, the second column includes amounts that are temporarily excluded from the calculation of capital adequacy
according to the provisions on the transitional period (residual amounts). Had the provisions applied fully, i.e. without the transitional period,
the calculation would include the amount from the first column added by the difference in the second column.
NLB Group does not have any capital instruments that would no longer be eligible for inclusion and that would be subject to pre-Regulation
treatment.
NLB Group 2016 Annual Report 368
Transitional own funds (capital) template for NLB Group
31.12.2016
31.12.2015
Amount at
disclosure date
(transitional
arrangements
as prescribed
for this date)
Amounts subject
to pre-Regulation
(EU) No 575/2013
or prescribed
residual amount
of Regulation (EU)
No 575/2013
Amount at
disclosure date
(transitional
arrangements
as prescribed
for this date)
Amounts subject
to pre-Regulation
(EU) No 575/2013
or prescribed
residual amount
of Regulation (EU)
No 575/2013
Common equity Tier 1 (CET1) capital: instruments and reserves
1
Capital instruments and the related share premium accounts
of which: ordinary shares
Retained earnings
Accumulated other comprehensive income (and other reserves)
2
3
3a
Funds for general banking risk
5 Minority interest (amount allowed in consolidated CET1)
1,071,378
1,071,378
246,656
33,624
0
0
5a
Independently reviewed interim profits net of any foreseeable charge or dividend
49,890
0
0
0
26,155
0
0
0
1,071,378
1,071,378
207,004
29,215
0
0
39,599
0
0
0
19,783
0
0
0
6
Common Equity Tier 1 (CET1) capital before regulatory adjustments
1,401,548
26,155
1,347,196
19,783
Common Equity Tier 1 (CET1) capital: regulatory adjustments
7
8
10
Additional value adjustments (negative amount)
Intangible assets (net of related tax liability) (negative amount)
Deferred tax assets that rely on future profitability excluding those
arising from temporary differences (net of related tax liability where
the conditions in Article 38(3) are met) (negative amount)
11 Fair value reserves related to gains or losses on cash flow hedges
12 Negative amounts resulting from the calculation of expected loss amounts
13 Any increase in equity that results from securitised assets (negative amount)
14
Gains or losses on liabilities valued at fair value resulting
from changes in own credit standing
15 Defined-benefit pension fund assets (negative amount)
16
Direct and indirect holdings by an institution of own
CET1 Instruments (negative amount)
17
18
19
Direct, indirect and synthetic holdings by the institution of the CET1
instruments of financial sector entities where those entities have
reciprocal cross holdings with the institution designed to inflate
artificially the own funds of the institution (negative amount)
Direct, indirect and synthetic holdings by the institution of the CET1
instruments of financial sector entities where the institution does not
have a significant investment in those entities (amount above 10%
threshold and net of eligible short positions) (negative amount)
Direct, indirect and synthetic holdings by the institution of the CET1
instruments of financial sector entities where the institution has a
significant investment in those entities (amount above 10% threshold
and net of eligible short positions) (negative amount)
20a
Exposure amount of the following items which qualify for a RW of
1250%, where the institution opts for the deduction alternative
20b of which: qualifying holdings outside the financial sector (negative amount)
20c of which: securitisation positions (negative amount)
20d of which: free deliveries (negative amount)
21
Deferred tax assets arising from temporary
differences (amount above 10% threshold, net
of related tax liability where the conditions in
Article 38(3) are met) (negative amount)
22 Amount exceeding the 15% threshold (negative amount)
23
of which: direct and indirect holdings by the institution of
the CET1 instruments of financial sector entities where the
institution has a significant investment in those entities
-2,213
-33,926
0
-13,570
-3,134
-39,274
-5,021
-2,008
-6,888
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2,243
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
-23,564
-4,133
1,346
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
NLB Group 2016 Annual Report 369
31.12.2016
31.12.2015
Amount at
disclosure date
(transitional
arrangements
as prescribed
for this date)
Amounts subject
to pre-Regulation
(EU) No 575/2013
or prescribed
residual amount
of Regulation (EU)
No 575/2013
Amount at
disclosure date
(transitional
arrangements
as prescribed
for this date)
Amounts subject
to pre-Regulation
(EU) No 575/2013
or prescribed
residual amount
of Regulation (EU)
No 575/2013
25 of which: deferred tax assets arising from temporary differences
25a Losses for the current financial year (negative amount)
25b Foreseeable tax charges relating to CET1 items (negative amount)
26
Regulatory adjustments applied to Common Equity Tier 1 in
respect of amounts subject to pre-CRR treatment
26a
Regulatory adjustments related to unrealised gains and
losses pursuant to Articles 467 and 468
of which: filter for unrealised loss - exposures to central governments
of which: filter for unrealised loss - other exposures
of which: filter for unrealised gains - exposures to central governments
of which: filter for unrealised gains - other exposures
26b
Amount to be deducted from or added to Common Equity Tier 1 capital
with regard to additional filters and deductions required pre CRR
of which: intangible assets (including goodwill)
of which: deferred tax assets that rely on future profitability and do not
arise from temporary differences net of associated tax liabilities
27
Qualifying AT1 deductions that exceed the AT1 capital
of the institution (negative amount)
28 Total regulatory adjustments to Common Equity Tier 1 (CET1)
0
0
0
0
-26,155
717
9,788
-30,190
-6,470
15,578
13,570
2,008
-13,570
-65,307
29 Common Equity Tier 1 (CET1) capital
1,336,241
Additional Tier 1 (AT1) capital: instruments
30 Capital instruments and the related share premium accounts
33
Amount of qualifying items referred to in Article 484(3) and the
related share premium account subject to phase out from AT1
Public sector capital injections grandfathered until 1 January 2018
34
Qualifying Tier 1 capital included in consolidated AT1 capital (including minority
interest not included in row 5) issued by subsidiaries and held by third parties
36 Additional Tier 1 (AT1) capital before regulatory adjustments
Additional Tier 1 (AT1) capital: regulatory adjustments
37 Direct and indirect holdings by an institution of own AT1 Instruments (negative amount)
38
39
40
41
Direct, indirect, and synthetic holdings of the AT1 instruments of financial sector
entities where those entities have reciprocal cross holdings with the institution
designed to inflate artificially the own funds of the institution (negative amount)
Direct, indirect and synthetic holdings by the institution of the AT1
instruments of financial sector entities where the institution does not
have a significant investment in those entities (amount above 10%
threshold and net of eligible short positions) (negative amount)
Direct, indirect and synthetic holdings by the institution of the AT1
instruments of financial sector entities where the institution has a
significant investment in those entities (amount above 10% threshold
and net of eligible short positions) (negative amount)
Regulatory adjustments applied to Additional Tier 1 in respect of amounts
subject to pre-CRR treatment and transitional treatments subject to phase out
as prescribed in Regulation (EU) no 575/2013 (i.e. CRR residual amounts)
41a
Residual amounts deducted from Additional Tier 1 capital with regard
to deduction from Common Equity Tier 1 capital during the transitional
period pursuant to Article 472 of Regulation (EU) no 575/2013
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
-15,578
10,577
0
0
0
0
0
0
0
0
0
0
0
0
0
0
-21,129
3,152
14,399
-29,070
-9,610
27,697
23,564
4,133
-23,564
-64,049
1,283,147
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
-26,351
-6,568
0
0
0
0
0
0
0
0
0
0
of which: intangible assets (including goodwill)
13,570
13,570
23,564
23,564
41b
Residual amounts deducted from Additional Tier 1 capital with
regard to deduction from Tier 2 capital during the transitional period
pursuant to Article 475 of Regulation (EU) no 575/2013
0
0
0
0
13,570
13,570
23,564
23,564
NLB Group 2016 Annual Report 370
41c
Amount to be deducted from or added to Additional Tier 1 capital with
regard to additional filters and deductions required pre- CRR
42 Qualifying T2 deductions that exceeded the T2 capital of the institution
43 Total regulatory adjustments to Additional Tier 1 (AT1)
44 Additional Tier 1 (AT1) capital
45 Tier 1 capital (T1= CET1 + AT1)
Tier 2 (T2) capital: instruments and provisions
46 Capital instruments and the related share premium accounts
47
Account of qualifying items referred to in Article 484(5) and the
related share premium accounts subject to phase out from T2
Public sector capital injections grandfathered until 1 January 2018
48
Qualifying own funds instruments included in consolidated T2 capital
(including minority interests and AT1 instruments not included in
rows 5 or 34) issued by subsidiaries and held by third parties
50 Credit risk adjustment
51 Tier 2 (T2) capital before regulatory adjustments
52
53
54
55
56
Direct and indirect holdings by an institution of own T2
Instruments and subordinated loans (negative amount)
Holdings of the T2 instruments and subordinated loans of financial sector entities
where those entities have reciprocal cross holdings with the institution designed
to inflate artificially the own funds of the institution (negative amount)
Direct and indirect holdings of the T2 instruments and subordinated
loans of financial sector entities where the institution does not
have a significant investment in those entities (amount above 10%
threshold and net of eligible short positions) (negative amount)
Direct and indirect holdings by the institution of the T2 instruments
and subordinated loans of financial sector entities where the institution
has a significant investment in those entities (amount above 10%
threshold and net of eligible short positions) (negative amount)
Regulatory adjustments applied to Tier 2 in respect of amounts subject
to pre-CRR treatment and transitional treatments subject to phase out as
prescribed in Regulation (EU) no 575/2013 (i.e. CRR residual amounts)
56a
Residual amounts deducted from Tier 2 capital with regard to deduction
from Common Equity Tier 1 capital during the transitional period
pursuant to Article 472 of Regulation (EU) no 575/2013
56b
Residual amounts deducted from Tier 2 capital with regard to
deduction from Additional Tier 1 capital during the transitional period
pursuant to Article 475 of Regulation (EU) no 575/2013
56c
Amount to be deducted from or added to Tier 2 capital with regard
to additional filters and deductions required pre- CRR
57 Total regulatory adjustments to Tier 2 (T2) capital
58 Tier 2 (T2) capital
59 Total capital (TC = T1 + T2)
59a
Risk weighted assets in respect of amounts subject to pre-CRR
treatment and transitional treatments subject to phase out as prescribed
in Regulation (EU) No 575/2013 (i.e. residual amounts)
Items not deducted from T2 items (Regulation (EU) No
575/2013 residual amounts) (items to be detailed line by line, e.g. Indirect
holdings of own T2 instruments, indirect holdings of non-significant investments
in the capital of other financial sector entities, indirect holdings of non-significant
investments in the capital of other financial sector entities, etc.)
31.12.2016
31.12.2015
Amount at
disclosure date
(transitional
arrangements
as prescribed
for this date)
Amounts subject
to pre-Regulation
(EU) No 575/2013
or prescribed
residual amount
of Regulation (EU)
No 575/2013
Amount at
disclosure date
(transitional
arrangements
as prescribed
for this date)
Amounts subject
to pre-Regulation
(EU) No 575/2013
or prescribed
residual amount
of Regulation (EU)
No 575/2013
0
-13,570
0
0
1,336,241
0
0
13,570
13,570
24,147
0
-23,564
0
0
1,283,147
0
0
23,564
23,564
16,996
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1,336,241
24,147
1,283,147
16,996
0
0
0
0
0
0
0
0
NLB Group 2016 Annual Report 371
31.12.2016
31.12.2015
Amount at
disclosure date
(transitional
arrangements
as prescribed
for this date)
Amounts subject
to pre-Regulation
(EU) No 575/2013
or prescribed
residual amount
of Regulation (EU)
No 575/2013
Amount at
disclosure date
(transitional
arrangements
as prescribed
for this date)
Amounts subject
to pre-Regulation
(EU) No 575/2013
or prescribed
residual amount
of Regulation (EU)
No 575/2013
7,862,128
-21,002
7,926,985
-22,031
17.0%
17.0%
17.0%
5.125%
0.625%
0.0%
0.0%
N/A
9.0%
2,138
16,236
2,719
0
N/A
0
N/A
N/A
0
N/A
0
N/A
0
16.2%
16.2%
16.2%
N/A
N/A
N/A
N/A
N/A
N/A
2,215
15,243
2,655
0
N/A
0
0
N/A
0
N/A
0
N/A
0
0
0
0
0
N/A
0
N/A
N/A
0
N/A
0
N/A
0
0
0
0
0
N/A
0
0
N/A
0
N/A
0
N/A
0
60 Total risk weighted assets
Capital ratios and buffers
61 Common Equity Tier 1 (as a percentage of total risk exposure amount)
62 Tier 1 (as a percentage of total risk exposure amount)
63 Total capital (as a percentage of total risk exposure amount)
64
Institution specific buffer requirement (CET1 Requirement in accordance
with Article 92(1)(a) plus capital conservation and countercyclical buffer
requirements, plus systemic risk buffer, plus systemically important
institution buffer expressed as a percentage of risk exposure amount)
65 of which: capital conservation buffer requirement
66 of which: countercyclical buffer requirement
67 of which: systemic risk buffer requirement
67a
of which: Global Systemically Important Institution (G-SII) or
Other Systemically Important Institution (O-SII) buffer
68
Common Equity Tier 1 available to meet buffers (as a
percentage of total risk exposure amount)
Amounts below the threshold for deduction (before risk weighting)
72
73
75
Direct and indirect holdings of the capital of financial sector entities where
the institution does not have a significant investment in those entities
(amount below 10% threshold and net of eligible short positions)
Direct and indirect holdings by the institution of the CET1 instruments of
financial sector entities where the institution has a significant investment in those
entities (amount below 10% threshold and net of eligible short positions)
Deferred tax assets arising from temporary differences (amount below 10%
threshold, net of related tax liability where the conditions in Article 38(3) are met
Applicable caps on the inclusion of provisions in Tier 2
76
Credit risk adjustments included in T2 in respect of exposures subject
to standardised approach (prior to the application of the cap)
77 Cap on inclusion of credit risk adjustments in T2 under standardised approach
78
Credit risk adjustments included in T2 in respect of exposures subject to
internal ratings-based approach (prior to the application of the cap)
79 Cap on inclusion of credit risk adjustments in T2 under internal ratings-based approach
Capital instruments subject to phase-out arrangements
(only applicable between 1 Jan 2014 and 1 Jan 2022)
80 Current cap on CET1 instruments subject to phase out arrangements
81
Amount excluded from CET1 due to cap (excess over
cap after redemptions and maturities)
82 Current cap on AT1 instruments subject to phase out arrangements
83
Amount excluded from AT1 due to cap (excess over
cap after redemptions and maturities)
84 Current cap on T2 instruments subject to phase out arrangements
85 Amount excluded from T2 due to cap (excess over cap after redemptions and maturities)
N/A – not relevant
NLB Group 2016 Annual Report 372
4. Capital buffers
(Article 440 of Regulation (EU) No 575/2013)
In 2016, the European capital legislation introduced a system of capital buffers in order to provide the adequate capital accumulation from a
bank’s operational results. Next to the Pillar 1 and Pillar 2 requirements, banks must cover with their highest quality capital (CET1) also the
requirements arising from capital buffers. However, these requirements are less binding as their breaching will result at most in restrictions on
distributions of the operational result with the aim of strengthening the capital base.
The combined buffer requirement is a combination of the following elements:
• Capital conservation buffer
• Countercyclical buffer
• Global systemically important institutions (G-SII) buffer – not relevant for NLB Group
• Other systemically important institutions (O-SII) buffer
• Systemic risk buffer (SRB) – not anticipated at the moment.
In 2016, following capital buffer requirements were relevant for NLB:
• Capital conservation buffer: in 2016 prescribed at the level of 0.625% of RWA, but according to an ECB decision part of the Pillar 2
(SREP) requirement and therefore not again part of the combined buffer requirement
• Countercyclical buffer: in 2016 requirement for NLB d.d. and NLB Group amounted to 0% RWA; in more details described below.
NLB Group was identified by the Bank of Slovenia decision from 17 December 2015 as »Other systemically important institution«, so the
following buffer is also relevant:
Other systemically important institutions (O‑SII) buffer: in line with the Bank of Slovenia’s decision, the NLB on the consolidated
level must provide CET1 capital in the amount of 1% of RWA on top of the Pillar 1 and Pillar 2 requirements from 1 January 2019 on.
Countercyclical buffer
On 1 January 2016 the Bank of Slovenia introduced a macro-prudential measure: a countercyclical capital buffer intended to protect the
banking sector from losses potentially caused by cyclical risks in the economy. The purpose of the countercyclical capital buffer is to ensure
that the bank has a sufficient capital base in periods of credit growth, to be used in stress periods or when the conditions for lending are less
favourable, i.e. to absorb losses. When the defined buffer rate is more than 0%, or when the already established rate is increased, the new buffer
rate applies 12 months after publication (except for extraordinary cases). The buffer value may fluctuate between 0% and 2.5% of the amount
of total risk exposure (in exceptional cases also more) and depends on the amount of risk in the system.
The buffer value for exposures in Slovenia, in force from 1 January 2016, is 0%. To define the buffer rate, the Bank of Slovenia followed the
methodology of the BCBS, ESRB, and the credit cycle assessment for Slovenia. The buffer rates applicable to exposures in other countries of
the European Economic Area are those defined on the ESRB website, refreshed quarterly, while the buffer rate applying to credit exposures
to countries not listed on that page nor prescribed by the Bank of Slovenia or a competent authority of that country are 0%. Countercyclical
capital rates have generally been set at 0%, except for Sweden and Norway, which have as at 31 December 2016 a countercyclical capital rate
of 1.5%.
The obligation to disclose information with regard to the geographic distribution of credit exposures, appropriate to calculate the
countercyclical capital buffer, capital requirements, and the rates of the bank-specific countercyclical capital buffer is quarterly, or must be made
public at least once a year, depending on the date of publication of financial statements, and applies from 1 January 2016.
A calculation of the bank-specific countercyclical capital buffer is made on an individual, as well as consolidated level. The bank defines the
geographic distribution of exposures which are subject to the calculation of capital requirement for credit risk using the standardised approach
and the special risk or risk of non-payment, and migrations for exposures from the trading book and capital requirements from securitisation. If
the bank’s exposures represent less than 2% of its total risk-weighted exposures, these exposures may be presented at the geographic location of
the bank and additionally explained.
NLB Group 2016 Annual Report 373
The rate of the bank-specific countercyclical capital buffer is composed of the weighted average of countercyclical capital buffer rates used
in those countries where the relevant credit exposures of this institution are located. According to transitional regime granted by the Bank of
Slovenia, for the period from 1 January 2016 until 31 December 2016, the bank-specific countercyclical buffer should have been no more than
0.625% of the total risk-weighted exposure amounts of the bank.
Amount of bank-specific countercyclical capital buffer for NLB Group:
Total risk exposure amount
Bank-specific countercyclical buffer rate
Bank-specific countercyclical buffer requirement
5. Capital requirements
in EUR thousand
NLB d.d.
NLB Group
269,837
409,213
0%
0
0%
0
5.1. Summary of the approach to assessing the internal capital needed for current and planned activities
(Article 438 a of Regulation (EU) No 575/2013)
The internal capital adequacy assessment process (ICAAP) of NLB Group meets the requirements of the Regulation (EU) No 575/2013,
the recommendations of the Bank of Slovenia and the European Central Bank, the European Banking Authority, and follows good banking
practices. The main purpose of implementation of the ICAAP and ILAAP processes is to provide following:
• an assurance of adequate identification and measurement of risks,
• adequate capital, funding, and liquidity of the Group in connection with the risk appetite,
• an assured robust risk management process (from the organisational and methodological point of view) on an on-going basis.
The ICAAP process in NLB Group is integrated into the decision-making process at the strategic and operating levels, including the budgeting
process. With the active role of the Management and Supervisory Boards of NLB d.d., it represents one of the key components of the
Group’s proactive management, with the aim to ensure stable, long-time operations. Pursuant to the EBA guidelines, NLB Group is constantly
upgrading the ICAAP and ILAAP processes (Internal Liquidity Adequacy Assessment Process). The ILAAP process involves a comprehensive
assessment of liquidity risk control including qualitative and quantitative elements of assessment.
NLB Group plans a prudent risk appetite and optimally profitable operations in the long run, considering the risks assumed, while at the same
time meeting all regulatory requirements. The strategy of NLB Group, the risk appetite, the risk strategy, and the key internal risk policies
of NLB Group approved by the Management Board and the Supervisory Board of NLB d.d. specify the strategic objectives and guidelines
concerning risk assumption, and the approaches and methodologies of monitoring, measuring, mitigating and managing all types of risk.
The Group is regularly monitoring its target risk appetite profile, representing the key component of the risk mitigation process. A risk profile
enables detailed monitoring and proactive management. The usage of risk profile limits and potential deviations from limits and target values
are reported regularly to the respective committees and/or the Management Board of the Bank, the Risk Committee of the Supervisory Board,
and the Supervisory Board of the Bank. Additionally, NLB Group has set up early warning systems in different risk areas with the intention to
strengthen the existing internal controls, as well as the ability to respond in a timely manner when necessary.
When considering the ICAAP process, risk identification and assessment are carried out on the basis of internal methodologies. They take
into account the complexity of the structure of NLB Group’s operations with a tendency to upgrade in terms of advanced approaches to risk
management. The ICAAP process includes at least regular quarterly monitoring and reporting at the level of the Management and Supervisory
Boards of NLB d.d., and defines a set of corrective measures for managing and mitigating risks.
The internal assessment of NLB Group’s capital requirements consists of the following steps:
• the identification of all risks, the definition of materially significant risks, and their treatment in the context of the ICAAP process,
• selection of the approach to the calculation of regulatory capital requirements (Pillar 1),
• definition of the internal methodology for the identification, measurement, and calculation of capital requirements for risks not covered
within the scope of Pillar 1 (Pillar 2),
NLB Group 2016 Annual Report 374
• implementing stress scenarios for key material risks,
• methodology for preparation of an aggregate assessment of capital requirements for all material risks using the baseline and adverse
scenarios,
• definition of ICAAP limits from the aspect of capital consumption for materially significant risks,
• planning the volume of available capital, defining the target capital adequacy ratio, and
• regular monitoring and definition of the measures to manage and mitigate risks.
In the scope of regulatory (Pillar 1) risks, which include credit risk, operational risk, and market risk, NLB Group uses the standardised
approach for credit and market risks, while the calculation of the capital requirement for operational risks is made according to the basic
indicator approach. The same approaches are used for calculating the capital requirements for NLB d.d. on a standalone basis, except for
calculation of the capital requirement for operational risks, where the standardised approach is used.
In the preparation of the internal capital adequacy assessment, NLB Group identifies risks not included in the calculation under the regulatory
approach (Pillar 1) which have a significant impact on its operation. The scope of additional credit risks also includes concentration risk – to
individual clients and groups of related parties, at the level of activity – and collateral concentration risk. NLB Group calculates the capital
requirement for non-financial risks (which include capital risk, profitability risk, strategic risk, divestment risk, and reputation risk) if it assesses
that an individual risk is crucial for NLB Group. In addition, non-regulatory risks include the effects of stress scenarios for credit (deterioration
of the credit rating structure, decrease in real-estate market prices), currency, liquidity risk, interest rate risk in the banking book, credit spread
risk, and market risk arising from securities.
The comprehensive performance of the ICAAP and ILAAP processes in NLB Group is defined in an internal document in line with the
EBA guidelines which are described in detail in the document “Guidelines on ICAAP and ILAAP information collected for SREP purposes.”
Besides, bank members of NLB Group have set up their own ICAAP process in line with the common Group’s guidelines, including the
specifics of their operations, the investment portfolio structure, strategic guidelines, regulatory framework, and the relevant macroeconomic
environment.
5.2. Capital requirements
(Article 438 c, e and f and 445 of Regulation (EU) No 575/2013)
NLB Group uses the following approaches to calculate the regulatory capital requirements on a consolidated basis:
• credit risk – standardised approach,
• market risk – standardised approach, and
• operational risk – simple approach.
In the calculation of capital ratios, risk is expressed as a risk exposure amount or a capital requirement. The capital requirement for an
individual risk amounts to 8% of the total exposure to the individual risk. The table below shows the detailed composition of the capital
requirements and risk exposure amounts of NLB Group at the end of 2016 and at the end of the previous year.
NLB Group 2016 Annual Report 375
Capital requirements and risk exposure amounts of NLB Group
31.12.2016
31.12.2015
in EUR thousand
Risk exposure
amount (RWA)
Capital requirement
(8% RWA)
Risk exposure
amount (RWA)
Capital requirement
(8% RWA)
Central governments or central banks
Regional governments or local authorities
Public sector entities
Multilateral Development Banks
International Organisations
Institutions
Corporates
Retail
Secured by mortgages on immovable property
Exposures in default
Items associated with particular high risk
Covered bonds
Claims on institutions and corporates with a short-term credit assessment
Collective investments undertakings (CIU)
Equity
Other items
Credit risk
Position risk - Traded debt instruments
Position risk - Equity
Large exposures exceeding the limit
Foreign exchange risk
Settlement / delivery risk
Commodities risk
Specific interest rate risk of securitisation positions
Market risks
Credit valuation adjustment (CVA)
Operational risk
Total risk exposure amount / capital requirements
864,356
58,175
54,385
0
0
540,002
1,745,284
2,328,862
214,583
566,336
9,061
7,416
0
5,794
75,829
394,654
6,864,737
27,975
0
0
69,148
4,654
4,351
0
0
43,200
139,623
186,309
17,167
45,307
725
593
0
464
6,066
31,572
549,179
2,238
0
0
856,959
65,507
62,390
0
0
507,900
1,642,243
2,163,645
205,434
853,645
9,191
8,989
0
2,671
57,517
413,542
6,849,633
69,013
25
0
68,557
5,241
4,991
0
0
40,632
131,379
173,092
16,435
68,292
735
719
0
214
4,601
33,083
547,971
5,521
2
0
76,200
6,096
68,313
5,465
0
0
0
104,175
463
892,753
7,862,128
0
0
0
8,334
37
71,420
628,970
0
0
0
137,351
9,313
930,688
7,926,985
0
0
0
10,988
745
74,455
634,159
For NLB Group there were no materially important methodological changes in the calculation of the capital requirements within the year 2016.
The differences come from the Group’s regular business operations.
NLB Group 2016 Annual Report
376
6. Exposure to counterparty credit risk
6.1. The methodology used to assign internal capital and credit limits for counterparty credit
exposures, and the measures for exposure value under the method used
(Article 439 a and f of Regulation (EU) No 575/2013)
NLB Group monitors counterparty credit risk exposure by using the method of current exposure in compliance with Regulation (EU) No
575/2013. Credit replacement value (CRV) is the sum of current and potential exposure. For repo transactions, the exposure equals the current
value of the investment (comprising the nominal value and accrued interest) less the current value of collateral (market price of the security)
where the highest exposure may equal the agreed amount not being transferred within the margin call.
The credit exposure is monitored by applying a limit to individual clients (according to the principle of sustainable debt). The limit is set within
the scope of credit advice (opinion regarding risk assumption, taking the principle of co-decision into account). It is carried out in line with the
Criteria and Procedures for Granting Loans, and the currently applicable regulations in the area.
The calculation of internal capital for the above-mentioned financial instruments is analogous to that made for other types of investments by
using a standardised approach for credit risks. The consumption of capital is relatively low owing to relatively small transaction volumes and
the low exposure arising from these financial instruments as a share of all transactions. In accordance with the Directive 2013/36/EU, the
Bank transferred the settlement of some transactions to the so-called ‘suitable central counterparty.’ Therefore, there is no material effect on the
consumption of capital.
The new legislation on capital requirements brought changes concerning exposure to counterparty credit risk and the related capital
requirements. In the valuation of these financial instruments, the fair value calculation must be adjusted by including counterparty credit risk
(CVA – credit valuation adjustment) unless the settlement is made via a central counterparty or clearing house.
6.2. Policies for collateralisation and the establishment of credit reserves, and impact of the amount of
collateral the institution would have to provide in case of a downgrading of its credit rating
(Article 439 b and d of Regulation (EU) No 575/2013)
The conclusion of financial derivatives transactions in NLB Group is defined in detail in its internal documents (policies, strategies).
The conclusion of transactions involving derivatives at NLB d.d. is limited to the servicing of clients and hedging of its own open positions
against risk. In accordance with the provisions of the Strategy on trading in financial instruments in NLB Group, the trading activities in other
NLB Group members are very restricted. These documents represent the framework within which the Bank may trade in derivatives, including
the level of acceptable risk. Thus, NLB d.d. is the only member of the Group with a trading book in accordance with the requirements of
Regulation (EU) No 575/2013. For operations on the interbank market, NLB d.d. has signed ISDA agreements with the relevant annexes, such
as CSA, which regulates the exchange of collateral to cover for market exposure for all transactions under an ISDA agreement.
If NLB d.d. was downgraded, the counterparties, financial institutions in particular, with whom the Bank had or has entered into transactions
could ask the Bank to increase the collateral or decide to terminate the transactions early. In accordance with the EU directive, the Bank
transferred the monitoring and settlement of some transactions to a suitable central counterparty (CCP – qualifying central counterparty), thus
avoiding the risk of negative effects from the early termination of a transaction or the necessary provision of additional collateral.
NLB has signed CSA annex with the most of the banks with a threshold at 0 EUR. The total minimum transfer amount for an open position is
EUR 4 million, but in most cases there is no contractual provision to decrease the amount in the case of a bank’s downgrade.
6.3. Discussion of policies with respect to wrong-way risk exposures
(Article 439 c of Regulation (EU) No 575/2013)
If a counterparty which has been asked to provide additional prime collateral necessary due to adverse changes in financial markets fails to
do so, the Bank may close synthetic forward deals and liquidate the existing collateral in accordance with the applicable Master agreement for
trading in derivatives or through clearing at the daily level. On the interbank market, the Bank performs derivatives transactions in accordance
NLB Group 2016 Annual Report 377
with the signed ISDA agreement and pertaining annexes (CSA). The Bank transferred the monitoring and settlement of the majority of these
transactions made with financial institutions to the suitable CCP.
6.4. Gross positive fair value of contracts, netting benefits, netted current credit
exposure, collateral held, and net derivatives credit exposure
(Article 439 e of Regulation (EU) No 575/2013)
NLB Group uses contractual offsets (such as a CSA Agreement and Margin call) to a very limited extent and only for internal needs of
monitoring. NLB Group does not use the contractual offset provisions in regulatory reporting (exposure and credit risk capital requirement
calculation). In accordance with Article 432 of Regulation (EU) No 575/2013, the Bank does not disclose details considering the low volume
of transactions and their effect on the Bank’s business performance, it is not material information which, if omitted or misstated, would alter or
affect the assessment or decision of the person using the information to take economic decisions.
7. Credit risk adjustments
For calculating the capital requirement for credit risk, NLB Group uses the standardised approach as prescribed by Regulation (EU) No
575/2013. Calculation of the capital requirement takes into account the effect of loan collaterals as a secondary source of receivable
repayment; NLB uses the simple calculation method for collaterals. According to this methodology, the capital requirement is calculated
depending on the segment and credit quality of clients (as determined by external credit rating), and the quality of collaterals which must be
adequately evaluated and at the same time satisfy the prescribed minimum requirements.
7.1. Breakdown of exposures and loan collaterals by exposure category
(Article 442 c, 444 e and 453 d, f and g of Regulation (EU) No 575/2013)
NLB Group 2016 Annual Report 378
Distribution of exposures, credit collaterals, risk-weighted assets, and capital requirement of NLB Group based on exposure categories:
• as at 31 December 2016:
Category of exposure
pre-conversion factor Share of each category Net value of exposure
Guarantees
Credit derivatives
simple method
credit protection
Net exposure
conversion factors
Exposure value
exposure amount Capital requirement
Original exposure
Financial collateral:
Other funded
Value of CRM /
effects pre
Risk weighted
Credit risk mitigation techniques (CRM)
Credit risk mitigation techniques (CRM)
Unfunded credit protection:
adjusted values (GA)
Funded credit protection
Net exposure after
CRM substitution
Central governments or central banks
2,907,905
19.71%
2,907,773
1
2=1/sum(1)
3
Regional governments or local authorities
Public sector entities
Multilateral development banks
International organisations
Institutions
Corporates
Retail
Secured by mortgages on immovable property
Exposures in default
Items associated with particular high risk
Covered bonds
Collective investments undertakings (CIU)*
Equity
Other items
Total
126,957
134,276
41,318
0
1,334,516
3,453,647
3,905,429
598,932
1,442,729
7,129
50,418
44,570
49,547
659,581
0.86%
0.91%
0.28%
0.00%
9.04%
23.40%
26.47%
4.06%
9.78%
0.05%
0.34%
0.30%
0.34%
4.47%
117,800
128,420
41,318
0
1,333,779
3,375,387
3,852,314
593,010
541,761
6,709
50,418
44,570
49,547
654,396
4
0
0
59,296
0
0
60,030
770,062
660
0
520
0
0
0
0
0
5
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
* The exposure from Collective investment undertakings also includes the exposure to the Bank Resolution Fund
14,756,954
100.00%
13,697,202
890,568
8=(4+5+6+7)/3
10
11
12
13=12/sum(12)
3,898,945
3,867,093
864,356
117,800
116,848
169
745
25,687
64,335
9,387
338
6
4
0
0
0
0
0
0
0
0
1,273,062
1,251,612
540,002
23.58%
2,579,638
1,951,898
1,745,284
3,787,319
3,243,648
2,328,861
7
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0.00%
0.00%
46.31%
0.00%
0.00%
4.56%
1.69%
0.00%
1.83%
5.04%
0.00%
0.00%
0.00%
0.00%
7.24%
9
0
68,955
41,318
593,010
531,854
6,371
50,418
44,570
49,547
63,166
41,318
0
584,136
470,679
6,040
50,418
44,570
49,547
58,175
54,385
0
0
214,583
566,336
9,060
7,416
5,794
75,829
394,655
100,665
13,697,203
11,904,514
6,864,736
549,179
100.00%
654,396
654,386
in EUR thousand
Share of capital
requirement
12.59%
0.85%
0.79%
0.00%
0.00%
7.87%
25.42%
33.92%
3.13%
8.25%
0.13%
0.11%
0.08%
1.10%
5.75%
69,148
4,654
4,351
0
0
43,200
139,623
186,309
17,167
45,307
725
593
464
6,066
31,572
NLB Group 2016 Annual Report Category of exposure
pre-conversion factor Share of each category Net value of exposure
Guarantees
Credit derivatives
Financial collateral:
simple method
Other funded
credit protection
Value of CRM /
Net exposure
Credit risk mitigation techniques (CRM)
Credit risk mitigation techniques (CRM)
Unfunded credit protection:
adjusted values (GA)
Funded credit protection
Net exposure after
CRM substitution
effects pre
conversion factors
Exposure value
exposure amount Capital requirement
Risk weighted
Share of capital
requirement
379
in EUR thousand
6
4
0
169
0
0
745
25,687
64,335
0
9,387
338
0
0
0
0
100,665
7
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
8=(4+5+6+7)/3
9
10
11
12
13=12/sum(12)
0.00%
0.00%
46.31%
0.00%
0.00%
4.56%
3,898,945
3,867,093
864,356
117,800
116,848
68,955
41,318
0
63,166
41,318
0
58,175
54,385
0
0
1,273,062
1,251,612
540,002
23.58%
2,579,638
1,951,898
1,745,284
1.69%
0.00%
1.83%
5.04%
0.00%
0.00%
0.00%
0.00%
7.24%
3,787,319
3,243,648
2,328,861
593,010
531,854
6,371
50,418
44,570
49,547
584,136
470,679
6,040
50,418
44,570
49,547
654,396
654,386
214,583
566,336
9,060
7,416
5,794
75,829
394,655
69,148
4,654
4,351
0
0
43,200
139,623
186,309
17,167
45,307
725
593
464
6,066
31,572
12.59%
0.85%
0.79%
0.00%
0.00%
7.87%
25.42%
33.92%
3.13%
8.25%
0.13%
0.11%
0.08%
1.10%
5.75%
13,697,203
11,904,514
6,864,736
549,179
100.00%
Distribution of exposures, credit collaterals, risk-weighted assets, and capital requirement of NLB Group based on exposure categories:
• as at 31 December 2016:
Central governments or central banks
2,907,905
19.71%
2,907,773
Original exposure
1
2=1/sum(1)
126,957
134,276
41,318
0
1,334,516
3,453,647
3,905,429
598,932
1,442,729
7,129
50,418
44,570
49,547
659,581
0.86%
0.91%
0.28%
0.00%
9.04%
23.40%
26.47%
4.06%
9.78%
0.05%
0.34%
0.30%
0.34%
4.47%
3
0
117,800
128,420
41,318
1,333,779
3,375,387
3,852,314
593,010
541,761
6,709
50,418
44,570
49,547
654,396
59,296
60,030
770,062
660
520
4
0
0
0
0
0
0
0
0
0
0
5
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Regional governments or local authorities
Public sector entities
Multilateral development banks
International organisations
Secured by mortgages on immovable property
Exposures in default
Items associated with particular high risk
Collective investments undertakings (CIU)*
Institutions
Corporates
Retail
Covered bonds
Equity
Other items
Total
* The exposure from Collective investment undertakings also includes the exposure to the Bank Resolution Fund
14,756,954
100.00%
13,697,202
890,568
NLB Group 2016 Annual Report 380
• as at 31 December 2015:
Category of exposure
pre-conversion factor Share of each category Net value of exposure
Guarantees
Credit derivatives
simple method
credit protection
Net exposure
conversion factors
Exposure value
exposure amount Capital requirement
Original exposure
Financial collateral:
Other funded
Value of CRM /
effects pre
Risk weighted
Credit risk mitigation techniques (CRM)
Credit risk mitigation techniques (CRM)
Unfunded credit protection:
adjusted values (GA)
Funded credit protection
Net exposure after
CRM substitution
Central governments or central banks
2,543,630
17.14%
2,543,135
1
2=1/sum(1)
3
Regional governments or local authorities
Public sector entities
Multilateral development banks
International organisations
Institutions
Corporates
Retail
Secured by mortgages on immovable property
Exposures in default
Items associated with particular high risk
Covered bonds
Collective investments undertakings (CIU)*
Equity
Other items
Total
140,785
131,121
58,347
23,883
1,331,157
3,505,014
3,666,417
576,060
2,077,082
7,624
49,183
44,519
33,276
648,118
0.95%
0.88%
0.39%
0.16%
8.97%
23.62%
24.71%
3.88%
14.00%
0.05%
0.33%
0.30%
0.22%
4.37%
129,780
127,239
58,347
23,883
1,330,174
3,402,453
3,610,945
568,162
788,663
7,048
49,183
44,519
33,276
640,671
4
0
0
61,112
0
0
82,212
929,867
137
0
2,764
0
0
0
0
0
5
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
14,836,216
100.00%
13,357,478
1,076,092
* The exposure from Collective investment undertakings also includes the exposure to the Bank Resolution Fund
At the end of 2016, none of the net exposures entered the calculation of capital requirements as a deduction from capital; they entered the
calculation of capital requirements in their total amount.
In 2016, the original value of exposure fell by EUR 79.3 million, while the net exposure increased by EUR 339.7 million and the risk-adjusted
exposure increased by EUR 15.1 million. Lower original exposure value is primarily a result of the Bank’s efforts to decrease exposures in
default (the value in this segment was reduced by EUR 634.4 million). In contrast, the exposure value increased in the Retail segment (by
EUR 239.0 million) and in the segment of Central government and central bank (by EUR 364.3 million). The impact of reduced exposures in
default on the net exposure value only amounts to EUR 246.9 million, as the exposure was highly covered by provisions.
The highest exposure values are in the segments of Retail and Corporate (26.5% and 23.4% compared to the total original exposure). If the
categories of exposures secured by real-estate mortgages, items associated with particularly high risk and exposures in default, which are also
related to corporate and retail clients, are added to the above, all five categories of exposures account for 63.8% of the total original exposure
(2.5 p.p. less than at the end of 2015), and 70.9% of the total capital requirement for credit risks (71.1% at the end of 2015). The categories of
exposure to governments and institutions considerably contribute to the total exposure; the total capital requirement in these two categories is
20.5% of the total capital requirement (in 2015 only 19.9%).
To reduce the risk exposure, the Bank accepts loan collaterals, of these personal guarantees prevail; almost the entire amount of personal
guarantees are guarantees of the Republic of Slovenia.
8=(4+5+6+7)/3
9
10
11
12
13=12/sum(12)
3,732,066
3,692,711
856,959
129,780
127,702
187
30,672
70,491
11,802
407
6
1
0
0
0
0
0
0
0
0
0
7
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0.00%
0.00%
48.18%
0.00%
0.00%
6.18%
1.96%
0.00%
1.85%
5.77%
0.00%
0.00%
0.00%
0.00%
8.91%
1,248,681
1,165,439
507,900
28.23%
2,441,914
1,841,199
1,642,243
3,540,317
3,015,997
2,163,645
65,940
58,347
23,883
568,162
774,097
6,641
49,183
44,519
33,276
62,764
58,347
23,883
558,861
712,518
6,129
49,183
44,519
33,276
65,507
62,390
0
0
205,434
853,645
9,191
8,989
2,671
57,517
413,542
113,560
13,357,477
11,904,514
6,849,633
547,971
100.00%
640,671
640,669
in EUR thousand
Share of capital
requirement
12.51%
0.96%
0.91%
0.00%
0.00%
7.41%
23.98%
31.59%
3.00%
12.46%
0.13%
0.13%
0.04%
0.84%
6.04%
68,557
5,241
4,991
0
0
40,632
131,379
173,092
16,435
68,292
735
719
214
4,601
33,083
NLB Group 2016 Annual Report • as at 31 December 2015:
Regional governments or local authorities
Public sector entities
Multilateral development banks
International organisations
Secured by mortgages on immovable property
Exposures in default
Items associated with particular high risk
Collective investments undertakings (CIU)*
Institutions
Corporates
Retail
Covered bonds
Equity
Other items
Total
Category of exposure
pre-conversion factor Share of each category Net value of exposure
Guarantees
Credit derivatives
Original exposure
Financial collateral:
simple method
Other funded
credit protection
Value of CRM /
Net exposure
Credit risk mitigation techniques (CRM)
Credit risk mitigation techniques (CRM)
Unfunded credit protection:
adjusted values (GA)
Funded credit protection
Net exposure after
CRM substitution
effects pre
conversion factors
Exposure value
exposure amount Capital requirement
Risk weighted
Share of capital
requirement
381
in EUR thousand
8=(4+5+6+7)/3
9
10
11
12
13=12/sum(12)
0.00%
0.00%
48.18%
0.00%
0.00%
6.18%
3,732,066
3,692,711
856,959
129,780
127,702
65,940
58,347
23,883
62,764
58,347
23,883
65,507
62,390
0
0
1,248,681
1,165,439
507,900
28.23%
2,441,914
1,841,199
1,642,243
1.96%
0.00%
1.85%
5.77%
0.00%
0.00%
0.00%
0.00%
8.91%
3,540,317
3,015,997
2,163,645
568,162
774,097
6,641
49,183
44,519
33,276
558,861
712,518
6,129
49,183
44,519
33,276
640,671
640,669
205,434
853,645
9,191
8,989
2,671
57,517
413,542
68,557
5,241
4,991
0
0
40,632
131,379
173,092
16,435
68,292
735
719
214
4,601
33,083
12.51%
0.96%
0.91%
0.00%
0.00%
7.41%
23.98%
31.59%
3.00%
12.46%
0.13%
0.13%
0.04%
0.84%
6.04%
13,357,477
11,904,514
6,849,633
547,971
100.00%
Central governments or central banks
2,543,630
17.14%
2,543,135
1
2=1/sum(1)
3
140,785
131,121
58,347
23,883
1,331,157
3,505,014
3,666,417
576,060
2,077,082
7,624
49,183
44,519
33,276
648,118
0.95%
0.88%
0.39%
0.16%
8.97%
23.62%
24.71%
3.88%
14.00%
0.05%
0.33%
0.30%
0.22%
4.37%
129,780
127,239
58,347
23,883
1,330,174
3,402,453
3,610,945
568,162
788,663
7,048
49,183
44,519
33,276
640,671
61,112
82,212
929,867
137
2,764
4
0
0
0
0
0
0
0
0
0
0
5
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
6
1
0
187
0
0
0
30,672
70,491
0
11,802
407
0
0
0
0
113,560
7
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
* The exposure from Collective investment undertakings also includes the exposure to the Bank Resolution Fund
14,836,216
100.00%
13,357,478
1,076,092
At the end of 2016, none of the net exposures entered the calculation of capital requirements as a deduction from capital; they entered the
calculation of capital requirements in their total amount.
In 2016, the original value of exposure fell by EUR 79.3 million, while the net exposure increased by EUR 339.7 million and the risk-adjusted
exposure increased by EUR 15.1 million. Lower original exposure value is primarily a result of the Bank’s efforts to decrease exposures in
default (the value in this segment was reduced by EUR 634.4 million). In contrast, the exposure value increased in the Retail segment (by
EUR 239.0 million) and in the segment of Central government and central bank (by EUR 364.3 million). The impact of reduced exposures in
default on the net exposure value only amounts to EUR 246.9 million, as the exposure was highly covered by provisions.
The highest exposure values are in the segments of Retail and Corporate (26.5% and 23.4% compared to the total original exposure). If the
categories of exposures secured by real-estate mortgages, items associated with particularly high risk and exposures in default, which are also
related to corporate and retail clients, are added to the above, all five categories of exposures account for 63.8% of the total original exposure
(2.5 p.p. less than at the end of 2015), and 70.9% of the total capital requirement for credit risks (71.1% at the end of 2015). The categories of
exposure to governments and institutions considerably contribute to the total exposure; the total capital requirement in these two categories is
20.5% of the total capital requirement (in 2015 only 19.9%).
To reduce the risk exposure, the Bank accepts loan collaterals, of these personal guarantees prevail; almost the entire amount of personal
guarantees are guarantees of the Republic of Slovenia.
NLB Group 2016 Annual Report 382
7.2. Geographical distribution of exposures broken down in significant areas by material exposure classes
(Article 442 d of Regulation (EU) No 575/2013)
The distribution of exposures by significant geographical area, broken down by material category of exposure
• as at 31 December 2016:
Category of exposure
in EUR thousand
Exposures
to central
governments and
central banks
Exposures to
institutions
Exposures to
corporates Retail exposures
Past due items
Other
Total
1,473,044
58,499
2,528,949
2,252,457
515,382
1,132,396
7,960,727
11,255
332,268
589,045
63,530
121,063
1,355,165
6,034
212,164
462,651
225,560
139,882
1,325,212
22
899
52,311
200,940
200,025
180,249
233,148
17,101
6,064
46,364
163,187
168,483
238,003
278,922
137,876
107,895
83,179
82,655
94,623
59,793
248
65,976
350,557
201,689
156,506
7,033
54,283
0
103,967
61,542
20,854
0
35,891
0
7
167,397
53,891
58,334
69,279
7,781
71,837
22,844
93,743
95,022
32,508
57,212
13,917
4,422
4,784
29,673
20,172
1,219
1,103
0
501
30,493
0
8,296
686,196
571,800
524,489
447,721
300,804
232,392
217,410
162,874
132,828
128,601
85,647
84,768
81,822
71,860
68,617
241
0
7,306
10,793
0
26,712
10,516
107
18
7,643
0
37,372
635
169
70
247
183
0
3,756
1,280
168,383
36
487
7
200
426
13
22
97
22,408
443
1,541
6,153
14,544
0
0
2
2,907,905
1,334,516
3,453,647
3,905,429
1,442,729
1,712,729
14,756,956
946
35,235
20,067
318,023
Country
Slovenia
Macedonia
Bosnia and Herzegovina
Montenegro
Republic of Kosovo
Serbia
Germany
France
Austria
Croatia
Netherlands
Great Britain
Belgium
Italy
Switzerland
Luxemburg
Denmark
United States of America
Other countries
Total
NLB Group 2016 Annual Report 383
in EUR thousand
Category of exposure
Exposures
to central
governments and
central banks
Exposures to
institutions
Exposures to
corporates Retail exposures
Past due items
Other
Total
1,199,977
65,794
2,620,104
2,164,602
840,478
1,128,541
8,019,496
6,690
329,009
551,905
96,309
107,551
1,332,587
14,227
202,839
431,270
231,591
144,371
1,271,991
241,123
247,694
131,177
113,342
741
80,932
60,912
70,820
14,858
61,581
0
22,449
0
4,575
38,012
61,788
21
4,020
1,267
9,207
254,219
85,248
38,869
63,293
52,657
76,504
55,605
56,681
45,110
300
69,782
58,178
34,481
987
192,045
241,663
103,920
263,106
12,638
16,569
41,916
7,532
0
0
0
10,015
28,307
480
297
5,787
0
949
12,975
257,665
254
870
113
1
91
752
852
143
143
1
3,973
0
23,376
337
6,789
444
16,816
14,582
1
0
2,001
50,745
83,740
49,451
24,025
23,108
32,273
574
4,381
16,087
66,656
1,062
6,947
20
575
11,701
4,190
7,664
706,824
568,320
556,111
516,407
354,776
347,484
151,412
149,264
145,145
132,195
112,954
96,223
72,277
67,317
42,503
192,929
2,543,630
1,331,157
3,505,014
3,666,417
2,077,082
1,712,916
14,836,216
• as at 31 December 2015:
Country
Slovenia
Macedonia
Bosnia and Herzegovina
Montenegro
Serbia
Germany
Croatia
Austria
France
Netherlands
Luxemburg
Belgium
Great Britain
Italy
Switzerland
United States of America
Finland
Other countries
Total
Republic of Kosovo
107,252
164,134
204,077
86,396
431,665
400
The above tables show the geographical distribution of material categories of exposures, which represented 88.4% of total exposure as at
31 December 2016 (88.5% at the end of 2015).
The exposure of NLB Group is geographically concentrated in the markets where bank members of the Group are based (core markets – in
addition to Slovenia also Bosnia and Herzegovina, Macedonia, Serbia, Montenegro, and the Republic of Kosovo). The exposure in Slovenia
accounts for 53.9% of the total exposure (54.1% at the end of 2015), whereas 84.2% of the total exposure (83.7% at the end of 2015) is
concentrated in the said core markets of NLB Group. In other markets, material exposure is only in the segment of governments and central
banks and institutions (arising from liquidity reserves), whereas exposure to corporate and retail clients is smaller.
NLB Group 2016 Annual Report 384
7.3. Distribution of exposures by counterparty type or industry broken down by exposure classes
(Article 442 e of Regulation (EU) No 575/2013)
Exposures by category of exposure and counterparty type
• as at 31 December 2016:
Category of exposure
CG
NP
Central governments or central banks
2,907,378
Regional governments or local authorities
Public sector entities
Multilateral development banks
International organisations
Institutions
Corporates
Retail
Secured by mortgages on immovable property
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
3,124,069
454,497
Exposures in default
32
115,391
Items associated with particular high risk
Covered bonds
Collective investments undertakings (CIU)*
Equity
Other items
Total
0
0
44,570
0
94
0
0
0
PS
CO LARGE
CO SME
MDB
IN
183
0
0
0
0
1,334,516
0
0
0
461
85
50,418
0
23
330
0
134,276
0
0
0
0
0
0
0
0
0
0
0
0
12
0
0
0
0
0
2,183,759
1,269,888
0
781,360
60,727
83,709
12,162
442,754
868,847
23
0
0
2,385
4,543
0
0
0
0
2,135
27,748
19,642
in EUR thousand
RG
0
126,957
0
0
0
0
0
0
0
3,083
0
0
0
0
Other
2
0
0
0
0
0
0
0
0
0
0
0
0
0
11
299,187
0
0
0
41,318
0
0
0
0
0
0
0
0
0
0
0
248
21,740
166,068
52
1,092
171,183
2,952,229
3,715,792
1,551,752
148,977
2,718,464
3,199,184
41,318
130,051
299,189
* The exposure from Collective investment undertakings also includes the exposure to the Bank Resolution Fund
NLB Group 2016 Annual Report 385
in EUR thousand
RG
208
140,785
0
0
0
0
0
0
0
2,556
0
0
0
0
Other
0
0
0
0
23,883
0
632
0
0
0
0
0
0
0
19
348,730
0
0
0
58,347
0
0
0
0
0
0
0
0
0
0
0
• as at 31 December 2015:
Category of exposure
CG
NP
Central governments or central banks
2,543,165
Regional governments or local authorities
Public sector entities
Multilateral development banks
International organisations
Institutions
Corporates
Retail
Secured by mortgages on immovable property
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2,919,205
436,401
IN
245
0
0
0
0
1,331,156
0
0
0
PS
CO LARGE
CO SME
MDB
0
0
131,121
0
0
0
0
0
0
0
0
0
0
0
0
13
0
0
0
0
0
2,130,309
1,374,073
0
747,212
59,617
80,042
Exposures in default
243
194,097
536
14,281
585,467
1,279,901
Items associated with particular high risk
Covered bonds
Collective investments undertakings (CIU)*
Equity
Other items
Total
0
0
44,519
0
556
0
0
0
0
49,183
0
52
9
0
0
2,898
4,161
0
0
0
0
2,135
23,551
7,539
306
20,593
136,974
8
1,521
139,966
2,588,233
3,570,852
1,518,147
147,554
2,803,362
3,632,907
58,347
143,568
373,244
* The exposure from Collective investment undertakings also includes the exposure to the Bank Resolution Fund
LEGEND:
CG – central government
NP – natural persons
IN – institutions
PS – public sector
CO LARGE – large companies (pursuant to the Companies Act)
CO SME – small- and medium-sized enterprises (pursuant to the Companies Act)
MDB – multilateral development banks
RG – regional government
The distribution of exposure categories by type of client reveals that exposures in default mainly included corporates (90.9%, at the end of
2015: 89.8%), of which SMEs accounted for 60.2% and large companies 30.7%, followed by natural persons (8.0%). A material reduction of
exposure value in this segment is evident in all aforementioned types of counterparties.
Retail exposure includes receivables from natural persons (80.0%, at the end of 2015: 79.6%) and SMEs (20.0%, at the end of 2015: 20.4%).
NLB Group 2016 Annual Report 386
Exposures by category of exposure and industry:
• as at 31 December 2016:
Category of exposure
Individuals
Central governments or central banks
Regional governments or local authorities
Public sector entities
Multilateral development banks
International organisations
Institutions
Corporates
Retail
Secured by mortgages on
immovable property
0
0
0
0
0
0
0
3,124,069
454,497
Public sector
(including
state)
2,907,378
0
0
0
0
0
0
0
0
Heavy
industry
Trade
Finance
Transport
and storage
Other
business
activities Construction
0
0
0
0
513
0
0
0
4,746
27
61,548
6,938
0
0
0
0
0
0
41,318
0
1,334,516
0
0
0
0
41
10
0
0
0
0
0
8
0
0
0
in EUR thousand
Other
Total
14
2,907,905
126,917
126,957
60,998
134,276
0
0
0
41,318
0
1,334,516
759,281
543,805
93,267
644,611
387,868
201,075
823,740
3,453,647
165,092
238,891
5,082
73,862
26,142
85,326
186,965
3,905,429
46,587
29,636
1,380
19,490
1,062
6,874
39,405
598,932
Exposures in default
115,391
32
229,546
435,831
44,234
47,237
9,773
233,843
326,841
1,442,729
Items associated with particular high risk
Covered bonds
Collective investments undertakings (CIU)*
Equity
Other items
Total
639
2,385
552
221
12
395
2,831
7,129
0
0
44,570
94
0
0
0
0
0
0
0
50,418
0
0
75
20,534
15,776
21,740
248
34,591
1,780
195,194
0
0
283
475
0
0
0
47
0
0
0
6
0
0
50,418
44,570
12,879
49,547
405,501
659,581
3,715,792
2,952,229
1,240,556
1,272,890
1,843,799
793,118
424,955
527,526
1,986,091
14,756,956
* The exposure from Collective investment undertakings also includes the exposure to the Bank Resolution Fund
NLB Group 2016 Annual Report 387
• as at 31 December 2015:
Category of exposure
Individuals
Central governments or central banks
Regional governments or local authorities
Public sector entities
Multilateral development banks
International organisations
Institutions
Corporates
Retail
Secured by mortgages on
immovable property
0
0
0
0
0
0
0
2,919,205
436,401
Public sector
(including
state)
2,543,165
0
0
0
0
0
0
0
0
Heavy
industry
Trade
Finance
Transport
and storage
Other
business
activities Construction
0
0
0
0
453
35
0
0
2,581
40
68,003
13,647
0
0
0
0
0
0
58,347
7,508
1,331,156
0
0
0
0
125
63
0
0
0
0
0
9
0
0
0
in EUR thousand
Other
Total
12
2,543,630
140,626
140,785
46,778
131,121
0
58,347
16,374
23,883
0
1,331,156
744,347
627,265
151,166
680,258
528,071
160,320
613,587
3,505,015
164,171
236,653
4,390
63,168
22,444
82,594
173,792
3,666,417
51,431
23,645
3,725
18,137
906
2,888
38,927
576,060
Exposures in default
194,097
243
407,629
475,283
67,049
62,845
20,056
323,206
526,673
2,077,081
Items associated with particular high risk
556
Covered bonds
Collective investments undertakings (CIU)*
Equity
Other items
Total
0
0
44,519
0
306
239
2,039
1,084
182
26
1,095
2,403
7,624
0
0
0
0
78
16,162
49,183
0
0
3,042
873
162,994
0
0
127
450
0
0
0
2,167
0
0
0
7
0
0
49,183
44,519
16,908
33,276
457,687
648,118
0
0
0
20,593
3,570,852
2,588,233
1,373,517
1,381,960
1,905,094
838,815
573,858
570,120
2,033,767
14,836,216
* The exposure from Collective investment undertakings also includes the exposure to the Bank Resolution Fund
Significant in terms of exposure are individuals (25.2 %, at the end of 2015: 24.1%) and the public sector (including state) (20.0%, at the end of
2015: also 17.5%), whereas in industries the largest concentration is that in heavy industry, trade, and finance.
The major portion of exposures in default is accounted for by Construction (44.3%, reduced by 12.4 p.p. compared to the end of 2015),
followed by trade with 34.2 % (0.2 % less than at the end of 2015). In 2016, the volume of exposures in default decreased by EUR 634.4
million (by 30.5% compared to the end of the 2015 value).
NLB Group 2016 Annual Report 388
7.4. Residual maturity breakdown of all exposures broken down by exposure classes
(Article 442 f of Regulation (EU) No 575/2013)
Overview of exposures, the amount in default for more than 90 days and the amount of provisions by category of exposure:
Category of exposure
Remaining
maturity
Exposure value
Amount in delay
over 90 days
Amount of
established
impairments
and provisions
Exposure value
Amount in delay
over 90 days
31.12.2016
31.12.2015
in EUR thousand
Amount of
established
impairments
and provisions
up to 1 year
1,313,763
Central governments or central banks
from 1 to 5 years
over 5 years
up to 1 year
Regional governments or local authorities
from 1 to 5 years
Public sector entities
from 1 to 5 years
over 5 years
up to 1 year
Multilateral development banks
from 1 to 5 years
over 5 years
up to 1 year
International organisations
Institutions
over 5 years
up to 1 year
from 1 to 5 years
over 5 years
up to 1 year
1,050,210
from 1 to 5 years
over 5 years
244,777
39,529
up to 1 year
1,124,838
Corporates
from 1 to 5 years
1,245,903
Retail
over 5 years
1,082,906
up to 1 year
915,564
from 1 to 5 years
1,138,519
over 5 years
1,851,346
Secured by mortgages on immovable property
from 1 to 5 years
up to 1 year
over 5 years
up to 1 year
Exposures in default
from 1 to 5 years
Items associated with particular high risk
from 1 to 5 years
over 5 years
up to 1 year
Covered bonds
over 5 years
up to 1 year
from 1 to 5 years
over 5 years
up to 1 year
Collective investments undertakings (CIU)*
from 1 to 5 years
Equity
Other items
Total
over 5 years
up to 1 year
from 1 to 5 years
over 5 years
up to 1 year
from 1 to 5 years
over 5 years
952,516
641,626
736
25,488
100,733
72,740
33,936
27,599
3,822
26,258
11,238
0
0
0
24,023
83,144
491,765
682,703
388,327
371,700
3,074
3,788
268
21,639
28,779
0
44,570
0
0
47,412
0
2,135
637,391
40
22,150
1
0
0
0
0
0
1
0
0
0
0
0
0
0
0
41
0
0
45
0
0
189
35
16
0
0
0
596,241
48,682
57,253
20
5
0
0
0
0
0
0
0
0
0
0
131
0
1
35
2,349
6,773
492
3,997
1,366
0
0
0
0
0
0
590
147
0
19,018
34,723
24,519
15,293
17,847
19,975
432
2,299
3,191
501,980
182,977
216,012
244
166
10
0
0
0
0
0
0
0
0
0
883,566
1,122,077
537,987
3,469
22,236
115,080
35,508
72,017
23,596
23,347
27,187
7,814
0
5,174
18,709
1,097,757
178,112
55,288
1,273,231
1,065,486
1,166,297
924,569
1,055,413
1,686,435
25,485
76,202
474,373
12
0
0
1
0
0
12
0
0
0
0
0
0
0
0
189
0
0
719
4
0
323
37
14
0
0
0
1,146,767
1,045,350
457,693
472,621
2,140
2,848
2,636
20,561
28,136
486
44,519
0
0
30,661
0
2,615
58,858
55,809
30
0
0
0
0
0
0
0
0
0
0
0
175
318
1
98
2,418
8,488
882
1,328
1,672
0
0
0
0
0
0
729
254
0
32,978
31,934
37,649
16,497
18,324
20,652
903
2,781
4,212
816,268
227,920
244,231
201
255
121
0
0
0
0
0
0
0
0
0
4,467
5,140
616,677
5,696
7,424
17
0
18
28
21
31,420
0
0
1
22
* The exposure from Collective investment undertakings also includes the exposure to the Bank Resolution Fund
14,756,956
707,012
1,059,755
14,836,216
1,167,053
1,478,735
NLB Group 2016 Annual Report 389
Due to a material decrease of exposures in default in 2016, the amount of defaults for over 90 days decreased by EUR 460.0 million and
the volume of provisions by EUR 419.0 million. As evident from the above table, receivables more than 90 days in default are practically
entirely classified as exposures in default. In this category, defaults are recorded in both short- and long-term exposures. Further, 85.0% of all
impairments and provisions are created for this category (at the end of 2015: 87.1%).
In 2016 the largest increase of exposure was recognised in the retail segment with mid- and long-term maturity, and in the segment of central
government and central banks with short-term maturity.
7.5. Past due exposures and the volume of impairments for significant industries and significant geographical areas
(Article 442 g and h of Regulation (EU) No 575/2013)
The tables below present the amount of exposures with the amount of past due exposures for significant industries/significant geographical
areas and, in this scope, the amount of value adjustment to impairments and provisions. All value adjustments belong to the group of special
adjustments. NLB Group does not establish general value adjustments.
An overview of exposures, the amount in default for more than 90 days, and the amount of provisions by industry:
Institutional sector
Individuals
Public sector (including state)
Finance
Trade
Heavy industry
Transport and storage
Construction
Other business activities
Unclassified*
Professional, scientific and technical activities
Real-estate operations
Electricity, gas and water
Information and communication services
General government and defence, compulsory social security
Services - accommodation and food
Agriculture, forestry and fishing
Services
Cultural, entertainment and recreation activities
Water supply
Mining
Health care and social security
Education
Activities of households with employees
Activities of exterritorial organisations and bodies
31.12.2016
31.12.2015
Exposure value
Amount in delay
over 90 days
Amount of
established
impairments
and provisions
Exposure value
Amount in delay
over 90 days
in EUR thousand
Amount of
established
impairments
and provisions
3,715,792
2,952,229
1,843,799
1,272,890
1,240,556
793,118
527,526
424,955
351,130
272,745
269,175
247,867
237,011
162,071
117,496
80,137
53,869
52,054
46,484
44,533
34,008
17,425
85
2
60,089
1
9,026
198,154
99,104
20,219
171,572
9,028
73
30,561
50,396
4,937
2,750
447
21,925
13,112
652
4,798
6,232
1,127
2,304
505
0
0
104,019
3,570,852
126,151
156,023
132
2,588,233
47,980
1,902,214
299,238
195,290
36,541
136,916
10,142
117
42,908
86,432
13,239
9,544
12,597
19,162
14,161
2,712
7,390
8,580
6,951
4,950
753
0
0
1,381,960
1,373,517
838,815
570,120
573,858
399,285
264,342
312,465
242,742
172,745
162,686
157,539
77,329
42,989
33,678
51,741
57,078
39,473
22,509
0
45
70
21,790
263,798
196,973
29,927
246,352
20,729
72
44,209
113,018
14,850
16,495
633
39,482
10,774
1,746
5,679
7,122
2,109
3,522
1,549
0
2
695
70,265
355,248
283,281
44,876
200,144
16,900
116
58,655
135,430
26,808
16,696
13,626
37,883
24,591
3,052
9,049
8,131
7,321
8,526
1,416
0
2
Total
14,756,956
707,012
1,059,755
14,836,216
1,167,053
1,478,735
* In addition to other industries, “Unclassified” includes the category “Other exposure categories” and offsets
At the end of 2016, the amount in delay for over 90 days was the highest in trade, construction, and heavy industry, and consequently the
biggest impairments and provisions were made for those sectors. The amount of delays over 90 days decreased by EUR 460 million, most in
NLB Group 2016 Annual Report
390
the industries mentioned above and in the segment of private individuals. Compared to the previous year, the volume of impairments and
provisions went down by EUR 419 million, largely the result of the write-off and other approaches to NPL reduction.
An overview of exposures, the amount in default for more than 90 days and the amount of provisions by country:
Country
Slovenia
Macedonia
Bosnia and Herzegovina
Montenegro
Republic of Kosovo
Serbia
Germany
France
Austria
Croatia
Netherlands
Great Britain
Belgium
Italy
Switzerland
Luxemburg
Denmark
United States of America
Sweden
Finland
Czech Republic
Ireland
Spain
Slovakia
Canada
Other countries
Total
31.12.2016
31.12.2015
Exposure value
Amount in delay
over 90 days
Amount of
established
impairments
and provisions
Exposure value
Amount in delay
over 90 days
in EUR thousand
Amount of
established
impairments
and provisions
288.634
8.019.496
96,939
1,332,587
7.960.727
1,355,165
1,325,212
686,196
571,800
524,489
447,721
300,804
232,392
217,410
162,874
132,828
128,601
85,647
84,768
81,822
71,860
68,617
67,277
42,483
37,718
36,511
26,073
22,285
19,259
66,416
89.628
35,350
110,049
135,425
4,899
92,968
7
0
905
195,632
2
443
0
4,283
36
0
0
2
0
0
213,021
119,233
29,135
113,555
153
0
3,787
123,247
22,407
413
1,585
5,039
13,051
0
0
219
0
0
18,955
17,506
0
0
2,651
0
15,774
0
0
1,172
2
10,656
1,271,991
706,824
516,407
568,320
556,111
151,412
347,484
354,776
149,264
112,954
132,195
96,223
72,277
145,145
9,961
67,317
40,270
42,503
33,246
12,717
15,031
19,564
7,129
55,012
338.959
64,652
110,498
154,756
2,486
144,855
14,022
0
1,025
261,588
0
444
0
12,581
10,063
162
0
1
0
0
494.265
127,571
211,294
140,256
25,290
173,600
12,350
5
3,278
196,399
23,375
140
3,090
14,155
10,333
337
0
45
0
0
21,181
19,539
0
0
2,378
0
27,398
0
0
1,171
1
22,241
14,756,956
707,012
1,059,755
14,836,216
1,167,053
1,478,735
At the end of 2016, the amount of receivables over 90 days past due accounted for 4.8% of total exposure (7.9% at the end of 2015), and
the exposure is 7.2% covered by provisions (a decrease by 2.8 p.p. compared to the end of 2015). In terms of delays over 90 days, the highest
amount is in Croatia (EUR 195.6 million), followed by Montenegro (EUR 135.0 million). Accordingly, the coverage of exposure by provisions is
high in these areas (Croatia 56.7%, Montenegro 17.4%). In comparison to the previous year, the balance of receivables in delay for more than
90 days decreased the most in Slovenia (by EUR 249.3 million), followed by Croatia (EUR 66.0 million).
NLB Group 2016 Annual Report 391
8. Use of ratings by external rating institutions (ECAI)
(Article 444 a, b, c and d of Regulation (EU) No 575/2013)
For the calculation of the capital requirement for credit risk, NLB Group appointed the Fitch Ratings credit rating agency, which is considered
an eligible external credit assessment institution, and applied the credit quality steps according to the prescribed mapping. The credit
assessments of this agency are used for the categories of exposure to:
• the central government or central bank, and
• institutions, including the exposure to institutions with a short-term credit assessment.
The weight for each category of exposure is determined based on Article 136 of Regulation (EU) No 575/2013, while the selection of eligible
institutions is performed in accordance with Article 138 of the same regulation.
In exposure categories for which a credit assessment institution was designated, the weight is assigned based on the financial instrument’s rating.
If such a rating is not available, the higher of the weights applying to the long-term credit rating of the debtor or other financial instruments of
the same debtor or country is used. Weights are assigned to non-assessed financial instruments based on the prescribed increase in weight linked
to the weight of other short-term instruments of the same debtor.
For categories of exposure for which a credit assessment institution was not appointed, the risk weight is assigned according to the prescribed
legislation, meaning it is assigned based on the rating of the debtor’s country or specific rules applying to the respective exposure category.
9. Leverage
(Article 451 of Regulation (EU) No 575/2013)
The leverage ratio is calculated after January 2014 in line with the enforcement of provisions from the Regulation (EU) No 575/2013 and
Directive 2013/36/EU, or as of January 2015 pursuant to the amendments in relation to the calculation published in Commission Delegated
Regulation (EU) 2015/62. As of 1 January 2015, the additional requirement to disclose information concerning the leverage is in force.
In February 2016 Regulation (EU) 2016/200 was adopted, laying down implementing technical guidance with regard to disclosure of the
leverage ratio. In March 2016 the Implementing Regulation (EU) 2016/428 was adopted, setting out guidelines for supervisory reporting of the
leverage ratio.
The purpose of the leverage ratio is to limit the size of bank balance sheets with a special emphasis on exposures which are not weighted within
the framework of the existing capital requirement calculations. So the leverage calculation uses Tier 1 as the numerator, and the denominator
is the total exposure of all active balance sheet and off-balance-sheet items after the adjustments are made, in the context of which the
exposures from individual derivatives, exposures from transactions of security funding and other off-balance sheet items are especially pointed
out. According to the discretionary right of the Bank of Slovenia and the changes to the calculation brought about by Commission Delegated
Regulation (EU) 2015/62, the leverage ratio in the transition period is calculated quarterly and not based on the simple arithmetic mean of
monthly leverage ratios for the quarter.
The leverage ratio of NLB Group, amounted to 9.68% (transitional) or 9.86% (fully phased in) and is above the 3% threshold defined by the
Basel Committee on Banking Supervision (BCBS). In the so-called transitional period from 1 January 2014 to end of 2017, the leverage ratio
is monitored together with its constituent parts and its interaction. As of 1 January 2018, the leverage ratio is expected to become one of the
binding minimum capital requirements.
Since the minimum requirement was exceeded so significantly, the risk of excessive leverage is not material. Leverage risk is assessed and
monitored quarterly as part of the internal assessment of capital requirements process (ICAAP) and monitored in the context of the system of
early warning regarding risk indicators. In this monitoring system, the leverage ratio has certain limits, or as well in the case of any exceeding
of defined triggers and defined notification system. The leverage ratio is regularly, quarterly reported to the Management and Supervisory
boards of NLB Group. The monitoring of excess leverage is also included in stress tests and recovery plan measures if and whenever a bank
would be required to maintain an adequate capital level. The testing for any case of extraordinary circumstances is especially important as it is
future-oriented: if the leverage ratio also remains stable in extraordinary, stress conditions, the risk of a forced decrease in the Bank’s assets is
low.
NLB Group 2016 Annual Report 392
Leverage ratio calculated according to the transitional definition as at 31 December 2016 amounted to 9.68%, and decreased by 0.8 percentage
points compared to the previous year. The decrease occurred primarily due to the higher value of the total leverage exposure calculated in
accordance with Article 111 of the Regulation (EU) No 575/2013. The impact of capital increase on the leverage ratio was relatively minor.
Leverage ratio of NLB Group
Tier 1 capital
Total leverage exposures
Leverage ratio
31.12.2016
in EUR thousand
31.12.2015
Transitional definition Fully phased in definition
Transitional definition Fully phased in definition
1,336,241
13,804,603
9.68%
1,360,388
13,802,595
9.86%
1,283,147
12,192,660
10.52%
1,300,143
12,192,660
10.66%
NLB Group 2016 Annual Report
393
Leverage ratio common disclosure
Table LRCom: Leverage ratio common disclosure
On-balance sheet exposures (excluding derivatives and SFTs)
31.12.2016
31.12.2016
31.12.2015
31.12.2015
in EUR thousand
CRR leverage
ratio exposures
CRR leverage
ratio exposures
CRR leverage
ratio exposures
CRR leverage
ratio exposures
1
2
3
On-balance sheet items (excluding derivatives, SFTs
and fiduciary assets, but including collateral)
13,284,338
13,284,338
11,583,686
11,583,686
(Asset amounts deducted in determining Tier 1 capital)
-39,152
-41,160
-6,888
-6,888
Total on-balance sheet exposures (excluding derivatives,
SFTs and fiduciary assets) (sum of lines 1 and 2)
13,245,186
13,243,178
11,576,798
11,576,798
Derivative exposures
4
5
Replacement cost associated with all derivatives transactions
(ie net of eligible cash variation margin)
Add-on amounts for PFE associated with all derivatives
transactions (mark-to-market method)
EU-5a
Exposure determined under Original Exposure Method
Gross-up for derivatives collateral provided where deducted from the
balance sheet assets pursuant to the applicable accounting framework
(Deductions of receivables assets for cash variation
margin provided in derivatives transactions)
(Exempted CCP leg of client-cleared trade exposures)
Adjusted effective notional amount of written credit derivatives
(Adjusted effective notional offsets and add-on
deductions for written credit derivatives)
6
7
8
9
10
11
19,153
11,755
19,153
11,755
31,591
13,461
31,591
13,461
-3,342
-3,342
Total derivative exposures (sum of lines 4 to 10)
27,985
27,985
41,710
41,710
Securities financing transaction exposures
12
13
14
Gross SFT assets (with no recognition of netting), after
adjusting for sales accounting transactions
(Netted amounts of cash payables and cash receivables of gross SFT assets)
Counterparty credit risk exposure for SFT assets
EU-14a
Derogation for SFTs: Counterparty credit risk exposure in accordance
with Article 429b (4) and 222 of Regulation (EU) No 575/2013
15
Agent transaction exposures
EU-15a
(Exempted CCP leg of client-cleared SFT exposure)
16
Total securities financing transaction exposures (sum of lines 12 to 15a)
Other off-balance sheet exposures
17
18
19
Off-balance sheet exposures at gross notional amount
1,851,195
1,851,195
1,919,195
1,919,195
(Adjustments for conversion to credit equivalent amounts)
-1,319,763
-1,319,763
-1,345,043
-1,345,043
Other off-balance sheet exposures (sum of lines 17 to 18)
531,432
531,432
574,152
574,152
Exempted exposures in accordance with CRR Article 429 (7) and (14) (on and off balance sheet)
EU-19a
EU-19b
(Exemption of intragroup exposures (solo basis) in accordance with Article
429(7) of Regulation (EU) No 575/2013 (on and off balance sheet))
(Exposures exempted in accordance with Article 429 (14) of
Regulation (EU) No 575/2013 (on and off balance sheet))
Capital and total exposures
20
21
Tier 1 capital
1,336,241
1,360,388
1,283,147
1,300,143
Total leverage ratio exposures (sum of lines 3,
11, 16, 19, EU-19a and EU-19b)
13,804,603
13,802,595
12,192,660
12,192,660
Leverage ratio
22
Leverage ratio
Choice on transitional arrangements and amount of derecognised fiduciary items
9.68%
9.86%
10.52%
10.66%
EU-23
Choice on transitional arrangements for the definition of the capital measure
Transitional
Fully phased in
Transitional
Fully phased in
NLB Group 2016 Annual Report 394
Summary reconciliation of accounting assets and leverage ratio exposures
in EUR thousand
31.12.2016
31.12.2015
Table LRSum: Summary reconciliation of accounting assets and leverage ratio exposures
Aplicable amount
Aplicable amount
Total assets as per published financial statements
12,005,712
11,821,615
Adjustment for entities which are consolidated for accounting purposes but are outside the scope of regulatory consolidation
-33,299
-15,830
(Adjustment for fiduciary assets recognised on the balance sheet pursuant to the applicable accounting framework but
excluded from the leverage ratio total exposure measure in accordance with Article 429(13) of Regulation (EU) No 575/2013)
Adjustments for derivative financial instruments
Adjustment for securities financing transactions (SFTs)
0
8,832
0
0
10,119
0
Adjustment for off-balance sheet items (ie conversion to credit equivalent amounts of off-balance sheet exposures)
531,432
574,152
(Adjustment for intragroup exposures excluded from the leverage ratio total exposure
measure in accordance with Article 429(7) of Regulation (EU) No 575/2013)
(Adjustment for exposures excluded from the leverage ratio total exposure measure
in accordance with Article 429(14) of Regulation (EU) No 575/2013)
Other adjustments
Leverage ratio total exposure measure
Split-up of on balance sheet exposures
Total on-balance sheet exposures (excluding derivatives, SFTs, and exempted exposures), of which:
13,284,338
11,583,686
Trading book exposures
Banking book exposures, of which:
Covered bonds
Exposures treated as sovereigns
68,756
237,371
13,215,582
11,346,315
50,418
49,183
2,906,237
2,541,649
Exposures to regional governments, MDB, international organisations and PSE not treated as sovereigns
276,523
306,712
Institutions
Secured by mortgages of immovable properties
Retail exposures
EU-10
Corporate
EU-11
Exposures in default
EU-12
Other exposures (eg equity, securitisations, and other non-credit obligation assets)
0
0
0
0
1,291,926
-197,396
13,804,603
12,192,660
in EUR thousand
31.12.2016
31.12.2015
1,299,266
1,226,722
579,765
554,792
3,121,571
2,900,536
2,419,208
2,465,089
450,108
2,112,486
681,901
619,731
1
2
3
4
5
6
EU-6a
EU-6b
7
8
EU-1
EU-2
EU-3
EU-4
EU-5
EU-6
EU-7
EU-8
EU-9
NLB Group 2016 Annual Report 395
10. Remuneration policy
10.1. Information on the decision-making process used for determining the Remuneration Policy
(Article 450 a of Regulation (EU) No 575/2013)
The decision-making process concerning amendments and supplements to the Remuneration Policy involves the expert organisation units,
Management Board of the Bank, the Appointment and Remuneration Committee, and the Supervisory Board, which also approve the
Remuneration Policy. No outsourced staff participated in formulating the policy.
The Policy of Remuneration for Employees Performing Special Work (hereinafter: the Remuneration Policy) entered into force on 1 January
2012. The adequacy of the Remuneration Policy is annually checked and updated. In 2016 the proposed amendments to the Remuneration
Policy for employees performing special work arise from the amended Banking Act (ZBan-2) and the orientations of the Supervisory Board.
The amendments includes implementation of financial instruments, public announcement of the requirements in the Policy, and changes in
decision regarding the variable payments. In addition, the Remuneration Policy also includes guidelines concerning the application of the
principle of proportionality in the implementation of Remuneration Policy issued on 22 November 2016 by the Bank of Slovenia.
The Remuneration Committee met three times in 2016. The members of the Remuneration Committee changed throughout 2016 and were:
Until 10 February 2016
Tit A. Erker (Chairman),
Gorazd Podbevšek (Deputy Chairman) and
Miha Košak (member)
From 19 February 2016 until 15 April 2016
Janko Gedrih (Chairman),
Tit A. Erker (Deputy Chairman from 4 March 2016) and
Anton Ribnikar (member)
From 15 April 2016 until 26 August 2016
Uroš Ivanc (Chairman),
Tit A. Erker (Deputy Chairman) and
Primož Karpe (member)
From 26 August 2016
Uroš Ivanc (Chairman),
Matjaž Titan (Deputy Chairman),
David Kastelic (member) and
David E. Simon (member)
Pursuant to Article 52 of ZBan-2, the Remuneration Committee has the following tasks:
• preparing proposals of general principles of remuneration policies, including the formulating of opinions on individual aspects of
remuneration policies;
• assessing the adequacy of established methodologies, based on which the remuneration system promotes adequate risk, capital, and liquidity
management;
• preparing recommendations for the Supervisory Board on implementation of remuneration policies;
• preparing draft decisions about remuneration of employees, including those affecting the Bank’s risks and their management;
• assessing the appropriateness of the outsourced adviser whose services the Supervisory Board commissioned to determine the remuneration
policy of the Bank;
• examining the adequacy of general principles of the remuneration policies and their implementation;
• examining the compliance of remuneration policies with the business policy of the Bank over a long period;
• direct supervision over remuneration of the categories of employees performing special work within the internal control system and other
control functions.
NLB Group 2016 Annual Report 396
10.2. Information on the link between pay and performance
(Article 450 b of Regulation (EU) No 575/2013)
In accordance to the Banking Act, the Regulation on Risk Management and Implementation of the Internal Capital Adequacy Assessment
Process for Banks and Savings Banks, the Regulation on Diligence of Members of Management and Supervisory Boards of Banks and Savings
Banks, the Regulation on Disclosures by Banks and Savings Banks, and the Regulation on Reporting on the Facts and Circumstances by Banks
and Savings Banks, the Bank is obliged to establish a Remuneration Policy on the group level. The Remuneration Policy entered into force on
1 January 2012 and is annually updated. In 2016, the policy was changed once; the new version became active on 2 December 2016.
The Policy provides clear orientations for prudent remuneration of employees performing special work in accordance with the above
regulations, and with the aim of ensuring prudent and efficient risk management.
The Remuneration Policy supports the business strategy of the Bank as well as its goals, organisational culture, and long-term interests.
The Remuneration Policy does not stimulate the employees performing special work to assume non-proportionally high risks or risks that
exceed the ability of the Bank to assume risks. The Bank ensures that the Remuneration Policy is compatible with adequate and efficient risk
management, and that it stimulates such management.
In terms of payment of the variable part of the salary, the Remuneration Policy takes into account the fulfilment of obligations or achievement
of goals referring to capital or liquidity.
The Remuneration Policy applies to the Management Board of the Bank1, the senior management, and other employees performing special
work in NLB d.d.
The following financial and non-financial performance criteria shall be defined for assessing the performance of employees carrying out special
work. A financial criterion consists of NLB d.d. goals, which are confirmed by the Supervisory Board and are valid for all employees performing
special jobs. The performance criteria for employees performing special work who are included in the supervisory function are established on
the basis of the goals of the supervisory function, and are independent from the efficiency of the organisational work they supervise.
The table below shows the variations in payment of the variable part which depend on the achievement of targets by the employees performing
special work, and the amount of the variable part to which employees carrying out special work are entitled in case the following are achieved:
• the targets of NLB d.d. (or NLB Group),
• the targets of the organisational unit, or
• personal targets of the employee performing special work.
1 Remunerations of president and other members of the Management Board are set in line with provisions of Act Governing the Remuneration of Managers
of Companies with Majority Ownership held by the Republic of Slovenia or Self-Governing Local Communities (ZPPOGD) in the period when this law is still
in force.
NLB Group 2016 Annual Report 397
Presentation of possible variants for payment of the variable part
Performance criterion
1. Targets of NLB Group (for the Management
Board) and targets of NLB d.d.
2. Targets of the organisational units
3. Personal targets
Entitlement to the variable part of salary
Amount of the variable part of salary related to:
- Targets of NLB Group /NLB d.d.
- Targets of the organisational units
- Personal targets
Achieved or
exceeded targets
Achieved or
exceeded targets
Achieved or
exceeded targets
Achieved or
exceeded targets
Achieved or
exceeded targets
Yes
Yes
Yes
Yes
No
Yes
Yes
Yes
Yes
No
Yes
Yes
No
No
Yes
Yes
Yes / No
Yes / No
No
No
For the Management
Board and the
business function
For the Management
Board and the
business function
For the Management
Board and the
business function
For the Management
Board and the
business function
No payment of the
variable part
up to 2 salaries +
up to 2 salaries +
up to 1 salary
= up to 5 salaries in total
up to 2 salaries +
up to 1 salary
up to 2 salaries +
up to 1 salary
up to 1 salary
= up to 1 salary in total
= up to 3 salaries in total
= up to 3 salaries in total
Amount of the variable part of salary related to:
- Targets of NLB Group /NLB d.d.
- Targets of the organisational units
- Personal targets
For other employees
For other employees
For other employees
For other employees
No payment of the
variable part
up to 1 salary +
up to 1 salary+
up to 1 salary
= up to 3 salaries in total
up to 1 salary+
up to 1 salary
up to 1 salary+
up to 1 salary
up to 1 salary
= up to 1 salary in total
= up to 2 salaries in total
= up to 2 salaries in total
The table below defines the maximum possible remuneration of an employee based on an assessment of the achievement of individual targets.
Definition of the amount of remuneration
Assessment of performance grade
5 – all targets exceeded
4 – targets mostly exceeded
3 – targets achieved
2 – targets partly not achieved
1 – targets not achieved
Business function
Other than business function
Business function and other
Targets of NLB d.d. and
organisational units
Targets of NLB d.d. and
organisational units
Personal targets
up to 2 salaries
up to 1 salary
up to 1 salary
up to 1.5 salaries
up to 0.75 salary
up to 0.75 salary
up to 1 salary
up to 0.5 salary
up to 0.5 salary
0
0
0
0
0
0
The Remuneration Policy stipulates that a decision on whether the performance criteria have been achieved and the decision to pay the annual
variable part of salary to Management Board members are adopted by the Supervisory Board, whereas for other employees performing special
work they are adopted by the Bank’s Management Board. An employee is not entitled to the annual variable part of salary if they failed to
achieve their personal targets, regardless of whether the targets of NLB d.d. and the targets of the organisational unit have been achieved or
not.
In amendments of the Remuneration Policy has been added a provision when assessing the performance of the Management Board the
Supervisory Board also takes into account the interim situation on the local, regional, as well as global banking and economic market, and the
achievement of the Management Board’s goals, taking into account their activities in pursuing the Bank’s best interest.
For 2015, employees performing special work received the annual variable part of their salary based on their assessed achievement of the
financial and non-financial performance criteria, and taking into account the duration of their mandate.
NLB Group 2016 Annual Report
398
10.3. The essential components of the policy of remuneration for employees performing special work
(Article 450 c of Regulation (EU) No 575/2013)
Pursuant to the Remuneration Policy, the salary of an employee performing special work consists of:
• a fixed part of the salary, and
• a variable part of the salary which depends on:
- performance of NLB Group (for the Management Board) and NLB d.d. (for other employees performing special work)
- performance of the organisational unit of the employee performing special work
-
individual performance of the employee performing special work.
The financial and non-financial criteria are applied to measuring the performance of employees carrying out special work, and have to be
implemented in at least one of these goals. On an annual assessment goals are set for each employees performing special work based on the
Bank’s strategy, Bank’s goals, and project goals.
1. Targets of NLB d.d. and NLB Group:
The Management Board sets the targets for NLB d.d. and NLB Group for each business year and the Supervisory Board approves them.
The targets defined for NLB Group apply to the Management Board. For other employees performing special work, the targets set for NLB d.d.
shall apply.
The maximum possible amount of the variable part of salary, subject to achievement of the NLB d.d. or NLB Group targets, shall be two
salaries for the Management Board and employees performing special work who are included in the business function, and one salary for other
employees performing special work.
NLB Group targets consist of financial and non-financial criteria. For the year 2016, these criteria were:
- Financial performance indicators (achievement of planned levels):
- Net profit after tax
- Return on equity (ROE) after tax
- Total income
- Total costs
- Cost-to-income (CIR) ratio
- Net cost of risk2
- Non-financial indicators:
- Achievement of planned level of share of non-performing loans (NPL ratio)
- Reduction in volume of non-performing loans
- Compliance with EC commitments
- Preparation of Business and IT strategies (approval at Supervisory board)
- Implementation of activities regarding privatisation (according to plan)
2. Targets of the organisational unit of the employee performing special work:
From the objectives of the NLB Group and NLB d.d. derive objectives of organisational units, determined for the employees performing
special work by a competent member of the Management Board, including both financial and non-financial criteria (mainly in the non-business
organisational unit). In determining the objectives of the organisational unit, objectives related to different organisational units are taken into
account (cross-functional goals), participation in projects, etc.
The maximum amount of the variable part of salary, subject to achievement of the organisational unit’s targets, shall be two salaries for the
Management Board and the employees performing special work who are included in a business function, and one salary for other employees
performing special work.
2 Net cost of risk = net established credit impairments and provisions in a period / average net loans no non-banking sector without BAMC bond
NLB Group 2016 Annual Report 399
3. Personal targets of an employee performing special work (development, project, and other targets)
Personal targets of the employee mainly represent non-financial criteria and include personal development which can be measured with the
organisational climate and improvement of personal competencies (measured by 360°).
The maximum amount of the variable part of salary shall be one salary for other employees performing special work.
Deferred payment of the variable part
In line with the European Commission’s decision on the state aid procedure, in the restructuring period until the end of December 2017, the
variable part of salary of employees performing special work shall be paid according to the following model:
• 50% is payable upon confirmation of business results at the Bank’s General Meeting, and
• 50% is payable three years later.
The deferred part of the variable part of the salary is aligned with growth in the consumer price index during the period of deferment.
After the period of deferment, the payment is made within three months of confirmation of the performance results at the Bank’s General
Meeting.
Prior to payment of the deferred variable part of salary, NLB d.d. must check if all conditions for payment of the deferred variable part of
salary have been met. The Management Board of the Bank may adopt a unilateral decision on the amount of payment of the deferred variable
part of salary, namely:
• An employee performing special work is paid 100% of the deferred variable part of their salary in the case there are no negative trends
in the Bank’s operations during the deferment period that result from decisions made by the employee performing special work and in the
case there were no serious violations of the regulations and the Bank’s internal regulations, abuses, and inefficient acts by the employee
performing special work during their work. When assessing these acts, NLB will act according to a zero-tolerance principle and consider
as a serious violation of the regulations acts showing signs of: criminal offences, violations, breach of obligations arising from employment,
and/or those acts that constitute a conflict of interest with the Bank’s business interests, as well as corruptive acts that constitute or reinforce
non-transparency in adopting business decisions while performing functions in the Bank. All acts that are committed intentionally or from
gross negligence and cause damage to the Bank are considered as inefficient conduct;
• An employee performing special work is not paid the deferred variable part of salary in case the Bank’s performance in the period of the
deferred payment shows material negative trends that result from decisions adopted by the employee performing special work.
Amount of payment of the variable part of remuneration for 2015
Pursuant to Item 7 of Article 170 of the ZBan-2, the Bank’s remuneration policy must stipulate that at least 50% of the variable part of
the remuneration of each individual who performs special work should be composed of ordinary or preference shares of the Bank, or of
instruments related to shares or equal non-cash instruments when the Bank’s shares are not listed on the regulated market; the person obtaining
the shares or instruments may only transfer them upon the Bank’s approval, which may only be issued after at least two years of the obtaining.
Pursuant to the second paragraph of the above Article, like the other principles of the remuneration policy, this principle must be also followed
by the Bank in a way and to the extent compliant with its size, internal organisation, and nature, as well as the volume and complexity of the
activities it carries out. As the NLB shares are not listed on the stock exchange a proportion of the variable part of the salary should be paid out
in financial instruments.
With the resolution from 29 July 2016 the Management Board confirmed that the employees performing special work are paid the pertaining
variable part based on actual assessments of the employees entitled to variable part, so that of 50%, which is paid immediately, 25% of the
variable part is paid in cash after the business results for 2015 are approved at the General Meeting of the Bank, and 25% after the relevant
financial instrument is constructed. The 50% of the variable part which is deferred and will be paid after three years is also paid 25% in cash
and 25% in the relevant financial instrument. For the employees whose employment contracts in 2015 defined trial employment, 50% of the
pertaining variable part is calculated, according to the provisions of the Remuneration Policy.
Due to the changed method of payment of the variable part, the expert organisational unit prepared a statement to be submitted for signing to
all employees performing special work who are entitled to variable part for 2015, saying that they agree that 25% of the pertaining variable part
and 25% of the pertaining deferred variable part is paid in financial instruments.
NLB Group 2016 Annual Report 400
According to new Bank of Slovenia Guidelines (issued on 22 November 2016), the second variable part of remuneration was also paid in cash
in December 2016.
Defining the targets of employees performing special work in 2016
The planning of targets and assessment of employees performing special work are conducted once a year; the planning of targets is carried out
by the end of January and performance assessments by the end of March or until the results of operations are known.
In 2016, the targets of NLB d.d. were approved by the Supervisory Board and included in the forms for monitoring the performance of all
employees carrying out special work. The targets for individual organisational units were defined top-down, meaning that each member of the
Management Board set targets for their directly subordinate employees performing special work and in turn they set targets down the line of
management. The targets of the organisational unit can be financial or non-financial and must be defined according to the SMART method,
which means they have to be clear (specific), measurable (or verifiable), real, defined in terms of time and be worth the effort (acceptable).
Development targets for all employees performing special work were set on an individual basis for each employee, depending on the assessment
of the superior director or member of the Management Board regarding which field covered by the employee performing special work needs
developing and depending on the DNLA test results, results of organisational climate measurement, and personal development orientations.
10.4. The ratio between fixed and variable remuneration
(Article 450 d of Regulation (EU) No 575/2013)
The ratio between the variable and fixed parts of salary depends on the function performed by each individual, namely:
• for employees performing special work who are included in a business function, the ratio between the fixed and variable parts of the salary
can be 60%:40% at a maximum; and
• for employees performing special work who are included in a joint and supervisory function, the ratio between the fixed and variable parts of
the salary can be 80% : 20% at a maximum.
An employment contract can stipulate a predetermined variable part of the salary of an employee performing special work only for the first
year of their employment.
The Supervisory Board may request from a member of the Management Board, and the Management Board can request from other employees
performing special work to return the already paid variable part of salary or its proportionate part (the third paragraph of Article 270 of the
Companies Act (ZGD-1)):
• if the nullity of the annual report is established with a binding effect and the grounds for nullity are connected to the items or facts serving as
a basis for the performance bonus, or
• based on a special auditor’s report establishing that the criteria for defining remuneration were applied incorrectly or that the critical
accounting, financial, and other data and indicators were incorrectly established or applied.
The maximum amount of the variable part of salary for the annual distribution of the variable part of salary is defined as follows:
• for employees performing special work who are included in a business function, the maximum amount of the variable part of the salary can
be five (5) salaries of the employee performing special work; and
• for other employees performing special work, the maximum amount of the variable part of the salary can be three (3) salaries of the
employee performing special work.
Targets of NLB d.d. (or
NLB Group for Core
Group Steering)
Targets of
organisational unit
Development (personal)
targets of employee
performing special work
Maximum amount of the
variable part of salary
Business function
up to 2 salaries
up to 2 salaries
up to 1 salary
up to 5 salaries
Common and supervisory function
up to 1 salary
up to 1 salary
up to 1 salary
up to 3 salaries
NLB Group 2016 Annual Report 401
During the period when NLB is using the redeemable extraordinary aid granted by the Republic of Slovenia to overcome the extraordinary
financial situation, the maximum amount of the variable part of salary may be lower than that defined in the Remuneration Policy (which
is 5 salaries for the business part and 3 salaries for the non-business part), in accordance with the rules defined by the Bank of Slovenia in its
secondary legislation.
Pursuant to the European Commission’s decision in relation to the state aid procedure3, the maximum possible amount of the total income of
an employee performing special work is limited to 15-times the average gross salary of employees in the Republic of Slovenia or 10-times the
average gross salary of employees in NLB d.d. for the period of the Bank’s restructuring, i.e. until the end of December 2017. The maximum
amount of income is limited to the higher of the two indicated amounts.
The last known data of the Statistical Office of the Republic of Slovenia in the month of payment of the variable part of the salary to an
employee performing special work is used to calculate the maximum amount of payment.
To calculate the maximum amount of the variable part in 2016, we used the following data:
MAX 15 average gross salaries4 in the RS: EUR 1,584.66 x 12 months x 15 = EUR 285,238.80
MAX 10 average gross salaries5 in NLB d.d.: EUR 2,258.98 x 12 months x 10 = EUR 271,077.60
10.5. Information on the performance criteria on which the entitlement to shares,
options, or variable components of remuneration are based
(Article 450 e of Regulation (EU) No 575/2013)
In accordance with the new Guidelines of the Bank of Slovenia regarding the application of the principle of proportionality in the
implementation of remuneration policy issued on 22 November 2016, it sets the amount of EUR 50,000 as a amount of variable part which
shall not be used for the purpose of point 7 of paragraph 1 Article 170 of the ZBan-2.
The same amount is determined on the Group level, taking into account the proportionality principle. Accordingly, the Bank does not pay a
variable part of salary in financial instruments.
10.6. Main parameters and rationale for any variable component scheme and any other non-cash benefits
(Article 450 f of Regulation (EU) No 575/2013)
The main parameters of variable components are specified in the employment contract according to the Act Governing the Remuneration of
Managers of Companies with Majority Ownership Held by the Republic of Slovenia or Self-Governing Local Communities (ZPPOGD) and
ZBan-2.
Variable pay is limited by ZPPOGD. Pursuant to the Remuneration Policy, the amount of variable pay is limited to 5 salaries for the
Management Board and the business line, and 3 salaries for the non-business sphere.
Pursuant to the European Commission’s decision in relation to the state aid procedure, the maximum possible amount of the total income of
an employee performing special work is limited to 15-times the average gross salary of employees in the Republic of Slovenia, or 10-times the
average gross salary of employees in NLB d.d. for the period of the Bank’s restructuring, i.e. until the end of December 2017. The maximum
amount of income is limited to the higher of the two indicated amounts.
Other non-cash benefits are determined in the Rules on determining other rights under management employment contracts and other acts of
the Bank.
3 Commission Decision on State Aid SA.33229(2012/C) (ex 2011/N) – Restructuring of NLB Slovenia
4 Data for period January – December 2016
5 Data for period January – December 2016
NLB Group 2016 Annual Report 402
The Rules regulate the list and limitations of any other rights of managers, which can be defined in the employment contract, while in
accordance with the provisions of ZPPOGD such rights are regulated with special documents or rules of the Bank’s Supervisory Board. The list
of other rights encompasses:
• a company car for both business and private purposes
• a company car with a driver
• a company mobile phone
• air travel
• residence in Ljubljana
• family separation allowance
• reimbursement of educational cost of minors of the members of the Management Board.
• an NLB MasterCard business card
• entertainment allowance
• accident insurance
• health insurances
• voluntary collective supplementary pension insurance
• managers’ medical examination
• training
• membership fees
• parking space
• accommodation while on a business trip
• third-party liability insurance
• holiday allowance.
NLB Group 2016 Annual Report 403
10.7. Quantitative information on remuneration
(Article 450 g, h and i of Regulation (EU) No 575/2013)
The table below shows the remuneration for 2016, combined with operating segment
MB
Supervisory
function
MB
Management
function
Investment
banking
Retail
banking
Asset
management
Corporate
functions
Independent
control
functions
All other
Members (Headcount)
36
48
Number of identified staff in FTE
Number of identified staff in senior
management positions
6.00
174.00
12.92
38.09
30.36
409.94
6
174
13
39
32
421
Total fixed remuneration (in EUR)
368,307
4,298,684
298,164
4,078,815
467,699
800,813
1,064,994
9,389,126
Of which: fixed in cash
368,307
4,298,684
298,164
4,078,815
467,699
800,813
1,064,994
9,389,126
Of which: fixed in shares and
share-linked instruments
Of which: fixed in other types instruments
Total variable remuneration (in EUR)
0.00
823,467.00
47,215.00
646,185.00
75,132.00
150,505.00
141,981.00
882,040.00
Of which: variable in cash
0.00
746,445.00
47,215.00
646,185.00
75,132.00
150,505.00
141,981.00
882,040.00
Of which: variable in shares and
share-linked instruments
Of which: variable in other types instruments
Total amount of variable remuneration awarded
in year N which has been deferred (in EUR)
Of which: deferred variable in cash in year N
Of which: deferred variable in shares and
share-linked instruments in year N
Of which: deferred variable in other
types of instruments in year N
25,674
51,348
0
0
380,689
23,226
300,633
34,366
42,810
68,564
372,398
358,524
23,226
298,955
32,327
40,481
65,514
353,871
22,165
0
1,678
2,039
2,329
3,050
18,527
Additional information regarding the amount of total variable remuneration
0
267,553
21,176
247,626
31,029
25,509
70,817
264,859
Total amount of outstanding deferred variable
remuneration awarded in previous periods and
not in year N (in EUR); Art 450 h(iii)CRR;
Total amount of explicit ex post performance
adjustment applied in Year N for previously awarded
remuneration (in EUR); Art 450 h(iv)CRR;
Number of beneficiaries of guaranteed variable
remuneration (new sign on payments); Art 450 h(iv)CRR;
Total amount of guaranteed variable remuneration
(new sign on payments) (in EUR); Art 450 h(v)CRR;
Number of beneficiaries of severance
payments; Art 450 h(vI)CRR
Total amount of severance payments paid
in year N (in EUR); Art 450 h(vi)CRR;
Art 450 h(v) Highest severance payment to a
single person (in EUR); Art 450 h(vi)CRR;
Number of beneficiaries of contributions to
discretionary pension benefits in year N
Total amount of discretionary pension
benefits (in EUR) in year N
Total amount of variable remuneration awarded
for multi-year periods under programmes
which are not revolved annually (in EUR)
No individual received more than EUR 1 million by way of remuneration.
NLB Group 2016 Annual Report 404
11. Information regarding governance arrangements
11.1. The recruitment policy for the selection of members of the management body and their actual knowledge, skills, and expertise
(Article 435.2 b of Regulation (EU) No 575/2013)
According to the Slovenian Banking Act, the Supervisory Board sets the framework for the selection and appointment of suitable Management
Board candidates. The framework is defined with the selection process policy, with the goal of the Management Board as a whole to possess
the whole spectrum of relevant knowledge, skills, and experience required for the in-depth understanding of the Bank’s activities and the risks
to which it is exposed. The Management Board selection policy determines the professional standards of the selection process, as well as the
professionally-run candidate selection, which gives the Supervisory Board a solid ground for their selection as well as fulfills their duty of care in
line with the highest ethical standards and diligence in the selection process. By this approach it is ensured the Management Board will consist
of individuals with a different base of knowledge and experience, so the Management Board will dispose of a balanced set of skills, relevant
knowledge, and experience in regard to the Bank’s size, complexity, and risk-profile. Professionally-led operations are not only in best interest of
the Bank, but also in the best interest of the selected candidates by deterring all possible doubts with regard to their expertise, references, and
the appropriateness of their selection.
Beside all legal and statutory set conditions, the Management Board member candidates need to have adequate experience, skills, expertise,
and competences, including their individual personal integrity and ability to dedicate adequate time to carry out their duties in view of possible
other candidate’s activities outside the Bank. By this the candidates are able to carry out their duties diligently, responsibly, effectively, as well as
define and determine the values of the Bank and strategy of its operations in the way of following the objectives of its long-term success and
coherent with the Bank’s best interests and highest ethical standards of its management. Management Board candidates need to demonstrate
the ability of constructively-critical cooperation when addressing the most important issues of the Bank with the objective of the continuous
pursuit of the Bank’s best interest, and with this the ability of active involvement in Bank’s operations and its risk management. Management
Board candidates must subordinate their personal interests, partial interest of third parties, as well as the interests which could arise from
the candidate’s past functions or other activities, economic, professional, and private relationships (including the Management Board and
Supervisory Board members), which could by any mean influence the decision-making in the Bank’s best interest.
In case of any circumstances, which could lead to conflict of interest and consequently jeopardise the adopting of independent decisions in best
interest of the Bank, such conflicts should be disclosed in the selection process, and a member should accept full responsibility to take timely
measures to eliminate such conflicts of interest. At the Management Board member selection process the recommendation of both genders
being appropriately represented is followed.
The selection of the Management Board Members should strive for Management Board as a whole to have all necessary expertise, knowledge,
skills, and experience at their disposal for successfully managing the Bank. Besides meeting all conditions for their work, Members of the
Management Board need to act complementarily in line with the Bank’s objectives, strategies, and policies in order to follow the Bank’s best
interest.
The Management Board comprises of 4 (four) members; namely the Chairman of the Board (CEO) – who is also responsible for the Large
Corporates area, Retail banking and Private banking; CRO; CFO; and COO – who is besides the IT area, also responsible for the Procurement
and CREM area, as well the Back office area.
With regard to the wide range of relevant knowledge, skills, and experience from international environment, as well as a number of successfully
completed projects, the Management Board as a whole has the appropriate expertise, skills, and experience to effectively and successfully lead
the Bank.
11.2. The policy on diversity with regard to selection of members of the management body, its objectives and any
relevant targets set out in that policy, and the extent to which these objectives and targets have been achieved
(Article 435.2 c of Regulation (EU) No 575/2013)
The Bank has accepted the Policy of Supervisory Board diversity on 8 August 2016 and published it on its internet page.
NLB Group 2016 Annual Report 405
With the policy of assuring diversity of the Supervisory Board, based on Article 34 of Slovenian Banking Act (ZBan-2), Nova Ljubljanska
banka, d.d. sets the framework which enables the composition of the Supervisory Board in a way it, as a whole, possesses the relevant
knowledge, skills, and experience that are required for the in-depth understanding of the Bank’s operations and the risks to which it is exposed,
as well as the realisation of the objectives of its strategy. The policy is focused on the selection of the Supervisory Board members, who
primarily fulfill the requirements of the highest ethical and professional standards, exercise the highest level of diligence, as well as form the
most competent governing body as a whole.
Taking into account the policy, the Supervisory Board shall be composed in a way that it, as a whole, possesses the relevant knowledge,
skills, and experience that are required with regard to the size, complexity, and risk-profile of the Bank. Diversity of the Supervisory board is
recognised as one of the key business advantages of the Bank.
A member of the Supervisory Board can only be a person who fulfills all set of the conditions for the Supervisory Board member in the Bank,
according to the Banking Act and other grounds, as covered by the Policy.
Beside these qualifications, the Supervisory Board Members need to possess adequate experience, skills, knowledge, and competences, including
personal integrity and the possibility of dedication of the adequate time to perform the Supervisory Board member functions, regardless their
possible external activities. All listed requirements need to enable the Supervisory Board Members to monitor the Bank’s operations diligently,
responsibly and effectively with which, together with Management Board, the values and the strategy of the Bank are defined in the way they
assure the Bank’s long-term success, and are coherent with its best interests and general ethical standards of the Bank’s governance. Supervisory
Board members need to demonstrate the ability of constructively-critical cooperation when addressing the most important issues of the Bank,
with the objective of the continuous pursuit of the Bank’s best interest, and with this the ability of active involvement in the monitoring of the
Bank’s management.
Supervisory Board members must subordinate their personal interests, partial interest of third parties, as well as the interests which could arise
from the candidate’s past functions or other activities, and economic, professional and private relationships (including Management Board
and Supervisory Board members), which could by any means influence their decisions in monitoring the Bank. At the composition of the
Supervisory Board the recommendation of both genders being appropriately represented is followed.
The Supervisory Board annually assesses its structure, activities, potential conflict of interests of individual members, as well the operations of
individual members, and the Supervisory Board as a whole. In addition, the efficiency and performance of the Supervisory Board’s cooperation
with the Management Board is assessed.
If the Supervisory Board establishes that: (1) the number of members is not appropriate, (2) it is necessary to add an additional member, (3) the
members of the Supervisory Board are no longer qualified for performing the function due to non-compliance with the prescribed conditions,
(4) if due to inappropriateness of a single or more Supervisory Board member(s) in the aspect of duties of an individual member, the current
structure doesn’t assure the diversity of qualifications, knowledge, and experience for monitoring the Bank, the Supervisory Board notifies
Slovenian Sovereign Holding (SDH) – as a single Bank’s shareholder – for the general shareholder’s meeting to appoint new member(s).
The Supervisory Board is comprised of 9 (nine) members, of which there is one female, and as a whole fulfills the objective of representation of
both genders. The diversity of expertise, experience, and skills is ensured in the following areas: strategy and development, privatisation, finance,
financial investments, investment banking, accounting and auditing, corporate banking, risk control and risk management, retail banking,
banking legislation, general legislation, and HRM.
The goals of the diversity policy and the policy for selection of appropriate candidates for Supervisory Board members and Management
Board members are: (1) to establish a transparent process of searching and nominating, (2) to ensure adequate knowledge and skills, as well as
(3) to ensure the appropriate representation of both genders under, (4) the assumption of fulfilling the set requirements for the membership.
The Supervisory and Management Boards as a whole have a broad range of knowledge, skills, and experience from Slovenian and international
banking environments, and the recommendation for the representation of both genders in governing bodies is taken into account as well.
NLB Group 2016 Annual Report 406
12. List of all disclosures required under Part 8 of Regulation (EU) No 575/2013
Article
Requirement
435
Risk management objectives and policies
1
Objectives and policies regarding the relevant risks
(a) the strategies and processes to manage those risks;
(b) the structure and organisation of the relevant risk management function, including
information on its authority and statute, or other appropriate arrangements;
(c) the scope and nature of risk reporting and measurement systems;
(d) the policies for hedging and mitigating risk, and the strategies and processes for
monitoring the continuing effectiveness of hedges and mitigants;
(e) a declaration approved by the management body on the adequacy of risk management
arrangements of the institution providing assurance that the risk management systems put
in place are adequate with regard to the institution’s profile and strategy;
(f) a concise risk statement approved by the management body succinctly describing the institution’s overall
risk profile associated with the business strategy. This statement shall include key ratios and figures providing
external stakeholders with a comprehensive view of the institution’s management of risk, including how
the risk profile of the institution interacts with the risk tolerance set by the management body.
2
Information, including regular, at least annual updates, regarding governance arrangements
(a) the number of directorships held by members of the management body;
(b) the recruitment policy for the selection of members of the management
body and their actual knowledge, skills, and expertise;
(c) the policy on diversity with regard to selection of members of the management body, its objectives and any
relevant targets set out in that policy, and the extent to which these objectives and targets have been achieved;
(d) whether or not the institution has set up a separate risk committee and the number of times the risk committee has met;
(e) the description of the information flow on risk to the management body.
436
Scope of application
(a) the name of the institution to which the requirements of this Regulation apply;
(b) an outline of the differences in the basis of consolidation for accounting and prudential purposes,
with a brief description of the entities therein, explaining whether they are: fully consolidated,
proportionally consolidated, deducted from own funds, neither consolidated nor deducted;
(c) any current or foreseen material practical or legal impediment to the prompt transfer of own
funds or repayment of liabilities among the parent undertaking and its subsidiaries;
(d) the aggregate amount by which the actual own funds are less than required in all subsidiaries
not included in the consolidation, and the name or names of such subsidiaries;
(e) if applicable, the circumstance of making use of the provisions laid down in Articles 7 and 9.
437
Capital (Own funds)
(a) a full reconciliation of Common Equity Tier 1 items, Additional Tier 1 items, Tier 2 items and
filters and deductions applied pursuant to Articles 32 to 35, 36, 56, 66 and 79 to own funds of the
institution and the balance sheet in the audited financial statements of the institution;
(b) a description of the main features of the Common Equity Tier 1 and Additional
Tier 1 instruments and Tier 2 instruments issued by the institution;
(c) the full terms and conditions of all Common Equity Tier 1, Additional Tier 1 and Tier 2 instruments;
(d) separate disclosure of the nature and amounts of the following:
(i) each prudential filter applied pursuant to Articles 32 to 35;
(ii) each deduction made pursuant to Articles 36, 56 and 66;
(iii) items not deducted in accordance with Articles 47, 48, 56, 66 and 79;
(e) a description of all restrictions applied to the calculation of own funds in accordance with this Regulation
and the instruments, prudential filters and deductions to which those restrictions apply;
(f) where institutions disclose capital ratios calculated using elements of own funds determined on a basis other than
that laid down in this Regulation, a comprehensive explanation of the basis on which those capital ratios is calculated.
438
Capital requirements
(a) a summary of the institution’s approach to assessing the adequacy of its
internal capital to support current and future activities;
(b) upon demand of the relevant competent authority, the result of the institution’s internal capital adequacy
assessment process including the composition of the additional own funds requirements based on the
supervisory review process as referred to in point (a) of Article 104(1) of Directive 2013/36/EU;
(c) (SA approach:) for institutions calculating the risk-weighted exposure amounts in accordance with Chapter 2 of Part Three,
Title II, 8% of the risk-weighted exposure amounts for each of the exposure classes specified in Article 112 (= SA categories);
Section of
Annual Report
Chapter
AFS
AFS
AFS
AFS
RP
RP
7.a
7.b
7.c
7.a
Statement on man-
agement, point 3
Statement on man-
agement, point 3
BR
Corporate governance,
Management Board
RCM
RCM
11.1
11.2
BR
Corporate governance,
Supervisory Board
AFS
RCM
RCM
RCM
RCM
/
RCM
RCM
RCM
RCM
RCM
RCM
RCM
/
RCM
7.a
2
2
2
2
/
3.2
3.3
3.3
3.4
3.4
3.1
5.1
/
5.2
NLB Group 2016 Annual Report Article
Requirement
Section of
Annual Report
Chapter
407
(d) (IRB approach:) for institutions calculating risk-weighted exposure amounts in accordance with Chapter 3 of Part Three,
Title II, 8% of the risk-weighted exposure amounts for each of the exposure classes specified in Article 147. The institutions
calculating the risk-weighted exposure amounts in accordance with Article 153(5) or Article 155(2) shall disclose the
exposures assigned to each category in Table 1 of Article 153(5), or to each risk weight mentioned in Article 155(2);
(e) (market risks:) own funds requirements calculated in accordance with points (b) and (c) of Article 92(3); (1)
position risk; (2) large exposures exceeding the limits specified in Articles 395 to 401, to the extent an institution
is permitted to exceed those limits; (3) foreign-exchange risk; (4) settlement risk; (5) commodities risk;
(f) (operational risk:) own funds requirements calculated in accordance with Part
Three, Title III, Chapters 2, 3 and 4 and disclosed separately.
439
Exposure to counterparty credit risk
(a) a discussion of the methodology used to assign internal capital and credit limits for counterparty credit exposures;
(b) a discussion of policies for securing collateral and establishing credit reserves;
(c) a discussion of policies with respect to wrong-way risk exposures;
(d) a discussion of the impact of the amount of collateral the institution would
have to provide given a downgrade in its credit rating;
(e) gross positive fair value of contracts, netting benefits, netted current credit exposure, collateral held, and
net derivatives credit exposure. Net derivatives credit exposure is the credit exposure on derivatives transactions
after considering both the benefits from legally enforceable netting agreements and collateral arrangements;
(f) measures for exposure value under the methods set out in Part Three, Title
II, Chapter 6, Sections 3 to 6, whichever method is applicable;
(g) the notional value of credit derivative hedges, and the distribution of current credit exposure by types of credit exposure;
(h) the notional amounts of credit derivative transactions, segregated between use for the institution’s own
credit portfolio, as well as in its intermediation activities, including the distribution of the credit derivatives
products used, broken down further by protection bought and sold within each product group;
(i) the estimate of α if the institution has received the permission of the competent authorities to estimate α.
Capital buffers
1. Countercyclical capital buffer:
(a) the geographical distribution of its credit exposures relevant for the calculation of its countercyclical capital buffer;
(b) the amount of its institution specific countercyclical capital buffer.
2. G-SII buffer:
1. Institutions identified as G-SIIs in accordance with Article 131 of Directive 2013/36/EU shall
disclose, on an annual basis, the values of the indicators used for determining the score of the
institutions in accordance with the identification methodology referred to in that Article.
440
441
442
Credit risk adjustments
(a) the definitions for accounting purposes of ‘past due’ and ‘impaired’;
(b) a description of the approaches and methods adopted for determining specific and general credit risk adjustments;
(c) the total amount of exposures after accounting offsets and without taking into account the effects of credit risk
mitigation, and the average amount of the exposures over the period broken down by different types of exposure classes;
(d) the geographic distribution of the exposures, broken down in significant areas
by material exposure classes, and further detailed if appropriate;
(e) the distribution of the exposures by industry or counterparty type, broken down by exposure
classes, including specifying exposure to SMEs, and further detailed if appropriate;
(f) the residual maturity breakdown of all the exposures, broken down by exposure classes, and further detailed if appropriate;
(g) by significant industry or counterparty type, the amount of:
(i) impaired exposures and past due exposures, provided separately;
(ii) specific and general credit risk adjustments;
(iii) charges for specific and general credit risk adjustments during the reporting period;
(h) the amount of the impaired exposures and past due exposures, provided separately,
broken down by significant geographical areas including, if practical, the amounts of
specific and general credit risk adjustments related to each geographical area;
(i) the reconciliation of changes in the specific and general credit risk adjustments for
impaired exposures, shown separately. The information shall comprise:
/
RCM
RCM
RCM
RCM
RCM
RCM
RCM
RCM
/
/
/
RCM
RCM
RCM
AFS
AFS
RCM
RCM
RCM
RCM
RCM
RCM
/
5.2
5.2
6.1
6.2
6.3
6.2
6.4
6.1
/
/
/
4
4
4
2.13.a
2.13.a
7.1
7.2
7.3
7.4
7.5
7.5
(i) a description of the type of specific and general credit risk adjustments;
(ii) the opening balances;
(iii) the amounts taken against the credit risk adjustments during the reporting period;
(iv) the amounts set aside or reversed for estimated probable losses on exposures during the reporting period, any other
adjustments including those determined by exchange rate differences, business combinations, acquisitions and disposals of
subsidiaries, and transfers between credit risk adjustments;
(v) the closing balances.
AFS
5.14
Specific credit risk adjustments and recoveries recorded directly to the income statement shall be disclosed separately.
AFS
7.1 j,k,l, 5.14
443
Unencumbered assets
EBA shall issue guidelines specifying the disclosure of unencumbered assets by 30 June 2014.
EBA shall develop draft regulatory technical standards to specify disclosure of the balance sheet value per exposure
class broken down by asset quality and the total amount of the balance sheet value that is unencumbered.
AFS
7.3
NLB Group 2016 Annual Report 408
Article
Requirement
444
Use of ECAIs
(a) the names of the nominated ECAIs and ECAs and the reasons for any changes;
(b) the exposure classes for which each ECAI or ECA is used;
(c) a description of the process used to transfer the issuer and issue credit
assessments onto items not included in the trading book;
(d) the association of the external rating of each nominated ECAI or ECA with the credit quality
steps prescribed in Part Three, Title II, Chapter 2, taking into account that this information needs not
be disclosed if the institution complies with the standard association published by EBA;
(e) the exposure values and the exposure values after credit risk mitigation associated with each credit
quality step prescribed in Part Three, Title II, Chapter 2 as well as those deducted from own funds.
445
Exposure to market risk
Separately for each risk + the own funds requirement for specific interest rate risk of securitisation positions.
446
Operational risk
Institutions shall disclose the approaches for the assessment of own funds requirements for operational risk that
the institution qualifies for; a description of the methodology set out in Article 312(2), if used by the institution,
including a discussion of relevant internal and external factors considered in the institution’s measurement
approach, and in the case of partial use, the scope and coverage of the different methodologies used.
447
Exposures in equities not included in the trading book
(a) the differentiation between exposures based on their objectives, including for capital gains relationship and
strategic reasons, and an overview of the accounting techniques and valuation methodologies used, including
key assumptions and practices affecting valuation and any significant changes in these practices;
(b) the balance sheet value, the fair value and, for those exchange-traded, a comparison
to the market price where it is materially different from the fair value;
(c) the types, nature and amounts of exchange-traded exposures, private equity
exposures in sufficiently diversified portfolios, and other exposures;
(d) the cumulative realised gains or losses arising from sales and liquidations in the period; and
(e) the total unrealised gains or losses, the total latent revaluation gains or losses, and
any of these amounts included in the original or additional own funds.
448
Exposure to interest rate risk on positions not included in the trading book
(a) the nature of the interest rate risk and the key assumptions (including assumptions regarding loan prepayments
and behaviour of non-maturity deposits), and frequency of measurement of the interest rate risk;
449
450
1
(b) the variation in earnings, economic value, or other relevant measure used by the
management for upward and downward rate shocks according to management’s
method for measuring the interest rate risk, broken down by currency.
Exposure to securitisation positions
Remuneration policy
For those categories of staff whose professional activities have a material impact on its risk profile:
(a) information concerning the decision-making process used for determining the remuneration policy, as well as the
number of meetings held by the main body overseeing remuneration during the financial year including, if applicable,
information about the composition and the mandate of a remuneration committee, the external consultant whose
services have been used for the determination of the remuneration policy and the role of the relevant stakeholders;
(b) information on link between pay and performance;
(c) the most important design characteristics of the remuneration system, including information on the
criteria used for performance measurement and risk adjustment, deferral policy and vesting criteria;
(d) the ratios between fixed and variable remuneration set in accordance with Article 94(1)(g) of Directive 2013/36/EU;
(e) information on the performance criteria on which the entitlement to shares,
options or variable components of remuneration is based;
(f) the main parameters and rationale for any variable component scheme and any other non-cash benefits;
(g) aggregate quantitative information on remuneration, broken down by business area;
(h) aggregate quantitative information on remuneration, broken down by senior management and members of
staff whose actions have a material impact on the risk profile of the institution, indicating the following:
(i) the amounts of remuneration for the financial year, split into fixed and variable remuneration, and the number of
beneficiaries;
(ii) the amounts and forms of variable remuneration, split into cash, shares, share-linked instruments, and other types;
(iii) the amounts of outstanding deferred remuneration, split into vested and unvested portions;
(iv) the amounts of deferred remuneration awarded during the financial year, paid out and reduced through performance
adjustments;
(v) new sign-on and severance payments made during the financial year, and the number of beneficiaries of such payments;
(vi) the amounts of severance payments awarded during the financial year, number
of beneficiaries and highest such award to a single person;
Section of
Annual Report
Chapter
RCM
RCM
RCM
RCM
RCM
RCM
8
8
8
8
7.1
5.2
AFS
7.5.a
AFS
5.4.b, 2.12.b, 7.6.
AFS
AFS
AFS
RCM
AFS
AFS
/
RCM
RCM
RCM
RCM
RCM
RCM
RCM
2.12.b, 5.4.
5.4.a
5.4.b, 5.8.
3.2
7.2.3
7.2.3
/
10,1
10,2
10,3
10,4
10,5
10,6
10,7
RCM
10,7
NLB Group 2016 Annual Report Article
Requirement
Section of
Annual Report
Chapter
409
(i) the number of individuals being remunerated with EUR 1 million or more per financial year, for
remuneration between EUR 1 million and EUR 5 million broken down into pay bands of EUR 500,000
and for remuneration of EUR 5 million and above broken down into pay bands of EUR 1 million;
(j) upon demand from the Member State or competent authority, the total remuneration
for each member of the management body or senior management.
451
Leverage
(a) the leverage ratio and how the institution applies Article 499(2) and (3);
(b) a breakdown of the total exposure measure, as well as a reconciliation of the total exposure
measure with the relevant information disclosed in published financial statements;
(c) where applicable, the amount of derecognised fiduciary items in accordance with Article 429(11);
(d) a description of the processes used to manage the risk of excessive leverage;
(e) a description of the factors that had an impact on the leverage ratio during
the period to which the disclosed leverage ratio refers.
452
453
Use of the IRB Approach to credit risk
Use of credit risk mitigation techniques
(a) the policies and processes for, and an indication of the extent to which the
entity makes use of, on- and off- balance sheet netting;
(b) the policies and processes for collateral valuation and management;
(c) a description of the main types of collateral taken by the institution;
(d) the main types of guarantor and credit derivative counterparty and their creditworthiness;
(e) information about market or credit risk concentrations within the credit mitigation taken;
(f) for institutions calculating risk-weighted exposure amounts under the Standardised Approach or the IRB Approach,
but not providing own estimates of LGDs or conversion factors in respect of the exposure class, separately for each
exposure class, the total exposure value (after, where applicable, on- or off-balance sheet netting) that is covered
— after the application of volatility adjustments — by eligible financial collateral, and other eligible collateral;
(g) for institutions calculating risk-weighted exposure amounts under the Standardised Approach
or the IRB Approach, separately for each exposure class, the total exposure (after, where applicable,
on- or off-balance sheet netting) that is covered by guarantees or credit derivatives. For the equity
exposure class, this requirement applies to each of the approaches provided in Article 155.
Use of the Advanced Measurement Approaches to operational risk
Use of Internal Market Risk Models
Transitional provisions for disclosure of own funds
During the period from 1 January 2014 to 31 December 2017, institutions shall
disclose the following additional information about their own funds:
(a) the nature and effect on Common Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital and own funds
of the individual filters and deductions applied in accordance with Articles 467 to 470, 474, 476 and 479;
(b) the amounts of minority interests and Additional Tier 1 and Tier 2 instruments, and related retained earnings
and share premium accounts, issued by subsidiaries that are included in consolidated Common Equity Tier 1
capital, Additional Tier 1 capital, Tier 2 capital and own funds in accordance with Section 4 of Chapter 1;
(c) the effect on Common Equity Tier 1 capital, Additional Tier 1 capital, Tier 2 capital and own
funds of the individual filters and deductions applied in accordance with Article 481;
(d) the nature and amount of items that qualify as Common Equity Tier 1 items, Tier 1 items and
Tier 2 items by virtue of applying the derogations specified in Section 2 of Chapter 2.
454
455
492
3
RCM
AFS
RCM
RCM
/
RCM
RCM
/
/
AFS
AFS
RCM
AFS
RCM
RCM
/
/
10,7
8.2.
9
9
/
9
9
/
/
7.1. f, g
7.1. h
7.1
7.1. i
7.1
7.1
/
/
RCM
3.4
4
During the period from 1 January 2014 to 31 December 2021, institutions shall disclose the amount of instruments
that qualify as Common Equity Tier 1 instruments, Additional Tier 1 instruments and Tier 2 instruments by virtue of
applying Article 484 (capital instruments that are not eligible under new legislation, but can be gradually excluded).
/
/
Section of the Annual Report
AFS = Audited Financial Statements
RCM = Risk and Capital Management
RP = Regulatory Part
BR = Business Report
NLB Group 2016 Annual Report GRI 6 Standards
Disclosure
for NLB
Report for 2016
6 Global reporting initiative
NLB Group 2016 Annual Report 411
Economic
GRI Topic
GRI Disclosure
Value
201-1: Direct economic value generated and distributed
a. Direct economic value generated and distributed (EVG&D)
on an accruals basis, including the basic components for the
organisation’s global operations as listed below. If data are pre-
sented on a cash basis, report the justification for this decision
in addition to reporting the following basic components:
SRS 201 - Economic Performance
i. Direct economic value generated: revenues;
ii. Economic value distributed: operating costs, employee wag-
es and benefits, payments to providers of capital, payments
to government by country, and community investments;
iii. Economic value retained: ‘direct economic val-
ue generated’ less ‘economic value distributed’.
202-2: Proportion of senior management
hired from the local community
a. Percentage of senior management at significant locations
of operation that are hired from the local community.
SRS 202 - Market Presence
b. The definition used for ‘senior management.’
c. The organisation’s geographical definition of ‘local.’
d. The definition used for ‘significant locations of operation.’
See the section Support to Entrepreunership in CSR Annual Report
2016 (https://www.nlb.si/corporate-social-responsibility-report-2016).
See the section Support to Entrepreunership in CSR Annual Report
2016 (https://www.nlb.si/corporate-social-responsibility-report-2016).
EUR 475,744,000 (included: net interest income, net fee and commission
income, effects from financial result, foreign exchange translaton gains
less losses, gains less losses on derecognition of assets, other operating
income and expenses, and Net gains or losses from non-current assets
from held sale)
See the section Support to Entrepreunership in CSR Annual Report
2016 (https://www.nlb.si/corporate-social-responsibility-report-2016).
EUR -261,160,000 (included only Employee costs and other administra-
tive expenses)
See the section Support to Entrepreunership in CSR Annual Report
2016 (https://www.nlb.si/corporate-social-responsibility-report-2016).
EUR 214,584,000
See the section Support to Entrepreunership in CSR Annual Report
2016 (https://www.nlb.si/corporate-social-responsibility-report-2016).
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
7.1%
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
Republic of Slovenia (NLB d.d.)
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
Slovenia and locations of Group Members
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
205-2: Communication and training about an-
ti-corruption policies and procedures
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
a. Total number and percentage of governance body mem-
bers that the organisation’s anti-corruption policies and proce-
dures have been communicated to, broken down by region.
Management board: 4 members (100%), supervisory board: n/a
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
b. Total number and percentage of employees that the organisa-
tion’s anti-corruption policies and procedures have been commu-
nicated to, broken down by employee category and region.
2.882 (100%)
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
d. Total number and percentage of governance body members that
have received training on anti-corruption, broken down by region.
SRS 205 - Anti-corruption
e. Total number and percentage of employees that have received training
on anti-corruption, broken down by employee category and region.
205-3: Confirmed incidents of corruption and actions taken
a. Total number and nature of confirmed incidents of corruption.
b. Total number of confirmed incidents in which employ-
ees were dismissed or disciplined for corruption.
Management board: 5 members (100%), supervisory board: n/a.
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
2.272 (79%) including long term absence.
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
10 employees: fraud (including the violation of internal acts). Two cases
are not included, because they fall under statute of limitation.
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
8 employees: 1 employee has been dismissed, 7 employees received
written/verbal warning.
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
d. Public legal cases regarding corruption brought
against the organisation or its employees during the re-
porting period and the outcomes of such cases
none
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
NLB Group 2016 Annual Report 412
Environmental
GRI Topic
GRI Disclosure
Value
SRS 301 - Materials
301-1: Materials used by weight or volume
a. Total weight or volume of materials that are used to
produce and package the organisation’s primary prod-
ucts and services during the reporting period, by:
i. non-renewable materials used;
ii. renewable materials used.
302-1: Energy consumption within the organisation
SRS 302 - Energy
i. electricity consumption in kWh
SRS 306 - Effluents and Waste
306-2: Waste by type and disposal method
See the section Environment in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
n/a
n/a
39.62 (data is related to used A4 paper per employee)
See the section Environment in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
See the section Environment in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
13,620,000
See the section Environment in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
432,925 kg of municipal waste, 42,514 kg of cardboard and paper,
1,660 kg of wood, 45,672 kg of electronic equipment, 500 kg of textile
lining, 200 kg of hydrofluorids, 1,400 kg of grease oil, 243 kg of batteries
See the section Environment in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
SRS 307 - Environmental
Compliance
307-1: Non-compliance with environmental laws and regulations
See the section Environment in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
NLB Group 2016 Annual Report 413
Social
GRI Topic
GRI Disclosure
Value
401-1: New employee hires and employee turnover
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
a. Total number and rate of new employee hires during the
reporting period, by age group, gender, and region.
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
b. Total number and rate of employee turnover during the re-
porting period, by age group, gender, and region.
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
401-2: Benefits provided to full-time employees that are
not provided to temporary or part-time employees
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
SRS 401 - Employment
401-3: Parental leave
a. Total number of employees that were en-
titled to parental leave, by gender.
b. Total number of employees that took parental leave, by gender.
c. Total number of employees that returned to work in the re-
porting period after parental leave ended, by gender.
e. Return to work and retention rates of employ-
ees that took parental leave, by gender.
SRS 402 - Labour/
Management Relations
402-1: Minimum notice periods regarding operational changes
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
2.17% male; 3.04% female
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
2.17% male; 3.04% female
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
2.17% male; 3.04% female
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
2.17% male; 3.04% female
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
403-1: Workers representation in formal joint man-
agement - worker health and safety committees
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
b. For organisations with collective bargaining agreements, re-
port whether the notice period and provisions for consultation
and negotiation are specified in collective agreements.
Same as 402-1 b.
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
403-2: Types of injury and rates of injury, occupational diseases,
lost days, and absenteeism, and number of work-related fatalities
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
a. Types of injury, injury rate (IR), occupational disease rate
(ODR), lost day rate (LDR), absentee rate (AR), and work-re-
lated fatalities, for all employees, with a breakdown by:
SRS 403 - Occupational
Health and Safety
ii. gender.
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
Number of injuries at work: 2 males, 8 females.
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
403-3: Workers with high incidence or high risk
of diseases related to their occupation
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
a. Whether there are workers whose work, or workplace, is con-
trolled by the organisation, involved in occupational activities
who have a high incidence or high risk of specific diseases.
1%
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
403-4: Health and safety topics covered in for-
mal agreements with trade unions
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
b. If so, the extent, as a percentage, to which various health
and safety topics are covered by these agreements.
404-1: Average hours of training per year per employee
a. Average hours of training that the organisation’s employ-
ees have undertaken during the reporting period, by:
SRS 404 - Training and Education
i. gender;
100%
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
40 hours
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
41 hours female/37 hours male employee
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
404-2: Programmes for upgrading employee skills
and transition assistance programmes
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
a. Type and scope of programmes implemented and as-
sistance provided to upgrade employee skills.
1,028 training programmes (597 programmes in-house, 431 pro-
grammes in the market)
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
NLB Group 2016 Annual Report 414
GRI Topic
GRI Disclosure
Value
405-1: Diversity of governance bodies and employees
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
a. Percentage of individuals within the organisation’s gover-
nance bodies in each of the following diversity categories:
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
i. Gender;
ii. Age group: under 30 years old, 30-50 years old, over 50 years old;
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
iii. Other indicators of diversity where relevant
(such as minority or vulnerable groups).
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
b. Percentage of employees per employee catego-
ry in each of the following diversity categories:
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
SRS 405 - Diversity and
Equal Opportunity
ii. Age group: under 30 years old, 30-50 years old, over 50 years old;
i. Gender;
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
iii. Other indicators of diversity where relevant
(such as minority or vulnerable groups).
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
405-2: Ratio of basic salary and remuneration of women to men
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
a. Ratio of the basic salary and remuneration of women to men for
each employee category, by significant locations of operation.
b. The definition used for ‘significant locations of operation.’
Male by age group: under 30 years old (ratio 12.87%), 30-50 years old
(ratio 7.44%), over 50 years old (ratio 3.39%); Female by age group:
under 30 years old (ratio 12.41%), 30-50 years old (ratio 7.03%), over 50
years old (ratio 4.37%). (Data for employees with Collective Agreement
only.)
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
Republic of Slovenia (NLB d.d.)
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
SRS 411 - Indigenous Rights
411-1: Incidents of violations involv-
ing rights of indigenous peoples
See the section Employees in CSR Annual Report 2016 (https://
www.nlb.si/corporate-social-responsibility-report-2016).
NLB Group 2016 Annual Report 416
NLB Group directory
Nova Ljubljanska banka d.d., Ljubljana
Podravsko-Pomurska Branch
Trg republike 2
1520 Ljubljana, Slovenia
Tel: +386 1 476 39 00, +386 1 477 20 00
Fax: +386 1 252 24 22
E-mail: info@nlb.si
www.nlb.si
Blaž Brodnjak, Chief
Executive Officer
Andreas Burkhardt, Member
of the Management Board
Archibald Kremser, Member
of the Management Board
László Pelle, Member
of the Management Board
Slovenian network
Osrednjeslovenska - Jug Branch
Trg republike 2
1520 Ljubljana, Slovenia
Tel: +386 1 476 23 30
Fax: +386 1 252 26 45
Osrednjeslovenska - Sever Branch
Celovška 89
1000 Ljubljana, Slovenia
Tel: +386 1 476 57 02
Fax: +386 1 519 53 16
Domžale, Kamnik and Zasavje Branch
Ljubljanska cesta 62
1230 Domžale, Slovenia
Tel: +386 1 724 55 01
Fax: +386 1 724 53 09
Savinjsko-Koroška Branch
Rudarska cesta 3
3320 Velenje, Slovenia
Tel: +386 3 899 52 56
Fax: +386 3 899 51 40
Titova cesta 2
2000 Maribor, Slovenia
Tel: +386 2 234 45 04
Fax: +386 2 234 45 34
Dolenjska, Bela krajina
and Posavje Branch
Seidlova cesta 3
8000 Novo mesto, Slovenia
Tel: +386 7 339 14 56
Fax: +386 7 339 13 84
Primorska, Goriška in Notranjska Branch
Pristaniška 45
6000 Koper, Slovenia
Tel: +386 5 610 30 10
Fax: +386 5 627 65 08
Private Banking
Trg republike 2
1520 Ljubljana, Slovenia
Tel: +386 1 476 23 66
Fax: +386 1 476 23 33
Small Enterprises
Trg republike 2
1520 Ljubljana, Slovenia
Tel: +386 1 476 21 02
Fax: +386 1 476 23 26
Mid corporates
Central Region
Trg republike 2
1520 Ljubljana, Slovenia
Tel: +386 1 476 26 11
Fax: +386 1 251 05 72
North East Region
Ljubljanska cesta 62,
1230 Domžale, Slovenia
Tel: +386 1 724 54 75
Fax: +386 1 724 54 74
South West Region
Pristaniška ulica 45
6000 Koper, Slovenia
Tel: +386 5 610 30 33
Fax: +386 5 610 30 75
Podravsko-Pomurska Region
Titova cesta 2
2000 Maribor, Slovenia
Tel: +386 2 234 45 00
Fax: +386 2 234 45 55
Savinjsko - Koroška Region
Kocenova 1
3000 Celje, Slovenia
Tel: +386 3 424 01 11
Fax: +386 3 544 24 66
Large corporates
Institutional Investors
Trg republike 2
1520 Ljubljana, Slovenia
Tel: +386 1 476 24 92
Fax: +386 1 252 24 61
Large Corporates
Trg republike 2
1520 Ljubljana, Slovenia
Tel: +386 1 476 26 92
Fax: +386 1 425 51 90
Members of NLB Group
NLB Banka a.d., Beograd
Bulevar Mihajla Pupina 165 v
11070 Beograd, Serbia
Tel: +381 11 22 25 100
Fax: +381 11 22 25 194
E-mail: info@nlb.rs
www.nlb.rs
Branko Greganović, President
of the Executive Board
Vlastimir Vuković, Member
of the Executive Board
Dejan Janjatović, Member
of the Executive Board
NLB Group 2016 Annual Report 417
NLB Banka a.d., Podgorica
NLB Banka d.d., Sarajevo
NLB Leasing d.o.o. Sarajevo
Bulevar Stanka Dragojevića 46
81000 Podgorica, Montenegro
Tel: +382 20 402 000
Fax: +382 20 402 038
E-mail: info@nlb.me
www.nlb.me
Martin Leberle, Chief Executive Officer
Robert Kleindienst, Executive Officer
Dino Redžepagić, Executive Officer
Džidžikovac 1
71000 Sarajevo, Bosnia and Herzegovina
Tel: +387 33 720 300
Fax: +387 35 302 802
E-mail: info@nlb.ba
www.nlb.ba
Senad Redžić, Director
(till 31 December 2016)
Lidija Žigić, Executive Director
NLB Banka sh.a., Prishtina
Rr. Ukshin Hoti nr. 124
10000 Prishtina, Kosovo
Tel: +381 38 240 230 100
Fax: +381 38 610 113
E-mail: info@nlb-kos.com
http://nlb-kos.com/
Albert Lumezi, President
of the Management Board
Bogdan Podlesnik, Member
of the Management Board
Lavdim Koshutova, Member
of the Management Board
NLB Banka a.d., Banja Luka
Milana Tepića 4
78000 Banja Luka, Republic of Srpska,
Bosnia and Herzegovina
Tel: +387 51 248 588
Fax: +387 51 221 623
E-mail: helpdesk@nlbbl.com
www.nlbbl.com
Radovan Bajić, Director
Marjana Usenik, Deputy Director
Dragan Injac, Executive Director
NLB Banka AD, Skopje
Majka Tereza 1
1000 Skopje, Macedonia
Tel: +389 2 5 100 600
Fax: +389 2 3 105 681
E-mail: info@nlb.mk
www.nlb.mk
Antonio Argir, President
of the Management Board
Ljube Rajevski, Member
of the Management Board
Damir Kuder, Member
of the Management Board
as at 1 January 2017
Lidija Žigić, Director
Denis Hasanić, Deputy Director
Jure Peljhan, Executive Director
NLB Leasing d.o.o. Ljubljana
Šlandrova ulica 2
1000 Ljubljana, Slovenia
Tel: +386 1 586 29 10
Fax: +386 1 586 29 40
E-mail: info@nlbleasing.si
www.nlbleasing.si
Andrej Pucer, President of the
Management Board
Janez Saje, Member
of the Management Board
NLB Leasing d.o.o. Beograd – u likvidaciji
Bulevar Mihajla Pupina 165 v
11070 Belgrade, Serbia
Tel: +381 11 222 01 01
Fax: +381 11 222 01 02
E-mail: info@nlbleasing.rs
www.nlbleasing.rs
Dušan Stankov, Liquidator
NLB Leasing Podgorica d.o.o.,
Podgorica - u likvidaciji
Bulevar Stanka Dragojevića 44a
81000 Podgorica, Montenegro
Tel: +382 81 667 655
Fax: +382 81 667 656
E-mail: info@nlbleasing.me
www.nlbleasing.me
Milan Marković, Liquidator
Trg solidarnosti 2a
71000 Sarajevo, Bosnia and Herzegovina
Tel: +387 33 789 345
Fax: +387 33 789 346
E-mail: info@nlbleasing.ba
Denis Silajdžić, Director
Tanja Ibišbegović, Executive Director
NLB Lizing dooel, Skopje - vo likvidacija
Majka Tereza No. 1
1000 Skopje, Macedonia
Tel: +389 2 329 05 50
Fax: +389 2 329 05 51
E-mail: info@nlblizing.com.mk
www.nlblizing.com.mk
Maja Lape Trajkova, Liquidator
Optima Leasing d.o.o. u likvidaciji, Zagreb
Miramarska 24
10000 Zagreb, Croatia
Tel: +385 1 61 77 225
Fax: +385 1 61 77 228
E-mail info@optima-leasing.hr
Vjekoslav Budimir, Liquidator
Vito Cigoj, Procurator
Prvi faktor d.o.o., v likvidaciji, Ljubljana
Slovenska cesta 17
1000 Ljubljana, Slovenia
Tel: +386 1 200 54 10
Fax: +386 1 200 54 30
E-mail: info@prvifaktor.si
Klemen Hauko, Liquidator
Marcel Mišanović Osti, Liquidator
Prvi faktor - faktoring d.o.o., Beograd
Ulica Omladinskih brigada broj 86
11070 Novi Beograd, Serbia
Tel: +381 11 222 54 00
Fax: +381 11 222 54 44
E-mail: info@prvifaktor.rs
Željko Atanasković, Director
NLB Group 2016 Annual Report 418
Prvi faktor d.o.o. u likvidaciji, Sarajevo
NLB Vita d.d., Ljubljana
Mis Irbina 26/1
71000 Sarajevo, Bosnia and Herzegovina
Tel: +387 33 564 500
Fax: +387 33 564 501
E-mail: info@prvifaktor.ba
Đenan Bogdanić, Liquidator
Prvi faktor d.o.o. u likvidaciji, Zagreb
Hektorovičeva 2
10000 Zagreb, Croatia
Tel: +385 1 6177 805
Fax: +385 1 6176 629
E-mail: info@prvifaktor.hr
Jure Hartman, Liquidator
Vesna Lončar, Liquidator
Marko Ugarković, Liquidator
NLB Factoring a.s. »v likvidaci«
Čechyňská 361/16, Trnitá
602 00 Brno, Czech
Republic
+420 59 61 56 834
E-mail: info@nlbfactoring.cz
Barbara Šink, Liquidator
NLB InterFinanz AG in liquidation, Zürich
Beethovenstrasse 48
8002 Zürich, Switzerland
Tel: +41 44 283 17 17
Fax: +41 44 283 17 29
E-mail: info@nlbi.ch
Jean-David Barnezet Llort, Liquidator
Polona Žižmund, Liquidator
NLB InterFinanz d.o.o., Beograd
Bulevar Mihajla Pupina 165 v
11070 Beograd, Serbia
Tel: +381 11 22 25 350
Fax:+381 11 22 25 354
Vladan Tekić, General Manager
NLB InterFinanz Praha s.r.o., Prague
Muchova 240/6, Dejvice
160 00 Prague 6, Czech Republic
CZECH DTMR Partners s.r.o. (Director)
Trg republike 3
1000 Ljubljana, Slovenia
Tel: +386 1 476 58 00
Fax: +386 1 476 58 18
E-mail: info@nlbvita.si
www.nlbvita.si
Barbara Smolnikar, President
of the Management Board
Irena Prelog, Member
of the Management Board
Bankart d.o.o., Ljubljana
Celovška cesta 150
1000 Ljubljana, Slovenia
Tel: +386 1 583 42 02
Fax: +386 1 583 41 96
E-mail: info@bankart.si
www.bankart.si
Aleksander Kurtevski,
Managing Director
Miran Vičič,
Managing Director
Skupna pokojninska družba
LHB Aktiengesellschaft, Frankfurt
d.d., Ljubljana
Trg republike 3
1000 Ljubljana, Slovenia
Tel: +386 1 470 08 40
Fax: +386 1 470 08 53
E-mail: info@skupna.si
www.skupna.si
Aljoša Uršič, President
of the Management Board
Peter Krassnig, Member
of the Management Board
NLB Nov penziski fond AD, Skopje
Majka Tereza 1
1000 Skopje, Macedonia
Tel: +389 2 5100 285
Fax: +389 2 3236 989
E-mail: kontakt@npf.com.mk
www.npf.com.mk
Davor Vukadinović, President
of the Management Board
Mira Šekutkovska, Member
of the Management Board
NLB Skladi, upravljanje
premoženja, d.o.o., Ljubljana
Tivolska cesta 48
1000 Ljubljana, Slovenia
Tel: +386 1 476 52 70
Fax: +386 1 476 52 99
E-mail: info@nlbskladi.si
www.nlbskladi.si
Kruno Abramovič, President
of the Management Board
Aleksandra Brdar Turk, Member
of the Management Board
Grosse Bockenheimer Str. 33-35
60313 Frankfurt, Germany
Tel: +49 69 21 06 816
Fax: +49 69 21 06 201
E-mail: info@lhb.de
www.lhb.de
Markus Buzov,
Management Board
NLB Propria d.o.o., Ljubljana (in
liquidation from 1 January 2017)
Železna cesta 18
1000 Ljubljana, Slovenia
Tel: +386 1 470 08 00
Fax: +386 1 470 08 87
E-mail: info@nlbpropria.si
Elvira Kalkan, Director
(till 31 December 2016)
Mateja Uršič, Liquidator
Boris Anže Dugar, Liquidator
Prospera plus d.o.o., Ljubljana
Šmartinska cesta 132
1000 Ljubljana, Slovenia
Tel: +386 1 524 82 91
E-mail: info@prospera-plus.si
Urban Smerkolj, Director
ICJ, d.o.o. – v stečaju, Domžale
Ljubljanska cesta 62
1230 Domžale, Slovenia
Tel: +386 1 724 53 18
Matjaž Nanut, bankruptcy trustee
NLB Group 2016 Annual Report Kreditni biro SISBON d.o.o.
OL Nekretnine d.o.o. u likvidaciji, Zagreb
NLB Crna Gora d.o.o., Podgorica
419
Miramarska 24/6
10000 Zagreb, Croatia
Tel: +385 1 56 25 914
Fax: +385 1 56 25 918
E-mail:
lamija.hadziosmanovic@ream-cro.com
E-mail: ivan.strek@ream-cro.com
Lamija Hadžiosmanović, Liquidator
Ivan Štrek, Liquidator
Bulevar Džordža Vašingtona 102,
I sprat/20
81000 Podgorica, Montenegro
Tel: +382 20 675 900
E-mail: Gligor.Bojic@nlb.me
E-mail: Goran.Lalicevic@nlb.me
Gligor Bojić, Executive Director
Goran Lalićević, Deputy Director
SR-RE d.o.o., Beograd – Novi Beograd
of NLB Group members outside
Branches and representative offices
their country of residence
NLB InterFinanz AG - in liquidation
Ljubljana Branch
Čopova 3
1000 Ljubljana, Slovenia
Tel: +386 1 200 06 43
Fax: +386 1 200 06 46
Mateja Strašek, Director
(till 31 December 2016)
Marko Čelebić, Director
Bulevar Mihaila Pupina 165 v
11070 Beograd, Serbia
Tel: +381 60 34 96 923
E-mail: office@ream-srb.com
Vladimir Vasilijević, Director
Veljko Tanić, Director
Hotel Tara d.o.o., Budva
Official postal address: Bulevar Džordža
Vašingtona 102
81000 Podgorica, Montenegro
Tel: +382 20 675 900
E-mail: gligor.bojic@nlb.me
Gligor Bojić, Director
BH-RE d.o.o., Sarajevo
Ul. Danijela Ozme 2
71000 Sarajevo, Bosnia and Herzegovina
Tel: +387 33 720 304,
F: +387 35 302 802
E-mail: admir.pejkusic@nlb.ba
Admir Pejkušić, Director
NLB Srbija d.o.o., Beograd
Bulevar Mihajla Pupina 165 v
11070 Beograd, Serbia
Tel: +381 11 22 25 369
Fax: +381 11 22 25 365
E-mail: office@nlbsrbija.co.rs
www.nlbsrbija.co.rs
Vladan Tekić, Director
– in liquidation
Trg republike 3
1000 Ljubljana, Slovenia
Tel: +386 8 20 57 110
Fax: +386 8 20 57 111
E-pošta: info@sisbon.si
www.sisbon.si
CBSinvest d.o.o., Sarajevo
Džidžikovac 1
71000 Sarajevo, Bosnia and Herzegovina
Tel: +387 61 162 618
Eldin Teskeredžić, Director
PRO-REM d.o.o., Ljubljana - v likvidaciji
Čopova 3
1000 Ljubljana
Tel: +386 1 586 29 16
E-mail: info@prorem.si
www.g-ream.si
Jovica Jakovac, Liquidator
Sebastian Trajkovski, Liquidator
REAM d.o.o., Podgorica
Bul. Džordža Vašingtona br. 102
81000 Podgorica, Montenegro
Tel: +382 20 674 900
E-mail: gligor.bojic@nlb.me
Gligor Bojić, Director
REAM d.o.o., Beograd – Novi Beograd
Bulevar Mihaila Pupina 165 v
11070 Beograd, Serbia
Tel: +381 60 34 96 923
E-mail: office@ream-srb.com
Vladimir Vasilijević, Director
Veljko Tanić, Director
REAM d.o.o., Zagreb
Miramarska 24/6
10000 Zagreb, Croatia
Tel: +385 1 56 25 914
Tel: +385 1 56 25 918
E-mail:
lamija.hadziosmanovic@ream-cro.com
E-mail: klemen.fajmut@ream-cro.com
Lamija Hadžiosmanović, Director
Klemen Fajmut, Director
NLB Group 2016 Annual Report NLB Group Annual Report 2016
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