Ready
for Change
Annual
Report
2017
NLB Group 2017 Annual Report
Contents
Key financial caption for NLB Group and NLB
Definitions and glossary of selected terms
Buisiness Report
Statement by the Management Board of NLB
Report of the Supervisory Board of NLB
Key highlights of NLB Group
Macroeconomic Environment
Overview of NLB Group’s Financial Performance 2017
NLB Group Strategy
Regulatory Environment
Retail Banking in Slovenia
Corporate and Investment Banking in Slovenia
Core Foreign Markets
Financial Markets
Non-core Markets and Activities
Processing Operations
Risk Management
Corporate Governance
Compliance and Integrity
Internal Audit
Human Resources
Corporate Governance Statements
Corporate and Social Responsibility
2017 GRI Standards Disclosure for NLB
Events after the End of the 2017 financial year
Audited Financial Statements of NLB Group and NLB
NLB Group Chart as at 31 December 2017
Organizational Structure of NLB as at 31 December 2017
NLB Group directory
10
12
14
16
20
24
27
34
47
50
62
68
75
90
101
104
106
114
132
134
135
140
168
172
177
178
345
348
350
NLB Group
strategic
members
overview
NLB Group
350
Number of
branches
1,822,569
Number of
active clients
225
Result after tax
(in EUR million)
12,238
Total assets
(in EUR million)
Bosnia and Herzegovina
NLB Banka, Banja Luka
NLB Banka, Beograd
NLB Banka, Podgorica
670
Total assets
(in EUR million)
18.9%
Market share3
by total assets
531
Total assets
(in EUR million)
5.3%
Market share4
by total assets
Slovenia
NLB, Ljubljana
108
Number of
branches
692,525
Number of
active clients
189.1
Result after tax
(in EUR million)
8,713
Total assets
(in EUR million)
23.0%
Market share
by total assets
58
Number of
branches
214,558
Number of
active clients
23.7
Result after tax
(in EUR million)
NLB Skladi, Ljubljana
NLB Banka, Sarajevo
39
Number of
branches
137,210
Number of
active clients
8.3
Result after tax
(in EUR million)
29.9%
Market share1
(mutual funds)
1,202
Assets under
management
(in EUR million)
3.7
Result after tax
(in EUR million)
NLB Vita, Ljubljana
446
Assets of covered
funds without own
resources (in EUR million)
13.5%
Market share 2
6.9
Result after tax
(in EUR million)
Serbia
31
Number of
branches
133,351
Number of
active clients
3.7
Result after tax
(in EUR million)
Macedonia
NLB Banka, Skopje
52
Number of
branches
384,685
Number of
active clients
40.0
Result after tax
(in EUR million)
371
Total assets
(in EUR million)
1.2%
Market share
5
by total assets
1,236
Total assets
(in EUR million)
16.4%
Market share
by total assets
Montenegro
18
Number of
branches
59,888
Number of
active clients
5.4
Result after tax
(in EUR million)
NLB Banka, Prishtina
Kosovo
44
Number of
branches
200,497
Number of
active clients
14.2
Result after tax
(in EUR million)
457
Total assets
(in EUR million)
11.0%
Market share
by total assets
584
Total assets
(in EUR million)
15.7%
Market share
by total assets
Note: The result after tax data in the figure above show the Group members’ standalone result, and not their contribution to the consolidated result after tax.An active client is a client who has for a period not shorter than one month any investment-saving product with a positive balance or loan/deposit/guarantee product or insurance business or who made at least one debit bank account or credit card transaction in the last three months. 1. Market share of assets under management in mutual funds.2. Market share in traditional life insurance.3. Market share in the Republic of Srpska as at 30 September 2017 4. Market share in the Federation of Bosnia and Herzegovina as at 30 September 20175. Marker share as at 30 September 2017
NLB Skladi, Ljubljana
NLB Banka, Sarajevo
Slovenia
NLB, Ljubljana
108
Number of
branches
692,525
Number of
active clients
189.1
Result after tax
(in EUR million)
1,202
Assets under
management
(in EUR million)
3.7
Result after tax
(in EUR million)
8,713
Total assets
(in EUR million)
23.0%
Market share
by total assets
29.9%
Market share1
(mutual funds)
NLB Vita, Ljubljana
446
Assets of covered
funds without own
resources (in EUR million)
13.5%
Market share 2
6.9
Result after tax
(in EUR million)
670
Total assets
(in EUR million)
18.9%
Market share3
by total assets
531
Total assets
(in EUR million)
5.3%
Market share4
by total assets
58
Number of
branches
214,558
Number of
active clients
23.7
Result after tax
(in EUR million)
39
Number of
branches
137,210
Number of
active clients
8.3
Result after tax
(in EUR million)
Bosnia and Herzegovina
Serbia
Montenegro
NLB Banka, Banja Luka
NLB Banka, Beograd
NLB Banka, Podgorica
371
Total assets
(in EUR million)
1.2%
Market share
by total assets
5
1,236
Total assets
(in EUR million)
16.4%
Market share
by total assets
31
Number of
branches
133,351
Number of
active clients
3.7
Result after tax
(in EUR million)
Macedonia
NLB Banka, Skopje
52
Number of
branches
384,685
Number of
active clients
40.0
Result after tax
(in EUR million)
457
Total assets
(in EUR million)
11.0%
Market share
by total assets
18
Number of
branches
59,888
Number of
active clients
5.4
Result after tax
(in EUR million)
Kosovo
NLB Banka, Prishtina
44
Number of
branches
200,497
Number of
active clients
14.2
Result after tax
(in EUR million)
584
Total assets
(in EUR million)
15.7%
Market share
by total assets
Note: The result after tax data in the figure above show the Group members’ standalone result, and not their contribution to the consolidated result after tax.An active client is a client who has for a period not shorter than one month any investment-saving product with a positive balance or loan/deposit/guarantee product or insurance business or who made at least one debit bank account or credit card transaction in the last three months. 1. Market share of assets under management in mutual funds.2. Market share in traditional life insurance.3. Market share in the Republic of Srpska as at 30 September 2017 4. Market share in the Federation of Bosnia and Herzegovina as at 30 September 20175. Marker share as at 30 September 2017
10
Table 1a: Key financial caption for NLB Group and NLB
Income statement indicators (in EUR million)
Net interest income
Net non-interest income
Regular net non-interest income
Total costs
Result before impairments and provisions
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 (gross)
Impairments of loans to non-banking sector
Loans and advances to non-banking sector (net)
Financial assets (securities & derivatives)
Deposits from non-banking sector
Equity
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 volume (in EUR million)
Non-performing loans (NPL)/total loans
Net non-performing loans (NPL)/total net loans
Non-performing exposure (NPE) - EBA Definition
2017
2016
2015
NLB Group
NLB
NLB Group
NLB
NLB Group
NLB
309
179
166
-285
204
30
4
237
8
225
12,238
7,641
-647
6,995
2,963
9,879
1,654
35
3,880
15.9%
15.9%
15.9%
8,547
69.8%
159
113
103
-176
96
31
58
185
-
189
8,713
4,987
-317
4,670
2,460
6,812
1,381
-
3,390
21.8%
21.8%
21.8%
5,234
60.1%
317
158
145
-290
186
-61
5
131
6
110
12,039
7,901
-903
6,997
2,778
9,439
1,495
30
2,934
17.0%
17.0%
17.0%
7,862
65.3%
175
109
96
-181
103
-64
29
68
-
64
8,778
5,434
-505
4,929
2,295
6,617
1,265
-
2,502
23.4%
23.4%
23.4%
4,882
55.6%
340
143
150
-298
186
-83
4
107
3
92
11,822
8,351
-1,263
7,088
2,578
9,026
1,423
28
3,181
16.2%
16.2%
16.2%
7,927
67.1%
208
105
102
-187
126
-88
14
52
-
44
8,707
5,915
-695
5,221
2,087
6,298
1,242
-
2,779
22.6%
22.6%
22.6%
5,028
57.7%
77.5%
67.8%
76.1%
71.7%
72.2%
67.9%
62.2%
56.0%
844
9.2%
3.8%
6.7%
478
8.1%
3.8%
5.8%
64.6%
1,299
13.8%
5.4%
10.0%
0.3%
2.7%
4.0%
8.6%
60.8%
753
11.9%
5.1%
8.5%
0.3%
2.0%
3.6%
5.3%
62.8%
1,896
19.3%
8.3%
14.3%
0.6%
2.9%
4.1%
7.6%
59.1%
1,101
16.5%
7.6%
12.1%
0.6%
2.4%
3.8%
4.2%
Credit impairments and provisions/Risk weighted assets
-0.5%
-0.8%
c) Profitability
Interest margin*
Financial intermediation margin
2.6%
4.1%
1.8%
3.8%
Return on equity before tax (ROE b.t.)
14.8%
14.1%
NLB Group 2017 Annual Report
2017
2016
2015
NLB Group
NLB
NLB Group
NLB
NLB Group
2.0%
14.4%
1.9%
2.4%
58.3%
58.9%
3.3%
2.3%
54.5%
41.4%
-
70.8%
5.6%
2.1%
14.4%
2.2%
2.0%
53.3%
53.6%
3.4%
2.0%
61.6%
46.6%
23.0%
68.6%
6.1%
1.1%
7.4%
0.9%
2.4%
60.9%
61.8%
3.7%
2.4%
55.7%
40.7%
-
74.2%
5.9%
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%
0.9%
6.6%
0.8%
2.5%
61.6%
60.0%
3.8%
2.5%
57.3%
39.3%
-
75.1%
6.2%
11
NLB
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%
-
-
1
20,000,000
-
-
1
20,000,000
-
-
1
20,000,000
82.7
69.1
74.8
63.2
71.1
62.1
BB
BB
Ba1
BBB-
BB-
BB-
Ba3
BB+
BB-
B+
B2
BB+
6,029
2,789
6,175
2,885
6,372
3,028
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
Moody's ****
Capital Intelligence
Employees
Number of employees
* Calculated on the basis of average total assets
** Without BAMC bond
*** Recurring income only
**** Unsolicited rating
***** Envisaging dividend payment in 100% of net profit after tax of the Bank (EUR 189.1 million).
Table 1b: Information on the liquidity coverage ratio (LCR)
Q1 2017
Q2 2017
Q3 2017
Q4 2017
in EUR thousand
NLB Group
NLB
NLB Group
NLB
NLB Group
NLB
NLB Group
NLB
Liquidity Coverage Ratio (LCR)
361%
383%
337%
355%
311%
324%
301%
314%
High Quality Liquid Assets (HQLA)
2,344,910
2,192,072
2,380,347
2,231,134
2,318,111
2,171,685
2,322,374
2,169,728
Net Liquidity Outflows
654,877
579,569
726,639
649,022
758,166
680,701
782,524
700,414
NLB Group 2017 Annual Report
12
Definitions
and glossary
of selected terms
ALM
BAMC
BoS
BRRD
CAR
CEO
CET 1
CFO
CIR
CMO
COO
CRD
CRO
CRR
CSR
CVA
DCA
DGS
EBA
EC
ECB
EMIR
EU
FX
GDP
GDPR
HICP
HR
IAS 39
ICAAP
IEC
IFRS9
ILAAP
Asset and Liability Management
Bank Asset Management Company
Bank of Slovenia
Bank Recovery and Resolution Directive
Capital Adequacy Ratio
Chief Executive Officer
Common Equity Tier 1
Chief Financial Officer
Cost-to-Income Ratio
Chief Marketing Officer
Chief Operating Officer
Capital Requirements Directive
Chief Risk Officer
Capital Requirements Regulation
Corporate Social Responsibility
Credit Value Adjustments
Dedicated Cash Account
Deposit Guarantee Scheme
European Banking Authority
European Commission
European Central Bank
European Market Infrastructure Regulation
European Union
Foreign Exchange
Gross Domestic Product
General Data Protection Regulation
Harmonized Index of Consumer Prices
Human Resources
International Accounting Standard 39
Internal Capital Adequacy Assessment Process
Innovative Entrepreneurship Centre
International Financial Reporting Standard 9
Internal Liquidity Adequacy Assessment Process
NLB Group 2017 Annual Report 13
IMF
KDD
KPI
LCR
LTD
M&A
MBDP
MiFID II
MiFIR
MREL
NIM
International Monetary Fund
Central Securities Clearing Corporation
Key Performance Indicator
Liquidity Coverage Ratio
Loan-to-Deposit Ratio
Mergers and Acquisitions
Macedonian Bank for Development Promotion
Markets in Financial Instruments Directive
Markets in Financial Instruments Regulation Rules
Minimum Requirement of Own Funds and Eligible Liabilities
Net Interest Margin
NLB or the Bank
NLB d.d.
NLB Skladi
NLB Assets Management
NPE
NPL
OCR
PD
POS
PSD2
QR
REAM
ROE
RORAC
RoS
RWA
SEE
SFRY
SME
SREP
SRF
SSH
SSM
STP
T2S
Non-Performing Exposures
Non-Performing Loans
Overall Capital Requirement
Probability of Default
Point of Sale
Payments Services Directive
Quick Response
Real Estate Asset Management
Return on Equity
Return on Risk-Adjusted Capital
Republic of Slovenia
Risk Weighted Assets
South-Eastern Europe
Socialist Federal Republic of Yugoslavia
Small and Medium-sized Enterprises
Supervisory Review and Evaluation Process
Single Resolution Fund
Slovenian Sovereign Holding
Single Supervisory Mechanism
Straight Through Processing
TARGET2-Securities
The Group
NLB Group
ZBan-2
ZDIJZ-1
ZGD-1
ZPotK-2
ZPPDFT-1
ZSDH-1
ZTFI
Slovenian Banking Act
Public Information Access Act
The Companies Act
Consumer Credit Act
Prevention of Money Laundering and Terrorist Financing Act
Slovenian Sovereign Holding Act
Financial Instruments Market Act
NLB Group 2017 Annual Report Business Report
15
NLB Group 2017 Annual Report 16
Chapter 1
Statement by the
Management
Board of NLB
2017 was a breakthrough year for NLB
Group. The continued trend of stable
and profitable operations resulted in
the Group’s highest ever net profit of
EUR 225.1 million, further significantly
improved asset quality, increased cost
efficiency, and regained a trend-setting
role in introducing contemporary client
solutions on our target markets. All core
members reported growing profits and
contributed substantially to the Group’s
result, which proves the importance and
underlines our strategic commitment to
businesses and citizens on SEE markets.
By following our strategy to create
innovative solutions and products
based on customers’ needs, we believe
we have set a strong foundation for a
profitable and value-creating future.
The Group evolved into a sustainably
profitable, client-oriented, universal
financial services provider that is focused
on Slovenia and the SEE region with
the objective to becoming a modern,
competitive, efficient, and effective bank.
At the core of our strategy is our customer
commitment to be available anytime and
anywhere with the right solutions. This
corresponds to the Group’s ambition to
provide a differentiating and high-level user
experience for our increasingly digital and
self-directed customers. We achieved some
important milestones in 2017 to fulfil this
commitment, which is confirmed by the
growing number of customers using digital
solutions and the high level of customer
satisfaction.
A net profit of EUR 225.1 million was
the highest in the Group’s history. All core
banking members in and outside Slovenia
showed soundly positive and improving
operations in 2017. Subsidiary banks posted
EUR 87.2 million in net profit (2016: EUR
57.6 million), contributing 39% to the
Group’s results (52% in 2016). The Group
followed its strategy to further strengthen its
regional specialist position and to maintain
high recognition and trust in the SEE
markets. For the first time, the non-core
segment operations were also profitable,
contributing a very solid EUR 31.3 million
to the Group’s result.
The Group’s performance is the result
of our continuous focus on customer
relationships, innovation, market research,
and proactive seeking of new business
opportunities. Understanding the key trends
in banking and the broader environment
enables us to prepare for future challenges,
develop relevant solutions, and provide
timely and value-adding advice to our
clients across the region.
We reduced the volume of impairments
and the share of NPL, and further
improved the structure of the portfolio.
We accomplished this with a set of short-
and mid-term strategic initiatives, and
by continuing the enhancement of risk
management practices and processes.
Slovenia and SEE countries continue to
benefit from the positive trends in the broad
macroeconomic environment. Nevertheless,
the banking system in and beyond the
Euro area is still facing low interest rates
and generally excess-liquidity. In addition,
regulatory and reporting requirements,
compliance with commitments to the
EC, and preparation for the privatisation
represented another set of challenges.
Notwithstanding these challenges, the
Group successfully overcame all these
developments, and the rating agencies
acknowledged this by upgrading the Bank’s
rating (Fitch and Standard and Poor’s
upgraded the Bank’s rating to BB, Moody’s
to Ba1), while the outlook remains stable or
positive.
Dedicated employees ensure that we will
be able to manage the challenges created
by the required technological development
and digitalisation. For the second year in a
row, an independent Dutch institute (Top
Employers Institute) awarded us with the
‘Top Employer’ certificate for innovations
and improvements in the field of human
resources processes.
NLB Group 2017 Annual Report 17
We are proud of the Group’s achievements
in 2017. With a clear vision, dedication
to strategic goals, and a strong focus on
our customers, we are well-positioned
for future challenges. We will continue
positioning the Bank as the innovative,
modern, and agile provider of universal
financial services, delivering on our strategic
promise to launch innovative solutions
based on customer’s needs, and enhance
our organisation and behaviour to foster
and promote a strong performance culture.
As the focused regional specialist, we will
further strengthen our systemic role in the
SEE region with high growth potential and
maintain the leading position in Slovenia.
In 2017 we made substantial progress
and took important steps to ensure future
success, and we firmly believe that we are
ready for the changes ahead.
By the end of 2017 the Bank delivered
all commitments and measures foreseen
within the comprehensive and demanding
restructuring plan within the State Aid
process. Consequently, we are well-prepared
for the expected privatisation, and as a
regional systemic institution, we remain
fully committed to delivering value to our
key stakeholders and society.
László Pelle
Member of the
Management Board
Archibald Kremser
Member of the
Management Board
Andreas Burkhardt
Member of the
Management Board
Blaž Brodnjak
President
& CEO
NLB Group 2017 Annual Report
Archibald Kremser
Andreas Burkhardt
Member of the Management Board
Member of the Management Board
László Pelle
Member of the Management Board
Blaž Brodnjak
President & CEO
20
Chapter 2
Report of the
Supervisory
Board of NLB
If bank fundamentals are of high quality,
and the bank enjoys the benefits of a
solid economic tailwind, its professional
steering, oversight, and detailed
monitoring should yield positive results.
That said, interest rates have remained
at historically low levels, competition has
been cutthroat, and the environment and
developments related to the Bank’s future
ownership have been unstable.
From a macro-economic perspective,
2017 will be remembered as a good
one. The credit crunch has eased and
all but disappeared, while renewed
optimism ignited domestic consumption
that contributed to GDP growth.
Unemployment is no longer a structural
problem, and the country has started to
enjoy the positive effects of surpluses at
both the current account and trade level.
The retail loan book is growing again and
massive deleveraging of the non-financial
sector has stalled. Furthermore, all of the
Group’s core regional non-Euro markets
experienced rather robust growth dynamics.
These are just some of the tailwinds that
supported the delivery of the Group’s
record performance in 2017.
1. Envisaging dividend payment in
100% of net profit after tax of the
Bank (EUR 189.1 million).
Keeping this in mind, I’m particularly
proud of what the Group has delivered
to all of its key constituencies (clients,
shareholders, employees, and society) in
2017. The Group has been able to generate
positive results and favourable trends in
the areas of asset leverage, balance sheet
management, cross-selling, cost control, and
the cost of risk.
For the financial year 2017, the Bank posted
a net profit of EUR 189.1 million, while the
net profit of the Group amounted to EUR
225.1 million. The after-tax ROE reported
by the Bank and the Group for the end of
2017 stood at 14.4%. The operations of the
Bank and the Group were underpinned by
their strong liquidity and capital positions,
with their CAR reaching 21.8% and
15.9%1, respectively.
Coupled with the Group’s increased
focus on digital innovation, the lower-risk
retail loan segment boosted an almost
10% absolute net growth, with the Group
servicing 1.8 million active retail customers
region-wide, alongside thousands of
active corporate clients. Apart from the
deliverables related to better business
performance, management also continued
to streamline the operations of the Group
across all of its business lines, in order to
make them more cost-efficient.
NLB’s Supervisory Board is convinced that
the Group will achieve all of its strategic
goals over the next five-year period, and will
remain committed to value generation in all
of its core business segments.
In other words, the Group is on the right
path and there will be no deviation from it.
2017 brought changes, but nothing
distorted the positive direction in
which the Bank is moving.
In 2017, the composition of the
Supervisory Board changed. At the
beginning of the year 2017, the Bank had
a full nine-member Supervisory Board, as
stipulated by the Articles of Association,
composed of: Chairman Primož Karpe,
Deputy Chair Sergeja Slapničar and
members: Uroš Ivanc, Andreas Klingen,
László Urbán, David E. Simon, David
Kastelic, Matjaž Titan, and Alexander
Bayr. Due to three resignations and
the expiration of one four-year term
of office, three new members of the
Supervisory Board were appointed at the
General Meeting of Shareholders held
on 8 September 2017. Since then the
Supervisory Board has been performing
operations with eight members, and its
composition is as follows: Chairman Primož
Karpe, Deputy Chair Andreas Klingen
and members: Alexander Bayr, David Eric
Simon, László Urbán, Vida Šeme Hočevar,
Simona Kozjek, and Peter Groznik.
NLB’s Supervisory Board monitors and
supervises the management and operations
of the Group. In doing so, it resolves
to utilise uncompromised principles
of professionalism and expertise, and
maintain its strong dedication to integrity,
ethics, and honesty. Throughout the year,
the Supervisory Board has maintained a
well-balanced professional relationship with
the Management Board and enjoyed timely,
NLB Group 2017 Annual Report Primož Karpe
Chairman of the Supervisory Board
21
comprehensive, and data-supported inputs
from the latter, enabling the Supervisory
Board to adopt all its decisions in line with
the professional interests of the Bank, whilst
adhering at all times to banking regulations
and its statutory powers.
Procedurally, the Supervisory Board
performed its work in accordance with its
competences and the Rules of Procedure
of the Supervisory Board of NLB. It
carried out its function of assuring efficient
supervision over the management of the
Bank and the Group, and its duty of careful
and scrupulous performance, on the basis
of its competences as laid down by the
applicable law and other regulations, as
well as by internal acts of the Bank. The
Corporate Governance Code for Public
Limited Companies and the Corporate
Governance Code for Companies with
State Capital Investment was also observed
by the Supervisory Board in performing its
duties.
While members of the Supervisory
Board have proper and complementary
knowledge, experience, and skills to
perform their duties, they all have different
professional, national, and educational
backgrounds. The Supervisory Board
represents a balanced, complementary
team of experts focused on the effectiveness
of performing its core functions. All the
members of the Supervisory Board have
the necessary personal integrity and
professional ethics to hold their positions,
which was confirmed by the positive
fit-and-proper assessment completed prior
to their appointment in 2017. This provides
the assurance that they can carry out their
supervisory roles in a responsible manner
and make decisions that benefit the Bank.
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.
NLB Group 2017 Annual Report 22
In accordance with the commitments
given by the RoS to the EC in December
2013 (and as amended in May 2017)
the Supervisory Board invited the
representative of the KPMG, poslovno
svetovanje d.o.o., Ljubljana, who is acting
as a Monitoring Trustee to all of its
meetings.
Year 2017 was busy from a corporate
governance perspective, with the
Supervisory Board holding five regular
and 10 correspondence sessions. The
Supervisory Board also received expert
assistance from its four operational
committees, namely the Audit, Risk,
Nomination, and Remuneration
Committees, the composition and tasks
of which are presented in the Corporate
Governance section of this Annual Report.
Throughout the year, Supervisory Board
members took precautionary measures to
avoid any conflicts of interest that might
have influenced their decisions. The
Supervisory Board actively managed the
conflicts of interest of its members and
gave consent to its members to assume
positions on Supervisory Boards of non-
related companies.
Pursuant to the second paragraph of
Article 282 of the ZGD-1, the Supervisory
Board has compiled this written Annual
Report with the aim of accurately and
authentically presenting the activities of the
Supervisory Board during the year.
Based on the Articles 272 and 281.a of
the ZGD-1 and the report above, the
Supervisory Board asserts and establishes
that it regularly and thoroughly monitored
the operations of the Bank and the Group
in 2017 within its competences, thus
adequately supervising the management
and operations of the Bank and the Group,
and overseeing NLB’s Internal Audit.
Review and approval of the
NLB Group 2017 Annual Report
The Management Board of the Bank
submitted the NLB Group 2017 Annual
Report to the Supervisory Board, including
the Business Report with the audited
financial statements of the Bank, the
audited consolidated financial statements
of the 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 the Group as at 31 December 2017,
and of their financial performance and
their cash flows for that year in accordance
with the International Financial Reporting
Standards adopted by the EU. It was also
established that the information contained
in the business section of the Annual
Report is consistent with the audited
financial statements of the Bank and the
Group.
In accordance with Article 34 of the
Articles of Association of NLB, the
Supervisory Board verified the submitted
Annual Report, and shall give a report for
the General Meeting of Shareholders. The
Supervisory Board had no objections about
the report of the audit company Ernst
& Young, Ljubljana. Following a careful
examination of the NLB Group 2017
Annual Report, the Supervisory Board had
no objections, and unanimously approved
it.
Yours truly,
The Supervisory Board of NLB
Primož Karpe
Chairman of the
Supervisory Board
NLB Group 2017 Annual Report
23
NLB Group 2017 Annual Report 24
Chapter 3
Key highlights
of NLB Group
The Group is the largest banking and
The largest banking and financial group
financial group in Slovenia with an
in Slovenia
exclusive strategic focus on selected
markets in SEE. It covers markets with
a population of approximately 17.4
million people. The Group is comprised
of NLB 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 RoS.
The largest bank in Slovenia, with 108
branches, over 692,000 active clients,
and a 23.0% market share by total
assets.
A very strong retail deposit-taking
franchise with a market share of
30.7%.
Market leader across banking products
and a leading provider of asset
management and life insurance
products.
Rating improvement in 2017 by all
fourrating agencies: an upgrade from
BB- to BB by Fitch (outlook: stable) and
Standard and Poorʼs (outlook: positive);
upgrade by Capital Intelligence from BB+
to BBB-, (outlook: stable); and upgrade by
two notches by Moody’s, from Ba3 to Ba1
(outlook: positive).
2. Envisaging dividend payment in 100%
of net profit after tax of the Bank (EUR
189.1 million).
3. Envisaging dividend payment in 100%
of net profit after tax of the Bank (EUR
189.1 million).
4. NPL ratio reduced from
13.8% in 2016 to 9.2% in 2017.
NLB Group 2017 Annual Report 25
Leading position in selected SEE markets
A self-funded, and well-capitalised
Ready for change
with significant growth potential
franchise
SEE markets, recording solid GDP growth
above the Euro area average.
Independent, profitable, well-capitalised,
and largely self-funded subsidiaries.
Subsidiaries in five countries in SEE
(Macedonia, Kosovo, two subsidiaries
in Bosnia and Herzegovina, Montenegro,
and Serbia), with a market share in four
countries exceeding 10%.
A strong focus on retail banking, with 242
branches and 1.1 million active clients of
SEE banking members (excluding NLB).
A strong dividend payout from its core
subsidiaries to the parent bank.
Proven track record of stable and
profitable Group operations
Increased profitability for a fourth
consecutive year, the highest in the
Group’s history.
Strong liquidity position, and a stable and
diversified funding structure with a LTD
of 70.8%.
A robust CET 1 ratio of 15.9%3 supporting
further stable dividend pay-outs.
100% of 2016 net profit of the Bank was
paid out as a dividend to the RoS in 2017.
Constant improvement of asset quality
Substantially improved structure of the
credit portfolio with new NPL formation
ratio at consistently low levels (2017: 0.6%
of gross loan portfolio, which equals EUR
58 million).
NPE ratio as defined by EBA significantly
reduced from 10.0% in 2016 to 6.7% in
20174, with strong NPL coverage ratio
standing at 62.2%.
Comprehensive organic and inorganic NPE
reduction strategy.
2017 ROE of 14.4% at a CET
ratio of 15.9%2.
Continuous disposal of non-core Group
members and non-core loan portfolios.
To formulate a robust, long-term strategic
response to digitalisation, the Bank has
been progressing towards the adoption of a
five-year business and IT strategy.
The strategy is aimed at creating an
innovative bank with simple customer-
oriented, data-driven solutions using digital
and mobile technologies.
With implementation of the new banking
services and functionalities based on
digitalisation of products, processes, and
customer experience, NLB is undergoing
significant business changes that will modify
its operations, as well as its culture.
At the Group level, NLB is deepening its
exclusive strategic focus on countries in
SEE.
The Group is firmly committed to
achieving its mid-term financial targets,
which include: ROE > 10%, CIR at
approximately 50%, NPE ratio < 5%, and
a 70% dividend pay-out ratio of the Group
profit.
Revenue evolution driven by stable
net interest margin and increasing
fee income.
Continuous cost reduction.
Negative cost of risk due to positive
economic circumstances and positive result
from NPL collection.
Strong increase in the contribution of
international operations to revenue and
profit growth.
NLB Group 2017 Annual Report 26
NLB Group 2017 Annual Report 27
Chapter 4
Macroeconomic
Environment
The positive economic trends from
the second half of 2016 continued
throughout 2017, as the global
economy gained momentum.
The global economy continued to gain
momentum in 2017, with upward revisions
of growth forecasts being a continuing
theme throughout the year, as global
economic growth accelerated to 3.7%,
representing the highest economic growth
in more than five years. The turnaround
of economic conditions has been nothing
short of remarkable, as the global economy
transitioned into a broad and synchronised
recovery that is far more balanced than in
prior years. Market worries over slowing
global trade, weak investment, deflation
risk, slow job creation, and stagnant wage
growth, have diminished significantly,
however, inflation has remained stubbornly
stagnant. As economic growth gathers
pace and output gaps continue to tighten,
the anticipation of resurgent inflationary
pressures continues. The economy of
the United States warranted another key
interest rate increase by the FED, while
another three increases are expected in
2018. As strength within the economy
continues, and questions continue to arise
regarding the length and sustainability
of the current economic cycle. Asian
economies benefitted from strong
consumption and investment growth,
combined with the resurgence of global
trade. In China, the government has been
taking steps to curb debt levels in the
private sector, improving the country’s
long-term prospects. The Asia Pacific
region appears to be set for healthy growth
in coming years, as capital inflows surprise
on the upside. The rally of industrial
metal and oil prices throughout the second
half of the year, with the London Metal
Exchange Index growing over 25% from
June lows, is another positive leading
indicator for inflationary dynamics and
economic activity in the mid-term. At the
turn of the year, the economic background
could hardly have been better, as in the
previous year, the primary risks to the rosy
outlook are of a political nature.
The economy of the Euro area expanded at
a pace of 2.3% in the year and finds itself
in what financial markets have dubbed a
‘golden cycle’, with strong economic and
credit growth, limited inflationary pressures,
and a low interest environment. In general,
the region appears to be at a healthy stage
of the new economic cycle, with much of
regions political issues diminishing through
the year as the global populist tide abated.
Manufacturing figures and consumer
sentiment continued to surpass expectations
as they rose to levels not seen in decades.
Supported by accommodative monetary
policy, retail credit growth more than
doubled, while corporate credit growth was
over five times higher when compared to
levels from the start of 2016. From a 0.2%
consumer price growth in 2016, Euro area
headline inflation accelerated to 1.5% in
2017, while core inflation, which continued
to oscillate around one percent, remained
worryingly stagnant. Monetary policy is
expected to remain accommodative in
NLB Group 2017 Annual Report 28
Slovenia’s economic growth
accelerated to 5.0% in 2017.
External trade dynamics
once again surpassed
expectations, and together
with the recovery of gross
capital formation, supported
the economic acceleration.
the mid-term, with a very gradual exit
expected in coming years. In addition to the
appreciation of the Euro, the heterogeneity
of the region’s economic recovery remains
an important factor limiting inflationary
pressures in the region. As inflation in
core countries slowly begins to surpass
targeted levels and inflation in periphery
countries continues to lag, pressure will
continue to build on the ECB, though no
rate movements are currently anticipated
in 2018. The current market consensus
is that the Euro area is at an early stage
of its economic cycle, the considerable
momentum gained by the region is seen as
robust and likely to weather regional risk
events in coming years.
The overall global economic outlook has
strengthened considerably in comparison
to the previous year, the IMF anticipates
economic growth of 3.9% in 2018 and
2019, although given the current economic
momentum further upward revisions
throughout 2018 would not be surprising.
At the current stage of its cycle, the
European economy is set for several years
of economic growth, while the United
States finds itself in a notably later stage
of its cycle, whose inevitable downturn
poses a risk to the strong global economic
outlook. Weak forecasts of economic
growth and uncertainty regarding the exit
from the EU, cloud the United Kingdom’s
outlook and represent a potential risk to
Europe’s economy, in addition to the now
somewhat decreased political risks from the
region. While 2017 was a transitional year
for the world economically, 2018 has the
potential to be a transformative year for
the rate environment, as slack in the global
economy continues to diminish and the
recovery continues to broaden, inflationary
pressures could surprise on the upside. The
gradual reversal of the European bond
bull market could prove to be eventful in
the short-term, but likely only gradual on
a longer timeline as the ECB will fight to
keep rates and regional sovereign borrowing
costs stable as the nascent economic
momentum continues and it winds down its
bond purchasing programme.
Slovenia
Supported by a broad recovery in the
external environment, Slovenia’s economic
growth accelerated to 5.0% on an annual
level in 2017. External trade dynamics
once again surpassed expectations, with
exports and imports experiencing annual
growth of 10.6% and 10.1% respectively,
resulting in the seventh consecutive year of
a current account surplus. The recovery of
gross capital formation was another notable
contributing factor behind the years’
accelerated economic expansion. Annual
growth of the metric expanded to 8.4%,
supported by the growth in construction
investments, as well as investments into
machinery and equipment. Capacity
utilisation will continue to be an important
driver of investment growth, with industrial
production recording an annual growth of
5.7% in the year. Despite the improvement
in investment dynamics, overall levels
remain notably below pre-crisis levels and
are indicative of further growth potential.
Consumption growth dynamics continued
to support the ongoing economic recovery,
with retail sales reaching multi-year highs.
Consumer sentiment was recorded at its
highest level since the inception of the
index in 1996, further underscoring the
economic progress achieved since the
crisis, and foreshadowing further capacity
for growth of consumer spending in
the mid-term. Further tightening of the
labour market is expected to continue to
further benefit the domestic economy,
the LFS unemployment rate fell by 1.4
percentage points to 6.6%, while another
0.6 percentage point decrease is forecast
by the end of 2018. As has been the case
in some Eastern European countries, the
continued tightening of the labour market
in Slovenia resulted in an acceleration of
wage growth, annual growth of the metric
averaged 2.7%, compared to 1.8% growth
in the previous year. The recovery of the
real estate sector continued throughout the
year. Real estate price growth accelerated
in the second half of 2016 and reached
10.0% in 2017, from 3.3% in the previous
year, while the number of completed
transactions grew by 1.3%. Reflecting the
increased real estate activity and increased
investments, the construction sector
experienced annual real growth of 17.8%.
This recovering sector of the economy
has thus returned to approximately 68.6
percent of pre-crisis levels, and is set for
further growth. Following negative price
growth in the prior two years, HICP
inflation grew at an average annual pace
of 1.4% in the year, the acceleration
was driven primarily by rising food and
petroleum product prices. The country’s
budgetary deficit, as a percentage of GDP,
benefitted from increased tax collection and
social contributions, decreasing to 0.0%
from -1.9% in the prior year. Public debt
as a percentage of GDP fell to 73.6% at
the end of the year a 5.0 percentage point
decrease. With the improved situation in
key economic trading partners, and what
appears to be the beginning of a new
investment cycle, the economic outlook
for Slovenia’s economy is very positive
at present.
NLB Group 2017 Annual Report 29
3.7%
global economic
growth in 2017
2.3%
economic growth
in the Euro-area
5.0%
economic growth
in Slovenia
Table 2: Movement of key macroeconomic indicators in
Slovenia and the Economic and Monetary Union
2017
2016
2015
2014
2013
5.0
1.6
6.6
6.51
73.6
0.0
2.3
1.5
9.1
1.13
88.12
-0.32
3.1
-0.2
8.0
5.2
78.5
-1.9
1.8
0.2
10.0
3.4
88.9
-1.5
2.3
-0.8
9.0
4.4
82.6
-2.9
2.1
0.0
10.9
3.2
89.9
-2.1
3.0
0.4
9.7
5.8
80.3
-5.3
1.3
0.4
11.6
2.4
91.8
-2.6
-1.1
1.9
10.1
4.4
70.4
-14.7
-0.3
1.3
12.0
2.2
89.4
-3.0
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)
Budgetary 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)2
Budgetary deficit/surplus (% of GDP)3
1. Own calculation from ECB, Eurostat and Surs data
2. Data as at Q3 2017
3. Data as at Q4 2017
Sources: Eurostat, SURS, ECB
Figure 1: Growth of economic metrics
130
120
110
100
90
80
70
2011
2012
2013
2014
2015
2016
2017
Economic sentiment
Index of retail sales
Index of industrial production
100 = 2010
Source: Slovenian Statistical Office
NLB Group 2017 Annual Report
30
The Banking System in Slovenia
Figure 2: Annual loan growth in the Slovenian banking system
The year marked a milestone in the
recovery of Slovenia’s banking system,
with the corporate loan portfolio returning
to annual growth for the first time since
2008. Aggregate profit increased by
27.1%, when compared with the previous
year, amounting to EUR 422.6 million
and corresponding to a return on equity
of 9.5%. The challenges of the low rate
environment continued to impact the
banking system’s bottom line, however, loan
interest rates showed signs of stabilisation,
with housing and certain corporate loan
rates experiencing growth through the
year. Net interest income recorded a
more modest decrease, when compared
to previous years, of 7.5%. Loan growth
dynamics continued strengthening, with the
corporate loan portfolio expanding by 2.2%
on an annual level, by the end of the year it
had expanded by 7.9% from the post-crisis
lows of September 2016. Annual growth
of the retail loan portfolio measured 6.8%,
it was supported by positive trends in the
real estate sector and growing consumption.
Despite the aforementioned encouraging
trends of the loan portfolio, loan growth
was once again surpassed by the growth of
deposits, which remains supported by high
savings rates and the external trade surplus.
The banking system’s loan-to-deposit ratio
continued to show signs of stabilisation,
ending the year at a ratio of 78.2%, a
decrease of 0.4 percentage points, thus
continuing the tapering of the contraction
from the prior year. Positive trends with the
quality of the credit portfolio continued
through the year, NPL ratio decreased to
3.7%, a decrease of 1.8 percentage points.
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
-30%
2012
2013
2014
2015
2016
2017
Loans to corporate sector
Loans to households
Source: Bank of Slovenia
Figure 3: Households consumption and consumer confidence
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
-8.0%
5
00
-5
-10
-15
-20
-25
-30
-35
-40
-45
2011
2012
2013
2014
2015
2016
2017
Final consumption expenditures of households (annual growth, %)
Consumer confidence (percentage points)
Source: Slovenian Statistical Office
The outlook for Slovenia’s banking system
remains positive, the broad recovery of
the global economy is expected to remain
supportive of the positive economic trends
within Slovenia’s economy, which will by
proxy benefit Slovenia’s banking system.
Capacity utilisation and improving activity
within the construction sector are expected
to be supportive for the corporate loan
portfolio, while record consumer sentiment
levels, real wage growth, and the recovery
of the real-estate market will support further
growth of the retail loan portfolio. Despite
expectations of strong loan growth in the
mid-term, the loan-to-deposit ratio will most
likely remain stagnant, as deposits remain
supported by the current account surplus
and high degree of saving. The stabilisation
of the regional and domestic interest rate
environment, together with the regional
economic stabilisation shows the upside
potential for the system’s interest income
in the mid-term. However, high levels of
competitive pressure and excess liquidity
will remain a key opposing force and will
likely limit any major upward movement of
interest rate income for some time.
NLB Group 2017 Annual Report 31
Highlights:
• Serbia’s banking system experienced a
strong rise in profitability, growing by
63.1% in the first three quarters of the
year when compared to the previous year,
and with a return on equity of 11.0%.
• Kosovo’s economy expanded by 3.8% in
the first three quarters of the year, one
of the region’s highest growth rates.
• Montenegro’s economic growth increased
to 4.3% in the first three quarters of the
year. Following a cycle of investment-
fueled growth, rising private consumption
supported by positive trends in the
labour market together with easing credit
conditions, became a primary growth driver.
• Sentiment within the Macedonian
economy and investor confidence was
positively impacted by resolution of
political tensions; the country’s economy
remained unchanged in the year.
• Bosnia and Herzegovina’s economy
expanded at a pace of 3.0% in the first three
quarters of 2017, economic growth was
fueled by robust consumption dynamics.
SEE Markets
SEE continues to benefit from the positive
trends in the broad macroeconomic
environment, in particular the resurgent
European economy. Growth of
consumption and improving external
positions were a theme across Group’s
area of operations, as unemployment
levels fell and demand from external
environment grew. Following considerable
deflationary pressures in the previous year,
with three country’s recording negative
price growth, inflation experienced a
resurgence in the region in 2017. With
the European macroeconomic cycle
expected to continue in the mid-term, the
outlook for the economies of the SEE and
further economic growth has improved
notably. In addition to the positive regional
macroeconomic picture, the ambitious
Strategy for the Western Balkans recently
released by the EC, has renewed regional
European integration hopes and bodes well
for the long-term stability and economic
prospects of the region.
Serbia’s economic growth tempered
in 2017, reaching 1.9% annually, while
measuring 2.8% in the previous year. The
slowdown of economic growth, which
resulted from weather-related factors,
is expected to be temporary. Growth is
expected to return above 3.0% in the
mid-term, underpinned by further external
trade and manufacturing performance.
The aforementioned factors together with
significant and continued improvement
of the country’s fiscal metrics resulted in
credit rating upgrades from Standard and
Poor’s, Moody’s and Fitch in the year.
The improved macroeconomic conditions
continued to attract foreign investment,
resulting in considerable appreciation
pressure on the country’s currency,
prompting two key rate cuts by the central
bank in the second half of the year. The
country’s banking system experienced a
strong increase in profitability, growing by
63.1% at the end of the third quarter, when
compared with the previous year, with a
return on equity of 11.0%. Despite the
positive economic trends, corporate credit
growth remained stagnant, impacted by
NPL write-offs, while retail loans continued
to experience strong 7.8% annual
growth. The quality of the aggregate
credit portfolio experienced a remarkable
improvement, with the percentage of NPL
ratio decreasing by 4.8 percentage points
to 12.2%, at the end of the third quarter.
Supported by growing investments and
strong export performance, Kosovo’s
economy expanded by 3.8% in first three
quarters of the year, one of the region’s
highest growth rates. Further growth,
expected to be above 4.0% in the mid-term,
will be supported by a continuation of
strong consumption and private investment
trends, as remittances and credit growth
continue to support the local economy,
and while exports continue to make an
increasing contribution to economic
growth. Political risk is the primary
current downside risk for the country, in
the year a no-confidence vote resulted in
a change of government, while tensions
surrounding the border demarcation with
Montenegro continue. However, the overall
macroeconomic outlook for the country
remains bright. Strong performance of
the banking system from previous years
continued in 2017, with the system
generating a return on equity of 21.3%.
High levels of credit growth continued in
the year, with corporate and retail loans
ending the year 10.7% and 12.7% higher,
respectively.
Following a cycle of investment-fueled
growth, rising private consumption rose
to the forefront, supported by positive
trends in the labour market together with
easing credit conditions, and propelled
economic growth in Montenegro in
the first three quarters to 4.3%. Strong
tourism performance, arrivals expanded
by 18.1% in comparison to the previous
year, and growing exports of mineral ores,
together with decreased investment-related
imports, resulted in an improvement
NLB Group 2017 Annual Report 32
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)
2017
2016
2015
2017
2016
2015
2017
2016
2015
2017
2016
2015
2017
2016
2015
BiH
Montenegro
Macedonia
Serbia
Kosovo
3.01
4.31
0.0
1.9
3.81
3.1
2.9
2.9
2.8
4.1
3.1
3.4
3.9
0.8
4.1
1.3
2.4
1.4
3.1
1.5
-1.1
-0.3
-0.2
1.1
0.3
-1.0
20.5
25.4
27.7
-4.52 3
-5.1
-5.7
n.a.
1.5
14.81
17.7
17.6
n.a.
-19.0
-13.3
-2.41
-0.3
22.4
23.7
26.1
-1.33
1.4
13.5
15.3
17.7
-5.7
-2.8
-3.1
-1.9
-4.7
-0.9
0.8
1.2
-3.4
-2.6
-0.2
0.7
-8.1
-3.5
-2.8
-0.5
30.41
27.5
32.9
-3,11 3
-8.33
-8.63
0.11 3
-1.13
-1.63
Source: Statistical office, Central banks
1. Data for the first three quarter of 2017.
2. Data for the first half of 2017.
3. Own calculation.
SEE continues to benefit
from the positive trends
in the broad macroeconomic
environment, in particular
the resurgent European
economy.
of net exports and the current account
deficit. The external trade position is
expected to improve further, alleviating
a notable concern of the economy.
However, the continued performance
of the tourism sector remains key to the
country’s continued recovery, while a
potential slowdown of the metric poses a
key risk. The profitability of the country’s
banking system improved notably in the
first three quarters, reaching a return on
equity of 8.2% with annual growth of
27.1%. Corporate credit growth continues
to be hampered by legacy issues from
the crisis and deleveraging of NPL, it
recorded growth of 2.4%. Poor corporate
credit growth performance was offset by
substantial 10.4% growth of retail loans.
Levels of NPL continued their steady
decline, falling to 7.1% by the end of
the third quarter, a 3.2 percentage point
decrease.
Economic growth in Macedonia was
hampered by a continuation of political
issues from previous years, as the economy
Bosnia and Herzegovina’s economy
expanded at a pace of 3.0% in the first
three quarters of the year, and economic
growth was fueled by robust consumption
dynamics. Further remittance income is
expected to support domestic consumption
in the mid-term. A slowdown of reforms
impacted the pay-out of IMF funding
in the year, delaying key infrastructure
projects. An agreement was reached by
the end of the year and should result in a
disbursement of funding in 2018, which
will benefit economic growth for the year.
The country’s complex political system,
and a slowing of reform progress remain
key risks to further economic development.
Profitability of the country’s banking system
experienced a substantial 58.3% increase
when compared to the previous year,
generating a return on equity of 11.7%.
Both corporate and retail credit growth
expanded sharply and ended the year 8.0%
and 6.7% higher, respectively, while the
quality of the credit portfolio improved
with NPL decreasing to 10.0%, a fall of 1.8
percentage points in the year.
contracted in the first half of 2017 due
to a significant contraction of investment
activity. The formation of the new
government in June represented a turning
point for the country’s economy, with the
resolution of political tension positively
impacting sentiment within the economy
and investor confidence, and leading to an
acceleration of growth in the second half of
the year, as a result the country’s economy
remained unchanged in the year. Supported
by strong performance in the labour market
and wage growth, household consumption
remained robust throughout the year. As
investment activity intensifies in the mid-
term, economic growth is expected to reach
above three percent. The banking system’s
profitability contracted by 7.5% in the first
three quarters of the year, generating a
return on equity of 12.6%. The corporate
credit portfolio was impacted by ongoing
tensions and contracted throughout most
of the first half of the year, but returned
to growth following the resolution of
tensions and ended the year 2.8% higher.
Retail credit growth remained robust while
moderating only slightly in the first half,
and the retail credit portfolio expanded by
9.2% in the year. NPL ratio contracted by
1.5 percentage points to 3.4% in the first
three quarters.
NLB Group 2017 Annual Report
33
NLB Group 2017 Annual Report 34
Chapter 5
Overview of NLB
Group’s Financial
Performance 2017
The Group achieved a net profit of EUR
• All subsidiary banks of the Group
225.1 million, up 105% from 2016 (or
EUR 115.1 million), and this being the
highest result in the Group’s history.
The strong result reflects business
growth at resilient margins and the
exceptionally negative cost of risk.
reported growing profits in 2017 and
contributed 39% to the Group’s result,
an important part of the cumulative net
profit. Loans in Key business activities
were growing 1% YoY, especially in the
retail segment (7% YoY).
• Continued cost improvements led to a
further reduced CIR ratio of 58.3%.
• Reduced volume of provisions and
impairments had an important positive
contribution to net profit.
• Non-core markets and activities
recorded profits as well, thanks to
successful collection and divestments.
• NPL levels were reduced by 35%, thus,
the NPL ratio decreased to 9.2% (from
13.8% in 2016); the NPE ratio is already
at 6.7% (from 10.0% in 2016). A very
low new NPL formation ratio from
new business (2017: 0.6% of gross loan
portfolio, which equals EUR 58 million).
• Liquidity and capital ratios 5 are solid
and represent a basis for further growth;
ROE stands at 14.4%, whereas the after
tax RORAC (on a normalised capital
requirement of 14.75% of RWA) is at
19.0%.
5. Envisaging dividend payment in 100%
of net profit after tax of the Bank
(EUR 189.1 million).”
6. Core markets and activities include
Corporate banking in Slovenia, Retail
banking in Slovenia, Financial markets
in Slovenia, and Strategic foreign markets.
7. Non-recurring income from the sale
of non-strategic equity participation
(EUR + 9.5 million), a court settlement with
Zavarovalnica Triglav (EUR + 1.2 million),
and the sale of a Czech non-core subsidiary
“NLB Factoring” in liquidation
(EUR + 1.6 million).
8. Key business activities includes key/mid
small corporates in Slovenia, Retail
banking in Slovenia and Strategic
foreign markets.
Profitable core markets and activities of
the Group6, with substantial contribution
from strategic foreign markets, and
improved operations by the non-core part
of the Group
In 2017, the Key business activities
achieved a profit before tax of EUR 169.7
million, up 48% from the year before.
Strategic foreign markets contributed the
largest share to positive profit before tax
in the amount of EUR 102.0 million, the
profit also increased in the segment of
the population (52%) and in the healthy
segment of corporate banking (+ 33%). A
significant improvement of the 2017 results
was achieved in the non-core part of the
Group, based on successful collection and
non-recurring income7.
Core markets and activities: A significant
improvement in all Key business 8
activities of the Group
In 2017, the Key business activities showed
a strong positive evolution, with profit
before tax increasing from EUR 114.4
million to EUR 169.7 million.
Both the Retail and Corporate segments
in Slovenia showed solid performance,
especially the retail segment showing
healthy growth, and a positive outlook
for the future. The highest growth in
profitability was achieved in Strategic
foreign markets with record results in
NLB Group 2017 Annual Report
Figure 4: Profit a.t. of NLB Group/ROE
ROE a.t.
4.8%
6.6%
7.4%
14.4%
CAGR 53.4%
225.1
91.9
110.0
2015
2016
2017
62.3
2014
Profit a.t. of NLB Group
Compound Annual Growth Rate
35
Macedonia, and the strong performance
of the entities in Kosovo and in Bosnia
and Herzegovina. A significant
improvement was recorded on the Serbian
market, and favourable results were also
achieved on the Montenegro market.
The solid growth of retail lending with
still-attractive margins was recorded in
all markets.
The Financial markets segment result
reflects lower yields of re-invested
securities. With the Bank maintaining
a conservative investment profile in mostly
investment grade Sovereigns and Financial
Institutions, yields on reinvestments have
considerably declined in recent years,
including 2017.
Non-core markets and activities: The
Figure 5: Profit before tax of NLB Group by segments (in EUR million)
positive result of operations and
Key business activities
2016: 114.4 | 2017: 169.7
102.0
67.6
91.9
41.7
26.0
27.4
19.5
62.3
key/mid/small
+
26.8
8.3
Restructuring
and workout
35.6
27.3
110
225.1
31.2
-18.9
-8.8
-17.7
Corporate banking
in Slovenia
Retail banking
in Slovenia
Strategic foreign
markets
Financial markets
in Slovenia
Non-core markets
and activities
Other activities
2016
2017
continuing divestments
The Non-core segment achieved a
significant improvement compared to
2016, based on the successful collection
of NPL, a one-off gain from divesting
an equity exposure and successful
divestment of non-core subsidiaries.
Also, real estate management contributed
positively to non-interest income.
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 2017,
the segment was burdened by HR
provisions in the amount of EUR 8.4
million in the Bank related to strategy
implementation, other restructuring costs
in the amount of EUR 1.8 million, and
by the expenses related to litigations in
the amount of EUR 2.2 million.
NLB Group 2017 Annual Report 36
Income statement
Table 4: Income statement of NLB Group and NLB
NLB Group
NLB
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
2017
309.3
155.4
0.2
26.7
-3.0
179.3
488.6
-164.5
-92.4
-27.8
-284.7
203.9
0.0
43.5
0.0
-13.9
29.5
3.9
237.3
-4.0
-8.2
225.1
2016
Change YoY
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
-3%
7%
-86%
35%
-64%
13%
3%
-1%
-4%
-2%
-2%
9%
-95%
-266%
-100%
-37%
-149%
-23%
82%
-73%
47%
105%
2017
158.8
98.5
0.1
17.0
-2.4
113.1
271.9
-103.7
-54.2
-18.0
-175.9
96.0
0.0
41.5
-0.7
-10.1
30.7
58.2
184.9
4.2
0.0
189.1
1. NLB includes dividends from subsidiaries, associates, and joint ventures
Figure 6: Profit after tax of NLB Group – evolution YoY (in EUR million)
9.8
11.1
4.8
7.4%
ROE a.t.
110.0
-8.0
90.2
11.0
-1.2
-2.6
in EUR million
2016
Change YoY
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
-9%
3%
-96%
28%
171%
4%
-4%
0%
-8%
-5%
-3%
-7%
-95%
-372%
-98%
-6%
-148%
101%
173%
-207%
-
196%
14.4%
ROE a.t.
225.1
2016
Net interest
income
Fees &
Commissions
Other Net non-
interest income
Total
costs
Net impairments
and provisions
Gains and
losses*
Income
tax
Result of non-
controlling interests
2017
* Gains less losses from capital investments in subsidiaries, associates, and joint ventures.
NLB Group 2017 Annual Report
Strong result reflects business growth at
Figure 7: Profit after tax of NLB Group banks
resilient interest margins and negative
(on a standalone basis) – evolution YoY (in EUR million)
37
cost of risk
The net profit for 2017 amounted to EUR
225.1 million, which is 105% or EUR 115.1
million higher than in 2016.
The Group’s result is based on the following
key drivers:
• Solid recovery in loan demand in
Slovenian retail, and high business
growth in Strategic foreign markets,
resulting in 1% loan book growth YoY
for all Key business activities.
• Net interest income of the Bank was
partially compensated by the growth in
Strategic foreign markets.
• Significant growth in fee and
commission income, and a positive
result from non-recurring items9.
• A continuous cost-reduction process
resulted in additional savings, specifically
in general and administrative expenses
(-4% YoY). In 2017 the Bank paid EUR
3.0 million in performance rewards to its
employees.
• Strongly reduced volume of provisions
and impairments with an important
contribution to net profit.
All the banks in the Group increased
profit after tax compared to 2016 despite
a low and partially negative interest rate
environment, a high level of excess liquidity,
and strong competition for good investment
projects.
The result of the Bank increased by 196%
YoY to EUR 189.1 million, and includes
dividends from core subsidiaries, associates,
and joint ventures in the amount of EUR
58.1 million. In April 2017, the Bank paid a
dividend of EUR 63.8 million to the owner.
189.1
63.8
40.0
25.0
23.7
14.1
14.2
11.3
5.4 8.3
5.3
5.4
2.2 3.7
NLB
NLB Banka
Skopje
NLB Banka
Banja Luka
NLB Banka
Prishtina
NLB Banka
Sarajevo
NLB Banka
Podgorica
NLB Banka
Beograd
2016
2017
Figure 8: Profit before impairments and
provisions of NLB Group (in EUR million)
9%
203.9
8.4
186.2
9.4
193.8
176.8
211.5
195.5
11% YoY
-17.0
2016
-16.0
2017
Non-recurring events
Regulatory costs
Regular profit before impairments and provisions
9.
Non-recurring items in 2017: positive effects
from non-core equity participation in the
amount of EUR +9.5 million, a court settlement
with Zavarovalnica Triglav (EUR +1.2 million),
the sale of a Czech non-core subsidiary NLB
Factoring in liquidation (EUR +1.6 million), and
the negative effects from restructuring costs
(EUR -1.8 million) and performance rewards
(EUR -3.0 million) in the Bank.
NLB Group 2017 Annual Report 38
Figure 10: Profit before impairments and provisions of NLB Group – evolution YoY (in EUR million)
Net effects from non-recurring events
EUR -1.0 mio
Net effects from recurring events
EUR 18.6 mio
8.4
7.5
5.7
10.3
4.1
-1.1
-8.0
-9.4
186.2
203.9
203.9
2016
Non-recurring
effects 2016
Non-recurring
effects 2017
Net profit from
financial transaction
Total
costs
Net interest
income
Fees and
commissions
Other regular
net income
Dividends
received
2017
Profit before impairments and provisions
of the Group totaled EUR 203.9 million,
which is EUR 17.7 million higher than in
2016 and includes regulatory expenses in
the amount of EUR 16.0 million, of which
EUR 13.4 million relates to DGS and EUR
2.6 million to SRF.
By excluding the non-recurring effects
in 2016 10 and in 201711, the recurring
result before impairments and provisions
increased by 10%, and was mainly
influenced by a solid improvement in
regular costs (-2% YoY), higher regular
net non-interest income (+14% YoY),
and a notable decline in net interest
income (-3% YoY).
Figure 9: Net interest margin (in %)
Net interest income
10.
Non-recurring events in 2016 related to pos-
itive effects of divestment a non-core equity
stake (Trimo) at a profit of EUR 5.5 million
(comprising of realised gain on equity invest-
ment and fee received as a financial consultant
for the bank syndicate), Visa shares at a profit
of EUR 7.8 million, and negative effects from
restructuring costs of EUR 3.8 million.
11.
Non-recurring items in 2017: the positive
effects from non-core equity participation
in the amount of EUR +9.5 million, a court
settlement with Zavarovalnica Triglav (EUR
+1.2 million), sale of Czech non-core subsidiary
NLB Factoring in liquidation (EUR +2.5 million),
and the negative effects from restructuring
costs (EUR -1.8 million) and performance
rewards (EUR -3.0 million).
NIM on the Group level remained stable at
2.57%. The margin of core banks on SEE
markets is above the level recorded in 2016.
An increase of the interest margin of the
Bank as well as the Group in the second
half of 2017 can be attributed in large part
to the maturity of the Bank’s bond in July
(bond in the amount of EUR 300 million
issued in
July 2014).
Net interest income of the Group
accounted for 63% of the Group’s total
net revenues, decreasing by 3% YoY to
EUR 309.3 million however, showing
3.98%
2.59%
2.03%
3.94%
3.96%
2.50%
1.89%
2.47%
1.81%
4.04%
2.54%
1.85%
4.01%
2.57%
1.90%
2016
1-3 2017
1-6 2017
1-9 2017
2017
NIM (NLB Group - core foreign banks)
NIM (NLB Group)
NIM (NLB)
NLB Group 2017 Annual Report
39
The decline in the interest
margin in Slovenia
was partially compensated by
the improved margins
in SEE markets.
obvious signs of recovery on quarterly
basis. 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 (-23% YoY). As a reaction
to the negative deposit rates quoted by the
ECB, the Bank charges asset management
fees for larger deposits placed by corporates
in Slovenia since the end of 2016.
Net interest income in Key business
activities increased 5% YoY despite ongoing
pressure on the margin, especially in
Slovenia.
Net interest income in key/mid/small
corporates in Slovenia slightly increased by
EUR 2.0 million, or 6% YoY, and reflected
the volume evolution and still strong
pressure on pricing.
In Slovenia, retail loans’ growth by 7% YoY
due to the improved macro environment
helped to stabilise margins in this segment.
Interest income increased by 2% YoY.
Figure 11: Net interest income of NLB Group (in EUR million)
317.3
-3%
309.3
388.6
363.7
3%
78.5
80.1
1%
80.6
94.3
92.1
92.8
-71.2
-54.4
-15.9
-12.0
-12.2
2016
2017
Q4 2016
Q3 2017
Q4 2017
Interest income
Interes expenses
Figure 12: Net interest income of NLB Group by segments (in EUR million)
Key business activities
2016: 243.0 | 2017: 254.2
6%
144.6
136.9
2%
6%
71.2
72.8
36.9
34.9
key/mid/small
+
11.0
6.0
-45%
Restructuring
and workout
-33%
48.5
32.5
9%
15.4 16.8
-0.7 -0.2
69%
Corporate banking
in Slovenia
Retail banking
in Slovenia
Strategic foreign
markets
Financial markets
in Slovenia
Non-core markets
and activities
Other activities
2016
2017
Figure 13: Net interest income of NLB Group by segments (in EUR million) – quarterly comparison
4%
37.9
36.4
35.0
12%
27%
18.7 18.9
16.9
12.6
9.9 10.0
-36%
13.3
8.0 8.5
19%
5.6
4.2
3.6
Corporate banking
in Slovenia
Retail banking
in Slovenia
Strategic foreign
markets
Financial markets
in Slovenia
Non-core markets
and activities
Q4 2016
Q3 2017
Q4 2017
NLB Group 2017 Annual Report 40
Strategic foreign markets improved net
interest income by EUR 7.7 million or 6%,
due to the increased loan volume of 8%, or
EUR 203.4 million YoY, and stable interest
margins in the SEE region (0.03 percentage
point increase YoY).
Net interest income in Financial markets
decreased predominantly due to a
historically low yield environment, and 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 at the
end of 2016). However, a slight reversal of
this trend occurred in second half of 2017
due to the maturity of the Bank’s bond in
July, issued on international capital markets.
Net interest income in non-core markets
and activities amounted to EUR 16.8
million in 2017 (2016: EUR 15.4 million),
an increase of 9% YoY based on the
successful resolution of NPL.
Net non-interest income
Net non-interest income of the Group was
EUR 20.9 million or 13% higher than in
2016 at the level of EUR 179.3 million
(2016: EUR 158.4 million). The higher net
non-interest income in 3Q 2017 was due
to the positive non-recurring event from
the sale of the Czech non-core subsidiary
NLB Factoring in liquidation (EUR +2.5
million).
Net non-interest income was affected by
the regulatory costs in a total amount of
EUR 16.0 million, of which Slovenia (SRF
and DGS) totaled EUR 7.3 million and in
Strategic foreign markets (DGS) was the
amount of EUR 8.7 million.
Regular net non-interest income (excluding
non-recurring events 12) increased by 14%,
or EUR 20.9 million, and was impacted by
the following factors:
Figure 14: Net non-interest income (in EUR million)
13%
179.3
158.4
13.2
7.2
1.2
13.2
14.7
0.2
145.1
155.4
-8.3
2016
-4.2
2017
6%
-7%
0.1
1.6
39.6
37.9
45.0
39.5
0.2
2.5
2.8
41.8
4.2
40.2
-2.6
Q4 2016
Q3 2017
Q4 2017
Net fee and commission income
Net other income
Non-recurring items
Net income from financial transactions
Dividend income
Figure 15: Net non-interest income by segments of NLB Group (in EUR million)
Key business activities
2016: 132.1 | 2017: 144.2
7%
68.0
62.4
7%
29.2
27.3
key/mid/small
+
1.9
1.8
-3%
Restructuring
and workout
11%
47.1
42.5
123%
24.1
10.8
-76%
18.5
4.5
960%
7.2
-0.8
Corporate banking
in Slovenia
Retail banking
in Slovenia
Strategic foreign
markets
Financial markets
in Slovenia
Non-core markets
and activities
Other activities
2016
2017
Figure 16: Fee and commission income by segments
of NLB Group (in EUR million) – quarterly comparison
10%
18.2
17.6
16.0
10%
11.7 12.3 12.9
-4%
8.0
7.3 7.7
60%
135%
0.5 1.1 0.9
0.1 0.3 0.2
Corporate banking
in Slovenia
Retail banking
in Slovenia
Strategic foreign
markets
Financial markets
in Slovenia
Non-core markets
and activities
Q4 2016
Q3 2017
Q4 2017
NLB Group 2017 Annual Report Figure 14: Net non-interest income (in EUR million)
41
Depreciation decreased by 2% YoY, while
employee costs remained stable. Employee
costs, net of a discretionary EUR 3.0
million in performance rewards distributed
to employees in the Bank under collective
agreement, were EUR 3.9 million, or 2%
lower YoY because of the 2% decrease in
the number of employees in 2017 – mostly
in the Bank and non-core subsidiaries.
The Group also created HR provisions
totaling EUR 8.6 million (shown in ‘Other
Provisions’ in the Financial Statement), of
which EUR 8.4 million was in the Bank.
As a result, the CIR amounted to 58.3%, a
strong improvement (2.6 percentage point)
compared to 2016.
12.
Non-recurring events in 2016: positive
effects of divestment a non-core
equity stake (Trimo) at a profit of EUR
5.5 million (comprising of realised
gain on equity investment and fee
received as a financial consultant
for the bank syndicate) and Visa
shares at a profit of EUR 7.8 million.
Non-recurring events in 2017: the
positive effects from non-core equity
participation in the amount of EUR
+9.5 million, a court settlement
with Zavarovalnica Triglav (EUR +1.2
million), and sale of Czech non-core
subsidiary NLB Factoring in liquidation
(EUR +2.5 million).
The profit growth was
supported by the increase
of net non-interest income,
especially net fees and
commissions income.
• EUR 10.3 million higher net fees and
commissions, of which EUR 6.9 million
derive from an increase in transactional
activities such as credit cards, ATMs,
payments, and transactional accounts;
and EUR 4.0 million derives from
ancillary banking services, i.e.
investment funds and bank-assurance.
• EUR 7.5 million higher net profit from
financial operations, of which EUR
2.2 million was attributed to the sale
of the bond portfolio, while the 2016
result includes negative effects in the
amount of EUR 3.0 million from the
prepayment of wholesale funding.
• EUR 4.1 million higher net other
income due to positive effects from
lower payment to SRF (EUR - 1.2
million YoY), lower expenses relating
to revaluation of investment property
(EUR - 6.8 million), and a higher
contribution from real estate activities
(EUR 5.3 million in 2017).
The net non-interest income of Key
business activities continues to increase in
Slovenia and in Strategic foreign markets.
Financial markets in Slovenia increased net
non-interest income in 2017 to EUR 7.2
million, compared to negative net non-
interest income of EUR 0.8 million in 2016
when the result included the negative effects
in the amount of EUR 3.0 million from the
prepayment of wholesale funding – while in
2017 strong revenue growth of investment
banking/securities services was realised.
Non-core markets and activities contributed
significantly (EUR 24.1 million) to the
Group’s net non-interest income, most
of which were related to non-recurring
events. Significant progress was realised in
contributing to non-interest income from
real estate management, amounting to
EUR 5.3 million.
The other activities segment includes
categories in the Bank whose operating
results cannot be allocated to individual
segments. Net non-interest income of the
segment was lower by EUR 14.0 million
YoY particularly due to the non-recurring
income from the VISA EU share
transaction (EUR 7.8 million) which had
positive impact on the result in 2016.
Net fees and commissions
The most important source of net
non-interest income are net fees and
commissions, which were higher by EUR
9.8 million. The increase was recorded in
most segments and products, with relatively
strong growth in the Retail segment
in Slovenia, and in Strategic foreign
markets due to efforts to grow revenue
on transactional activities such as credit
cards, ATMs, payments, and transactional
accounts, as well as on assets management.
Lower Operating costs
Total costs amounted to EUR 284.7 million
(of which EUR 1.8 million comprised of
non-recurring costs related to restructuring
and the privatisation process, as well as
EUR 3.0 million in performance rewards),
and declined overall by 2% YoY in 2017.
Special attention was given to general
and administrative expenses, with 4%
savings achieved as a result of successful
cost-optimisation efforts. The Group
significantly improved 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. The cost-
reduction trend is present in most members
of the Group, especially in the Bank and in
non-strategic members.
NLB Group 2017 Annual Report 42
Figure 17: Structure of net fees and commissions of NLB Group (in EUR million)
Release of net impairments and
provisions
Negative costs of risk on the back of strong
macroeconomic conditions in Slovenia
was driven by a benign credit environment
in most markets where the Group banks
operate.
The Group released net impairments and
provisions in the amount of EUR 29.5
million, which was the result of successful
collections, resolution of non-performing
receivables, and improvement in the quality
of the credit portfolio’s structure with the
release of pool provisions in H1 2017.
Namely, the Group recalculates the PD’s
for pool provisions once a year, and the full
impact was recognised in the results for
H1 2017. Positive trends in the economic
environment, and consequently a lower
transition of performing customers into
default in years 2016 and 2015 contributed
positively to lower percentages of PD’s, and
consequently to lower pool provisions –
mainly in the segment of corporate clients.
The effect of the release of impairments on
the Group level in the segment of corporate
clients amounts to approximately EUR
21 million. In contrast, in 2016 additional
impairments related to the non-performing
portfolio sale in the amount of EUR 25.8
million were formed. Accordingly, the net
cost of risk decreased from 38 basis points
to -62 basis points.
Other impairments and provisions were
established in the net amount of EUR 13.9
million, of which most material were HR
provisions (EUR 8.6 million).
1.8
4.1
4.3
1.1
3.3
5.0
145.7
13.8
11.9
39.6
21.3
49.6
7%
155.4
17.1
10.9
43.1
22.9
51.3
2016
2017
Payment transactions
Cards and ATM operations
Basic accounts
Guarantees
Investment banking
Asset managment
Bancassurance
Other
Figure 18: Total costs of NLB Group – evolution YoY (in EUR million)
CIR:
60.9%
58.3%
289.5
-0.9
-3.4
-0.5
284.7
165.4
95.8
28.3
2016
-1%
-4%
-2%
Employee
costs
Other general
and administrative
expenses
Depreciation and
administration
164.5
92.4
27.8
2017
Depreciation and administration
Other general and administrative expenses
Employee costs
Figure 19: NLB Group credit impairments and provisions, and costs of risk (in bps)
in EUR million
50
30
10
-10
-30
-50
-70
38
26
2016
-43
-62
2017
Net credit impairments and provisions
Cost of risk (in bps)
in bps
60
40
20
0
-20
-40
-60
-80
NLB Group 2017 Annual Report 43
Statement of financial position
Table 5: Statement of financial position of NLB Group and NLB
in EUR million
NLB Group
NLB
31 Dec 2017
31 Dec 2016
Change YoY
31 Dec 2017
31 Dec 2016
Change YoY
ASSETS
Cash, cash balances at central banks, and
other demand deposits at banks
Loans to banks
Loans to customers
Gross loans
- corporate
- individuals
- state
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
LIABILITIES
Deposits from customers
- corporate
- individuals
- state
Deposits form banks and central banks
Debt securities in issue
Borrowings
Other liabilities
Subordinated liabilities
Equity
Non-controlling interests
1,256.5
1,299.0
510.1
6,994.5
7,641.2
3,705.0
3,470.2
466.0
-646.8
435.5
6,997.4
7,900.8
3,917.4
3,190.7
792.7
-903.4
2,963.4
2,778.0
72.2
87.7
2,891.2
2,690.3
43.8
240.2
35.0
194.4
43.2
280.5
34.0
171.4
12,237.7
12,039.0
9,879.0
2,260.1
7,362.9
256.0
40.6
0.0
353.9
248.7
27.4
9,439.2
2,182.6
6,905.1
351.5
42.3
277.7
455.4
271.6
27.1
1,653.6
1,495.3
34.6
30.3
TOTAL LIABILITIES AND EQUITY
12,237.7
12,039.0
Figure 20: Total assets by country (in %) 13
-3%
17%
0%
-3%
-5%
9%
-41%
-28%
7%
-18%
7%
1%
-14%
3%
13%
2%
5%
4%
7%
-27%
-4%
-100%
-22%
-8%
1%
11%
14%
2%
570.0
462.3
4,669.6
4,986.7
2,502.5
2,121.2
363.1
-317.1
617.0
408.1
4,928.9
5,433.7
2,769.1
1,990.2
674.4
-504.7
2,460.3
2,295.2
72.2
87.7
2,388.1
2,207.6
356.9
346.7
96.3
23.9
73.5
98.6
23.3
60.0
8,712.8
8,778.0
6,811.6
1,434.7
5,252.3
124.7
72.1
0.0
266.5
181.5
-
6,617.4
1,442.3
4,943.5
231.7
75.0
277.7
342.7
200.3
-
1,381.2
1,264.8
-
-
8,712.8
8,778.0
-8%
13%
-5%
-8%
-10%
7%
-46%
-37%
7%
-18%
8%
3%
-2%
2%
23%
-1%
3%
-1%
6%
-46%
-4%
-100%
-22%
-9%
-
9%
-
-1%
Slovenia
Macedonia
BiH
Kosovo
68%
10%
10%
5%
Montenegro
Serbia
Other
4%
3%
0%
13. Geographical analysis based on location of assets of the Group.
Total assets increased by EUR 198.7
million in 2017, and totaled EUR 12,237.7
million. The increase due to the continued
inflow of deposits was partially offset
by the lower debt securities in issue and
borrowings.
NLB Group 2017 Annual Report
44
Gross loans in Key business activities
slightly increased by EUR 66.6 million,
or 1% compared to the end of 2016. The
decrease in gross loans in Key corporate
segment in Slovenia was partially
neutralised by strong volume growth in the
Mid and Small corporates in Slovenia (10%
YoY), in the Retail segment in Slovenia
(7% YoY) and in Strategic foreign markets
(8% YoY) with record growth in Serbia,
Macedonia, and Kosovo.
As a result of continuous efforts to wind
down non-core exposures, gross loan
volumes continued to decrease to the
level of EUR 448.5 million (-34% YoY),
now representing 6% of the Group’s total
gross loans outstanding (9% in 2016). The
segments’ NPL continued to decrese and
reached EUR 279.7 million (2016: EUR
588.3 million). The segment includes EUR
142.0 million of gross performing leasing
contracts in NLB Leasing d.o.o., Ljubljana
(in liquidation).
Figure 21: Total assets of NLB Group – structure (in EUR million)
11,821.6
561.9
2,577.7
12,039.0
529.1
2,778.0
12,237.7
513.3
2,963.4
7,088.2
6,997.4
6,994.5
1,593.8
1,734.6
1,766.6
31 Dec 2015
31 Dec 2016
31 Dec 2017
Other
Financial Assets
Loans to customers
Cash, CB at central banks, demand deposits at banks, and loans to banks
Figure 22: NLB Group gross loans to customers by core segments (in EUR million)
Key business activities in loan book
2,309.0
2,457.2
2,660.6
1,959.0
6,246.3
1,992.1
6,730.0
2,122.5
7.7%
YoY
6,796.6
1.0%
YoY
1,978.3
451.0
606.0
2,280.7
230.7
254.7
2,013.5
175.1
221.1
31 Dec 2015
31 Dec 2016
31 Dec 2017
Financial markets in Slovenia
Strategic foreign markets
Retail banking in Slovenia
Key, mid, and small enterprises
Restructuring and workout
Figure 23: NLB Group gross loans to customers by non-core segment (in EUR million)
NPL
% NPL
887.9
77%
1,038.2
555.8
482.4
588.3
78%
675.9
363.7
312.2
279.7
63%
448.5
199.5
249.0
31 Dec 2015
31 Dec 2016
31 Dec 2017
Non-core Bank
Non-core members
NLB Group 2017 Annual Report
45
Figure 24: Total liabilities of NLB Group – structure (in EUR million)
LTD
75.1%
10,371.2
311.4
363.6
2,168.5
74.1%
10,513.4
298.7
351.5
2,182.6
70.8%
10,549.6
276.1
256.0
2,260.1
6,493.5
6,905.1
7,362.9
305.0
609.0
120.2
277.7
497.7
394.5
31 Dec 2015
31 Dec 2016
31 Dec 2017
Other liabilities
State deposits
Corporate deposits
Retail deposits
Debt securities
Bank borrowings
Figure 25: NLB Group CET 1 capital (in EUR million) and CET 1 ratio (in %)
16.2%
17.0%
15.9%1
1,283
1,336
1,362
31 Dec 2015
31 Dec 2016
31 Dec 2017
CET1 capital
CET1 ratio
1. Envisaging dividend payment in 100% of net profit after tax of the Bank (EUR 189 million).
Total liabilities increased slightly and
amounted to EUR 10,549.6 million.
Deposits accounted for 94% of the total
funding of the Group. The retail and the
corporate segment deposits increased by
7% and 4% respectively, however this was
offset by the maturity of issued NLB bond
(EUR 282.0 million in July 2017) and lower
state deposits (EUR 95.5 million).
At the end of December 2017, the LTD
(net) was 70.8% on the Group level,
having decreased by 3.3 percentage points
compared to the end of December 2016.
This was mainly a result of growing,
however still moderate loan demand and
increased the volume of deposits.
Capital and Capital Adequacy
OCR includes the Pillar 1 requirement
(prescribed by the CRR regulation) and
the Pillar 2 requirement (bank specific,
set by the regulator) – which taken
together represent the total SREP capital
requirement (TSCR) – as well as the
applicable combined buffer requirement
(CBR; partially prescribed by law and
partially set by the regulator) which the
bank must comply with in order to be able
to pay discretionary payouts (e.g. dividends)
without any restrictions. In 2017, OCR
amounted to 12.75% for the Bank on the
consolidated level, consisting of:
• 11.50% TSCR (8% Pillar 1 requirement
and 3.50% Pillar 2 requirement); and
• 1.25% CBR (1.25% Capital
conservation buffer and 0%
Countercyclical buffer).
The applicable OCR requirement for 2018
has been raised to 13.375% (the increase
is due solely to the gradual phase-in of the
capital conservation buffer as prescribed
by law).
NLB Group 2017 Annual Report 46
Table 6: Total risk exposure (in EUR million) for NLB Group
Total risk exposure amount (RWA)
RWA for credit risk
RWA for market risks + CVA
RWA for operational risk
31 Dec 2017
31 Dec 2016
31 Dec 2015
Change YoY
8,546
7,096
501
950
7,862
6,865
105
893
7,927
6.850
147
931
8.7%
3.4%
378.6%
6.4%
The capital adequacy of the Group
and the Bank at the end of year 2017
remained strong, at a level which covers all
current and announced regulatory capital
requirements, including capital buffers and
other currently known requirements, and
the Pillar 2 Guidance. Moreover, it is within
the stated risk appetite limit and above the
EU average as published by the EBA.
In 2017, the capital of the Bank and the
Group consists merely of the components
of top quality CET 1 capital (no
subordinated instruments that would rank
in lower capital categories), which is why
all three capital ratios (CET 1 ratio, Tier 1
capital ratio and the Total capital ratio) are
the same.
At the end of December 2017, the capital
ratios for the Group stood at 15.9% 14
(or 1.1 percentage point lower than at the
end of 2016) and for the Bank at 21.8%
(or 1.6 percentage point lower than at the
end of 2016). The lower Group’s capital
adequacy derives from higher RWA. The
RWA for credit risk increased by EUR
231.7 million, mainly for retail exposures
(EUR 209.7 million) due to consumer and
housing loan growth. RWA for market risks
and CVA increased by EUR 395.9 million,
particularly as a result of the correction 15
of treatment of the FX position on a
consolidated level and treatment of
equity investments in non-euro subsidiary
banks. The requested correction relates to
structural positions arising from operations
of the Group’s non-euro subsidiaries banks.
These positions are long, non-trading and
deliberately taken. On a consolidated level,
foreign exchange translation differences
from these positions are recognised in the
consolidated capital and do not have an
impact on the Group’s profit and loss. By
keeping its structural position open the
Group maintains a capital ratio insensitive
to foreign exchange movements. The
Bank will try to partly or fully exclude this
position from an open FX position in the
future (by getting the approval from the
regulator). The increase in the RWA for
operating risks (EUR 56.7 million) arises
from the higher three-year average of
income, which represents the basis for the
calculation.
Further information on capital and capital
adequacy is available in the Note 5.23 to
the Audited Annual Financial Statements.
Strong liquidity position
The Group liquidity remains exceptionally
strong, with significant amounts of liquidity
reserves in cash and placements with the
central bank (EUR 710 million 16), securities
(EUR 2,974 million), placements with
banks (EUR 694 million), and ECB eligible
loans (EUR 718 million). The Group
holds a strong liquidity position at both the
Group and subsidiary bank levels, standing
well above the targeted risk appetite profile.
14.
Envisaging dividend payment in
100% of net profit after tax of the
Bank (EUR 189.1 million).
15.
Requested by ECB.
16.
Excluding obligatory
reserve with CB.
NLB Group 2017 Annual Report
Chapter 6
NLB Group Strategy
Following a period of restructuring after
Innovative solutions
the financial crisis, the Group evolved
addressing customer needs
into a sustainably profitable client-
oriented banking group, focused on core
• Omnichannel product distribution.
markets in Slovenia and SEE with the
primary objective to become a modern,
competitive, efficient, and effective
bank. The Group is fully conscious of
its future business challenges and is
• End-to-end customer solutions, offering
comprehensive solutions within an
ecosystem of services.
addressing these with a portfolio of short-
• Partnership programmes, aimed at
47
The NLB Group’s 2020 Vision is
to become an innovative bank
creating simple, customer-
oriented solutions with an
exclusive strategic focus on
Slovenia and countries in SEE.
Regional specialist
• Strategic focus to establish and reinforce
Group’s regional specialist position.
• The 2017 result puts the Group in the
top position across target SEE countries
under the new unified brand.
• Core foreign banking subsidiaries are
self-funded, and profitable with a solid
capital adequacy.
and medium-term strategic initiatives,
as well as a transformation of its IT
systems. In order to be able to effectively
achieve the Group’s strategic goals, the
strengthening customer relationships by
creating additional products and services
for customers.
The need for a strategic response to
digitalisation
employees of the Group are acquiring
Simplicity champion
new knowledge and capabilities, along
with introducing new ways of working.
• Simple and understandable products,
fast processes at low cost.
Strategy of the Group through 2020
• Effective procurement practices,
efficiency improvements in facility
management, and other cost
rationalisations.
• Redesigning of end-to-end processes
and elimination of simple tasks through
automation.
• Transformation and modernisation of
the Group’s IT operations.
The Group’s 2020 Vision is to become an
innovative bank creating simple, customer-
oriented solutions with an exclusive
strategic focus on Slovenia and countries in
the SEE.
The Group’s strategy puts forward strategic
initiatives with short- and medium-term
impact that aim to modernise and improve
the Group’s operations, including:
enhancing revenues, reducing costs, and
improving its growth prospects. The key
priorities of the Group’s strategy are as
follows:
The Group recognised the importance
of digital transformation very early and
formulated a comprehensive strategic
response. The Group’s digitalisation efforts
extend to internal operations of the Bank
including digitalisation of the workplace
and automation. Successful digitalisation
requires a significant overhaul of IT
infrastructure and capabilities, as well as
changes in innovation and development
processes with a corresponding change of
enterprise culture.
The Group’s comprehensive digital
transformation agenda was formulated
based on a thorough reflection of the
impact of digitalisation in its home
markets in Slovenia and SEE, taking into
consideration the strategic choices at hand.
NLB Group 2017 Annual Report 48
Comprehensive IT strategy lays
technological foundations for
digital transformation of NLB
The Bank thoroughly analysed its
application architecture through three
main aspects: the level of business support,
IT architecture maturity, and (cost)
effectiveness. Based on the findings of such
analyses, the Bank opted for a variation of
technology transformation focusing firstly
on customer experience: starting with
enhancing and building the missing client-
facing capabilities, enhancing information
management, and subsequently
concentrating on rationalisation and
consolidation of the existing legacy IT
systems.
These strategic initiatives are closely
following the industry architectural
standards aiming at solution flexibility,
scalability, and modern development
capabilities that will be available to any
subsidiary of the Group.
The Group puts special emphasis on
improvement of cyber security measures.
New way of working and readiness for
change
In order to be able to execute its strategic
transformation agenda, the Group
recognised that further company-wide
changes are required.
Changes in innovation and
NLB is undertaking investments into
development processes
key capabilities for digital banking
The Bank is actively exploring possibilities
for improving its IT development process
to keep pace with the demands of a digital
transformation. This involves foreseen
adoption of agile development models,
and steps in the direction of open models
of innovation through collaboration with
start-ups, as well as start-up incubators and
accelerators.
Cultural change
To execute its strategic agenda, the Group
needs to acquire new capabilities and
introduce new ways of working. The
Group approached cultural change by first
extensively communicating transformation
goals highlighting competencies and
capabilities needed to achieve them.
Secondly, the Bank introduced tools for
digitalisation of the workplace that support
new, collaborative work models. Thirdly,
the Bank is introducing new organisational
models for effective project work.
The digital transformation agenda is
about mastering the integration, data
management, and digital channel
capabilities that may profoundly change
the business model of financial institutions.
To respond to these challenges, the Group
has included such capabilities among its
enterprise strategy goals, and has initiated
several strategic projects to attain such
business aspirations:
• platform for creating digital products
and services in support of omnichannel
strategy,
• customer relationship management
solutions,
•
integration capabilities,
• payments (contactless, instant payments,
mobile, and different micro payments),
• data management with special focus on
data governance and advanced analytics,
• document management with intelligent
process management capabilities.
Medium-term strategic and financial
targets
Based on the measures and potentials
outlined above, the Bank set the following
medium-term financial targets for the
Group:
> 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 pay-out
(as a percentage of
the Group’s profits)
In 2017, the Group’s trend of improvement
in profitable operations continued achieving
already a significant part of its medium-
term strategic and financial goals. However,
to sustain and improve its profitability
further the Group will have to continuously
improve revenue growth and cost efficiency.
NLB Group 2017 Annual Report
49
The NLB Group is consistently implementing
an extensive portfolio of strategic initiatives
that address the key business challenges
for the Group. We moved from planning
the change to executing it. The Group is
delivering on its strategic promise to launch
innovative solutions addressing customer
needs. Furthermore, it is responding to
digitalisation and is undertaking an
overhaul and upgrade of a number of its
IT systems. The Group is embracing new
ways of working, promoting cross-functional
collaboration, and becoming more agile. In
light of these accomplishments, the motivation
and ability of the whole organisation to
evolve is evident. We are ready for change.
Luka Repanšek
General Manager, Strategy
and Business Development
NLB Group 2017 Annual Report 50
Chapter 7
Regulatory
Environment
A number of EU and Slovenian
regulatory requirements were adopted
in 2017, following different ongoing
regulatory reforms. This chapter
focuses on the material ones.
notifying the EBA, and the RTS setting
technical requirements on development,
operation, and maintenance of the
electronic central register, as well as on the
access to the information contained therein.
Regarding the Payment Services area,
further changes of national legislation are
expected regarding the implementation
of the Directive 2015/2366 on payment
services in the internal market (PSD2).
PSD2, inter alia, extends the scope 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.
During 2017, the Bank already started
with implementation activities and
monitored the draft of national legislation
implementing the PSD2, as well as
several directly applicable regulatory
and implementing technical standards
further regulating the PSD2 requirements
which will need to be complied with and
affecting also, inter alia, the Application
Programming Interface (API) management
PSD2 system availability. Therefore,
the Bank’s implementation activities
also focused on monitoring the draft
requirements of the Regulatory technical
standards (RTS) on Strong Customer
Authentication and common and secure
communication, Implementing technical
standards (ITS) on the details and structure
of the information entered by competent
authorities in their public registers and in
During 2017, the Bank aligned with the
new Prevention of Money Laundering
and Terrorist Financing Act (ZPPDFT-1),
transposing the Directive (EU) 2015/849
on the prevention of the use of the
financial system for the purposes of
money laundering or terrorist financing,
and regulations further defining these
regulatory requirements. These changes
present a major step forward in improving
the effectiveness within the EU to combat
the laundering of money, and countering
the financing of terrorist activities, inter
alia, through the 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 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, the 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.
In 2017, the EC also adopted a proposal
amending the CRD, the CRR, and the
BRRD. Proposed amendments include,
among other measures, enhancing the
resilience of EU financial institutions and
financial stability, supporting bank lending
to the EU economy, and accelerating banks’
role for deeper and more liquid EU capital
markets in order to form an EU capital
markets union.
The ZPotK-2 entered into force on 3
March 2017, which introduced minimal
standards for lending process managerial
employees, their remuneration policies, and
business strategies, as well as providing an
informational credit cost calculation to the
consumer on a uniform standard template
(ESIS).
During 2017, the Bank ran several
implementation activities to ensure timely
implementation of 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, on the free movement of such
data, and repealing Directive 95/46/EC
(GDPR), which was already 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), all of which require
adaptation and modernisation 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
A number of EU and
Slovenian regulatory
requirements were adopted
in 2017, following different
ongoing regulatory reforms.
NLB Group 2017 Annual Report 51
introduce a number of changes to the
banking sector’s market infrastructure
and conduct rules (including enhanced
suitability requirements), and introduce new
investor protection measures – including
product governance requirements. The
national legislation transposing MiFID II
is expected to be adopted during 2018,
and the Bank will align with the new
requirements of the national legislation,
as well as the different regulatory and
implementing technical standards and other
EU regulatory acts in due course.
In 2017 the Bank was faced with many
complex and demanding regulatory changes
in different areas. In Slovenia, the MifID II,
PSD2, and the laws further regulating rules
under GDPR are waiting to be transposed
during 2018. During 2017, the Bank
identified over 170 different regulatory
changes relevant for the Bank, whereas at
the Group this number is much higher.
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 obligations to
implement appropriate security measures
and to notify the relevant stakeholders
about personal data breaches. The GDPR
also gives, inter alia, 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. The national
legislation regulating further rules set under
the GDPR is expected to be adopted in the
first months of 2018.
In the area of financial markets,
during 2017, the Bank continued with
implementation activities to ensure timely
implementation of the MiFID II, and
the MiFIR rules, along with a number
of delegated regulatory acts regarding
financial market transactions, enhanced
investor protection, transparency, and
reporting obligations. MiFID II introduced
a number of new measures which are
designed to overhaul existing rules for
market infrastructures (including the
application of regulatory requirements to a
new category of multilateral, discretionary
trading venues for non-equities, the
Organised Trading Facility), increase
transparency and transaction reporting
requirements, enhance existing conduct
of business requirements and supervisory
enforcement powers, increase the regulation
of commodities business, and introduce
new rules for third-country firms accessing
EU markets. The new requirements
NLB Group 2017 Annual Report 52
Weekly meeting with the President of the Management
Board Blaž Brodnjak, responsible for Strategy and Business
Development, Legal and Secretariat, Communication,
Human Resources and Organisation Development, Group
Steering, Retail and Private Banking and Corporate Banking
NLB Group 2017 Annual Report 53
NLB Group 2017 Annual Report 54
Blaž Brodnjak
President & CEO
Jana Benčina Henigman
General Manager, Group Steering
NLB Group 2017 Annual Report 55
Jana Benčina Henigman
General Manager, Group Steering
NLB Group 2017 Annual Report 56
Tanja Piškur
General Manager, Development
and Sales Management
Vincenc Jamnik
General Manager, Mid Corporates
NLB Group 2017 Annual Report 57
Nada Drobnič
General Manager, NLB Contact Centre
NLB Group 2017 Annual Report 58
Andrej Lasič
General Manager,
Large Corporates
Helena Belingar
General Manager, Trade Finance Services
NLB Group 2017 Annual Report Andrej Lasič
General Manager,
Large Corporates
Luka Repanšek
General Manager, Strategy
and Business Development
59
Marko Jerič
General Manager, Legal and Secretariat
NLB Group 2017 Annual Report 60
Lotti Natalija Zupančič
General Manager, Private Banking
Tanja Ahlin
General Manager, Distribution Network
NLB Group 2017 Annual Report 61
Vesna Vodopivec
General Manager, Human Resources
and Organisation Development
Andrej Krajner
General Manager, Communication
NLB Group 2017 Annual Report 62
Chapter 8
Retail Banking
in Slovenia
The Bank maintained its leading
position on the Slovenian market
through a strong focus on upgrading
client digital experience and
satisfaction. Innovativeness and
digital orientation enabled the
Bank to further enhance customer
relationships and achieve growth in
all business areas, while reducing costs
and streamlining internal processes.
Routine and standardised services
are being simplified to become
gradually available to the customer
as a digital experience available
24/7, while personal interactions in
branches focus on more complex
transactions and advisory services.
Retail’s segment in Slovenia profit before
tax amounted to EUR 41.7 million, or 52%
higher YoY. Growth was based on the net
non-interest income increase and improved
cost of risk.
Net interest income was still under
pressure given the continued low interest
environment, nevertheless it remained
stable due to growth of retail loan portfolio.
In 2017 costs were stable and the cost of
risk remained low.
Loans to retail clients in Slovenia increased
by EUR 130.4 million, or 7% YoY.
Especially noticeable was a pickup in the
housing loans segment.
Market leader in retail banking
Retail banking remains the solid
in Slovenia
anchor of the Bank. With leading
market shares in retail net loans and
deposits, widespread branch network,
and by constant development of
new products and services, the Bank
is ready for all future challenges.
The Bank maintained its leading position
with a market share in retail lending
of 23.4% and 30.7% in deposit-taking.
Compared with 2016, market shares have
decreased by 0.1 percentage point in
lending, and increased by 0.3 percentage
points in deposit-taking. The market
share of the volume of new housing loans
approved in 2017 increased to 27% (24%
in 2016).
The NLB Contact Centre is the largest
bank contact centre in Slovenia, with
competent advisers available to customers
24 hours a day, 7 days a week.
Roughly a quarter of the Bank’s clients
have a personal adviser. High quality client
experience is provided by the experienced
and well-trained personal advisors, whereby
personal services are available to the client
and its family members. The expertise and
level of service is confirmed by customer
satisfaction index, which is above average
when compared to competition.
#1 in private banking with best-in class-
advisory and asset management services
Private banking is 15 years in operation
in the Bank and has the leading position
among private banking providers in
Slovenia with increasing number of clients
(8.4% YoY). The private banking team of
highly-skilled consultants are entrusted with
EUR 747 million (34.8% increase YoY) of
client’s assets.
Complementing banking services
with asset management and
insurance products
NLB Skladi, which products are exclusively
sold via the Bank’s network, is the market
leader with a 29.93% market share (2.71
percentage points increase YoY).
NLB Skladi business continued to grow
with net inflows of EUR 93.2 million into
mutual funds and EUR 32.3 million into
discretionary portfolios. At the end of 2017,
total assets under management amounted
to EUR 1.2 billion (compared to EUR 1.1
billion at the end of 2016).
The Bank operates the largest branch
network in the country. Its branch network
is still the main sales channel, with 108
branches and with the largest ATM
network (557 ATMs represent 33.8%
market share as at 31 December 2017).
NLB Insurance company NLB Vita
increased a market share in classical life
insurance products of 13.5%, up from
12.5% at the end of 2016. Its insurance
products are also exclusively sold via the
Bank’s network.
NLB Group 2017 Annual Report Table 7: Performance of the retail banking segment in Slovenia
in EUR million consolidated
Highlights:
Retail banking in Slovenia
63
Change
• The Bank operates the largest branch
network in the country, with 108
branches and with 557 ATMs.
• Well recognised competence in
client advisory and relationship
management was confirmed with an
above the competition average in the
overall client satisfaction index.
• The Bank was the first on the Slovenian
market to enable customers access via
web chat and video call, use of contactless
ATMs, and acquisition of a consumer loan
through a mobile app (paperless solution).
• High accessibility through an omnichannel
approach with a traditional and
fully-fledged digital banking service,
supported by the largest 24/7 Contact
Centre on the Slovenian market.
• Leading position in private banking.
• NLB Skladi is the largest manager of
mutual funds on the Slovenian market,
with a market share of close to 30%.
• NLB Vita successfully increased the
coverage of banking customers with
insurance products, whereby the
Bank in 2017 distributed more than
70% of all life insurance policies sold
through the banking channel.
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
Other
Deposits from NBS
Non-performing loans (gross)
2017
72.8
68.0
140.7
-100.8
40.0
-2.9
4.6
41.7
2,083.9
2,122.5
1,324.6
525.0
272.9
2016
71.2
62.4
133.6
-101.1
32.4
-10.2
5.2
27.4
1,952.7
1,992.1
1,227.4
486.8
277.8
5,537.1
5,224.3
47.8
49.9
2%
9%
5%
0%
23%
-71%
-10%
52%
7%
7%
8%
8%
-2%
6%
-4%
Figure 26: Overview of the market shares in Slovenian retail banking
Retail net loans
(September 2017)
Retail deposits
(September 2017)
Branch network
(Latest) ²
23.4%
30.7%
108
Nova KBM1
12.2%
Nova KBM1
16.4%
Nova KBM
70
SKB Banka
11.5%
Abanka
11.7%
Abanka
59
Abanka
9.6%
SKB Banka
8.6%
SKB Banka
56
UniCredit Bank
8.3%
Intesa Sanpaolo
8.2%
Intesa Sanpaolo
52
Source: Association of Slovenian Banks, Annual Reports
1. Data as of 30 June 2017.
2. NLB as of 31 December 2017, Nova KBM, SKB and Intesa Sanpaolo as of Dec-16; Abanka as of Jun-17.
NLB Group 2017 Annual Report 64
Figure 27: Assets under management and number of private banking clients
1,077
554
1,009
474
858
377
1,126
1,168
747
631
Dec-14
Dec-14
Dec-15
Dec-15
Dec-16
Dec-16
Jun-17
Jun-17
Dec-17
Dec-17
AuM (EURm)
Clients
Clients
Figure 28: NLB Skladi and NLB Vita (traditional life products) market share evolution
In 2017 NLB Vita charged EUR 70.8
million in gross premiums (EUR 63.8
million in 2016), and as at 31 December
2017 the total balance sheet reached EUR
462.9 million (EUR 409.5 million at the
end of 2016). With the expansion of
the product portfolio and the increasing
awareness of the importance of adequate
insurance coverage, NLB Vita successfully
increased the coverage of banking
customers with insurance products.
In cooperation with the insurance company
GENERALI Zavarovalnica d.d., the Bank
provides non-life insurance products to
the Bank’s clients, including car and home
insurance. In 2017, an additional 22.1%
polices were acquired. Gross written
premium for 2017 amounted to EUR 3
million, representing a 36.4% increase YoY.
29.9%
27.2%
Growth of retail loan portfolio
16.7%
16.4%
15.2%
19.2%
6.0%
6.1%
7.4%
9.1%
24.8%
21.8%
11.4%
12.6%
12.5%
13.5%
2010
2011
2012
2013
2014
2015
2016
2017
NLB Vita
NLB Skladi
Figure 29: Housing loans portfolio (in EUR million)
40.3
26.8
18.2
11.8
1,324.6
1,227.4
97.2
Dec 2016
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Dec 2017
The volume of newly approved loans in
2017 increased by 14% YoY, while gross
loans increased to EUR 2,122.5 million
(7% YoY). The highest growth was achieved
in housing loan portfolio, reaching EUR
1,324.6 million at the end of 2017 (EUR
1,227.4 million at the end of 2016). In
2017, 21% more new housing loans were
approved compared to 2016.
High accessibility through
omnichannel approach
In 2017 19,571 of new users of NLB
Klik, and 55,625 new users of Klikin were
attracted. The process of digitalisation
continues rapidly. In 2017 the penetration
of the mobile app Klikin reached 16.4%.
Bringing banking experience close
to customer expectations
Retail banking in Slovenia serves over
743,000 clients, segmented according
to their life cycle and financial strength.
The Bank developed better knowledge
of customers’ life styles and behaviours
NLB Group 2017 Annual Report
65
Retail clients
Private banking
743,606
clients in total
653,801
active clients
481,284
payroll clients
24,261
new clients joined
the Bank in 2017
Contact Centre
1,795,504
cases were processed
80.6%
inbound contacts
via phone
19.4%
inbound contacts
via digital
5,521
inbound contacts
via chat & video
8.4%
more clients in private
banking than in 2016
1,168
private banking clients
34.8%
increase in the volume
of assets under management
746.9
million EUR assets
under management
Digital services
34.4%
digital users
91%
digital
payments
94.7%
more mobile bank
users than in 2016
34.4%
of contactless
payments
to tailor banking products, services, and
pricing models more appropriately.
The Bank focuses simple, efficient, and
innovative services to address customer
needs. The evolution of these areas as
perceived by the customers are followed
and measured by the annual customer
satisfaction survey. The results show that
customers’ satisfaction is on average higher
than in 2016. Furthermore, the overall
satisfaction level is above the average of
competitor banks. The Bank employees’
attitude toward customers remains
a competitive advantage; customers
appreciate a personal approach, reliability,
and professionalism. Trusting NLB is in
line with competitor banks’ average, while
a moderately increasing trend of the Bank’s
reputations continues.
Figure 30: Klikin penetration
(in %) and the number of users
16.4%
14.4%
12.3%
10.5%
8.6%
3
3
4
5
5
,
8
1
3
8
6
,
6
7
7
0
8
,
0
7
5
4
9
,
1
5
9
,
7
0
1
Dec-16 Mar-17
Jun-17
Sep-17
Dec-17
# of users
penetration
Figure 31: Overall satisfaction index
– retail customers in Slovenia
79
78
77
NLB Result 2017
NLB Result 2016
Results for competitors (average) 2017
NLB Group 2017 Annual Report
66
Innovative solutions based on customer
needs
The Bank is focused on developing and
implementing new and innovative solutions
using digital and mobile technologies in
order to meet the needs of customers, and
to adapt to the changing environment.
Following the NLB Group 2020 Strategy,
the Bank focuses on development of
omnichannel solutions. A number of new
solutions to improve user experience, such
as chat and video call, upgrades of the
mobile bank Klikin, and the web bank NLB
Klik, as well as further enhanced cards and
ATM functionalities, were introduced.
• The Bank launched a 24/7 chat and
video chat with a dedicated banking
specialist/consultant available through
the Bank’s contact centre, thereby
maintaining the human touch in
the digital age and overcoming the
restrictions of time or location. Online
chat is intended for general information
about the Bank’s offering or client
requests, while the online video call
is also intended for providing certain
services, such as financial transactions
up to EUR 15,000. Chat and video calls
are free-of-charge and available to all
customers.
• The Bank is the first bank on the
Slovenian market to enable customers to
apply for an Express loan using a user-
friendly mobile app (Klikin) 24/7 in only
a few minutes, without visiting a branch.
The entire loan process is conducted
via a mobile app, from the order to the
document signing with a cloud-based
The Bank is aware of
increasing user demands
in terms of digital
solutions. Therefore, we
are actively exploring new
opportunities to offer
better user experience.
digital certificate. Updates of the Klikin
app are also reflected in the significant
increase in the number of users, with
a penetration of 16.4% of the Bank’s
customers.
• The mobile bank Klikin’s updates in
2017 delivered features focused on user
needs that simplify everyday banking.
New modules (Savings and Deposits,
Loans) for customers were introduced,
as well as transaction and payment
enhancements, fingerprint login, and
other functional and user experience
upgrades.
• By upgrading the e-bank NLB Klik (18
years in operation), customers now have
the option of concluding certain NLB
Vita insurance products.
• The Bank is the 1st bank in Slovenia
to introduce contactless ATMs for
contactless ATM transactions (Cash
Withdrawal and Balance Inquiry) with
contactless cards.
• All internationally accepted cards
(Maestro, MasterCard, and Visa) are
issued only as contactless cards.
Banking business and customer habits
are impacted by digitalisation and new
technologies. Branches are becoming the
place for more focused and specific personal
advisory activities. On one hand, the Bank
actively manages the branch offices network
(in 2017 five branches were closed; the
current count is 108), and on the other the
Bank adapts the layout and appearance
of the branches by implementing an open
space concept (in 2017 in 15 branches).
Corporate Security is a constant challege
include banking services and products for
customers. Information/cyber security in
the Bank is constantly tested and upgraded
by applications and network security
assessments, penetration testing, and self-
assessment in the cyber security area.
The Bank is aware that a high level
of cyber security is not achieved only
by implementation of technical and
organisational measures. That’s why
the Bank is also focusing on educating
all employees about the importance of
information/cyber security, testing of
employee awareness on social engineering,
providing employees and customers
with safety notifications, especially in the
occurrence of incidents in the (global)
environment with potential impact on the
functioning of the Banks’ IT systems and/
or the Banks’ services and products.
Simplicity champion
Following the NLB Group 2020 Strategy,
the Bank focuses on development of simple
and understandable products and fast
processes at low cost. Some of the projects
completed in 2017 are:
• A NLB Housing loan without collateral
with a maximum maturity of 120
months, and up to a maximum amount
of EUR 50,000. In doing so, the
process of renting a housing loan for
NLB clients for smaller amounts was
simplified, and enabled them to achieve
goals more easily.
• For health insurance when travelling
NLB Vita Abroad, included a prepaid
MasterCard, allowing immediate
reimbursement of expenses incurred for
medical care of up to EUR 150.
In order to upgrade clients’ digital
experience and satisfaction, the Bank is
dedicating special attention to information/
cyber security, and consequently assuring
confidentiality, integrity and availability of
data, and information and IT systems that
• Instead of several different savings plans,
a new, more flexible NLB Skladi Saving
plan is available that doesn’t require
an initial deposit. The savings plan is
suitable for achieving long-term savings
targets such as saving for an additional
NLB Group 2017 Annual Report 67
108
branches
557
ATMs (33.8%
market share)
15.1%
increase in the volume
of payments via web
and mobile devices
pension (or early retirement), for the
needs of children in the future, or for the
purchase of a property.
• Within the investment life insurance
product groups of NLB Vita Multi
and NLB Investment Vita Multi
Senior new investment packages with
partial guarantees were introduced
to NLB Vita Global Share Equity 2,
NLB Vita Advanced Europe 3, and
NLB Vita South, Central, and Eastern
Europe packages. It provides a long-
term investment with low risk, with
the possibility of higher returns and
included life insurance.
• To ease the renewal process of
life insurance in the case where a
policyholder passes away, NLB Vita
Responsible offers policyholders the
conclusion of insurance with or without
a link to a loan. Furthermore, NLB Vita
Savings+, a new universal insurance (all-
life umbrella investment life insurance)
that can be adjusted to all life situations
and their requirements, was introduced.
• The volume of payments via the web
and mobile devices increased by 15.1%
compared to 2016, mostly due to the
implementation of new functionalities
of Klikin, and to the increase of users,
both the web bank NLB Klik and
mobile bank Klikin.
We are committed to our customers.
Digitalisation and innovation enable us
to develop better knowledge of our customers’
behaviours and anticipate their future needs.
We actively explore new opportunities to
offer better user experience, and to even
further enhance our customer relationships.
Tanja Piškur
General Manager, Development
and Sales Management
NLB Group 2017 Annual Report 68
Chapter 9
Corporate and
Investment Banking
in Slovenia
Corporate Banking
By understanding client needs and key
trends in banking and the broader
environment, and developing partnership
relationships, the Bank continues to
be a reliable partner to all segments
of corporates. The Bank offers a
full spectrum of financial services to
its clients, including lending, cash
management, payment services, trade
finance, as well as capital markets
advisory services. The strategic focus
remains a successful development of
relevant and efficient client-oriented
and technology-based solutions.
In 2017, the Corporate banking segment
in Slovenia realised a profit before tax in
the amount of EUR 52.8 million, or 90%
higher YoY, based on the higher release of
credit impairments and the growth in fees
and commissions income. Nevertheless, the
result was still affected by the low interest
environment and the generally very high
liquidity in the market.
The cost of risk was negative (i.e.
impairments and provisions have been
released on a net-basis), and was the result
of continued success in Restructuring and
Workout, as well as positive trends in the
economic environment. Improved quality
of the credit portfolio resulted in the release
of pool provisions.
Loans in key, mid, and small corporate
segments in Slovenia decreased in 2017
in the amount of EUR 267.2 million
(-12% YoY), impacted by prepayment
and repayment of some high-volume
exposure to government institutions, while
the restructuring and workout portfolio
was reduced by EUR 55.6 million due to
successful restructuring processes and write-
offs. Sterilized for the reduction (in line
with the strategic orientation of the Bank)
of state (-53% YoY), and restructuring
and workout (-24% YoY) loan portfolio,
corporate segment portfolio was stable
(+0.4% YoY). Corporate deposits decreased
by EUR 71 million (-6% YoY) in 2017. The
Bank is charging an asset management fee
on larger corporate deposits since the end
of 2016.
Market leader with a strong focus on
customers’ needs
NLB is the leading corporate bank in
Slovenia, with by far the largest client base,
servicing more than 47,000 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 cycle with the full range of banking
services provided with the expert advice
offered by the Bank’s professionals. In
cooperation with other Group members the
Bank constantly seeks synergies that best
suit clients and business in the SEE.
Despite strong competition, the Bank
maintained its leading position with a
market share of 20.8% (in 2016: 22.6%)
in corporate loans and in trade finance
services a market share of 25.6% (in 2016:
26.9%).
The primary focus with key Slovenian
corporates is on complex transactions
which require more time, knowledge,
experience, and professional services. In
such deals, synergies of the Group and
a comprehensive approach to individual
companies of the group are of paramount
importance, and thus delivered by the
Group.
The main focus for small enterprises is
online banking and simple products and
services, while one of the most important
elements of successful cooperation with
large and mid-corporates is a personal
approach. Moreover, the Bank strongly
believes in in-depth understanding of
the clients, mutual development, and
learning. Thus, in 2017 account managers
completed 7,282 visits to clients, and the
very well accepted series of local events for
mid corporates in cooperation with local
business entities continued.
Furthermore, in 2017, successful events
such as ‘How to optimise the operation of
the company with different approaches’
were organised in cooperation with the
regional Chambers of Commerce.
To help entrepreneurs understand their
finances easily, a calculator to plan and
monitor cash flows was published on the
Bank’s website.
NLB Group 2017 Annual Report Table 8: Performance of the corporate banking segment in Slovenia
in EUR million consolidated
Highlights:
Corporate banking in Slovenia
69
2016
Change
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
- corporate
-o/w Restructuring and Workout
- state
Deposits from NBS
Non-performing loans (gross)
Note: NBS – non-banking sector
2017
42.9
31.0
73.9
-43.6
30.3
22.5
52.8
2,026.3
2,188.6
1,939.3
168.6
248.7
45.9
29.2
75.0
-44.6
30.5
-2.7
27.8
2,307.4
2,511.3
1,985.2
221.4
526.2
1,080.9
1,152.0
262.8
346.2
• The Bank of choice for corporate
businesses with an increasing focus
on the SME segment and an extensive
range of financial products.
• Services focused on digitalisation
and modernisation.
• The NLB IEC represents good banking
-7%
6%
-1%
-2%
-1%
-
90%
practice in creating a supportive
entrepreneurial environment.
• Companies can communicate/
transact with the Bank through
various sales channels 24/7.
-12%
-13%
-2%
-24%
-53%
-6%
-24%
Figure 32: Overview of the market shares in Slovenian corporate banking
#1 bank for corporate clients
(corporate and state gross loans, Sep-17¹)
#1 bank by trade
finance services (Sep-17¹)
19.9%
2.5
EURbn
25.6%
518
EURm
1.1
EURbn
1.0
EURbn
0.9
EURbn
0.9
EURbn
Nova KBM
13.4%
Abanka
12.2%
UniCredit Bank
11.7%
SKB Banka
9.3%
262
EURm
241
EURm
230
EURm
182
EURm
SKB Banka
8.9%
Intesa Sanpaolo
8.2%
Abanka
7.8%
UniCredit Bank
7.7%
Source: Company information
1. Data for NLB as at 31 December 2017, Nova KBM as at 30 June 2017, other banks as at 30 September 2017
NLB Group 2017 Annual Report 70
Figure 33: Evolution of business volumes/segment (in EUR million)
Corporate banking overview in Slovenia
2,511
265
374
107
378
2,429
175
276
95
382
Key
business
1,872
57
97
2,511
175
442
33
115
2,188
142
477
1,978
2,013
2,281
1,387
1,501
1,742
1,421
2014
2015
2016
2017
Key
Mid
Small
Restructuring
Workout
Figure 34: Evolution of business volumes - Small, Mid and Key corporates (in EUR million)
Key corporates
Mid corporates
Small corporates
-18%
8%
19%
1,741.7
476.5
-56%
1,421.2
208.5
1,265.2
-4%
1,212.7
442.2
476.9
40.3
-16%
34.0
401.8
10%
442.9
2016
2017
2016
2017
Gross loans to corporate
Gross loans to state
96.8
115.1
36%
19%
0.1
115.0
2017
0.1
96.8
2016
Figure 35: Klikpro penetration
(in %) and the number of users
25.0%
20.5%
16.9%
12.4%
7.4%
3
0
4
,
3
3
0
6
,
5
3
3
5
,
7
2
2
1
,
9
4
4
0
,
1
1
Dec-16 Mar-17
Jun-17
Sep-17
Dec-17
# of users
penetration
Loan balances overall decreased, while the
attractive sub-segment of mid and small
enterprises and entrepreneurs grew by 8%
and 19% YoY, respectively.
In 2017, 2,391 new NLB Proklik and
8,112 new Klikpro users started using
the electronic and mobile bank. Klikpro
achieved a remarkable almost three-fold
increase in its number of users, and after
only a year and a half in operation reached
an outstanding 25.0% penetration.
Merchant acquiring in cards operations
continued performing solidly in 2017.
Namely, on merchants points of sale (POS)
acquired by the Bank, an increase of the
number of transactions was recorded
(6.3%); as well as an increase in the volume
of transactions (5.1%).
Improved customer satisfaction and
loyalty
Customer Satisfaction Survey carried
out at the end of 2017 confirms that on
average customers are more satisfied than
in 2016. The increase in satisfaction is most
noticeable in the context of user experience
(particularly in the context of digital use
of services), informing and servicing
customers, and the Bank’s products (where
daily banking services are rated the highest).
Acceptability of the Bank’s price offers
improved as well.
Attitude towards customers remains on a
high level. Customers especially appreciate
the personal approach, reliability,
professionalism, and knowing customers.
Trust in the Bank is stable, while its
reputation shows a positive trend. Most
customers declared they will remain loyal to
the Bank in the future.
NLB Group 2017 Annual Report 71
Companies are supported
throughout their business
cycle with a full range
of banking services,
and with the help of
the Bank’s experts.
deposit and a selected product of the
NLB Skladi. Furthermore, to enable
the clients to get short-term financing
quick and easy when needed, Express
loan and Express overdraft for the small
business segment were introduced. By
streamlining the process and response
time for concluding these products, cash
can now be available in a couple of
hours, if the customer is meeting certain
predetermined conditions.
• IEC, with its operations, is a good
banking practice of creating a
supportive entrepreneurial environment.
In 2017 243 external entrepreneurial
educational and corporate events were
organised. In the IEC Entrepreneurial
Gallery (show room), 54 different
entrepreneurs with their products were
hosted.
Innovative solutions based on customer
needs
Following the NLB Group 2020 Strategy,
the Bank focuses on development of
an omnichannel solution for corporate
segments. The Bank is focused on
simplifying and digitalising the solution
for the small enterprises and developing a
personal, professional approach with tailor-
made solutions for mid-sized companies
and large corporate clients.
• Among the most important development
solutions created for customers,
especially small enterprises, are the
upgrades of the mobile bank Klikpro,
which enabled login with a fingerprint
(Touch ID) for Apple and Android
users, using QR code by Capture and
pay functionality, and analytical tools
for monitoring and improving user
experience. Continuous enhancement
of the mobile bank Klikpro reflects in
a significant increase in the average
monthly number of mobile transactions
by almost five times compared to 2016.
• The product offer for micro and small
enterprises, as well as sole proprietors,
is standardised and streamlined to
ensure fast and simple solutions. The
most commonly used daily products
are grouped in product packages, thus
providing customers with an improved
user experience.
• Improvements have also been made
for traditional banking services such as
deposits and loans. More specifically,
these improvements were to help clients
invest their surplus liquidity in more
profitable investments. A new offer of
a NLB Investment Pair for corporates
was prepared, which is a combination of
simultaneous payment into a long-term
NLB Group 2017 Annual Report 72
Our strategic focus remains the
development of relevant solutions
through genuine understanding
of our clients’ needs. The Bank
continues to be a reliable partner
to all segments of enterprises.
Andrej Lasič
General Manager,
Large Corporates
Corporate clients
Digital services
92.4%
digital users
224.5%
more mobile bank
users than in 2016
94.5%
of POS terminals enabling
contactless payments
34.9%
market coverage
with POS terminals
47,101
clients in total
38,724
active clients
4,603
new clients joined
the Bank in 2017
Market share
20.8%
a market share in
corporate loans
25.6%
a market share in trade
finance services
NLB Group 2017 Annual Report
73
Table 9: Performance of the investment banking and custody services in Slovenia
in EUR million consolidated
Investment banking
2017
9.3
-5.8
4.1
2016
Change
6.8
-5.6
1.6
36%
3%
166%
Investment Banking
and Securities Service
The Bank further strengthened its role as
a leading provider of Investment Banking
Net non-interest income
and Securities Services in Slovenia,
and increased turnover and income in
all segments. The Bank continued its
full-scale coverage of corporate and
institutional clients with offerings in
debt and equity capital markets, M&A,
advisory, and treasury solutions. After
Total costs
Result before tax
Note: The result of the investment banking 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
gaining a proven track record in Slovenia,
Debt capital markets and M&A advisory
Brokerage and Treasury Sales
Investment Banking’s focus spread to
the region where the Group is present.
In 2017 the Bank successfully concluded
the sales agreement of the Macedonian
company Nov penziski fond AD Skopje,
In 2017 the Bank provided its customers the
whole range of corporate finance solutions.
Among others:
which will be a reference for future
• Helped many companies broaden
transactions on designated markets.
In 2017 strong growth in investment
banking business was recorded. The largest
contribution to the result derives from
Treasury Sales.
funding base and arranged the issuance
of both long-term and short-term
instruments in the total of EUR 61
million on debt capital markets. The
Bank successfully organised the first
Green Bond issue in Slovenia, based
on green bond principles regarding
the use of proceeds, the process for
project evaluation and selection, the
management of proceeds, and reporting
on behalf of the issuer GEN-I Sonce
d.o.o. in the total amount of EUR 14
million.
• Lead the syndication market as a
mandated lead arranger with a EUR
570 million of the total amount of
syndicated transactions.
• Was active in M&A and other financial
advisory engagements. As the sole
financial advisor it successfully organised
the sales process of the Macedonian
company Nov penziski fond AD Skopje.
The Bank successfully organised four
takeover bids and two squeeze-outs of
minority shareholders.
The Bank is the market leader in brokerage
services to both retail and institutional
clients, with a network in domestic and
international markets. The total brokerage
turnover in 2017 amounted to EUR 895
million, while clients’ assets on trading
accounts surpassed EUR 9.2 billion, which
represents 5% growth compared to 2016.
The Bank provides standard treasury
products to corporate and institutional
clients. In addition to plain vanilla FX spot
transactions, the Bank also trades with
derivatives for hedging against currency
and interest rate exposures. In 2017 the
overall volume of these transactions
exceeded EUR 2.4 billion, which represents
80% growth compared to 2016, and
which can be attributed to intensive sales
activities and specific market conditions.
Due to the volatile and unpredictable
business environment, special attention was
dedicated to corporate clients engaging
in interest rate and FX hedging activities.
In 2017 this segment grew by more than
200%, measured by transaction volume,
and reached EUR 1.5 billion.
NLB Group 2017 Annual Report 74
Upon successful transition to
the new T2S environment,
NLB is the only bank in
Slovenia that provides
Payment Bank Services to its
customers to support their
securities transaction and
corporate actions activities
on the Slovenian market.
Custody
The Bank remains one of the top Slovenian
players in custodian services for Slovenian
and international customers, strengthening
its position as a depositary for investment
and pension funds, and since 2016 also
alternative investment funds.
Assets under custody grew by
approximately EUR 2.5 billion to a total
of EUR 14.7 billion. The Bank also acts
as a gateway into the region using its
own network and partner institutions for
seamless service to its customers. Upon
successful transition to the new T2S
environment, the Bank as the only bank in
Slovenia, provides Payment Bank Services
to its customers to support their securities
transaction and corporate actions activities
on the Slovenian market.
The best result ever
Investment Banking and Custody
achieved the highest income in history
with growth of net non-interest income
more than 36% compared to last year.
The focus has shifted to the region
and our successful M&A transaction
in Macedonia last year will be
an excellent reference for future
transactions in designated markets.
Andrej Meža
General Manager, Investment
Banking and Custody Services
507
million EUR in total
amount of organised
syndicated loans
200%
growth of interest
rate and FX hedge
transactions volume
14.7
billion EUR in total
assets under custody
NLB Group 2017 Annual Report 75
In 2017 subsidiary banks were focused on
operational efficiency and rationalisation
processes leading to CIR of 48%, a
decrease of 2.6 percentage points.
Subsidiary banks focus primarily on the
retail, micro enterprises, and SMEs.
The results of 2017 created a solid and
sound basis to focus on new business
opportunities, and to respond to client
needs with contemporary up-to-date
solutions. Regulatory framework changes
were introduced in a majority of the
countries where the Group is present,
bringing them closer to EU banking rules.
The Group aims to continue capitalising on
synergies among the Group members in the
areas of: HR and business developments,
client centricity, the introduction of modern
technologies and digitalisation, increased
operational excellence, cost efficiency, and
profitability, as well as to assure tight and
effective internal control systems.
Chapter 10
Core Foreign Markets
The core part of the Group in foreign
markets consists of six banks and two
SPVs (for NPL transferred from subsidiary
banks). The banks are distinguished by
strong reputation, stable market position,
and increasing relevance to the Group in
terms of financial performance. Market
shares of subsidiary banks exceed 10%
in four out of six markets. Despite a
competitive market environment, 2017
was successful for all core members of the
Group in foreign markets – all of them
posted a profit before tax, contributing
in total EUR 102.0 million (2016: EUR 67.6
million) of the profit before tax of the
Group, representing an increase of 51%
compared to 2016. This is the result of
strong loan production, especially in the
retail segment, improved cost efficiency,
and favourable cost of risk developments.
Improvement of corporate governance,
coordination, and supervision of strategic
projects’ implementation and initiatives
at the Group level, the exchange of good
practices and realisation of synergies
among banks contributed to the solid
financial results. Subsidiaries remain
committed to ensuring a locally anchored
organic growth strategy, and boost
business operations and service excellence
by implementing Group-wide initiatives.
Despite a competitive market environment,
2017 was successful for all core members
of the Group in foreign markets – all of
them posted a profit before tax in the total
amount of EUR 102.0 million (2016:
EUR 67.6 million), including the result of
minority shareholders. The contribution to
the Group results of the strategic foreign
members was 43% (2016: 52%). Compared
to 2016, the operating result improved
mainly due to higher operating income and
lower impairments and provisions.
NLB Banka, Skopje, NLB Banka, Banja
Luka, and NLB Banka, Prishtina have
continued successful stories. These
banks and NLB Banka Sarajevo posted
the highest net profit ever. NLB Banka,
Podgorica, and NLB Banka, Belgrade
posted a profit for the third year in a row,
and laid solid foundations for long-term
profitable growth after introducing changes
to improve efficiency and completing the
implementation of a restructuring plan
aimed at reducing costs and NPL ratios.
All core foreign banks continued strong
loan production with an increase in
gross loans of 8% (especially in Serbia,
Macedonia, and Kosovo), as well as the
exceptionally low risk results in all entities.
NLB Group 2017 Annual Report 76
Table 10: Results of the strategic foreign markets segment (in EUR million consolidated)
Strategic foreign markets
in EUR million consolidated
Net interest income
Net non-interest income
Total net operating income
Total costs
Result before impairments
and provisions
Impairments and provisions
Result before tax
o/w Result of minority shareholders
Net loans to NBS
Gross loans to NBS
Deposits from NBS
Non-performing loans (gross)
2017
144.6
47.1
191.7
-97.2
94.5
7.6
102.0
8.2
2,393.5
2,660.6
3,078.3
252.0
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
312.1
Change
6%
11%
7%
2%
13%
-146%
51%
47%
11%
8%
9%
-19%
Highlights:
• 1.1 million clients in six markets.
• A strong network of 242 branches.
• Contributing a total of EUR 102.0 million
or 43% (2016: EUR 67.6 million or 52%)
of the Group’s profit before tax.
• Dividend pay-outs in the amount of EUR 48.7
million (2016: EUR 21.9 million), representing
an increase of 123% compared to 2016.
Figure 36: Profit after tax (in EUR million)
Figure 37: ROE a.t. (in %)
Figure 38: Net interest
income (in EUR million)
126%
48%
62
53%
42
1
8
6
4
10
13
2
11
5
5
14
25
95
4
14
5
8
24
40
2015
2016
2017
5%
19%
7%
9%
20%
21%
2016
3%
15%
10%
8%
15%
12%
2015
7%
22%
7%
13%
29%
28%
2017
15%
10%
137
5%
15
24
17
17
18
46
144
18
24
16
18
18
50
125
14
23
15
16
17
41
2015
2016
2017
Figure 39: Operating expenses
Figure 40: CIR (in %)
(in EUR million)
2%
88
15
11
13
14
13
22
1%
89
1%
90
17
11
13
14
13
22
16
11
12
14
13
23
2015
2016
2017
54%
51%
48%
90%
41%
65%
61%
51%
42%
2015
98%
40%
59%
57%
47%
38%
2016
78%
39%
58%
55%
46%
37%
2017
Macedonia
BiH - RS ¹
BiH - Fed ²
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;
1. Republika Srpska; and 2. Federation of BiH.
NLB Group 2017 Annual Report 77
Figure 41: Net retail loans to
Figure 42: Net corp. loans to
customers (in EUR million)
customers (in EUR million)
28%
16%
13%
14%
1,221
45
952
104
148
152
124
379
64
1,074
124
156
167
142
422
93
149
169
186
157
467
6%
1,054
9%
1,149
48
146
95
206
100
145
186
322
238
96
147
192
330
993
185
105
149
179
326
2015
2016
2017
2015
2016
2017
Macedonia
BiH - RS ¹
BiH - Fed ²
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;
1. Republika Srpska; and 2. Federation of BiH.
Ambitious targets, increased cooperation, and
best practice sharing within The Group, as
well as diligent implementation of strategic
initiatives on the Group level performed by
highly committed local and regional teams
led to record-breaking results in net profit by
core members, and the highest contribution of
dividends from the members into the Group’s
results. All of these efforts set the basis for
further development of continuously successful
operations of the Group in the region.
Jana Benčina Henigman
General Manager, Group Steering
NLB Group 2017 Annual Report
78
NLB Banka, Skopje
Highlights:
Key strengths and strategic actions:
• 3rd largest bank measured by total assets
• A bank with good corporate governance,
on a highly concentrated market.
perceived by the community as being
reliable, accountable, and modern.
• Continuously profitable performance
over the years, with substantial
• Market-oriented, with innovative products
dividend pay-out capacity.
and services and diverse sales channels,
a leader in digitalisation, and with access
• Wide and dispersed Branch,
to regional and international financial
ATMs, and POS network.
markets through the Group’s network.
• Motivated employees, with excellence in
meeting customer’s expectations and skills
to deliver quality products and services.
Table 11: Key performance indicators of NLB Banka, Skopje
in EUR thousand
Income statement indicators
2017
2016
Change
Net interest income
Net non-interest income
Total costs
Provisions and impairments
Result before tax
Result after tax
49,665
12,846
46,327
12,297
-23,381
-22,250
5,481
44,611
40,004
-8,747
27,627
24,997
Financial position statement indicators
Total assets
1,235,914
1,153,091
Loans and advances to non-banking sector (net)
796,678
743,341
Deposits from non-banking sector
1,005,282
938,496
7.2%
4.5%
5.1%
-
61.5%
60.0%
7.2%
7.2%
7.1%
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.)
Cost Income Ratio
Non-performing loans
Non-performing loans/total loans (risk methodology)
Market share in terms of total assets
Loans to non-banking sector (net)/deposits
from non-banking sector (LTD)
156,609
129,083
21.3%
14.4%
4.9%
27.8%
3.5%
37.4%
53,800
5.2%
16.4%
13.9%
4.7%
20.8%
2.3%
38.0%
55,911
0.5 p.p.
0.2 p.p.
7.0 p.p.
1.2 p.p.
-0.6 p.p.
-3.8%
5.7%
-0.5 p.p.
16.2%
0.2 p.p.
79.2%
79.2%
0.0 p.p.
For NLB Banka AD Skopje, 2017 will be
noted as a dynamic, challenging, and at
the same time very successful year. The
bank effectively steered its way through
challenging market conditions, stabilisation
of political situation, and intensified
activities of the country for EU accession.
The bank posted a result after tax of EUR
40.0 million (2016: EUR 25.0 million),
ROE of 27.8%, and CIR of 37.4%. These
results were driven by strong retail lending,
card operations, payment services, and the
sale of insurance products supported by a
high interest margin and resilient collection
of retail loans.
To continue a long-lasting partnership with
clients, the bank developed new products
and services, implemented technology
changes, optimised processes, and improved
mass loan platforms.
Faced with strong and healthy banking
competition, the bank consolidated
its competitive edge by investing in an
information system to improve technical
support for digital services. This full
awareness of the digital future in 2017 led
the bank to introduce ‘mProklik’ - a new
mobile application for legal entities, the first
on its domestic market. It also launched
the ‘Happy’ co-branded credit card with
favourable cash-back options for clients.
The success of the bank is based on the
affirmation of the new organisational
culture, the revival of our core values, and
greater engagement of all employees in
the process of constantly adapting to new
opportunities as a foundation for creating
positive customer experience.
In 2017, the bank received the ‘Cristal
Bell’ award from the Macedonian Stock
Exchange for transparency and also for
being the company with the largest volume
of transactions. In addition, its mobile
application NLB mKlik was among the
NLB Group 2017 Annual Report 79
Antonio Argir
President of the
Management Board
We ended 2017 with an annual profit of
EUR 40.0 million, based on the exceptional
performance in sales of banking and
non-banking products, management of
our non-performing portfolio, and cost
management. We keep a strong team
spirit, and are ready to respond to the
future challenges of digitalisation and
evolving customer expectations with the
same commitment and ambition.
Figure 43: Net non-banking sector loan book split
Retail
59%
EUR 467m
Corpo.
41%
EUR 330m
EUR 797m
awarded applications, and the only one in
the segment of finance.
During the year the bank was actively
engaged in different corporate and social
responsibility activities, which further
strengthened the relationship with clients
and the society.
Retail and Corporate banking
In the retail segment, the bank retained
a market share of loans of 21.1% and
saw slight increases in the segment of
deposits from private individuals to 19.2%.
The main focus was on: intensifying
credit activities directly or through loan
intermediaries and mass-sale platforms,
meeting customer preferences, supporting
traditional housing loans, offering non-
banking services, and massive use of the
functionalities of payment services.
An improvement was made in customer
relations management, which was
supported by new IT tools helping the bank
to better understand its client’s needs.
The bank has fostered a supportive
business climate for micro SMEs, and
offered reliable service to corporates
through constant improvement of its sales
force knowledge. The focus remained
on providing a full spectrum of financial
services to companies, including lending,
cash management, payment services,
trade finance, cross-border financial
services support for corporate clients
active on markets where the Group is
present, standardised financial facilities
for export-oriented companies, as well as
capital markets advisory services. In 2017
the offer was enriched with new products
for financing projects in the scope of the
‘Woman in Business’ programme supported
by EBRD, as well as for development of
micro, small, and medium enterprises
supported by the MBDP.
NLB Group 2017 Annual Report 80
NLB Banka, Banja Luka
Highlights:
Key strengths and strategic actions:
Since it was established, NLB Banka, Banja
Luka has operated successfully and with a
positive trend. In 2017 the bank achieved
solid performance in all segments of its
business, reduced cost of risk and delivered
its highest profit so far.
In 2017 net profit totalled EUR 23.7
million (2016: EUR 14.1 million), with
improved cost efficiency (CIR of 46.1%;
2016: 47.2%). The net non-interest income
grew by 9.3% compared to 2016. NPL
ratio was further reduced to 3.7% (2016:
5.1%). Net loans to the non-banking sector
increased by 6.6% and deposits by 7.5%.
To further accommodate client needs, the
bank continued to improve its business
and operational models, and to develop
new products. Along with a focus on sales
activities that resulted in growth of net
loans by 6.6%, special attention was placed
on active client monitoring and managing
risks.
Firmly determined to continue
transformation and further development,
the bank is committed to continuous
optimisation and enhancement of
distribution channels, reflecting in the
growth of active electronic and mobile
(e/m) banking users by 35%. The bank
will continue its sustainable growth and be
prepared for future challenges because of
the dedication to the life-long development
of employees, a high level of engagement,
and the deep trust of clients.
• 3rd largest bank in the Republic of Srpska
• Sustainable growth, especially in retail
by total assets* with 58 branches.
and the high quality of portfolio.
• Achieved record profit and maintained
• A large client base, with acknowledged
the high quality of portfolio.
trust and reliability.
• Combined growth of users
• Modernisation of sales channels,
of E- and M-banking.
processes, and services.
• Share of retail loans increased
• Synergies through the Group initiatives.
in portfolio structure.
* Last available data as at 30 September 2017.
Table 12: Key performance indicators of NLB Banka, Banja Luka
in EUR thousand
Income statement indicators
2017
2016
Change
Net interest income
Net non-interest income
Total costs
Provisions and impairments
Result before tax
Result after tax
18,146
9,636
18,255
8,819
-12,803
-12,788
10,579
25,558
23,694
1,994
16,280
14,117
Financial position statement indicators
Total assets
669,949
634,501
Loans and advances to non-banking sector (net)
349,102
327,430
Deposits from non-banking sector
532,546
495,438
-0.6%
9.3%
0.1%
-
57.0%
67.8%
5.6%
6.6%
7.5%
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.)
Cost Income Ratio
Non-performing loans
Non-performing loans/total loans (risk methodology)
84,440
74,607
13.2%
15.3%
2.8%
29.3%
3.6%
46.1%
20,151
3.7%
16.3%
-1.0 p.p.
2.9%
-0.1 p.p.
20.0%
2.3%
47.2%
27,940
9.3 p.p.
1.3 p.p.
-1.1 p.p.
-27.9%
5.1%
-1.4 p.p.
Market share in terms of total assets
18.9%1
18.9%
0.0 p.p.
Loans to non-banking sector (net)/deposits
from non-banking sector (LTD)
65.6%
66.1%
-0.5 p.p.
1. as at 30 September 2017
NLB Group 2017 Annual Report Retail and Corporate banking
The bank maintained the positive trend
from previous years, achieving nearly
double-digit growth of retail loans and
showing solid growth in all other segments.
Acting together with the corporate
department to increase cross-selling, loan
offers were tailored to match the needs of
other segments as well. The bank continued
to improve operating processes and
developing capabilities to introduce new
sales channels already having an impact on
the increased usage of digital solutions.
The focus on SMEs was increased by
maintaining existing, and acquiring new
clients by highly competitive, tailored offers
for all corporate segments. Synergies within
the Group provided additional flexibility
and yielded new business opportunities and
transactions. Important efforts were made
to enhance digital channels to ensure better
user experience, and to maintain a high
level of security at the same time.
.
81
Radovan Bajić
President of the
Management Board
In 2017 we delivered the highest profit
of EUR 23.7 million, with a solid
contribution by all business segments.
Our firm determination to transform
and develop ourselves allowed us to
maintain focus on optimisation and the
enhancement of distribution channels to
further improve customer experience.
Figure 44: Net non-banking sector loan book split
Retail
45%
EUR 157m
Corpo.
55%
EUR 192m
EUR 349m
NLB Group 2017 Annual Report 82
NLB Banka, Sarajevo
Highlights:
Key strengths and strategic actions:
The year 2017 was marked by profitable
results and strong performance guided by
the implementation of the new Strategy
that continues to include comprehensive
banking services to businesses and private
individuals. The bank built a stronger
reputation and brand recognition, while
placing special focus on developing new
banking services, as well as improving
customer experience and bank accessibility
to its clients.
In 2017, the bank achieved a net profit of
EUR 8.3 million (2016: EUR 5.4 million),
with improved cost efficiency (CIR of
54.8%; 2016: 57.1%). The net interest
income and net non-interest income of the
bank grew by 6.7% and 6.1%, respectively
compared to 2016. NPL were significantly
reduced compared to 2016 by EUR 12.8
million (NPL ratio 6.9%; 2016: 9.9%).
Notwithstanding strong banking
competition, the bank managed to achieve
growth in total assets by 6.7%, as well
as increase the net interest margin by
0.1 percentage point compared to 2016
– keeping the stable client base with a
proactive sales and marketing approach and
introducing new products and services such
as: an improved loan offering – new mobile
banking application for private individuals,
and a specialised approach to small and
medium enterprises and corporate clients.
Throughout the year, the visibility of
the bank was reinforced by continuous
marketing efforts and positive feedback in
the media. The bank continued to have
positive impact on the community through
corporate and social responsibility activities.
Employee development and talent
management remained vital for supporting
the continuous improvement of processes to
ensure the bank meets the various needs of
its clients.
• Increased stability and profitability
• Strong brand recognition and trust
– CAR 15.2% and ROE a.t. 12.8%.
within the Federation of BiH.
• Stable market share. 6th largest bank in the
• New business strategy adopted with
Federation of BiH market by total assets.*
focus on customer experience
and the Group synergy.
* Last available data as at 30 September 2017.
• Synergy activities in all business areas
with NLB Banka a.d., Banja Luka
for stronger recognition in BiH.
Table 13: Key performance indicators of NLB Banka, Sarajevo
in EUR thousand
Income statement indicators
2017
2016
Change
Net interest income
Net non-interest income
Total costs
Provisions and impairments
Result before tax
Result after tax
18,059
7,453
16,927
7,026
-13,973
-13,670
6.7%
6.1%
2.2%
-4,286
-53.3%
-2,000
9,539
8,300
5,998
5,357
59.0%
54.9%
6.7%
6.6%
5.2%
Financial position statement indicators
Total assets
531,016
497,861
Loans and advances to non-banking sector (net)
332,557
312,012
Deposits from non-banking sector
427,932
406,940
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.)
Cost Income Ratio
Non-performing loans
Non-performing loans/total loans (risk methodology)
Market share in terms of total assets1
Loans to non-banking sector (net)/deposits
from non-banking sector (LTD)
1. as at 30 September
69,086
60,780
13.7%
15.2%
3.5%
12.8%
1.6%
54.8%
34,014
6.9%
5.3%
14.2%
3.4%
9.1%
1.1%
57.1%
46,854
9.9%
5.3%
1.0 p.p.
0.1 p.p.
3.7 p.p.
0.5 p.p.
-2.3 p.p.
-27.4%
-3.0 p.p.
0.0 p.p.
77.7%
76.7%
1.0 p.p.
NLB Group 2017 Annual Report 83
Lidija Žigić
President of the
Management Board
2017 was the most profitable year ever,
with a net profit of EUR 8.3 million,
and a year of significant growth in all
segments of business operations. Tailored
services, digitalisation initiatives, new
products, and improved services have set
a strong foundation for the years to come.
Figure 45: Net non-banking sector loan book split
Retail
56%
EUR 186m
Corpo.
44%
EUR 147m
EUR 333m
Retail and Corporate banking
The commitment to retail banking is
reflected not only in the strategic vision,
but also in dedication to client relations,
loan processes, strong risk management,
and continued investment in technology
contributing to outstanding performance
for the year. The business approach to
corporate clients and enterprises is built
upon the principle of putting the clients’
needs first. Dedicated teams with deep
industry knowledge fully invest in each
client relationship, which results in the
growth of the clients’ base.
One of the achieved priorities in 2017
was to be easily and securely accessible
24/7, with easy-to-use innovated services.
The new and improved NLB M-Bank was
launched to allow clients to access accounts,
check balances, make transfers, pay bills,
etc. To facilitate the process of applying for
new loans and cards, the bank launched
online applications through its website. In
cooperation with MasterCard and Visa, the
bank provided customer care campaigns
and introduced new credit card products.
The bank launched a new product ‘Cash
loans’ at the end of 2017 to further support
clients.
In an effort to come closer to corporate
clients’ needs, the corporate loan approval
process was optimised to enable clients to
improve liquidity and investment planning
through access to necessary funds in
a more efficient way. Increased use of
alternative business channels such as POS
terminals, contactless cards, and E-banking
additionally improved the quality of
services offered to clients. The bank was
happy to provide a customised solution
and participated in the largest syndication
financing projects on the domestic market,
and proved the expertise and gained the
trust of corporate clients.
.
NLB Group 2017 Annual Report 84
NLB Banka, Prishtina
Highlights:
Key strengths and strategic actions:
NLB Banka, Prishtina had remarkable
results on its 10th anniversary of operations
in Kosovo. In a delicate economic
environment, the agile response focusing
on long-term value creation remains the
key success factor for excelling in servicing
a client base and creating value. Being
part of the Group enables high brand
recognition and trust by customers for
strong presence on a market ready to
embrace future challenges. The strategy
focuses on remaining a simple, client-
oriented bank that grows responsibly with
advanced digital solutions, which enabled
the bank to retain the position among the
largest financial institutions in Kosovo. The
bank remained committed to employee
development, clearly one of the key drivers
for success.
Net profit amounted to EUR 14 million
(2016: EUR 11 million), representing an
increase of 26%, while cost efficiency
improved (CIR of 38.7%; 2016: 40.1%).
NPL ratio decreased to 2.9% (2016: 3.6%),
while coverage ratio (NPL coverage with
provisions) increased by 8.9 percentage
points (2016: 176.6%). Net loans to the
non-banking sector increased by 17.4%,
while deposits increased by 14.6%.
• Continuously profitable operations, with
• Increased use of alternative business
the ROE after tax reaching 22.2% in 2017.
channels (POS, Contactless cards,
• The 3rd largest bank by total
assets with 44 branches.
• Substantial dividend pay-out capacity.
M-banking, E-banking).
• Sound asset quality with NPL
• A user-friendly E-banking platform
ratio of 2.9%.
for providing customers constant
availability of services.
Table 14: Key performance indicators of NLB Banka, Prishtina
in EUR thousand
Income statement indicators
2017
2016
Change
Net interest income
Net non-interest income
Total costs
Provisions and impairments
Result before tax
Result after tax
24,471
4,611
23,545
4,213
-11,242
-11,118
-2,176
15,664
14,197
-4,088
12,552
11,263
Financial position statement indicators
Total assets
584,086
516,115
Loans and advances to non-banking sector (net)
386,804
329,608
3.9%
9.4%
1.1%
-46.8%
24.8%
26.0%
13.2%
17.4%
14.6%
6.1%
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.)
Cost Income Ratio
Non-performing loans
Non-performing loans/total loans (risk methodology)
Market share in terms of total assets
Loans to non-banking sector (net)/deposits
from non-banking sector (LTD)
506,672
442,095
66,705
62,845
15.9%
4.9%
22.2%
2.6%
38.7%
14,804
2.9%
15.7%
16.6%
-0.7 p.p.
5.0%
-0.1 p.p.
18.9%
2.4%
40.1%
15,845
3.3 p.p.
0.2 p.p.
-1.4 p.p.
-6.6%
3.6%
-0.7 p.p.
14.9%
0.8 p.p.
76.3%
74.6%
1.7 p.p.
NLB Group 2017 Annual Report Retail and Corporate banking
Retail banking sales grew steadily,
particularly the number of the clients, the
personal loans portfolio, and electronic
banking. The main focus continues to be
improvements of the quality of services,
and promoting new products and services.
Recently, all main branches were equipped
with ATMs, enabling clients to make
a deposit, which is an example of the
continuous care in improving the quality of
service.
The bank continues to be a reliable
partner to all segments of corporate
clients, but with a strategic focus on SMEs.
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. In addition, the bank developed
various package offers, which helped to
attract a significant number of important
large corporates. The bank optimised the
risk profile determination through close
monitoring of the loan portfolio.
85
Albert Lumezi
President of the
Management Board
With a net profit of EUR 14 million,
2017 was another exceptional year
with outstanding performance. We
continue to grow responsibly, with a
focus on customers and the long-term
objectives of our shareholders.
Figure 46: Net non-banking sector loan book split
Retail
39%
EUR 149m
Corpo.
61%
EUR 238m
EUR 387m
NLB Group 2017 Annual Report 86
NLB Banka, Podgorica
Highlights:
Key strengths and strategic actions:
The bank is the 2nd largest bank in
Montenegro, with a market share in total
assets of 11.0%. Despite the competitive
market environment, stable and positive
performance was recorded for the fourth
year in a row. This provided the basis for a
regular and extraordinary dividend.
The Bank recorded a net profit of EUR
5.4 million (2016: EUR 5.3 million),
supported the local economy in 2017 with
new business by lending EUR 50 million
to retail (15.7% market share) and over
EUR 50 million to corporations/state,
and reached an exposure of EUR 30
million in the guarantee business (9.3%).
The bank’s sales strategy to combine an
innovative approach in creating an offer
that meets clients’ needs based on current
development trends, and the bank’s
experience in the banking environment in
Montenegro yielded good results. The asset
portfolio quality was improved, and was
demonstrated by a NPL ratio reduction
from 14.7% to 8% while the coverage ratio
(NPL coverage with provisions) increased by
14 percentage points (2016: 57.1%).
The bank launched several innovative
products for private individuals (the first
housing loan offer on the bank’s domestic
market, with a combination of fixed
and variable interest rates). The overall
bank orientation to clients’ needs and
expectations was rewarded by a high
customer satisfaction index score, which
increased for the 3rd year in a row and
was above the country’s banking system
average.
• The 2nd largest bank measured by
• Transformation to a retail business-oriented
total assets, with 18 branches and
bank, with an efficient business network
full geographical coverage, and with
and ongoing innovation capacity.
years of experience in Montenegro.
• High brand awareness among the
• Improved assets portfolio quality, reflected
Montenegrin population.
in a NPL ratio reduction from 14.7% to 8%.
• Market leader in housing loans (27%
credit activity in the tourism industry,
outstanding and 23% of new production).
highway construction, and energy industries.
• Upside potential from selectively increasing
Table 15: Key performance indicators of NLB Banka, Podgorica
in EUR thousand
Income statement indicators
2017
2016
Change
Net interest income
Net non-interest income
Total costs
Provisions and impairments
Result before tax
Result after tax
16,416
5,110
17,162
4,243
-12,414
-12,570
-3,807
5,305
5,385
-3,505
5,330
5,318
Financial position statement indicators
Total assets
457,236
473,058
Loans and advances to non-banking sector (net)
265,062
255,888
Deposits from non-banking sector
359,736
361,201
-4.3%
20.4%
-1.2%
8.6%
-0.5%
1.3%
-3.3%
3.6%
-0.4%
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.)
Cost Income Ratio
Non-performing loans
Non-performing loans/total loans (risk methodology)
Market share in terms of total assets
Loans to non-banking sector (net)/deposits
from non-banking sector (LTD)
66,975
75,787
-11.6%
14.9%
15.0%
-0.1 p.p.
4.1%
7.0%
1.1%
57.7%
31,054
8.0%
11.0%
4.3%
7.3%
1.1%
58.7%
58,516
14.7%
12.5%
-0.2 p.p.
-0.3 p.p.
0.0 p.p.
-1.0 p.p.
-46.9%
-6.7 p.p.
-1.5 p.p.
73.7%
70.8%
2.9 p.p.
NLB Group 2017 Annual Report 87
Martin Leberle
President of the
Management Board
We transformed into a retail-oriented
financial institution. With EUR 5.4
million of net profit in 2017, and by
launching new and innovative products,
we demonstrated the ability to reach
our ambitious strategic goals, and to
ensure our readiness for the future.
Figure 47: Net non-banking sector loan book split
Retail
64%
EUR 169m
Corpo.
36%
EUR 96m
EUR 265m
As a specialist in housing loans lending
with 27% of market share, the bank proved
that clients trust the bank to assist them in
navigating the important process of buying
a property.
The bank was engaged in corporate social
activities by strongly supporting important
projects with an aim to help improving the
quality of life for citizens of Montenegro.
Retail and Corporate banking
NLB Banka AD Podgorica maintained its
position as the leading retail bank, with
a strong share of 15.9% and a growing
portfolio of loans (7.9% YoY) in 2017.
An improved offer for the senior citizens
segment (Silver Loan) and a number of
improvements in the card/overdraft offer
streamlined the processes. The bank
supported several major housing projects,
and also improved existing housing loan
offers with products offering combined
interest rates. By redesigning the loan
process, loan documentation is now in a
digital form. The bank started a number
of initiatives and major investments in
digital channels. All this led to further
improvements in customer satisfaction as
measured by Gfk (B2C: the bank 86 vs.
competition 78).
In the corporate banking segment, the focus
has shifted to the SME segment with new
products and an optimised loan approval
process. The bank also organised different
panels for its clients. By investing time and
energy in educating the team, the bank
managed to deliver major digitalisation
initiatives for improving the loan-approval
process and promoting several new
products such as Visa Business revolving.
NLB Group 2017 Annual Report 88
NLB Banka, Beograd
Highlights:
Key strengths and strategic actions:
The year 2017 has been a good year for
NLB Banka, Beograd, which generated
EUR 3.73 million of profit after tax
(in 2016: EUR 2.15 million). Despite
challenging market conditions, the pressure
on interest rates, increasing regulatory
requirements, and strong competition in
the market, the bank achieved growth
of more than 20% in all its key business
segments. The bank supported the retail
and corporate sector of Serbia, with over
EUR 238 million in loan products that
contributed to an increase of its balance
sheet by EUR 95 million (34.4% YoY).
This growth is generated by accelerated
performing loans portfolio growth of
50% (EUR 79 million). At the same time,
customer deposits grew by 36.7% (EUR
70 million). NPL ratio stood at 5.1% (the
average of the Serbian banking sector is
around 12%), down from 10.3% in 2016.
The bank is working on improving
customer experience, aligning it with
the needs of a modern-day client who
expects a seamless omnichannel journey.
In 2017, growing customer satisfaction
and improving customer experience with
a team of dedicated professionals were
one of the key business priorities. In this
respect, the bank also continued adjusting
its offer to meet clients’ needs also by
further development of an online cash
loan application, and introduced an online
application for loans in the agriculture
segment. Following the latest trends in the
banking industry, the bank implemented a
number of innovative communication and
sales channels initiatives by modernising its
contact centre, online chat, M-banking, and
E-banking applications.
The bank expanded its sales force by
introducing a network of sales agents to
reach the regions of country where the
bank is not present with its branch network.
The efforts to cater to clients’ needs resulted
in a substantial increase in customer
• Universal bank, focused on private
• A strong focus on customer experience
individuals, agro business, SMEs, large
and delivering outstanding service to
corporates and international companies.
each client, with the development of
innovative sales and communication
• A network of 31 branches all over Serbia
strategies, both digital and traditional.
and 1.2% market share by total assets.*
• Increasing brand name and awareness
• Achieving organic and sustainable
of the bank as a reliable partner.
business growth in all segments.
• Enthusiastic and motivated team of
professionals eager to move forward.
* Last available data as at 30 September 2017.
Table 16: Key performance indicators of NLB Banka, Beograd
in EUR thousand
Income statement indicators
2017
2016
Change
Net interest income
Net non-interest income
Total costs
Provisions and impairments
Result before tax
Result after tax
17,984
3,015
14,748
2,612
-16,336
-16,980
-919
3,744
3,731
1,808
2,191
2,152
Financial position statement indicators
Total assets
370.806
275,798
Loans and advances to non-banking sector (net)
238,795
159,363
21.9%
15.4%
-3.8%
-
70.9%
73.4%
34.4%
49.8%
36.7%
35.0%
1.0 p.p.
0.1 p.p.
2.0 p.p.
0.3 p.p.
259,755
189,962
61,443
45,525
20.1%
19.1%
6.1%
6.7%
1.2%
77.8%
15,184
5.1%
1.2%1
6.0%
4.7%
0.9%
97.8%
-20.0 p.p.
21,891
10.3%
1.0%
-30.6%
-5.2 p.p.
0.2 p.p.
91.9%
83.9%
8.0 p.p.
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.)
Cost Income Ratio
Non-performing loans
Non-performing loans/total loans (risk methodology)
Market share in terms of total assets
Loans to non-banking sector (net)/deposits
from non-banking sector (LTD)
1. as at 30 September 2017
NLB Group 2017 Annual Report 89
Branko Greganović
President of the
Management Board
In 2017 we recorded a solid EUR
3.73 million in net profit. We will
strive to improve our customers’
experiences and align them with the
needs of a modern-day client who
expect a seamless omnichannel journey.
Figure 48: Net non-banking sector loan book split
Retail
39%
EUR 93m
Corpo.
61%
EUR 146m
EUR 239m
satisfaction, and the growth of trust in the
bank showed by the survey highlighting Gfk
(B2C: NLB Banka 84 vs. competition 77).
The bank also continued to invest in
educational and training programmes,
aiming to boost potential of employees and
develop the team’s learning and execution
capacity and improve overall employee
experience. All those efforts resulted in
enhancement of employee engagement and
improvements in corporate culture as also
confirmed by the related surveys.
Retail and Corporate banking
In 2017, the bank was one of the fastest
growing banks on the market in the retail
segment. The bank achieved YoY growth
of cash loans of 43%, with the total loans
disbursed of EUR 61 million. Digital
marketing campaigns generated 19%
and the bank’s network of sales agents
contributed 11% of the total cash loans
production.
Despite the fact that there was no loan
growth in the corporate lending in Serbian
banking sector, the bank managed to place
35% more loans than in 2016, and reached
the level of EUR 93 million of this segment
net performing loans portfolio.
The results achieved in agro banking in
2016 were surpassed significantly in 2017,
increasing its portfolio in the segment by
116%. The bank reached the market share
of 10% and the level of EUR 47 million
of the outstanding amount (2016: EUR
22 million). In 2017, the bank was among
the market leaders for loans subsidised
by the government. In an effort to build
relationships with customers and to act in
line with its motto ‘NLB na polju’ (NLB
on the field), the bank continued with
various activities and events organised for
farmers. The bank also participated in both
local and international fairs to improve its
relationships in the segment, including the
most important event in this segment – the
International Agricultural Fair in Novi Sad.
NLB Group 2017 Annual Report 90
Chapter 11
Financial Markets
17
The 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 23.0
million, despite a negative interest
rate environment and low returns on
the international bonds market.
The negative net non-interest income of
Financial markets in Slovenia in 2017
was affected by regulatory costs related
to payment to SRF, while the 2016 result
includes negative effects from a wind-down
of interest rate hedging derivatives and fees
related to prepayment of selected wholesale
funding in the total amount of EUR 3.0
million.
Net interest income in Financial markets
in Slovenia decreased by 34% in 2017
due to decreasing yields in the securities
portfolio, the maturity of some high yield
assets, and due to higher expenses resulting
from the increased level of excess liquidity.
Substantially lower reinvestment yields
negatively affected net interest income of
the segment. Decreasing LTD contributed
to increased cash equivalent positions
with negative carry. Management of the
structure and volume of banking book
securities and the hedging derivatives
portfolio is aimed at optimisation of net
interest income that should benefit from
potential improvements in the interest rate
environment.
17.
As included in the Financial
markets segment in Slovenia.
The Group’s 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 considering macroeconomic
development and financial markets
environment, as well. In accordance
with the Group policy, the ALM
function supports 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.
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.
The Bank helps maintain its competitive
advantage in providing high quality services
in the field of financial instruments by
nurturing strong relationships with global
partners.
The main building block activities of the
Financial markets Business Line are:
• Management of banking book securities
for the Bank. The main aim of this
portfolio is to provide liquidity, along
with stabilisation of the interest margin
and management of the interest rate
risk.
• Operational liquidity management of
the Bank, including transactions on the
interbank market, such as placements
and deposits, currency swaps, buying
and selling of securities, and repo
transactions. The Bank’s liquidity
position can also be managed through
the ECB’s open market operations if
required, as a result of the substantial
portfolio of ECB eligible assets in the
banking book.
• Wholesale funding activities of the
Group, with the aim of achieving
diversification, improvement of
structural liquidity, and fulfilment of
regulatory requirements.
• Foreign exchange and interest rate risk
management of the Bank, through
transactions on the interbank market,
including currency spot/forward
transactions, interest rate swaps, and
cross currency interest rate swaps.
• The Bank’s trading activities include
proprietary trading, acting as the
primary dealer for bonds issued by
RoS and treasury bills, market-making
for Slovenian eurobonds, co-leading at
ESM/EFSF bond issues, and managing
banknotes.
• The Bank provides market access to
corporate clients, financial institutions,
and the Group (money market
instruments, debt securities, foreign
exchange, and interest rate derivatives).
NLB Group 2017 Annual Report 91
Table 17: Performance of the Financial markets segment in Slovenia
Financial markets Slovenia
in EUR million consolidated
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
Borrowings
2017
31.9
-2.1
29.8
-6.7
23.1
0.0
23.0
221.1
260.7
2016
Change
48.3
-7.7
40.6
-6.6
34.1
0.0
34.2
254.7
616.2
-34%
72%
-27%
1%
-32%
-
-33%
-13%
-58%
Note: Investment banking and Securities Service as a part of the Financial
markets in Slovenia segment is represented in a separate chapter.
Figure 49: NLB Group balance sheet structure as of 31 December 2017
Group NLB 31 Dec 2017
EUR 12,238m
Other assets 4%
HFT 2%
HTM 21%
EUR
2,963m
FVPL 0%
AFS 77%
Loans to banks 0.2%
Cash 15%
Placements
with banks
29%
Demand
deposits
at banks 11%
EUR
1,767m
State loans
7%
Corporate
loans
45%
EUR
6,994m
CB reserves
45%
Retail loans
48%
Financial
investments
24%
Cash equivalents
and placements
with banks
15%
LTD
71%
Equity 14%
Subordinated debt 6%
Other liabilities 2%
Funding 3%
Debt
securities
in issue
0%
EUR
422m
State deposits 3%
EUR
9,879m
Corporate
deposits
23%
Deposits
from banks
10%
Wholesale
borrowings
84%
- sight 74%
- term 26%
Retail
deposits
74%
Loans to
non-banking
sector
57%
Deposits
from
non-banking
sector
81%
LTD (year-end)
76%
75%
74%
71%
Note: Loans to non-banking sector includes
EUR 717.5 million loans eligible with ECB
as collateral (liquid assets).
Assets
Liabilities
2014
2015
2016
2017
NLB Group 2017 Annual Report 92
The Group is well-capitalised (CET1 ratio
15.9%18) and self-funded (LTD 70.8%), and
has a stable deposit base that ensures a
robust liquidity position (liquid assets of
transfer pricing and external pricing policy.
When necessary, derivatives are also used,
mainly plain vanilla interest rate swaps with
an application of Hedge Accounting rules.
EUR 5.45 billion)
with the optimisation of its long-term
liabilities by selected prepayments,
improvements of financial conditions,
and prolongation of credit arrangements.
To achieve harmonisation and optimal
terms all activities for borrowing and
optimisation of funding of Group members
on international financial markets are
coordinated by the Bank.
Through the Investor Relations function,
the Bank and its Group members in 2017
maintained an active dialogue with its
existing investor base, and with a wider
international capital markets community.
The Bank regularly monitors regulatory
developments and keeps a constant
dialogue with the regulator regarding
future requirements, including the MREL
which will likely influence the Bank’s future
activities on financial markets. In this
context, majority of all measures for the
adjustment of the Bank’s certain existing
long-term liabilities to meet MREL criteria
were already undertaken in 2017.
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.
Active optimisation of liability structure
Wholesale funding activities in the
Group are conducted with the aim of
achieving diversification, improving
structural liquidity, and fulfilling regulatory
requirements.
Due to a solid liquidity position in 2017,
the Bank and its Group members did
not raise new wholesale long-term funds
on the international financial markets by
borrowing or issuing debt instruments. In
July 2017 the senior unsecured bond issued
by the Bank, in the amount of EUR 300
million, matured. The Group undertook
an active liability management approach
Figure 50: Key changes of NLB Group liabilities and capital in 2017 (in EUR million)
457.9
77.5
0.2
12,039.0
-95.5
162.5
12,237.7
-380.9
-22.9
6
1
0
2
c
e
D
1
3
s
t
i
s
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p
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d
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a
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t
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o
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t
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t
a
t
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t
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i
i
g
n
d
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u
f
e
l
a
s
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l
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h
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y
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q
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1
3
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i
t
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a
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t
O
Despite the low interest rate environment,
the Group managed to maintain a strong
and stable deposit base, consisting mostly
of sight deposits. This demonstrates the
strong relationship between the Group and
its clients, which contributes to a well-
diversified funding sources of the Group.
In order to keep a conservative risk profile,
the liquidity buffers of the Group have been
predominately kept in high quality liquid
assets, forming a sufficient liquidity cushion
to facilitate a re-leveraging of the Group.
The funding structure of the Group
remained simple; the increase of customer
deposits was compensated by the decrease
in wholesale borrowings. Total loans to the
non-banking sector did not meet non-
banking sector deposit dynamics, mostly
due to corporate segment deleveraging.
From the interest rate risk perspective, the
low interest rate environment contributed
to greater demand for fixed rate loans.
Duration of securities portfolio also
increased. In order to decrease interest
rate risk exposure the Group increased
the volume of interest rate derivatives and
managed to slightly decrease duration
gap between interest sensitive assets and
liabilities to 1.76 years from 1.85 years in
2016. Positions are well in line with the
Group’s conservative risk profile, and within
all regulatory and internal limits. Exposure
to interest rate risk and basis risk is being
monitored carefully from earnings, as well
as from an economic value perspective.
It has been managed via responsive fund
18.
Envisaging dividend payment in
100% of net profit after tax of the
Bank (EUR 189.1 million).
NLB Group 2017 Annual Report
93
12,238
million EUR in total
assets of NLB Group
80.7%
deposits from the
non-banking sector (% of
total liabilities and equity)
44.6%
liquid assets (% of total assets)
A price insensitive deposit base and the
structure of the loan book enables the
Group to benefit from an uptrend in
interest rates
Despite the historically low levels of interest
rates, the Group managed to optimise
its funding sources by attracting core
customer segments, resulting in the increase
of customer deposits, which presented
81% of the Group’s total assets as at 31
December 2017, compared to 78% as at 31
December 2016. Driven by a low interest
rate environment, the main change in the
funding structure was the transformation of
term to sight deposits, to which the Group
responded with conscious liquidity reserves
management. The share of sight deposits
in the total balance sheet increased to 74%,
but still proved to be very stable according
to the internal methodology.
Figure 51: Evolution of the funding structure confirms
a stable deposit base in NLB Group (in EUR million, year-end)
LTD
104%
85%
76%
75%
74%
71%
14,176
1,145
364
3,549
12,490
1,271
285
2,677
11,909
11,822
12,039
12,238
1,369
305
1,291
1,450
289
1,062
1,526
272
803
1,688
249
422
9,118
8,257
8,944
9,021
9,439
9,879
2012
2013
2014
2015
2016
2017
Deposits from non-banking sector
Wholesale funding
Other liabilities
Equity
m
R
U
E
Figure 52: Decreasing average liabilities interest rates in NLB and in NLB Group
1.5%
1.4%
1.4%
1.2%
1.2%
1.1%
1.1%
1.1%
0.9%
0.9%
0.8%
0.7%
0.8%
0.6%
0.7%
0.6%
0.6% 0.6% 0.5% 0.5% 0.4%
0.5% 0.4%
0.4% 0.4%
0.3% 0.3% 0.3%
0.3% 0.3%
0.1% 0.1%
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17
NLB Group
NLB
NLB Group 2017 Annual Report 94
Despite the low interest
rate environment, the
Group managed to
maintain a strong and
stable deposit base,
consisting mostly of
sight deposits.
Figure 53: Key changes of NLB Group assets in 2017 (in EUR million)
280.4
35.6
12,039.0
185.4
74.6
12,237.7
-15.8
-318.9
-42.5
6
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2
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D
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a
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s
k
n
a
b
h
t
i
w
s
t
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d
t
h
g
i
s
d
n
a
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C
h
t
i
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l
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d
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n
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o
L
Figure 54: Evolution of NLB Group liquid assets structure
reflects a robust liquidity position (in EUR million) providing
the basis for future core growth (year-end)
Liquid assets
in total assets
32%
6,000
5,000
4,541
4,000
3,000
2,000
1,000
m
R
U
E
0
52%
0%
9%
20%
19%
2012
44%
45%
44%
44%
45%
5,495
5,413
5,248
5,346
5,455
58%
1%
9%
17%
15%
2013
57%
2%
13%
13%
16%
2014
50%
5%
16%
14%
15%
2015
50%
53%
1%
13%
19%
16%
2016
1%
13%
20%
13%
2017
ECB eligible credit claims
Cash & CB reserves
Placement with banks
Trading book debt securities
Banking book debt securities
Encumbered assets
NLB Group 2017 Annual Report
95
Figure 55: Banking book portfolio of NLB Group by Fitch rating, asset class, and by geographical structure as at 31 December 2017
Other
17%
AAA
13%
BBB
7%
A 51%
Corporate 1%
DE 8%
FR 7%
AA
13%
Covered
bond 3%
GGB 5%
Agency
3%
Senior
Unsecured
18%
SEE 14%
SI 33%
Government
securities 70%
NL 5%
LU 4%
AT 3%
BE 3%
FI 2%
Other
21%
some SEE countries with a lower rating to
increase the portfolio’s profitability. The
investment strategy, for the most part,
remained conservative and focused on a
prudent tenors and rating structure.
Note: ‘Other’ in split of the portfolio by rating represents mostly exposures towards sovereigns of subsidiary banks.
The Group liquidity reserves (41% of total
assets) act as a safety cushion in times of
severe market stress
Total assets remained stable throughout
2017. Due to early prepayment or the
maturity of certain loans in a significant
amount that were not being fully replaced
by new production, loans to customers
decreased. The Group maintained a
strong liquidity position with liquid assets,
accounting for 44.6% of total assets.
The Group’s liquid assets are comprised
of cash, placements with central banks,
placements with banks, debt securities
portfolio, and credit claims eligible for
central bank secured funding operations. A
small part of liquid assets is encumbered for
operational and regulatory purposes. The
liquidity reserves consist of liquid assets
which are not encumbered and can provide
funding of future core growth.
Low interest rates and excess liquidity
throughout 2017 put some pressure on the
financial performance of the Group. The
focus was therefore on the optimisation of
the composition of the liquidity reserves
and on achieving a positive carry. The
Group banking book securities portfolio was
further diversified in terms of asset class
(corporate bonds) to avoid concentration
risk, as well as geographically by including
A simple balance sheet supported by a
strong capital position, stable funding,
and robust liquidity puts the Group
on the path of future growth.
Uršula Kovačič Košak
General Manager, Financial Markets
NLB Group 2017 Annual Report 96
Archibald Kremser
Member of the Management Board
Andreja Stražišar
General Manager, Controlling
NLB Group 2017 Annual Report 97
Andrej Meža
General Manager, Investment
Banking and Custody Services
Andreja Stražišar
General Manager, Controlling
Uršula Kovačič Košak
General Manager, Financial Markets
NLB Group 2017 Annual Report 98
Anica Knavs
General Manager, Financial Accounting
NLB Group 2017 Annual Report Anica Knavs
General Manager, Financial Accounting
99
Jovica Jakovac
General Manager, Group Real
Estate Asset Management
NLB Group 2017 Annual Report 100
NLB Group 2017 Annual Report Chapter 12
Non-core Markets
and Activities
Non-core markets and activities include
operations to be divested according to
the Restructuring plan including the
non-core Group members, non-core part
of the Bank’s portfolio, as well as some
non-core equity investments. The Group
successfully realised the objectives of
the plan by implementation of the sales
of entities, portfolios, individual assets,
and the collection or restructuring of
assets, as well as by closing of subsidiaries.
In 2017, the segment recorded a
positive result supported by successful
collection of NPL, a gain from divesting
an equity exposures and successful
divestment of non-core subsidiaries.
The non-core pre-tax result in 2017
amounted to EUR 31.2 million (2016: EUR
-18.9 million). A significant improvement
was based on one hand on active NPL
management (major effects on release of
provisions due to collections) reflected in a
positive development of cost of risk (EUR
12.9 million of released impairments and
provisions; in 2016 the result included
impairments due to the sale of part of the
non-performing portfolio in the amount
of EUR 7.0 million), and on the other
hand on generation of non-recurring
income 19 (EUR 13.2 million; in 2016
result included effects of the sale of an
In 2017, the non-core
segment made a positive
contribution to the Bank’s
results for the first time.
equity investment amounting to EUR 4.9
million). Activities related to real-estate
management contributed to non-interest
income as well (EUR 5.3 million).
One of additionally contributing factors to
the segment’s result was a decrease of costs
of operations, which were reduced by as
much as 10% YoY to the level of EUR 21.7
million (2016: EUR 24.2 million).
Total assets in the segment of Non-core
markets and activities of the Group in
2017 amounted to EUR 391.3 million. The
segment includes EUR 141.1 million of
net performing leasing contracts in NLB
Leasing d.o.o., Ljubljana (in liquidation).
Compared to the end of 2016, the figure
was reduced by EUR 111.3 million in line
with the Restructuring plan and the strategy
of non-core divestment. The large majority
of the non-strategic assets comprise loan
exposures (approximately 69%), and a
smaller share of investment properties
and properties&equipment received for
repayment loans (approximately 21%),
equity exposures (approximately 1%), and
other assets.
The wind-down of the non-core segment in
2017 included:
• a reduction of the Bank’s credit business
with foreign clients,
• divestment of non-strategic Group
members,
• sale of the Bank’s equity participations,
and
101
In 2017, the Group
successfully realised its
strategy and objectives of
the Restructuring plan with
regard to the wind-down of
the non-core segment in line
with the EC commitments.
Reduction of the Bank’s credit
business with foreign clients
The Bank refrains from undertaking any
new credit activities with corporate clients
incorporated outside Slovenia that are not
members of the groups of clients whose
headquarters or final beneficiary is in
Slovenia. Consequently, the wind-down
of the legacy portfolio in 2017 in line with
the restructuring plan continued. The
Bank resolved several important Croatian
receivables in 2017 to contribute to the
exposure reduction by EUR 36.1 million.
With the final resolution of NPE towards
several Bosnian corporate clients, the
exposure was additionally reduced by EUR
91.2 million.
19.
Non-recurring income mainly
from the sale of non-core equity
investments (EUR +9.5 million), as
well as one court settlement (EUR
+1.2 million) and the sale of Czech
factoring company in liquidation
• active management of real estate assets.
(EUR +2.5 million).
NLB Group 2017 Annual Report 102
Table 18: Results of the non-core foreign markets and activities segment
in EUR million consolidated
Non-core markets and activities
Net interest income
Net non-interest income
Total net operating income
Total costs
Result before impairments and provisions
Impairments and provisions
Result before tax
Segment assets
Net loans to NBS
Gross loans to NBS
Investment Property and Property & Equipment
received for repayment of loans
Other assets
Deposits from NBS
Non-performing loans (gross)
2017
16.8
24.1
40.9
-21.7
19.2
12.9
31.2
391.3
269.9
448.5
81.6
39.9
10.2
279.7
2016
Change
15.4
10.9
26.3
-24.2
2.1
-20.9
-18.9
502.6
325.1
675.9
113.7
63.8
26.5
588.3
9%
120%
55%
-10%
784%
-162%
264%
-22%
-17%
-34%
-28%
-38%
-61%
-52%
Divestment of non-strategic
Group members
List of liquidation proceedings
initiated in 2017:
In the Group’s non-core members (most
of which operated in leasing, factoring and
real estate), new business has been stopped
and the total portfolio has been decreasing
through regular repayments, collections,
restructurings, sales, etc. In 2017 liquidation
proceedings were initiated in the remaining
non-strategic entities (listed below), except
for the leasing company in Bosnia and
Herzegovina. Apart from that a Czech
factoring company in liquidation was sold.
• NLB Propria, Ljubljana
• NLB Leasing, Ljubljana
• Prospera Plus, Ljubljana
• NLB InterFinanz, Praha
• NLB InterFinanz, Beograd
• Prvi faktor, Beograd
List of companies sold in 2017:
• NLB Factoring Brno, in liquidation
Main achievements of the
non-core segments in 2017:
• Realisation of the strategy and objectives
from the Restructuring plan, with regard to
the wind-down of the non-core segment
in line with the EC commitments.
• Sale of non-strategic equity participations
(leaving the remaining non-core equity
portfolio at EUR 0.9 million), as well as
the sale of the Czech non-core subsidiary
NLB Factoring which was in liquidation.
The total result from these transactions
amounted to EUR 11.1 million.
• Several individual exposures to
Croatian clients were sold, thereby
contributing to a reduction of NPL.
• A substantial decrease of costs of
operations, which were reduced by as
much as 10% YoY to the level of EUR
21.7 million (2016: EUR 24.2 million).
New business has
been stopped in non-
strategic subsidiaries,
liquidation procedures
were introduced, and the
total portfolio has been
decreasing through regular
repayments, restructurings,
collections, sales, etc.
NLB Group 2017 Annual Report 103
Efficient and transparent real
estate value optimisation and
divestment was achieved by
a dedicated team of experts
and specialised real-estate
management software.
of Pozavarovalnica Triglav RE d.d.,
reached a court settlement and agreed that
Zavarovalnica Triglav d.d., Ljubljana would
pay to the Bank the additional EUR 1.2
million.
Active management of real estate assets
Sale of NLB’s equity participations
The Bank has continued divesting its equity
participations, and consequently by the end
of 2017 the overall asset volume of equity
participations had been further reduced
from EUR 21.7 million to EUR 0.9 million.
The sales resulted in positive P&L effect of
EUR 9.8 million.
The Bank and Zavarovalnica Triglav d.d,
Ljubljana, which had squeezed out the
Bank as one of minority shareholders
The remaining NPL exposure divestment
process is being facilitated through a
specialised team for collateral real estate
repossessing, managing, and divesting. Real
estate expertise and services are offered
to the Group members so they are able to
most efficiently divest remaining NPL, or
to repossess collateral real estate. Besides
the Group’s REAM, local management
entities remain in four relevant markets:
Slovenia, Croatia, Serbia, and Montenegro,
also offering local support to other Group
markets.
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.
From 2015 to 2017 the team executed or
supported real estate transactions with a
total sales value of over EUR 100 million,
and directly or indirectly contributed to
a EUR 350 million of NPL reduction,
including EUR 160 million in 2017 alone.
In Q4 2017 the Group digitalised
operations through the implementation
of comprehensive real estate software
integrated with a dedicated web page (www.
nlbrealestate.com). This provides real time
information about actual offers for the
clients, including real estate performance
indicators analyses and scenarios for more
demanding investors.
Over
182.5
million EUR in reduction
of gross loans to foreign
clients in 2017
Over
100
million EUR in total
sales value of real estate
transactions executed or
supported by the real estate
team from 2015 to 2017
Figure 56: Total asset evolution by activity (in EUR million)
326
247
194
172
166
133
120
76
53
44
124
90
119
116
75
51
36
34
47
5
32
26
11
7
8
NLB Leasing Ljubljana
- in liquidation
NLB InterFinanz
- in liquidation
Other leasing
subsidiares
Real estate
subsidiares
Other non-core
subsidiares1
2014
2014
2015
2016
2017
1. NLB Factoring - sale in July 2017, NLB Propria, Prospera Plus, LHB AG
NLB Group 2017 Annual Report 104
Chapter 13
Processing Operations
Market trends dictated by digitalisation,
and continuous endeavouring for
further optimisation of processes
(processing) have become the Bank’s
essential and permanent tasks to
enhance customer experience.
Retaining the position of market leader
and most trusted payment service
provider through experience, market
insight, and quick responses to present
and future challenges
The Group recorded a higher volume
of payment transactions processed than
in the previous year (a 1.5% increase in
number of transactions, and a 12.5%
increase in the total value of transactions),
and retained market share in the area of
payment services. The Bank succeeded in
retaining its market position as the leading
and trusted payment service provider with
a stable 23.9% market share in Slovenia.
This positive result confirms continued
commitment to quality, reliability, and
security of payment services in the Group.
The constantly changing payment services
environment demands flexibility, accurate
assessment, and adequate responses to
market and regulatory challenges (e.g.
regulation, standards, and scheme rules).
Among other adjustments due to changes
in the external environment, the Bank
successfully introduced a QR code for
payment orders on all bank channels,
enabling simplified initiation of payment
orders for customers. As many of bill issuers
(billers) in Slovenia are still preparing (or
just starting initial phase) to offer usage
of a QR code, wider application of a
named code on payment orders is
expected in 2018.
Following current trends like digital
payment instruments, improved technical
devices, and STP end-to-end processes, the
Bank was very proactive and supportive in
developing the Instant payment solution,
which is planned to be introduced by
Bankart (National automated clearing
house) to the Slovenian payments market
in the last quarter of 2018. The National
instant payments scheme (based on SEPA
standards) is the next important step to
accommodate higher customer demands.
According to the scheme rules, most of the
payments will be processed in real time, 24
hours a day, 365 days a year in less than 5
seconds.
Simultaneously, within the Instant payment
project in the Bank, a number of activities
were initiated in order to realise necessary
internal technical and process adaptions on
time.
The largest cash processing centre in
Slovenia
Cash services are an important part of the
Bank’s product line which aims to satisfy
customers’ needs. An ongoing process of
increased automation and the digitalisation
of business process and paperwork has
improved service quality, and this remains
the primary focus.
With engagement and
dedication, the Bank provides
professional services to
clients and strives for
the development of the
best client experience.
The Bank is the biggest all around cash
support services provider in Slovenia,
offering services to 13 out of 15 commercial
banks (NLB included). The Bank, with
its highly automated, technology-based
operations and specialised experience-
based knowledge, is providing service
of exceptional quality which has been
recognised by a majority of the banks
in Slovenia that have trusted their cash
operations to the Bank.
The cash processing centre with its
armoured vehicle fleet, is processing and
supplying cash for the Bank and other
banks operating in Slovenia – including
nearly 500 bank branches and over 950
ATMs. Using an advanced forecasting
system, the Bank is able to estimate future
cash use in each cash point it supplies,
taking into account many factors that drive
cash demand and its volatility. This enables
adaptability, flexibility, and efficiency in
managing cash supply and logistics.
The constantly changing
payment services environment
demands flexibility, accurate
assessment, and adequate
responses to market and
regulatory challenges.
NLB Group 2017 Annual Report 105
A new settlement environment for
securities operations and legislative
challenges on financial markets
The biggest challenge regarding financial
markets processing in 2017 was integration
of the Slovenian capital market into a
T2S environment. In addition to the
implementation of a new securities
settlement process on the domestic
market through a DCA for the Bank, T2S
introduced European harmonised rules for
corporate actions processing, according
to which KDD members must process all
corporate actions for their clients. Due to
those reasons, the Bank processed almost
35,000 corporate actions in 2017 for its
brokerage clients with trading accounts.
As the most important financial institution
in the country, the Bank is also the only
bank in Slovenia offering access to DCA
in T2S to other clients and so provides
indirect access to cash settlement for
those participants who cannot carry it
out themselves (brokerage and insurance
companies). In 2017 the Bank processed
more than 1,500 transfers to and from
DCA in the context of T2S Payment Bank
role.
Due to major EU legislative changes
and new requirements, 2017 was very
challenging including the implementation
of margin requirements and revised
reporting requirements of derivatives under
the EMIR Regulation, the introduction
of new comprehensive reporting of all
financial instruments under the MiFIR
regulation, and the preparation for the
new International Accounting Standard
IFRS9. Necessary adjustments arising from
the aforementioned changes in legislative
requirements were implemented with
continuous optimisation of processes and
implementation of several improvements
and automations.
With engagement and dedication, the Bank
provides professional services to clients and
strives for continuous development of the
best client experience.
NLB has the biggest market share in
payment services and cash supply services
in Slovenia. It’s the result of a continued
commitment to quality, reliability, and
security of payment services in the Group.
Our future endeavours are focused on
upgrading customer satisfaction through
further optimisation of processing based
on deep insight into market trends
that are dictated by digitalisation.
Irena Dolinar
Alenka Korče
Dražen Bundalo
General Manager,
General Manager,
General Manager, Financial
Payments Processing
Cash Processing
Markets Processing
Supporting banking operations:
Efficient processing operations contribute
to the quality of Bank’s payment services.
23.9%
payment services market
share in Slovenia
1,450
cash points are supplied
with cash by NLB in Slovenia
35,000
processed corporate actions
for brokerage clients
NLB Group 2017 Annual Report 106
Chapter 14
Risk Management
The strong capitalisation and liquidity
position continued in 2017. A robust
Risk Management framework is
comprehensively integrated into
decision-making, steering, and mitigation
processes within the Group in order
to proactively support its business
operations. Risk management in the
Group is responsible for managing,
assessing, and monitoring risks within the
Bank as the main entity in Slovenia, and
the competence centre for six banking
subsidiary banks. Furthermore, it is also
responsible for several ancillary services
companies and non-core subsidiaries
which are in a controlled wind-down.
In the year 2017 the trend of an
additionally improved credit portfolio
quality continued, with a focus on the
quality of new placements leading to a
diversified portfolio of customers and
further decrease of NPE volume, which
approaches the average EU banking level.
In addition, the coverage ratio remains
high, enabling further NPE reduction
without significant influence on the cost of
risk in the years to come. Positive trends
have been recorded throughout the region
in terms of clients putting greater trust
in economic developments, alongside the
related recovery in consumption and the
real estate market. An economic upswing
and other one-off occurrences resulted
in the negative cost of risk on the Group
level, whose evolution was otherwise very
stable and in line with strategic business
orientations and expectations.
In a negative interest rate environment, the
Group was facing growing excess liquidity,
whereby significant attention was put on 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 resulted in
moderately increased interest rate risk
exposure, which stayed within relatively low
to moderate tolerance toward this risk. The
Group was included in the ECB Stress test
2017 – interest rate risk in the banking book
which resulted in a favourable adjustment
of Pillar 2 Guidance as a part of the overall
SREP requirements. Moreover, during
2017 the Group’s capital and liquidity
position remained strong at both the Group
and subsidiary bank levels, standing well
above the targeted risk appetite profile.
Risk management principles
The Bank is, as a systemic bank, involved
in the 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 the Group’s
uniform manner, 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 Group. The main risk principles are
integrated into the Group Risk Strategy,
designed in accordance with business
strategy and risk appetite orientations.
Special focus is put on the inclusion of risk
analysis in the decision-making process on
strategic and operating levels, 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.
The key goal of Risk Management is to
manage, assess, and monitor risks within
the Group in line with the Group’s Risk
Appetite and Risk Strategy, which are its
fundamental risk management documents.
The Group is constantly enhancing its risk
management system in order to support
business decision-making, comprehensive
steering, and mitigation processes by
incorporating the ICAAP, the ILAAP, the
Recovery plan, and other internal stress-
testing capabilities.
Proactive Risk management in 2017
The activities related to IFRS 9
requirements, entering into force in
the beginning of 2018, including
methodological adaptations and
anticipated quantitative impacts, were fully
implemented already in 2017, including
an internal validation and external
methodological review. Due to very
favourable macroeconomic trends and the
improved quality of the credit portfolio,
positive effects on the cumulative Group
basis were recorded (as the difference
between IFRS 9 and IAS 39), where effects,
which are arising mainly from collective
impairments, strengthened the Group’s
capital basis. More information on effects
from transition to IFRS9 is disclosed in the
accounting part of the annual report in
note 2.34.
NLB Group 2017 Annual Report 107
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 and stressed conditions.
As at 31 December 2017, the Group had a
strong level of capital adequacy (CET 1) of
15.9% 20 which is well within the stated risk
appetite limit, and above the EU average
as published by the EBA. The Group is
complying with both the applicable capital
requirements for 2018 as well as the capital
requirements on a fully-loaded basis (i.e.
the capital requirements including the
combined buffer in full amount, irrespective
of the legally applicable transitional
implementation).
In comparison with 2016, the capital
adequacy ratio decreased by 1.1 percentage
point of which 0.8 percentage points
were due to correction of treatment of
the FX position on the consolidated level
and treatment of equity investments in
non-euro subsidiary banks, requested by
the regulator. The requested correction
relates to structural positions arising
from operations of the Group’s non-euro
subsidiaries banks. These positions are
long, non-trading, and deliberately taken.
On a consolidated level foreign exchange
translation differences from these positions
are recognised in the consolidated capital
and do not have an impact on the Group’s
profit and loss. By keeping its structural
position open, the Group maintains a
capital ratio insensitive to foreign exchange
• More than 68.5% reduction of NPL
portfolio in last four years.
• The Group reduced the NPL legacy portfolio
from EUR 2,687 million to EUR 844 million in
the period from 2014 to 2017 on the basis
of a proactive NPL reduction strategy, while
NPL formation from new production is very
low due to improved credit standards and
other enhanced risk management tools.
Figure 57: NLB Group structure of the credit portfolio
(gross loans and advances) by segment
SME
Corporates
Consumer
Mortgages
State
Institutions
24%
20%
19%
19%
11%
8%
Note: Gross exposures also include reserves at Central Banks and demand deposits at banks
movements. The Bank will try to partly or
fully exclude this position from an open
FX position in the future (by getting the
approval from the regulator).
The strong capitalisation
and liquidity position
continued in 2017.
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 LCR (according to the delegated act) of
276%, and unencumbered eligible reserves
in the amount of EUR 5,026 million.
Even in the event the stress scenario was
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 at 70.8%,
giving the Group the potential for further
customer loan placements.
Preserving a high 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. The Group is actively
present on the market, financing existing
and new creditworthy clients. The lower
indebtedness of companies in Slovenia
and their successful deleveraging has had a
positive influence on the approval of new
loans. In the retail segment, positive trends
have been recorded throughout the region
in terms of clients putting greater trust
in economic developments, alongside the
related recovery in consumption and the
real estate market. The efforts, arising from
the improved credit standards, resulted
in the cumulatively very low new NPL
formation ratio (2017: 0.6% of gross loan
portfolio, which equals EUR 58 million).
In addition, a favourable macroeconomic
environment across the region resulted in
the negative cost of risk, whose evolution
during the year was otherwise very stable
and sustainable in line with strategic
orientations.
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 established cooperation with
selected corporate clients (through different
types of lending/investments instruments).
All other banking members in the SEE
region, where the Group is present, are
universal banks mainly focusing on the
20.
Envisaging dividend payment in
100% of net profit after tax of the
Bank (EUR 189.1 million).
NLB Group 2017 Annual Report 108
Figure 58: Structure of NLB Group credit portfolio by client
credit ratings (in EUR million) as at year end
56%
57%
61%
58%
25%
23%
18%
12%
7%
6%
5%
5%
NPL
25%
19%
14%
9%
Figure 59: NLB Group NPL
volume (in EUR million)
2,623
1,896
1,299
844
A
B
C
D and E
(Highest quality)
2014
2015
2016
2017
retail segment and the segment of medium-
sized and small enterprises. Their primary
goal is to provide comprehensive services to
clients by taking prudent risk management
principles into account. The current
structure of the credit portfolio (gross loans)
consists of 38% of retail clients, 20% of
large corporate clients, 24% of SMEs and
micro companies, while the remainder of
the portfolio entails other liquid assets.
The Group puts considerable emphasis
on new corporate and retail financing, the
sustainability of the credit risk volatility
in terms of its structure and cost of risk,
including the sustainable size of the
subsidiary banks. Moreover, the Group
is constantly developing a wide range
of advanced approaches supported by
mathematical and statistical models in the
area of credit risk assessment in line with
best banking practises to further enhance
existing risk management tools, while at the
same time enabling faster responsiveness for
clients.
The restructuring approaches built in
the past are focused on early warning
detection of clients with potential financial
difficulties and their proactive resolving.
The structured approach and successful
application of various restructuring tools
resulted in a number of clients being
cured in past years, and transferred back
to the front office. In addition, substantial
progress was made in retail restructuring
(Default)
2014
2015
2016
2017
NPL volume
by focusing on a systematic approach and
proactive usage of standardised tools for the
timely restructuring of exposures to private
individuals.
The strong commitment to reduce the
NPE legacy on the Group level continued
in 2017. Precisely set targets and constant
monitoring of the realisation supported a
further substantial reduction in the volume
of the non-performing portfolio. The
existing non-performing credit portfolio
stock in the Group was reduced from
EUR 1,299 million to EUR 844 million
YoY, where the reduction exceeded the set
targets. The combined result of all effects
resulted in a decreased share of NPL
ratio from 13.8% to 9.2% YoY, while the
internationally more comparable NPE
ratio based on the EBA methodology was
reduced from 10.0% to 6.7% YoY.
An important Group strength is the NPL
coverage ratio regarding all impairments,
which remains high at 77.5% (an increase
of 1.4 percentage points). Further, the
Group’s NPL coverage ratio regarding
NPL’s imapirments stands at 62.2%, which
is well above the EU average as published
by the EBA (44.7% for Q3 2017). As such,
it enables a further reduction in NPL
without significantly influencing the cost of
risk in the coming years. Moreover, it proves
that past reduction was done on average
without a negative impact to profit and loss.
Figure 60: NLB Group NPE
(NPE% by the EBA) and NPL ratio
25.1%
18.8%
19.3%
14.3%
13.8%
10.0%
9.2%
6.7%
2014
2015
2016
2017
NPE % in accordance with
EBA methodology
Share of non-performing
loans (NPL) in all loans
Figure 61: NLB Group Coverage ratio
69%
72%
62%
63%
76%
78%
65%
62%
2014
2015
2016
2017
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)
NLB Group 2017 Annual Report 109
276%
the Group LCR
6.7%
the Group NPE %
by EBA
- 62bps
the Group Cost of Risk
was negative
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. 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.
The Group operates its main business
activities in euros, while in the case of the
subsidiary banks, beside their domestic
currencies, they also partly operate in euros,
which is the Group’s reporting currency.
The Group’s net open FX position from
transactional risk is low and amounts to less
than 1.74% of capital, excluding structural
position arising from non-EU subsidiaries.
The Group’s exposure to interest rate
risk is relatively low, but has increased
moderately in the recent period in line
with expectations as a result of an excess
liquidity position and a low interest rate
environment. The Group was included in
the ECB Stress test 2017, focusing on a
sensitivity analysis and various components
of interest rate risk in the banking book.
The results reflected in a favourable
adjustment of Pillar 2 Guidance as a part
of overall SREP requirements. Net interest
income sensitivity of the Group would
amount to EUR 10 million in the case if
Euribor increases by 50 bps, while the case
of decreased sensitivity would be lower due
to zero floor clauses. From an economic
perspective, a basis point value (BPV)
sensitivity of 200 bps increase equals 5.73%
of the Group’s capital.
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 dedicated to developing the
stress-testing system, which is 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.
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. Besides the uniform
stress testing framework, which includes
internally-developed models, it was also
additionally enhanced in connection with
relevant expected macroeconomic factors.
Such a stress testing framework is the
subject of regular internal validations and
back testing procedures.
Constant enhancing of the risk framework,
proactive risk management, a favourable
macroeconomic environment, and a moderate
risk appetite yielded results above expectations.
Igor Zalar
General Manager,
Global Risk
NLB Group 2017 Annual Report 110
Rok Praprotnik
General Manager, Compliance and Integrity
Andreas Burkhardt
Member of the Management Board
NLB Group 2017 Annual Report 111
Andreas Burkhardt
Member of the Management Board
Rok Šturm
General Manager, Evaluation and Control
Peter Zelen
General Manager, Restructuring
NLB Group 2017 Annual Report 112
Nataša Simčič
General Manager, Credit Risk
- Corporate and Retail
Vesna Pogačar
General Manager, Workout and Legal Support
NLB Group 2017 Annual Report 113
Nataša Simčič
General Manager, Credit Risk
- Corporate and Retail
Vesna Pogačar
General Manager, Workout and Legal Support
Polona Kurtevski
General Manager, Internal Audit
NLB Group 2017 Annual Report 114
Chapter 15
Corporate Governance
The corporate governance of the Bank
is based on applicable legislation,
its Articles of Association, and rights
and responsibilities of the Bank’s
Supervisory Board, changes in the Bank’s
share capital, appointing and discharging
members of the Supervisory Board.
management bodies that follow the
principles of responsible management
The General Meeting of Shareholders of
the Bank met twice during 2017.
and/or supervision of all activities of the
Bank and the Group. In compliance with
Slovenian legislation, the Bank has a two-
tier management structure under which
the relationships between individual
bodies are founded on a mutual division
of rights and responsibilities. The
Bank’s corporate governance bodies
are as follows: the General Meeting
of Shareholders, the Supervisory
Board, and the Management Board.
The General Meeting of Shareholders
Shareholders exercise their rights related to
the Bank’s affairs at the General Meeting of
the Bank. The rights of the RoS, as the only
shareholder of the Bank, are represented at
the General Meeting by SSH.
The Bank’s General Meeting adopts
decisions in compliance with the legislation
and the Bank’s Articles of Association.
Competences of the Bank’s General
Meeting are stipulated in the Companies
Act, the Banking Act, and the Articles of
Association of the Bank. Decisions adopted
by the Bank’s General Meeting include
among others: adopting and amending
the Articles of Association, the use of
distributable profit, granting of discharge
from liability to the Management and
On 7 April 2017 the 28th General Meeting
of Shareholders of the Bank was held, at
which the rights of the RoS as the only
shareholder of the Bank were represented
by the SSH. Among others, the General
Meeting acknowledged the NLB Group
Annual Report for 2016 and decided on
the use of distributable profit for 2016 as
it adopted the resolution to allocate EUR
63.78 million of the distributable profit
for 2016 to the sole shareholder of the
Bank (EUR 3.189 per share). The General
Meeting acknowledged the Supervisory
Board’s Report on the results of examining
the Annual Report, the Information on the
remuneration of the Bank Management
Board and Supervisory Board members
in 2016, and the amendments to the
Rules on determining other rights under
management employment contracts or
other documents of the Bank. The General
Meeting of Shareholders of the Bank also
acknowledged the Internal Audit Report
adopted for 2016 and the positive opinion
of the Supervisory Board of the Bank.
The General Meeting of Shareholders
granted discharge to the Management
Board and Supervisory Board for the
business year 2016. At the end of the
General Meeting, the four-year term of
office of the member of the Supervisory
Board Uroš Ivanc, expired. The
Supervisory Board thus continued its
work with seven members. At the General
Meeting, the shareholder requested an
additional item of the agenda, proposing an
amendment to the Articles of Association,
with which the independence of the
members of the Supervisory Board was
defined more precisely, as well as an
amendment to the Articles of Association
regulating permission for the transfer of
shares.
On 8 September 2017 the 29th General
Meeting of Shareholders was held. The
rights of the RoS as the only shareholder
of the Bank were represented by the
SSH. Following the proposal presented
by the Supervisory Board of the Bank,
the General Meeting appointed three
new members to the Supervisory Board
as follows: Vida Šeme Hočevar, Simona
Kozjek and Peter Groznik. In the selection
procedure, which was conducted in
accordance with regulatory requirements
and internal rules, the Bank carried out
Fit & Proper assessments. In line with
the banking regulation, the Nomination
Committee of the Supervisory Board of
the Bank issued a positive Fit & Proper
assessment of the candidates, which
included assessment of all key criteria of
candidates’ suitability, also the statement
on potential conflicts of interest and the
independency of mind of candidates. The
latter was also approved by the Supervisory
Board of the Bank. All three candidates
were assessed as fit and proper for the
function.
Shareholders exercise
their rights related to the
Bank’s affairs at the General
Meeting of the Bank. The
rights of the RoS, as the
only shareholder of the
Bank, are represented at the
General Meeting by SSH.
NLB Group 2017 Annual Report 115
was established, the functioning of the
supervisory bodies optimised, and the
reporting and standards related to the
harmonisation of operations simplified. In
line with strategic aspirations, the concept
of ‘country managers’ was introduced
with the main goal to support and steer
the Group members, as well as to be a
strong link between Group members and
the Bank. They also facilitate best practice
sharing on different levels. At the end of
2017 one country manager covered Serbia
and Montenegro, another covered both
entities in Bosnia and Herzegovina.
Competences of the management
bodies, the Articles of Association,
and other data related to corporate
governance are available at:
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 one of the countries in
which the Group members
operate, while also
considering internal rules,
the commitments made to
the EC, and ECB regulations.
is the principal partner of the Bank’s
Management Board in the governance
of strategic and non-strategic Group
companies, and is responsible for
appropriate corporate governance, the
alignment of strategies and the objectives
achieved by subsidiaries.
The Group is governed:
• In accordance with fundamental
corporate rules through various bodies
of the Group members:
The Supervisory Board of the Bank
currently consists of eight members (further
information on current composition of
the Supervisory Board is provided in the
chapter on the Supervisory Board).
General information with respect to the
convocation of a session of the General
Meeting of Shareholders, participation
in the General Meeting of Shareholders,
and on the method of decision-making
at the General Meeting of Shareholders,
as required by the Article 70 (Paragraph
5, Point 5) of the ZGD-1, is set out in the
section ‘Corporate Governance Statement’.
Group’s Corporate Governance
As the parent bank, the Bank implements
corporate governance of the Group
members in compliance with the EU
and RoS legislation, local legislation, and
regulatory requirements applicable to
respective Group members, while also
considering internal rules, the commitments
made to the EC, ECB, and other applicable
regulations.
The roles, authorisations, and
responsibilities of individual bodies and
organisational units, as well as how to
coordinate their operations to achieve
the set business goals are stipulated
comprehensively in the NLB Group
Corporate Governance Policy. In the
Bank, the Group Steering Department
- by voting at general meetings of the
Group members,
- with proposals for appointing
the managements of the Group
members,
- with proposals for appointing
representatives of the Bank to
supervisory bodies,
- by exercising supervision through
-
the supervisory bodies of the Group
members,
through participation of Bank’s
representatives in various committees
and commissions of the Group
members.
• By mechanisms providing efficient
business control in all business lines,
harmonisation of the operating
standards, and exchange of information
between the Group members according
to the Business Line principle.
• 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 BoS, external auditors, and
local regulators).
In recent years the concept of corporate
governance of the Group has been
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
NLB Group 2017 Annual Report 116
Supervisory Board
The highest objectives include compliance
with 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.
At the beginning of 2017, the Bank had
a full nine-member Supervisory Board, as
stipulated by the Articles of Association.
It was composed of: its Chairman Primož
Karpe, Deputy Chairwoman Sergeja
Slapničar and the following members: Uroš
Ivanc, Andreas Klingen, László Urbán,
David E. Simon, David Kastelic, Matjaž
Titan, and Alexander Bayr.
On 13 March 2017, Sergeja Slapničar,
submitted her statement of resignation.
Based on the approval by the Supervisory
Board of the Bank, her function was
terminated on 20 March 2017. At the
closing of the 28th General Meeting of
Shareholders held on 7 April 2017, the
four-year term of office of Supervisory
Board member Uroš Ivanc expired. On
21 April 2017, the Supervisory Board of
the Bank acknowledged the statement
of resignation of Matjaž Titan, and his
proposal for a shorter notice period. Based
on the approval by the Supervisory Board,
his function was terminated on 21 April
2017.
On 7 April 2017, the Supervisory Board
of the Bank appointed Andreas Klingen as
the new Deputy Chairman, and on 11 May
2017, the Supervisory Board of the Bank
passed a resolution to appoint members to
its committees.
On 7 September 2017, the Supervisory
Board of the Bank acknowledged the
statement of resignation of David Kastelic,
and his proposal for a shorter notice period.
Based on the approval of the Supervisory
Board of the Bank, his function was
terminated on 8 September 2017.
The highest objectives
include compliance with
strategic guidelines, as well
as the trust of the owners
and business partners in the
functioning of the Bank.
On 8 September 2017 the 29th General
Meeting of Shareholders appointed three
new members of the Supervisory Board. It
is currently composed of eight members,
namely: Primož Karpe - Chairman,
Andreas Klingen - Deputy Chairman, and
the following members: Alexander Bayr,
David Eric Simon, László Urbán, Vida
Šeme Hočevar, Simona Kozjek and Peter
Groznik (members).
In accordance with the two-tier governance
system and the authorisations for
supervising the Management Board, the
Bank’s Supervisory Board issues approvals
to the Management Board related to the
Bank’s business policy and financial plan,
approves the strategy of the Bank and
the Group, organises the internal control
system, drafts the audit plan of the Internal
Audit and all financial transactions (e.g.
issuing of own securities and 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 interest.
Further information about the work and
powers of the Supervisory Board is set
out in the section ‘Corporate Governance
Statement of NLB’.
NLB Group 2017 Annual Report 117
Primož Karpe, MSc
Other important positions
Chairman of the Supervisory Board
and achievements:
• Deputy CEO, CFO PC Erste
Bank, Kiev, Ukraine (2010-2013)
Term of office: 2016–2020
Education:
• Obtained a master’s degree from San
Diego State University (Master of
Science – Business Administration)
• 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)
• 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)
• Graduated from the Faculty of
• His specialties are the preparation,
Economics in Ljubljana (majoring
in Finance)
assessment, negotiating, and structuring
of complex equity and debt transactions,
and restructuring/business management
• Senior Associate in Lazard,
Frankfurt/Paris/London (1993-1998)
Career:
Other important functions and
Membership in NLB Supervisory
achievements:
• Managing Director of Angler Ltd.
Koprivnica, Croatia (since 2015)
Board committees:
• 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)
• Nomination Committee (Chairman)
• Audit Committee (Member)
• Member of Supervisory Board of
Kyrgyz Investment and Credit Bank
(since December 2016)
• Remuneration Committee (Member)
• Member of Supervisory Board of Credit
Bank of Moscow (since November 2016)
Membership in management bodies
• Member of the Board of Directors of
of related or unrelated companies:
Komercialna banka Beograd a.d. (since
November 2014)
• Member of Supervisory Boards of
Banks in Central and Eastern Europe
and Russia (2005-2013)
• 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)
Andreas Klingen, MSc
• Head of the business development
Term of office: 2015-2019
Board committees:
Deputy Chair of the Supervisory Board
Membership in NLB Supervisory
(M&A) department at Telekom Slovenija
d.d. (2006-2007)
Education:
• Assistant to the CEO of Mobitel d.d.
(2002-2006)
• Master of Business Administration,
Rotterdam School of Management,
Rotterdam, The Netherlands
• Nomination Committee (Deputy
Chairman)
• Risk Committee (Chairman)
• Chief Operating Officer at Eon d.o.o.
Membership in management bodies
(2000-2002)
• Master of Science in Physics, Technical
of related or unrelated companies:
University, Berlin, Germany
• FX trader/head of the assets and
liabilities management department at
SKB banka d.d. (1996-2000)
Career:
• none
• Independent Banking consultant,
entrepreneur, Berlin, Germany
(since 2014)
NLB Group 2017 Annual Report
118
Alexander Bayr, Mag
Member of the Supervisory Board
Term of office: 2016–2020
Education:
• Faculty of Economics in Innsbruck
(1985)
Career:
Membership in the NLB Supervisory
Board Committees:
• Joint Branch Manager, Byblos Bank Sal,
London (1986-1988)
• Audit Committee (Deputy Chairman)
• Assistant Vice President, American
Express Bank, London (1980-1986)
• Nomination Committee (Member)
Membership in management bodies
of related or unrelated companies:
• Senior Credit Analyst, Manufacturers
Hanover Trust, London (1978-1980)
• National Westminster Bank, London
• WKBG Bank, Vienna; member of the
(1971-1977)
• Manager of Corporates and Real Estate,
Supervisory Board (since 2016)
BAWAG PSK, Vienna (since 2013)
• CEO, BAWAG banka d.d.,
Ljubljana (2009-2012)
David Eric Simon
Member of the Supervisory Board
Term of office: 2016-2020
• Real Estate Projects, BAWAGPSK,
Vienna (2008-2012)
Education:
• Management Board Member,
• IFS School of Finance (1974)
Istrobanka a.s. Bratislava, Slovakia
(BAWAG) (2004-2008)
• City of London College, UK (1970)
• Management Board Member, Ludova
Career:
banka a.s., Bratislava, Slovakia
(Volksbank) (2000-2004)
• Sales Manager, Ascom Austria
(1998-2000)
• Chief Restructuring Officer and Advisor
to the General Manager, Czech Export
Bank a.s. (2013-2014)
• Advisor, PricewaterhouseCoopers,
Other important functions
and achievements:
• Primary expertise in credit,
restructuring, and NPL
Membership in the NLB Supervisory
Board Committees:
• Audit Committee (Chairman)
• Risk Committee (Member)
Membership in management bodies
of related or unrelated companies:
• Jihlavan a.s., President of the
Supervisory Board;
• Deputy Head of Large Corporates
Prague (2012-2013)
• Czech Aerospace industries sro, legal
Department, Deutsche Bank, Austria
(1997-1998)
• Key Customer Account Manager,
Österreichische Volksbanken AG
(1987-1997)
• Sales Manager, Unilever (1985-1987)
Other important functions
and achievements:
• Advisor (1994-2004), Head of
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)
• Member of the Management Board of
the Chamber of Commerce of Slovakia-
Austria (2000-2012)
• International Banking Consultant,
Morgan Grenfell & Co (1993-1994)
• Member of the Supervisory Board of
WKBG Bank, Austria (since 2016)
• Assistant General Manager Tijari
Finance Limited (wholly owned
subsidiary Commercial Bank of
Kuwait), (1988-1992)
representatives;
• Central Europe Industry Partners a.s.,
member of the Supervisory Board.
László Urbán, Ph.D.
Member of the Supervisory Board
Term of office: 2016–2020
Education:
• Completed Advanced Management
Program, Harvard Business School,
Cambridge, MA (2000)
• Doctorate at Budapest University of
Economics, Hungary (1985)
NLB Group 2017 Annual Report
119
• Master of Arts, Budapest University of
Membership in management bodies
Economics, Hungary (1982)
of related or unrelated companies:
Career:
• none
• 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)
Vida Šeme Hočevar, Ph.D.
Member of the Supervisory Board
Term of office: 2017-2021
Education:
• Senior Adviser – Ministry of Finance,
Ljubljana – International Relations
Department (1993-1995)
• Acting Head of the Cabinet – Ministry
of Finance, Ljubljana (1992-1993)
• Lawyer – Entrepreneurship Innovation
Centre, Ljubljana (1991-1992)
Other important positions
• Chief Financial Officer and Member
• Doctor of Juridical Science – Faculty of
and achievements:
of the Board of Directors at OTP Bank
(2007-2009)
Law, University of Maribor (2006)
• Master of Laws – Faculty of Law,
University of Ljubljana (1996)
• member of the Slovenian Insurance
Agency, Key Functions Committee
(since 2017)
• Bachelor of Laws – Faculty of Law,
• work and cooperation with IMF, WB,
University of Ljubljana (1991)
OECD, FATF, EBRD, EIB, ECB, UNO
• Director, General Secretariat at National
Bank of Hungary (2005-2006)
• Vice President, Business Planning
Director at Citigroup, New York
(2000-2005)
Career:
• Deputy CEO and member of the Board
of Directors at Postabank, Hungary
(1998-2000)
• Authorised Officer of the Board
– Skupna pokojninska družba d.d.,
Ljubljana (since 2017)
• member of the EGMONT Group
(1997-2006)
• member and evaluator of the CoE
MONEYVAL Committee (1997-2006)
in 1994 attended Postgraduate Trimester
Individual Course on Legal Issues
(part of LLM studies), British Council
- Chevening Scholarship – Faculty of
Law, University of Cambridge, United
Kingdom (Gonville and Caius College;
Jesus College)
Membership in the NLB Supervisory
Board committees:
• Remuneration Committee
• Secretary General/Executive Director –
Bank of Slovenia, Ljubljana (2006-2017)
•
• Undersecretary, Member of the
Management – Office for Money
Laundering Prevention, Ministry of
Finance, Ljubljana (2004-2006)
• A13 – TA Officer, Consulting Counsel
– International Monetary Fund (IMF),
Washington D.C., USA (2003-2004)
• Counsellor to the Government,
(Chairwoman)
Head of Prevention and Supervision
Dept.– Office for Money Laundering
Prevention, Ministry of Finance,
Ljubljana (1997-2003)
• Counsellor to the Minister – Ministry of
Finance, Ljubljana – Tax Department -
International Issues (1995-1997)
• Nomination Committee (Member)
• Audit Committee (Member)
Membership in management bodies
of related or unrelated companies:
• Director of Planning and Chief
Economist at ABN-AMRO Bank,
Hungary (1996-1998)
Other important functions
and achievements:
• Visiting Fellow, Economist at The World
Bank, Washington DC (1995-1996)
• Member of Parliament, Hungary
(1993-1994)
• Associate Professor at Eotvos University
of Budapest (1985-1992)
Membership in the NLB Supervisory
Board committees:
• Risk Committee (Deputy Chairman)
• Remuneration Committee (Member)
• none
NLB Group 2017 Annual Report
120
Simona Kozjek, MSc
Membership in the NLB Supervisory
• Owner and Director - NorthGrant,
Member of the Supervisory Board
Term of office: 2017-2021
Education:
Board committees:
svetovanje d.o.o., Ljubljana (2010-2012)
• Remuneration Committee (Deputy
Chairwoman)
• President of the Management Board –
KD Skladi d.o.o., Ljubljana (2009-2010)
• Master of Science – Faculty of
• Risk Committee (Member)
• Director of Investment Department -
Economics, University of Ljubljana
(2007)
Membership in management
bodies of related or unrelated
KD, NPD by 2008, KD Skladi and KD
Holding from 2008 to 2009 (2005-2009)
• Graduated from the Faculty of
companies in the past:
Membership in the NLB Supervisory
Economics, University of Ljubljana
(1999)
• President of Supervisory Board
Board committees:
at Avrigo, d.o.o.
• Nomination Committee (Member)
Career:
• Supervisory Board member at Triglav
• Risk Committee (Member)
Membership in management bodies
of related or unrelated companies:
• none
• President of the Management Board -
Nama d. d. (since 1 February 2017)
naložbe, finančna družba d.d.
• Director of Middle Office –
Zavarovalnica Triglav d. d. (2013-2017)
• Supervisory Board member at Triglav
Skladi, družba za upravljanje, d.o.o.
• Supervisory Board member at
• Asset Manager – coordination of
Nama d.d.
subsidiary companies – Zavarovalnica
Triglav d. d. (2010-2013)
Peter Groznik, Ph.D.
• Asset Manager - Zavarovalnica Triglav
Member of the Supervisory Board
d. d. (2004-2010)
Term of office: 2017-2021
• Analyst - Zavarovalnica Triglav d. d.
Education:
(2000-2004)
Other important positions
and achievements:
•
in 2010 underwent training for the
position of a member of a supervisory
board and management board of
companies appointed or to be appointed
by the Government of the RS,
representing the owner – Republic of
Slovenia
•
in 2014 became Certified Business
Appraiser at the Slovenian Institute of
Auditors
• Doctor of Science – Kelley School
of Business, Indiana University
Bloomington, USA (2003)
• Master of Business Sciences – Kelley
School of Business, Indiana University
Bloomington, USA (2001)
• Bachelor of Economics, Finance –
Faculty of Economics, University
of Ljubljana (1996)
Career:
• Owner and Director - NorthGrant,
svetovanje d.o.o., Ljubljana (since 2017)
• Member of the Management Board –
Gorenje d.d. (2012-2017)
NLB Group 2017 Annual Report
121
NLB Group 2017 Annual Report 122
Committees of the Bank’s
The Risk Committee
Supervisory Board
The Supervisory Board appoints
committees that prepare proposals for
resolutions passed by the Supervisory
Board, ensures their implementation, and
perform other expert tasks. At the end of
2017 the Bank’s Supervisory Board 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,
and external audit, and as well monitors the
implementation of regulatory measures.
Composition of the Committee at the
beginning of 2017 was as follows: Sergeja
Slapničar (Chair), Uroš Ivanc (Deputy
Chair), Primož Karpe, and Alexander Bayr
(members).
Due to the resignation of one member in
March and April 2017, and the expiration
of the term of office of one member of the
Supervisory Board in April 2017, on 7 April
2017 the Supervisory Board appointed
David E. Simon as Chairman. On 11 May
2017, the Supervisory Board adopted the
decision on the new composition of the
Audit Committee, as follows: David E.
Simon (Chairman), László Urbán (Deputy
Chair), Primož Karpe, and Alexander Bayr
(members).
At the 29th Shareholders’ Meeting held
on 8 September 2017 three new members
of the Supervisory Board were elected.
On 6 October 2017, the Supervisory
Board adopted the decision on the new
composition of the Audit Committee,
as follows: David E. Simon (Chairman),
Alexander Bayr (Deputy Chairman),
Primož Karpe, and Vida Šeme Hočevar
(members). There were five sessions of the
Audit Committee in 2017.
monitors and drafts resolutions for the
Supervisory Board in all risk areas relevant
to the Bank’s operations. It is consulted on
the current and future risk appetite and
the risk management strategy, and it helps
carry out control over senior management
concerning implementation of the risk
management strategy.
Composition of the Committee at the
beginning of 2017 was as follows: Andreas
Klingen (Chair), László Urbán (Deputy
Chair), Sergeja Slapničar, and David Simon
(members).
Due to the resignation of one member in
March 2017 the Supervisory Board on 7
April 2017 appointed Alexander Bayr as
a new member. On 11 May 2017 adopted
the decision on the new composition of
the Risk Committee, as follows: Andreas
Klingen (Chairman), László Urbán (Deputy
Chair), Alexander Bayr, and David E.
Simon (members).
At the 29th Shareholders’ Meeting held
on 8 September 2017 three new members
of the Supervisory Board were elected.
On 6 October 2017, the Supervisory
Board adopted the decision on the new
composition of the Risk Committee, as
follows: Andreas Klingen (Chairman),
László Urbán (Deputy Chairman), Simona
Kozjek, Peter Groznik, and David E. Simon
(members). There were five sessions of the
Risk Committee in 2017.
The Nomination Committee
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 Shareholders;
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
positions in the Bank.
Composition of the Committee at the
beginning of 2017 was as follows: Primož
Karpe (Chair), David Kastelic (Deputy
Chair), Anderas Klingen, and Matjaž Titan
(members).
Due to the resignation of one member
in April 2017 the Supervisory Board on
11 May 2017 adopted the decision on
the new composition of the Nomination
Committee, as follows: Primož Karpe
(Chairman), David Kastelic (Deputy Chair),
and Andreas Klingen (member).
One member of the Supervisory Board
offered his resignation on 4 September
2017. At the 29th Shareholders Meeting
held on 8 September 2017, three new
members of the Supervisory Board
were elected. On 6 October 2017, the
Supervisory Board adopted the decision
on the composition of the Nomination
Committee, as follows: Primož Karpe
(Chairman), Andreas Klingen (Deputy
Chairman), Alexander Bayr, Vida Šeme
Hočevar, and Peter Groznik (members).
There were five sessions of the Nomination
committee in 2017.
NLB Group 2017 Annual Report 123
One member of the Supervisory Board
offered his resignation on 7 September
2017. On 29th Shareholders Meeting held
on 8 September 2017, three new members
of the Supervisory Board were elected. On
6 October 2017, the Supervisory Board
adopted the decision on the composition
of the Remuneration Committee, as
follows: Vida Šeme Hočevar (Chairwoman),
Simona Kozjek (Deputy Chairwoman),
Primož Karpe, and László Urbán
(members). There were four sessions of the
Remuneration Committee in 2017.
The Remuneration Committee
carries out expert and independent
assessments of the remuneration policies
and practices, and formulate initiatives
for measures related to improving the
management of the Bank’s risks, capital,
and liquidity; prepares proposals for
remuneration-related decisions of the
Supervisory Board; and supervises the
remuneration of senior management
performing the risk management and
compliance functions.
Composition of the Committee at the
beginning of 2017 was as follows: Uroš
Ivanc (Chair), Matjaž Titan (Deputy
Chair), David Kastelic, and David E.
Simon (members).
Due to the resignation of one member in
April 2017, and expiration of the term of
office of one member of the Supervisory
Board in April 2017, on 11 May 2017 the
Supervisory Board adopted the decision on
the new composition of the Remuneration
Committee, as follows: Primož Karpe
(Chairman), David Kastelic (Deputy Chair),
and Andreas Klingen, and David E. Simon
as members.
NLB Group 2017 Annual Report We are aware of our
tasks in managing
and representing the
Bank. We direct its
operations to make it
even more successful
and ready for the future.
We are responsible
to the company, its
stakeholders, and clients.
In 2017 the Bank actively worked to fulfill
the commitments (as amended) given by
the RoS to the EC in relation to the state
aid granted to the Bank (hereinafter: the
Commitments) in December 2013. With
a support of the Bank’s internal project
team and external legal advisors the
Management Board was actively involved
in the privatisation process run under the
leadership of SSH. In June 2017, RoS
deemed that the recommended minimum
price and price range for NLB share
was too low and decided to suspend the
activities relating to the privatisation of
the Bank. According to the final report of
the Monitoring Trustee for the period that
ended 30 June 2017 the only major non-
compliance with the Commitments was
recorded with the commitment regarding
the reduction of state shareholding in NLB.
Thus, practically the only commitment
that remained unfulfilled is aforementioned
commitment, which is entirely within the
competence and power of the RoS, and not
the Bank.
As the RoS failed to reduce its shareholding
in the Bank by at least 50% by 31
December 2017 in accordance with the
aforementioned commitment, it was obliged
to propose to the EC for approval a list of
one or more persons whom it proposed
to appoint as Divestiture Trustee (for the
sale of the Bank’s six foreign banking
subsidiaries) by the end of November 2017.
The RoS did not fulfill the mentioned
requirements. On 21 December 2017 the
RoS formally notified the EC of a request
to amend the Commitments.
124
Management Board of the Bank
The Management Board of the Bank
leads, 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.
In accordance with the Articles of
Association, the Management Board may
have three to six members (a president and
up to five members). The President and
members of the Management Board of
the Bank are appointed by the Supervisory
Board for a five-year term of office and
may be reappointed or dismissed early in
accordance with the law and the Articles of
Association. The selection is not based only
on the legal conditions, but also the internal
acts and the recommended national and
European good practice guidelines. Every
member has to fit the professional profile
prepared before the selection procedure.
In 2017, the Management Board of the
Bank consisted 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,
acting as Chief Financial Officer (CFO)
since 31 July 2013; Andreas Burkhardt
acting as Chief Risk Officer (CRO) since 18
September 2013; and László Pelle acting as
Chief Operating Officer (COO) since 26
October 2016. The 5-year term of office
of the President of the Management Board
Blaž Brodnjak and the members of the
Management Board Archibald Kremser
and Andreas Burkhardt expire on 6 July
2021, and of the Management Board
member László Pelle on 26 October 2021.
NLB Group 2017 Annual Report 125
Education:
Direct responsibility:
• MBA, IEDC Bled School of
• Strategy and Business Development
Management (2009)
• Faculty of Economics, University of
Ljubljana (1998)
• Communication
• Legal and Secretariat
Career:
• Human Resources and Organisation
• President, CEO and CMO of NLB
(July 2016-), Deputy President of the
Management Board (2016), Member of
the Management Board (2012-2016) in
NLB
Development
• Group Steering
• Retail and Private Banking and
Corporate Banking
• Head of Group Corporate and Public
Finance Division in the Hypo Alpe
Adria Group in Klagenfurt (2010-2012)
Membership in management
or supervisory bodies of related
or unrelated companies:
• Proxy of the Management Board of
Zavarovalnica Triglav (2009-2010)
• Chairman of the Supervisory Board:
• Member of the Management Board of
Bawag banka (2005-2009)
- NLB Banka, Sarajevo
- NLB Banka, Banja Luka
- NLB Banka, Skopje
• Head of Corporate Banking at
• Member of the Supervisory Board:
Raiffeisen Krekova banka (2004-2005)
Other important functions and
achievements:
• Was a chairman or member of the
supervisory boards of 11 banking,
three insurances, and one production
company
- NLB Skladi, Ljubljana
(until 10 January 2017)
- NLB Vita, Ljubljana
• President of the Association of Banks in
Slovenia (from 1 November 2017)
Blaž Brodnjak
President & CEO
Term of office: 2016-2021
NLB Group 2017 Annual Report
126
Andreas Burkhardt
Member of the Managment Board
Term of office: 2016-2021
Education:
Direct responsibility:
• MBA, University of Dayton (1999)
• Internal Audit
• University of Augsburg, School of
• Compliance and Integrity
Business Administration and Economics,
graduation (‘Diplom-Kaufmann’) (1998)
• Risk (CRO)
Career:
• CRO of NLB (2013-)
Membership in management
or supervisory bodies of related
or unrelated companies:
• Head of risk management at Volksbank
in Hungary, involved in the upgrade
and rationalisation of collection and
company restructuring procedures
(until January 2013)
• Chairman of the Board of Directors:
- NLB Banka, Podgorica
• Member of the Supervisory Board:
- NLB Banka, Sarajevo
- NLB Banka, Banja Luka
• 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)
• 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
NLB Group 2017 Annual Report
Archibald Kremser
Member of the Managment Board
Term of office: 2016-2021
127
Education:
Other important functions
and achievements:
• MBA (INSEAD, France), specialising
in bank management and corporate
finance (2004)
• MSc Engineering, University of
Technology in Vienna (1997)
Career:
• More than 18 years of experience
in the financial services industry in
Austria, Central Eastern Europe, and
SEE focusing on finance and asset
management, strategy and corporate
development, as well as performance
improvement assignments
• CFO of NLB (2013-)
Direct responsibility:
• Eight years in various senior
• Financial Accounting
management functions/directorships
within Dexia/Kommunalkredit Group
(previously owned by Dexia SA and
Volksbanken Austria AG)
• Controlling
• Financial Markets
• Investment Banking and Custody
• Group Real Estate Asset Management
• Accounts Administration
• Payroll Management
(until 31 December 2017)
Membership in management or
supervisory bodies of related or
unrelated companies:
• Chairman of the Board of Directors:
- NLB Banka, Belgrade
- NLB Banka, Prishtina
- NLB Banka, Podgorica
- 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
consulting firms Ernst & Young /
Cap Gemini (1997–2004), Bain &
Company (2004–2005), leading
strategic transformation projects in
IT/Operations and performance
improvement for various international
financial institutions in Austria,
Germany, Switzerland, and the entire
Central Eastern Europe
NLB Group 2017 Annual Report
128
László Pelle
Member of the Managment Board
Term of office: 2016-2021
Education and training:
• 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)
• 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:
• Innovation and Business Analysis
• Procurement and Corporate Real Estate
Management
• Development of Information System,
Data Management, IT infrastructure
• Payments Processing
• Cash Processing
• Treasury and Financial Markets
Processing
• Corporate Banking Processing
• Retail Banking Processing
• Master’s degree in electrical
engineering at the Budapest University
of Technology (1991)
• Bachelor’s degree in electrical
engineering, Kandó Kálmán College
of Electrical Engineering in Budapest
(1988)
Career:
• COO of NLB (2016-)
• 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)
NLB Group 2017 Annual Report Further information about the work and
powers of the Management Board is set
out in the section ‘Corporate Governance
Statement’.
129
Collective decision-making bodies
NLB Group Assets and
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 Corporate Credit Committee
determines credit ratings and makes
decisions on the reclassification of clients,
and approves commercial banking
investment transactions and limits that are
beyond the competencies of the Credit
Sub Committee. The Committee adopts
decisions that are outside of 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).
Liabilities Committee
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 the
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 Corporate Credit Sub Committee
The Change the Bank 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.
is responsible for adopting decisions related
to the development projects with the aim of
transforming the Bank and decisions related
to adopting the development guidelines.
The Committee has four members.
As a rule, the Committee meetings are
convened once a month. The Chairman
of the Committee is the President of the
Management Board (CEO).
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).
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).
NLB Group 2017 Annual Report
130
The Sales Board
adopts decisions on the management of
the range of products and services, and
the relationships with 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 the Bank, 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 Risk – Corporate and Retail.
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 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 appointed
working bodies that operate at a lower level:
• The Committee for New
and Existing Products,
• The Group Real Estate Asset
Management Sub Committee,
• The Anti-Money
Laundering Commission.
NLB Group 2017 Annual Report 131
NLB Group 2017 Annual Report 132
Chapter 16
Compliance
and Integrity
The Group is continuously strengthening
the compliance function and diligence
of its operations. The Group compliance
policies are based on the framework
of internationally recognised standards
of compliance management. A key
element of the Group’s long-term
success is to follow reasonably set
rules and agreed values. This is the
commitment of the entire Group.
The Bank constantly builds, strengthens,
and supports the culture of business
compliance and due diligence within the
Bank and the Group. Banking, as well as
other financial sector business activities
are heavily regulated, making the business
operations more and more demanding.
The Group addresses these challenges
by a systematic approach to mitigating
compliance risks. It is important to ensure
that employees and decision-makers know
and understand the purpose and objectives
of the regulations. Systematic monitoring
of the legal and regulatory environment
and assessment of its impact on the Bank
is thus an important part of everyday life
and work.
Managing regulatory compliance risks
In 2017, the Bank faced complex processes
in adapting to the new regulatory
environment and complex requirements
in the field of personal data protection
(GDPR), payment services (PSD2), the
market of financial instruments (MiFIDII,
MiFIR), and other relevant regulations.
was publicly disclosed. Bank and state
authorities addressed this issue in 2010
and 2011. In subsequent years the MLTFP
system was fundamentally reorganised and
improved from HR, organisational, and
informational perspectives. The MLTFP
system is being constantly upgraded and
enables the Bank to mitigate risks in the
MLTFP area. According to the Bank’s
MLTFP Policy payments with restricted
countries/legislations are not allowed,
and clients with that kind of origin cannot
open a relationship with the Bank. The
Group members must fully comply with
the Slovenian legislation on MLTFP, as
well as with Group standards (the basis
for establishing compliance in the Group
are Standards for Compliance and
Integrity which were revised in 2017).
Coordination of the implementation of
the MLTFP system in the Group also
includes the control and review of the
MLTFP system. With this approach and
with the upgrade of the MLTFP system
in recent years, the Bank and the Group
are effectively managing MLTFP risks
and implementing their obligations, and
following international standards and other
regulations.
Within the Group the constantly changing
regulatory environment required several
implementation activities, as well. To
ensure the good flow of information
and addressing matters, the Compliance
function reports to the Management Board
and the Supervisory Board of the Bank.
The Compliance functions of the Group
core members also provide quarterly
reports to the Compliance and Integrity of
the Bank. Managers and other employees
were informed in a timely manner
about issues of regulatory compliance
via regular monthly compliance and
integrity e-newsletters, including relevant
information for raising awareness of ethics
and integrity.
Preventing Money Laundering and
Strengthening Group-wide ethics and
Terrorism Financing
integrity standards
The Bank complies with the 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 Directive (EU) 2015/849 in the area of
Money Laundering and Terrorist Financing
Prevention (MLTFP).
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. In 2017, a case from 2009 and
2010, including a client with Iranian origin
Within the framework of the programme
of ensuring business compliance, the
Group also deals with the ethics and
integrity of the organisation. Such a
programme encourages employees and
other stakeholders to conduct business,
which is consistent with a strong, positive
organisational culture. The NLB Group
Code of Conduct, which was redesigned
and amended in 2017 to ensure its
uniform application cross-group, is based
on the framework of good practices of
international financial groups and applies to
all employees in the Group in the same way.
With this objective, the code was internally
and publicly published in the form of
an e-book. To provide clearer rules and
guidelines for managing conflicts of interest
NLB Group 2017 Annual Report 133
risk-mitigation measures. As part of
compliance programme, Compliance
and Integrity is involved, inter alia, in risk
assessments regarding new and changed
products, fit and proper assessments for key
function holders, and assessing risks related
to outsourcing and vendors; these areas
were also in focus during 2017.
Importance of business compliance and
risk culture
Compliance in NLB is integrated into the
daily business of the Bank to support its
daily operations, to contribute to its strong
internal control environment, and to ensure
that compliance risks are mitigated.
The Bank constantly
builds, strengthens, and
supports the culture of
business compliance and
due diligence within the
Bank and the Group.
and preventing corruption, a new Policy on
the Management of Conflicts of Interest
and the Prevention of Corruption was
adopted in 2017, which is currently being
implemented by the Group members.
Focus on prevention activities
In 2017, the Compliance function
prepared several workshops and mandatory
e-education on ethics, the prevention
of corruption, conflicts of interest, the
protection of personal data, MLTFP, and
other relevant topics related to everyday
work. The Group also devotes a great
deal of emphasis to preventing harmful
conduct and incidents in the Bank. In
2017, employees at all levels received
information and training about the
prevention of harmful conduct, procedures,
and whistleblowing channels. The Group
launched the implementation of the
Whistler, a special IT tool for whistle-
blowers, whereas the process of internal
investigations is in place and functioning.
The Bank’s staff is obliged to successfully
complete yearly Compliance training
and education.
Particular attention is paid to advising
employees who have dilemmas regarding
compliance issues. In 2017 Compliance and
Integrity dedicated more than 1,300 hours
for advisory activities, which is a significant
increase compared to a 1,000 advisory
hours in 2016.
A general assessment of compliance
risks was carried out at the Group level
for the first time in 2017, following the
methodology which the Bank already
prepared in 2016. The assessment allows
the Group to reduce the compliance
and integrity risks with already prepared
Strong compliance and integrity supports
future growth and development. We
are therefore continuously strengthening
the compliance function and diligence
of its operations that are based on
internationally recognised standards
of compliance management.
Rok Praprotnik
General Manager,
Compliance and Integrity
1,300
more than 1,300 hours
dedicated to advising
on compliance issues
170
more than 170 regulatory
changes relevant for the Bank
were identified and monitored
in 2017
20
more than 20 different types
of trainings for various focus
groups were organised in 2017
on different compliance and
integrity topics in the Bank
NLB Group 2017 Annual Report 134
Chapter 17
Internal Audit
Internal Audit monitors the decision-
making process in all areas of the Group,
reviews key risks in its operations,
advises management at all levels, and
deepens understanding of the Bank’s
operations. It provides independent
and impartial assurance regarding the
management of key risks, management
of the Bank, operation of internal
controls, and thereby strengthens
and protects the value of the Bank.
procedures, completeness, and functionality
of internal control systems, and the
management of the Group operations on
an ongoing basis. It provides impartial
assurance to the Management Board and
Supervisory Board that risks in key areas
of the Bank i.e. risk management, credit
process, provisioning, NPL, information
technology, cyber security, the ILAAP,
divestment of non-core activities,
compliance function, corporate governance,
and others are managed properly.
Internal Audit is the independent, objective,
and advisory control body responsible for
a systematic and professional assessment
of the effectiveness of risk management
Performed audits
Internal Audit performs its tasks and
responsibilities on its own discretion and
In 2017, one of the four biggest
international audit companies confirmed
that Internal Audit complies with the
International Standards for the Professional
Practice of Internal Auditing. The results
were above the benchmark average.
Polona Kurtevski
General Manager,
Internal Audit
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 2017
Internal Audit in NLB intended to perform
35 audit reviews, out of which 32 were
conducted and three were postponed due
to objective reasons. Furthermore, five
extraordinary audits and one cyber security
consulting task were conducted.
Implementation of uniform rules
Internal Audit increases efficiency. It focuses
on monitoring the implementation of audit
recommendations, training and education,
updating the internal audit manual,
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 internal audit function and
regularly monitors the compliance with
these rules within the Group.
The highest standards were followed
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 laws
which regulate the operations of a
Group member,
• Code of Ethics of an Internal Auditor,
and
• Code of Internal Auditing Principles.
NLB Group 2017 Annual Report 135
Chapter 18
Human Resources
19,993
hours spent in reviews
662
hours spent on consulting services
21
Internal Audit experts
38
Human resources implements
improvements and innovative practices
planned, extraordinary audit
to drive the best possible employee
assignments, and consultations
engagement and excellent business
were conducted by Internal
results. Focusing on the need for an
Audit of the Bank
organisational and cultural shift, the
Bank started implementing new concepts,
models, and processes, following modern
workers’ representatives. The Group
members developed comprehensive HR
strategies as well.
The Bank maintains relationships and
cooperates with Trade Unions, the Workers
Council, and other stakeholders.
HR trends. The focus was mainly on top
Enhancing employee engagement
talents, lean processes, social learning
activities, and implementation of practices
to enhance employee efficiency.
On a pervasive path toward a leaner and
more efficient organisation
In the past few years, the Group has made
substantial progress in improving its HR
management function by introducing a
system for: performance management,
promotional schemes, remuneration
schemes, an organisational culture and an
active talent management programme,
while all employees benefit from relevant
and regular trainings. New and innovative
practices are constantly being added with
the goal of changing organisational culture.
Since 2012, the Group undertook
determined and complex efforts to
gradually reduce its number of employees
aligned with reorganisation of the current
organisational structure. In the last five
years the Group reduced the number of
employees by 19.5% (1,175 employees), and
the Bank alone by 21.9% (783 employees).
This strategically important step was
implemented with the highest responsibility
towards employees, and in dialog with
Numerous changes in the business
environment, deriving from accelerated
development of digitalisation in banking,
require constant employee adaptation
and learning. The vision and the strategic
goals set by the Group require a high
level of employee engagement, as they
represent a decisive factor for a successful
implementation of the strategy. The Group
is aware of the importance of employees
and their impact on the organisational
operations, and therefore launched a
project, ‘Enhance employee engagement for
results’ in order to:
• Foster a cooperative and engaging
working environment to better
motivate the employees and increase
their participation in the Group’s
development.
• Promote initiatives to improve the skills
and capabilities of the employees.
• Promote a culture of cooperation
across the Group.
NLB Group 2017 Annual Report
136
= 1 employee
Table 19: NLB Group employees by countries
Country
Slovenija1
Serbia
Bosnia and Herzegovina
(Republic of Srpska, Federation of Bosnia and Herzegovina)
Montenegro
Macedonia
Kosovo
Germany
Switzerland
Croatia
Total (the Group)
1. Without Bankart, Prvi Faktor, NLB Vita, Skupna PD, and Sisbon.
Number of employees (on
31 December 2017)
2,922 (NLB: 2,789, ostalo: 133)
447
942
319
901
481
1
4
12
6,029
6,029
100%
employees in the Group
46.3%
73.5%
26.5%
58.5%
51.6%
2,789
employees in NLB
73.5%
women
26.5%
men
58.5%
of employees with VI. level
of education or higher.
3,111
employees in the Group
outside Slovenia.
Engaged and motivated
employees represent
a decisive factor for a
successful implementation
of the strategy and the
Group’s business growth.
NLB Group 2017 Annual Report
Figure 62: NLB’s Employee Engagement comparison from 2014 to 2017
Intensive talent development
137
2017
10%
34%
56%
2016
12%
37%
51%
2015
14%
42%
44%
2014
19%
42%
39%
Actively Disengaged
Not Engaged
Engaged
for future challenges
Within the Group, the talent development
programme systematically supports career
development of recognised potentials of
employees. In 2017, special development
frameworks were formed to enhance
employees’ leadership and other relevant
professional skills and competences.
Educational activities were combined
of workshops and various training
programmes for assertive communication
and decision-making, creative thinking,
strategic management, and improving
foreign languages.
With diverse development activities, the
Group will continue to provide intensive
development of potentials in the future,
striving to prepare top employees for future
challenges.
The Bank is aware that good IT support
is crucial to improve the decision-making
process, upgrade current HR practices,
enhance analytical capabilities to become
even more transparent to all stakeholders,
and allow employees to become more
engaged. A new IT tool is being
implemented in the Bank and at a later
stage also throughout the Group.
Aiming to create a leaner organisation
and to optimise processes, ‘Lean Project’
was launched to define the prioritisation
of processes to be streamlined. Also the
management governance was upgraded
within the Bank, while the Group will
follow.
Proud to be one of the few companies
in Slovenia with international ‘Top
Employer’ certificate
The Bank participated in the ‘Top
Employer’ certification process. Over 60
relevant improvements in HR practices
were implemented in the last year and
the Bank is proud to gain the certification
for the years 2016 and 2017. The ‘Top
Employer’ recognises best employers
all over the world that create optimal
conditions for their employees to develop,
both professionally and personally.
To retain the nomination, the process
requires implementation of continuous
improvements in HR practices. Major
improvements in 2017 were made in talent
management, onboarding, and learning.
Continuing a longstanding tradition of
Remuneration system as a motivation for
employee education
engaged and committed employees
An employee’s salary is composed of a
fixed and a variable part. The fixed amount
is determined by job position seniority
while the variable amount depends on the
employee’s performance. Performance
assessment is done by the head of the
employee’s organisational unit using a top-
down approach to evaluate the employee’s
achievements in relation to goals set for a
particular assessment period (quarter or
half-year).
The goals are set according to the
‘SMART’ method, meaning that they have
to be specific, measurable, challenging,
realistic, and with a defined time frame.
The Bank’s Training Centre has been
operating for over 40 years. To a great
extent the Training Centre creates
an organisational culture and assists
establishing best business practices
following the Group’s strategy. It empowers
employees to achieve the Group’s business
goals, to act socially responsibly towards
stakeholders, and enables them to
achieve their own ambitions and personal
development. Special emphasis is on
leadership, sales, employee coaching,
mentoring, and peer groups in combination
with E-Learning.
In 2017 the Bank developed and used
systematic employees training programmes
to encourage and motivate employees
by developing relevant job specific skills
and competencies. A total of 35,674
participants of the Bank (31,925 in 2016)
participated in the internal programmes for
employees that were conducted mostly with
in-house and selected external experts.
NLB Group 2017 Annual Report 138
Being a family-friendly company
• Implementation of the Intergenerational
The Bank emphasises the promotion of a
healthy lifestyle and preventive medicine,
an intergenerational know-how transfer
cooperation programme, and finally,
assuring that management and other
employees are adequately informed about
the family-friendly and healthy bank
measures.
The Bank received a full Family-Friendly
Company Certificate in December 2014 for
a period of three years joining companies
and organisations that are aware of the
importance of striking the right balance
between business and family life, and
thus acting like a socially responsible
company for its employees. The number
of employees benefitting from measures
increases each year.
In 2017, the Bank conducted activities for
the extension of the Certificate:
• Additional workshops for a healthy
lifestyle, and in line with the plan for the
period 2015-2017.
Cooperation Programme – senior
mentoring in which older workers were
involved. The Bank identified senior
mentors in all organisational units
and carried out education for effective
mentoring. Finally 10 pairs of mentors
and mentees were formed – two pairs
with newly trained trainees, and eight
pairs with new employees and those
changing their workplace to other
organisational units.
134,147
hours of education in 2017
105
programmes implemented in 2017
460
participants in the ‘Healthy Bank’
activities for health-related
improvements in the workplace
Improving the organisational climate and
and quality of life
employee engagement
The organisational climate deals with
individual perceptions and describes the
current social environment. The Bank
regularly conducts organisational climate
and employee engagement surveys to assess
the motivation levels of its employees, and
their willingness to invest additional effort
above regular expectations. The 2017
survey showed a continuation of positive
trends, that the share of engaged employees
grew by 5% compared to 2016 and 12%
compared to 2015.
56%
engaged employees
according to the employee
engagement survey
over
60
relevant improvements
in HR practices were
implemented
The business success of the Group
depends on organisational capability
and its main building block – talent.
Vesna Vodopivec
General Manager, Human Resources
and Organisation Development
NLB Group 2017 Annual Report 139
NLB Group 2017 Annual Report 140
Chapter 19
Corporate
Governance
Statements
NLB Group 2017 Annual Report 141
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
2017, 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 2017.
The Management Board confirms that
the business report includes a fair view of
developments 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.
Management Board of the NLB
László Pelle
Member of the
Management Board
Archibald Kremser
Member of the
Management Board
Andreas Burkhardt
Member of the
Management Board
Blaž Brodnjak
President & CEO
NLB Group 2017 Annual Report
142
Types of Services for which NLB Holds Authorisation
NLB has an authorisation to perform
banking services pursuant to Article 5
of ZBan-221. Banking services are the
acceptance of deposits and other repayable
funds from the public, and the granting of
credits for its own account.
The bank has an authorisation to perform
mutually recognised and additional
financial services. It may perform the
following mutually recognised financial
services, pursuant to Article 5 of the
ZBan-2:
1. Accepting deposits and other repayable
funds from the public;
2. Lending, which also including:
•
consumer loans,
• mortgage loans,
•
•
factoring, with or without recourse,
financing of commercial transactions,
including export financing based on
the purchase of non-current non-
past-due receivables at a discount and
without recourse, secured by financial
instruments (forfeiting);
3. Payment services;
4. Issuing and managing other payment
instruments (e.g. travellers cheques and
bank bills of exchange), insofar as such
services are not included in the services
referred to in the previous point;
5. Issuing of guarantees and other
sureties;
6. Trading for own account or for the
account of customers in:
• Money-market instruments,
•
Foreign legal tenders, including
currency exchange transactions,
Standard futures and options,
•
• Currency and interest-rate
instruments,
• Transferable securities;
21. Banking Act (ZBan-2), Official Gazette
of the RS, no. 25/15, 44/16, 77/16 and 41/17.
7. Participation in securities issues and
the provision of associated services;
8. Offering advice to companies
concerning capital structure, business
strategy, and related matters, as well as
advice and services related to M&A;
9. Monetary intermediation on interbank
markets;
10. Advice on portfolio management;
11. Safekeeping of securities and other
related services;
12. Rating services: collecting, analysis,
and disseminating information
regarding credit-worthiness;
13. Safe deposit services;
14. Investment services and transactions,
and ancillary investment services in
accordance with the ZTFI.
It 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 industry,
2. Custodian services according to the
act governing investment funds and
management companies,
3. Credit brokerage for consumer and
other credits.
Authorisation to perform banking
services is published on the official
webpage of the BoS (https://www.bsi.
si/en/financial-stability/institutions-
under-supervision/banks-in-slovenia/8/
nova-ljubljanska-banka-dd-ljubljana).
NLB Group 2017 Annual Report 143
Corporate Governance Statement of NLB
customers, creditors, and employees of the
bank.
available on the website http://www.
sdh.si), and
Pursuant to the fifth paragraph of Article
70 of the ZGD-122 NLB hereby gives
the following Corporate Governance
Statement as a part of the Business Report
of the Annual Report.
1. REFERENCES TO THE CODES, THE
RECOMMENDATIONS AND OTHER
INTERNAL REGULATIONS ON CORPORATE
GOVERNANCE
In view of the fact that in May 2016 a
Corporate Governance Code for Unlisted
Companies was adopted for the first time,
unlisted companies23 should endeavor
to observe the recommendations of the
code and disclose reasons for deviations
in Corporate Governance Statement.
Since NLB has been using the Corporate
Governance Code for Listed Companies
for the last decade, the Management Board
and the Supervisory Board in December
2017 adopted a revised version of the
Policy on Corporate Governance of the
NLB, with which NLB adopted a decision
to follow Corporate Governance Code
for Listed Companies also in the future.
The reasoning behind this adoption is that
until mid-2017 NLB was a listed company
(under the provisions of Article 99 of the
Law on Trading of Securities) and will
most probably also assume that status in
the near future. By doing so NLB wants
to ensure greater transparency and better
comparability of compliance with the
recommendations.
In addition, as a company in which the
RoS holds an equity investment, NLB also
complied with the Corporate Governance
Code for Companies with a State Capital
Investment.
The purpose of the code is to determine
the standards of governance and
supervision in state-owned companies
and ensure that such companies a develop
transparent and comprehensive corporate
governance system, with the objective
of ensuring the successful and long-term
growth of their assets. The code was
partially revised in May 2017, not only to
reflect changes in the relevant regulation of
the RoS, but also to take into consideration
practical experience gained during the
years.
In view of the need to regulate certain
specific issues related to corporate
governance that are not covered by
the legal framework applicable to the
management of state assets, SSH also
issued Recommendations and Expectations
of the SSH. The revised version of the
document was adopted by the SSH in May
2017.
In 2017 NLB abided by the following
recommended standards in conduct of its
business activities, namely:
In further developing a transparent, clear,
and successful corporate governance
system, during 2017 NLB endeavored,
as far as practicable, to comply with the
regulatory provisions and the highest
standards of responsible and refined
corporate governance system as laid down
by the aforementioned code, thus further
increasing the confidence of investors,
• Corporate Governance Code for Listed
Companies (currently applicable code
was adopted on 27 October 2016 and
came in force on 1 January 2017; the
code is published on the Ljubljana Stock
Exchange’s website http://www.ljse.si);
• Corporate Governance Code for
Companies with a State Capital
Investment (adopted in May 2017; is
• Recommendations and Expectations
of the SSH (adopted in May 2017,
available on the website http://www.
sdh.si).
Furthermore, NLB complied in its
governance system with the commitments
made by the RoS to the EC with respect
to the state aid given to NLB in December
2013, in part relating to corporate
governance. The public version of the
entire Catalogue of Commitments dated
18 December 2013 is available on the
website of the EC’s website http://
ec.europa.eu/competition/state_aid/
cases/245268/245268_1518816_267_7.
pdf) and the amendment to the
restructuring decision of NLB dated 11
May 2017 is available on the http://
ec.europa.eu/competition/state_aid/
cases/269184/269184_1911771_145_2.
pdf.
Corporate governance of NLB is also
defined by the Articles of Association of
NLB (adopted by the General Meeting on
7 April 2017) and Corporate Governance
Policy of NLB (adopted in version 3,
November 2017). Corporate governance
of the NLB Group in 2017 NLB and
NLB Group members is regulated by
the Corporate Governance Policy of
the NLB Group (revised in November
2017). In subsidiaries of the Group, the
principles and recommendations of both
mentioned codes are followed through the
Corporate Governance Policy of the NLB
Group (minimum standards by particular
22. 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, 55/15 and 15/17).
23. A company whose shares are not admitted to
trading on a regulated market, i.e. a company not
listed on the stock exchange.
NLB Group 2017 Annual Report 144
business area), also respecting the local
legislation and regulatory requirements
as well as the principle of proportionality
(e.g. the organisational possibilities in the
companies).
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.
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 Listed Companies
Recommendation no. 4.3: The Diversity
Policy does not set out the ways of
implementation of set objectives, as well
as the effects on the human resources
procedures and other processes of the
company.
Recommendation no. 8.5: In the reasoning
of the proposals for the General Meeting,
NLB does not cite the past membership in
other management or control bodies, nor
eventual conflicts of interest (because they
are included into Fit & Proper procedure).
Recommendation no. 8.7: The
remuneration of the Management
Board members complies with the Act
Regulating the Incomes of Managers of
Companies owned by the RoS and its
Municipalities, the Regulation on Setting
the Highest Correlation of Basic Payments
and the Rate of Variable Remuneration
of Directors. The remuneration of
Management Board members has been
subject to restriction arising from Decision
of the EC on State Aid No. SA.33229
(2012/C) (ex 2011/N) – Restructuring
of NLB – Slovenia (which Slovenia is
planning to implement for NLB), and has
been regulated in accordance with the
mentioned commitments.
The management Remuneration Policy
follows the ZGD-1 and the provisions
of this Code. Regarding specification of
the highest share of remuneration given
as shares, stock options and other types
of financial instruments (last indent of
this recommendation), along with any
restrictions of such remuneration the
Remuneration Policy also follows the
Guidelines of the BoS dated 22 November
2016 concerning the application of
the principle of proportionality in the
implementation of remuneration policies.
In our opinion, restrictions on executive
payments are unjustifiable.
Recommendation no. 10.1: In assessing
a candidate’s eligibility for a Supervisory
Board member, statutory criteria are
applied, however candidates don’t have
a certificate evidencing their specialized
professional competence for membership
on a Supervisory Board, such as the
Certificate of the Slovenian Directors’
Association, or any other relevant
certificate.
Recommendation no. 12.2: The Rules
of procedure of the Supervisory Board
to the NLB (April 2016) do not include
the list of all types of transactions for
which the Management Board needs prior
approval of the Supervisory Board based
on a Supervisory Board resolution and
the company’s Articles of Association,
as well as the system of outsourcing
for purposes of the Supervisory Board
and the Supervisory Board evaluation,
education and training of the members
of the Supervisory Board. The mentioned
provisions are part of other internal
documents or decisions of the governing
bodies.
Recommendation no. 12.3: The rules of
procedure of the Supervisory Board do not
include the scope of topics and timeframes
to be respected by the Management Board
in its periodic reporting of the Supervisory
Board. However, professional services of
the bank take care that timely information
is provided to the Supervisory Board.
Recommendation no 12.4: The
Supervisory Board will discuss and take a
position on the workers’ council’s report
on the status of workers’ participation in
management at one of the next session.
Recommendation no. 12.5: Material for
regular sessions of the Supervisory Board
is not provided through information
technology, but via mail.
Recommendation no. 12.11: The
Supervisory Board’s Report presented to
the General Meeting does not include the
information to what extent the board’s
self-assessment has contributed to the
improvement of Supervisory Board’s
performance.
Recommendation no. 14: Evaluation of
the Supervisory Board will be performed in
the following months. Recommendations
No. 14.1. to 14.3 for the year 2017 are to
be fulfilled in 2018.
Recommendation no. 15.3: NLB deviates
from this recommendation because the
President of the Supervisory Board is at the
same time President of the Nominations
Committee.
Recommendation no. 16.2: The secretary
of the Supervisory Board did not sign a
separate statement in which she makes a
commitment to protect the confidentiality
of information on the same level as the
members of the Supervisory Board. She
has provisions on confidentiality included
in her employment contract.
Recommendation no. 17: In our opinion,
the Bank is not providing payment to the
Supervisory Board members that would
correspond to their responsibilities and the
fines set by the ZBan-2.
NLB Group 2017 Annual Report Recommendation no. 20.1: Drafting
a proposal on the Management Board
succession plan in 2017 was not necessary.
Recommendations no. 21 and 21.1.:
NLB deviates from the proposed provision
in the Code because the Act Regulating
the Incomes of Managers of Companies
Owned by the RoS and its 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
continue to promote public discussion and
the abolishment of the restrictions.
Recommendations no. 21.4 to 21.6:
NLB does not have a variable part of
remuneration given as shares, nor do stock
option plans and comparable financial
instruments stand for the majority of the
members of NLB. The Bank follows the
Guidelines of the BoS dated 22 November
2016 concerning the application of
the principle of proportionality in the
implementation of remuneration policies.
Recommendation no. 27.4: NLB draws up
its financial calendar which is published on
banks’ website, however it doesn’t provide
information on the expected dates of
General Meetings, announcements of the
record date for dividend payments, or the
dividend payment date.
Recommendation no. 29.7: NLB discloses
the remuneration of each member of the
Management Board and of the Supervisory
Board broken down to all items that are
contained in the Appendices C.3 and
C.4 of Corporate Governance Code for
Listed Companies (see Tables 22 and 23)
(except for Appendix C.3 of Corporate
Governance Code for Listed Companies,
where NLB does not disclose the gross
variable income of the members of the
Management Board on the basis of
quantity and quality criteria, but only as a
total).
Recommendation no. 29.9: NLB does not
publish the rules of procedure of its bodies
(management and supervisory bodies and
General Meeting) on its website.
B) Corporate Governance
Code for Companies with a
State Capital Investment
Recommendation no. 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, has not been
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).
Recommendation no. 6.3.1: As a system-
relevant bank, NLB has adapted the
reporting of the Supervisory Board to the
complex applicable legislation, also taking
into account the Recommendations of
the Slovenian’s Directors’ Association for
reporting to the supervisory boards.
Recommendation no. 6.4.1: The
Supervisory Board’s competence profile
was not published on bank’s website. The
sectorial composition envisaged by Article
21, Paragraph 2 of the ZSDH-1 was
probably envisaged by SSH.
Recommendation no. 6.6: In 2017, none
of the members of the Supervisory Board
of NLB in the previous composition (first
part of the year 2017) declared themselves
dependent. In statements of independence
for the new composition of the Supervisory
Board (elected on 8 September 2017), all
members of the Supervisory Board NLB
145
declared themselves independent. Eventual
conflicts of interest for two members of the
Supervisory Board could arise due to their
prior employments, but will be managed
accordingly.
Recommendations no. 6.7 and 6.7.1:
At the last election of the Supervisory
Board members for the Bank’s General
Meeting (08/09/2017), the Supervisory
Board of NLB explained that the bank,
as a regulated credit institution, was
subject to stricter requirements and rules
for the proposal of candidates for the
members of the Supervisory Board, in
view of the fact that Article 35 of the
ZBan-2 prescribed the Fit & Proper
assessment of the candidates. Thus, in
accordance with the banking legislation,
the Nomination Committee of the
Supervisory Board of NLB issued positive
Fit & Proper assessments of the candidates,
which comprises the assessment of all
key candidate suitability criteria, and
separately also a statement of potential
conflict of interests and independence
of the candidates, as confirmed by the
Supervisory Board of NLB. In line with
this, the Supervisory Board of NLB only
included the data required by Article 297
a) of the ZGD-1 in the grounds of its
proposals.
Recommendation no. 6.8.4: The
Nomination Committee does not adopt a
formal resolution to set the profiles of the
sought members of the Supervisory Board;
nevertheless, it takes into account the
substance, using the criteria from the Code.
Recommendation no. 6.8.5: Also taking
into account the explanation from the
previous point, the Nomination Committee
also strives to follow this recommendation,
while at the same time taking into account
the selection path and the proposals
submitted by SDH as the representative of
the sole shareholder of NLB.
Recommendation no. 6.9: Also taking into
account the explanation from the previous
NLB Group 2017 Annual Report 146
point, the Nomination Committee also
strives to follow this recommendation, while
at the same time taking into account the
selection path and the proposals submitted
by SSH as the representative of the sole
shareholder of NLB.
Recommendations no. 6.12 to 6.12.3:
Due to the fact that in 2017 considerable
changes were made to the composition of
the Supervisory Board, the assessment of
the new composition of the Supervisory
Board in the year 2017 was not done. The
evaluation procedure of the Supervisory
Board for 2017 is to be executed in 2018.
Recommendation no. 6.15.1: In 2017, the
Chairman of the Supervisory Board is not
the Chair of the Audit Committee, but is
the Chair of the Nomination Committee.
Recommendation no. 7.2.1: NLB complies
with the Recommendations for Reporting
to Supervisory Boards (Slovenian Directors’
Association, 25/10/2011 and 10/03/2014)
with some deviations from certain
recommendations.
Recommendation no. 8.3: In 2017, in
the NLB Group Annual Report, NLB
disclosed the receipts and other rights
of the members of the Supervisory
Board in accordance with Appendix 6
to the Corporate Governance Code for
Listed Companies (see Table 22). When
disclosing the income of the members of
the Management Board, the gross variable
income is not disclosed on the basis of
quantity and quality criteria, but only as a
total. The remunerations of the members
of the Group are not published in the NLB
Group’s Annual Report.
Recommendation no. 8.5: NLB publishes
the financial calendar on its public
website that includes the publication of
annual unaudited financial statements,
the publication of the annual and semi-
annual reports and two interim reports.
The Financial Calendar does not include
the dates of the General Meetings and the
dates of dividend payment, since these are
set in line with the orientations issued by
the owner (SSH): The financial calendar
is published on: https://www.nlb.si/
financial-calendar.
Recommendation no. 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.
Recommendation no. 9.3.1: SSH is
regularly informed of the risks and all open
issues and proposals for their elimination
via quarterly meetings of the Management
Boards.
C) Recommendations and
Expectations of the SSH
NLB also takes a position on the adopted
Recommendations and Expectations of the
SSH.
Recommendation no. 1.1: NLB will
try to meet the expectations of this
recommendation in due time, taking into
account the applicable legislation and
staying in line with the planning process
of the Group, which is based on the last
possible available data on the operations
of NLB and the Group. NLB submits a
draft plan of all necessary indicators of a
company/group in accordance with the
agreement with the SSH, as well as in line
with the timetable of SSH regarding the
framework of their expectations.
Recommendation no. 1.2: NLB tries to
meet expectations in this recommendation
in due time, taking into account the
applicable legislation. In line with the
agreement and the guidelines of SSH,
NLB submits a draft plan of indicators
of a company/group in accordance with
the applicable Criteria for measuring
performance of companies with the state
capital investment.
Recommendation no. 1.3: NLB tries to
meet expectations in this recommendation
in due time, taking into account the
applicable 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 has eight such contracts for lawyer
services, and one for medical services. A
flat-rate contract is a contract signed with
a lawyer setting a monthly payment for an
unspecified scope of services; nevertheless,
the lawyer is obliged to issue a monthly
invoice (or a different period, if so agreed)
together with a specification of services
provided in such a month or period, and
potential surplus hours in line with the
signed contract. The lawyers provide the
services of legal consultancy in the area of
operations with the Bank.
The Bank has also several contracts for
the supply of hardware or software for
which the main object of the contract is
the supply of such equipment. In addition
to payment for the equipment, monthly
flat-rate payments for the maintenance
of supplied equipment are agreed (e.g.
payment includes work, all spare parts,
bug fixes in the software, etc.) and, in
certain cases, also for a smaller amount of
additional development of the supplied
software, according to the needs of the
bank.
Recommendation no. 4.4: A reporting
system has been set up for the Group
about the implemented payments from
Point 4.3.2 in the COGNOS system. Data
on implemented payments has not been
published on the NLB intranet site yet.
Recommendation no. 4.5: The Bank
does not publish the text of collective
agreements on its website because the
two applicable collective agreements are
NLB Group 2017 Annual Report available on the website of the NLB Trade
Union representing the Bank’s employees.
NLB does not publish the binding collective
agreements or agreements with the
workers’ representatives for the subsidiaries.
Recommendations no. 5.1 to 5.4: Due
to the activity of refreshing the business
and IT/digital strategy, the self-assessment
using the recognised European excellence
model was not yet carried out. With the
aim of improving the quality, the new
strategy introduces the new initiatives in
the area of lean organisation and processes.
The Bank first started introducing process
ownership and achievement of the KPI
objectives in the sense of optimisation and
quality improvement.
There are dozens of projects in the bank;
one of them is the introduction of E2E
ownership of processes and the maturity pf
processes. On the basis of the analysis, the
project and phase 2 will be carried out on
the basis of i.e. ‘Lean process optimization’.
The first 5 to 7 processes will be selected,
and later on, all of them will be renewed.
Recommendation no. 6.2: In recent years,
General Meetings have been convened in
agreement with SSH.
Recommendation no. 6.3: At the moment,
only the convocation is published on
the Bank’s website, while the grounds
of proposals are sent to the shareholder
first by e-mail, and also by a courier.
Such a specific method of informing the
shareholder is possible because SSH is the
sole shareholder.
Recommendation no. 6.4: If the sole
shareholder had any questions, NLB would
not publish them, but the management
would provide answers at the General
Meeting.
Recommendation no. 6.6: NLB obtained
a counterproposal at the April General
Meeting, but it was received on the day
of the meeting and it was, therefore not
published.
3. MAIN FEATURES OF INTERNAL
CONTROL AND RISK MANAGEMENT
SYSTEMS IN RELATION TO FINANCIAL
REPORTING
NLB is governed by the ZGD-1 and the
ZBan-2 regulating, among other, the
Bank’s obligation to set up and maintain
appropriate internal control and risk
management systems. Concerning
this subject, the BoS as the supervising
authority of banks issues specific
regulations by which the NLB abides
as applicable. The Bank also complies
with the commitments made to the EC,
in accordance with the Commission
Decision of 18/12/2013 on state aid
SA.33229(2012/C) – NLB Restructuring
– Slovenia and amendment to the
restructuring decision of NLB dated
11/05/2017.
Due to the above, the NLB maintains a
steady and reliable corporate governance
system encompassing the following:
• Well-defined organization with clear-
cut, transparent, and consistent internal
relations in the area of responsibility on
the level of NLB and the Group.
• Efficient and comprehensive risk
management process, including
procedures to determine, measure or
assess, control, and manage risks to
which the Group is exposed or could be
exposed in its operations.
• Immediate action of the competent
departments towards eliminating any
established irregularities.
• 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).
The risk management function represents
an important part of overall management
147
and governance system in the Group. The
Group pays great attention and importance
to the risk culture, and awareness of all
relevant risks within the entire Group.
The key goal of Risk Management is to
manage, assess, and monitor risks within
the Group in line with the Group’s Risk
Appetite and Risk Strategy, which are its
fundamental risk management documents.
A Robust Risk Management framework
is comprehensively integrated into
decision-making, steering and mitigation
processes within the Group in order to
proactively support its business operations.
Nevertheless, the Group is constantly
enhancing its risk management system.
NLB is, as a systemic bank, involved in the
SSM, under the supervision of the ECB
and its Joint Supervisory Team, and the
BoS. Group-wide ECB and other relevant
regulatory requirements 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 the Group uniform manner, 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 plans a prudent risk appetite
and optimally profitable operations in
the long run, including fulfillment of all
the regulatory requirements. The key
strategic risk documents and other risk
policies of the Group are approved by the
Management Board and the Supervisory
Board of NLB. The Group regularly
monitors its Target Risk Appetite profile,
representing the key component of risk
mitigation process. The Risk profile
enables detailed monitoring and proactive
management, where the limits usage and
potential deviations are regularly reported
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.
NLB Group 2017 Annual Report 148
Additionally, the Group has set up early
warning systems in different risk areas with
the intention to strengthen the existing
internal controls and timely responding
when necessary.
In accordance with the two-tier governance
system, the Bank’s Supervisory Board,
among other issues, approves organisation
of the internal control system and the
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). It also supervises
the work of the Internal Audit. At the
level of the Supervisory Board, the
Audit Committee monitors and prepares
resolutions for the Supervisory Board.
In accordance with the law, NLB also has
a special 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 Internal Audit
monitors the decision-making process in
all segments of the the Group, examines
the key risks to which the Bank is exposed,
advises management at all levels, and
enables a deeper understanding of the
Bank’s operations. In addition, it provides
independent and impartial assurances
as to the management of key risks,
corporate governance of the Bank, and
functioning of internal controls, thus
strengthening and protecting the Bank’s
values. The Internal Audit is responsible
for systematic and professional assessment
of the efficiency of the risk management
procedures, completeness, and functionality
of the internal control systems. It provides
assurances to the Management and
Supervisory Boards that the risks in the key
areas of the Bank, i.e. risk management,
lending, restructuring, NPLs, IT, and IT
security, divestment of non-core activities,
compliance, corporate governance, and
other areas, are managed appropriately.
NLB pays special attention to the system of
internal controls and risk management in
the the Group, and continuously upgrades
the internal control system in the Group
in line with the Corporate Governance
Policy of the Group. Corporate governance
of the Group is presented in the chapter
NLB Corporate Governance, subchapter
Corporate Governance of the Group. The
risk profile of the Group in conjunction
with the business strategy is presented
under the Risk Management section in the
financial report of the Annual Report.
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, a 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 an 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 ON POINT 4,
PARAGRAPH 5, OF THE ARTICLE 70 OF
THE ZGD-1 regarding points 3, 4, 6, 8, and
9 of the paragraph 6 of the same article
Explanation regarding significant
direct and indirect ownership of the
company’s securities in the sense
of achieving a qualified stake as
determined by the act regulating
acquisitions (Point 3 of the sixth
paragraph of Article 70 of the ZGD-1)
As of 31 December 2017, NLB’s share
capital totaled EUR 200 million and was
divided into 20 million no-par value shares.
NLB has issued only one class of shares,
which are all freely transferable and bear
the same rights. The rights of holders of
ordinary shares are set out in the relevant
legislation. The RoS has been a 100%
shareholder of NLB since 18 December
2013.
Explanation regarding the holders of
securities that carry special control
rights (Point 4 of the sixth paragraph
of Article 70 of the ZGD-1)
No special controlling rights are attached to
NLB shares.
Explanation regarding restrictions
related to voting rights, in particular: (i)
restrictions of voting rights to a certain
stake or certain number of votes, (ii)
deadlines for executing voting rights,
and (iii) agreements in which, on the
basis of the company’s cooperation, the
financial rights arising from securities are
separated from the rights of ownership
of such securities (Point 6 of the sixth
paragraph of Article 70 of the ZGD-1)
In accordance with Article 5.a of the
NLB’s Articles of Association (dated 7
April 2017), any transfer of the Bank’s
shares with which the acquirer together
with the shares held prior to such an
acquisition and the shares held by third
parties on behalf of such acquirer exceeds
25% of the voting shares, shall require the
NLB Group 2017 Annual Report
149
Deputy subject to a prior approval of the
Supervisory Board.
Explanation regarding the authorisation
of the members of the management,
Bank’s authorisation. The authorisation to
transfer the shares shall be granted by the
Supervisory Board.
The bank may refuse to grant authorisation
to transfer shares, if the acquirer together
with its shares held prior to the acquisition
and the shares held by third parties on
behalf of such an acquirer exceeds 25% of
the Bank’s voting shares plus one share.
Notwithstanding the provision above, the
authorisation to transfer shares shall not be
required if the acquirer acquires the shares
on behalf of third parties, and as such it is
not authorised to exercise their voting rights
at its own discretion, while committing to
the Bank that it shall not exercise the voting
rights attached to these shares as instructed
by a relevant third party on behalf of
which these shares are held, if the acquirer
fails to receive from this party, together
with instructions, a written undertaking
stipulating that this party holds the shares
for its own account and that at the same
time it does not, directly or indirectly, hold
more than 25% of the Bank’s voting shares.
Without having applied for authorisation to
transfer shares, or without having received
the Bank’s authorisation, the acquirer that
exceeds 25% of the Bank’s voting shares
shall be able to exercise the voting rights of
25% of its voting shares.
Explanation regarding the (i) company’s
rules on appointment or replacement
of members of the management of
supervisory bodies, and (ii) changes
The President and other members of the
Management Board of the Bank shall be
appointed for a period of five years, and
may be re-appointed for another term of
office.
The President and members of the
Management Board of the Bank may be
recalled prior to the expiry of their term of
office in accordance with applicable laws
and NLB’s Articles of Association.
Each member of the Management Board
of the Bank may prematurely resign her/
his term of office with a period of notice of
three months.
Supervisory Board
The Supervisory Board members are
elected by the Shareholders’ Meeting
for a period of four years, in accordance
with NLB’s Articles of Association. The
Supervisory Board of the Bank shall, at its
first meeting after the appointment, elect
from among its members a Chair and at
least one Deputy Chair of the Supervisory
Board of the Bank.
Membership of the Supervisory Board
members shall be terminated after the
expiry of their terms of office or based on
a resolution on removal adopted by the
Shareholders Meeting. Supervisory Board
members may resign at any time with a
period of notice of three months.
to company’s Articles of Association
Changes to the company’s
(Point 8 of the sixth paragraph
Articles of Association
of Article 70 of the ZGD-1)
Management Board
In accordance with NLB’s Articles of
Association, the Supervisory Board
appoints and recalls the President and
other members of the Management
Board. The President of the Management
Board may appoint one of the members
of the Management Board as his/her
In accordance with provisions of the ZGD-
1 and Article 18 of the NLB’s Articles of
Association, a qualified majority of at least
75% of the votes cast by shareholders is
required for adoption and any amendments
to the Bank’s Articles of Association.
particularly authorisations to
issue or purchase own shares
(Point 9 of the sixth paragraph
of Article 70 of the ZGD-1)
According to the ZGD-1, authorisation by
the General Meeting for the purchase of
bank’s own shares has not been adopted.
5. INFORMATION ON THE WORK AND
KEY POWERS OF THE SHAREHOLDERS’
MEETING AND OF ITS KEY POWERS, AND
A DESCRIPTION OF SHAREHOLDERS’
RIGHTS AND THE METHOD OF THEIR
EXERCISING
The General Meeting has the powers as
laid down by the applicable legislation. The
General Meeting of the bank also adopts
resolutions on all other matters brought
within its powers by applicable regulations
and the banks’ Articles of Association.
The General Meeting is convened by the
Management Board. The General Meeting
may be convened by the Supervisory
Board, in particular in cases where the
Management Board fails to convene
the General Meeting, or where when
a convocation is necessary to ensure
unhindered operations of the Bank. The
Supervisory Board may amend the agenda
of the General Meeting convened in line
with the bylaws.
As a rule, the General Meeting of the Bank
shall be convened at the registered office
of the bank, yet it may also be convened at
another venue specified by the convenor.
The Shareholders’ Meeting shall adopt
resolutions by simple majority of the votes
cast, unless the applicable laws or the
Bank’s Articles of Association stipulate a
larger majority or other conditions.
NLB Group 2017 Annual Report
150
6. INFORMATION ABOUT THE
COMPOSITION AND WORK OF THE
MANAGEMENT AND SUPERVISORY
BODIES AND THEIR COMMITTEES
A detailed description of the composition
of the Management and Supervisory
Bodies and their committees is in
Appendices C.1 and C.2 of the Corporate
Governance Code for Listed Companies
(see Tables 20 and 21) of this statement.
The Supervisory Board
The Supervisory Board shall perform its
tasks in accordance with the provisions of
the applicable legislation governing the
operations of banks and companies, the
Bank’s Articles of Association, and its Rules
of Procedure. The Supervisory Board
may engage legal and other consultants
and institutions required by itself or its
committees to perform their tasks.
The Supervisory Board shall give its
consent to decisions of the Management
Board in cases required by the law and,
additionally, in cases, set out in Article 24
of the Bank’s Articles of Association. As a
rule, the Management Board shall obtain
consent from the Supervisory Board before
adopting mentioned decisions, or before
performing certain transactions or acts
requiring consent under current legislation
or resolutions of the Supervisory Board.
The Supervisory Board shall elect from
among its members a Chair and at least
one Deputy Chair who shall in the event
the Chair is absent hold all his/hers
powers. The Chair or Deputy Chair of the
Supervisory Board may resign from his/her
function; however, his/her membership on
the Supervisory Board shall not terminate
as a result.
Management Board
The Management Board is the decision-
making and representation body of the
Bank. It manages the company, makes
business decisions autonomously and
independently, adopts the development
strategy, ensures sound and effective
risk management, acts with the highest
professional integrity, protects business
secrets and is held accountable for the
legality of the bank’s operations within the
limits set by the relevant regulations.
In accordance with the Articles of
Association of the NLB, the Management
Board consists of three to six members,
one of whom is appointed President of the
Management Board of the Bank.
The President and other members of the
Management Board of the Bank shall be
appointed and recalled by the Supervisory
Board of the Bank; the President of the
Management Board of the Bank may
propose to the Chair of the Supervisory
Board of the Bank to appoint or recall
an individual member or the remaining
members of the Management Board of the
Bank.
The President and members of the
Management Board of the Bank shall be
appointed for a period of five years and
may be re-appointed for another term of
office. The president and members of the
Management Board of the Bank may be
recalled prior to the expiry of their term of
office in accordance with applicable laws
and these Articles of Association.
Each member of the Management Board
of the Bank may prematurely resign her/
his term of office with a period of notice of
three months.
A member of the Bank’s Management
Board may only be a person who fulfils
the legally prescribed conditions for a
Management Board member under the law
on banking, and who has obtained a licence
from the BoS or the ECB, in accordance
with Articles of Association.
Resolutions within the scope of powers of
the Management Board shall be adopted
by the members of the Management
Board of the Bank as a rule unanimously,
or, failing that, unless otherwise provided
in Articles of Association, with a majority
of the votes cast. In the case of a tie, the
President of the Management Board of the
Bank shall cast the decisive vote. The Bank
shall be represented by two members of the
Management Board jointly.
More detailed provisions on the method
of work of the Management are set out by
the Rules of procedure governing the work
of the Management Board adopted by the
Supervisory Board of the Bank.
The Supervisory Board Committees
All four working Committees for the
Supervisory Board (the Strategy and
Development Committee was not
operational in 2017) function as consulting
bodies of the Supervisory Board of NLB,
and discuss the material and proposals
of Management Board of NLB for the
Supervisory Board meetings related to a
particular area.
All four Committees are composed of at
least three members of the Supervisory
Board. The Chair of the Committee
may only be appointed from among the
members of the Supervisory Board.
The Chair, Deputy Chair, and members
of the Committee are appointed by a
resolution of the Supervisory Board. The
term of office of the Chair, the Deputy
Chair, and the members of the Committee
should not exceed their term of office
as Supervisory Board members. The
Supervisory Board may terminate the
appointment of the chair, deputy chair, or
a member of the Committee early without
giving a reason.
The Audit Committee of the
Supervisory Board of NLB
Composition of the Audit Committee of
the Supervisory Board of NLB in 2017 is
described in detail in the Appendix C.2 of
the Corporate Governance Code for Listed
Companies (see Table 21).
NLB Group 2017 Annual Report The Audit Committee’s tasks are defined
by law, the Bank’s Articles of Association,
Rules of Procedure of the Audit
Committee of the Supervisory Board of
NLB (Version 6, April 2016), resolutions
of the Supervisory Board and other
regulations, from which the Committee
especially monitors and prepares proposals
of resolutions for the Supervisory Board for
the area:
• Financial reporting,
• Internal control and risk management,
• Internal audit,
• Compliance of operations,
• External audit.
The Risk Committee of the
Supervisory Board of NLB
Composition of the Risk Committee of
the Supervisory Board of NLB in 2017 is
described in detail in the Appendix C.2 of
the Corporate Governance Code for Listed
Companies (see Table 21).
According to Rules of Procedure of
the Risk Committee of the Supervisory
Board of NLB (Version 6, April 2016) the
Committee shall monitors and prepares
draft resolutions for the Supervisory Board
for all risk segments relevant for the Bank’s
business, in particular:
• Advice on the Bank’s general present
and future risk appetite and on the risk
management strategy.
• Assists in the supervision over the
senior management regarding the
implementation of the risk management
strategy.
• Without interfering with the duties of
the Remuneration Committee, check
whether the stimulations provided by
the remuneration system take into
account the risk, capital, liquidity and
probability, and schedule of the bank’s
revenues, in order to design prudential
remuneration policies and practices.
• Check whether the prices of the Bank’s
products are fully compatible with the
business model and risk management
strategy of the Bank and, in case of
identified discrepancies, prepare a
proposal for the measures for their
elimination and submit it to the bank’s
Management and Supervisory Boards.
The Nomination Committee of
the Supervisory Board of NLB
Composition of the Nomination
Committee of the Supervisory Board
of NLB in 2017 is described in detail
in the Appendix C.2 of the Corporate
Governance Code for Listed Companies
(see Table 21).
According to Rules of Procedure of the
Nomination Committee of the Supervisory
Board of NLB (Version 6, April 2016) the
Committee has the duty to:
• Identify and recommend to the
Supervisory Board the candidates for
the members of the Management Board
and identify and recommend to the
Bank’s General Meeting the candidates
for members of the Supervisory Board,
taking into account the policies on the
selection of suitable candidates.
• Identify and recommend to the
Supervisory Board the dismissal of the
members of the Management and the
Supervisory Boards.
• Determine the duties and the required
conditions for certain appointment,
including the assessment of the time
expectedly required for the performance
of the function.
• Lay down the method of searching
for and selecting candidates for the
President and the Members of the
Management Board.
• Determine the profile of the new
candidates for a member of the
Supervisory Board and compile a list of
suitable candidates for members of the
Supervisory Board.
• Draft the contents of service contracts
made with the President and members
of the Management Board.
• Define the goal of representation
by gender in the Management and
151
Supervisory Boards, prepare the
policy on how to increase the number
of representatives of the gender
not sufficiently represented on the
Management and Supervisory Boards.
• At least once annually, assess the
structure, size, composition, and
performance of the Management and
Supervisory Boards, and prepare reports
in relation to any changes.
• At least once annually, assess the
knowledge, skills, and experience of
individual members of the Management
and Supervisory Boards, and of the
board as a whole, and accordingly
report to the Supervisory and
Management Boards.
• Regularly review the Management
Board’s policy on the selection and
appointment of suitable candidates
for the senior management of the
Bank and prepare reports on potential
amendments.
• Actively contributes to the fulfilment
of the Bank’s responsibility to adopt
adequate policies on the assessment
of suitability of the members of the
Management and Supervisory Board of
the Bank.
The Remuneration Committee of
the Supervisory Board of NLB
Composition of the Remuneration
Committee of the Supervisory Board
of NLB in 2017 is described in detail
in the Appendix C.2 of the Corporate
Governance Code for Listed Companies
(see Table 21).
According to Rules of Procedure of
the Remuneration Committee of the
Supervisory Board of NLB (Version 6,
April 2016) the Committee is, among other,
responsible for the following as regards
remuneration policies:
• Preparing proposals of general
principles of remuneration policies,
including the formulating of opinions
on individual aspects of remuneration
policies.
NLB Group 2017 Annual Report 152
• 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.
7. DESCRIPTION OF DIVERSITY POLICY
Supervisory Board
Policy on the provision of diversity of the
Supervisory Board was adopted on 27th
General Meeting of Shareholders on 4
August 2016. By the mentioned policy,
NLB acting in accordance with Article
34 of the ZBan-2, sets up a framework
enabling and promoting a composition
of the Supervisory Board of the Bank
resulting in the latter having collectively
the appropriate knowledge, skills, and
experience deemed necessary for in-depth
understanding of the Bank’s activities and
the risks to which it is exposed and for
realising the goals of its strategy.
The goal of the diversity policy is aimed at
selection of Supervisory Board members
who primarily meet the highest ethical
and professional standards, and profess the
highest level of diligence while collectively
constituting the most appropriate group in
terms of diversity. With due consideration
of this Policy, the Supervisory Board should
be composed of individuals having diverse
knowledge and experience so that the
Supervisory Board as a whole shall possess
an appropriate range of knowledge, skills,
and experience by its members, which
is necessary with regard to the Bank’s
size, complexity, and risk profile. The
policy also promotes achieving variety
in the composition of the Supervisory
Board, including an appropriate target
representation of both genders in its
membership. A diverse composition of the
Supervisory Board is hereby recognised as
a key business advantage of the Bank.
As described in detail in the chapter
Corporate Governance, at the General
Meeting dated 8 September 2017, three
new members to the Supervisory Board
were elected. In accordance with the
aforementioned policy two members
were females. On 31 December 2017
the Supervisory Board was composed
of: Primož Karpe - Chairman; Andreas
Klingen - Deputy Chairman; and the
following members: Alexander Bayr,
David Eric Simon, László Urbán, Vida
Šeme Hočevar, Simona Kozjek and Peter
Groznik (members).
Management Board
The policy for selecting suitable candidates
for the member of the Bank’s Management
Board was adopted by the Supervisory
Board of the NLB on 28 August 2015.
Pursuant to the Article 34 of the ZBan-2,
with the mentioned policy the Supervisory
Board lays down the framework enabling
that the Management Board of the Bank as
a whole shall possess an appropriate range
of knowledge, skills, and experience of its
members. The policy sets out professional
criteria of selection and expertly managed
procedures of candidate selection enabling
the Supervisory Board to lay the grounds
for selection and perform due diligence
in accordance with the highest ethical
standards and care in the selection of
Management Board members.
The goal of above mentioned policy is
to ensure that the Bank’s Management
Board is composed of individuals having
a balanced range of skills, knowledge, and
experience who will possess appropriate
qualifications as a team considering the
size, complexity, and risk profile of the
Bank. Expertly managed processes are not
only in the Bank’s interest, but also in the
interest of the selected candidates because
they dispel doubt about their expertise
and references, and whether they were
the right choice. The Policy also promotes
achieving variety in the composition of
the Management Board, including an
appropriate target representation of both
genders in its 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.
No changes in the composition of the
Management Board were made in 2017.
On 31 December 2017 the Management
Board of the Bank was composed of Blaž
Brodnjak, President, CEO and CMO;
Archibald Kremser, CFO; Andreas
Burkhardt, CRO; and László Pelle, COO.
8. CORPORATE INTEGRITY
In accordance with the provisions
of recommendation no. 3.4.1 of
the Corporate Governance Code
for Companies with a State Capital
Investment, NLB included a description of
the company’s corporate integrity in the
Corporate Governance Statement.
Following the Slovenian corporate integrity
guidelines from January 2014, the Bank
continued with enhancing its compliance
and integrity program. In 2017, we
implemented the system of identifying,
monitoring, and assessing the compliance
NLB Group 2017 Annual Report 153
of investigations and other preventive
activities in the fraud management area,
information and personal data protection,
and money laundering and terrorist
financing prevention.
The Bank compiles an annual self-
assessment of corporate integrity, 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 webpage: https://www.nlb.si/
corporate-governance.
Ljubljana, 13 April 2018
and integrity risks within the NLB and
the Group. We implemented the new
Compliance and Integrity Policy within
NLB and the core banking members of
the Group, adopted the new NLB Group
Code of Conduct, which applies to the
Group. This is also available in e-book
format, which is also publicly available.
We also successfully implemented the
Enterprise Compliance Risk Assessment
within the Group core banking members,
and renewed the policies in the area
of managing conflicts of interests and
preventing corruption. We held several live
and e-trainings addressing the compliance
and integrity area, and risks within the
Bank and with representatives from the
Group members (through dedicated
Business Line Compliance and Integrity),
and also organised several activities
to contribute to further raising of risk
awareness within NLB and the Group.
Therefore, the 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
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, (iii) continued with yearly
reassessment of the general assessment
of integrity and compliance risk system
(SOTIS), (iv) implemented the SOTIS
methodology within the core banking
members of the Group, and for the third
year organised (v) the survey of compliance
and ethics. We continued with the activities
The Supervisory Board
Primož Karpe
Chairman of the
Supervisory Board
The Management Board
László Pelle
Member of the
Management Board
Archibald Kremser
Member of the
Management Board
Andreas Burkhardt
Member of the
Management Board
Blaž Brodnjak
President & CEO
NLB Group 2017 Annual Report
154
Table 20: Composition of Management in financial year 2017 (C.1)
Position held
(president,
member)
Area of work
covered
within the
Management
Board
First
appointment
to the position
Conclusion of
the position
/term of office
Name and Surname
Citizenship
Year of birth
Qualification
Professional
profile
Blaž Brodnjak
President
CEO
6 July 2016
5 July 2021
Slovene
1974
MBA
Andreas P. Burkhardt
Member
CRO
13 September
2013
5 July 2021
Germany
Archibald Kremser
Member
CFO
31 July 2013
5 July 2021
Austrian
1971
1971
MBA
MBA
László Pelle
Member
COO 26 October 2016 26 October 2021
Hungary
1966
MSc
Banking /
Finance
Banking /
Finance
Banking /
Finance
Banking
Operations and
IT Management
Membership
in supervisory
bodies in
companies not
related to the
company
Banks’
Association of
Slovenia (from 1
November 2017)
Table 21: Composition of Supervisory Board and Committees in financial year 2017 (C.2)
Position held
(president, deputy,
member)
First appointment
to the position
Conclusion of
the position/
term of office
Representative of
the company’s capital
structure / employees
Attendance at SB
session in regard to
the total number of SB
session (for example
5/7) applicable on
his/her mandate
Name and Surname
David Kastelic
Uroš Ivanc
Matjaž Titan
Primož Karpe
Sergeja Slapničar
Deputy President
11 June 2013
20 March 2017
Member
4 August 2016
8 September 2017
Member
11 June 2013
7 April 2017
Member
4 August 2016
21 April 2017
President
10 February 2016
No
No
No
No
No
No
No
No
No
No
No
No
5/6
2/6
2/6
3/6
6/6
5/6
6/6
6/6
6/6
1/6
1/6
1/6
2020
2019
2020
2020
2020
2021
2021
2021
Gender
male
female
male
male
male
male
male
male
male
female
female
male
Citizenship
Year of birth
Qualification
Professional profile
Code (YES/NO)
business year (YES/NO)
Independence under
Existence of conflict
Article 23 of the
of interest, in the
Slovene
Slovene
Slovene
Slovene
Slovene
Germany
Austrian
Britisch
Hungary
Slovene
Slovene
Slovene
1966
1971
1975
1980
1970
1964
1959
1967
1975
1971
University Degree
Finance / Insurance
PhD
MSc
Banking / Finance
Finance / Insurance
University Degree
Legal
MSc
Banking / Finance
MBA
Banking / Finance
1948
University Degree
Banking / Finance
PhD
PhD
MSc
PhD
Banking / Finance
Finance / Insurance
Finance / Insurance
Finance, industry,
investment banking
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
Membership in
supervisory bodies
in other companies
or institutions
Jedrski pool
Adriatic Fund B.V.,
Amsterdam, Netherlands
Kyrgyz Investment and
Credit Bank, Credit Bank
of Moscow, Komercialna
banka Beograd a.d.,
Banks in Central and
Eastern Europe and Russia
Jihlavan a.s., Central
Europe Industry
Partners a.s.
Triglav Skladi, Ljubljana
YES
YES
YES
NO
NO
YES
NO
NO
YES
YES
NO
1960
University Degree
Banking / Finance
NO
WKBG Bank, Vienna
Andreas Klingen
Deputy President
(from 7 Aprli 2017)
22 June 2015
Alexander Bayr
Member
4 August 2016
David E. Simon
Member
4 August 2016
László Urbán
Vida Šeme Hočevar
Simona Kozjek
Member
10 February 2016
Member
8 September 2017
Member
8 September 2017
Peter Groznik
Member
8 September 2017
NLB Group 2017 Annual Report 155
Membership in
supervisory bodies
in other companies
or institutions
Jedrski pool
Adriatic Fund B.V.,
Amsterdam, Netherlands
Kyrgyz Investment and
Credit Bank, Credit Bank
of Moscow, Komercialna
banka Beograd a.d.,
Banks in Central and
Eastern Europe and Russia
YES
YES
YES
NO
NO
YES
NO
WKBG Bank, Vienna
Jihlavan a.s., Central
Europe Industry
Partners a.s.
Triglav Skladi, Ljubljana
NO
NO
YES
YES
NO
Position held
(president, deputy,
First appointment
member)
to the position
Conclusion of
Representative of
session (for example
the position/
the company’s capital
term of office
structure / employees
5/7) applicable on
his/her mandate
Citizenship
Year of birth
Qualification
Professional profile
Independence under
Article 23 of the
Code (YES/NO)
Existence of conflict
of interest, in the
business year (YES/NO)
Slovene
Slovene
Slovene
Slovene
Slovene
Germany
Austrian
Britisch
Hungary
Slovene
Slovene
Slovene
1966
1971
1975
1980
1970
1964
University Degree
Finance / Insurance
PhD
MSc
Banking / Finance
Finance / Insurance
University Degree
Legal
MSc
Banking / Finance
MBA
Banking / Finance
1960
University Degree
Banking / Finance
1948
University Degree
Banking / Finance
1959
1967
1975
1971
PhD
PhD
MSc
PhD
Banking / Finance
Finance / Insurance
Finance / Insurance
Finance, industry,
investment banking
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
YES
Table 20: Composition of Management in financial year 2017 (C.1)
Area of work
covered
within the
Position held
First
Conclusion of
(president,
Management
appointment
the position
Name and Surname
member)
Board
to the position
/term of office
Citizenship
Year of birth
Qualification
profile
company
Membership
in supervisory
bodies in
companies not
Professional
related to the
Banks’
Banking /
Association of
Finance
Slovenia (from 1
November 2017)
Blaž Brodnjak
President
CEO
6 July 2016
5 July 2021
Slovene
1974
MBA
Andreas P. Burkhardt
Member
CRO
5 July 2021
Germany
13 September
2013
Archibald Kremser
Member
CFO
31 July 2013
5 July 2021
Austrian
László Pelle
Member
COO 26 October 2016 26 October 2021
Hungary
1966
1971
1971
MBA
MBA
Banking /
Finance
Banking /
Finance
Banking
MSc
Operations and
IT Management
Table 21: Composition of Supervisory Board and Committees in financial year 2017 (C.2)
Attendance at SB
session in regard to
the total number of SB
Name and Surname
David Kastelic
Uroš Ivanc
Matjaž Titan
Primož Karpe
Sergeja Slapničar
Deputy President
11 June 2013
20 March 2017
Member
4 August 2016
8 September 2017
Member
11 June 2013
7 April 2017
Member
4 August 2016
21 April 2017
President
10 February 2016
Andreas Klingen
Deputy President
(from 7 Aprli 2017)
22 June 2015
Alexander Bayr
Member
4 August 2016
David E. Simon
Member
4 August 2016
László Urbán
Vida Šeme Hočevar
Simona Kozjek
Member
10 February 2016
Member
8 September 2017
Member
8 September 2017
Peter Groznik
Member
8 September 2017
2020
2019
2020
2020
2020
2021
2021
2021
No
No
No
No
No
No
No
No
No
No
No
No
5/6
2/6
2/6
3/6
6/6
5/6
6/6
6/6
6/6
1/6
1/6
1/6
Gender
male
female
male
male
male
male
male
male
male
female
female
male
NLB Group 2017 Annual Report 156
Name and Surname
Membership in committees
(audit, nominal, income
committee , etc.)
First appointment
to the position
Conclusion of the
position/ term of office
President
/Member
Attendance at sessions of
SB’s Committees in regard
to the total number of
SB’s session (for
example 5/7)
applicable on his/
her mandate
Remuneration Committee
26 August 2016
7 April 2017
President
Remuneration Committee
26 August 2016
21 April 2017
Deputy President
Remuneration Committee
26 August 2016
8 September 2017
Remuneration Committee
26 August 2016
5 October 2017
Nominaton Committee
26 August 2016
8 September 2017
Deputy President
Nominaton Committee
26 August 2016
21 April 2017
Member
Vida Šeme Hočevar
Remuneration Committee
6 October 2017
Simona Kozjek
Remuneration Committee
6 October 2017
Remuneration Committee
15 April 2017
Remuneration Committee
6 October 2017
Nominaton Committee
15 April 2016
Andreas Klingen
Nominaton Committee
19 February 2016
Alexander Bayr
Nominaton Committee
6 October 2017
Vida Šeme Hočevar
Nominaton Committee
6 October 2017
Nominaton Committee
6 October 2017
Audit Committee
7 April 2017
Uroš Ivanc
Matjaž Titan
David Kastelic
David E. Simon
Primož Karpe
László Urbán
Primož Karpe
David Kastelic
Matjaž Titan
Peter Groznik
David E. Simon
Uroš Ivanc
Sergeja Slapničar
Alexander Bayr
Primož Karpe
Audit Committee
25 June 2013
7 April 2017
Deputy President (from
4 March 2016)
Audit Committee
25 June 2013
20 March 2017
President
Audit Committee
26 August 2016
Deputy President
Audit Committee
19 February 2016
Vida Šeme Hočevar
Audit Committee
6 October 2017
Uroš Ivanc
Andreas Klingen
László Urbán
Alexander Bayr
Simona Kozjek
Peter Groznik
David E. Simon
Risk Committee
25 June 2013
7 April 2017
Risk Committee
19 February 2016
Risk Committee
26 August 2016
Risk Committee
7 April 2017
5 October 2017
Risk Committee
6 October 2017
Risk Committee
6 October 2017
Risk Committee
26 August 2016
2021
2021
2020
2020
Member
Member
President
Deputy President
Member
Member
President
Member/ Deputy President
(from 6 October 2017)
Member
Member
Member
President
Member
Member
President
President
Member /Deputy President
(from 6 October 2017)
Member
Member
Member
Member
3/4
3/4
3/4
3/4
1/4
1/4
1/4
1/4
5/5
4/5
3/5
4/5
1/5
1/5
1/5
3/5
2/5
1/5
5/5
4/5
1/5
0/5
4/5
5/5
2/5
1/5
1/5
5/5
External member in committees (audit, nominal, income committee , etc.) - The Banking Act (ZBan-2) that came into effect on 13 May 2015 contains provision
stipulating that, irrespective of provision of Companies Act (ZGD-1) only members of the Supervisory Board can be appointed to Supervisory committees.
Attendance at sessions
of SB's Committees
in regard to the total
number of SB's session
(for example 5/7)
Name and Surname
none
Gender
Qualification
Year of birth
Professional profile
Membership in
supervisory bodies in
companies not related
to the company
NLB Group 2017 Annual Report 157
Table 22: Composition and amount of remuneration1 of the Management Board members in the financial year 2017 (C.3)
Variable income - gross
Name and
Surname
Position held
(president,
member)
Fixed income
-gross (1)
on the basis
of quantity
criteria
on the basis
of quality
criteria
Blaž Brodnjak
president
140,564.64
Archibald
Kremser
Andreas P.
Burkhardt
member
140,564.64
member
140,564.64
László Pelle
member
140,564.64
Deferred
income (3)
Severance
pay (4)
Bonuses (5)
Draw-
back (6)
Total gross
(1+2+3+
4+5-6)
Total net
0.00
0.00
0.00
0.00
0.00
2,349.19
0.00
163,360.40
76,386.25
0.00
18,753.31
0.00
179,764.52
71,131.06
0.00
20,372.25
0.00
181,383.46
70,132.01
0.00
29,379.39
0.00
171,979.59
53,366.66
Total (2)
20,446.57
20,446.57
20,446.57
2,035.56
1. This table does not include other benefits and cost refunds.
Table 23: Composition and amount of remuneration of members of the Supervisory Board
and committee members in the financial year 2017 (in EUR) (C.4)
Position held
(president deputy,
member, external
member of a
Committee)
President
Member
Member
Member
Deputy President
Member
Member
Member
Member
Member
Member
Member
Payment for the
performance of
services - gross
per year (1)
Attendance fees for
SB and committees
- gross per year (2)
Total gross (1+2)
Total net1
Travel expenses
37,661.29
21,149.19
7,072.92
6,116.94
28,857.93
21,489.58
27,092.07
6,937.50
15,500.00
6,482.52
8,256.72
6,482.52
6,270.00
5,610.00
2,310.00
1,430.00
5,335.00
5,830.00
6,490.00
2,805.00
4,015.00
1,155.00
1,595.00
1,375.00
43,931.29
26,759.19
9,382.92
7,546.94
34,192.93
27,319.58
33,582.07
9,742.50
19,515.00
7,637.52
9,851.72
7,857.52
43,931.29
17,501.79
6,824.17
5,488.89
22,398.84
17.870.94
21,996.40
7,085.72
14,184.08
5,463.58
7,073.98
5,623.59
5,795.50
6,276.11
44.00
345.11
10,356.24
10,206.35
16,916.09
44.00
0.00
0.00
151.36
90.14
Name and Surname
Primož Karpe
László Urbán
Uroš Ivanc
Sergeja Slapničar
Andreas Klingen
Alexander Bayr
David Eric Simon
Matjaž Titan
David Kastelic
Simona Kozjek
Vida Šeme Hočevar
Peter Groznik
1. After the prepayment of income taxes which is not taken into account in potential subsequent balancing payments of personal income taxes.
NLB Group 2017 Annual Report 158
Statement of Management of Risk
NLB’s Management Board and
Supervisory Board provide herewith a
concise statement of the 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, 49/2016 and
68/2017), and Regulation (EU) 575/2013
(date of publication 27 June 2013 and
later supplements (2 August 2013, 30
November 2013, 25 January 2017)), 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 and in the
Group is implemented in accordance
with the established internal policies
and procedures which take into account
European banking regulations, the
regulations adopted by the BoS, the current
EBA guidelines, and relevant good banking
practices. The Group pays great attention
and importance to the risk culture and
awareness of all relevant risks within the
entire Group.
The risk management function represents
an important part of the overall
management and governance system in
the Group. The Group’s risk management
framework is defined and organised
with regard to the Group’s business and
risk profile, based on forward looking
perspective to meet internal objectives
and all external requirements. The
proactive risk management and control
system is based on risk strategy, which is
consistent with the Group’s risk appetite
and business strategy, and is focused
on early identification and efficient risk
management. Set governance and different
risk management tools enable adequate
oversight of the Group’s risk profile, and
proactively support its business operations
and its management by incorporating
escalation procedures and using different
mitigation measures when necessary.
Nevertheless, the Group is constantly
enhancing and complementing the
existing methods and processes in all risk
management segments.
The Group plans a prudent risk profile,
optimal capital usage, and profitable
operations in the long run, considering
the risks assumed. The business strategy,
the risk appetite, the risk strategy, and the
key internal risk policies of the Group,
approved by the Management Board and
the Supervisory Board of NLB, specify
the strategic objectives and guidelines
concerning risk assumption, the approaches
and methodologies of monitoring,
measuring, mitigating, and managing all
types of risk. Moreover, main strategic risk
guidelines are integrated into the annual
business plan review and budgeting process.
The Group regularly monitors its target
risk appetite profile, representing the key
component of 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, the Group established a
comprehensive stress testing framework and
other early warning systems in different risk
areas with the intention of strengthening
the existing internal controls and timely
responding when necessary. The robust
and uniform stress testing framework
includes all material types of risk and
several relevant stress scenarios, according
to the vulnerability of the Group’s business
model. It is integrated into Risk appetite,
ICAAP, ILAAP, and Recovery plan to
support proactive management of the
Group’s overall risk profile, namely the
capital and liquidity position on a forward
looking perspective. Additionally, other
partial risk assessments are covered by
sensitivity analysis based on relevant
stressed risk parameters.
In accordance with the Risk Appetite
Statement, the 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. The
Group’s Risk Appetite Statement is further
deployed to the core subsidiaries within
the Group under consideration of the
approved proportionality orientations.
Based on the Group’s business strategy the
key risks are credit risk, interest rate risk in
the banking book, liquidity risk, operational
risk, market risk, and other non-financial
risks. Regular risk identification and their
assessment is performed within ICAAP
with the aim of assuring their overall
control and proactive risk management.
Management of credit risk, which is the
most important risk in the the Group,
focuses on the taking of moderate risks
– diversified credit portfolio, adequate
credit portfolio quality, sustainable cost
of risk, and ensuring an optimal return
considering the risks assumed. The liquidity
risk tolerance is low. The the 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 Group thus
pursues the goals of low-to-moderate
NLB Group 2017 Annual Report exposure. The 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 is primarily limited to
servicing customers and hedging NLB’s
own positions. When assuming operational
risks, the 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 with a
focus on minimising their possible impacts
on the Group’s operations. These also
include non-financial risks.
The main risk appetite objectives of the
Group are following:
• 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.
• Adequate quality of the credit portfolio,
sustainable cost of risk, ensuring
sustainable, limited credit risk volatility,
and limited exposure to project
financing.
• Diversification of risk in exposures to
banks and sovereigns.
• Limited exposure to interest rate risk in
the banking book and to consolidated
FX risk (from transactional risk).
• Ensuring sustainable profitability in
terms of risk-return.
• Ensuring the sustainable and limited size
of subsidiary banks.
The values of the most important risk
appetite indicators of the Group as at the
end of 2017, reflecting interconnection
between strategic business goals, risk
strategy, and targeted risk appetite profile,
were as follows:
159
the share of NPE by EBA 6.7%,
• CET1 15.9%,
• cost of risk < – 62 bps,
•
• LTD 70.8%,
• LCR 276%,
• NSFR 149%,
• BPV sensitivity (of 200 bps) 5.7% of
capital.
Consequently, the Group concluded the
year 2017 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, to foster strict adherence
of the Banks’ employees in daily operations
of the Bank, concerning 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, 13 April 2018
The Supervisory Board
Primož Karpe
Chairman of the
Supervisory Board
The Management Board
László Pelle
Member of the
Management Board
Archibald Kremser
Member of the
Management Board
Andreas Burkhardt
Member of the
Management Board
Blaž Brodnjak
President & CEO
NLB Group 2017 Annual Report
160
Statement of the Arrangement of Internal Governance
NLB pursues internal governance,
including corporate governance, according
to the legislation applicable in the RoS, and
also adheres to its internal acts.
NLB fully complies with the acts referred
to in Article 9, paragraph two of the
ZBan-224.
With the aim of strengthening internal
governance, the Bank operates especially in
compliance with:
1. The provisions of the ZBan-2 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 banks25 and;
3. EBA Guidelines on internal
governance, on the assessment of
the suitability of members of the
management body and key function
holders and remuneration policies
and practices, based on the relevant
regulations of the BoS on the
application of these Guidelines26.
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, 13 April 2018
The Supervisory Board
Primož Karpe
Chairman of the
Supervisory Board
The Management Board
László Pelle
Member of the
Management Board
Archibald Kremser
Member of the
Management Board
Andreas Burkhardt
Member of the
Management Board
Blaž Brodnjak
President & CEO
24. Banking Act (ZBan-2), Official Gazette of the RS, no.
25/15, 44/16, 77/16 and 41/17.
25. Regulation of the Bank of Slovenia on internal man-
agement arrangements, management body and the
internal capital adequacy assessment process for
banks and savings banks, Official Gazette of the RS,
no. 73/15 49/16 and 68/17.
26. https://www.bsi.si/financna-stabilnost/predpisi/
seznam-predpisov/ureditev-notranjega-upravljanja
NLB Group 2017 Annual Report
161
Statement of Non-financial information
In line with Article 70.c of the ZGD-127,
the Bank included its Non-financial
information statement in the Corporate
social responsibility report 2017 which is
published separately from the 2017Annual
Report of NLB Group.
27. 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, 55/15
and 15/17).
NLB Group 2017 Annual Report 162
László Pelle
Member of the Management Board
Andreja Opec
General Manager, Corporate
Banking Processing
NLB Group 2017 Annual Report 163
László Pelle
Member of the Management Board
Andreja Opec
General Manager, Corporate
Banking Processing
Nina Kerčmar
General Manager, Information
System Development
NLB Group 2017 Annual Report 164
Dražen Bundalo
General Manager, Financial Markets Processing
Mitja Učakar
General Manager, Innovation
Management and Business Analysis
NLB Group 2017 Annual Report 165
Mitja Učakar
General Manager, Innovation
Management and Business Analysis
Andraž Kramer
General Manager, Procurement and CREM
Alenka Korče
General Manager, Cash Processing
NLB Group 2017 Annual Report 166
Sonja Kostevc
General Manager, Retail Banking Processing
Goran Golubović
General Manager, Data Management
NLB Group 2017 Annual Report 167
Irena Dolinar
General Manager, Payments Processing
Goran Golubović
General Manager, Data Management
Pavel Car
General Manager, IT Infrastructure
NLB Group 2017 Annual Report 168
Chapter 20
Corporate and
Social Responsibility
The Bank has an important social
Promoting Entrepreneurship
responsibility mission to create solid
financial results and contribute to a
higher quality of life for all residents.
The Bank and the Group are responsible
to customers, employees, and the social
environment, with the aim of becoming
a dedicated mentor. Special attention
is paid to knowledge and lifelong
learning. The key CSR pillars in the
Bank are: promoting entrepreneurship,
financial literacy, supporting sports
for young people, preserving art and
cultural heritage, and taking good
care of the Bank’s employees.
The Bank is very active in promoting
entrepreneurship. The establishment of
IEC in 2015 has actively contributed to the
business climate and financial mentoring
in Slovenia. The Bank IEC became an
example of good banking practice and
a meeting point in a supportive business
environment. The Bank contributes and
gives back to society with free renting of the
Bank’s empty premises to small business,
and by organising of events for the public.
In 2017, the Bank IEC hosted 243 training
and business events covering various
business topics that were attended by 7,754
participants. The most significant projects
were: the Summer School of Cultural
Management, SEI Summer School of
the US Embassy, Bytes of Banking, the
Financial Literacy Programme for young
people, and the Bank’s participation in the
‘Start-up’ Slovenia project, a springboard
for young Slovenian entrepreneurs and
their business brands.
Financial Literacy Programme
for a better future
By organising financial literacy events the
Bank helps young people to understand
finances, to achieve financial independence,
and to act responsibly. Moreover, it is very
important that this kind of learning begins
at a young age. The Bank introduced a
holistic Financial Literacy Programme
for children and teenagers, for which it
received the Slovenian Horus Award for
The Group as a dedicated
mentor and sponsor:
• Supporting business environment.
• Improving financial literacy.
• Encouraging young people to be active.
• Financial support to maternity hospitals.
Social Responsibility for 2017. The Horus
Award is a part of a national awareness
initiative meant to enhance the overall CSR
and sustainable development.
The Financial Literacy Programme is
aimed at pre-school children, elementary
school students, secondary school students,
university students and secondary school
teachers. Experienced bankers introduce
the world of finance to young people with
tailor-made programmes. The programmes
were attended by more than 6,000 children,
students and secondary school teachers.
A similar initiative was introduced in NLB
Banka Podgorica, which complemented
donations for school equipment by
educating young people on the path toward
financial independence.
Taking Good Care of Employees
The ‘Healthy Bank’ Project was established
years ago to promote health awareness
and encourage a healthy lifestyle among
employees. Its emphasis is on prevention,
identification of potential disease
symptoms, and lifestyle changes.
The Bank offers employees a wide range of
educational programmes, and is committed
to high quality standards as an ever-
learning organisation.
The Bank was awarded a full ‘Family-
Friendly Company’ Certificate for the third
straight year. The Bank also ensures that
its employees can improve work-family
NLB Group 2017 Annual Report 169
In the ‘NLB Sports for Young
People’ project, the Bank
sponsored 13 sports in 26
different municipalities:
handball, football,
volleyball, basketball,
ice hockey, alpine skiing,
ski jumping, alpinism,
swimming, badminton,
dancing, karate, and rafting.
balance by offering its employees a number
of benefits.
Additional information on these topics
is available in the chapter on Human
Resources.
Supporting professional athletes and
encouraging sports for young people
The Bank continues to support top
Slovenian athletes, who are the greatest
ambassadors for Slovenia. As a Golden
Sponsor of the Slovenian Alpine Ski
Team for the twentieth year now, the
Bank was their reliable supporter and
enabled success stories like skiing World
Champion Ilka Štuhec’s. In the past four
years, the Bank provided sponsorships
to other important sport federations. In
2017, the Bank became a sponsor of
Slovenian Football Team and the official
sponsor of the Handball Federation of
Slovenia. The Bank has also supported the
Table Tennis Association of Slovenia and
Sailing Association of Slovenia for several
years.
The Bank’s long-lasting support of sports,
with a great emphasis on sports for young
people, expanded in 2017 with the initiative
‘NLB Sports for Young People’ promoting
responsible sports education of young
people at the regional level. The Bank
financially supported 35 sport clubs for
young athletes in various disciplines and
regions in Slovenia. In the ‘NLB Sports for
Young People’ project, the Bank sponsored
13 sports in 26 different municipalities,
including: handball, football, volleyball,
basketball, ice hockey, alpine skiing, ski
jumping, alpinism, swimming, badminton,
dancing, karate, and rafting.
With the cooperation of local sport clubs,
the Bank makes sure that it works well with
local communities. This initiative supports
the idea of fair play education, promotes
responsible behaviour, and emphasises the
importance of working out in general. The
programme was also established to connect
various local communities in Slovenia
and increase the number of people taking
up sports, as well as to promote socially
responsible practices.
The subsidiary banks joined this initiative.
NLB Banka Sarajevo collected funds for the
project ‘Children and Sports’ as a partner
in the ‘Federal League – Mikasa NLB
Banka – Sloboda’ project.
Humanitarian projects
The Bank takes special pride in
supporting a traditionally high number of
humanitarian projects in cooperation with
customers and employees.
In 2017, the Bank continued with the
project ‘With small steps, we will change
the world for the better’. With the help of
the Bank customers, all seven Slovenian
maternity hospitals received funds to
purchase urgently needed medical
equipment, or to renovate their delivery
rooms. By connecting the clients with the
humanitarian aspect, the Bank made a
donation for each housing loan sold in June,
which amounted to EUR 67,095 in total.
The Bank also donated EUR 20,000 to the
Help Centre for small children with cancer
in Slovenia and the project ‘First Steps’.
The Bank employees helped by taking
phone calls in the NLB Call Centre for the
Red Cross campaigns ‘Let’s take them to
the sea’ and ‘It’s nice to share’.
The Bank is proud of its employees who
have taken part in socially responsible
activities, such as overhauling the external
and internal premises of local sports
facilities and making a garden for children
in Moravske Toplice. The participants
of the NLB Leadership meeting also
bought and decorated New Year’s gifts for
unprivileged children in Macedonia.
NLB Group 2017 Annual Report 170
By organising such events,
the Bank helps young
people understand the
financial world, become
financially independent, and
act in a responsible manner.
• NLB Banka Banja Luka made a
donation to Gynecology University
Clinical Centre. The Bank also raised
funds for medical equipment for the
Pediatric Clinics for the ‘Crumbs’
Association for parents with premature
children.
7,754
participants attended various
education and business events
hosted by the NLB IEC
The subsidiary banks have joined an
integrated project to support children’s
health care with similar projects as well.
The most prominent were:
• NLB Banka Sarajevo made a donation
to the Family Home for children with
cancer in Tuzla, and a donation to the
University Pediatric Medical Centre in
Tuzla.
• NLB Banka Beograd donated medical
equipment to the maternity hospital in
Kruševac.
• NLB Banka Prishtina carried out a
fundraising project ‘Care for Kosovo
Kids’ for children with cancer, which
was supported by EBRD’s Community
Initiative. They also donated funds to
the Pediatric and Gynecology Clinics in
Prishtina.
• NLB Banka Podgorica joined the
campaign ‘With small steps, we will
change the world for the better’ with
a donation for Maternity Hospitals in
Podgorica.
Art and Cultural Heritage
In 2017, four well-visited exhibitions were
organised and displayed in the NLB Avla
Gallery (Gallery). At the 50th anniversary
of the author’s death, a Retrospective of
Photos by Božo Štajer was organised. In
cooperation with the Higher Vocational
College in Sežana and the Vilenica
International Literary Festival, a Threads
of Vilenica exhibition was shown in the
Gallery. At the opening of the 58th Jazz
Festival, the Accompanying Exhibition
of Slavimir Stojanović’s poster entitled
‘Continuing Simply’ was presented. The
Bank also manages the NLB Art Collection.
The Gallery hosted an exhibition of
Achievements by Slovenian Female
Architecture and Design Pioneers.
The Group continuously makes positive
contributions for the well-being of
our stakeholders and society with
a strong commitment to responsible
and sustainable development.
Andrej Krajner
General Manager,
Communications
NLB Group 2017 Annual Report 171
NLB Group 2017 Annual Report 172
Chapter 21
2017 GRI Standards
Disclosure for NLB
Economic
GRI Topic
GRI Disclosure
Value
Comment
GRI 201 – Economic Performance
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 presented
on a cash basis, report the justification
for this decision in addition to reporting
the following basic components:
i. Direct economic value
generated: revenues;
ii. Economic value distributed: operating
costs, employee wages and benefits,
payments to providers of capital,
payments to government by country,
and community investments;
iii. Economic value retained: ‘direct
economic value generated’ less
‘economic value distributed’.
b. Where significant, report EVG&D
separately at country, regional,
or market levels, and the criteria
used for defining significance.
202-2: Proportion of senior
management hired from
the local community
GRI 202 – Market Presence
a. Percentage of senior management at
significant locations of operation that
are hired from the local community.
99%
b. The definition used for
‘senior management’.
c. The organization’s geographical
definition of ‘local’.
d. The definition used for ‘significant
locations of operation’.
In the NLB Group Annual Report for 2017.
The recruitment procedure: In the event that
the Bank evaluates that the pool of talents
does not provide a suitable candidate for the
vacant senior management position, the Bank
prepares a tender invitation. The invitation is
published on the Bank’s website and on the
premises of the National Employment Office.
Among the registered candidates, there are
several selection interviews and selection
tests carried out. A Fit & Proper rating is
also involved. The selected candidates are
employed at the Bank for an indefinite period
with a six month probationary period.
Senior management: General Managers
directly subordinated to the Management
Board (B-1), the directors that are
subordinated to B-2 level General
Managers, other employees, who have
an individual contract of employment
(Advisor, Deputy Director, Head of Unit).
RoS
RoS and locations of the Group members.
NLB Group 2017 Annual Report
GRI Topic
GRI Disclosure
Value
Comment
173
GRI 205 – Anti-corruption
Members of the NLB Supervisory Board
were acquainted with this topic in the
context of specialised education in the
field of risk of compliance and integrity,
within which the risks of corruption
and internal regulation of the area were
presented on 18 September 2017.
Members of the NLB Supervisory Board were
acquainted with this topic in the context of
specialised education in the field of risk of
compliance and integrity, within which the
risks of corruption and internal regulation of
the area were presented in September 2017.
Anticorruption training is
obligatory for all employees.
This means incidents of corruption (which
is meant to include bribery, fraud, or
money laundering) and actions taken.
205-2: Communication and
training about anti-corruption
policies and procedures
a. Total number and percentage of
governance body members that the
organization’s anti-corruption policies
and procedures have been communicated
to, broken down by region.
NLB Management Board:
4 members (100%).
NLB Supervisory
Board: 8 members (100%).
b. Total number and percentage of
employees that the organization’s anti-
corruption policies and procedures have
been communicated to, broken down
by employee category and region.
2,789 (100%) of current employees.
d. Total number and percentage
of governance body members that
have received training on anti-
corruption, broken down by region.
NLB Management Board: 4 members
(100%).
NLB Supervisory Board: 8
members (100%).
e. Total number and percentage of
employees that have received training
on anti-corruption, broken down by
employee category and region.
In 2017 Successfully finished training:
2,087 employees, which is 76% of
all employees or 80% of employees
present at work (i.e. excluding long
sick leave, maternity leave etc.).
205-3: Confirmed incidents of
corruption and actions taken
.
a. Total number and nature of
confirmed incidents of corruption.
6 total number of incidents
of corruption reviewed:
1 confirmed incident of corruption;
bribery for granting a loan
2 unconfirmed incidents of corruption
3 ongoing cases, not yet finished
b. Total number of confirmed incidents
in which employees were dismissed
or disciplined for corruption.
c. Total number of confirmed incidents
when contracts with business partners
were terminated or not renewed due
to violations related to corruption.
d. Public legal cases regarding corruption
brought against the organisation or its
employees during the reporting period
and the outcomes of such cases.
1
0
0
NLB Group 2017 Annual Report
174
Environmental
GRI Topic
GRI Disclosure
Value
Comment
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 products and
services during the reporting period, by:
GRI 301 – Materials
ii. renewable materials used.
34.38 A4 pages per employee
per working day
GRI 302 – Energy
i. electricity consumption in kWh
12,912.381.00
302-1: Energy consumption
within the organisation
GRI 306 – Effluents and Waste
306-2: Waste by type and
disposal method
GRI 307 – Environmental Compliance
307-1: Non-compliance with
environmental laws and regulations
Data is related to used A4 paper per
employee per working day. The number
of pages has been constantly reduced
since 2014 (42). Compared to 2016, the
amount of paper used decreased again
(from 39.6 pages to 34.4 pages in 2017).
In 2017 we continued with the reduction
of electricity consumption, which is
5.2% lower than in the year 2016.
The waste is being treated by an
outsourced waste company.
NLB received no fines or penalties regarding
failure to comply with environmental laws.
NLB Group 2017 Annual Report
175
Social
GRI Topic
GRI Disclosure
Value
Comment
See more into the section Employees
in CSR Report 2017, Employee hires
structure by gender, page
20 (https://www.nlb.si/
corporate-social-responsibility-report-2017).
See the section Employees in CSR
Report 2017, Employee turnover
structure by gender, page
21 (https://www.nlb.si/
corporate-social-responsibility-report-2017)
Promote and protect the rights, obligations
and responsibilities arising from the
employment relationship are regulated by
laws, collective agreements, and internal
regulations. All employees have rights
as they are determined by law, collective
agreements, and internal regulations.
The way of cooperation with the Labor
unions and the Worker’s council is fixed by
collective agreements, the Act of Workers
and Management and the Agreement
on cooperation between the Worker’s
Council and the employer. Deadlines for
informing the Unions and the Worker’s
Council is within a minimum of 30 days.
GRI 401 – Employment
401-1: New employee hires
and employee turnover
a. Total number and rate of new employee
hires during the reporting period, by
age group, gender and region.
b. Total number and rate of employee
turnover during the reporting period,
by age group, gender and region.
In total 104 new employees in 2017.
34 were younger than 30 years,
69 were between 30 and, 50 and
one employee was older than 50.
All were employed by the RoS.
In total 200 employees departed from
NLB in 2017. Eight were younger
than 30, 81 were in the age between
30 and 50, and 111 employees
were older than 50 years old.
401-2: Benefits provided to full-time
employees that are not provided to
temporary or part-time employees
401-3: Parental leave
a. Total number of employees that
were entitled to parental leave.
b. Total number of employees
that took parental leave.
c. Total number of employees that
returned to work in the reporting period
after parental leave ended, by gender.
d. Total number of employees that
returned to work after parental leave
ended that were still employed 12
months after their return to work.
83 employees
83 employees
83 employees (100%)
83 employees (100%)
e. Return to work and retention rates of
employees that took parental leave.
100%
GRI 402 - Labor/Management Relations
402-1: Minimum notice periods
regarding operational changes
GRI 403 - Occupational
Health and Safety
403-1: Workers representation in
formal joint management–worker
health and safety committees
a. Minimum number of weeks’ notice
typically provided to employees and their
representatives prior to the implementation
of significant operational changes that
could substantially affect them.
403-4: Health and safety topics
covered in formal agreements
with trade unions
a. Whether formal agreements
(either local or global) with trade
unions cover health and safety.
Four weeks in minimum prior to
implementation of new operational
changes with significant impact.
Global agreement with trade union.
b. If so, the extent, as a percentage, to
which various health and safety topics
are covered by these agreements.
100%
NLB Group 2017 Annual Report
176
GRI Topic
GRI Disclosure
Value
Comment
404-1: Average hours of training
per year per employee
a. Average hours of training that
the organisation’s employees have
undertaken during the reporting period.
404-2: Programs for upgrading
employee skills and transition
assistance programs
21.6 hours per employee in the 2017.
In 2017 8,960 employees participated
in internal lectures and workshops
and 1,096 employees participated
on external training courses.
GRI 404 – Training and Education
a. Type and scope of programs
implemented and assistance provided
to upgrade employee skills.
Internal education (lectures and
workshops), e-trainings, external training
courses, courses for new employees.
Every 3-month, the Human Resources
department publishes the list of all
trainings and education programs for
the next period. It includes 30 different
education programs on average.
b. Transition assistance programs
provided to facilitate continued
employability and the management of
career endings resulting from retirement
or termination of employment.
404-3: Percentage of employees
receiving regular performance and
career development reviews
a. Percentage of the total employees
by gender and by employee category
who received a regular performance
and career development review
during the reporting period.
405-1: Diversity of governance
bodies and employees
a. Percentage of individuals within the
organisation’s governance bodies in each
of the following diversity categories:
Gender;
Age group:
under 30 years old,
30-50 years old,
over 51 years old;
b. Percentage of employees per
employee category in each of the
following diversity categories:
Gender;
Age group:
under 30 years old,
30-50 years old,
over 51 years old;
Provided for all employees in the case
of termination of employment in the
case of structural downsizing.
100% of employees present at
work (i.e. excluding long sick
leave, maternity leave etc.).
The aim of the organisation was for all
employees to receive a regular performance
and career development review.
16.7% female
83.3% male
As organisation’s governance bodies
we consider NLB Management Board
and NLB Supervisory Board.
NLB Management Board has 4 members,
all male;
NLB Supervisory Board has 8
members, 6 male and 2 female members.
Under 30 years 0%
30-50 years old 58.3%
Over 50 years old 41.7%
Under 30 years 0 members
30-50 years old seven members
Over 50 years old five members.
See the section Employees in CSR
Report 2017, pages from
16 to 21(https://www.nlb.si/
corporate-social-responsibility-report-2017).
GRI 405 – Diversity and
Equal Opportunity
GRI 406 – Non-discrimination
406-1: Incidents of discrimination
and corrective actions taken
a. Total number of incidents of
discrimination during the reporting period.
0
The Bank has a policy of zero tolerance to
any form of discrimination and violence.
NLB Group 2017 Annual Report
177
Chapter 22
Events after the End of
the 2017 financial year
In relation to the state aid proceedings
before the EC (please see Corporate
Governance for further details), on
26 January 2018 the EC notified the
RoS that it had decided to initiate the
formal investigation procedure into the
amendments of the Commitments as
proposed by RoS (EC decision ‘SA.33229
(2018/C) (ex 2017/N-3) – Slovenia
– Amendment of the restructuring
commitments of Nova Ljubljanska
banka d.d.’; the ‘Decision’). The RoS
was requested to submit its comments to
EC’s findings in the Decision, which were
provided in the beginning of March 2018.
On 6 April 2018, the non-confidential
version of the Decision was published and
all interested parties were invited to submit
their comments.
On 1 February 2018 the Bank for the third
year in a row obtained the ‘Top Employer’
certificate, awarded by an independent
Dutch institute (Top Employers Institute),
for innovations and improvements in the
field of human resources processes.
On 23 February 2018 the employment
contract with Executive Director of NLB
Banka Montenegro Robert Kleindienst was
terminated.
On 26 February 2018 the Macedonian
Agency for Supervision of Fully Funded
Pension Insurance approved the sale of
100% of shares of the company NLB Nov
penziski fond, Skopje by NLB and NLB
Banka Skopje as sellers to Pozavarovalnica
Sava as purchaser. The sales process
of NLB Nov penziski fond, Skopje was
concluded on 14 March 2018.
On 5 March 2018, NLB received a letter
from ECB on ECB’s intention to adopt
the decision to restrict distributions by
NLB to its shareholders and to require a
Contingent Capital Plan specifying the
planned measures to increase the capital
ratios of NLB in case that provision
recognition criteria are met for the lawsuits
against NLB pending in the courts of the
Republic of Croatia. Details on legal issues
are disclosed in the note 5.17 to the Audited
Annual Financial Statements.
NLB Group 2017 Annual Report Nova Ljubljanska banka d.d., Ljubljana
Financial
Statements
Audited Financial Statements of NLB Group
and NLB d.d. pursuant to the International
Financial Reporting Standards as adopted
by the European Union
180
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
Notes to financial statements
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
182
187
189
190
191
193
194
196
196
196
196
196
196
196
197
197
197
197
198
198
198
198
201
202
202
203
203
203
203
203
203
203
204
204
204
204
204
205
205
206
206
206
207
208
215
217
217
218
NLB Group 2017 Annual Report 4.3. Fee and commission income and expenses
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 and a disposal group 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.
Risk management
6.1. Credit risk management
6.2. Market risk
6.3. Liquidity risk
6.4. Management of non-financial risks
6.5. Fair value hierarchy of financial and non-financial assets and liabilities
6.6. Offsetting financial assets and financial liabilities
7.
8.
9.
Analysis by segment for NLB Group
Related-party transactions
Events after the reporting date
181
218
219
220
220
221
221
222
223
223
224
225
225
226
226
226
227
228
229
230
232
235
236
237
239
240
241
247
247
250
250
253
257
259
260
260
260
261
264
265
267
270
294
306
319
320
329
330
334
342
NLB Group 2017 Annual Report 182
Independent auditor’s report
NLB Group 2017 Annual Report 183
NLB Group 2017 Annual Report 184
NLB Group 2017 Annual Report 185
NLB Group 2017 Annual Report 186
NLB Group 2017 Annual Report
187
Statement of management’s responsibility
The Management Board hereby confirms
its responsibility for preparing the
consolidated financial statements of NLB
Group and the financial statements of NLB
for the year ending on 31.12.2017, 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
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 31.12.2017, and their financial results
and cash flows for the year then ended.
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 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
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.
The Management Board
László Pelle
Member of the
Management Board
Archibald Kremser
Member of the
Management Board
Andreas Burkhardt
Member of the
Management Board
Blaž Brodnjak
President & CEO
NLB Group 2017 Annual Report
188
NLB Group 2017 Annual Report 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.
189
NLB Group
NLB
in EUR thousand
2017
363,733
(54,417)
309,316
179
207,908
(52,490)
155,418
12,242
13,067
75
(813)
2,149
1,748
26,424
(29,411)
2016
388,494
(71,189)
317,305
1,238
194,371
(48,706)
145,665
14,788
6,921
235
(3,239)
1,158
867
24,442
(33,204)
2017
188,255
(29,466)
158,789
50
127,749
(29,240)
98,509
11,711
7,065
-
(813)
(1,007)
249
12,172
(15,249)
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)
(256,907)
(261,160)
(157,877)
(162,083)
(27,802)
(5,251)
34,781
3,852
(1,756)
237,311
(3,997)
233,314
225,069
8,245
(28,345)
(4,357)
(56,288)
5,006
(432)
130,600
(14,975)
115,625
110,017
5,608
(18,010)
(18,880)
(7,344)
38,008
58,171
451
184,875
4,219
189,094
482
(64,433)
28,915
(220)
67,708
(3,925)
63,783
189,094
63,783
-
9.5
-
3.2
Earnings per share/diluted earnings per share (in EUR per share)
4.15.
11.3
5.5
The notes are an integral part of these financial statements.
NLB Group 2017 Annual Report
190
Statement of comprehensive income
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.c)
5.5.c)
5.4.c)
4.4. and
4.12.
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.
Total comprehensive income for the year after tax
Attributable to owners of the parent
Attributable to non-controlling interests
The notes are an integral part of these financial statements.
NLB Group
NLB
in EUR thousand
2017
233,314
(3,100)
(810)
(11)
89
3,035
3,035
-
-
-
(7,261)
4,955
2016
115,625
6,331
1,515
(6)
(191)
(1,910)
(1,910)
2,703
(343)
3,046
3,899
18,529
2017
189,094
(8,882)
(950)
-
90
-
-
-
-
-
(9,904)
1,781
2016
63,783
2,740
1,466
-
(191)
-
-
2,703
(343)
3,046
171
14,652
(12,216)
(14,630)
(11,685)
(14,481)
236
1,622
230,214
221,852
8,362
2,731
(2,410)
121,956
116,383
5,573
-
1,882
180,212
180,212
-
-
(1,409)
66,523
66,523
-
NLB Group 2017 Annual Report
Statement of financial position
NLB Group
NLB
in EUR thousand
Notes
31.12.2017
31.12.2016
31.12.2017
31.12.2016
191
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 and disposal group 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
Liabilities of disposal group classified as held for sale
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.
5.1.
5.2.
5.3.a)
5.4.a)
5.5.b)
5.6.a)
5.6.b)
5.6.c)
5.7.
5.8.
5.9.
5.10.
5.11.
5.12.a)
5.12.b)
5.18.
5.13.
5.15.
5.3.b)
5.5.b)
5.16.a)
5.16.b)
5.16.a)
5.16.b)
5.16.c)
5.16.d)
5.16.e)
5.8. b)
5.17.
5.18.
5.20.
5.21.
5.22.
5.22.
5.22.
1,256,481
1,299,014
72,189
5,003
87,699
6,694
570,010
72,180
634
617,039
87,693
2,011
2,276,493
2,072,153
1,777,762
1,594,094
1,188
217
1,188
217
82,133
510,107
85,315
435,537
82,133
462,322
85,315
408,056
6,912,333
6,912,067
4,587,477
4,843,594
66,077
609,712
719
11,631
188,355
51,838
34,974
-
43,765
2,795
18,603
93,349
61,014
611,449
678
4,263
196,849
83,663
33,970
-
43,248
2,888
7,735
94,558
38,389
609,712
719
2,564
87,051
9,257
23,911
36,151
611,449
678
1,788
90,496
8,151
23,345
349,945
339,693
6,932
2,196
19,758
8,692
7,031
2,124
10,622
8,419
12,237,745
12,039,011
8,712,832
8,777,966
9,502
635
25,529
40,602
279,616
9,878,378
74,286
-
27,350
111,019
440
88,639
2,894
1,096
9,596
18,791
2,011
29,024
42,334
371,769
9,398
635
25,529
72,072
260,747
18,787
2,011
29,024
74,977
338,467
9,437,147
6,810,967
6,615,390
83,619
277,726
27,145
110,295
-
100,914
3,146
727
8,703
5,726
-
-
71,534
-
70,817
-
-
4,274
277,726
-
68,784
-
79,546
-
-
4,181
4,186
10,549,582
10,513,351
7,331,606
7,513,172
200,000
871,378
26,752
13,522
541,901
1,653,553
34,610
1,688,163
200,000
871,378
29,969
13,522
380,444
1,495,313
30,347
1,525,660
12,237,745
12,039,011
200,000
871,378
25,699
13,522
270,627
200,000
871,378
34,581
13,522
145,313
1,381,226
1,264,794
-
1,381,226
8,712,832
-
1,264,794
8,777,966
NLB Group 2017 Annual Report
192
The Management Board has approved the release of the financial statements and the accompanying notes.
László Pelle
Member of the
Management Board
Archibald Kremser
Member of the
Management Board
Andreas Burkhardt
Member of the
Management Board
Blaž Brodnjak
President & CEO
Ljubljana, 27 March 2018
NLB Group 2017 Annual Report
193
Statement of changes in equity
NLB Group
Share capital
Share premium
Accumulated
other
comprehensive
income reserve
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 1.1.2016
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 31.12.2016
200,000
871,378
29,969
13,522
380,444
1,495,313
30,347
1,525,660
- Net profit for the year
- Other comprehensive income
Total comprehensive
income after tax
Dividends paid
Other
-
-
-
-
-
-
-
-
-
-
-
(3,217)
(3,217)
-
-
-
-
-
-
-
225,069
225,069
-
(3,217)
225,069
221,852
8,245
117
8,362
233,314
(3,100)
230,214
(63,780)
(63,780)
(3,752)
(67,532)
168
168
(347)
(179)
Balance as at 31.12.2017
200,000
871,378
26,752
13,522
541,901
1,653,553
34,610
1,688,163
In 2017 the item ‘Other’ relates to
transactions with non-controlling interests
and costs attributable to an increase of
equity investment of a subsidiary.
NLB
Balance as at 1.1.2016
- Net profit for the year
- Other comprehensive income
Total comprehensive income after tax
Dividends paid
Balance as at 31.12.2016
- Net profit for the year
- Other comprehensive income
Total comprehensive income after tax
Dividends paid
Balance as at 31.12.2017
The notes are an integral part of these financial statements.
Share capital
Share premium
Accumulated
other
comprehensive
income
Profit reserves Retained earnings
Total equity
in EUR thousand
200,000
871,378
31,841
13,522
125,410
1,242,151
-
-
-
-
-
-
-
-
-
2,740
2,740
-
-
-
-
-
63,783
-
63,783
63,783
2,740
66,523
(43,880)
(43,880)
200,000
871,378
34,581
13,522
145,313
1,264,794
-
-
-
-
-
-
-
-
-
(8,882)
(8,882)
-
-
-
-
-
189,094
189,094
-
(8,882)
189,094
180,212
(63,780)
(63,780)
200,000
871,378
25,699
13,522
270,627
1,381,226
NLB Group 2017 Annual Report 194
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
Payments to employees and suppliers
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, equipment, and investment property
Proceeds from sale of subsidiaries
Proceeds from dividends from subsidiaries and associates
Proceeds from sale of associates and joint ventures
Proceeds from non-current assets held for sale
Proceeds from disposals of held-to-maturity financial assets
Payments from investing activities
Purchase of property, 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
Payments from financing activities
Dividends paid
Other payments related to financing activities
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.
NLB Group
NLB
in EUR thousand
2017
2016
2017
2016
383,615
(60,165)
179
206,100
(56,855)
12,455
-
9,421
(254,877)
27,135
(28,775)
(10,557)
227,676
(227,829)
9,001
1,801
(228,936)
(18,524)
8,829
86,953
(1,487)
361,928
(274,200)
712
86,800
112,661
37,274
38
4,215
238
493
70,403
(96,991)
(10,793)
(10,801)
(1,596)
-
(73,801)
15,670
(67,557)
(67,512)
(45)
(67,557)
(8,474)
34,913
1,449,275
1,475,714
413,337
(78,401)
1,233
192,295
(51,996)
13,296
(40)
3,246
(262,202)
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
210,292
(33,714)
50
125,760
(29,385)
11,883
240,789
(44,510)
1,139
119,296
(27,056)
13,147
-
(40)
3,646
(160,484)
12,391
(15,075)
(509)
124,855
45,391
9,001
1,487
(216,235)
250,062
1,076
(130,582)
(1,487)
145,241
(274,200)
(136)
39,664
129,259
75
38
58,012
238
493
70,403
(99,762)
(5,776)
(7,605)
(12,580)
-
(73,801)
29,497
(63,780)
(63,780)
-
(63,780)
(13,644)
5,381
670,682
662,419
(2,785)
(165,579)
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
NLB Group 2017 Annual Report
195
Statement of cash flows
NLB Group
NLB
in EUR thousand
Notes
2017
2016
2017
2016
Cash and cash equivalents comprise:
Cash, cash balances at central banks, and other demand deposits at banks
5.1.
1,256,481
1,299,014
Loans and advances to banks with original maturity up to 3 months
Available for sale financial assets with original maturity up to 3 months
148,784
70,449
85,103
65,158
570,010
92,409
-
617,039
53,643
-
Total
1,475,714
1,449,275
662,419
670,682
NLB Group 2017 Annual Report
196
Notes to 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 nine 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 31.12.2017 and
31.12.2016.
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 the changes in
presentation in the current year.
Compared to 2016, in 2017 NLB Group
changed the approach for recognition of
deferred tax assets namely, in previous
periods, NLB Group presented deferred
tax assets on all temporary differences
and deducted them to the amount that,
given future profit estimates, is expected
to be reversed in the foreseeable future
(i.e. within five years). In 2017 NLB
Group recognised deferred tax assets
on all temporary differences, except for
impairments of non-strategic capital
investments where deferred tax assets are
recognised in the amount that, taking into
account other recognised deferred tax
assets, reaches the total amount of deferred
tax assets, for which a reversal is expected
within five years. Deferred tax assets arising
from tax losses is not recognised.
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
NLB Group 2017 Annual Report 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 does not own, directly or indirectly.
NLB Group measures non-controlling
interest on a transaction-by-transaction
basis, either at fair value, or by the non-
controlling interest’s proportionate share of
net assets of the acquiree.
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 has been
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 the voting rights, and over which NLB
Group exercises significant influence, but
does not have control.
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.
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.
197
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.
2.6. Goodwill and bargain purchases
2.8. Foreign currency translation
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 acquiree, 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
as well as 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,
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
NLB Group 2017 Annual Report 198
losses resulting from the settlement of such
transactions and from the translation of
monetary assets and liabilities denominated
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 recognised in 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. 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
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 has been 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 2017 Annual Report 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
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.
c) Day one gains or losses
The best evidence of fair value at initial
recognition is the transaction price (i.e.
199
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.
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
NLB Group 2017 Annual Report 200
derecognised only when it is extinguished,
i.e. when the obligation specified in the
contract is discharged, cancelled, or
expires.
f) Fair value measurement principles
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.
• hedges of highly probable future cash
flows attributable to a recognised
asset or liability, or a highly probable
forecasted transaction (cash flow hedge);
or
• hedges of a net investment in a foreign
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
Fair value hedge
and hedge accounting
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.
The method of recognising the resulting
fair value gain or loss depends on whether
the derivative is designated as a hedging
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);
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.’
If a hedge no longer meets the hedge
accounting criteria, the adjustment to the
carrying amount of the hedged item for
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 immediately recognised 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
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.
NLB Group 2017 Annual Report 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 an 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 the total
exposure to a customer exceeds 0.5% of
a bank’s equity. In 2017, all exposures to
banks, all exposures to other legal entities
exceeding EUR 500 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
assets’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 the 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
201
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.
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:
NLB Group 2017 Annual Report 202
• 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
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 is
practical in order to reduce exposure (note
6.1.o). 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
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.
NLB Group 2017 Annual Report 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.
cash flows 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:
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 largely independent property
and equipment which do not generate
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.
203
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 the 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.
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
NLB Group 2017 Annual Report 204
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.
Finance leases are recognised as an asset
and liability in amounts equal to the
fair value of the leased asset or, if lower,
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.
2.23.
Cash and cash equivalents
For the purpose of the statement of cash
flows, cash and cash equivalents comprise
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.
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.
NLB Group 2017 Annual Report 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
205
extend credit, uncovered letters of credit,
and other commitments.
•
taxable profit will be available.
Slovenian law does not set limits or
deadlines by which uncovered tax losses
must be utilised.
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% (2016: 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.
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 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.
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.
2.28.
Taxes
Income tax expense comprises current and
deferred income tax.
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 2017 in Slovenia was 19% (2016: 17%).
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
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
NLB Group 2017 Annual Report 206
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:
Actuarial assumptions
Discount factor
Wage growth based on inflation, promotions, and
wage growth based on past years of service
Other assumptions
NLB Group
2017
2016
0.8% - 3.1%
0.8% - 6.0%
1.6% - 4.0%
1.6% - 4.0%
NLB
2017
1.0%
2.5%
2016
0.8%
2.5%
Number of employees eligible for benefits
5,442
5,584
2,779
2,876
Sensitivity analysis of significant actuarial assumptions
NLB Group
NLB
31.12.2017
Discount rate
Future salary increases
Discount rate
Future salary increases
Impact on employee benefits provisions -
post-employment benefits (in %)
(5.7)
6.2
6.1
(5.7)
(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.
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.
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
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.
2.31.
Share capital
Dividends on ordinary shares
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 are reported 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.
NLB Group 2017 Annual Report
Transactions between organisational units
(OU) are managed under normal operating
conditions. Interest income among
individual OU in the parent bank (NLB) is
allocated using a multiple transfer pricing
method and shown within the net interest
income of each OU. Net non-interest
income is allocated to the OU that actually
provide the service that generates income.
Direct costs are attributed to the segment
that is directly related to the provided
service and indirect costs (costs which
service centres provide for profit centres)
are attributed to the segment for which the
service is provided, whereas overhead costs
are allocated according to general keys.
External net income is the net income of
NLB Group from the consolidated income
statement. Income tax is not allocated
between segments (note 7.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-
core Markets and Activities, and Other
Activities.
impairments. NLB Group creates
individual impairments for individually
significant financial assets where objective
evidence of an 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.
Stress testing for credit risk predicts the
impact of unfavourable macroeconomic
2.33.
Critical accounting estimates
conditions on default and loss rates
and judgments in applying accounting
policies
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
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 default flow and impairments
and provisions required to cover the risk.
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
by EUR 70.4 million (2016: EUR 84.2
million), and an increase in the coverage of
the credit portfolio by impairments by 0.63
percentage points (2016: 0.73 percentage
points).
207
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).
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 6.5.
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
NLB Group 2017 Annual Report 208
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 119 thousand (2016: EUR 257
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 have additional impairment losses of
EUR 18 thousand in 2017 (2016: EUR 0).
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 48,317
thousand (31.12.2016: an increase by EUR
59,895 thousand) and corresponding other
comprehensive income.
• 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%.
• The target capital adequacy ratio of an
individual bank is between 13 and 17%.
• The discount rate derived from the
capital asset pricing model 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. The pre-tax
discount rate is between 9.66 and
19.07% (31.12.2016: between 9.52 and
18.78%).
For strategic NLB Group members in 2017
and 2016 there were no indications of
impairment for equity investments.
In 2017, NLB impaired equity investments
in non-core members in the amount of
EUR 731 thousand.
e) Impairment of investments in
f) Goodwill
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:
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 of 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 31.12.2017
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 can 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
NLB Group 2017 Annual Report annual accounting periods beginning on 1
January 2017.
Accounting standards and
amendments to existing standards
that were endorsed by the EU, but
Accounting standards and amendments
not adopted early by NLB Group
to existing standards effective for
annual periods beginning on 1
• IFRS 9 Financial Instruments
January 2017 that were endorsed by
the EU and adopted by NLB Group
• IAS 12 (amendment) – Recognition
of Deferred Tax Assets for Unrealised
Losses is effective for 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.
There is no impact on NLB Group’s
consolidated financial statements,
because NLB already recognised
deferred tax assets accrued on the basis
of temporary differences in an amount
that, given future estimates, is expected
to be reversed in the foreseeable future
within five years.
-
IAS 7 (amendment) – Disclosure
Initiative - the amendment to IAS 7
Statement of Cash Flows is effective
for 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 as foreign
exchange gains or losses). Currently,
the amendments do not have impact
on the presentation of NLB Group’s
consolidated financial statements,
because there are no changes in
financing activities.
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. In October 2017,
the IASB issued the Amendment to IFRS
9: Prepayment Features with Negative
Compensation that are effective for annual
periods beginning on or after 1 January
2019, with early adoption permitted.
The amendment allows certain pre-
payable financial assets with a negative
compensation prepayment option to be
measured at an amortized cost or fair value
through other comprehensive income,
if the prepayment amount substantially
represents the reasonable compensation
and unpaid principal and interest.
Reasonable compensation may be positive
or negative. Prior to this amendment
financial assets with this negative
compensation feature would have failed
the exclusive payments of principal and
interest test and be mandatorily measured
at fair value through profit or loss. This
amendment has not yet been endorsed by
EU but nevertheless, it will not impact the
NLB Group’s financial statements.
NLB Group and NLB applied the
new standard on 1 January 2018, with
the exception of the aforementioned
amendment that will be adopted on 1
January 2019 or after endorsement by EU.
Taking into account the dimensions of the
IFRS 9 requirements and their impact on
the overall banking system, implementation
of the standard has been driven centrally
209
by the parent bank. The project has
been organised around different working
groups covering the different aspects of
IFRS 9. Classification and measurement
is run by Financial Accounting, while the
impairment is run by Global Risk. Other
relevant departments have been involved
in a supporting role. The Project has been
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.
In accordance with the transition
requirements of IFRS 9, comparative
figures have not been restated. An
adjustment arising from the adoption to
IFRS 9 was recognised in retained earnings
and other comprehensive income as at
1 January 2018. Due to the transition to
IFRS 9 requirements, share-holders equity
on NLB Group increased for EUR 43.8
million and EUR 27.7 million for NLB.
The Tier 1 capital ratio for NLB Group
has increased by 0.4 percentage points.
NLB Group will not apply transitional
arrangements at the transition to the
expected credit loss model in accordance
with Regulation (EU) 2017/2395.
Classification and measurement under
IFRS 9
From a classification and measurement
perspective, IFRS 9 requires 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 of financial assets have been
replaced by:
• Financial assets, measured at amortised
costs (AC),
• Financial assets at fair value through
other comprehensive income (FVOCI),
• Financial assets held for trading
(FVTPL), and
• Non-trading financial assets,
mandatorily at fair value through profit
or loss (FVTPL).
NLB Group 2017 Annual Report 210
Financial assets are measured at AC if they
are held within a business model for the
purpose of collecting contractual cash flows
(‘held to collect’), and if cash flows are
solely payments of principal and interest on
the principal amount outstanding.
Debt financial instruments are measured at
FVOCI if they are held within a business
model for the purpose of both collecting
contractual cash flows and selling (‘held
to collect and sell’), and if cash flows are
solely payments of principal and interest on
the principal amount outstanding. FVOCI
results in the debt instruments being
recognised at fair value in the statement of
financial position and at AC in the income
statement. Gains and losses, except for
expected credit losses and foreign currency
translations, are recognised in other
comprehensive income until the instrument
is derecognised. At derecognition of the
debt financial instrument, the cumulative
gains and losses previously recognised
in other comprehensive income are
reclassified to the income statement.
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,
except for dividends that are recognised in
the income statement.
All other financial assets are mandatorily
measured at FVTPL, including financial
assets within other business models such
as financial assets managed at fair value or
held for trading and financial assets with
contractual cash flows that are not solely
payments of principal and interest on the
principal amount outstanding.
Like IAS 39, IFRS 9 includes an option
to designate financial assets at fair value
through profit or loss if doing so eliminates
or significantly reduces a measurement
or recognition inconsistency that would
otherwise arise from measuring assets or
liabilities or recognising the gains or losses
on them on different bases.
The accounting for financial liabilities
remained the same as the requirements of
IAS 39, except for the treatment of gains
or losses arising from bank’s own credit risk
relating to liabilities designated at FVTPL.
Such movements are presented in OCI
with no subsequent reclassification to the
income statement.
NLB Group and NLB elected, as a
policy choice permitted under IFRS 9,
to continue to apply hedge accounting
requirements in accordance with IAS
39. However, the Bank will implement
the revised hedge accounting disclosures
that are required by the IFRS 9 related
amendments to IFRS 7 “Financial
Instruments: Disclosures” in the 2018
Annual Report. Embedded derivatives are
under IFRS 9, and no longer separated
from the host’s financial assets. Instead,
financial assets are classified based on the
business model and their contractual terms.
The accounting for derivatives embedded
in financial liabilities and in non-financial
host contracts has not changed.
Assessment of NLB Group’s
business model
NLB Group has determined its business
model separately for each reporting unit
within the NLB Group and is based on
observable factors for different portfolios
that best reflects how the Group manages
groups of financial assets to achieve its
business objective, such as:
•
• how the performance of the business
model and the financial assets held
within that business model are evaluated
and reported to key management
personnel,
the risks that affect the performance of
the business model and, in particular,
the way those risks are managed,
• how the managers of the business
are compensated (e.g. whether the
compensation is based on the fair
value of the assets or on collection of
contractual cash flows),
the expected frequency, value, and
timing of sales.
•
The business model assessment is based
on reasonably expected scenarios without
taking worst-case and stress case scenarios
into account. In general, the business
model assessment of the Group can be
summarised as follows:
•
loans and deposits given are included in
a business model ‘held to collect’ since
the primary purpose of NLB Group
for the loan portfolio is to collect the
contractual cash flows.
• debt securities are divided into three
business models:
-
-
-
the first group of debt securities
presents “held for trading” category
the second group of debt securities
are held under a business model
“held to collect and sale” with the
aim to collect the contractual cash
flows and sale of financial assets, and
forms part of the Group’s liquidity
reserves
the third part of debt securities is
held within the business model for
holding them in order to collect
contractual cash flows.
With regard to debt securities within the
‘held to collect’ business model, the sales
which are related to the increase of the
issuers’ credit risk, concentrations risk, sales
made close to the final maturity, or sales
order to meet liquidity needs in a stress case
scenario are permitted. Other sales, which
are not due to an increase in credit risk
may still be consistent with a held to collect
business model if such sales are incidental
to the overall business model and;
• are insignificant in value both
individually and in aggregate, even
when such sales are frequent;
• are infrequent even when they are
significant in value.
Review of instruments’ contractual cash
flow characteristics (the SPPI test – solely
payment of principal and interest on the
principal amount outstanding)
The second step in the classification of
the financial assets in portfolios being
‘held to collect’ and ‘held to collect and
NLB Group 2017 Annual Report sell’ relates to the assessment of whether
the contractual cash flows are consistent
with the SPPI test. The principal amount
reflects the fair value at initial recognition
less any subsequent changes, e.g. due to
repayment. The interest must represent
only the consideration for the time value of
money, credit risk, other basic lending risks,
and a profit margin consistent with basic
lending features. If the cash flows introduce
more than de minimis exposure to risk or
volatility that is not consistent with basic
lending features, the financial asset is
mandatorily recognised at FVTPL.
NLB Group reviewed the portfolio within
‘held to collect’ and ‘held to collect and
sale’ for standardised products on a level of
a product sample and for non-standardised
products on a single exposure level. The
Group established a procedure for SPPI
identification as part of regular investment
process with defined responsibilities for
primary and secondary controls. Special
emphasis is put on new and non-
standardised characteristics of the loan
agreements.
At transition to IFRS 9, as of 1 January
2018, NLB Group identified only few
exposures that did not pass the SPPI test
and are therefore measured mandatorily at
fair value through profit or loss.
Accounting policy for
modified financial assets
Accounting policy for modified financial
assets differentiates between modifications
of contractual cash flows that occur
from commercial reasons and those,
occurring due to financial difficulties
of a client. Modifications of financial
assets due to commercial reasons present
the derecognition event. In relation to
clients in financial difficulties, significant
modifications lead to derecognition
event whereas modifications that are
not significant (where exposure to risks
remains broadly the same) do not lead to
derecognition. For the latter NLB Group
recognizes modification gain or loss.
Impairment of financial instruments
IFRS 9 requires the shift from an incurred
loss model to an expected loss model that
provides an unbiased and probability-
weighted estimate of credit losses by
evaluating a range of possible outcomes
that incorporates forecasts of future
economic conditions. The expected loss
model requires 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 FVTPL, 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 classifies
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, NLB Group
211
recognises an allowance based on
12-month period,
• Stage 2 – underperforming portfolio:
significant increase in credit risk
since initial recognition, NLB Group
recognises an allowance for lifetime
period, and
• Stage 3 – impaired portfolio: NLB
Group recognises lifetime allowances
for these financial assets. Definition
of default is harmonised with EBA
guidelines.
A significant increase in credit risk is
assumed:
• when a credit rating significantly
deteriorates 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 the credit rating
assessment),
if NLB Group expects to grant the
borrower forbearance, or
if the facility is placed on the watch list.
•
•
The methodology of credit rating for banks
and sovereign classification depends on the
existence or non-existence of a rating from
international credit rating agencies Fitch,
Moody’s, or S&P. Ratings are set on a basis
of the average international credit rating.
If there are no international credit ratings,
the classification is based on the internal
methodology of NLB Group.
ECL for Stage 1 financial assets is
calculated based on 12-month PDs
(probability of default) 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 assets is
calculated on the basis of lifetime PDs
(LPD) because their credit risk has
increased significantly since their initial
NLB Group 2017 Annual Report period over which the Bank is exposed to
credit risk and where the credit losses would
not be mitigated by management actions.
Forward looking information
The Group incorporates 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 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.
Presentation of effects at transition
to IFRS 9 as of 1 January 2018
Based on the presented business model,
the contractual cash flow characteristics
of debt instruments and implementation
of the expected credit loss model, and
the comparison between IAS 39 and
IFRS 9 measurements categories at which
NLB Group recognised the effects at the
transition to IFRS 9 as of 1 January 2018
are presented below:
212
recognition. This calculation is also
based on forward-looking assessment that
takes into account number of economic
scenarios in order to recognise the
probability of losses associated with the
predicted macro-economic forecasts.
For financial instruments in Stage 3 the
same treatment is applied as for those
considered to be credit impaired in
accordance with IAS 39. Exposures below
the materiality threshold obtain collective
provisions using PD of 100%. 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 for purchased
or originated credit-impaired financial
instruments (POCI), where only the
cumulative changes in the lifetime expected
losses since initial recognition is recognised
a loss allowance.
The calculation of collective provisions
is performed by multiplying the EAD
(exposure at default) at the end of each
month with an appropriate PD and LGD
(loss-given default). EAD is determined
as the sum of on-balance exposure and
off-balance exposure multiplied by the CCF
(credit conversion factor). The obtained
result for each month is discounted to the
present time. For Stage 1 exposures ECL
only takes a 12-month period into account,
while for Stage 2 all potential losses until
maturity date are included.
For the purpose of estimating the LGD
parameter, NLB uses collateral HC (hair-
cut) at the level of each type of collateral
and URR (unsecured recovery rate) at the
level of each client segment, in accordance
with Bank of Slovenia Guidelines. Both
parameters are calculated on the bank’s
historical repayment data.
Expected Life
When measuring ECL, the Bank must
consider the maximum contractual period
over which the Bank is exposed to credit
risk. For certain revolving credit facilities
that do not have a fixed maturity, the
expected life is estimated based on the
NLB Group 2017 Annual Report IAS 39 measurement categories
Assets
Cash, cash balances at central banks, and other demand deposits at banks
Financial assets designated at fair value through profit or loss
Available-for-sale financial assets
Loans and receivables
Held-to-maturity investments
Tax assets
Liabilities
Financial liabilities designated at fair value through profit or loss
Provisions
Tax liabilities
Other liabilities
IFRS 9 Measurement categories
Assets
Cash, cash balances at central banks, and other demand deposits at banks
Non-trading financial assets mandatorily at fair value through profit or loss
Financial assets at fair value through other comprehensive income
Financial assets measured at amortised costs
Tax assets
Liabilities
Financial liabilities designated at fair value through profit or loss
Provisions
Tax liabilities
Other liabilities
Effect on equity at transition to IFRS 9 as of 1.1.2018
Details on effects at transition to IFRS
9 recognised in the retained earnings is
presented below:
Impact on equity due to transition to IFRS 9 - details
Changed methodology for impairments and provisions
Remeasurement of loans to fair value
Recognition of modification loss
Reclassification and remeasurement of securities
Income tax on transition
Total impact
Minority share
Total impact attributable to the owners of the parent
213
in EUR thousand
NLB
8,150,393
570,010
634
1,777,762
5,170,321
609,712
21,954
75,633
635
70,817
-
4,181
in EUR thousand
NLB
8,179,895
569,943
31,239
1,285,276
6,273,119
20,318
77,469
5,166
67,232
1,014
4,057
27,666
NLB Group
11,811,926
1,256,481
5,003
2,276,493
7,570,650
609,712
21,398
102,860
635
88,639
3,990
9,596
NLB Group
11,870,917
1,255,824
31,404
1,656,365
8,834,791
20,344
115,737
5,815
93,989
6,466
9,467
46,114
NLB Group
in EUR thousand
NLB
58,743
36
(1,049)
(7,504)
(4,112)
46,114
(2,281)
43,833
37,319
(687)
(1,049)
(5,267)
(2,650)
27,666
-
27,666
NLB Group 2017 Annual Report 214
• IFRS 15 (new standard) – Revenue from
Contracts with Customers is effective
for 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.
• IFRS 15 (amendment) – Clarifications
to Revenue from Contracts with
Customers are effective for 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 4 (amendment) – Applying IFRS
9 Financial Instruments with IFRS
4 Insurance Contracts is effective for
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.
• IFRS 16 (new standard) – Leases is
effective for 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.
Accounting standards and
amendments to existing standards,
but not endorsed by the EU
• IFRS 17 (new standard) – Insurance
Contracts is effective for annual
periods beginning on or after 1 January
2021. The new standard provides
a comprehensive principle-based
framework for the measurement and
presentation of all insurance contracts.
The new standard will replace IFRS
4 Insurance Contracts and requires
insurance contracts to be measured
using current fulfilment cash flows and
for revenue to be recognised as the
service is provided over the coverage
period. The Group will assess the
impact of adopting this new standard.
• IFRIC Interpretation 22 Foreign
Currency Transactions and Advance
Consideration is effective for 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.
• IFRIC Interpretation 23 Uncertainty
over Income Tax Treatments is effective
for annual periods beginning on or after
1 January 2019. The Interpretation
addresses the accounting for income
tax when it may be unclear how tax
law applies to a particular transaction
or circumstance, or whether a taxation
authority will accept a company’s
tax treatment. IAS 12 Income Taxes
specifies how to account for current
and deferred tax, but not how to reflect
the effects of uncertainty. IFRIC 23
provides requirements that add to the
requirements in IAS 12 by specifying
how to reflect the effects of uncertainty
in accounting for income taxes. NLB
Group is evaluating the impact of
the amendments on NLB Group’s
consolidated financial statements.
• IFRS 2 (amendment) – Classification
and Measurement of Share-based
Payment Transactions is effective for
annual periods beginning on or after
1 January 2018. The amendments
clarify how to account for certain types
of share-based payment transactions.
NLB Group 2017 Annual Report 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.
• Annual Improvements to IFRSs
2014–2016 Cycle. The improvements
are minor amendments that clarify,
correct, or remove redundant wording
in Standards. The amendments refer
to three Standards: IFRS 12 Disclosure
of Interests in Other Entities effective
for 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 for annual periods
beginning on or after 1 January 2018.
• IAS 40 (amendment) – Transfers of
Investment Property is effective for
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, or from, an
investment property when, and only
when, there is evidence of a change
in use. A change of use occurs if the
property meets, or ceases to meet, the
definition of an ‘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.
• IAS 28 (amendment) – Long-term
Interests in Associates and Joint
Ventures is effective for annual periods
beginning on or after 1 January 2019.
The amendment clarifies that IFRS
9 Financial Instruments applies to
long-term interests in an associate or
joint venture that form part of the net
investment in the associate or joint
venture, but to which the equity method
is not applied. NLB Group does not
expect an impact on its consolidated
financial statements.
• Annual Improvements to IFRSs
2015-2017 Cycle. The improvements
comprise a mixture of substantive
changes and clarifications, and are
effective for annual periods beginning
on or after 1 January 2019. The
amendments to IFRS 3 clarify that
when an entity obtains control of a
business that is a joint operation, it
remeasures previously held interests in
that business. The amendments to IFRS
11 clarify that when an entity obtains
joint control of a business that is a joint
operation, the entity does not remeasure
previously held interests in that business.
The amendments to IAS 12 clarify
that all income tax consequences of
dividends should be recognised in
profit or loss, regardless of how the
tax arises. The amendments to IAS 23
clarify that if any specific borrowing
remains outstanding after the related
asset is ready for its intended use or sale,
that borrowing becomes part of the
funds that an entity borrows generally
when calculating the capitalisation
rate on general borrowings. NLB
Group is evaluating the impact of
the amendments on NLB Group’s
consolidated financial statements.
• 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
215
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 10 and IAS 28 (amendment) –
The IASB has deferred the effective
dates of Sale or Contribution of Assets
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.
3. Changes in subsidiary holdings
Changes in 2017
Capital changes:
• An increase in share capital in the form
of a cash contribution in the amount of
EUR 10,909 thousand in NLB Banka
Belgrade, REAM d.o.o. Belgrade and
REAM d.o.o. Zagreb to ensure an
increase in business operations.
• An increase in share capital in the form
of cash contributions in the amount
of EUR 75 thousand in CBS Invest,
Sarajevo to ensure capital adequacy
until the end of liquidation.
• NLB acquired shares of NLB Banka,
Podgorica and thereby increased its
ownership from 99.36% to 99.83%. The
increase in the capital investment was
recognised in the amount of EUR 125
thousand.
• An increase in share capital in the form
of a cash contribution in the amount
of EUR 212 thousand in Prvi Faktor
d.o.o., Belgrade – u likvidaciji to ensure
NLB Group 2017 Annual Report Other changes:
• FIN-DO d.o.o., Domžale and PRO-
Avenija d.o.o., Ljubljana merged with
PRO-REM d.o.o., Ljubljana. The
merger was formally registered on 1 July
2016, with the accounting date of the
merger as at 31.12.2015.
• 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,
Belgrade; 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.
216
capital adequacy until the end of the
liquidation. Now NLB has directly 5%
ownership in the company.
Other changes:
• Kreditni biro SISBON was liquidated.
In accordance with a court order, the
company was removed from the court
register.
• SPV 2 d.o.o., Novi Sad was established
and will manage certain real estate in
NLB Group. NLB’s ownership is 100%.
In August 2017 headquarters of the
company was moved to Belgrade, and so
the company is now called SPV 2 d.o.o.,
Belgrade.
• In July 2017, NLB sold its non-core
subsidiary NLB Factoring – “v
likvidaci,” Brno.
• NLB Prospera Plus d.o.o., Ljubljana – v
likvidaciji and NLB Leasing d.o.o. – v
likvidaciji, Ljubljana are formally in
liquidation.
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.,
Belgrade; REAM d.o.o., Podgorica;
and REAM d.o.o., Belgrade 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
the liquidation.
• An increase in share capital in the form
of a loan conversion in the amount of
EUR 1,719 thousand in NLB Leasing
Belgrade to ensure capital adequacy
until the end of the 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 the
liquidation in Optima Leasing, Zagreb.
NLB Group 2017 Annual Report 217
NLB Group
NLB
in EUR thousand
2017
2016
2017
2016
311,581
327,055
148,229
166,718
26,476
16,446
6,801
1,548
-
881
-
31,426
17,997
9,180
1,249
831
755
1
14,045
16,446
6,801
2,304
-
430
-
17,881
17,997
9,273
2,407
831
442
1
363,733
388,494
188,255
215,550
29,476
40,797
4,357
5,896
6,249
2,243
1,561
1,593
2,436
242
220
144
9,376
5,923
5,688
3,699
1,857
1,840
1,429
357
75
148
8,852
4,357
5,896
6,249
1,670
-
-
2,115
110
166
51
15,281
9,376
5,923
5,688
2,713
10
-
1,307
205
70
99
54,417
71,189
29,466
40,672
309,316
317,305
158,789
174,878
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 financial 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
Interest expenses on defined employee benefits (note 2.30. and 5.17.c)
Deposits from banks and central banks
Other financial liabilities
Total
Net interest
In 2017, interest income on individually
impaired loans amounted to EUR 26,541
thousand (2016: EUR 31,059 thousand) for
NLB Group, and to EUR 11,984 thousand
for NLB (2016: EUR 15,940 thousand).
The item ‘Negative interest’ includes the
interest from deposits with banks and
central banks in amount of EUR 2,107
thousand for NLB Group (2016: EUR
1,429 thousand), and EUR 1,786 thousand
for NLB (2016: 1,307), and also available
for sale financial assets with negative
effective interest rates due to purchase with
premium in amount of EUR 329 thousand
for NLB Group and NLB (2016:0 EUR).
NLB Group 2017 Annual Report
218
4.2. Dividend income
Available-for-sale financial assets
Total
NLB Group
2017
179
179
2016
1,238
1,238
in EUR thousand
2016
1,144
1,144
NLB
2017
50
50
4.3. Fee and commission income and expenses
a) Fee and commission income and expenses relating to activities of NLB Group and NLB
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
NLB Group
NLB
in EUR thousand
2017
2016
2017
2016
60,976
43,485
56,997
17,070
11,111
4,073
5,810
55,798
39,878
54,987
13,831
12,225
3,321
6,008
39,459
32,699
37,568
31,015
28,408
28,149
5,000
7,306
4,060
3,900
3,615
8,250
3,302
4,399
199,522
186,048
120,832
116,298
38,064
34,539
22,980
21,430
5,675
1,465
1,433
231
2,891
5,363
2,108
1,018
354
3,038
49,759
46,420
812
983
345
170
1,210
26,500
775
1,427
279
290
1,361
25,562
Net activity fee and commission income
149,763
139,628
94,332
90,736
Income from other services includes
income from deposit valuables,
administrative services and safe custody,
and other agency services. In 2017, income
from other services also included income
from servicing of sold non-performing
loans in the amount of EUR 184 thousand
(2016: EUR 1,543 thousand).
NLB Group 2017 Annual Report
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
Advice to companies on capital structure, business strategy, and related matters
and advice, and services relating to mergers and acquisitions of companies
Total
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
219
NLB Group
NLB
in EUR thousand
2017
2016
2017
2016
1,171
1,351
123
5,090
613
38
8,386
2,697
34
2,731
5,655
1,250
1,502
184
4,190
549
648
8,323
2,241
45
2,286
6,037
1,153
-
123
4,979
613
49
6,917
2,706
34
2,740
4,177
1,231
-
184
4,104
549
648
6,716
2,121
45
2,166
4,550
207,908
52,490
194,371
48,706
127,749
29,240
123,014
27,728
Total a) and b)
155,418
145,665
98,509
95,286
4.4. Gains less losses from financial assets and liabilities not classified at fair value through profit or loss
NLB Group
NLB
in EUR thousand
2017
2016
2017
2016
12,455
(213)
-
12,242
14,861
(33)
(40)
14,788
11,883
(172)
-
11,711
14,712
(33)
(40)
14,639
Available-for-sale financial assets
- gains
- losses
Financial liabilities measured at amortised cost
- losses
Total
In February 2017, NLB Group successfully
concluded a sale transaction of its major
non-core equity participation and realised
a gain in the amount of EUR 9,534
thousand.
NLB Group 2017 Annual Report
220
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
Disposal of a subsidiary (note 5.12.)
Financial assets measured at fair value through profit or loss
Other
Total
NLB Group
NLB
in EUR thousand
2017
2016
2017
2016
-
-
19,469
(8,851)
1,093
(1,135)
1,232
1,170
(77)
166
13,067
26
(26)
23,023
(13,244)
4,474
(6,862)
506
(1,238)
(29)
291
6,921
-
-
11,243
(7,093)
1,093
(1,135)
1,698
1,170
(77)
166
7,065
26
(26)
15,767
(12,415)
4,474
(6,862)
288
(1,178)
(29)
291
336
NLB Group
NLB
in EUR thousand
2017
(381)
2,614
(177)
93
2,149
2016
1,449
-
(246)
(45)
1,158
2017
(892)
-
(177)
62
(1,007)
2016
1,014
-
(246)
(30)
738
NLB Group 2017 Annual Report
221
NLB Group
NLB
in EUR thousand
2017
12,099
3,531
3,617
2,798
2,153
5,440
2,242
1,821
4,822
26,424
2016
14,552
5,208
3,608
3,132
2,604
5,942
155
6
3,787
24,442
2017
8,255
3,531
3,617
439
668
381
396
62
3,078
12,172
2016
9,911
5,208
3,608
484
611
260
22
-
2,074
12,267
NLB Group
NLB
in EUR thousand
2017
13,393
3,396
2,590
2,993
589
1,122
2,202
3,126
29,411
2016
13,134
8,067
3,894
3,055
1,728
889
-
2,437
33,204
2017
4,732
2,382
2,590
1,093
589
700
2,202
961
15,249
2016
4,567
484
3,894
1,026
1,728
317
-
1,160
13,176
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.)
Sale of investment property
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
Expenses related to legal issues for croatian savers (note 5.17.)
Other operating expenses
Total
Other operating expenses mainly include
expenses associated with licences,
donations, and damages.
NLB Group 2017 Annual Report
222
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
Material
Services
Intellectual services
Costs of supervision
Costs of other services
Business travel
Marketing
Buildings and equipment
Electricity
Rents and leases
Maintainance costs
Costs of security
Insurance for tangible assets
Other costs related to buildings and equipment
NLB Group
NLB
in EUR thousand
2017
2016
2017
2016
139,918
11,323
9,195
4,049
94
3,955
140,961
11,460
9,028
3,930
379
3,551
88,429
88,277
6,718
5,503
3,046
462
2,584
6,639
5,441
2,843
473
2,370
164,485
165,379
103,696
103,200
5,413
25,957
10,317
2,542
13,098
1,189
7,031
26,609
4,124
6,070
6,211
3,499
2,725
3,980
5,865
28,884
12,505
2,337
14,042
1,101
5,845
26,123
4,201
6,105
5,505
3,517
2,661
4,134
2,488
15,032
5,660
1,176
8,196
419
3,739
2,679
17,636
8,258
1,031
8,347
387
2,655
14,087
14,959
2,117
1,256
4,597
1,441
1,722
2,954
2,224
1,240
4,469
1,396
1,510
4,120
Technology
15,492
16,897
10,873
12,493
Maintainance of software and hardware
Licences
Data assets and subscription costs
Other technology costs
Communications
Postal services
Telecommunication and internet
Other communication costs
Other general and administrative costs
Total
8,355
2,950
1,904
2,283
8,505
4,322
2,178
2,005
2,226
8,268
4,005
1,897
2,727
9,192
4,549
2,513
2,130
1,874
5,493
2,560
1,262
1,558
6,055
3,880
874
1,301
1,488
5,154
3,817
1,396
2,126
6,685
4,074
1,176
1,435
1,389
92,422
95,781
54,181
58,883
Total administrative expenses
256,907
261,160
157,877
162,083
Number of employees
6,029
6,175
2,789
2,885
Costs of other services include costs for
cash transport, archiving services, personal
assurance costs, non-deductible expenses,
and legal costs and fees.
NLB Group 2017 Annual Report
In the presented years NLB Group and
NLB paid the following expenses to the
statutory auditor:
External audit services
Audit of annual report
Other audit services
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
223
NLB Group
NLB
in EUR thousand
2017
2016
2017
2016
559
361
253
1,173
NLB Group
2017
10,916
16,886
27,802
566
236
-
802
2016
11,694
16,651
28,345
198
361
253
812
NLB
2017
8,555
9,455
200
236
-
436
in EUR thousand
2016
9,657
9,223
18,010
18,880
NLB Group
NLB
in EUR thousand
2017
(3,460)
8,588
682
(559)
5,251
2016
(10,432)
10,644
4,252
(107)
4,357
2017
(2,296)
8,400
1,831
(591)
7,344
2016
(9,897)
9,377
145
(107)
(482)
NLB Group 2017 Annual Report
224
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-sized enterprises
Other financial assets (note 5.14.c)
Total
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
In 2017, NLB impaired equity investments
in non-core subsidiaries and associate in
a total amount of EUR 731 thousand,
and released an impairment in a total
amount of EUR 38 thousand due to a sale
of a non-core subsidiary. Impairments of
investments in subsidiaries and associate are
included in the segment ‘Non-core markets
and activities.’
NLB Group
NLB
in EUR thousand
2017
2016
2017
2016
23
(10)
187
(7,706)
(2,244)
8,916
2,157
(1,072)
4,408
3,423
(40,284)
(34,422)
(5,862)
1,130
(39,988)
-
-
-
717
4,490
5,207
198
83
74
(2,604)
(14,842)
12,800
2,587
4,436
3,261
2,516
40,526
(16,052)
56,578
625
36,860
-
12,250
12,250
3,307
3,871
7,178
23
(10)
-
(1,891)
(15,569)
2,968
1,513
97
(18)
1,376
(25,289)
(22,068)
(3,221)
587
(39,181)
674
19
693
390
90
480
198
83
(196)
(163)
(5,005)
10,245
2,303
5,495
1,930
517
19,909
5,065
14,844
356
25,427
25,334
12,313
37,647
1,127
232
1,359
(34,781)
56,288
(38,008)
64,433
NLB Group 2017 Annual Report
4.13.
Gains less losses from capital investments in subsidiaries, associates, and joint ventures
225
NLB Group
NLB
in EUR thousand
2017
-
(930)
4,782
3,852
2016
-
(153)
5,159
5,006
2017
58,012
159
-
2016
28,915
-
-
58,171
28,915
NLB Group
NLB
2017
12,688
(8,691)
3,997
2016
14,758
217
14,975
2017
2,945
(7,164)
(4,219)
in EUR thousand
2016
7,008
(3,083)
3,925
Dividends from investments in subsidiaries, associates, and joint ventures
Gains less losses on derecognition of subsidiaries and associates
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
Income tax differs from the amount of
tax determined by applying the Slovenian
statutory tax rate as follows:
NLB Group
NLB
2017
2016
2017
Profit before tax
237,311
130,600
184,875
Tax calculated at prescribed rate of 19% (2016:17%)
Effect of change in tax rate
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
Total
45,089
-
(2,089)
3,238
(14,810)
(1,550)
(10,919)
(9,081)
(5,066)
2,302
(2,688)
(429)
3,997
22,202
(1,666)
(2,935)
5,510
(2,083)
(1,391)
(2,319)
(4,543)
1,462
974
842
(1,078)
14,975
35,126
-
(11,133)
(1,007)
(14,202)
(1,436)
(4,589)
(6,734)
2,302
(2,117)
(429)
(4,219)
in EUR thousand
2016
67,708
11,510
(2,006)
(5,831)
3,396
3,375
(1,032)
(6,225)
-
-
974
842
(1,078)
3,925
Income tax rates within NLB Group range
from 9-32%. A tax rate of 19% was applied
in Slovenia in 2017 (2016: 17%).
The majority of non-taxable income relates
to dividends and income deemed to be
dividends. NLB excluded EUR 57,053
thousand in dividend income and income
deemed to be dividends from its tax base in
2017 (2016: EUR 29,592 thousand).
NLB Group 2017 Annual Report
226
The effect of unrecognised deferred tax
assets on impairments of subsidiaries and
associates represents mainly a decrease of
the tax base of NLB due to utilisation of
previously tax non-deductible expenses
for impairments of subsidiary that was
divested in the year 2017.
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.,) a lower range of expected outcomes
was considered for purposes of deferred
tax assets calculation. NLB did not
recognise deferred tax assets arising from
tax losses. NLB recognised deferred tax
assets on all temporary differences, except
for impairments of non-strategic capital
investments where deferred tax assets are
recognised in the amount that, taking into
account other recognised deferred tax
assets, reaches the total amount of deferred
tax assets, for which a reversal is expected
within five years.
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.
NLB did not recognise deferred tax assets
on temporary differences arising from the
impairment of investments in strategic
subsidiaries and associates in amount of
EUR 322,186 thousand as at 31.12.2017
(31.12.2016: EUR 530,302 thousand),
where it is not probable that the temporary
difference will reverse in the foreseeable
future. Impairments of investments in
non-strategic subsidiaries on which NLB
did not recognise deferred tax assets due
to exceeding the total balance of deferred
tax assets that are expected to be reversed
within five years amount to EUR 382,462
thousand (2016: EUR 297,214 thousand).
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
2017
2016
2017
225,069
20,000
11.3
11.3
110,017
20,000
5.5
5.5
189,094
20,000
9.5
9.5
2016
63,783
20,000
3.2
3.2
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
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
269,696
798,758
188,027
260,612
776,648
261,754
1,256,481
1,299,014
143,726
350,804
75,480
570,010
128,519
375,561
112,959
617,039
local legislation. NLB and other banks in
NLB Group fulfil their compulsory reserve
deposit requirements.
Cash
Balances and obligatory reserves with central banks
Demand deposits at banks
Total
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
NLB Group 2017 Annual Report
227
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
11,739
384
11,355
-
847
276
571
439
439
13,025
4,117
-
4,117
55,047
-
59,164
15,185
397
14,551
237
405
-
405
3,352
3,352
18,942
19,735
19,735
-
30,012
19,010
68,757
11,734
379
11,355
-
847
276
571
435
435
13,016
4,117
-
4,117
55,047
-
59,164
15,179
391
14,551
237
405
-
405
3,352
3,352
18,936
19,735
19,735
-
30,012
19,010
68,757
72,189
87,699
72,180
87,693
59,164
59,164
-
-
49,747
49,747
19,010
19,010
59,164
59,164
-
-
49,747
49,747
19,010
19,010
5.2. Trading assets
Derivatives, excluding hedging instruments
Swap contracts
- currency swaps
- interest rate swaps
- currency interest rate swaps
Options
- interest rate options
- securities options
Forward contracts
- currency forward
Total derivatives
Securities
Bonds
- Republic of Slovenia
- other issuers
Treasury bills - Republic of Slovenia
Commercial papers - foreign banks
Total securities
Total
- quoted securities
of these debt instruments
- unquoted securities
of these debt instruments
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 2017 Annual Report 228
The following table illustrates the carrying
values and fair values of the assets
reclassified:
NLB Group and NLB
the date of reclassification
as at 31.12.2009
as at 31.12.2010
as at 31.12.2011
as at 31.12.2012
as at 31.12.2013
as at 31.12.2014
as at 31.12.2015
as at 31.12.2016
as at 31.12.2017
The effective interest rates, determined on
the day the bonds were reclassified, range
from 4.15-4.23%.
Carrying amount
in EUR thousand
Fair value
72,030
75,928
84,429
86,501
80,218
87,667
85,009
85,315
82,133
69,766
65,278
67,000
55,922
53,958
55,260
72,986
76,258
78,953
79,974
in EUR thousand
2009
2,836
in EUR thousand
NLB Group and NLB
Interest income in period
Financial assets held for trading
reclassified to loans and receivables
2,060
2,079
2,053
2,103
2,153
2,449
3,446
4,471
2017
2016
2015
2014
2013
2012
2011
2010
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
1,021
2,695
3,272
17,726
1,302
(52)
(11,078)
1,722
(4,647)
2017
2016
2015
2014
2013
2012
2011
2010
2009
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
31.12.2017
31.12.2016
31.12.2017
31.12.2016
634
4,369
5,003
2,011
4,683
6,694
634
-
634
2,011
-
2,011
NLB Group 2017 Annual Report
b) Financial liabilities designated at fair value through profit or loss
Structured deposit
Total
229
in EUR thousand
NLB Group and NLB
31.12.2017
31.12.2016
635
635
2,011
2,011
In NLB, investments in private equity
funds in the amount of EUR 634 thousand
(31.12.2016: EUR 2,011 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 635 thousand
(31.12.2016: EUR 2,011 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
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
- 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
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
1,805,250
1,619,228
1,554,565
1,262,363
1,210,080
1,146,150
377,612
571,669
260,799
548,623
46,547
-
8,670
44,514
442,802
405,655
297,693
453,179
19,899
199
29,050
44,570
136,182
104,617
40,070
96,112
57,096
47,521
959,395
377,612
571,669
10,114
548,623
46,547
-
2,334
44,514
40,070
40,070
-
789,285
380,411
405,655
3,219
453,179
19,899
-
22,737
44,570
55,093
55,093
-
281,877
274,489
136,279
209,331
2,276,493
2,072,153
1,777,762
1,594,094
1,816,373
1,533,697
1,595,115
1,334,925
3,598
24,312
480
20,927
1,812,775
1,509,385
1,594,635
1,313,998
460,120
49,586
410,534
538,456
49,308
489,148
182,647
46,368
136,279
259,169
46,380
212,789
NLB Group 2017 Annual Report 230
b) Movements of available-for-sale financial assets
NLB Group
NLB
in EUR thousand
2017
2016
2017
2016
Balance as at 1.1.
2,072,153
1,737,191
1,594,094
1,248,359
Effects of translation of foreign operations to presentation currency
Transfer to non-current assets and disposal group classified as held for sale (note 5.8.b)
Additions
Disposals and maturity
Net interest income (note 4.1.)
Exchange differences on monetary assets
Changes in fair values
Impairment (note 4.12.)
- impairment of equity securities
Balance as at 31.12.
3,564
(3,790)
(2,048)
-
-
-
-
-
2,105,251
1,766,455
881,646
666,304
(1,911,882)
(1,463,553)
(695,299)
(336,736)
26,148
(4,454)
(10,474)
(23)
(23)
31,426
1,260
1,620
(198)
(198)
13,716
(3,253)
(13,119)
(23)
(23)
17,881
594
(2,110)
(198)
(198)
2,276,493
2,072,153
1,777,762
1,594,094
As at 31.12.2017, the value of equity
instruments obtained by NLB Group
from taking possession of collateral
and recognised in the statement of
financial position is EUR 3,536 thousand
(31.12.2016: EUR 24,162 thousand), and
by NLB it amounted to EUR 480 thousand
(31.12.2016: EUR 20,832 thousand) (note
6.1.o).
By selling equity securities available for
sale, NLB Group realised a net gain in
the amount of EUR 9,964 thousand
(2016: EUR 13,478 thousand), and NLB
a net gain in the amount of EUR 9,835
thousand (2016: EUR 13,472 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 1.1.
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 31.12.
- debt securities
- equity securities
NLB Group
NLB
in EUR thousand
2017
53,001
(2)
4,957
(12,216)
1,657
201
47,598
43,865
3,733
2016
48,321
(3)
18,532
(14,630)
(1,207)
1,988
53,001
41,989
11,012
2017
37,218
-
1,781
(11,685)
1,882
-
29,196
28,346
850
2016
37,996
-
14,652
(14,481)
(949)
-
37,218
28,574
8,644
5.5. Derivatives for hedging purposes
securities in the banking book.
NLB Group entities measure exposure to
interest rate risk using 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
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.
NLB Group 2017 Annual Report 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.
a) Fair value adjustment in hedge accounting recognised in profit or loss
231
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.’
Fair value hedge
Net effects from hedging instruments
Net effects from hedged items
Cash flow hedge
Transfer from other comprehensive income
Total
As at 31.12.2017 and 2016, NLB Group
and NLB have no relationships designated
for cash flow hedge accounting.
b) Notional amounts of interest rate swaps
NLB Group and NLB
Fair value hedge
31.12.2017
31.12.2016
NLB Group
NLB
in EUR thousand
2017
(813)
5,599
(6,412)
-
-
(813)
2016
(770)
715
(1,485)
(2,469)
(2,469)
(3,239)
2017
(813)
5,599
(6,412)
-
-
(813)
2016
32
715
(683)
(2,469)
(2,469)
(2,437)
Notional amount
Fair value
in EUR thousand
Asset
Liability
406,218
108,554
1,188
217
25,529
29,024
NLB Group 2017 Annual Report 232
c) Accumulated other comprehensive income related to cash flow hedging
Balance as at 1.1.
Net losses on hedging instruments
Transfer to income statement
Deferred income tax (note 5.18.)
Balance as at 31.12.
There was no hedge ineffectiveness
that NLB nor NLB Group should have
recognised in the income statement.
5.6. Loans and advances
Debt securities (companies)
Loans to banks
Loans and advances to customers
Other financial assets
Total
a) 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
in EUR thousand
NLB Group and NLB
2017
-
-
-
-
-
2016
(2,243)
(343)
3,046
(460)
-
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
82,133
510,107
85,315
435,537
82,133
462,322
85,315
408,056
6,912,333
6,912,067
4,587,477
4,843,594
66,077
61,014
38,389
36,151
7,570,650
7,493,933
5,170,321
5,373,116
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
2,856
506,322
1,505
510,683
(576)
945
433,883
1,058
435,886
(349)
23,390
437,427
1,505
462,322
-
19,399
387,599
1,058
408,056
-
510,107
435,537
462,322
408,056
NLB Group 2017 Annual Report
b) 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
233
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
6,958,796
7,198,486
4,661,317
5,098,336
169,806
305,600
115,225
9,658
-
192,923
298,351
112,106
13,577
25
-
-
176,171
178,899
59,394
7,658
-
60,338
10,744
25
7,559,085
7,815,468
4,904,540
5,348,342
Allowance for impairment (note 5.14.)
(646,752)
(903,401)
(317,063)
(504,748)
Total
6,912,333
6,912,067
4,587,477
4,843,594
Analysis of loans and advances by sector
Government
Financial organisations
Companies
Individuals
Total
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
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
457,080
77,202
775,986
74,344
358,675
268,184
668,300
273,310
3,006,105
2,970,229
1,878,056
1,950,869
3,371,946
3,091,508
2,082,562
1,951,115
6,912,333
6,912,067
4,587,477
4,843,594
in EUR thousand
31.12.2017
31.12.2016
57,816
121,986
8,550
188,352
(18,548)
169,804
71,291
127,319
12,808
211,418
(18,495)
192,923
- present value of minimum lease payments
169,804
192,923
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
51,539
110,277
7,988
169,804
64,337
116,944
11,642
192,923
NLB Group 2017 Annual Report 234
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.
As at 31.12.2017, the allowance for
unrecoverable finance lease receivables
included in the allowance for loan
impairment amounted to EUR 23,240
thousand (31.12.2016: EUR 42,511
thousand).
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.
c) 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
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
24,522
13,398
8,018
6,170
2,204
163
23,307
77,782
(11,705)
66,077
21,961
13,235
11,934
7,311
2,217
164
19,645
76,467
(15,453)
61,014
19,642
10,467
1,029
4,723
-
163
5,556
41,580
(3,191)
38,389
17,375
11,481
929
5,699
-
164
4,274
39,922
(3,771)
36,151
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,
claims in enforcement procedures, claims
for sold securities and trust services, claims
from refunds, 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
31.12.2017
31.12.2016
31.12.2017
31.12.2016
16,519
14,819
13,855
5,387
15,497
66,077
14,058
13,708
10,969
6,632
15,647
61,014
10,308
1,761
9,222
2,157
14,941
38,389
8,377
1,753
8,364
3,168
14,489
36,151
NLB Group 2017 Annual Report d) Movement of called non-financial guarantees
Balance as at 1.1.
Effects of translation of foreign operations to presentation currency
Called guarantees
Paid guarantees
Write-offs
Balance as at 31.12.
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
Allowance for impairment
Total
- quoted
b) Movements of held-to-maturity financial assets
Balance as at 1.1.
Additions
Decreases
Interest income (note 4.1.)
Impairment (note 4.12.)
Exchange differences on monetary assets
Balance as at 31.12.
235
NLB Group
NLB
in EUR thousand
2017
4,229
12
4,101
(4,062)
(2,905)
1,375
2016
5,678
(13)
2,520
(1,525)
(2,431)
4,229
2017
3,509
-
1,167
(508)
(2,905)
1,263
2016
4,838
-
1,595
(493)
(2,431)
3,509
in EUR thousand
NLB Group and NLB
31.12.2017
31.12.2016
609,785
560,565
353,634
206,931
45,885
3,335
611,532
591,468
411,914
179,554
16,729
3,335
609,785
611,532
(73)
(83)
609,712
611,449
609,712
611,449
in EUR thousand
NLB Group and NLB
2017
611,449
74,108
(91,071)
16,446
10
(1,230)
609,712
2016
565,535
116,897
(88,897)
17,997
(83)
-
611,449
NLB Group 2017 Annual Report 236
5.8. Non-current assets and a disposal group classified as held for sale
a) Analysis by type of non-current assets and disposal group classified as held for sale
Property and equipment
Equity investment
Assets of a disposal group classified as held for sale
Total non-current assets held for sale
Liabilities of a disposal group classified as held for sale
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
4,105
-
7,526
11,631
440
4,263
-
-
4,263
-
1,483
1,081
-
2,564
-
1,788
-
-
1,788
-
Item ‘Property and equipment’ includes
business premises, apartments, and assets
received as collateral that are in the process
of sale. NLB classified the subsidiary NLB
Nov Penziski Fond, Skopje as the disposal
group held for sale, due to its expected sale
in 1st quarter of 2018. Items ‘Assets and
liabilities of a disposal group classified as
held for sale’ represent assets and associated
liabilities from NLB Nov Penziski Fond,
Skopje.
b) Major classes of disposal group classified as held for sale
NLB Group
Assets
Available-for-sale financial assets
Loans and advances to banks
Other financial assets
Property and equipment
Intangible assets
Other assets
Total assets classified as held for sale
Liabilities
Other financial liabilities
Provisions
Other liabilities
Total liabilities classified as held for sale
NET ASSETS CLASSIFIED AS HELD FOR SALE
Accumulated other comprehensive income
Foreign currency translation adjustment (cumulative)
Available-for-sale financial assets valuation
Disclosers in 6.1 include also the data of
NLB Nov Penziski Fond, Skopje.
in EUR thousand
31.12.2017
3,790
3,354
180
20
44
138
7,526
335
61
44
440
7,086
42
65
NLB Group 2017 Annual Report 237
NLB Group
NLB
in EUR thousand
2017
4,263
104
2,588
67
(201)
7,526
(745)
(1,971)
11,631
2016
4,629
(53)
481
-
-
-
(217)
(577)
4,263
2017
1,788
-
67
67
(201)
1,081
(493)
255
2,564
2016
1,776
-
418
-
-
-
(128)
(278)
1,788
c) Analysis of movements
Balance as at 1.1.
Effects of translation of foreign operations to presentation currency
Transfer from/(into) property and equipment (note 5.9.)
Transfer from/(into) other assets
Transfer from/(into) investment property (note 5.10.)
Transfer to non-current assets and disposal group classified as held for sale
Disposals
Valuation
Balance as at 31.12.
5.9. Property and equipment
2017
Cost
NLB Group
NLB
in EUR thousand
Land &
Buildings
Computers
Other
equipment
Total
Land &
Buildings
Computers
Other
equipment
Total
Balance as at 1.1.2017
327,240
73,525
108,068
508,833
201,618
50,659
59,276
311,553
Effects of translation of foreign operations
to presentation currency
Additions
Disposals
1,410
3,269
(351)
217
463
2,090
-
-
-
-
5,254
5,555
14,078
2,057
3,982
2,098
8,137
(8,955)
(8,512)
(17,818)
(9)
(7,632)
(3,310)
(10,951)
Transfer to/from investment property (note 5.10.)
(5,846)
-
-
(5,846)
(5,825)
Transfer to/from non-current assets and disposal
group held for sale (note 5.8. b) and c)
(4,010)
(101)
(113)
(4,224)
(175)
-
-
-
-
(5,825)
(175)
Balance as at 31.12.2017
321,712
69,940
105,461
497,113
197,666
47,009
58,064
302,739
Depreciation and impairment
Balance as at 1.1.2017
162,455
57,006
92,523
311,984
127,710
39,580
53,767
221,057
Effects of translation of foreign operations
to presentation currency
416
170
365
951
Disposals
Depreciation (note 4.10.)
Impairment (note 4.12.)
(190)
7,732
717
Transfer to/from investment property (note 5.10.)
(4,163)
(8,289)
(7,522)
(16,001)
4,954
4,200
16,886
-
-
-
-
717
(4,163)
(4,160)
Transfer to/from non-current assets
held for sale (note 5.8. b) and c)
(1,422)
(84)
(110)
(1,616)
(108)
-
(6)
5,161
390
-
-
-
(7,631)
(3,309)
(10,946)
3,387
907
-
-
-
-
-
-
9,455
390
(4,160)
(108)
Balance as at 31.12.2017
165,545
53,757
89,456
308,758
128,987
35,336
51,365
215,688
Net carrying value
Balance as at 31.12.2017
156,167
16,183
16,005
188,355
68,679
11,673
6,699
87,051
Balance as at 1.1.2017
164,785
16,519
15,545
196,849
73,908
11,079
5,509
90,496
NLB Group 2017 Annual Report 238
2016
Cost
NLB Group
NLB
in EUR thousand
Land &
Buildings
Computers
Other
equipment
Total
Land &
Buildings
Computers
Other
equipment
Total
Balance as at 1.1.2016
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 31.12.2016
327,240
73,525
108,068
508,833
201,618
50,659
59,276
311,553
Depreciation and impairment
Balance as at 1.1.2016
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 and
disposal group 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 31.12.2016
162,455
57,006
92,523
311,984
127,710
39,580
53,767
221,057
Net carrying amount
Balance as at 31.12.2016
164,785
16,519
15,545
196,849
73,908
11,079
5,509
90,496
Balance as at 1.1.2016
175,219
10,137
22,374
207,730
79,419
6,220
8,931
94,570
NLB Group and NLB had no assets held
under finance leases as at 31.12.2017
(31.12.2016: NLB Group EUR 6 thousand,
NLB EUR 0).
The value of assets received by taking
possession of collateral and included in
property and equipment by NLB Group
amounted to EUR 1,355 thousand
(31.12.2016: EUR 1,523 thousand), and
in NLB amounted to EUR 7 thousand
(31.12.2016: EUR 7 thousand) (note 6.1.o).
The net carrying value of assets leased
out by NLB Group under operating leases
was EUR 2,913 thousand as at 31.12.2017
(31.12.2016: EUR 2,842 thousand). A total
of 58.2% of assets leased out relates to
motor vehicles (31.12.2016: 61.9%).
NLB Group 2017 Annual Report 5.10.
Investment property
Balance as at 1.1.
Effects of translation of foreign operations to presentation currency
Additions
Disposals
Transfer from/(into) property and equipment (note 5.9.)
Transfer from/(into) non-current assets and disposal group held for sale (note 5.8.c)
Transfer from/(into) other assets
Net valuation to fair value (note 4.7. and 4.8.)
Balance as at 31.12.
239
NLB Group
NLB
in EUR thousand
2017
83,663
94
1,277
(34,743)
1,683
201
817
(1,154)
51,838
2016
93,513
-
2,632
(4,661)
-
-
91
(7,912)
83,663
2017
8,151
-
-
(60)
1,665
201
1,286
(1,986)
9,257
2016
8,613
-
-
-
-
-
-
(462)
8,151
The value of assets received by taking
possession of collateral and included
in investment property by NLB Group
amounted to EUR 40,809 thousand
(31.12.2016: EUR 48,658 thousand), and
in NLB amounted to EUR 4,286 thousand
(31.12.2016: EUR 3,750 thousand) (note
6.1.o).
Operating expenses arising from investment
properties:
Leased to others
Not leased to others
Total
Future minimum operating lease income
from investment property:
NLB Group
Not later than one year
Later than one year and not later than five years
Later than five years
Total
NLB Group
NLB
in EUR thousand
2017
1,076
27
1,103
2016
965
40
1,005
2017
323
3
326
2016
297
9
306
in EUR thousand
2016
3,775
6,004
197
9,976
2017
2,429
1,614
97
4,140
Expected future operating lease income
reported in 2017 is lower due to the sale of
investment properties in 2017.
NLB Group realised rental income arising
from investment properties in the amount
of EUR 5,440 thousand (2016: EUR
5,942 thousand), and NLB in the amount
of EUR 381 thousand (2016: EUR 260
thousand) (note 4.7.).
NLB Group 2017 Annual Report 240
5.11.
Intangible assets
2017
Cost
NLB Group
in EUR thousand
NLB
Software licenses
Goodwill
Total
Software licenses
Balance as at 1.1.2017
222,605
32,336
254,941
196,455
Effects of translation of foreign operations to presentation currency
Additions
Transfer to non-current assets and disposal group held for sale (note 5.8.b)
Write-offs
Balance as at 31.12.2017
Amortisation and impairment
Balance as at 1.1.2017
Effects of translation of foreign operations to presentation currency
Amortisation (note 4.10.)
Transfer to non-current assets and disposal group held for sale (note 5.8.b)
Write-offs
Balance as at 31.12.2017
Net carrying value
Balance as at 31.12.2017
Balance as at 1.1.2017
340
15,246
(293)
(5,602)
-
-
-
-
340
15,246
(293)
(5,602)
232,296
32,336
264,632
-
12,466
-
(5,179)
203,742
192,164
28,807
220,971
173,110
233
10,916
(249)
(2,213)
-
-
-
-
233
10,916
(249)
(2,213)
200,851
28,807
229,658
-
8,555
-
(1,834)
179,831
31,445
30,441
3,529
3,529
34,974
23,911
33,970
23,345
NLB Group 2017 Annual Report 241
in EUR thousand
NLB
NLB Group
Software licenses
Goodwill
Total
Software licenses
2016
Cost
Balance as at 1.1.2016
216,723
32,336
249,059
193,080
(124)
6,418
(412)
-
-
-
(124)
6,418
(412)
-
3,375
-
222,605
32,336
254,941
196,455
180,925
28,807
209,732
163,453
(90)
11,694
(365)
-
-
-
(90)
11,694
(365)
-
9,657
-
192,164
28,807
220,971
173,110
30,441
35,798
3,529
3,529
33,970
23,345
39,327
29,627
in EUR thousand
31.12.2017
31.12.2016
277,160
267,071
18,819
53,966
19,900
52,722
349,945
339,693
Effects of translation of foreign operations to presentation currency
Additions
Write-offs
Balance as at 31.12.2016
Amortisation and impairment
Balance as at 1.1.2016
Effects of translation of foreign operations to presentation currency
Amortisation (note 4.10.)
Write-offs
Balance as at 31.12.2016
Net carrying value
Balance as at 31.12.2016
Balance as at 1.1.2016
5.12.
Investments in subsidiaries, associates and joint ventures
a) Analysis by type of investment in subsidiaries
NLB
Banks
Other financial organisations
Enterprises
Total
In 2017, NLB Group sold its non-core
subsidiary NLB Factoring – ‘v likvidaci,’
Ostrava. At sale, NLB Group recognised
a loss at derecognition in amount of
EUR 928 thousand, shown in item ‘Gains
Less Losses from Capital Investments in
Subsidiaries, Associates, and Joint Ventures’
and reclassified accumulated foreign
exchange translation gains less losses from
equity to profit or loss in amount of EUR
2,614 thousand.
NLB Group 2017 Annual Report 242
Data on subsidiaries as included in the
consolidated financial statements of NLB
Group as at 31.12.2017:
Nature of
Business
Country of
Incorporation
Equity as at
31.12.2017
Profit/(loss)
for 2017
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
156,609
40,004
NLB Banka a.d., Podgorica
Banking
Republic of Montenegro
66,975
5,385
86.97
99.83
86.97
99.83
86.97
99.83
86.97
99.83
NLB Banka a.d., Banja Luka
Banking
Republic of Bosnia
and Herzegovina
84,440
23,694
99.85
99.85
99.85
99.85
NLB Banka sh.a., Prishtina
Banking
Republic of Kosovo
66,705
14,197
81.21
81.21
81.21
81.21
NLB Banka d.d., Sarajevo
Banking
Republic of Bosnia
and Herzegovina
69,086
8,300
97.34
97.35
97.34
97.35
NLB Banka a.d., Belgrade
Banking
Republic of Serbia
61,443
NLB Srbija d.o.o., Belgrade
Real estate
Republic of Serbia
30,582
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
8,744
7,513
1,320
Non-core members
NLB Leasing d.o.o. - v likvidaciji, Ljubljana
Finance
Republic of Slovenia
11,119
Optima Leasing d.o.o., Zagreb - "u likvidaciji"
Finance
Republic of Croatia
3,821
NLB Leasing Podgorica d.o.o.,
Podgorica - "u likvidaciji"
Finance
Republic of Montenegro
558
NLB Leasing d.o.o., Belgrade - u likvidaciji
Finance
Republic of Serbia
5,181
3,731
1,484
3,747
1,218
82
951
(967)
(295)
489
NLB Leasing d.o.o., Sarajevo
Finance
Republic of Bosnia
and Herzegovina
6,011
6,730
NLB Lizing d.o.o.e.l., Skopje - vo likvidacija
Finance
Republic of Macedonia
981
Tara Hotel d.o.o., Budva
Real estate
Republic of Montenegro
16,927
PRO-REM d.o.o., Ljubljana - v likvidaciji
Real estate
Republic of Slovenia
21,025
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., Belgrade
Real estate
Republic of Serbia
SR-RE d.o.o., Belgrade
Real estate
Republic of Serbia
SPV 2 d.o.o., Belgrade
Real estate
Republika Srbija
NLB Propria d.o.o., Belgrade - v likvidaciji
Real estate
Republic of Slovenia
CBS Invest d.o.o., Sarajevo
Real estate
Republic of Bosnia
and Herzegovina
538
12
665
309
231
2,349
1,613
398
55
101
154
1,213
(124)
(12)
(114)
(133)
(77)
426
(25)
(483)
(38)
NLB InterFinanz AG, Zürich in Liquidation
Finance
Switzerland
7,750
(1,771)
NLB InterFinanz Praha s.r.o., Prague
Finance
Czech Republic
NLB InterFinanz d.o.o., Belgrade
Finance
Republic of Serbia
Prospera plus d.o.o., Ljubljana - v likvidaciji
Tourist and
catering trade
Republic of Slovenia
209
(16)
185
302
(17)
(240)
LHB AG, Frankfurt
Finance
Republic of Germany
6,412
3,916
99,997
99,997
99,997
99,997
100
100
51
100
100
-
100
100
100
100
100
100
51
100
100
-
100
100
100
100
12.71
12.71
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 2017 Annual Report 243
Data on subsidiaries as included in the
consolidated financial statements of NLB
Group as at 31.12.2016:
Nature of
Business
Country of
Incorporation
Equity as at
31.12.2016
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., Belgrade
Banking
Republic of Serbia
45,526
2,152
99,997
99,997
99,997
99,997
NLB Srbija d.o.o., Belgrade
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., Belgrade - 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., Belgrade
Real estate
Republic of Serbia
653
3
37
443
105
SR-RE d.o.o., Belgrade
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., Belgrade
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 2017 Annual Report 244
Changes in ownership interest in
subsidiaries of NLB Group in 2017 and
2016 are presented in note 3.
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
Paid dividends 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
2017
13.03
13.03
82,983
40,004
5,213
1,311
41,315
5,383
1,795
657,436
578,475
871,453
207,849
156,609
20,406
2016
13.03
13.03
80,036
24,997
3,257
(427)
24,570
3,201
1,233
574,520
578,569
810,619
213,387
129,083
16,820
2017
18.79
18.79
34,741
14,197
2,668
(183)
14,014
2,633
1,908
320,580
263,506
430,501
86,880
66,705
12,534
2016
18.79
18.79
32,815
11,263
2,116
88
11,351
2,133
1,547
297,485
218,630
363,590
89,680
62,845
11,809
NLB Group
NLB Group
in EUR thousand
NLB
NLB
Carrying amount of the NLB Group's interest
31.12.2017
31.12.2016
31.12.2017
31.12.2016
Other financial organisations
Enterprises
Total
NLB Group’s associates
43,765
-
43,765
43,008
240
43,248
6,600
332
6,932
6,600
431
7,031
2017
2016
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
ARG - Nepremičnine d.o.o., Horjul
Real estate Republic of Slovenia
Kreditni biro SISBON, d.o.o., Ljubljana - v likvidaciji
Credit bureau Republic of Slovenia
39.44
28.13
75.00
-
39.44
28.13
75.00
-
39.44
28.13
75.00
29.68
39.44
28.13
75.00
29.68
NLB Group 2017 Annual Report 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.
Carrying amount of interests in associates included in the consolidated financial statements of 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
245
2017
11,781
1,338
40
1,378
in EUR thousand
2016
13,009
1,462
(234)
1,228
In 2017 NLB Group did not recognise
a share of profit of an associate in the
amount of EUR 65 thousand (31.12.2016:
unrecognised profit EUR 48 thousand),
as it still has the cumulative unrecognised
share of losses of an associate that as
at 31.12.2017 amounted to EUR 2,337
thousand (31.12.2016: EUR 2,402
thousand).
NLB Group’s joint ventures
NLB Vita d.d., Ljubljana
Prvi Faktor Group, Ljubljana
2017
2016
Nature of Business
Country of
Incorporation
Voting rights%
Voting rights%
Insurance
Republic of Slovenia
Finance
Republic of Slovenia
50
50
50
50
In 2017 NLB Group did not recognise a
share of profit of a joint venture in the
amount of EUR 2,949 thousand, as it still
has a cumulative unrecognised share of
losses of a joint venture that as at 31.12.
amounted to EUR 14,371 thousand
(31.12.2016: EUR 17,320 thousand).
NLB Group 2017 Annual Report 246
Summarised financial information on material joint venture NLB Vita, Ljubljana
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
Equity
NLB Group's ownership interest in joint venture
Carrying amount of the NLB Group's interest in joint venture
c) Movements of investments in associates and joint ventures
NLB Group
Balance as at 1.1.
Share of results before tax
Share of tax
Net gains/(losses) recognised in other comprehensive income
Dividends received
Liquidation of an associate
Other
Balance as at 31.12.
2017
80,747
7,310
(2)
(212)
(1,520)
6,889
298
7,186
3,444
149
in EUR thousand
2016
74,342
7,038
(1)
(241)
(1,422)
7,394
4,434
11,828
3,697
2,216
31.12.2017
31.12.2016
453,028
28
389,060
63,968
31,984
31,984
2017
43,248
5,585
(803)
189
409,513
2,541
349,035
60,478
30,239
30,239
in EUR thousand
2016
39,696
6,097
(938)
1,982
(4,215)
(3,587)
(239)
-
-
(2)
43,765
43,248
NLB Group 2017 Annual Report 5.13.
Other assets
247
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
Assets, received as collateral (note 6.1.o)
77,500
79,059
Inventories
Deferred expenses
Claim for taxes and other dues
Prepayments
Total
8,879
4,324
1,675
971
8,913
4,597
1,305
684
93,349
94,558
4,811
335
2,886
375
285
8,692
4,263
460
3,096
389
211
8,419
Assets received as collateral and inventories
on NLB Group in the amount of EUR
76,222 thousand (31.12.2016: EUR 76,416
thousand) and on NLB in the amount of
EUR 4,811 thousand (31.12.2016: EUR
4,263 thousand) consist of real estate.
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
Granted overdrafts
Loans for houses
and flats
Consumer loans
Other loans
Total
in EUR thousand
49,351
53,401
21,511
142,819
NLB Group
Balance as at 1.1.2016
Effects of translation of foreign operations
to presentation currency
Impairment (note 4.12.)
Write-offs
Repayments of written-off receivables
Exchange differences
Other
18,556
(32)
2,587
(4,973)
-
-
-
(49)
4,436
(123)
3,261
(21,900)
(20,369)
-
29
-
Balance as at 31.12.2016
16,138
31,867
Effects of translation of foreign operations
to presentation currency
Impairment (note 4.12.)
Write-offs
Repayments of written-off receivables
Exchange differences
Other
40
2,157
(4,725)
823
-
-
84
(1,072)
(1,405)
210
(236)
-
Balance as at 31.12.2017
14,433
29,448
39,712
14,614
98,207
3
2,516
(10,241)
1,143
(87)
-
14,845
(413)
3,423
(4,421)
750
434
(4)
(201)
12,800
(57,483)
1,342
(56)
(5)
99,216
(37)
8,916
(12,097)
2,018
195
(4)
199
2
(5)
36,366
252
4,408
(1,546)
235
(3)
-
NLB Group 2017 Annual Report 248
NLB
Balance as at 1.1.2016
Impairment (note 4.12.)
Write-offs
Exchange differences
Balance as at 31.12.2016
Impairment (note 4.12.)
Write-offs
Repayments of written-off recievables
Exchange differences
Balance as at 31.12.2017
Granted overdrafts
Loans for houses
and flats
Consumer loans
Other loans
14,960
2,303
(4,509)
-
12,754
1,513
(1,817)
-
-
33,432
5,495
(20,513)
8
18,422
97
(976)
20
(198)
17,808
1,930
(13,527)
-
6,211
(18)
(456)
-
-
12,450
17,365
5,737
1,976
517
(811)
-
1,682
1,376
(359)
354
-
3,053
in EUR thousand
Total
68,176
10,245
(39,360)
8
39,069
2,968
(3,608)
374
(198)
38,605
b) Impairment of loans and advances to legal entities
NLB Group
Balance as at 1.1.2016
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 31.12.2016
Effects of translation of foreign operations
to presentation currency
Impairment (note 4.12.)
Write-offs
Repayments of written-off receivables
Exchange differences
Disposal of subsidiary
Other
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
19,872
(7)
(2,604)
(690)
110
-
(5)
16,676
14
(7,706)
(352)
318
(10)
-
-
242
45,383
329,224
725,537
1,120,258
(1)
74
(1)
35
-
-
349
4
187
-
36
-
-
-
-
(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)
29,833
242,499
515,177
804,534
3
(465)
(249)
(693)
(2,244)
(34,422)
(5,862)
(50,047)
(22,596)
(45,633)
(141,024)
(209,605)
22
(22)
-
-
2,659
742
(4,153)
-
10,842
1,609
(6,898)
(213)
13,877
2,319
(11,051)
(213)
Balance as at 31.12.2017
8,940
576
4,996
161,227
373,382
549,121
NLB Group 2017 Annual Report 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
NLB
Balance as at 1.1.2016
Impairment (note 4.12.)
Write-offs
Repayments of written-off receivables
Exchange differences
Balance as at 31.12.2016
Impairment (note 4.12.)
Write-offs
Repayments of written-off receivables
Exchange differences
Balance as at 31.12.2017
6,799
(163)
(689)
110
-
6,057
(1,891)
-
210
-
4,376
197
(196)
(1)
-
-
-
-
-
-
-
-
c) Impairment of other financial assets
Balance as at 1.1.2016
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 31.12.2016
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 31.12.2017
249
in EUR thousand
Total
626,739
14,545
56,231
(5,005)
(446)
-
17
50,797
(15,569)
(23,522)
-
(22)
200,000
5,065
363,512
14,844
(39,415)
(138,831)
(179,382)
1,486
6
167,142
(22,068)
(40,580)
1,617
(21)
2,149
9
241,683
(3,221)
3,745
32
465,679
(42,749)
(84,507)
(148,609)
2,383
(30)
4,210
(73)
11,684
106,090
156,308
278,458
NLB Group
27,078
43
625
in EUR thousand
NLB
5,123
-
356
(12,417)
(1,726)
(39)
165
(2)
15,453
65
1,130
(5,043)
(17)
117
(1)
19
-
3,771
-
587
(1,189)
-
22
11,705
3,191
NLB Group 2017 Annual Report 250
5.15.
Trading liabilities
Derivatives, excluding hedges
Swap contracts
- currency swaps
- interest rate swaps
Options
- interest rate options
Forward contracts
- currency forward
Total
The notional amounts of derivative
financial instruments are disclosed in
note 5.24.b.
5.16.
Financial liabilities, measured at amortised cost
Analysis by type of financial liabilities, measured at the 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
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
8,855
367
8,488
276
276
371
371
9,502
15,555
328
15,227
-
-
3,236
3,236
18,791
8,751
263
8,488
276
276
371
371
9,398
15,552
325
15,227
-
-
3,235
3,235
18,787
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
40,602
279,616
42,334
371,769
72,072
260,747
74,977
338,467
9,878,378
9,437,147
6,810,967
6,615,390
74,286
-
27,350
111,019
83,619
277,726
27,145
110,295
5,726
-
-
4,274
277,726
-
71,534
68,784
10,411,251
10,350,035
7,221,046
7,379,618
NLB Group 2017 Annual Report 251
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
36,331
34,828
71,383
74,434
7,332,344
6,415,927
5,455,657
4,781,616
203,228
156,713
200,629
124,918
80,325
140,379
83,745
101,536
1,692,840
1,584,892
1,042,298
1,015,371
5,279,563
4,505,488
4,192,655
3,580,964
4,271
7,506
689
543
2,546,034
3,021,220
1,355,310
1,833,774
52,727
129,030
281,527
150,835
122,401
350,431
44,343
66,826
185,156
147,914
78,767
246,584
2,082,750
2,397,553
1,058,985
1,360,509
9,918,980
9,479,481
6,883,039
6,690,367
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
279,616
371,769
74,286
17,058
49,257
7,971
83,619
20,063
56,728
6,828
353,902
455,388
260,747
5,726
-
-
5,726
266,473
338,467
4,274
-
-
4,274
342,741
a) Deposits from banks and central 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
b) Borrowings from banks and central banks and other customers
Loans
- banks and central banks
- other customers
- governments
- financial organisations
- companies
Total
As at 31.12.2017, NLB Group and NLB
had EUR 341,691 thousand in undrawn
borrowings (31.12.2016: EUR 347,434
thousand).
NLB Group 2017 Annual Report 252
c) Debt securities in issue
Carrying amount of issued securities
- traded on active markets
Bonds (in %)
- fixed rated
d) Subordinated liabilities
NLB Group
in EUR thousand
NLB Group and NLB
31.12.2017
31.12.2016
-
-
277,726
100.00
31.12.2017
31.12.2016
in EUR thousand
Currency
Due date
Interest rate Carrying amount
Nominal value Carrying amount
Nominal value
Subordinated loans
EUR
30.6.2018
6 months EURIBOR +5% p.a.
12,221
5,132
9,997
27,350
12,000
5,000
10,000
27,000
12,103
5,151
9,891
27,145
12,000
5,000
10,000
27,000
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
36,578
20,931
11,343
14,826
9,665
1,682
15,994
111,019
32,704
28,671
13,382
11,781
8,537
1,440
13,780
110,295
32,132
4,393
4,456
11,146
6,662
1,627
11,118
71,534
29,350
8,499
5,593
8,393
6,583
1,398
8,968
68,784
EUR
30.6.2020
6 months EURIBOR + 7.7% p.a.
EUR
26.6.2025
6 months EURIBOR + 6.25% p.a.
Total
e) Other financial liabilities
Debit or credit card payables
Items in the course of payment
Accrued expenses
Suppliers
Accrued salaries
Fees and commissions
Other financial liabilities
Total
Other financial liabilities mainly include
liabilities to insurance companies, liabilities
to employees, received warranties,
obligation for purchase of securities and
trust services.
NLB Group 2017 Annual Report 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
Provisions for legal issues are recognised
based on expectations regarding the
probable outcome of legal disputes.
As at 31.12.2017, NLB Group was involved
in 38 (31.12.2016: 41) legal disputes with
material claims against group members in
a total amount of EUR 585,406 thousand,
excluding accrued interest (31.12.2016:
EUR 631,918 thousand). As at 31.12.2017,
NLB was involved in 19 (31.12.2016: 19)
legal disputes with material monetary
claims against NLB. The total amount of
these claims, excluding accrued interest,
was EUR 399,824 thousand (31.12.2016:
EUR 417,041 thousand).
In connection with legal issues, the biggest
amount of 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 a principal amount of approximately
EUR 167.1 million. 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 not liable for the old
foreign currency savings are that it was only
founded on the basis of the Constitutional
253
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
9,497
19,724
7,694
20,440
15,284
15,786
214
88,639
25,327
22,745
5,609
19,758
10,014
15,194
2,267
100,914
7,806
19,069
7,382
16,712
14,687
4,958
203
70,817
23,131
21,777
4,957
15,384
8,750
3,282
2,265
79,546
Act on 27 July 1994 (at the time the
savings were deposited with LB Branch
Zagreb, NLB did not yet exist), and NLB
did not assume any of such 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 whose intent
was 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. The
Memorandum also said that the Republic
of Croatia would ensure the stay all the
proceedings commenced by the PBZ and
the ZaBa in relation to the transferred
foreign currency savings until the issue was
finally resolved.
Despite the agreement in Memorandum of
Understanding to stay all the proceedings
commenced, the Court of Appeal, the
County Court of Zagreb, ruled in three
claims (as explained bellow in details) in
favour of the plaintiff. NLB then filed in
the case from May 2015 a constitutional
appeal with the Constitutional Court of
the Republic of Croatia and in relation
to the ruling, dated 26 September 2017
(received on 16 November 2017) and the
ruling, dated 21 November 2017(received
on 26 January 2018) an extraordinary legal
measure with the Supreme Court of the
Republic of Croatia was filed against the
aforementioned final judgements. In the
other cases, with respect to which court
procedures described above are pending,
final judgments have not yet been issued.
Conversely, in another case, a claim
filed by the PBZ was refused and the
judgment became final in favour of NLB.
Extraordinary legal measure with the
Supreme Court of the Republic of Croatia,
filed by the plaintiff, was dismissed by
Supreme Court on 16 June 2015.
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 and awarded that
the plaintiff PBZ be paid the principal
value of EUR 254.76 and costs of the
proceedings totalling HRK 15,781.25,
both with accompanying accrued penalty
interest. NLB then filed a constitutional
appeal against the aforementioned final
judgement as it found the court decision
contrary to the legislation in force as well as
the Memorandum concluded between the
Republic of Slovenia and the Republic of
Croatia.
On 16 November 2017, NLB received the
judgement of Županijski sud in Zagreb,
which as the Court of the second instance
changed the judgment of the Court of the
first instance, with which the claim against
NLB was refused, in such a way that the
defendants NLB and LB are jointly and
severally obliged to pay to the plaintiff
NLB Group 2017 Annual Report 254
ZaBa the principal in the amount of EUR
492.430,53 plus interest, which exceeds
the principal amount and litigation costs
in the amount of approximately EUR 99
thousand with penalty interest. LB and
NLB are, in accordance with the judgment,
obliged to pay all relevant amounts jointly
and severally. Given the fact that such
ruling became final and enforceable and
recognizing fundamental EU principles
on mutual recognition of judgments,
the payment had to be completed by
1 December 2017. Nevertheless, NLB
challenged the judgment with the
extraordinary legal measure on the
Supreme Court of the Republic of Croatia
and later, if necessary, will also challenge
the judgment with all other available
remedies, as the obligations of the old
foreign currency savings in accordance with
Slovenian Constitutional Law are not the
liabilities of the NLB.
In another case Županijski sud in Zagreb,
which as the Court of the second instance
in a judgment dated 21 November 2017
upheld the judgment of the Court of first
instance dated 21 January 2014, with
which was decided that the defendants
NLB and LB are jointly and severally
obliged to pay to the plaintiff Privredna
banka Zagreb (“PBZ”) the principal in
the amount of EUR 220.115,,98 plus
interest and litigation costs in the amount
of approximately EUR 93 thousand with
penalty interest until payment. LB and
NLB are, in accordance with the judgment,
obliged to pay all relevant amounts jointly
and severally. In accordance with the
final judgment the payment should be
completed up to and including 12 February
2018. NLB has challenged the judgment
with the extraordinary legal measure with
the Supreme Court of the Republic of
Croatia and later, if necessary, will also
challenge the judgment with all other
available remedies, as the obligations of the
old foreign currency savings in accordance
with Slovenian Constitutional Law are not
the liabilities of the NLB.
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 1.1.
Effects of translation of foreign operations to presentation currency
Additional provisions/provisions released (note 4.11.)
Utilised during year
Exchange differences
Balance as at 31.12.
Non-financial guarantees
Balance as at 1.1.
Effects of translation of foreign operations to presentation currency
Additional provisions/provisions released (note 4.11.)
Exchange differences
Balance as at 31.12.
NLB Group
NLB
in EUR thousand
2017
25,327
11
(2,587)
(13,254)
(3)
9,494
2016
47,737
(16)
(4,521)
(17,894)
21
25,327
2017
23,131
-
(2,069)
(13,254)
(2)
7,806
2016
44,583
-
(3,565)
(17,894)
7
23,131
NLB Group
NLB
in EUR thousand
2017
22,745
4
(3,024)
(1)
19,724
2016
31,034
(2)
(8,295)
8
2017
21,777
-
(2,716)
8
22,745
19,069
2016
29,863
-
(8,093)
7
21,777
NLB Group 2017 Annual Report Other credit commitments
NLB Group
NLB
in EUR thousand
255
Balance as at 1.1.
Effects of translation of foreign operations to presentation currency
Additional provisions/provisions released (note 4.11.)
Exchange differences
Balance as at 31.12.
c) Movements in employee benefit provisions
Post-employment benefits
Balance as at 1.1.
Effects of translation of foreign operations to presentation currency
Transfer to non-current assets and disposal group held for sale
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 31.12.
Other employee benefits
Balance as at 1.1.
Effects of translation of foreign operations to presentation currency
Transfer to non-current assets and disposal group held for sale
Additional provisions (note 4.9.)
Provisions released (note 4.9.)
Interest expenses (note 4.1.)
Utilised during year
Balance as at 31.12.
Other employee benefits include NLB
Group’s obligations for jubilee long-service
benefits and unused annual leave.
2017
5,609
2
2,151
(65)
7,697
NLB Group
2017
13,130
9
(9)
559
(465)
188
(90)
822
14,144
2016
3,228
(1)
2,384
(2)
5,609
2016
14,205
(2)
-
594
(215)
274
(210)
(1,516)
13,130
2017
4,957
-
2,489
(64)
7,382
NLB
2017
10,886
-
-
462
-
93
(53)
950
12,338
2016
3,197
-
1,761
(1)
4,957
in EUR thousand
2016
11,786
-
-
473
-
171
(78)
(1,466)
10,886
NLB Group
NLB
in EUR thousand
2017
6,628
11
(52)
4,131
(176)
54
(4,300)
6,296
2016
7,060
(2)
-
4,065
(514)
83
(4,064)
6,628
2017
4,498
-
-
2,584
-
17
(2,725)
4,374
2016
4,773
-
-
2,628
(258)
34
(2,679)
4,498
NLB Group 2017 Annual Report 256
d) Movements in restructuring provisions
Balance as at 1.1.
Effects of translation of foreign operations to presentation currency
Additional provisions (note 4.11.)
Utilised during year
Balance as at 31.12.
NLB Group
NLB
in EUR thousand
2017
10,014
5
8,588
(3,323)
15,284
2016
3,477
(3)
10,644
(4,104)
10,014
2017
8,750
-
8,400
(2,463)
14,687
2016
3,429
-
9,377
(4,056)
8,750
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 a 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. Built
provisions are expected to be used for
redundancy payments in the next three
years.
e) Movements in provisions for legal issues
Balance as at 1.1.
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 31.12.
f) Movements in other provisions
Balance as at 1.1.
Additional provisions (note 4.11.)
Provisions released (note 4.11.)
Utilised during year
Balance as at 31.12.
NLB Group
NLB
in EUR thousand
2017
15,194
175
4,940
(4,258)
(245)
(20)
15,786
2016
13,465
(74)
5,291
(1,039)
(2,462)
13
15,194
2017
3,282
-
1,831
-
(155)
-
4,958
2016
5,075
-
401
(256)
(1,949)
11
3,282
NLB Group
NLB
in EUR thousand
2017
2,267
32
(591)
(1,494)
214
2016
2,433
-
(107)
(59)
2,267
2017
2,265
-
(591)
(1,471)
203
2016
2,431
-
(107)
(59)
2,265
NLB Group 2017 Annual Report 5.18.
Deferred income tax
a) Analysis by type of deferred income taxes
257
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
Deferred income tax assets
Valuation of financial instruments and capital investments
25,513
19,301
25,475
19,424
Impairment provisions
Employee benefit provisions
Depreciation and valuation of non-financial assets
170
4,018
976
387
3,208
1,113
2
3,432
162
2
2,736
175
Total deferred income tax assets
30,677
24,009
29,071
22,337
10,077
1,097
1,996
-
13,170
18,603
(1,096)
NLB Group
2017
8,691
6,710
1,214
724
37
6
1,747
1,657
-
90
12,233
1,278
3,471
19
17,001
7,735
(727)
2016
(217)
2,503
(3,505)
1,016
(239)
8
(1,858)
(1,207)
(460)
(191)
9,067
246
-
-
11,463
252
-
-
9,313
11,715
19,758
-
NLB
2017
7,164
6,565
-
606
(7)
-
1,972
1,882
-
90
10,622
-
2016
3,083
2,428
(6)
681
(20)
-
(1,600)
(949)
(460)
(191)
Deferred income tax liabilities
Valuation of financial instruments
Depreciation and valuation of non-financial assets
Impairment provisions
Other
Total deferred income tax liabilities
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
- other
Included in other comprehensive income for the current year
- valuation of available-for-sale financial assets
- cash flow hedges
- actuarial assumptions and experience
As at 31.12.2017, NLB recognised EUR
29,071 thousand in deferred tax assets
(31.12.2016: EUR 22,337 thousand).
Unrecognised deferred tax assets amount
to EUR 277,325 thousand (31.12.2016:
EUR 265,149 thousand), of which EUR
204,657 thousand (31.12.2016: EUR
208,678 thousand) relates to unrecognised
deferred tax assets from tax loss, and EUR
72,668 thousand (31.12.2016: EUR 56,471
thousand) to unrecognised deferred tax
assets from impairments of non-strategic
capital investments.
NLB Group 2017 Annual Report 258
b) Movements in deferred income taxes
Deferred income tax assets
NLB Group
Balance as at 1.1.2016
Effects of translation of foreign operations
to presentation currency
(Charged)/credited to profit and loss
(Charged)/credited to other comprehensive income
Balance as at 31.12.2016
Effects of translation of foreign operations
to presentation currency
Transfer to non-current assets and
disposal group held for sale
(Charged)/credited to profit and loss
(Charged)/credited to other comprehensive income
Balance as at 31.12.2017
Employee benefit
provisions
Valuation of financial
instruments and
capital investments
Depreciation and
valuation of non-
financial assets
Impairment
provisions
2,385
(2)
1,016
(191)
3,208
-
(4)
724
90
4,018
17,479
(1)
2,488
(665)
19,301
-
-
6,607
(395)
25,513
1,130
(1)
(16)
-
1,113
7
-
(144)
-
976
554
(4)
(163)
-
387
6
-
(223)
-
170
NLB
Balance as at 1.1.2016
(Charged)/credited to profit and loss
(Charged)/credited to other comprehensive income
Balance as at 31.12.2016
(Charged)/credited to profit and loss
(Charged)/credited to other comprehensive income
Balance as at 31.12.2017
Employee benefit
provisions
Valuation of financial
instruments and
capital investments
Depreciation and
valuation of non-
financial assets
Impairment
provisions
2,246
681
(191)
2,736
606
90
3,432
17,550
2,413
(539)
19,424
6,462
(411)
25,475
182
(7)
-
175
(13)
-
162
8
(6)
-
2
-
-
2
in EUR thousand
Total
21,548
(8)
3,325
(856)
24,009
13
(4)
6,964
(305)
30,677
in EUR thousand
Total
19,986
3,081
(730)
22,337
7,055
(321)
29,071
NLB Group 2017 Annual Report Deferred income tax liabilities
NLB Group
Balance as at 1.1.2016
Effects of translation of foreign operations
to presentation currency
Charged/(credited) to profit and loss
Charged/(credited) to other comprehensive income
Balance as at 31.12.2016
Effects of translation of foreign operations
to presentation currency
Transfer to non-current assets and disposal group held for sale
Disposal of subsidiary
Charged/(credited) to profit and loss
Charged/(credited)to other comprehensive income
Balance as at 31.12.2017
NLB
Balance as at 1.1.2016
Charged/(credited) to profit and loss
Charged/(credited) to other comprehensive income
Balance as at 31.12.2016
Charged/(credited) to profit and loss
Charged/(credited) to other comprehensive income
Balance as at 31.12.2017
Impairment
provisions
Valuation of financial
instruments and
capital investments
Depreciation and
valuation of non-
financial assets
Other
129
-
3,342
-
3,471
1
-
(39)
(1,437)
-
1,996
11,249
1,056
(3)
(15)
1,002
12,233
7
(8)
-
(103)
(2,052)
10,077
(1)
223
-
1,278
-
-
-
(181)
-
1,097
27
-
(8)
-
19
-
(13)
-
(6)
-
-
Valuation of financial
instruments and
capital investments
Depreciation and
valuation of non-
financial assets
10,608
(15)
870
11,463
(103)
(2,293)
9,067
239
13
-
252
(6)
-
246
259
in EUR thousand
Total
12,461
(4)
3,542
1,002
17,001
8
(21)
(39)
(1,727)
(2,052)
13,170
in EUR thousand
Total
10,847
(2)
870
11,715
(109)
(2,293)
9,313
5.19.
Income tax relating to components of other comprehensive income
2017
Actuarial gains and lossess
Available-for-sale financial assets
Share of associates and joint ventures
Total
NLB Group
NLB
in EUR thousand
Before tax
amount
Tax expense
Net of tax
amount
Before tax
amount
Tax expense
Net of tax
amount
(810)
(7,261)
225
(7,846)
90
1,657
(36)
1,711
(720)
(5,604)
189
(950)
(9,904)
-
90
1,882
-
(860)
(8,022)
-
(6,135)
(10,854)
1,972
(8,882)
NLB Group 2017 Annual Report 260
2016
NLB Group
NLB
in EUR thousand
Before tax
amount
Tax expense
Net of tax
amount
Before tax
amount
Tax expense
Net of tax
amount
Actuarial gains and lossess
Available-for-sale financial assets
Cash flow hedge
Share of associates and joint ventures
1,515
3,899
2,703
2,725
(191)
(1,207)
(460)
(743)
Total
10,842
(2,601)
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
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
3,409
3,101
3,086
9,596
3,699
2,964
2,040
8,703
2,770
1,034
377
4,181
3,049
661
476
4,186
will be subject to a decision by the Bank’s
Annual General Meeting.
In 2017 NLB paid dividends for previous
year in the amount of 3,189 EUR per
share (2016: 2,194 EUR), which decreased
retained earnings for EUR 63,780
thousand (2016: EUR 43.880 thousand).
5.22.
Accumulated other
comprehensive income and reserves
a) Reserves
The share premium account as at
31.12.2017 and 31.12.2016 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 31.12.2017 and 31.12.2016 profit
reserves in the amount of EUR 13,522
thousand relate entirely to legal reserves in
accordance with the Companies Act.
5.20.
Other liabilities
Taxes payable
Deferred income
Payments received in advance
Total
5.21.
Share capital
The share capital of NLB amounts to EUR
200,000 thousand and did not change
during 2017. 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 31.12.2017 and 31.12.2016,
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 31.12.2017 was
82.7 EUR (31.12.2016: EUR 74.8), and
on solo level was EUR 69.1 (31.12.2016:
EUR 63.2). 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 31.12.2017
amounts to EUR 270,627 thousand
(31.12.2016: EUR 145,313 thousand),
and consists of a net profit for 2017 in
the amount of EUR 189,094 thousand
(2016: EUR 63,783 thousand) and retained
earnings from previous years in the amount
of EUR 81,533 thousand. Its allocation
NLB Group 2017 Annual Report 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
Total
5.23.
Capital adequacy ratios
Paid up capital instruments
Share premium
Retained earnings - from previous years
Profit eligible - from current year
Accumulated other comprehensive income
Other reserves
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
261
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
43,860
3,735
(4,349)
41,954
11,017
(3,617)
(17,248)
(20,139)
754
26,752
754
29,969
28,346
850
(3,497)
-
-
28,574
8,644
(2,637)
-
-
25,699
34,581
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
200,000
871,378
296,773
29,280
(11,450)
13,522
(2,389)
(3,529)
200,000
871,378
246,656
49,890
(6,053)
13,522
(2,213)
(3,529)
200,000
871,378
81,533
-
(20)
13,522
(1,886)
-
200,000
871,378
81,530
-
5,205
13,522
(1,734)
-
(31,445)
(30,397)
(23,911)
(23,345)
-
(3,013)
-
(4,626)
COMMON EQUITY TIER 1 CAPITAL (CET1)
1,362,140
1,336,241
1,140,616
1,141,930
Additional Tier 1 capital
TIER 1 CAPITAL
Tier 2 capital
-
-
-
-
1,362,140
1,336,241
1,140,616
1,141,930
-
-
-
-
Total CAPITAL (OWN FUNDS)
1,362,140
1,336,241
1,140,616
1,141,930
RWA for credit risk
RWA for market risks
RWA for credit valuation adjustment risk
RWA for operational risk
7,096,413
6,864,737
4,369,557
4,292,262
499,726
104,175
269,988
850
463
850
27,975
463
949,493
892,753
593,750
561,091
Total RISK EXPOSURE AMOUNT (RWA)
8,546,482
7,862,128
5,234,145
4,881,791
Common Equity Tier 1 Ratio
Tier 1 Ratio
Total Capital Ratio
15.9%
15.9%
15.9%
17.0%
17.0%
17.0%
21.8%
21.8%
21.8%
23.4%
23.4%
23.4%
* Profit eligible from the current year and capital ratios envisage dividends payments in 100% of profit after tax of NLB (EUR 189 million)
NLB Group 2017 Annual Report 262
European bank 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,
which form the Pillar 1 requirement, 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 set by the supervisory
institution through the SREP process
(together with the Pillar 1 requirement
it represents the minimum total SREP
requirement – TSCR);
• Applicable combined buffer
requirement (CBR): system of capital
buffers to be added on top of TSCR –
breaching of the CBR is not a breach
of capital requirement, but 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, set by the supervisory institution
(CBR and TSCR together form the
overall capital requirement – OCR);
• Pillar 2 Guidance: capital
recommendation over and above the
OCR, set by the supervisory institution
through the SREP process. It is bank-
specific, and as a recommendation
not obligatory. Any non-compliance
does not affect dividends or other
distributions from capital, however, it
might lead to intensified supervision and
imposition of measures to re-establish a
prudent level of capital.
Table 24: NLB’s overall capital requirement on the consolidated level for 2017
CBR
(CET1)
1.25
P2R
(CET1)
3.5
P1
(CET1/T2)
2
P1
(CET1/A1)
1.5
P1
(CET1)
4.5
Consolidated buffer requirement (CBR)
• Dir 2013/36/EU (CRD IV)/ZBan-2
• CET1 only
• applicable buffers:
- capital conservation buffer (1.25%)
- countercyclical buffer (0%)
- O-SII buffer (1% from 2019)
Pillar 2 requirement (P2R)
• Reg 1024/2013
• additional own funds requirement
set by ECB (SREP decision: 3.50%)
• bank specific
• CET1 only
Pillar 1 requirement (P1)
• minimum own funds requirement
• min ratios set by Reg 575/2013 (CRR)
for all EU banks:
- CET1 ratio: min 4.5%
- T1 ratio: min 6%
- total capital ratio: min 8%
Overall capital
requirement
(OCR)
Total SREP capital
requirement (TSCR)
NLB Group 2017 Annual Report
263
In preparation of the internal capital
adequacy assessment (ICAAP), NLB
Group identifies risks not included in the
calculation under the regulatory approach
(Pilar 1), but have a significant impact on
their operation. The scope of additional
credit risks also includes the concentration
risk that refers to the individual clients
and groups of related parties and to the
industry. NLB Group calculates the capital
requirement for non-financial risks (which
include profitability risk, strategic risk, legal
risk, divestment risk, and reputation risk) if
it assesses that an individual risk is crucial
for NLB Group. In addition, the Pillar 2
risks include the effects of stress scenarios
for credit (deterioration of the credit
portfolio structure, decrease in real-estate
market prices), currency, liquidity, interest
rate risk in the banking book, credit spread
risk, and market risk.
In March 2018, NLB received a letter
from ECB on ECB’s intention to adopt
the decision to restrict distributions by
NLB to its shareholders and to require a
Contingent Capital Plan specifying the
planned measures to increase the capital
ratios in case that provision recognition
criteria are met for the lawsuits against
NLB pending in the courts of the Republic
of Croatia. Details on legal issues are
disclosed in note 5.17.
As of 1 January 2017, NLB was required
to maintain the OCR on the level of
12.75% on consolidated basis and meet
the following capital requirements on a
consolidated basis:
• 9.25% CET 1 ratio (transitional),
• 10.75% Tier 1 ratio (transitional),
• 12.75% Total Capital ratio (transitional).
All capital ratios are inclusive of 3.5%
Pillar 2 Requirement (P2R) and 1.25%
Capital Conservation Buffer (CCB). As
prescribed by CRD IV and the Banking
Act (ZBan-2), CCB is linearly increasing
and will reach the fully loaded level of
2.5% in 2019, whereas the Bank of
Slovenia requires NLB to apply the O-SII
buffer at the rate of 1% on the consolidated
level from 2019 on.
In 2018, NLB is required to maintain the
OCR on the level of 13.375% RWA on
a consolidated basis. The increase of the
requirement in comparison to the 2017
level is due to the phasing-in of the capital
conservation buffer as prescribed by law.
As of 31.12.2017, NLB Group capital
ratios on a consolidated basis stand at:
• 15.94% CET 1 ratio,
• 15.94% Tier 1 ratio,
• 15.94% Total Capital ratio.
The capital adequacy of the NLB
Group and NLB at the end of year 2017
remains strong, at a level which covers all
current and announced regulatory capital
requirements, including capital buffers and
other currently known requirements, and
the pillar 2 Guidance. Moreover, it is within
the stated risk appetite limit and above the
EU average as published by the European
Banking Authority (EBA).
In 2017, 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.
At the end of December 2017, the capital
ratios for NLB Group stood at 15.9% (or
1.1 p.p. lower than at the end of 2016), and
for NLB at 21.8% (or 1.6 .p.p. lower than
at the end of 2016). The Group’s lower
capital adequacy derives from higher risk
weighted assets (RWA). RWA for credit risk
increased by EUR 231.7 million, mainly
for retail exposures due to consumer and
housing loans growth. RWA for market
risks and CVA increased by EUR 395.9
million, particularly as a result of the
requested correction of the treatment of
the FX position on a consolidated level
and treatment of equity investments
in non-euro subsidiary banks. The
requested correction from the regulator
relates to structural positions arising from
operations of NLB Group’s non-euro
subsidiaries banks. These positions are
long, non- trading, and deliberately taken.
On a consolidated level, foreign exchange
translation differences from these positions
are recognised in the consolidated capital
and do not have an impact on the Group’s
profit and loss. By keeping our structural
position open, NLB Group maintains
capital ratio insensitive to foreign exchange
movements. The Bank will try to partly or
fully exclude this position from an open
FX position in the future (by getting the
approval from the regulator) and partly
mitigate this capital adequacy decrease
on consolidated and individual levels. The
increase in the RWA for operating risks
(EUR 56.7 million) arises from the higher
three-year average of income, which
represents the basis for the calculation.
NLB Group 2017 Annual Report 264
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
31.12.2017
31.12.2016
31.12.2017
31.12.2016
188,104
105,420
82,684
553,436
209,091
344,345
162,535
109,412
53,123
586,895
222,869
364,026
1,130,250
1,075,940
14,614
4,109
17,485
8,329
109,885
50,978
58,907
408,119
127,357
280,762
898,927
375
69
87,957
49,611
38,346
447,125
140,031
307,094
881,198
3,761
118
1,890,513
1,851,184
1,417,375
1,420,159
(36,915)
(53,681)
(34,257)
(49,865)
1,853,598
1,797,503
1,383,118
1,370,294
Fee income from all issued non-financial
guarantees amounted to EUR 5,240
thousand (2016: EUR 5,643 thousand) in
NLB Group, and to EUR 4,617 thousand
(2016: EUR 5,224 thousand) at NLB.
b) Analysis of derivative financial instruments by notional amounts
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
Short-term
Long-term
Short-term
Long-term
Short-term
Long-term
Short-term
Long-term
158,109
1,696,447
57,188
810,972
141,137
1,696,447
57,188
810,972
158,109
-
57,188
-
141,137
-
57,188
-
-
-
1,696,447
-
-
-
11,262
26,125
10,703
-
26,125
-
808,898
2,074
1,495
1,495
-
-
1,696,447
-
-
-
11,262
26,125
10,703
-
26,125
-
11,262
-
10,703
-
11,262
-
10,703
67,918
29,927
192,950
67,918
29,927
192,950
-
-
-
-
2,400
2,400
7,468
7,468
-
-
67,329
29,927
191,280
67,329
29,927
191,280
-
-
-
-
2,400
2,400
808,898
2,074
1,495
1,495
-
7,468
7,468
-
-
237,289
1,752,499
263,241
819,935
219,728
1,752,499
261,571
819,935
1,989,788
1,083,176
1,972,227
1,081,506
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.
Swaps
- currency swaps
- interest rate swaps
- currency interest rate swaps
Options
- interest rate options
- securities options
Forward contracts
- currency forward
Futures
- currency futures
Total
The notional amounts of derivative
financial instruments that qualify for
hedge accounting at NLB Group and
NLB amount to EUR 406,218 thousand
(31.12.2016: EUR 108,554 thousand).
NLB Group 2017 Annual Report
265
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
1,534
5,471
1,367
758
810
9,940
1,775
6,283
1,666
383
772
10,879
801
2,982
1,399
342
531
6,055
957
3,668
1,709
259
373
6,966
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
129
3,023
3,152
179
1,363
1,542
129
2,855
2,984
92
1,260
1,352
c) Operating lease commitments
The future minimum lease payments under
non-cancellable operating leases are as
follows:
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) Capital commitments
Capital commitments for purchase of:
- property and equipment
- intangible assets
Total
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 2017 Annual Report 266
Funds managed on behalf of third parties
Fiduciary activities
Settlement and other services
Total
Fiduciary activities
Assets
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
24,638,065
21,511,615
23,532,746
20,518,240
1,684,218
1,509,864
1,647,375
1,482,693
26,322,283
23,021,479
25,180,121
22,000,933
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
Clearing or transaction account claims for client assets
24,596,576
21,452,329
23,498,114
20,463,466
- from financial instruments
24,591,369
21,444,586
23,493,388
20,456,016
- receipt, processing, and execution of orders
9,802,973
9,292,661
9,200,568
8,786,845
- management of financial instruments portfolio
422,222
380,344
-
-
- custody services
14,366,174
11,771,581
14,292,820
11,669,171
- 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
685
4,522
41,489
12,789
28,700
820
6,923
59,286
33,940
25,346
204
4,522
34,632
5,932
28,700
527
6,923
54,774
29,428
25,346
Clearing or transaction liabilities for client assets
24,638,065
21,511,615
23,532,746
20,518,240
- to client from cash and financial instruments
- receipt, processing, and execution of orders
24,634,743
21,500,968
23,530,705
20,508,917
9,807,819
9,297,620
9,205,414
8,791,804
- management of financial instruments portfolio
428,279
383,825
-
-
- custody services
14,398,645
11,819,523
14,325,291
11,717,113
- 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.
225
2,670
427
75
10,030
542
225
1,389
427
75
8,706
542
Fee income for funds managed on behalf of third parties
Fiduciary activities (note 4.3.b)
Settlement and other services
Total
NLB Group
NLB
2017
8,386
1,296
9,682
2016
8,323
796
9,119
2017
6,917
943
7,860
in EUR thousand
2016
6,716
633
7,349
NLB Group 2017 Annual Report 6. Risk management
NLB Group pays great attention and
importance to the risk culture and
awareness of all relevant risks within
the entire Group. Risk management
in NLB Group is implemented in
accordance with the 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.
In addition, the Group is constantly
enhancing and complementing the
existing methods and processes in all risk
management segments.
Risk management function represents an
important part of overall management
and governance system in the Group.
NLB Group Risk Management framework
is defined and organised with regard to
the Group’s business and risk profile,
based on forward looking perspective
to meet internal objectives and all
external requirements. The Group’s
Risk management framework supports
business decision-making on strategic and
operating levels, comprehensive steering,
and proactive risk management by
incorporating:
• risk appetite statement and risk strategy
orientations,
• yearly review of strategic goals,
•
budgeting, and capital planning process,
the internal capital adequacy assessment
process (ICAAP) and the internal
liquidity adequacy assessment process
(ILAAP),
• recovery and resolution plan activities,
• other internal stress-testing capabilities
and comprehensive risk analysis.
Set governance and different risk
management tools enable adequate
oversight of the Group’s risk profile.
Moreover, they proactively support
business operations and enable efficient risk
management by incorporating escalation
procedures and different mitigation
measures when necessary.
a) Risk management
strategies and processes
The key goal of NLB Group’s Risk
Management is to proactively manage,
assess, and monitor risks within the Group.
Sound and holistic understanding of risk
management is embedded into the entire
organisation, focusing on risk identification
in a very early stage, efficient risk
management, and mitigation of them with
aim 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 with regard
to the Group’s business model, and based
on a forward-looking perspective, 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 in order to meet internal
objectives and all external requirements.
In addition, main strategic risk guidelines
are integrated into the annual business plan
review and budgeting process.
NLB Group plans a prudent risk profile,
optimal capital usage, and profitable
operations for the long run, considering
the risks assumed. The management of
credit risk, which is the most important
risk category in NLB Group, concentrates
on taking moderate risks – diversified
credit portfolio, adequate credit portfolio
quality, sustainable cost of risk, and
ensuring an optimal return considering
the risks assumed. As regards liquidity risk,
the tolerance is low, while the activities
are geared towards constantly ensuring
an appropriate level of liquidity, both in
the short and long terms. 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.
267
NLB regularly monitors its target Risk
Appetite profile, both for NLB Group and
NLB, and represents the key component
of the risk mitigation process. The risk
profile, on strategic and operational
levels, enables detailed monitoring and
proactive management of exposure to
credit, market, interest, liquidity, and
operational risk, while non-financial
and other risks are managed within the
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. The
comprehensive Risk Report is reviewed
quarterly 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. Set governance and different
risk management tools enable adequate
oversight of the Group’s risk profile.
Besides, they proactively support Group’s
business operations and its management
by incorporating escalation procedures
and different mitigation measures when
necessary. 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, which represents
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). The eligibility
of collateral, by types and ratios referring
to prudent lending criteria, is set within
internal lending guidelines. Credit
risk mitigation principles and rules in
NLB Group are described in more
relevant details in the Section Credit risk
management. When hedging market
NLB Group 2017 Annual Report 268
risks, namely interest rate risk and foreign
exchange risk, in line with the set risk
appetite, NLB Group follows the principle
of natural hedge or using derivatives in line
with hedge accounting principles.
NLB Group established comprehensive
stress testing framework and other early
warning systems in different risk areas with
the intention to strengthen the existing
internal controls and timely responding
when necessary. Robust and uniform stress
testing framework includes all material
types of risk and several relevant stress
scenarios, according to the vulnerability of
the Group’s business model. It is integrated
into Risk appetite, ICAAP, ILAAP, and
the Recovery plan to support proactive
management of the Group’s overall
risk profile, namely capital and liquidity
position on a forward-looking perspective.
Additionally, other partial risk assessments
are covered by sensitivity analysis based on
relevant stressed risk parameters.
b) Risk management structure
and organisation
A robust Risk Management framework is
comprehensively integrated into decision-
making, steering, and mitigation processes
within the Group in order to proactively
support its business operations. Risk
management in NLB Group is in charge
of managing, assessing, and monitoring
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.
Overall, the organisation and delineation
of competencies in the NLB Group’s
risk management structure is designed
to prevent conflicts of interest and
ensure a transparent and documented
decision-making process that is subject to
an appropriate upward and downward
flow of information. Risk management
in the NLB Group is centralised within
the Risk management business-line,
which is a specialised business-line
encompassing several professional areas,
for which the Global Risk Department,
the Corporate and the Retail Credit
Analysis Department, and Evaluation
and Control Department are responsible
within NLB, and which reports to the
Assets and Liabilities Committee (ALCO)
of the Management Board and the Risk
Committee of the Supervisory Board.
The Risk management business line is
in charge of formulating and controlling
the risk management policies of the NLB
Group, overseeing the harmonisation of
risk management policies within the NLB
Group, monitoring the NLB Group’s
risk exposures, and the preparation of
external and internal reports. The “NLB
Group Risk Management Standards”
are guidelines which represent the basis
for the establishment and organisation of
risk management and associated activities
at each NLB Group member. These
guidelines and standards in the area of
credit, market, liquidity, operational, and
other non-financial risk management
represent the basis for the adaptation of the
NLB Group members’ business policies,
organisational structures, work procedures,
and reporting systems. NLB prescribes the
methodologies and procedures, and governs
and controls the NLB Group in accordance
with EU and Slovenian regulation. At the
same time, the NLB Group members must
also fulfil the requirements set out in local
legislation.
All members of the NLB Group, which
are included in the financial statements of
the NLB Group, report their exposure to
risks to the competent organisational units
within the Risk management business line.
These organisational units then report
all relevant risk information to the Assets
and Liabilities Committee (‘ALCO’) of
the Management Board and the Risk
Committee of the Supervisory Board,
which is where the Management Board and
the Supervisory Board, adopt appropriate
measures.
Credit ratings of clients that are materially
important to the NLB Group and
the issuing of credit risk opinions are
centralised via the Credit Committee of
NLB. The process follows the co-decision
principle, in which the credit committee
of the respective group member first
approves their decision, following which
the Credit Committee of NLB gives their
opinion. The resolution of the Credit
Committee of NLB is made on the basis
of all available documentation, including
a non-binding rating opinion prepared
by the underwriting department of NLB.
This same principle and process is set also
for the issuing of credit exposures for the
materially important clients of the NLB
Group.
The NLB Group members
The primary responsibility for managing
the risks assumed by the NLB Group
members within the framework of their
business strategy lies with each NLB
Group member’s management, which, in
accordance with the set limits, targets and
other guidelines established at the NLB
Group level, pursue the NLB Group’s
strategic goals, implement the NLB Group’s
planned business results, and monitor
and manage risks. In furtherance of this,
the NLB Group members each adopt
appropriate risk management policies
approved by the supervisory board of the
applicable member. The supervisory board
of each NLB Group member also monitors
the implementation of that member’s risk
management policies and assesses their
effectiveness.
Risk monitoring in the NLB Group
members is centralised within
an independent and/or separate
organisational unit. The centralised
monitoring of risks aims to establish
standardised and systemic approaches
to risk management, and therefore, a
comprehensive overview of the Group’s
and of each member’s statement of
financial position. In compliance with
the risk management policies of the NLB
Group, risk monitoring in each NLB
Group member is separated from its
management and/or business function in
order to maintain the objectivity required
when assessing business decisions. The
NLB Group 2017 Annual Report organisational unit for managing risks
directly reports to the Management Board
and 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).
c) Risk measurement and
reporting systems
As a systemic bank, NLB is subject to the
Single Supervisory Mechanism (SSM),
which is supervised by the Joint Supervisory
Team of the ECB and the Bank of
Slovenia. Each NLB Group member
complies ECB regulation while the NLB
Group subsidiaries operating outside
Slovenia are compliant also with the rules
set by the local regulators.
The NLB Group’s 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. In regards to capital
adequacy, the NLB Group applies the
standardised approach to credit and market
risk and the basic approach (a simplified
approach with less data granularity) 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 purposes of measuring of exposure
to credit, market, interest, operational,
and non-financial risks, in addition to
prescribed regulations, the NLB Group uses
internal methodologies and approaches
that enable more detailed monitoring
and management of risks. These internal
methodologies are aligned with the
Basel and EBA guidelines, as well as best
practices in banking methodologies.
As for risk reporting, the NLB Group’s
internal guidelines reflect, in addition
to internal requirements, the substance
and frequency of reporting required by
the Bank of Slovenia and the ECB. In
addition, each member of the NLB Group
also complies with the requirements of its
local regulations. Risk reporting is carried
out in the form of standardised reports,
pursuant to risk management policies
founded on reasonable methodologies
for measuring and harmonising exposure
to risks, appropriate databases and the
automation of report preparation, which
ensures the quality of reports and reduces
the possibility of errors.
d) Main emphasis of risk
management in 2017
NLB Group was further enhancing the
robustness of its risk management system
in all respective risk categories in order to
manage them proactively, comprehensively
and prudently. Main focus is on risk
identification in a very early stage, efficient
risk management and mitigation process.
Uniform stress testing framework, which
includes internally-developed models,
was also enhanced in connection with
relevant expected macroeconomic factors.
Besides other early warning systems were
established in different risk areas with
the intention to strengthen the existing
internal controls and timely responding
when necessary. Moreover, the Group
is constantly developing a wide range
of advanced approaches supported by
mathematical and statistical models in the
area of credit risk assessment in line with
best banking practises to further enhance
existing risk management tools, while at the
same time enabling faster responsiveness
towards clients. The activities related to
International Financial Reporting Standard
(IFRS) 9 requirements, which has entered
into force in the beginning of 2018,
including methodological adaptations and
calculation of quantitative impacts, were
fully implemented.
269
The most important risk in NLB Group, in
line with strategic orientations, remains the
credit risk category. NLB Group gives great
emphasis to 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. The Group managed to further
reduce the volume of non-performing
exposures, approaching average EU
banking level. In addition, coverage ratio
remains high, enabling further NPE
reduction without significant influence on
cost of risk in the years ahead. Positive
trends have been recorded throughout the
region in terms of clients putting greater
trust in economic developments, alongside
the related recovery in consumption and
the real estate market. Economic upswing
and other one-off occurrences resulted
in negative cost of risk on the Group
level, whose evolution was otherwise very
stable and in line with strategic business
orientations and expectations.
In the negative interest rate environment,
the Group faced growing excess liquidity,
whereby significant attention was put
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
resulted in moderately increased interest
rate risk exposure, which stayed within
relatively low to moderate tolerance toward
this risk. The Group was included into
the ECB Stress Test 2017 – interest rate
risk in banking book which resulted in a
favourable adjustment of Pillar 2 Guidance
as a part of overall Supervisory review and
evaluation process (SREP) requirements.
Moreover, during 2017 the Group’s capital
and liquidity position remained strong
at both, the Group and subsidiary bank
levels, standing well above the targeted risk
appetite profile.
There was 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 was paid
NLB Group 2017 Annual Report 270
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.
6.1. Credit risk management
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
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:
• 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.
• The quality of the credit portfolio,
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 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
macroeconomic movements on 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 as a credit risk add-on
and a concentration risk assessment are
carried out. From a forward-looking
prospective, also stress test results are
taken into consideration within the own
estimation of Pillar 2 requirements.
NLB and other NLB Group members
assess the level of credit risk losses on an
individual basis for material claims, 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 default. When creating collective
provisions for commitments, on the basis of
empirical data regarding the redemption
NLB Group 2017 Annual Report of guarantees in the past, the probability of
the redemption of guarantees is taken into
account when creating collective provisions.
As part of the IFRS 9 project, NLB Group
prepared a full upgrade of the collective
impairment methodology based on IFRS
9 requirements. NLB developed a staging
concept based on the estimated increase
of credit risk of a single exposure since
initial recognition. Furthermore, NLB
developed more sophisticated models for
measuring risk parameters, prepared the
calculation of Expected Credit Losses
based on new regulatory requirements, and
developed a model validation and back
testing concept. The transition to IFRS 9
requirements was performed in full scale
as of 1 January 2018 on the level of NLB
Group. With the adoption of the new
impairment methodology, NLB Group
recorded positive effects, arising mainly
from collective impairments due to very
favourable macroeconomic trends and an
improved quality of the credit portfolio
(note 2.34.).
b) Main emphasis in 2017
In the process of constantly complementing
and enhancing credit risk management
NLB Group focuses on taking moderate
c) Internal rating system and authorisations
risks and at the same time ensuring an
optimal return considering the risks
assumed. The Group puts considerable
emphasis on new corporate and retail
financing, the sustainability of the credit
risk volatility in terms of its structure, and
the cost of risk, including the sustainable
size of the subsidiary banks. Moreover,
the Group is constantly developing a wide
range of advanced approaches supported
by mathematical and statistical models
in the area of credit risk assessment in
line with best banking practises to further
enhance existing risk management tools,
while at the same time enabling faster
responsiveness towards clients.
Preserving high 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. The Group is actively
present on the market, financing existing
and new creditworthy clients. The lower
indebtedness of companies in Slovenia
and their successful deleveraging has had
a positive influence on the approval of
new loans. In the retail segment, positive
trends have been recorded throughout the
region in terms of clients putting greater
trust in economic developments, alongside
271
the related recovery in consumption and
the real estate market. The efforts, arising
from the improved credit standards,
resulted in the cumulatively very low new
non-performing loans (NPL) formation. In
addition, the favourable macroeconomic
environment across the region resulted in
the negative cost of risk, whose evolution
during the year was otherwise very stable
and sustainable in line with strategic
orientations.
The restructuring approaches built in
the past are focused on early warning
detection of clients with potential financial
difficulties and their proactive resolution.
The strong commitment to reduce the
NPE legacy on the Group level continued
in 2017. Precisely set targets and constant
monitoring of the realisation supported a
further substantial reduction in the volume
of the non-performing portfolio. As at
31.12.2017 the share of non-performing
exposure by EBA methodology was 6.7%
(reduced from 10.0% at the end of 2016).
Moreover, the coverage ratio remains high
at 62.2%, which is well above the EU
average published by the EBA (44.7% in
3Q 2017).
31.12.2017
31.12.2016
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 (%)
4,952,528
1,972,025
393,247
837,455
60.7
24.2
4.8
10.3
24,149
57,310
47,711
0.5
2.9
4,872,072
1,852,289
12.1
410,975
518,158
61.9
1,201,333
58.4
22.2
4.9
14.4
23,763
60,619
64,451
754,917
8,155,255
100.0
647,328
7.9
8,336,669
100.0
903,750
0.5
3.3
15.7
62.8
10.8
NLB Group
A
B
C
D and E
Total
*Other financial assets are not included.
NLB Group 2017 Annual Report 272
NLB
A
B
C
D and E
Total
*Other financial assets are not included.
The NLB Group’s client credit rating
classification is based on an internally
developed methodology, drawing from
internal statistical analyses, good banking
practices, as well as Bank of Slovenia
regulations, and ECB and EBA guidelines
and requirements. The rating methodology
is used across the entire NLB Group. The
rating methodology includes a uniform
credit grade scale of 12 rating classes, out
of which nine represent performing clients
and three non-performing clients. Rating
Group A (AAA to A rating classes) includes
the best clients with a low degree of default
probability, characterised by high capital
adequacy and a high coverage of financial
liabilities with free cash flow. Rating
Group A is considered as investment grade
classification.
Rating Group B (BBB to B rating classes)
includes clients with a low credit risk, one
class higher than ‘A’ rating group clients.
These clients show stable performance,
acceptable financial ratios, and qualitative
elements and have a sufficient cash flow
to settle their obligations, but some are
more sensitive to changes in the industry
or the economy. The Rating Group B
investment classification is an investment
grade for BBB, and an ‘invest with care’
for BB and B. Rating Group C (CCC to
C rating classes) includes clients who are
exposed to a higher and above-average
level of credit risk. Sometimes CCC rated
clients are financed by the bank, as support
brings more positive effects, however,
Rating Group C is overall considered as
a substantial risk. The Bank reasonably
31.12.2017
31.12.2016
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 (%)
3,493,876
1,320,299
163,861
470,959
64.1
24.2
3.0
8.6
10,889
28,653
16,614
260,907
0.3
2.2
10.1
55.4
3,581,311
1,087,449
454,477
718,476
61.3
18.6
7.8
12.3
11,653
24,464
45,873
422,758
5,448,995
100.0
317,063
5.8
5,841,713
100.0
504,748
0.3
2.2
10.1
58.8
8.6
restricts cooperation with such clients and
decreases its exposure to them.
Rating Group D, (D and DF rating classes)
and ‘E’ represents non-performing clients
that are treated as defaulted. D, DF, and
E rating classified clients are ordinarily
transferred to the specialised units for
restructuring (which performs business
and financial restructuring with a goal of
minimising losses and restoring the client to
a performing status) or workout and legal
support (with the goal of minimising losses
due to default).
A standard corporate rating methodology,
with the prescribed set of parameters
(qualitative and quantitative) applies to
all the NLB Group bank entities. Groups
of connected clients are treated as
materially important for the NLB Group
whenever exposure exceeds EUR 5 million.
Materially important clients are submitted
to the NLB Sub-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 2017 Annual Report d) Maximum exposure to credit risk
273
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
Cash, cash balances at central banks, and other demand deposits at banks
1,256,481
1,299,014
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
82,133
457,080
513,461
77,202
85,315
775,986
435,537
74,344
570,010
82,133
358,675
462,322
268,184
617,039
85,315
668,300
408,056
273,310
3,371,946
3,091,508
2,082,562
1,951,115
176,769
182,322
140,209
147,779
1,740,167
1,589,762
1,307,246
1,208,996
1,217,349
1,090,120
237,661
229,304
519,213
115,894
480,626
113,714
3,006,105
2,970,229
1,878,056
1,950,869
1,479,627
1,534,628
1,216,085
1,296,126
Loans to small- and medium-sized enterprises
1,526,478
1,435,601
661,971
654,743
Other financial assets
Trading assets
Financial assets designated at fair value through profit or loss
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
66,257
72,189
102
61,014
87,699
734
38,389
72,180
-
36,151
87,693
-
2,227,099
1,998,533
1,730,914
1,526,787
609,712
1,188
611,449
217
609,712
1,188
611,449
217
11,740,955
11,491,579
8,154,325
8,216,301
741,540
314,511
427,029
749,430
332,281
417,149
1,130,250
1,075,940
18,723
25,814
518,004
178,335
339,669
898,927
444
535,082
189,642
345,440
881,198
3,879
1,890,513
1,851,184
1,417,375
1,420,159
Total maximum exposure to credit risk
13,631,468
13,342,763
9,571,700
9,636,460
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.
neither past due nor impaired, 1.5%
(31.12.2016: 1.7%) of loans and advances
past due but not impaired, and 3.9%
(31.12.2016: 5.4%) of individually impaired
loans. NLB has 95.5% (31.12.2016: 94.5%)
of loans and advances that are neither past
due nor impaired, 0.7% (31.12.2016: 0.5%)
of loans and advances past due but not
impaired, and 3.8% (31.12.2016: 5.0%) of
individually impaired loans.
NLB Group has 94.5% (31.12.2016:
92.9%) of loans and advances that are
NLB Group 2017 Annual Report 274
e) Collateral from loans and advances
31.12.2017
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
31.12.2016
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
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
82,133
160,860
-
82,133
226,325
-
27,812
68,696
-
296,220
513,461
49,390
2,024,762
3,748,858
1,347,184
-
-
1,508,710
2,971,950
459,670
56,382
674,486
102,422
176,769
231,457
757,679
181,279
1,773,629
4,142,117
1,232,476
874,246
899,383
1,626,037
2,516,080
421
19,429
605,381
627,095
65,836
-
6,979
-
366
73,767
1,104
49,014
10,849
12,800
384,075
195,289
188,786
551
4,069,617
8,287,558
3,504,567
465,738
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 2017 Annual Report 275
in EUR thousand
NLB
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
82,133
157,829
-
82,133
171,317
-
27,364
64,781
1,572,108
2,614,244
-
-
1,194,249
2,197,811
377,675
184
413,519
2,914
1,077,102
2,075,580
712,545
364,557
22
1,124,947
950,633
1,996
-
200,846
462,322
240,820
510,454
140,209
112,997
141,538
115,710
800,954
503,540
297,414
38,367
-
3,528
-
205
26,702
-
25,918
782
2
285,985
168,676
117,309
487
2,916,558
5,010,051
2,253,763
316,907
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
31.12.2017
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
31.12.2016
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
NLB Group 2017 Annual Report 276
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 a 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, Montenegro,
and Bosnia and Herzegovina) based on
public records and indexes of real-estate
value published by the relevant government
authorities (the Surveying and Mapping
Authority in Slovenia).
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 2017 Annual Report 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.
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
277
on real estate, which is a comparatively
reliable and quality type of collateral;
however, among others due to the falling
real estate market prices in recent history,
the Bank closely monitors the real-estate
collateral values and, where required,
establishes 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. Deviations from the
Rules are 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 the 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 of the
guarantor, and guarantees are only taken
into account as collateral if the guarantor
has sufficient overall creditworthiness.
NLB Group 2017 Annual Report 278
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.
j) Net loans and advances neither past due nor impaired
31.12.2017
Debt securities
Loans to government
Loans to banks
Loans to individuals
Granted overdrafts
31.12.2016
Debt securities
Loans to government
Loans to banks
Loans to financial organisations
45,448
17,955
13,692
77,095
40,522
180,631
46,933
NLB Group
A
82,133
B
-
C
-
D and E
Total
A
-
82,133
82,133
B
-
289,716
152,180
7,460
11
449,367
282,201
72,564
397,689
115,001
751
513,441
341,512
120,559
-
-
3,219,833
38,474
27,055
159 3,285,521 2,019,919
2,446
12,308
164,326
1,550
4,420
-
170,296
129,903
200
in EUR thousand
D and E
Total
-
-
-
-
-
-
-
-
-
82,133
355,009
462,322
268,086
2,034,673
134,286
1,282,109
508,640
109,638
NLB
C
-
244
251
4,183
5,935
601
1,589
Loans for houses and flats
1,681,992
10,515
10,581
- 1,703,088 1,274,361
1,813
Consumer loans
Other loans
1,163,595
22,310
209,920
4,099
7,853
4,201
37 1,193,795
507,963
122
218,342
107,692
76
357
Loans to other customers
861,666 1,557,306
270,397
6,334 2,695,703
700,560
912,760
82,940
4,218
1,700,478
Loans to large corporate customers
614,105
664,577
95,488
2,193 1,376,363
596,106
506,763
34,279
733
1,137,881
Loans to small- and medium-sized enterprises
247,561
892,729
174,909
4,141 1,319,340
104,454
405,997
48,661
3,485
562,597
Other financial assets
Total
42,706
13,147
1,342
72
57,267
26,432
9,740
810
1
36,983
4,939,191 1,894,063
320,697
6,576 7,160,527 3,493,279 1,298,700
143,486
4,219
4,939,684
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
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
NLB Group 2017 Annual Report k) Net loans and advances past due but not individually impaired
279
in EUR thousand
31.12.2017
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
31.12.2016
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
Up to 30 days Up to 90 days Over 90 days
Total Up to 30 days Up to 90 days Over 90 days
Total
2,059
1,936
20
15
-
-
27,979
16,180
2,284
6,777
8,617
10,301
33,298
6,306
26,992
6,768
1,079
4,076
5,264
5,761
10,309
3,174
7,135
118
-
-
-
827
31
410
128
258
15,287
10,752
4,535
46
3,995
20
15
-
-
6
44,986
16,447
3,394
11,263
14,009
16,320
58,894
20,232
38,662
6,932
2,033
4,346
6,088
3,980
1,451
-
1,451
10
-
-
-
5,242
1,044
1,800
1,522
876
242
-
242
16
-
-
-
8
-
-
-
8
10,730
10,730
-
4
-
-
6
21,697
3,077
6,146
7,610
4,864
12,423
10,730
1,693
30
70,139
28,543
16,160
114,842
17,914
5,500
10,742
34,156
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
* The loans and advances disclosed in the above tables are not individually impaired since they are fully or over collateralised.
NLB Group 2017 Annual Report 280
l) Individually impaired loans and advances
31.12.2017
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
31.12.2016
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
NLB Group
Gross value
Impairment
provision
Net value
Gross value
8,652
2,899
107,917
9,134
46,904
36,253
15,626
695,443
208,288
487,155
10,278
825,189
(4,934)
(2,807)
(66,478)
(6,055)
(21,088)
(26,708)
(12,627)
(443,935)
(125,256)
(318,679)
(8,220)
(526,374)
3,718
92
41,439
3,079
25,816
9,545
2,999
251,508
83,032
168,476
2,058
298,815
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 Group
Gross value
Impairment
provision
Net value
Gross value
459,949
(263,468)
196,481
in EUR thousand
NLB
Impairment
provision
(2,441)
(2,807)
(23,690)
(4,570)
(13,571)
(3,369)
(2,180)
(231,968)
(89,909)
(142,059)
(2,562)
in EUR thousand
Net value
3,666
92
26,192
2,846
18,991
2,963
1,392
165,155
67,474
97,681
1,376
NLB
Impairment
provision
(3,137)
(25,429)
(23,564)
(4,941)
(13,785)
(3,902)
(936)
(370,629)
(148,337)
(222,292)
(3,112)
Net value
6,123
800
28,495
2,984
21,367
3,582
562
230,007
104,511
125,496
1,634
267,059
6,107
2,899
49,882
7,416
32,562
6,332
3,572
397,123
157,383
239,740
3,938
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 2017 Annual Report m) Net loans analysis
31.12.2017
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
31.12.2016
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
NLB Group
Loans and advances
neither past due
nor impaired
Loans and advances past
due but not impaired
Individually impaired
loans and advances
82,133
449,367
513,441
77,095
3,285,521
170,296
1,703,088
1,193,795
218,342
2,695,703
1,376,363
1,319,340
57,267
7,160,527
-
3,995
20
15
44,986
3,394
11,263
14,009
16,320
58,894
20,232
38,662
6,932
114,842
-
3,718
-
92
41,439
3,079
25,816
9,545
2,999
251,508
83,032
168,476
2,058
298,815
281
in EUR thousand
Total
82,133
457,080
513,461
77,202
3,371,946
176,769
1,740,167
1,217,349
237,661
3,006,105
1,479,627
1,526,478
66,257
7,574,184
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 2017 Annual Report 282
31.12.2017
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
31.12.2016
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
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
82,133
355,009
462,322
268,086
2,034,673
134,286
1,282,109
508,640
109,638
1,700,478
1,137,881
562,597
36,983
4,939,684
-
3,666
-
92
26,192
2,846
18,991
2,963
1,392
165,155
67,474
97,681
1,376
196,481
-
-
-
6
21,697
3,077
6,146
7,610
4,864
12,423
10,730
1,693
30
34,156
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
Total
82,133
358,675
462,322
268,184
2,082,562
140,209
1,307,246
519,213
115,894
1,878,056
1,216,085
661,971
38,389
5,170,321
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 Group 2017 Annual Report n) Forborne loans
283
in EUR thousand
NLB Group
All forborne exposures
Impairment, provisions
and value adjustments
31.12.2017
Total
Performing
Impaired
Defaulted
Non - performing
Performing
forborne
exposures
Non-performing
forborne
exposures
Collateral
and financial
guarantees
received on
forborne
exposures
Loans and advances (including at
amortised cost and fair value)
General governments
Other financial corporations
Non-financial corporations
Large corporate customers
Small- and medium- sized enterprises
Households
Granted overdrafts
Loans for houses and flats
Consumer loans
Other loans
606,884
78,035
528,849
528,849
(9,110)
(317,912)
194,738
7,522
2,944
558,775
230,371
328,404
37,643
675
21,998
10,629
4,341
-
48
67,871
37,392
30,479
10,116
663
6,050
2,531
872
7,522
2,896
7,522
2,896
-
(3)
(3,882)
(2,806)
3,640
2
490,904
490,904
(7,969)
(299,399)
176,317
192,979
192,979
(4,553)
(107,985)
73,083
297,925
297,925
(3,416)
(191,414)
103,234
27,527
27,527
(1,138)
(11,825)
14,779
12
12
15,948
15,948
8,098
3,469
8,098
3,469
(95)
(695)
(294)
(54)
(7)
(5,651)
(3,467)
(2,700)
-
4,346
6,005
4,428
Debt instruments other than HFT
606,884
78,035
528,849
528,849
(9,110)
(317,912)
194,738
Loan commitments given
10,638
1,128
9,510
9,510
-
-
3,421
Total exposures with forbearance measures
617,522
79,163
538,359
538,359
(9,110)
(317,912)
198,159
NLB Group
in EUR thousand
All forborne exposures
Impairment, provisions
and value adjustments
31.12.2016
Total
Performing
Impaired
Defaulted
Non - performing
Performing
forborne
exposures
Non-performing
forborne
exposures
Collateral
and financial
guarantees
received on
forborne
exposures
Loans and advances (including at
amortised cost and fair value)
General governments
Other financial corporations
Non-financial corporations
Large corporate customers
Small- and medium- sized enterprises
Households
Granted overdrafts
Loans for houses and flats
Consumer loans
Other loans
922,883
114,786
808,097
808,097
(16,288)
(492,158)
279,935
1,490
6,287
91,363
43,492
47,871
15,646
94
10,759
31,012
838,843
331,545
507,298
42,269
123
24,518
11,554
6,074
9,269
24,725
9,269
24,725
(498)
(574)
(3,175)
(23,933)
6,089
639
747,480
747,480
(13,342)
(453,526)
259,025
288,053
288,053
(5,816)
(180,993)
91,450
459,427
459,427
(7,526)
(272,533)
167,575
26,623
26,623
(1,874)
(11,524)
14,182
29
29
(10)
11,078
13,440
13,440
(1,344)
3,334
1,140
8,220
4,934
8,220
4,934
(426)
(94)
(18)
(5,009)
(3,418)
(3,079)
-
4,235
6,258
3,689
Debt instruments other than HFT
922,883
114,786
808,097
808,097
(16,288)
(492,158)
279,935
Loan commitments given
23,636
1,151
22,485
22,485
-
-
15,399
Total exposures with forbearance measures
946,519
115,937
830,582
830,582
(16,288)
(492,158)
295,334
NLB Group 2017 Annual Report 284
NLB
in EUR thousand
All forborne exposures
Impairment, provisions
and value adjustments
31.12.2017
Total
Performing
Impaired
Defaulted
Non - performing
Performing
forborne
exposures
Non-performing
forborne
exposures
Collateral
and financial
guarantees
received on
forborne
exposures
Loans and advances (including at
amortised cost and fair value)
General governments
Other financial corporations
Non-financial corporations
Large corporate customers
Small- and medium- sized enterprises
Households
Granted overdrafts
Loans for houses and flats
Consumer loans
Other loans
398,889
57,609
341,280
341,280
(5,762)
(186,782)
139,111
6,017
2,944
365,879
188,022
177,857
24,049
675
19,948
2,332
1,094
-
48
50,535
33,283
17,252
7,026
663
5,404
478
481
6,017
2,896
6,017
2,896
-
(3)
(2,373)
(2,806)
3,643
2
315,344
315,344
(4,962)
(174,989)
125,712
154,739
154,739
160,605
160,605
17,023
17,023
12
12
14,544
14,544
1,854
613
1,854
613
(3,850)
(1,112)
(797)
(95)
(618)
(54)
(30)
(80,692)
(94,297)
(6,614)
(7)
(5,306)
(896)
(405)
62,447
63,265
9,754
-
3,037
4,113
2,604
Debt instruments other than HFT
398,889
57,609
341,280
341,280
(5,762)
(186,782)
139,111
Loan commitments given
9,490
1,118
8,372
8,372
-
-
2,951
Total exposures with forbearance measures
408,379
58,727
349,652
349,652
(5,762)
(186,782)
142,062
NLB
in EUR thousand
All forborne exposures
Impairment, provisions
and value adjustments
31.12.2016
Total
Performing
Impaired
Defaulted
Non - performing
Performing
forborne
exposures
Non-performing
forborne
exposures
Collateral
and financial
guarantees
received on
forborne
exposures
Loans and advances (including at
amortised cost and fair value)
General governments
Credit institutions
Other financial corporations
Non-financial corporations
Large corporate customers
Small- and medium- sized enterprises
Households
Granted overdrafts
620,593
80,696
539,897
539,897
(8,085)
(321,083)
199,626
9,161
247
31,012
552,812
268,096
284,716
27,361
123
-
247
6,287
61,940
35,884
26,056
12,222
94
9,161
-
9,161
-
-
-
(3,071)
6,089
-
-
639
24,725
24,725
(574)
(23,933)
490,872
490,872
(6,050)
(287,971)
184,600
232,212
232,212
(4,107)
(140,078)
79,862
258,660
258,660
(1,943)
(147,893)
104,738
15,139
15,139
(1,461)
(6,108)
29
29
(10)
(18)
Loans for houses and flats
22,307
10,114
12,193
12,193
(1,235)
(4,472)
Consumer loans
Other loans
2,897
2,034
1,029
985
1,868
1,049
1,868
1,049
(134)
(82)
(958)
(660)
Debt instruments other than HFT
620,593
80,696
539,897
539,897
(8,085)
(321,083)
199,626
Loan commitments given
22,488
1,141
21,347
21,347
-
-
15,072
Total exposures with forbearance measures
643,081
81,837
561,244
561,244
(8,085)
(321,083)
214,698
8,298
-
2,292
2,333
3,673
NLB Group 2017 Annual Report Forborne exposures by periods of restructuring
31.12.2017
Performing exposures
Non-performing exposures
Total exposures with forbearance measures
31.12.2016
Performing exposures
Non-performing exposures
Total exposures with forbearance measures
31.12.2017
Performing exposures
Non-performing exposures
Total exposures with forbearance measures
31.12.2016
Performing exposures
Non-performing exposures
Total exposures with forbearance measures
Main forbearance measurements, used
by NLB Group and NLB are deferral
of payment, reduction of interest rates,
acquisition of collateral for partial
repayment of claims and others, either as
Nature of assets
Securities (note 5.4.b)
Investment property (note 5.10.)
Property and equipment (note 5.9.)
Investments in subsidiaries and associates
Real estates (note 5.13.)
Other assets (note 5.13.)
Total
285
in EUR thousand
NLB Group
Up to 3 months
3 to 6 months
6 to 12 months
Over 12 months
3,656
12,313
15,969
3,877
6,130
10,007
910
6,054
6,964
11,611
38,624
50,235
NLB
2,259
17,189
19,448
19,078
10,282
29,360
62,100
175,381
237,481
63,932
260,903
324,835
in EUR thousand
Up to 3 months
3 to 6 months
6 to 12 months
Over 12 months
2,950
11,512
14,462
1,745
4,368
6,113
420
5,311
5,731
6,593
25,018
31,611
1,446
14,717
16,163
18,352
7,705
26,057
47,031
122,958
169,989
45,921
181,723
227,644
a single forbearance measurement or as a
combination of those.
o) 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:
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
Net value
Net value
3,536
40,809
1,355
-
76,222
1,278
24,162
48,658
1,523
-
76,416
2,643
480
4,286
7
2,464
4,811
-
20,832
3,750
7
2,484
4,263
-
123,200
153,402
12,048
31,336
NLB Group 2017 Annual Report
286
p) Analysis of loans and advances by industry sectors
Transport and communications
839,171
(35,281)
803,890
10.61
869,779
(39,908)
829,871
Trade industry
840,189
(204,457)
635,732
Health care and social security
Other financial assets
31,331
(2,447)
77,962
(11,705)
28,884
66,257
8.39
0.38
0.87
873,406
(242,743)
630,663
27,936
(4,815)
76,467
(15,453)
23,121
61,014
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
Total
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
31.12.2017
31.12.2016
in EUR thousand
Gross loans
Impairment
provisions
Net loans
(%)
Gross loans
Impairment
provisions
Net loans
514,037
(576)
513,461
60,485
(3,065)
57,420
155,911
(8,846)
147,065
236,617
(69,045)
167,572
819,887
(79,497)
740,390
14,230
52,168
(872)
(8,264)
13,358
43,904
314,481
(6,285)
308,196
6.78
0.76
1.94
2.21
9.78
0.18
0.58
4.07
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
3,470,153
(98,207)
3,371,946
44.52
3,190,724
(99,216)
3,091,508
41.25
15,404
(1,675)
13,729
128,534
(5,585)
122,949
662,657
(123,226)
539,431
0.18
1.62
7.12
31,913
99,715
(6,300)
(6,642)
25,613
93,073
962,743
(156,285)
806,458
8,233,217
(659,033)
7,574,184
100.00
8,413,136
(919,203)
7,493,933
100.00
31.12.2017
31.12.2016
in EUR thousand
Gross loans
Impairment
provisions
Net loans
(%)
Gross loans
Impairment
provisions
Net loans
462,322
-
462,322
251,303
(9,150)
242,153
109,457
(3,498)
105,959
111,832
(41,618)
70,214
8.94
4.68
2.05
1.36
408,056
-
408,056
341,644
(45,910)
295,734
112,083
(6,279)
105,804
136,071
(71,294)
64,777
551,816
(30,004)
521,812
10.09
569,022
(88,472)
480,550
8,779
15,087
(33)
(958)
8,746
14,129
199,650
(1,710)
197,940
0.17
0.27
3.83
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
2,121,167
(38,605)
2,082,562
40.28
1,990,184
(39,069)
1,951,115
36.31
7,454
(626)
6,828
50,923
(2,040)
48,883
494,815
(74,158)
420,657
0.13
0.95
8.14
25,332
46,148
(5,297)
(2,587)
20,035
43,561
782,110
(91,419)
690,691
0.34
1.24
10.76
11.07
8.42
0.31
0.81
0.37
0.81
12.85
14.15
4.37
0.19
0.67
Transport and communications
747,971
(17,192)
730,779
14.13
777,964
(17,903)
760,061
Trade industry
304,589
(96,358)
208,231
11,830
41,580
(1,113)
(3,191)
10,717
38,389
4.03
0.21
0.74
366,587
(131,753)
234,834
11,439
39,922
(1,223)
(3,771)
10,216
36,151
5,490,575
(320,254)
5,170,321
100.00
5,881,635
(508,519)
5,373,116
100.00
NLB Group 2017 Annual Report q) Analysis of net loans and advances by geographical sectors
Country
Republic of Slovenia
Other European Union members
Other countries
Total
287
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
4,469,598
4,633,952
4,478,793
4,663,239
484,919
468,887
2,619,667
2,391,094
428,772
262,756
393,858
316,019
7,574,184
7,493,933
5,170,321
5,373,116
r) Analysis of debt securities and derivative financial instruments by geographical sectors
in EUR thousand
31.12.2017
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
82,133
55,047
-
507,643
356,896
8,395
82,133
55,047
432,494
356,896
8,395
1,257,881
252,816
5,238
Other members of
European Union
- Italy
- Ireland
- France
- Belgium
- Netherlands
- Austria
- Germany
- Finland
- Sweden
- Denmark
- Luxembourg
- Great Britain
- Poland
- Slovakia
- Spain
- Other
United States of America
Other countries
- Macedonia
- Serbia
- Bosnia and Herzegovina
- Montenegro
- Kosovo
- Other
Total
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,117
-
-
-
-
-
-
-
102
1,257,881
252,816
5,238
-
-
46,196
48,639
-
-
102
156,078
47,443
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
55,131
26,120
118,611
27,180
40,911
48,858
177,541
57,785
56,876
12,500
64,406
42,487
-
-
69,382
31,907
120,749
49,459
45,025
31,357
-
-
-
-
135,033
1,023
17,229
444,346
171,751
56,615
78,421
49,401
64,848
23,310
-
-
-
-
-
-
-
-
-
-
1
75
313
29
79
-
-
-
-
4,632
-
-
-
109
-
580
4
5
-
-
571
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
46,196
48,639
-
-
156,078
47,443
55,131
26,120
118,611
27,180
40,911
48,858
177,541
57,785
56,876
12,500
64,406
42,487
-
-
69,382
31,907
120,749
49,459
45,025
31,357
-
-
-
-
135,033
1,023
4,117
17,229
-
-
-
-
-
-
-
23,310
-
-
-
-
-
23,310
-
-
-
-
-
-
-
-
-
-
1
75
313
29
79
-
-
-
-
4,632
-
-
-
109
-
571
-
-
-
-
571
-
82,133
59,164
102
2,227,099
609,712
14,213
82,133
59,164
1,730,914
609,712
14,204
NLB Group 2017 Annual Report 288
31.12.2016
NLB Group
NLB
in EUR thousand
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
- Poland
- Slovakia
- Spain
- Other
United States of America
Other countries
- Macedonia
- Serbia
- Bosnia and Herzegovina
- Montenegro
- Kosovo
- Other
Total
19,010
734
1,031,073
196,284
5,399
-
42,203
35,935
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19,010
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
17,173
20,583
25,930
-
-
-
-
19,575
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
17,173
20,583
25,930
-
-
-
-
19,575
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
Other members of the European Union
included in the item ‘Other’ are Romania,
Czech Republic, Hungary, Bulgaria,
Cyprus, Croatia, Lithuania, Latvia, and
Portugal.
NLB Group 2017 Annual Report s) Structure of debt securities of the banking book according to the Fitch credit rating agency
289
in EUR thousand
NLB Group
NLB
31.12.2017
31.12.2016
31.12.2017
31.12.2016
Carrying
value
in %
Carrying
value
in %
Carrying
value
in %
Carrying
value
365,985
373,302
12.6
12.8
271,157
349,839
10.1
13.0
365,985
373,302
15.1
15.4
271,157
349,839
1,486,656
51.0
1,455,975
54.0
1,411,405
58.3
1,455,401
200,019
489,294
6.9
16.8
138,526
480,534
5.1
17.8
200,019
72,048
8.3
3.0
132,254
14,900
in %
12.2
15.7
65.5
5.9
0.7
2,915,256
100.0
2,696,031
100.0
2,422,759
100.0
2,223,551
100.0
Rating
AAA
AA
A
BBB
Other
Total
t) Structure of debt securities of the trading book according to the Fitch credit rating agency
31.12.2017
31.12.2016
in EUR thousand
NLB Group and NLB
Carrying value
in %
Carrying value
in %
-
4,117
15,016
40,031
59,164
-
7.0
25.4
67.7
100.0
49,747
-
-
19,010
68,757
72.4
-
-
27.6
100.0
31.12.2017
31.12.2016
in %
71.47
28.24
0.29
0.00
100.00
in %
76.66
22.17
0.11
1.06
100.00
Rating
A
AAA
F1
Other
Total
u) Internal rating of derivatives counterparties
NLB Group and NLB
A
B
C
D and E
Total
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.
NLB Group 2017 Annual Report
290
v) Debt financial instruments in NLB’s and NLB Group’s portfolio that represent subordinated liabilities for the issuer
31.12.2017
Internal rating
Available-for-sale financial assets
Loans and advances
- loans and advances to banks
- loans and advances to customers
Total
31.12.2016
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
-
-
-
-
A
581
-
-
581
A
583
-
-
583
Total
581
A
581
-
-
10,962
-
581
11,543
Total
583
A
583
NLB
B
-
-
-
-
NLB
B
-
-
-
10,961
3,989
-
-
583
11,544
3,989
in EUR thousand
Total
581
10,962
5,506
17,049
in EUR thousand
Total
583
14,950
5,898
21,431
C
-
-
5,506
5,506
C
-
-
5,898
5,898
NLB Group 2017 Annual Report w) Presentation of net financial instruments by measurement category
31.12.2017
Trading assets
NLB Group
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
-
-
-
1,256,481
Securities
- Bonds
- Shares
- Commercial bills
- Treasury bills
- Private equity fund
- 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
59,164
4,117
-
55,047
-
-
13,025
-
-
-
-
-
-
-
-
-
-
-
-
-
5,003
2,280,283
102
1,809,040
82,133
82,133
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7,279,228
146,566
448,198
8,882
513,461
77,121
-
81
3,295,336
76,610
176,769
1,740,167
1,217,349
161,051
2,945,112
1,473,055
-
-
-
76,610
60,993
6,572
1,472,057
54,421
66,257
-
-
609,712
609,712
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
634
4,267
-
-
-
-
-
-
-
-
-
-
-
-
-
-
53,184
281,877
136,182
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
291
in EUR thousand
Total
1,256,481
3,036,295
2,505,104
53,184
281,877
191,229
634
4,267
-
-
-
-
-
-
-
-
1,188
14,213
-
-
-
-
-
-
-
-
-
-
-
-
-
7,425,794
457,080
513,461
77,202
3,371,946
176,769
1,740,167
1,217,349
237,661
3,006,105
1,479,627
1,526,478
66,257
Total financial assets
72,189
5,003
2,280,283
8,684,099
146,566
609,712
1,188
11,799,040
NLB Group 2017 Annual Report 292
NLB Group
in EUR thousand
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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 2017 Annual Report 31.12.2017
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
-
-
570,010
-
Cash and obligatory reserves with central
banks, and other demand deposits at banks
Securities
- Bonds
- Shares
- Commercial bills
- Treasury bills
- Private equity fund
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
-
59,164
4,117
-
-
55,047
634
1,777,762
-
-
-
-
1,554,565
46,848
136,279
40,070
-
634
13,016
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
82,133
82,133
609,712
609,712
-
-
-
-
-
5,049,799
358,675
462,322
268,184
2,082,562
140,209
1,307,246
519,213
115,894
1,878,056
1,216,085
661,971
38,389
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
293
in EUR thousand
Total
570,010
2,529,405
2,250,527
46,848
136,279
95,117
634
-
-
-
-
-
-
-
1,188
14,204
-
-
-
-
-
-
-
-
-
-
-
-
-
5,049,799
358,675
462,322
268,184
2,082,562
140,209
1,307,246
519,213
115,894
1,878,056
1,216,085
661,971
38,389
72,180
634
1,777,762
5,740,331
609,712
1,188
8,201,807
NLB Group 2017 Annual Report 294
NLB
in EUR thousand
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
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
87,693
2,011
1,594,094
5,990,155
611,449
217
8,285,619
As at 31.12.2017 and 31.12.2016, 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.
6.2. 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 trading books. 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 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
NLB Group 2017 Annual Report 295
equity and CET1 capital. In December
2017 ECB requested for calculation of risk
weighted assets a correction of treatment
of the FX position on a consolidated level
and treatment of equity investments in
non-euro subsidiary banks (see note 5.23
Capital adequacy ratio). Group ALM
employs strategies to manage this foreign
currency exposure, including matched
funding of assets and liabilities.
Exposure to currency risks is discussed
at daily liquidity meetings and monthly
meetings of the Assets and Liabilities
Committee of NLB Group (ALCO), and
quarterly on the consolidated level.
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).
6.2.1. 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 of the bank and
in accordance to the adopted policy of
managing market risk in the trading book
of NLB. Trading FX risk is managed on an
integrated basis at a portfolio level.
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, whilst limiting
the volatility in the profit and loss account.
FX exposures in banking book result from
core banking business activities.
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 either
the local management board or supervisory
board. NLB monitors and manages
NLB Group currency risk exposure on a
monthly basis for each member and on the
consolidated level.
NLB Group banks follow the guidelines
for managing FX lending in the NLB
Group. The guidelines’ goal is to address
risks stemming from the potential excessive
growth of FX lending, to identify hidden
risks and tail-event risks related to FX
lending, to mitigate the respective risk,
to internalise the respective costs, and to
hold adequate capital with respect to FX
lending.
The positions of all currencies in the
statement of financial position of NLB,
for which a daily limit is set, are monitored
daily. FX positions are managed by the
Financial Markets Department on the
basis of a report obtained from the Global
Risk. The Financial Markets Department
manages FX positions on the currency level
so that they are always within the limits or
closed.
Regarding structural FX positions on a
consolidation level, assets and liabilities
held in foreign operations are translated
into euro currency at the closing FX
rate on the balance sheet date. Foreign
exchange differences of non-euro assets
and liabilities against euro are recognised
in OCI, and therefore affect shareholder’s
NLB Group 2017 Annual Report 296
a) The amount of financial instruments denominated in euros and in foreign currency
31.12.2017
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
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
NLB Group
in EUR thousand
EUR
USD
CHF
Other
Total
824,534
68,067
5,003
1,996,373
1,188
82,133
359,268
5,952,008
43,162
600,328
719
33,545
4,117
-
26,908
-
-
103,836
30,474
111
9,384
-
41,046
357,356
1,256,481
-
-
5
-
72,189
5,003
3,056
250,156
2,276,493
-
-
-
69,381
27
-
-
-
-
47,003
860,470
22,777
-
-
1,188
82,133
510,107
6,912,333
66,077
609,712
719
Total financial assets
9,932,783
208,375
113,510
1,537,767
11,792,435
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
9,398
635
25,529
20,091
247,326
-
-
-
4,677
18,425
- due to customers
8,443,684
185,880
- borrowings from other customers
- subordinated liabilities
- other financial liabilities
Total financial liabilities
74,206
27,350
93,128
8,941,347
-
-
1,058
210,040
-
-
6,555
13,865
71,900
-
-
1,930
94,250
104
-
-
9,279
-
9,502
635
25,529
40,602
279,616
1,176,914
9,878,378
80
-
74,286
27,350
14,903
111,019
1,201,280
10,446,917
Net on-balance sheet financial position
991,436
(1,665)
19,260
336,487
1,345,518
Derivative financial instruments
11,906
-
(12,818)
(8,014)
(8,926)
Net financial position
1,003,342
(1,665)
6,442
328,473
1,336,592
31.12.2016
Total financial assets
Total financial liabilities
Net on-balance sheet financial position
Derivative financial instruments
Net financial position
9,851,121
8,986,936
864,185
26,519
890,704
228,678
226,191
2,487
2,077
4,564
132,544
102,137
30,407
(21,417)
1,359,494
11,571,837
1,084,597
10,399,861
274,897
(13,954)
1,171,976
(6,775)
8,990
260,943
1,165,201
NLB Group 2017 Annual Report 297
in EUR thousand
NLB
EUR
USD
CHF
Other
Total
511,551
68,063
634
1,751,068
1,188
82,133
378,241
4,482,928
38,260
600,328
719
15,735
4,117
-
24,342
-
58,393
25,834
64
9,384
-
10,305
32,419
570,010
-
-
-
-
-
70,369
1
-
-
-
-
2,352
-
25,688
8,346
64
-
-
72,180
634
1,777,762
1,188
82,133
462,322
4,587,477
38,389
609,712
719
31.12.2017
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
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
Total financial assets
7,915,113
137,869
80,675
68,869
8,202,526
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
9,398
635
25,529
36,352
228,457
-
-
-
15,255
18,425
- due to customers
6,623,766
104,325
- borrowings from other customers
- other financial liabilities
Total financial liabilities
5,726
69,858
-
409
-
-
-
9,292
13,865
43,688
-
269
-
-
-
11,173
-
9,398
635
25,529
72,072
260,747
39,188
6,810,967
-
998
5,726
71,534
6,999,721
138,414
67,114
51,359
7,256,608
Net on-balance sheet financial position
915,392
(545)
13,561
17,510
945,918
Derivative financial instruments
11,906
-
(12,818)
(8,014)
(8,926)
Net financial position
927,298
(545)
743
9,496
936,992
31.12.2016
Total financial assets
Total financial liabilities
Net on-balance sheet financial position
Derivative financial instruments
Net financial position
7,947,091
7,140,090
807,001
26,519
833,520
169,016
169,184
(168)
2,077
1,909
99,948
78,138
21,810
(21,417)
70,242
42,028
28,214
(13,954)
8,286,297
7,429,440
856,857
(6,775)
393
14,260
850,082
NLB Group 2017 Annual Report 298
b) FX sensitivity analysis
Scenarios
USD
CHF
CZK
RSD
MKD
JPY
AUD
HUF
HRK
BAM
31.12.2017
Appreciation of
USD
CHF
CZK
RSD
MKD
Other
Effects on comprehensive income
Depreciation of
USD
CHF
CZK
RSD
MKD
Other
Effects on comprehensive income
NLB Group and NLB
31.12.2017
31.12.2016
+/-6%
+/-5%
+/-3%
+/-2%
+/-3%
+/-7%
+/-7%
+/-3%
+/-2%
+/-0%
+/-8%
+/-4%
+/-1%
+/-2%
+/-1%
+/-12.5%
+/-11%
+/-5%
+/-2%
+/-0%
NLB Group
NLB
in EUR thousand
Effects on income
statement
Effects on other
comprehensive
income
Effects on income
statement
Effects on other
comprehensive
income
221
(308)
2
7
47
(72)
(103)
(196)
281
(2)
(7)
(44)
70
102
-
211
-
2,125
5,412
338
8,086
-
(192)
-
(2,046)
(5,048)
(327)
(7,613)
92
26
1
8
64
6
197
(82)
(24)
(1)
(8)
(60)
(6)
(181)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
NLB Group 2017 Annual Report 299
in EUR thousand
NLB Group
NLB
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)
-
227
23
1,567
1,425
251
3,493
-
(208)
(22)
(1,506)
(1,390)
(243)
(3,369)
79
13
2
2
1
70
167
(67)
(12)
(2)
(2)
(1)
(60)
(144)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
are divided into the trading and banking
books according to regulatory standards.
It takes into account the positions in
each currency, adjusted for a credit risk.
Interest rate risk management in NLB
Group is adopted in accordance with the
conservative risk strategy and is based on
general Basel standards on interest rate
management in the banking book (IRRB;
hereinafter: ‘Standards’) and European
Banking Authority guidelines.
In the trading book interest rate risk is
measured on the basis of the VaR method
and BPV method, in accordance with the
adopted policy for managing market risk in
the trading book of NLB.
The interest rate risk in the banking
book is measured and monitored
within a framework of Interest rate risk
management policy that establishes
consistent methodologies, models, and limit
systems. NLB Group manages interest rate
risk exposure through application of two
main measures:
• Economic value sensitivity – using
BPV method (Basis Point Value), which
measures the extent to which the value
of the portfolio would change if interest
rates changes according to the scenario.
• Sensitivity of net interest income – using
EaR method (Earnings at Risk), which
measures the impact of the interest rate
change on future net interest income
over a one-year period, assuming
constant balance sheet volume and
structure.
NLB Group regularly measures interest
rate risk exposure in the banking book
under various standardised and additional
scenarios of changes in level and shape of
interest rate yield curve and, furthermore,
applies a cash flow modelling approach
for positions with uncertain maturity
and behavioural options. The latter was
upgraded in 2017 according to new
regulatory Standards with a renewal
of non-maturing deposits allocation
methodology, and with introduction of a
methodology for positions with behavioural
options.
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
6.2.2. 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, a monitored
period of 250 business days, a 10-day
holding position period).
6.2.3. Interest rate risk
Interest rate risk is the risk to NLB Group’s
capital and profit or loss arising from
changes in market interest rates. Interest
rate risk management of NLB Group
includes all interest rate-sensitive on- and
off-balance sheet assets and liabilities which
NLB Group 2017 Annual Report the Group level. Exposure to interest rate
risk is discussed on ALCO monthly on
NLB’s individual level and quarterly on the
consolidated level.
300
The interest rate risk is closely measured,
monitored, and managed within approved
risk limits and controls. The Group
manages interest rate positions and
stabilises its interest rate margin primarily
with the pricing policy and a fund transfer
pricing policy. An important part of the
interest rate risk management is presented
by the banking book securities portfolio,
whose primary purpose is to maintain
adequate liquidity reserves, while it also
contributes to the stability of the interest
rate margin, which is why valuation risk has
been included in the Group’s interest rate
risk management model.
NLB Group manages interest rates risk
also by using plain vanilla derivative
financial instruments (interest rate swaps,
overnight index swaps, cross currency
swaps, and forward rate agreements),
most of which are treated according to
hedge accounting rules. Interest rate risk
exposure arises mainly from banking book
positions; particularly in a current low
interest rate environment, where NLB
Group recorded increased volume of fixed
interest rate loans and long-term banking
book securities on the assets side and
transformation of deposits from term to
sight.
The management of NLB Group’s interest
rate exposure is decentralised. Each
member of NLB Group is responsible
for its own interest rate risk policy, which
includes limit system and is in line with
local regulatory requirements, as well as
with the parent Bank’s guidelines and
standards. NLB regularly monitors the
interest rate risk exposure of individual
member of NLB Group in accordance
with the Standards for Risk Management
in NLB Group. The aforementioned
document comprises guidelines for uniform
and effective interest rate risk management
within individual NLB Group members.
Interest rate risk in the banking book
is measured, monitored, and reported
weekly in the case of NLB by Global Risk
Department, while positions are managed
by Financial Markets and monthly on
NLB Group 2017 Annual Report 301
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.
31.12.2017
Financial assets
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
Cash, cash balances at central banks, and
other demand deposits at banks
1,256,481
531,414
725,067
725,067
-
Trading assets
72,189
13,025
59,164
Financial assets designated at fair
value through profit or loss
5,003
4,901
102
-
-
55,060
-
5
-
-
2,438
1,661
-
102
-
-
Available-for-sale financial assets
2,276,493
53,184
2,223,309
100,425
143,970
538,822
818,030
622,062
Derivatives - hedge accounting
1,188
1,188
-
Loans and advances
- debt securities
- loans and advances to banks
82,133
510,107
-
18
82,133
-
-
-
-
-
1,896
-
-
-
80,237
510,089
176,384
28,839
304,676
190
-
- loans and advances to customers
6,912,333
49,484
6,862,849
1,657,695
1,188,308
2,473,342
1,072,627
470,877
- other financial assets
66,077
66,077
-
-
-
-
-
-
Held-to-maturity financial assets
609,712
-
609,712
38,070
40,228
6,874
260,537
264,003
Fair value changes of the hedged items in
portfolio hedge of interest rate risk
719
719
-
-
-
-
-
-
Total financial assets
11,792,435
720,010
11,072,425
2,697,641
1,456,405
3,325,717
2,153,822
1,438,840
Financial liabilities
Trading liabilities
Financial liabilities designated at fair
value through profit or loss
9,502
9,502
635
635
Derivatives - hedge accounting
25,529
25,529
Financial liabilities measured at amortised cost
-
-
-
-
-
-
- deposits from banks and central banks
40,602
5,788
34,814
34,573
-
-
-
-
-
-
-
-
-
-
-
241
- borrowings from banks and central banks
279,616
-
279,616
4,681
78,127
177,165
19,459
- due to customers
9,878,378
58,429
9,819,949
7,777,903
489,698
1,140,149
407,809
-
-
-
-
184
4,390
- borrowings from other customers
- subordinated liabilities
- other financial liabilities
74,286
27,350
-
-
74,286
27,350
111,019
111,019
-
850
326
-
2,685
9,069
36,099
25,583
12,054
14,970
-
-
-
-
-
-
Total financial liabilities
10,446,917
210,902
10,236,015
7,818,333
582,564
1,341,353
463,608
30,157
Total interest repricing gap
(5,120,692)
873,841
1,984,364
1,690,214
1,408,683
NLB Group 2017 Annual Report 302
31.12.2016
Financial assets
Cash, cash balances at central banks, and
other demand deposits at banks
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
1,299,014
450,644
848,370
848,370
-
-
-
Trading assets
87,699
18,942
68,757
284
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
665,694
10,906,143
2,927,884
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
18,791
18,791
2,011
2,011
Derivatives - hedge accounting
29,024
29,024
Financial liabilities measured at amortised cost
-
-
-
-
-
-
-
-
-
- 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
222,125
10,177,736
7,085,468
728,960
1,865,039
484,412
13,857
Total interest repricing gap
(4,157,584)
1,079,486
1,459,297
1,392,178
955,030
-
-
-
-
-
-
-
617
7,532
5,708
-
-
-
NLB Group 2017 Annual Report 303
in EUR thousand
31.12.2017
Financial assets
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
Cash, cash balances at central banks, and
other demand deposits at banks
570,010
143,725
426,285
426,285
-
Trading assets
72,180
13,016
59,164
Financial assets designated at fair
value through profit or loss
634
634
-
-
-
55,060
-
-
5
-
-
-
2,438
1,661
-
-
Available-for-sale financial assets
1,777,762
46,848
1,730,914
18,190
50,856
384,130
663,277
614,461
Derivatives - hedge accounting
1,188
1,188
-
Loans and advances
- debt securities
- loans and advances to banks
82,133
462,322
-
9
82,133
-
-
-
-
-
1,896
-
-
-
80,237
462,313
105,616
23,889
325,375
7,433
-
- loans and advances to customers
4,587,477
44,318
4,543,159
1,354,311
1,019,785
1,615,885
309,278
243,900
- other financial assets
38,389
38,389
-
-
-
-
-
-
Held-to-maturity financial assets
609,712
-
609,712
38,070
40,228
6,874
260,537
264,003
Fair value changes of the hedged items in
portfolio hedge of interest rate risk
719
719
-
-
-
-
-
-
Total financial assets
8,202,526
288,846
7,913,680
1,942,472
1,189,818
2,334,165
1,242,963
1,204,262
Financial liabilities
Trading liabilities
Financial liabilities designated at fair
value through profit or loss
9,398
9,398
635
635
Derivatives - hedge accounting
25,529
25,529
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
72,072
260,747
6,810,967
5,726
-
-
-
-
- other financial liabilities
71,534
71,534
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
72,072
72,072
260,747
85
77,786
170,702
12,174
-
-
-
-
6,810,967
5,866,793
348,703
514,937
78,363
2,171
5,726
-
-
-
-
-
2
-
5,716
-
8
-
Total financial liabilities
7,256,608
107,096
7,149,512
5,938,950
426,489
685,641
96,253
2,179
Total interest repricing gap
(3,996,478)
763,329
1,648,524
1,146,710
1,202,083
NLB Group 2017 Annual Report 304
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
18,936
68,757
284
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
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
296,847
7,989,450
2,054,237
1,653,133
2,384,293
1,071,669
826,118
-
-
-
-
-
-
-
83,424
-
Financial liabilities
Trading liabilities
Financial liabilities designated at fair
value through profit or loss
18,787
18,787
2,011
2,011
Derivatives - hedge accounting
29,024
29,024
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
-
-
-
-
-
-
74,977
74,977
-
-
-
-
-
-
-
-
-
-
-
-
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
-
-
74,977
338,467
6,615,390
4,274
277,726
-
-
-
-
-
68,784
68,784
-
Total financial liabilities
7,429,440
118,606
7,310,834
5,361,330
541,968
1,208,899
192,254
6,383
Total interest repricing gap
(3,307,093)
1,111,165
1,175,394
879,415
819,735
NLB Group 2017 Annual Report 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 one year period. 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:
305
2017
Interest income sensitivity
EUR
USD
CHF
OTHER
2016
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)
11,682
9,027
14,764
10,729
7,867
13,486
464
171
1,293
378
134
953
544
226
1,641
308
174
33
234
134
24
380
227
41
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
The assessment of the impact of a change
in interest rates of 200 basis points on
the economic value of the banking book
position:
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. In 2017 (as of 31th July 2017), the
Bank has changed the methodological
approach of calculating the sensitivity of
net interest income, which is implemented
in new technological support.
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 2017 Annual Report 306
2017
NLB Group
NLB
in EUR thousand
Average
(assessment)
Minimum
(assessment)
Maximum
(assessment)
Average
(assessment)
Minimum
(assessment)
Maximum
(assessment)
Interest risk in banking book - BPV
210,157
193,355
225,787
159,149
149,053
Interest risk in banking book - BPV, as % of equity
15.82%
14.47%
16.94%
14.00%
13.05%
172,964
15.14%
in EUR thousand
2016
Average
(assessment)
Minimum
(assessment)
Maximum
(assessment)
Average
(assessment)
Minimum
(assessment)
Maximum
(assessment)
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%
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
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 core part of non-maturing deposits into
account or other behavioural assumptions.
Exposure to interest rate risk of the
banking book mainly arises from
investments in long-term debt securities
and loans with fixed interest rate, as well
as from transformation of term to sight
deposits. Long-term interest positions of
other members in NLB Group, of which
present a majority of their exposure to
interest-rate risk (an economic point of
view), mainly arise from a portfolio of
mortgage loans with a fixed interest rate.
6.2.4. Risk of changes in prices in the
portfolio of equity securities in the
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.
6.3. Liquidity risk
Liquidity risk is the risk that NLB Group
is unable to meet all of its actual and
potential payments or collateral posting
obligations, as well as the risk that NLB
Group is unable to fund the growth of
assets at reasonable prices, or only at
excessive cost.
banking book
There are two types of risk:
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
stockbrokerage services are provided.
• Funding liquidity risk is the risk of
not being able to accommodate both
expected and unexpected current and
future cash outflows and collateral
needs because insufficient cash is
available. Eventually, this will affect the
Group’s daily operations or its financial
conditions.
• Market Liquidity risk is a risk that the
Group cannot sell an asset on time at
a reasonable price due to insufficient
market depth (insufficient supply and
demand) or market disruptions. Market
risk includes the sensitivity in liquidity
value of a portfolio due to changes
in the applicable haircuts and market
value. It also concerns uncertainty about
the time required to realise the liquidity
value of the assets.
Liquidity risk is defined as an important
risk type at NLB Group, which has to
be managed carefully. NLB Group has
a liquidity risk management framework
in place that enables maintaining a low
risk tolerance for liquidity risk. NLB
Group formulated a set of liquidity risk
metrics and limits to manage liquidity
position within the requirements set by the
regulator. By maintaining a smooth long-
term maturity profile, limiting dependence
on wholesale funding and holding a solid
liquidity buffer, the NLB Group maintains
a sound and robust liquidity position, even
under severely adverse conditions.
The Management Board approves the
Liquidity Risk Management Policy, which
outlines the key principles for the bank’s
liquidity management. ALCO receives
NLB Group 2017 Annual Report a regular report on the liquidity positon
and the performance against approved
limits and targets. ALCO oversees the
development of the bank’s funding and
liquidity positon and decides on liquidity
risk-related issues in NLB Group.
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. NLB Group measures and
manages its liquidity in three stages:
• Current exposure and compliance with
the limits,
• Forward-looking and stress testing,
• Liquidity in exceptional circumstances.
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 of the bank into account;
• preparing proposals for establishing
additional financial assets as collateral
for sources of funding
Overall assessment of the liquidity position
of NLB Group is assessed in the 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/central bank or
on the 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 the 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 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.
The Group prepares regularly 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.
The Group manages its liquidity position
(liquidity within one day) daily, for a period
of several days or weeks in advance,
based on the planning and monitoring
of cash flows. Liquidity management on
the operational level is decentralized in
NLB Group. 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;
•
forming and managing liquidity
reserves; and
• performing liquidity stress test to
define the liquidity buffer for smooth
307
functioning of the payment system in
stressed circumstances.
NLB Group members actively manage
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.
The Group members have 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.
Reporting to NLB by all group members
is done on a daily basis. Global Risk gives
guidelines and defines minimal standards
for group members regarding liquidity
risk management in NLB Group Risk
Management Standards. Decentralized
liquidity management means that 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 member towards liquidity
risk is regularly monitored and reported to
ALCO and to local Assets and Liabilities
Committees.
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. Liquidity reserves
comprise cash, the settlement account at
the central bank, sight deposits and short-
term deposits at banks, debt securities and
NLB Group 2017 Annual Report 308
loans eligible as collateral for Eurosystem’s
liquidity providing operations, 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/or credit
claims for different purposes (secured
funding).
of the methodology pertaining to liquidity
risk stress tests. The amount represents the
survival of a severe stress over a period of
three months in a combined stress scenario.
The minimum and optimum amount of
liquidity reserves is determined on the basis
The structure of liquidity reserves is shown
in the following table.
Liquid assets
Liquid assets
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
Cash, cash balances at central banks, and other demand deposits at banks
1,256,481
1,299,014
Placements with banks
Trading book securities
Banking book securities
ECB eligible loans
Total liquid assets
506,322
59,164
433,883
68,757
570,010
437,427
59,164
617,039
387,599
68,757
2,915,154
2,695,297
2,422,759
2,223,551
717,503
849,080
717,503
849,080
5,454,624
5,346,031
4,206,863
4,146,026
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 general terms about
execution of monetary policy framework
(Part 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.
Members of NLB Group manage their
liquid assets on a decentralised basis
in compliance with the local liquidity
regulation and valid policies of NLB
Group.
As at 31.12.2017, 74.6% (31.12.2016:
75.8%) of debt securities in the banking
book of NLB Group were government
securities (including government
guaranteed bonds – GGB), and 18.0%
(31.12.2016: 20.8%) were senior unsecured
bonds.
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
Managing Domestic (Slovene) Corporate
Debt Securities in Large Corporates,
which clearly define the objectives and
characteristics of the associated portfolio.
NLB Group 2017 Annual Report 309
in EUR thousand
NLB Group
NLB
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
-
-
-
-
986,785
-
58,085
58,085
-
-
-
-
426,284
-
47,482
47,482
63,341
69,441
2,911,079
2,951,137
62,625
68,725
2,419,298
2,459,356
b) Encumbered assets
2017
Loans on demand
Equity instruments
Debt securities
Loans and advances other than loans on demand
58,763
Other assets
Total
-
122,104
-
-
7,429,754
729,938
12,115,641
-
-
53,964
-
116,589
-
-
5,034,224
668,955
8,596,243
-
-
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
-
-
-
-
1,038,402
-
79,580
79,580
-
-
-
-
488,520
-
69,318
69,318
94,340
102,049
2,670,448
2,716,271
94,340
102,049
2,197,968
2,243,792
2016
Loans on demand
Equity instruments
Debt securities
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
-
-
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:
Equity instruments
Loans and advances other than loans on demand
Other assets
Total
NLB Group
NLB
in EUR thousand
2017
193,439
118,179
2016
174,680
127,851
2017
180,034
29,024
2016
161,636
39,846
7,415,905
7,380,987
3,763,844
3,755,558
7,727,523
7,683,518
3,972,902
3,957,040
NLB Group 2017 Annual Report 310
d) Source of encumbrance
NLB Group
NLB
in EUR thousand
2017
2016
2017
2016
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
33,529
53,964
35,755
37,987
33,529
53,964
35,755
37,987
5,277,263
63,341
5,099,974
94,340
5,276,547
62,625
5,099,974
94,340
Other securities of encumbrance
4,570
4,799
6,570
6,570
-
-
-
-
Total
5,315,362
122,104
5,142,299
138,897
5,310,076
116,589
5,135,729
132,327
As at 31.12.2017, NLB Group and NLB
had a large share of unencumbered assets.
On the NLB Group level the amount of
encumbered assets equalled EUR 122.1
million, relating to the deposit guarantee
scheme and to secure funding received
from international financial organisations.
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.
31.12.2017
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
-
Financial liabilities measured at amortised cost
- deposits from banks and central banks
- borrowings from banks and central banks
40,270
1,713
-
-
635
91
-
241
-
-
635
40,602
1,054
24,459
84,451
172,238
283,915
- due to customers
7,731,796
410,400
1,083,863
633,462
- borrowings from other customers
- subordinated liabilities
- other financial liabilities
968
-
96,322
3,207
470
4,367
9,413
13,331
10,330
42,712
7,951
-
60,026
24,499
11,511
9,919,547
80,799
33,263
-
111,019
Credit risk related commitments
559,723
169,374
398,157
224,571
111,659
1,463,484
Non-financial guarantees
33,400
36,611
108,823
174,670
73,525
427,029
Total
8,464,192
625,483
1,649,102
1,168,058
453,458
12,360,293
Total financial assets
2,369,713
623,597
2,198,452
4,662,531
3,158,566
13,012,859
NLB Group 2017 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 Group
311
in EUR thousand
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
31.12.2017
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
-
Financial liabilities measured at amortised cost
- deposits from banks and central banks
- borrowings from banks and central banks
72,072
85
-
-
635
-
-
-
-
-
635
72,072
700
18,127
73,935
171,768
264,615
- due to customers
5,798,144
256,865
570,680
137,951
53,610
6,817,250
- borrowings from other customers
- other financial liabilities
-
67,530
-
3,703
2
301
5,716
-
Credit risk related commitments
470,604
151,287
266,874
140,326
Non-financial guarantees
27,411
29,058
83,344
155,612
8
-
48,615
44,244
5,726
71,534
1,077,706
339,669
Total
6,435,846
441,613
939,963
513,540
318,245
8,649,207
Total financial assets
1,147,586
385,419
1,445,862
3,269,949
2,656,192
8,905,008
NLB Group 2017 Annual Report 312
31.12.2016
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
-
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
When determining the gap between the
financial liabilities and financial assets in
the maturity bucket of up to one month,
it is necessary to be aware 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 2017 Annual Report f) An analysis of the statement of financial position by residual maturity
313
in EUR thousand
31.12.2017
Cash, cash balances at central banks, and
other demand deposits at banks
Trading assets
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
1,256,481
-
13,025
55,060
-
5
-
-
2,438
-
-
1,256,481
1,661
4,901
72,189
5,003
Financial assets designated at fair value through profit or loss
-
102
Available-for-sale financial assets
209,496
122,418
471,898
804,389
668,292
2,276,493
Derivatives - hedge accounting
Loans and advances
- debt securities
1,188
-
-
-
-
1,896
-
-
-
1,188
80,237
82,133
- loans and advances to banks
176,371
28,837
304,431
468
-
510,107
- loans and advances to customers
600,801
338,179
1,226,362
2,967,158
1,779,833
6,912,333
- other financial assets
Held-to-maturity financial assets
Fair value changes of hedged in portfolio
hedge of interest rate risk
Non-current assets and disposal group 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
64,608
4,512
98
-
-
-
-
-
-
-
91
40,233
-
-
-
-
-
-
-
-
1,160
18,024
-
11,631
-
-
-
-
2,795
-
5,862
1,128
32,988
218
-
66,077
282,908
264,035
609,712
352
-
17,708
45,300
14,036
-
-
18,389
53,221
269
-
719
11,631
170,647
188,355
6,538
20,938
43,765
-
214
150
51,838
34,974
43,765
2,795
18,603
93,349
2,332,442
586,048
2,071,190
4,206,585
3,041,480
12,237,745
9,502
-
25,529
40,270
1,655
-
-
-
-
-
635
-
91
-
-
-
241
-
-
-
-
9,502
635
25,529
40,602
1,012
23,474
82,015
171,460
279,616
- due to customers
7,729,809
406,897
1,069,764
613,155
- borrowings from other customers
- subordinated liabilities
- other financial liabilities
Liabilities of disposal group classified as held for sale
Provisions
Current income tax liabilities
Deferred income tax liabilities
Other liabilities
Total liabilities
Credit risk related commitments
Non-financial guarantees
863
-
96,322
-
1,104
1,062
670
5,728
2,917
167
4,367
-
561
564
-
173
8,395
12,213
10,330
440
39,665
5,000
-
-
36,437
49,994
1,268
111
2,817
-
198
878
58,753
22,446
9,970
-
-
543
-
117
-
9,878,378
74,286
27,350
111,019
440
88,639
2,894
1,096
9,596
7,912,514
416,658
1,165,975
791,146
263,289
10,549,582
559,723
33,400
169,374
36,611
398,157
108,823
224,571
174,670
111,659
1,463,484
73,525
427,029
Total liabilities and credit-related commitments
8,505,637
622,643
1,672,955
1,190,387
448,473
12,440,095
NLB Group 2017 Annual Report 314
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 and disposal group 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
511,700
185,749
402,635
242,572
91,379
1,434,035
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
7,642,747
696,114
2,344,385
1,372,351
308,938
12,364,535
NLB Group 2017 Annual Report 315
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
570,010
-
13,016
55,060
-
-
5
-
-
2,438
-
-
570,010
1,661
634
72,180
634
50,856
384,130
663,277
661,309
1,777,762
-
-
-
1,896
-
-
-
1,188
80,237
10,952
82,133
462,322
31.12.2017
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
-
18,190
1,188
-
- loans and advances to banks
105,585
23,902
314,626
7,257
- loans and advances to customers
404,586
199,815
638,382
1,947,576
1,397,118
4,587,477
- other financial assets
Held-to-maturity financial assets
Fair value changes of hedged in portfolio
hedge of interest rate risk
Non-current assets and disposal group 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
37,639
4,512
98
-
-
-
-
-
-
-
3,547
91
509
150
-
38,389
40,233
18,024
282,908
264,035
609,712
-
-
-
-
-
-
-
-
-
-
2,564
-
-
-
-
2,196
352
-
12,453
9,257
13,225
31,532
-
-
19,758
5,145
-
269
-
74,598
-
10,686
719
2,564
87,051
9,257
23,911
325,345
356,877
-
-
-
2,196
19,758
8,692
1,158,371
369,957
1,367,477
2,990,183
2,826,844
8,712,832
9,398
-
25,529
72,072
85
-
-
-
-
-
635
-
-
-
-
-
-
-
-
-
-
9,398
635
25,529
72,072
666
17,312
71,687
170,997
260,747
- due to customers
5,797,927
256,230
568,109
136,144
52,557
6,810,967
- borrowings from other customers
- other financial liabilities
Provisions
Other liabilities
Total liabilities
-
67,530
358
3,072
-
3,703
437
10
2
301
5,716
-
25,024
44,998
221
878
8
-
-
-
5,726
71,534
70,817
4,181
5,975,971
261,046
611,604
259,423
223,562
7,331,606
Credit risk related commitments
Non-financial guarantees
470,604
27,411
151,287
29,058
266,874
83,344
140,326
155,612
48,615
44,244
1,077,706
339,669
Total liabilities and credit-related commitments
6,473,986
441,391
961,822
555,361
316,421
8,748,981
NLB Group 2017 Annual Report 316
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 and disposal group 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
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
Credit risk related commitments
Non-financial guarantees
437,335
14,225
165,656
32,702
274,160
83,194
166,079
171,579
31,489
43,740
1,074,719
345,440
Total liabilities and credit-related commitments
5,851,779
520,065
1,599,305
778,126
184,056
8,933,331
- due to customers
5,204,618
313,155
776,673
266,779
NLB Group 2017 Annual Report 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.
317
31.12.2017
Foreign exchange derivatives
- Forwards
- Outflow
- Inflow
- Swaps
- Outflow
- Inflow
Interest rate derivatives
- Interest rate swaps and cross-currency swaps
- Outflow
- Inflow
- Caps and floors
- Outflow
- Inflow
Total outflow
Total inflow
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
Up to 1 Month
1 Month to
3 Months
NLB Group
3 Months to
1 Year 1 Year to 5 Years
Over 5 Years
Total
in EUR thousand
(7,112)
7,120
(14,222)
(76,426)
14,240
76,483
(83,863)
(57,151)
83,904
57,233
-
-
-
-
-
-
-
-
-
-
(97,760)
97,843
(141,014)
141,137
(1,156)
330
(2,160)
1,006
(8,995)
(44,240)
(36,237)
(92,788)
4,341
26,782
39,799
72,258
-
-
-
-
-
-
(277)
277
-
-
(277)
277
(92,131)
(73,533)
(85,421)
(44,517)
(36,237)
(331,839)
91,354
72,479
80,824
27,059
39,799
311,515
Up to 1 Month
1 Month to
3 Months
NLB Group
3 Months to
1 Year 1 Year to 5 Years
Over 5 Years
Total
in EUR thousand
(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 2017 Annual Report 318
31.12.2017
Foreign exchange derivatives
- Forwards
- Outflow
- Inflow
- Swaps
- Outflow
- Inflow
Interest rate derivatives
- Interest rate swaps and cross-currency swaps
- Outflow
- Inflow
- Caps and floors
- Outflow
- Inflow
Total outflow
Total inflow
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
Up to 1 Month
1 Month to
3 Months
NLB
3 Months to
1 Year 1 Year to 5 Years
Over 5 Years
Total
in EUR thousand
(6,718)
6,727
(14,115)
(76,345)
14,131
76,399
(83,863)
(57,151)
83,904
57,233
-
-
-
-
-
-
-
-
-
-
(97,178)
97,257
(141,014)
141,137
(1,156)
330
(2,160)
1,006
(8,995)
(44,240)
(36,237)
(92,788)
4,341
26,782
39,799
72,258
-
-
-
-
-
-
(277)
277
-
-
(277)
277
(91,737)
(73,426)
(85,340)
(44,517)
(36,237)
(331,257)
90,961
72,370
80,740
27,059
39,799
310,929
Up to 1 Month
1 Month to
3 Months
NLB
3 Months to
1 Year 1 Year to 5 Years
Over 5 Years
Total
in EUR thousand
(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 2017 Annual Report 6.4. 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 constantly reduces risk 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, takes 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 a special methodology for
monitoring key risk indicators which could
indicate increasing of operational risk. The
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 2017
was 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 are
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 level and using
the standardised approach at the NLB
level.
319
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 that
is 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 2017, 38 tests were
carried out at NLB (32 internal ones and
six 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
2017, NLB thus carried out a training
course for members of the Crisis
Management Team, the Crisis Teams
of office buildings and Head Business
Continuity Coordinator of NLB Belgrade.
Upon IT disasters/failures and “not IT”
disasters (floods, very strong wind) the Bank
successfully used the IT plans, instructions
for manual procedures, and Office Building
Plans, and thus also ensured business
operations in emergency situations.
NLB Group 2017 Annual Report 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 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).
320
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
the 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.
6.5. 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
NLB Group 2017 Annual Report a) Financial and non-financial assets and liabilities measured at fair value in the financial statements
321
in EUR thousand
31.12.2017
Financial assets
NLB Group
NLB
Level 1
Level 2
Level 3
Total fair
value
Level 1
Level 2
Level 3
Total fair
value
Financial instruments held for trading
59,164
12,454
Debt instruments
Derivatives
Derivatives - hedge accounting
Financial assets designated at fair
value through profit or loss
Debt instruments
Equity instruments
59,164
-
-
-
5,003
102
4,901
12,454
1,188
-
-
-
571
-
571
-
-
-
-
72,189
59,164
12,445
59,164
59,164
-
13,025
1,188
5,003
102
4,901
-
-
634
-
634
12,445
1,188
-
-
-
571
-
571
-
-
-
-
72,180
59,164
13,016
1,188
634
-
634
Financial assets available-for-sale
1,915,634
355,428
5,431
2,276,493
1,586,927
188,982
1,853
1,777,762
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 and disposal group
classified as held for sale
Non-financial assets impaired during the year
Recoverable amount of property, plant, and equipment
Recoverable amount of intangible asset
Recoverable amount of investments in
subsidiaries, associates, and joint ventures
1,914,963
308,346
-
2,223,309
1,586,447
144,467
-
1,730,914
671
47,082
5,431
53,184
480
44,515
1,853
46,848
-
-
-
-
-
-
-
-
9,502
9,502
25,529
635
51,838
11,631
6,867
-
-
-
-
-
-
-
-
-
9,502
9,502
25,529
635
51,838
11,631
6,867
-
-
-
-
-
-
-
-
-
-
9,398
9,398
25,529
635
9,257
2,564
436
-
-
-
-
-
-
-
332
413
9,398
9,398
25,529
635
9,257
2,564
436
-
745
NLB Group 2017 Annual Report 322
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 and disposal group
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 2017 Annual Report
323
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 2017 and 2016, 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;
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.
• derivatives: derivatives except forward
derivatives and options on equity
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).
At least three valuation methods are used
for the valuation of investment property.
NLB Group 2017 Annual Report market inputs is the Reuters information
system.
NLB Group uses three valuation methods
for the valuation of equity financial assets
mentioned in second bullet: 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% 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 input
data that other market participants would
use.
324
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. The
disposal group classified as held for sale
represents a subsidiary NLB Nov Penziski
Fond, Skopje (note 5.8).
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
NLB Group 2017 Annual Report Movements of financial assets and liabilities at Level 3
NLB Group
Balance as at 1.1.2016
Exchange differences
Valuation:
- through profit or loss
- recognised in other comprehensive income
Increases
Decreases
Balance as at 31.12.2016
Exchange differences
Valuation:
- through profit or loss
- recognised in other comprehensive income
Decreases
Balance as at 31.12.2017
NLB
Balance as at 1.1.2016
Exchange differences
Valuation:
- through profit or loss
- recognised in other comprehensive income
Increases
Decreases
Balance as at 31.12.2016
Valuation:
- through profit or loss
- recognised in other comprehensive income
Decreases
Balance as at 31.12.2017
325
Financial instruments held for trading
in EUR thousand
Financial assets
available-for-sale
Total financial assets
Debt instruments
Derivatives
Equity instruments
993
(37)
-
-
-
(956)
-
-
-
-
-
114
-
291
-
-
-
405
-
166
-
-
571
9,960
29
(178)
1,431
1,066
(6,405)
5,903
(271)
(26)
235
(410)
5,431
11,067
(8)
113
1,431
1,066
(7,361)
6,308
(271)
140
235
(410)
6,002
Financial instruments held for trading
in EUR thousand
Financial assets
available-for-sale
Total financial assets
Debt instruments
Derivatives
Equity instruments
993
(37)
-
-
-
(956)
-
-
-
-
114
-
291
-
-
-
405
166
-
-
571
6,874
-
(178)
453
1,066
(6,405)
1,810
(26)
241
(172)
1,853
7,981
(37)
113
453
1,066
(7,361)
2,215
140
241
(172)
2,424
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.’
NLB Group 2017 Annual Report 326
In 2017, NLB Group and NLB recognised
the following unrealised gains or losses for
financial instruments that were at Level 3 as
at 31.12.2017:
31.12.2017
Items of Income statement
NLB Group
NLB
in EUR thousand
Trading assets
Available-for-sale
financial assets
Trading assets
Available-for-sale
financial assets
Gains/(losses) from financial assets and liabilities held for trading
166
-
166
-
Item of Other comprehensive income
Available-for-sale financial assets
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
-
337
-
334
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
e) Fair value of financial instruments not measured at fair value in financial statements
NLB Group
NLB
in EUR thousand
31.12.2017
31.12.2016
31.12.2017
31.12.2016
Carrying value
Fair value Carrying value
Fair value Carrying value
Fair value Carrying value
Fair value
Loans and advances
- debt securities
82,133
79,974
85,315
78,953
82,133
79,974
85,315
78,953
- loans and advances to banks
510,107
523,943
435,537
434,958
462,322
468,599
408,056
415,771
- loans and advances to customers
6,912,333
6,494,021
6,912,067
6,962,419
4,587,477
4,584,217
4,843,594
4,884,828
- other financial assets
66,077
66,077
61,014
61,014
38,389
38,389
36,151
36,151
Held-to-maturity investments
609,712
658,029
611,449
671,344
609,712
658,029
611,449
671,344
Financial liabilities measured at amortised cost
- deposits from banks and central banks
40,602
40,608
42,334
42,314
72,072
72,072
74,977
74,977
- borrowings from banks and central banks
279,616
287,165
371,769
377,037
260,747
267,866
338,467
348,331
- due to customers
9,878,378
9,892,052
9,437,147
9,461,925
6,810,967
6,817,618
6,615,390
6,626,851
- borrowings from other customers
74,286
74,677
83,619
83,851
5,726
5,728
4,274
4,258
- debt securities in issue
- subordinated liabilities
-
-
277,726
280,278
27,350
26,923
27,145
28,777
-
-
-
-
277,726
280,278
-
-
- other financial liabilities
111,019
111,019
110,295
110,295
71,534
71,534
68,784
68,784
NLB Group 2017 Annual Report 327
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 2017 Annual Report 328
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
31.12.2017
Loans and advances
- debt securities
- loans and advances to banks
- loans and advances to customers
- other financial assets
-
-
-
-
79,974
523,943
6,494,021
66,077
Held-to-maturity investments
658,029
-
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
- subordinated liabilities
- other financial liabilities
-
-
-
-
-
-
40,608
287,165
9,892,052
74,677
26,923
111,019
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
Total fair
value
79,974
523,943
6,494,021
66,077
-
-
-
-
79,974
468,599
4,584,217
38,389
658,029
658,029
-
40,608
287,165
9,892,052
74,677
26,923
111,019
-
-
-
-
-
-
72,072
267,866
6,817,618
5,728
-
71,534
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
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
79,974
468,599
4,584,217
38,389
658,029
72,072
267,866
6,817,618
5,728
-
71,534
in EUR thousand
-
-
-
-
-
-
-
-
-
-
-
-
78,953
415,771
4,884,828
36,151
671,344
74,977
348,331
6,626,851
4,258
280,278
-
68,784
NLB Group
NLB
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Total fair
value
NLB Group 2017 Annual Report 6.6. 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
329
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.
NLB Group and NLB
31.12.2017
Amounts not set-off on the statement of financial position
Financial assets/liabilities
Derivatives - assets
Derivatives - liabilities
Gross amounts of
recognised financial
assets/liabilities
13,633
34,253
Impact of master
netting agreements
Financial instruments
collateral
4,301
4,301
875
29,267
NLB Group and NLB
31.12.2016
Amounts not set-off on the statement of financial position
Financial assets/liabilities
Derivatives - assets
Derivatives - liabilities
Gross amounts of
recognised financial
assets/liabilities
18,746
39,663
Impact of master
netting agreements
Financial instruments
collateral
5,335
5,335
300
31,180
in EUR thousand
Net amount
8,457
685
in EUR thousand
Net amount
13,111
3,148
NLB Group and NLB have no financial
assets/liabilities set off in the statement of
financial position.
NLB Group 2017 Annual Report 330
7. Analysis by segment for NLB Group
a) Segments
2017
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
73,919
140,719
39,645
191,655
40,904
Net income from external customers
78,301
141,059
30,880
193,264
40,717
Intersegment net income
(4,383)
(340)
8,764
(1,609)
187
Net interest income
42,888
72,768
32,490
144,585
16,785
Net interest income from external customers
47,271
73,440
23,694
146,596
18,419
Intersegment net interest income
(4,383)
(672)
8,796
(2,011)
(1,633)
4,307
4,416
(109)
(201)
(103)
(98)
Administrative expenses
(39,287)
(90,455)
(11,414)
(87,881)
(20,447)
(9,933)
Depreciation and amortisation
(4,295)
(10,310)
(999)
(9,322)
(1,280)
(1,595)
30,337
39,954
27,232
94,452
19,177
(7,221)
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
22,475
(2,923)
-
4,621
159
(55)
-
(928)
-
7,552
12,930
(10,449)
Profit/(loss) before income tax
52,811
41,652
27,336
102,004
31,179
(17,670)
Owners of the parent
Non-controlling interests
Income tax
Profit for the year
52,811
41,652
27,336
93,759
31,179
(17,670)
-
-
-
-
-
-
-
-
-
8,245
-
-
-
-
-
-
-
-
Reportable segment assets
2,055,734
2,204,045
3,508,467
3,851,214
391,308
183,212
Investments in associates, and joint ventures
-
43,765
-
-
-
-
Reportable segment liabilities
1,122,742
5,542,818
501,609
3,264,781
19,287
98,346
Additions to non-current assets
5,357
12,768
778
8,722
1,357
1,627
-
-
-
-
-
-
-
-
-
-
-
-
-
491,149
488,638
2,511
309,316
309,316
-
(259,418)
(27,802)
203,929
3,852
29,530
237,311
229,066
8,245
(3,997)
(3,997)
-
-
-
-
-
225,069
12,193,980
43,765
10,549,582
30,609
NLB Group 2017 Annual Report 331
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
75,043
133,584
47,703
179,370
26,243
17,831
2016
Total net income
Net income from external customers
83,335
126,269
43,186
179,370
29,433
18,181
Intersegment net income
(8,292)
7,315
4,518
-
(3,190)
Net interest income
45,891
71,222
48,536
136,909
15,404
Net interest income from external customers
54,183
63,907
44,018
136,909
18,594
Intersegment net interest income
(8,292)
7,315
4,518
-
(3,190)
(351)
(656)
(306)
(351)
Administrative expenses
(40,159)
(90,794)
(11,118)
(87,477)
(21,884)
(13,758)
Depreciation and amortisation
(4,394)
(10,350)
(1,035)
(8,013)
(2,290)
(2,262)
30,490
32,440
35,550
83,880
2,069
1,812
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
27,810
27,354
35,602
67,590
(18,941)
(8,815)
Owners of the parent
Non-controlling interests
Income tax
Profit for the year
27,810
27,354
35,602
61,982
(18,941)
(8,815)
-
-
-
-
-
-
-
-
-
5,608
-
-
-
-
-
-
-
-
Reportable segment assets
2,338,698
2,074,736
3,375,667
3,540,474
502,610
163,577
Investments in associates, and joint ventures
-
43,248
-
-
-
-
Reportable segment liabilities
1,198,058
5,229,761
907,159
3,038,921
57,935
81,518
Additions to non-current assets
2,305
7,286
363
7,882
2,928
463
-
-
-
-
-
-
-
-
-
-
-
-
-
479,775
479,773
-
317,305
317,305
-
(265,191)
(28,345)
186,239
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
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 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.
NLB Group 2017 Annual Report 332
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
2017
2016
2017
2016
2017
2016
2017
2016
328,111
348,961
289,894
297,495
121,015
70,094
5,008
(7,854)
South East Europe
243,213
234,014
195,934
176,148
112,403
60,900
(8,999)
(7,115)
Macedonia
Serbia
Montenegro
Croatia
86,397
83,364
66,214
61,824
46,261
28,533
(4,756)
(2,755)
25,401
21,585
23,784
18,822
28,629
30,186
21,900
16,484
5,180
4,766
1,733
(794)
137
181
337
(125)
(1,208)
(3,250)
(59)
386
-
(152)
(116)
(1)
Bosnia and Herzegovina
67,908
65,882
54,578
51,698
41,796
22,098
(3,103)
(2,802)
Bulgaria
Kosovo
Western Europe
Germany
Switzerland
Czech Republic
Total
-
-
-
-
-
84
-
-
34,741
32,816
29,121
27,445
15,608
12,496
(1,467)
(1,289)
494
8
486
2
1,127
19
1,108
1
(159)
96
(255)
2,969
2,105
474
2,018
3,915
1,631
(1,897)
(4)
1,875
(137)
(248)
111
(257)
(6)
-
(6)
-
(6)
-
(6)
-
571,820
584,103
488,638
475,744
237,311
130,600
(3,997)
(14,975)
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 2017 Annual Report 333
in EUR thousand
Non-current assets
Total assets
Number of employees
31.12.2017
31.12.2016
31.12.2017
31.12.2016
31.12.2017
31.12.2016
189,928
225,643
8,293,381
8,393,754
128,768
130,949
3,913,015
3,602,358
2,922
3,102
3,065
3,104
32,320
24,394
29,686
1,923
26,876
13,569
236
218
18
-
33,448
1,235,163
1,147,375
24,822
29,476
2,568
406,959
316,023
466,155
478,682
29,312
27,164
27,222
1,190,435
1,116,169
13,413
584,991
516,945
247
222
25
891
31,140
1,876
29,264
209
39,742
2,782
36,960
3,157
901
447
319
12
942
481
5
1
4
-
891
424
342
16
942
489
6
1
5
-
318,932
357,730
12,237,745
12,039,011
6,029
6,175
Revenues
Net income
Profit/(loss) before
income tax
Income tax
in EUR thousand
2017
2016
2017
2016
2017
2016
2017
2016
398,851
390,240
353,327
333,099
191,115
52,829
3,167
(4,554)
243,566
234,257
179,911
179,677
98,698
66,530
(8,005)
(7,083)
86,447
83,422
65,520
61,078
46,079
28,739
(4,756)
(2,755)
25,570
21,748
23,523
19,235
5,076
28,680
30,199
7,633
21,073
(8,693)
2,304
4,456
192
152
(50)
(695)
(1,205)
(3,378)
935
386
-
(119)
(116)
(1)
NLB Group
Slovenia
South East Europe
Macedonia
Serbia
Montenegro
Croatia
Bosnia and Herzegovina
Kosovo
Western Europe
Germany
Switzerland
Czech Republic
Total
The table below presents data on NLB
Group members before intercompany
eliminations and consolidation journals.
Slovenia
South East Europe
Macedonia
Serbia
Montenegro
Croatia
Bosnia and Herzegovina
67,936
65,921
54,203
51,228
41,777
22,087
(3,103)
(2,803)
Bulgaria
Kosovo
Western Europe
Germany
Switzerland
Czech Republic
Total
-
-
-
-
-
(230)
-
-
34,741
32,815
29,082
27,758
15,664
12,552
(1,467)
(1,289)
650
9
641
1
1,197
20
1,177
107
(569)
87
(656)
294
1,455
466
989
2
2,151
3,916
(4,958)
(247)
(1,765)
(4,711)
189
(257)
(6)
-
(6)
-
(6)
-
(6)
-
643,068
625,801
532,963
514,233
292,153
114,144
(4,844)
(11,643)
NLB Group 2017 Annual Report 334
8. 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
2017
2016
2017
2016
2017
2016
2017
2016
Loans issued
Balance at 1.1.
Increase
Decrease
Balance at 31.12.
Interest income
Deposits received
Balance at 1.1.
Increase
Decrease
Balance at 31.12.
Interest expense
Other financial liabilities
Guarantees issued and credit commitments
Fee income
Other income
Other expenses
2,110
1,180
1,953
1,367
492
245
468
445
371
385
375
368
(1,269)
(1,210)
(324)
(421)
(514)
(372)
2,021
2,110
36
41
2,079
2,653
2,158
3,038
(2,751)
(3,117)
1,981
(9)
2,408
224
11
-
(5)
2,079
(14)
1,536
248
13
2
(2)
413
8
697
692
(620)
769
(3)
-
76
4
-
-
492
9
729
725
(757)
697
(4)
-
83
6
-
-
242
7
480
504
(391)
593
-
7
116
10
-
(77)
371
9
106
464
(90)
480
-
2
147
9
-
-
-
500
(65)
435
10
130
660
(550)
240
-
-
31
2
-
-
2
-
(2)
-
-
223
146
(239)
130
(1)
-
3
-
-
-
NLB Group 2017 Annual Report Ultimate parent company of NLB is the Republic of Slovenia.
Loans issued
Balance at 1.1.
Increase
Decrease
Balance at 31.12.
Interest income
Deposits received
Balance at 1.1.
Increase
Decrease
Balance at 31.12.
Interest expense
Investments in securities
Balance at 1.1.
Exchange difference on opening balance
Increase
Decrease
Valuation
Balance at 31.12.
Interest income
Other financial assets
Other financial liabilities
Guarantees issued and credit commitments
Fee income
Fee expense
Other income
Other expense
335
in EUR thousand
NLB Group
NLB
Ultimate parent
Ultimate parent
2017
2016
2017
2016
178,589
5,531
(56,339)
127,781
4,137
70,005
5
(70,010)
-
(5)
934,336
1
768,063
(803,950)
3,061
901,511
21,130
18
8
932
174
(41)
58
(106)
227,341
7,520
(56,272)
178,589
5,896
110,001
12,803,693
(12,843,689)
70,005
(5)
891,576
-
390,860
(345,457)
(2,643)
934,336
28,019
153
6
849
129
(39)
5
(1)
173,160
5,416
(54,917)
123,659
4,022
70,005
5
(70,010)
-
(5)
869,941
-
692,835
(739,302)
2,888
826,362
20,891
18
8
932
174
(41)
58
(106)
220,646
7,355
(54,841)
173,160
5,732
110,001
12,803,693
(12,843,689)
70,005
(5)
845,039
-
366,845
(339,544)
(2,399)
869,941
27,224
1
6
849
129
(39)
5
(1)
NLB Group 2017 Annual Report 336
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
Commitments to extend credit
2017
117,924
-
2016
158,136
140,000
2017
1
-
2016
1
2
Loans
Debt securities classified as loans and advances
Borrowings, deposits, and business accounts
Commitments to extend credit
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
Year-end balance of all significant transactions
Number of significant transactions at year-end
2017
575,024
82,133
135,006
-
2016
770,407
85,315
135,020
140,000
2017
2016
5
1
2
-
5
1
3
2
Effects in income statement during the year
2017
4,933
(526)
(93)
-
2016
3,796
16,425
(225)
894
NLB Group 2017 Annual Report NLB Group
Loans issued
Balance at 1.1.
Increase
Decrease
Balance at 31.12.
Interest income
Impairment
Deposits received
Balance at 1.1.
Exchange difference on opening balance
Increase
Decrease
Balance at 31.12.
Interest expense
Debt securities in issue
Interest expense
Other financial assets
Impairment
Other financial liabilities
Interest expense
Guarantees issued and credit commitments
Fee income
Fee expense
Other income
Other expense
Associates
Joint ventures
337
in EUR thousand
2017
1,418
134
(256)
1,296
42
22
5,838
-
3,030
(3,910)
4,958
-
-
-
27
-
1,109
-
38
140
(11,547)
224
(1,004)
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)
2017
2016
19,857
210
(15,734)
4,333
59
1,767
5,198
31
139,077
(137,450)
6,856
(19)
-
-
347
(1)
103
(43)
29
4,155
(1,894)
132
(13)
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)
NLB Group 2017 Annual Report 338
NLB
Loans issued
Balance at 1.1.
Increase
Decrease
Balance at 31.12.
Interest income
Impairment
Deposits
Balance at 1.1.
Increase
Decrease
Balance at 31.12.
Interest income
Deposits received
Balance at 1.1.
Increase
Decrease
Balance at 31.12.
Interest expense
Debt securities in issue
Interest expense
Other financial assets
Impairment
Other financial liabilities
Interest expense
Subsidiaries
Associates
Joint ventures
in EUR thousand
2017
2016
2017
2016
2017
2016
320,724
381,746
250,537
105,439
(293,197)
(166,461)
278,064
320,724
6,369
17,697
7,453
(9,272)
28,431
3,438
451,462
298,795
(443,423)
(273,802)
36,470
28,431
30
9
54,556
59,407
12,988,335
11,271,052
(12,986,762)
(11,275,903)
56,129
54,556
(88)
-
-
730
-
61
-
(29)
-
-
723
11
296
-
1,418
134
(256)
1,296
42
22
-
-
-
-
-
5,838
3,030
(3,910)
4,958
-
-
-
27
-
1,008
-
38
-
-
140
1,625
124
(331)
1,418
48
16
-
-
-
-
-
1,179
6,945
(2,286)
5,838
-
-
(17)
30
-
849
-
40
-
-
126
(10,178)
(10,182)
224
(754)
233
(845)
19,822
93,799
140
109,508
(15,690)
(183,485)
4,272
57
1,767
-
-
-
-
-
19,822
931
9,730
-
-
-
-
-
4,443
75,571
3,438
77,034
(75,159)
(76,029)
4,855
4,443
(3)
-
-
347
(1)
25
(43)
28
-
-
4,041
(983)
132
(13)
-
-
-
140
(1)
1
-
27
-
-
3,419
(1,427)
540
(89)
Guarantees issued and credit commitments
25,718
26,729
Income/(expense) provisons for guaranties and commitments
Received loan commitments and financial guarantees
Fee income
Fee expense
Other income
Other expense
(322)
1,000
5,723
(45)
525
442
500
4,336
(75)
527
(1,298)
(2,830)
NLB Group 2017 Annual Report 339
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 a contractual gross salary
considering the limitations of the Slovenian
and European legislation.
Simultaneously, under the contract,
members of the Management Board are
NLB Group and NLB
Short-term benefits
Cost refunds
Long-term bonuses:
- severance pay
- other benefits
- variable part of payments
Total
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.
Management Board
Other key management personnel
Supervisory Board
in EUR thousand
2017
633
5
-
6
63
707
2016
504
4
-
5
78
591
2017
4,686
105
25
73
673
2016
4,866
112
-
76
499
2017
237
50
-
-
-
2016
245
74
-
-
-
5,562
5,553
287
319
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 2017 Annual Report 340
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
- 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
The above table shows earnings paid to individuals in the year when they were members of the Management Board.
2017
140,565
2,349
1,193
1,409
20,447
165,963
140,565
20,372
1,077
1,409
20,447
183,870
140,565
18,753
1,132
1,409
20,447
182,306
140,565
29,379
1,224
1,409
2,036
174,613
-
-
-
-
-
-
in EUR
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
NLB Group 2017 Annual Report Payments to individual members of the Supervisory Board
Member
Andreas Klingen
22.06.2015
Primož Karpe
11.02.2016
Laszlo Zoltan Urban
11.02.2016
Alexander Bayr
04.08.2016
David Eric Simon
04.08.2016
Peter Groznik
08.09.2017
Simona Kozjek
08.09.2017
Vida Šeme Hočevar
08.09.2017
David Kastelic
4.8.2016 - 8.9.2017
Matjaž Titan
4.8.2016 - 21.4.2017
Uroš Ivanc
12.6.2013 - 7.4.2017
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
341
in EUR
2016
7,370
25,744
13,833
6,600
28,585
5,591
5,280
16,563
5,341
1,650
7,440
3,564
1,375
8,750
1,958
-
-
-
-
-
-
-
-
-
1,155
8,750
-
1,430
8,750
-
6,930
25,096
404
2017
5,335
28,858
10,356
6,270
37,661
5,796
5,610
21,149
6,276
5,830
21,490
10,206
6,490
27,092
16,916
1,375
6,483
90
1,155
6,483
-
1,595
8,257
151
4,015
15,500
-
2,805
6,937
44
2,310
7,073
44
NLB Group 2017 Annual Report 2017
1,430
6,117
345
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
in EUR
2016
7,370
27,547
898
5,720
14,826
38,598
1,045
6,261
180
1,485
3,324
60
1,705
4,499
267
1,210
3,950
3,536
1,210
3,362
-
342
Member
Sergeja Slapničar
12.6.2013 - 20.3.2017
Tit A. Erker
12.6.2013 - 3.8.2016
Janko Gedrih
10.2.2016 - 15.4.2016
Anton Macuh
10.2.2016 - 15.4.2016
Anton Ribnikar
10.2.2016 - 15.4.2016
Miha Košak
12.6.2013 - 10.2.2016
Gorazd Podbevšek
12.6.2013 - 10.2.2016
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
The above table shows earnings paid to individuals in the year when they were members of the Supervisory Board.
9. Events after the reporting date
In March 2018, NLB received a letter
from ECB on ECB’s intention to adopt
the decision to restrict distributions by
NLB to its shareholders and to require a
Contingent Capital Plan. More details are
disclosed in note 5.23.
In March 2018, NLB Group sold its
subsidiary NLB Nov Penziski Fond, Skopje
and realised profit in amount of EUR 12
million on NLB Group and EUR 9 million
on NLB.
NLB Group 2017 Annual Report 345
NLB Group
Chart as at 31
December 2017
NLB Group 2017 Annual Report 346
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
NLB Vita, Ljubljana
Bankart, Ljubljana
39.44%
39.44%
100%
100%
50%
50%
NLB Banka, Sarajevo
NLB Banka, Podgorica
NLB Banka, Prishtina
NLB Banka, Banja Luka
NLB Banka, Skopje
97.35%
97.35%
99.83%
99.83%
81.21%
81.21%
99.85%
99.85%
86.97%
86.97%
Skupna pokojninska
družba, Ljubljana
28.13%
28.13%
Foreign countries
Foreign countries
NLB Nov penziski fond,
Skopje***
51%
100%
NLB Srbija, Beograd
49%
NLB Crna Gora, Podgorica
100%
100%
100%
100%
Foreign countries
Foreign countries
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
Notes:
* Contractual based influence on management of the company
** NLB InterFinanz Praha - from 1 January 2018 in liquidation
*** NLB Nov penziski fond, Skopje - on 12 December 2017 the Agreement for the Sale and Purchase of Shares was signed, on 14 March 2018 closing of the sales process
**** 90% direct ownership Prvi Faktor, Ljubljana in liquidation, 5% NLB, 5% SID banka d.d.
Financial institutions
Slovenia
NLB Leasing, Ljubljana
in liquidation
100%
100%
Optima Leasing, Zagreb
in liquidation
100%
100%
Prvi faktor, Ljubljana
in liquidation
50%
50%
Prvi faktor, Beograd
in liquidation****
Prvi faktor, Sarajevo
in liquidation
Prvi faktor, Zagreb
in liquidation
90%
95%
100%
100%
100%
100%
NLB InterFinanz, Zürich
in liquidation
100%
100%
NLB InterFinanz, Beograd
in liquidation
NLB InterFinanz Praha,
Prague in liquidation**
100%
100%
100%
100%
NLB Lizing, Skopje
in liquidation
NLB Leasing, Sarajevo
NLB Leasing, Beograd
in liquidation
NLB Leasing, Podgorica
in liquidation
LHB AG, Frankfurt
Sophia Portfolio BV*
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
0%
0%
Companies
Slovenia
NLB Propria, Ljubljana
in liquidation
Prospera plus, Ljubljana
in liquidation
PRO-REM, Ljubljana
in liquidation
BH-RE, Sarajevo
100%
100%
100%
100%
100%
100%
OL Nekretnine, Zagreb
in liquidation
ARG Nepremičnine, Horjul
75%
75%
100%
100%
100%
100%
CBS Invest, Sarajevo
REAM, Podgorica
REAM, Beograd
REAM, Zagreb
SR-RE, Beograd
Tara Hotel, Budva
SPV 2 DOO Beograd
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
12.71%
100%
100%
100%
NLB Group 2017 Annual Report Nova Ljubljanska banka d.d., Ljubljana
Core members
Non-core members
347
Financial institutions
Slovenia
NLB Leasing, Ljubljana
in liquidation
100%
100%
Optima Leasing, Zagreb
in liquidation
100%
100%
Prvi faktor, Ljubljana
in liquidation
50%
50%
Prvi faktor, Beograd
in liquidation****
Prvi faktor, Sarajevo
in liquidation
Prvi faktor, Zagreb
in liquidation
90%
95%
100%
100%
100%
100%
Companies
Slovenia
NLB Propria, Ljubljana
in liquidation
Prospera plus, Ljubljana
in liquidation
PRO-REM, Ljubljana
in liquidation
BH-RE, Sarajevo
OL Nekretnine, Zagreb
in liquidation
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
ARG Nepremičnine, Horjul
75%
75%
NLB Banka, Skopje
NLB Crna Gora, Podgorica
49%
Foreign countries
Foreign countries
NLB InterFinanz, Zürich
in liquidation
100%
100%
NLB InterFinanz, Beograd
in liquidation
100%
100%
NLB InterFinanz Praha,
Prague in liquidation**
100%
100%
NLB Lizing, Skopje
in liquidation
NLB Leasing, Sarajevo
NLB Leasing, Beograd
in liquidation
NLB Leasing, Podgorica
in liquidation
LHB AG, Frankfurt
Sophia Portfolio BV*
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
0%
0%
CBS Invest, Sarajevo
REAM, Podgorica
REAM, Beograd
REAM, Zagreb
SR-RE, Beograd
Tara Hotel, Budva
SPV 2 DOO Beograd
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
12.71%
100%
100%
100%
Banks
Financial institutions
Foreign countries
Slovenia
Companies
Slovenia
NLB Banka, Beograd
NLB Skladi, Ljubljana
Bankart, Ljubljana
NLB Banka, Sarajevo
NLB Vita, Ljubljana
100%
100%
50%
50%
NLB Banka, Podgorica
NLB Banka, Prishtina
NLB Banka, Banja Luka
Skupna pokojninska
družba, Ljubljana
28.13%
28.13%
Foreign countries
Foreign countries
NLB Nov penziski fond,
Skopje***
51%
100%
NLB Srbija, Beograd
99.997%
99.997%
97.35%
97.35%
99.83%
99.83%
81.21%
81.21%
99.85%
99.85%
86.97%
86.97%
39.44%
39.44%
100%
100%
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
Notes:
* Contractual based influence on management of the company
** NLB InterFinanz Praha - from 1 January 2018 in liquidation
*** NLB Nov penziski fond, Skopje - on 12 December 2017 the Agreement for the Sale and Purchase of Shares was signed, on 14 March 2018 closing of the sales process
**** 90% direct ownership Prvi Faktor, Ljubljana in liquidation, 5% NLB, 5% SID banka d.d.
NLB Group 2017 Annual Report 348
Organizational
Structure of NLB as
at 31 December 2017
NLB Group 2017 Annual Report 349
CEO
Management Board
Strategy and Business
Development
Legal and Secretariat
Communication
Human Resources and
Organization Development
Internal Audit
Compliance
and Integrity
Group Steering
CRO
CFO
CMO
COO
Global Risk
Credit Risk -
Corporate and Retail
Group Real Estate
Asset Management
Sales Development and
Management
Procurement and CREM
Controlling
Small Enterprises
Innovation Management and
Business Analysis
Information System
Development
Evaluation and Control
Financial Accounting
Large Corporates
Restructuring
Financial Markets
Mid Corporates
Data Management
Workout and
Legal Support
Investment Banking
and Custody
Trade Finance Services
IT Infrastructure
Non-Strategic Corporate
Private Banking
NLB Contact Centre
Accounts Administration
and Payroll
Payments Processing
Distribution Network
Cash Processing
Distribution Network
Back Office
Treasury and Financial
Markets Processing
Area Branch
Osrednjeslovenska - Jug
Corporate Banking
Processing
Area Branch
Osrednjeslovenska - Sever
Retail Banking
Processing
Area Branch
Domžale, Kamnik in Zasavje
Area Branch
Savinjsko - Koroška
Area Branch
Podravsko - Pomurska
Area Branch
Dolenjska, Bela krajina in Posavje
Area Branch
Primorska, Goriška in Notranjska
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.
NLB Group 2017 Annual Report
350
NLB Group directory
Nova Ljubljanska banka d.d., Ljubljana
Dolenjska, Bela krajina,
Business Centre Mobile banking
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, President & CEO
Archibald Kremser, Member of the
Management Board
Andreas Burkhardt, 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
Glavni trg 30
2380 Slovenj Gradec, Slovenia
Tel: +386 2 884 9150
Fax: +386 2 884 9245
Podravsko-Pomurska Branch
Titova cesta 2
2000 Maribor, Slovenia
Tel: +386 2 234 45 04
Fax: +386 2 234 45 34
and Posavje Branch
Seidlova cesta 3
8000 Novo mesto, Slovenia
Tel: +386 7 339 14 56
Fax: +386 7 339 13 84
Primorska, Goriška, and
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 (headquarters)
Trg republike 2
1520 Ljubljana, Slovenia
Tel: +386 1 476 21 02
Fax: +386 1 476 23 26
Business Centre Central Slovenia
Trg republike 2
1520 Ljubljana, Slovenia
Tel: +386 1 476 52 15
Fax: +386 1 476 23 26
Business Centre West
Koroška cesta 21
4000 Kranj, Slovenia
Tel: +386 4 287 41 17
Fax: +386 4 287 41 40
Business Centre North East
Titova cesta 2
2000 Maribor, Slovenia
Tel: +386 2 234 45 44
Fax: +386 2 234 45 55
Business Centre South East
Trg Matije Gubca 1
8270 Krško, Slovenia
Tel: +386 7 490 46 05
Fax: +386 7 490 46 42
Nove Fužine 33
1520 Ljubljana, Slovenia
Tel: +386 1 587 41 25
Fax: +386 1 477 46 39
Innovative Entrepreneurship Centre
Trg republike 2
1520 Ljubljana, Slovenia
Tel: +386 1 476 31 49
Fax: +386 1 476 23 26
Mid corporates
Central region
Trg republike 2
1520 Ljubljana, Slovenia
Tel.: +386 1 476 26 11
Faks: +386 1 251 05 72
Northeast region
Ljubljanska cesta 62
1230 Domžale, Slovenia
Tel.: +386 1 724 54 75
Faks: +386 1 724 55 08
Southwest region
Pristaniška ulica 45
6000 Koper, Slovenia
Tel.: +386 5 610 30 29
Faks: +386 5 610 30 75
Podravsko-Pomurska region
Titova cesta 2
2000 Maribor, Slovenia
Tel.: +386 2 234 45 00
Faks: +386 2 234 45 53
Savinjsko-Koroška region
Kocenova 1
3000 Celje, Slovenia
Tel.: +386 3 424 01 11
Faks: +386 3 544 24 66
NLB Group 2017 Annual Report 351
Large corporates
NLB Banka sh.a., Prishtina
NLB Banka d.d., Sarajevo
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., Belgrade
Bulevar Mihajla Pupina 165 v
11070 Belgrade, 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 Banka a.d., Podgorica
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
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://nlbprishtina-kos.com/
Albert Lumezi, President of the
Management Board
Bogdan Podlesnik, Member of the
Management Board
Lavdim Koshutova, Member of the
Management Board
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
Lidija Žigić, President of the Management
Board
Denis Hasanić, Member of the
Management Board
Jure Peljhan, Member of the Management
Board
NLB Banka a.d. Banja Luka
NLB Leasing d.o.o., Ljubljana – v likvidaciji
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.nlb.ba
Radovan Bajić, President of the
Management Board
Marjana Usenik, Member of the
Management Board
Dragan Injac, Member of the
Management Board
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 (until 31.12.2017)
Damir Kuder, Member of the
Management Board
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, Liquidator
Anže Pogačnik, Liquidator
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
Veljko Tanić, 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
Milan Marković, Liquidator
NLB Leasing d.o.o. Sarajevo
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 Group 2017 Annual Report 352
NLB Lizing dooel, Skopje - u likvidaciji
NLB InterFinanz AG in Liquidation, Zürich
NLB Nov penziski fond AD, Skopje
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
Ana Narašanova, Liquidator
Beethovenstrasse 48
8002 Zürich, Switzerland
Tel: +41 44 283 17 17
E-mail: info@nlbinterfinanz.ch
Jean-David Barnezet Llort, Liquidator
Polona Žižmund, Liquidator
NLB InterFinanz d.o.o.,
Optima Leasing d.o.o. u likvidaciji, Zagreb
Beograd – u likvidaciji
Bulevar Mihajla Pupina 165 v
11070 Belgrade, Serbia
Tel: +381 11 22 25 350
Fax: +381 11 22 25 354
Vladan Tekić, Liquidator
NLB InterFinanz Praha s.r.o., v
likvidaci (from 1 January 2018)
Muchova 240/6, Dejvice
160 00 Prague 6, Czech Republic
CZECH DTMR Partners s.r.o., Liquidator
NLB Vita d.d., Ljubljana
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
Irena Prelog, President of the
Management Board
Tine Pust, Member of the Management
Board
Skupna pokojninska družba
d.d., Ljubljana
Dunajska cesta 22
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
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: klemen.hauko@prvifaktor.si
E-mail: marcel.osti@prvifaktor.si
Klemen Hauko, Liquidator
Marcel Mišanović Osti, Liquidator
Prvi faktor – faktoring d.o.o., Beograd
– u likvidaciji
Bulevar Mihajla Pupina 165 v
11070 Novi Beograd, Serbia
Tel: +381 11 222 54 00
Fax: +381 11 222 54 44
E-mail: zeljko.atanaskovic@prvifaktor.rs
Željko Atanasković, Liquidator
Prvi faktor d.o.o. u likvidaciji, Sarajevo
Mis Irbina 26/1
71000 Sarajevo, Bosnia and Herzegovina
Tel: +387 61 066 055
E-mail: denan.bogdanic@prvifaktor.ba
Đenan Bogdanić, Liquidator
Prvi faktor d.o.o. u likvidaciji, Zagreb
Hektorovičeva 2
10000 Zagreb, Croatia
Tel: +385 1 6165 000
Fax: +385 1 6176 629
E-mail: jure.hartman@prvifaktor.hr
E-mail: marko.ugarkovic@prvifaktor.hr
Jure Hartman, Liquidator
Marko Ugarković, Liquidator
(sold on 14 March 2018)
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
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
LHB Aktiengesellschaft,
Frankfurt am Main
Große Bockenheimer Str. 33-35
60313 Frankfurt, Germany
Tel: +49 69 21 06 816
Fax: +49 69 21 06 199
E-mail: info@lhb.de
www.lhb.de
Markus Buzov, Management Board (until
31 March 2018)
Matjaž Jevnišek, Management Board (from
15 January 2018)
NLB Group 2017 Annual Report 353
NLB Srbija d.o.o., Belgrade
Bulevar Mihajla Pupina 165 v
11070 Belgrade, 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
NLB Crna Gora d.o.o., Podgorica
Bulevar Džorža 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
Branches and representative offices
of NLB Group members outside their
country of residence
NLB InterFinanz AG in liquidation
Ljubljana Branch
Puharjeva ulica 3
1000 Ljubljana, Slovenia
E-mail: info@nlbinterfinanz.ch
Marko Čelebić, Director
NLB Propria d.o.o., Ljubljana – v likvidaciji
REAM d.o.o., Zagreb
Železna cesta 18
1000 Ljubljana, Slovenia
Tel: +386 1 476 28 32
Mateja Uršič, Liquidator
Boris Anže Dugar, Liquidator
Prospera plus d.o.o.,
Ljubljana – v likvidaciji
Šmartinska cesta 132
1000 Ljubljana, Slovenia
Tel: +386 1 524 82 91
E-mail: info@prospera-plus.si
Mateja Uršič, Liquidator
Boris Anže Dugar, Liquidator
CBSinvest d.o.o., Sarajevo
Džidžikovac 1
71000 Sarajevo, Bosnia and Herzegovina
Tel: +387 61 162 618
Eldin Teskeredžić, Director
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
OL Nekretnine d.o.o. u likvidaciji, Zagreb
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
PRO-REM d.o.o., Ljubljana - v likvidaciji
SR-RE d.o.o., Beograd – Novi Beograd
Čopova 3
1000 Ljubljana, Slovenia
Tel: +386 1 586 29 16
E-mail: info@prorem.si
www.nlbrealestate.com
Jovica Jakovac, Liquidator
Jaka Medvešček, 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
Marko Furlan, Authorised Representative
REAM d.o.o., Beograd – Novi Beograd
Bulevar Mihaila Pupina 165 v
11070 Belgrade, Serbia
Tel: +381 60 34 96 923
E-mail: office@ream-srb.com
Vladimir Vasilijević, Director
Veljko Tanić, Director
Bulevar Mihaila Pupina 165 v
11070 Belgrade, Serbia
Tel: +381 60 34 96 923
E-mail: office@ream-srb.com
Vladimir Vasilijević, Director
Veljko Tanić, Director
SPV2 d.o.o., Beograd – Novi Beograd
Bulevar Mihaila Pupina 165 v
11070 Belgrade, Serbia
Tel: +381 60 34 96 923
E-mail: office@ream-srb.com
Vladimir Vasilijević, Director
Hotel Tara d.o.o., Budva
Bečići, 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 Hercegovina
Tel: +387 33 720 304
Fax: +387 35 302 802
E-mail: admir.pejkusic@nlb.ba
Admir Pejkušić, Director
NLB Group 2017 Annual Report NLB d.d., Ljubljana
Trg republike 2
1000 Ljubljana
Slovenia
T: +386 1 476 3900
F: +386 1 252 2422
E-mail: info@nlb.si
Internet: nlb.si
SWIFT: LJBASI2X
Reuter: LB LJ
IBAN SI56 0290 0000 0200 020
Account number: 02900-0000200020
VAT identification number: SI91132550
Text: NLB d.d.
Production: Gigodesign d.o.o. and Taktik d.o.o.
Photographs: Primož Korošec and NLB Group archives
Copyright: NLB d.d., Ljubljana, Slovenia
Ljubljana, April 2018