Annual
Report
2018
The Regional Choice
The Regional Choice
Annual Report 2018
Definitions and glossary of selected terms
ALM
Asset and Liability Management
AML/CTF
Anti-Money Laundering and Counter-Terrorism Financing
Articles of Association
Articles of Association of the Bank
BAMC
Bank Asset Management Company
BiH
BoS
bps
BRRD
CAGR
CAR
CB
CBR
CEE
CEO
CET 1
CFO
CIR
CMO
COO
CRD
CRO
CRR
CSR
CVA
DGS
DTR
EBA
EBRD
EC
ECB
EMU
ESMA
EU
FATF
FCA
FED
FVTPL
FX
GDP
GDPR
GDR
HICP
HR
IAS 39
ICAAP
IFRS 9
ILAAP
Bosnia and Hercegovina
Bank of Slovenia
Basis Points
Bank Recovery and Resolution Directive
Compound Annual Growth Rate
Capital Adequacy Ratio
Central Bank
Combined Buffer Requirement
Central Eastern Europe
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
Deposit Guarantee Scheme
Disclosure Guidance and Transparency Rules
European Banking Authority
European Bank for Reconstruction and Development
European Commission
European Central Bank
Economic and Monetary Union of the European Union
European Securities and Markets Authority
European Union
Financial Action Task Force
UK Financial Conduct Authority
Federal Reserve System
Fair value loans through profit or loss
Foreign Exchange
Gross Domestic Product
General Data Protection Regulation
Global Depositary Receipts
Harmonised Index of Consumer Prices
Human Resources
International Accounting Standard 39
Internal Capital Adequacy Assessment Process
International Financial Reporting Standard 9
Internal Liquidity Adequacy Assessment Process
IMF
ISM
KDD
KPI
LCR
LTD
M&A
MAR
International Monetary Fund
Information Security Management
Central Securities Clearing Corporation
Key Performance Indicator
Liquidity Coverage Ratio
Loan-to-Deposit Ratio
Mergers and Acquisitions
Market Abuse Regulation
MiFID II
Markets in Financial Instruments Directive
MiFIR
MREL
NIM
Markets in Financial Instruments Regulation Rules
Minimum Requirement of Own Funds and Eligible Liabilities
Net Interest Margin
NIS Directive
The Directive on security of network and information systems
NLB or the Bank
NLB d.d.
NLB Skladi
NLB Assets Management
NPE
NPL
OCR
p.p.
POS
PSD2
REAM
ROA
ROE
Non-Performing Exposures
Non-Performing Loans
Overall capital requirement
Percentage point(s)
Point of Sale
Payments Services Directive
Real Estate Asset Management
Return on Assets
Return on Equity
RORAC
Return on Risk-Adjusted Capital
RoS
RTS
RWA
SEE
SME
SREP
SRF
SSH
SURS
TLOF
TSCR
Republic of Slovenia
Regulatory Technical Standards
Risk Weighted Assets
South Eastern Europe
Small and Medium-sized Enterprises
Supervisory Review and Evaluation Process
Single Resolution Fund
Slovenian Sovereign Holding
Statistical Office of the Republic of Slovenia
Total Liabilities and Own Funds
Total SREP Capital Requirement
The Group
NLB Group
UK
US
ZBan-2
ZGD-1
United Kindom
United States
Slovenian Banking Act
The Companies Act
ZPlaSSIED
Payment Services, Services of Issuing Electronic Money
ZTFI-1
ZVKNNLB
and Payments Systems Act
Financial Instruments Market Act
Act for Value Protection of Republic of Slovenia’s Capital
Investment in Nova Ljubljanska banka d.d., Ljubljana
ZVOP-2
The Slovenian Personal Data Protection Act
NLB Bank Annual Report 2018
Contents
Definitions and glossary of selected terms
NLB Group Strategic members overview
Key highlights of NLB Group
Business Report
Statement by the Management Board of NLB
Statement by the Supervisory Board of NLB
Macroeconomic Environment
Overview of NLB Group’s financial performance
NLB Group Strategy
Regulatory Environment
Retail Banking in Slovenia
Corporate and Investment Banking in Slovenia
Strategic Foreign Markets
Financial Markets
Non-core Markets and Activities
Processing Operations and IT
Risk Management
Corporate Governance
Compliance and Integrity
Internal Audit
Human Resources
Corporate Governance Statements
Disclosure on Shares and Shareholders of NLB
Corporate and Social Responsibility
GRI Standards Disclosure for NLB Group
Events after the end of the 2018 financial year
Financial Statements
Alternative Performance Indicators
NLB Group Chart
Organizational Structure of NLB
NLB Group directory
4
8
10
19
20
24
28
34
54
56
60
66
71
86
90
92
96
102
118
121
122
124
148
152
154
162
165
344
347
350
352
NLB Group strategic
members overview
Slovenia
Macedonia Bosnia and Herzegovina
Kosovo
Montenegro
Serbia
NLB
Group
NLB,
Ljubljana
NLB
Banka,
Skopje
NLB
Banka,
NLB
Banka,
NLB
Banka,
NLB
Banka,
Banja Luka
Sarajevo
Prishtina
Podgorica
NLB
Banka,
Beograd
327
94
54
57
38
38
18
28
1,830,209
688,547
389,465
216,389
136,021
202,632
62,181
134,974
12,740
7,148
10,464
203.6
8,811
4,478
7,033
165.3
22.7%
Market position in 2018
Branches
Active clients
Total assets (in EUR million)
Loan portfolio (net, in EUR million)
Deposits (in EUR million)
Result after tax (in EUR million)
Market share by total assets
Macroeconomic indicators for 2018
GDP (real growth in %)
Average inflation (in %)
Unemployment rate (in %)
Current account of the balance
of payments (as a % of GDP)
Fiscal balance
(as a % of GDP)
4.5
1.7
5.4
7.3
0.8
Slovenia
16.3%
18.3%
5
5.1%
6
16.8%
11.1%
1.5%
7
14.8
10.0
721
385
576
16.2
592
359
472
8.8
3.1
1.4
36.0
-4.8
1.1
668
467
586
4.1
1.1.
28.8
-7.1
-1.3
489
311
392
4.9
2.6
14.9
-17.3
484
319
353
5.2
4.3
2.0
12.7
-5.2
-3.2
0.6
1,350
859
1,076
37.1
2.7
1.4
21.0
-0.3
-1.8
Bosnia and Herzegovina
Serbia
Montenegro
Kosovo
Macedonia
453¹ 8.314.6%³1,215²4.332.1% 4NLB Vita,LjubljanaNLBSkladi,Ljubljana1. Assets of covered funds without own resources.2. Assets under management.3. Market share in traditional life insurance.4. Market share of assets under management in mutual funds.5. Market share in the Republic of Srpska as at 31 December 2018 (preliminary data).6. Market share in the Federation of BiH as at 30 September 2018.7. Market share in Republic of Srpska as at 30 September 2018.
NLB Group strategic
members overview
Market position in 2018
Branches
Active clients
Total assets (in EUR million)
Loan portfolio (net, in EUR million)
Deposits (in EUR million)
Result after tax (in EUR million)
Market share by total assets
Macroeconomic indicators for 2018
GDP (real growth in %)
Average inflation (in %)
Unemployment rate (in %)
Current account of the balance
of payments (as a % of GDP)
Fiscal balance
(as a % of GDP)
Slovenia
Macedonia Bosnia and Herzegovina
Kosovo
Montenegro
Serbia
NLB
Group
NLB,
Ljubljana
NLB
Banka,
Skopje
NLB
Banka,
Banja Luka
NLB
Banka,
Sarajevo
NLB
Banka,
Prishtina
NLB
Banka,
Podgorica
NLB
Banka,
Beograd
327
94
54
57
38
38
18
28
1,830,209
688,547
389,465
216,389
136,021
202,632
62,181
134,974
1,350
859
1,076
37.1
721
385
576
16.2
592
359
472
8.8
668
467
586
489
311
392
14.8
10.0
484
319
353
5.2
16.3%
18.3%
5
5.1%
6
16.8%
11.1%
1.5%
7
2.7
1.4
21.0
-0.3
-1.8
3.1
1.4
36.0
-4.8
1.1
4.1
1.1.
28.8
-7.1
-1.3
4.9
2.6
14.9
-17.3
4.3
2.0
12.7
-5.2
-3.2
0.6
12,740
7,148
10,464
203.6
8,811
4,478
7,033
165.3
22.7%
4.5
1.7
5.4
7.3
0.8
Slovenia
Bosnia and Herzegovina
Serbia
Montenegro
Kosovo
Macedonia
453¹ 8.314.6%³1,215²4.332.1% 4NLB Vita,LjubljanaNLBSkladi,Ljubljana1. Assets of covered funds without own resources.2. Assets under management.3. Market share in traditional life insurance.4. Market share of assets under management in mutual funds.5. Market share in the Republic of Srpska as at 31 December 2018 (preliminary data).6. Market share in the Federation of BiH as at 30 September 2018.7. Market share in Republic of Srpska as at 30 September 2018.
10
Chapter 1
Key highlights
of NLB Group
Overview of NLB Group
The largest banking and financial
group in Slovenia
The Group is the largest banking and
financial group in Slovenia with an
strategic focus on selected markets in SEE.
It covers markets with a population of
approximately 17 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 a public listed
company. The largest shareholder
is the RoS with 35% ownership.
NLB is the largest bank in Slovenia, with
94 branches, 688,547 active clients, and a
23.0% market share by total assets.
A very strong retail deposit-taking franchise
with a market share of 30.3%.
Market leader across banking products and
innovative solutions and a leading provider
of asset management and life insurance
products.
Rating of NLB was improved by three
rating agencies: an upgrade from BB to
BB+ by Fitch (outlook: stable) and Standard
and Poorʼs (outlook: positive); upgrade by
two notches by Moody’s, from Ba1 to Baa2
(outlook: positive). Capital Intelligence
affirmed the rating at BBB- (outlook:
stable).
Leading position in selected SEE
markets with growth potential
SEE markets are still recording strong GDP
growth exceeding the Eurozone average.
Domestic consumption in these markets is
on the rise and the penetration of financial
products is significantly below European
averages.
NLB is present in five SEE countries
(Macedonia, Kosovo, two subsidiaries in
BiH, Montenegro, and Serbia). In four out
of six markets, the market share exceeds
10%.
All NLB subsidiary banks in the region are
profitable, well-capitalised, independent
and largely self-funded, therefore well
placed to utilise the growth potential of the
region.
The Group has strong network of 233
branches and 1.14 million active clients in
SEE only (excluding NLB).
Stable and profitable operations
Profitable for five-consecutive years in a
row with the highest Group profit before
impairments and provisions (EUR 204.6
million) in 2018.
Revenue evolution driven by stable net
interest margin and increasing fee income.
Strong increase in the contribution of
international operations to revenue and
profit growth.
Continuous cost containment efforts.
ROE a.t. of 11.8% and a CET 1 ratio of
16.7%8.
Negative cost of risk due to positive
economic circumstances and positive result
from NPL collection.
NLB Group Annual Report 2018 11
Self-funded and well-capitalised
Strong liquidity position, stable and
diversified funding structure with a LTD
of 68.3% gives the Group the potential for
further loan placements.
Implementation of IFRS 9 strengthened
the Group’s capital basis.
A robust CET 1 ratio of 16.7%9, above
the EU average as published by the EBA,
reflects strong capitalisation and supports
further stable dividend pay-outs.
100% of 2017 profit of the Bank and
all retained profits from previous years
was paid out as a dividend to the RoS in
October 2018.
Constant improvement of asset quality
Very stable credit portfolio quality with
increasing Stage 1 exposures and a
reduction of NPLs. Improved structure
of the credit portfolio with new NPL
formation ratio from new business at
consistently low levels (2018: 0.2% of
gross loan portfolio, which equals EUR 19
million).
NPE ratio as defined by EBA was
additionally reduced from 6.7% in 2017 to
4.7% in 2018 10, with strong NPL coverage
ratio 2 11 standing at 64.6%.
Comprehensive organic and inorganic
NPE reduction strategy. Great emphasis
is on intensive and proactive handling of
problematic customers, changes in the
credit process and early warning system for
detecting increased credit risk.
Continuous disposal of non-core Group
members and non-core loan portfolios.
Strategic orientation
SEE countries will remain the strategic
focus of the Group.
The Group is firmly committed to
achieving its mid-term financial targets,
which include: ROE > 12%, CIR at
approximately 50%, NPE ratio < 4%, and
approximately a 70% dividend pay-out
ratio of the Group’s profit.
Following the successful conclusion of the
first stage of privatisation, the Bank (as a
publicly listed company) may reassess its
current business strategy and adapt it to the
new business and market conditions.
The strategic aim is to become a regional
innovative bank with simple customer
oriented, data-driven solutions using digital
and mobile technologies.
8. CET 1 includes the H1 2018 result
of EUR 109 million.
9. CET 1 includes the H1 2018 result
of EUR 109 million.
By recognising the importance of digital
transformation, the Bank will continue to
direct comprehensive strategic efforts to
digitalise both sales channels and internal
operations.
10. NPL ratio reduced from 13.8%
in 2016 to 9.2% in 2017.
11. NPL coverage ratio 2: the coverage
of the gross NPL portfolio with loan loss
allowances on the NPL portfolio.
Medium-term strategic and financial targets
Table 1: Market performance and outlook (mid-term strategic and financial targets)
Net interest margin
LTD
Total capital ratio
CIR
Cost of risk
NPE ratio
ROE a.t.
Dividend pay-out
* Consisted of EUR 189.1 million of profit for the fiscal year 2017 and EUR 81.5 million of retained earnings from previous years.
Performance in 2018
Mid-term outlook
2.56%
68.3%
16.7%
58.5%
-43 bps
4.7%
11.8%
120%*
> 2.7%
< 95%
~ 17.0%
~ 50%
< 90bps
< 4%
> 12.0%
~ 70%
NLB Group Annual Report 2018 12
Key performance indicators
Table 2: Key financial caption for NLB Group and NLB
Income statement data (in EUR million)
Net interest income
Net non-interest income
Regular net non-interest income
Total costs
Result before impairments and provisions
Impairments and provisions
Net gains / losses, from subsidiaries, associates, and JV
Result before tax
Result of non-controlling interests
Result after tax
Financial position statement data (in EUR million)
Total assets
Loans and advances to non-banking sector (gross)
Impairments and valuation of loans to non-banking sector
Loans and advances to non-banking sector (net)
Financial assets (securities & derivatives)
Deposits from non-banking sector
Equity
Non-controlling interests
Total off-balance sheet items
Key financial indicators
a) Capital adequacy
Total capital ratio*
Tier 1 ratio*
CET 1 ratio*
RWA (in EUR million)
RWA / Total assets
b) Asset quality
2018
2017
2016
NLB Group
NLB
NLB Group
NLB
NLB Group
NLB
313
180
169
-289
205
23
5
233
8
204
12,740
7,627
-479
7,148
3,399
10,464
1,616
41
3,996
16.7%
16.7%
16.7%
8,678
68.1%
158
165
154
-179
144
33
-
177
-
165
8,811
4,704
-226
4,478
2,869
7,033
1,295
-
3,473
24.1%
24.1%
24.1%
5,024
57.0%
309
178
166
-285
203
30
5
237
8
225
12,238
7,641
-647
6,994
2,963
9,879
1,654
35
3,880
15.9%
15.9%
15.9%
8,546
69.8%
159
171
161
-176
154
31
-
185
-
189
8,713
4,987
-317
4,670
2,460
6,812
1,381
-
3,389
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
138
125
-181
132
-64
-
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%
NPL coverage ratio 1 (the coverage of the gross NPL portfolio
with loan loss allowances on the entire loan portfolio)
NPL coverage ratio 2 (the coverage of the gross NPL
portfolio with loan loss allowances on the NPL portfolio)
NPL volume (in EUR million)
NPL / Total loans
Net NPL / Total net loans
NPE - EBA Definition
NPE (balance and off-balance) / Classified active
balance and off-balance exposures
Received collaterals / NPE
Credit impairments and provisions / RWA
77.1%
65.8%
77.5%
67.8%
76.1%
71.7%
64.6%
57.1%
62.2%
56.0%
622
6.9%
2.6%
4.7%
4.9%
67.4%
-0.3%
343
6.3%
2.8%
3.9%
4.2%
71.1%
-0.6%
844
9.2%
3.8%
6.7%
8.0%
66.5%
-0.5%
478
8.1%
3.8%
5.8%
7.0%
70.0%
-0.8%
64.6%
1,299
13.8%
5.4%
10.0%
12.1%
58.3%
0.3%
60.8%
753
11.9%
5.1%
8.5%
10.4%
62.5%
0.3%
NLB Group Annual Report 2018
13
2018
2017
2016
NLB Group
NLB
NLB Group
NLB
NLB Group
NLB
2.5%
3.9%
13.2%
1.9%
11.8%
1.6%
2.3%
58.5%
59.0%
3.3%
2.3%
54.1%
38.0%
-
68.3%
5.5%
1.8%
3.7%
12.4%
2.0%
11.6%
1.9%
2.0%
55.3%
55.9%
3.6%
2.0%
48.2%
42.5%
22.7%
63.7%
6.2%
2.6%
4.1%
14.8%
2.0%
14.4%
1.9%
2.4%
58.4%
58.9%
3.3%
2.3%
54.5%
41.4%
-
70.8%
5.6%
1.8%
3.8%
14.1%
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%
2.7%
4.0%
8.6%
1.1%
7.4%
0.9%
2.4%
60.9%
61.8%
3.7%
2.4%
55.7%
40.7%
-
74.1%
5.9%
2.0%
3.6%
5.3%
0.8%
5.0%
0.7%
2.1%
57.9%
59.2%
3.7%
2.1%
63.3%
45.6%
23.7%
74.5%
6.1%
-
-
1,716
20,000.000
-
-
1
20,000.000
-
-
1
20,000.000
80.8
64.8
82.7
69.1
74.8
63.2
BB+
BB+
Baa2
BBB-
BB
BB
Ba1
BBB-
BB-
BB-
Ba3
BB+
5,887
2,690
6,029
2,789
6,175
2,885
c) Profitability
Interest margin**
Financial intermediation margin
ROE b.t.
ROA b.t.
ROE a.t.
ROA a.t.
d) Business costs
Operating costs / Average total assets
CIR
CIR normalised (w/o non-recurring items)
Total costs / RWA
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
LTD (Net loans to non-banking sector /
Deposits from non-banking sector)
Revenues / 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
* 31 December 2018 includes 1H 2018 result (EUR 109 million).
*****As per share register of KDD. The shares are listed on Ljubljana Stock Exchange. The Bank of New York Mellon
** Calculated on the basis of average total assets.
(the “GDR Depositary”) represented in the share register of KDD as one holder is not the beneficial owner of shares, it
*** Recurring income only.
**** Unsolicited rating.
holds shares in its capacity as the depositary for the GDR holders. The GDRs representing shares are issued against the
deposit of shares and are listed on London Stock Exchange. Therefore, the number in the share register of KDD does
not represent all final beneficial owners of the Bank shares. The rights under the deposited shares can be exercised by
the GDR holders only through the GDR Depositary and individual GDR holders do not have any direct right to either
attend the general meeting of bank’s shareholders or to exercise any voting rights under the deposited shares.
NLB Group Annual Report 2018
14
Table 3: Information on the liquidity coverage ratio (LCR)*
Q1 2018 (Jan - Mar)
Q2 2018 (Apr - Jun)
Q3 2018 (Jul - Sept)
Q4 2018 (Oct - Dec)
NLB Group
NLB
NLB Group
NLB
NLB Group
NLB
NLB Group
NLB
Liquidity Coverage Ratio (LCR)
294%
315%
304%
331%
313%
351%
332%
384%
High Quality Liquid Assets (HQLA)
2,390,376
2,223,134
2,460,750
2,288,097
2,633,052
2,446,833
2,774,539
2,577,782
Net Liquidity Outflows
821,261
712,509
812,593
693,238
842,151
699,248
839,594
678,517
* Table 3 illustrates the values and data for each of the four calendar quarters (January-March, April-June, July-September, October-December). They are calculated as a simple average
of observations on the last calendar day of each month for a period of 12 months before the end of each quarter.
Table 4: NLB share information
Total numbers of shares issued
Max closing price (in 2018)
Min closing price (in 2018)
Closing price as at 28 December 2018*
NLB Group book value per share
NLB Group earnings per share (EPS)
Price / NLB Group book value (P/B)
Dividend per share (for the previous business year)
Market capitalisation as at 28 December 2018*
* No market on 31 December 2018.
31 December 2018
20,000,000
EUR 62.00
EUR 56.00
EUR 62.00
EUR 80.8
EUR 10.2
0.77
EUR 13.53
EUR 1,240,000,000
NLB Group Annual Report 2018
15
The total size of 20,000,000 (100%) of the
Bank shares were admitted to the Ljubljana
Stock Exchange and GDRs to the London
Stock Exchange.
Fitch upgraded the Bank’s long-term IDR
to BB+ from BB, and removed it from
Rating Watch Evolving (RWE). The Bank’s
outlook is stable.
December
Moody’s upgraded the Bank’s long-term
local and foreign-currency ratings to Baa2
from Ba1. The Bank’s outlook remains
positive.
After the over-allotment option was
exercised, the final total size of the
concluded offering of RoS shares to the
public was 13,000,000 (65%) of the shares
of the Bank. The shareholding of RoS was
reduced from 20,000,000 (100%) shares to
7,000,000 (35%) shares.
Standard and Poor’s (S&P) revised NLB’s
outlook to “positve” from “developing” and
affirmed its BB+ long-term issuer credit
rating. According to S&P, the rating action
reflects the strong performance and partial
privatisation of the Bank.
Key events
January
The Bank acted as one of the Lead
Managers in the issue of a new, 10-year
reference bond of the RoS in the amount
of EUR 1.5 billion.
February
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 HR
processes.
March
NLB was the first Slovenian bank to launch
a new payment service “NLB Pay”, that is
a mobile wallet which enables the advanced
payment of purchases at points of sales
using a smartphone.
The Bank and NLB Banka, Skopje sold
its subsidiary NLB Nov penziski fond,
Skopje and realised profit in the amount of
EUR 12 million for the Group and EUR 9
million at the Bank level.
May
S&P assigned the Bank a long-term credit
rating of BB+ (outlook Developing).
July
NLB Skladi received a prestigious
award from the British Cfi.co magazine,
specialising in financial and economic
trends, for providing investors (in the
Slovenian asset management and mutual
funds market) with the most efficient
investment products.
August
In relation to the state aid proceedings
before the EC, the EC approved
the amendment of the restructuring
commitments of the Bank.
Moody’s assigned the Bank a Ba1 long-term
credit rating (outlook Positive).
September
The Bank sold shares representing 28.13%
of Skupna share capital, as a result of
which the Bank is no longer a shareholder
in Skupna pokojninska družba d.d. The sale
generated a profit in the amount of EUR
2.5 million for the Bank and a loss of EUR
0.5 million at the Group level.
October
Fitch assigned the Bank a BB long-term
credit rating (outlook Rating watch
evolving).
At the regular Shareholders’ Meeting of
the Bank and following a prior consent
from the ECB, the decision was adopted to
disburse profit for the appropriation of the
Bank in the amount of EUR 270.6 million
(consisting of EUR 189.1 million in profit
for the fiscal year 2017 and EUR 81.5
million of retained earnings from previous
years) to its shareholders in dividend,
which is EUR 13.53 gross per share, and
to keep the remainder of EUR 26,683.47
undistributed as retained profit.
SSH and the Bank announced intention
to proceed with an offering of no less than
10,000,001 (50% plus one share) and up to
14,999,999 (75% minus one share) of the
Bank’s shares held by the RoS to the public,
the listing of its shares on the Ljubljana
Stock Exchange, and GDRs representing
the shares on the London Stock Exchange.
November
The Bank and SSH announced the
successful pricing of the offering of the
Bank’s shares and GDRs to the public
representing 11,818,181 (59.1%) of all of
the Bank’s shares (excluding the over-
allotment option). The offer price per share
was EUR 51.50, and the offer price per
GDR (five GDRs represent one share) was
EUR 10.30.
NLB Group Annual Report 2018 16
Shareholder structure of NLB
The Bank shares are listed on the Prime
Market sub-segment of the Ljubljana Stock
Exchange (ISIN SI0021117344, Ljubljana
Stock Exchange trading symbol: NLBR)
and the GDRs, representing shares, are
listed on the Main Market of the London
Stock Exchange (ISIN: US66980N2036 and
US66980N1046, London Stock Exchange
GDR trading symbol: NLB and 55VX). Five
GDRs represent one share of NLB.
Table 5: NLB’s main shareholders as at 31 December 2018
Shareholders
Number of shares
Percentage of shares
Bank of New York Mellon on behalf of the GDR holders*
of which Brandes Investment Partners, L.P.**
of which EBRD**
RoS
OTP banka d.d. - client account
Addiko Bank d.d. - Pension fund 1 - fiduciary account
Other shareholders
Total
11,071,394
1,342,035
1,250,000
7,000,000
550,000
267,500
1,111,106
20,000,000
* The Bank of New York Mellon holds shares in its capacity as the depositary (the GDR Depositary) for the GDR holders and is not the beneficial owner of such shares.
** The information on GDR ownership is based on self-declarations by individual GDR holders as required pursuant to the applicable provisions of Slovenian law.
Market performance of NLB’s securities (shares and GDRs)
62.0
61.0
60.0
59.0
58.0
57.0
56.0
55.0
55.36
6.71
6.25
35.00
2.75
1.34
5.55
100.00
13.5
13.0
12.5
12.0
11.5
11.0
10.5
11/14/18
11/16/18
11/18/18
11/20/18
11/22/18
11/24/18
11/26/18
11/28/18
11/30/18
12/2/18
12/4/18
12/6/18
12/10/18
12/8/18
12/12/18
12/14/18
12/16/18
12/18/18
12/20/18
12/22/18
12/24/18
12/26/18
12/28/18
11/14/18
11/16/18
11/18/18
11/20/18
11/22/18
11/24/18
11/26/18
11/28/18
11/30/18
12/2/18
12/4/18
12/6/18
12/10/18
12/8/18
12/12/18
12/14/18
12/16/18
12/18/18
12/20/18
12/22/18
12/24/18
12/26/18
12/28/18
12/30/18
Figure 1: Ljubljana Stock Exchange (Shares)
Figure 2: London Stock Exchange (GDRs)
NLB Group Annual Report 2018 17
Symbol
NLBR
Market capitalisation as
at 28 December 2018*
EUR 1,240,000,000
The IR section of the Bankʼs website is an
important communication channel that
provides comprehensive information on
the Group and share price performance
of the Bank. In addition, it enables the
effective distribution of information to the
market in a clear and consistent manner.
IR presentations, financial reports, and
important information are uploaded to the
Bank’s website on a timely basis.
Since the listing in November 2018, four
analysts released research reports about the
Group. The Bank’s share was covered by
analysts from JP Morgan, Deutsche Bank,
Wood & Company, and Citi.
NLB’s Market capitalisation
Table 6: Market capitalisation
Ljubljana Stock Exchange (Shares)
* No market on 31 December 2018.
Indexes
FTSE Frontier Index: NLB (GDR) has
been added to the FTSE Frontiers Index
effective 27 November 2018.
SBITOP index: SBITOP index of the
Ljubljana Stock Exchange also includes the
stock of NLB as at 12 December 2018.
Investor Relations function
Since the listing of the Bankʼs shares and
GDRs in November 2018, the importance
of the Investor Relations (IR) function
has increased substantially, requiring
engagement with investors and the broader
community. The Bank participated in
varied forms of engagement, including
investor meetings, calls, and conferences,
reflecting the diverse nature of the Bank’s
ownership structure. Open and regular
communication with investors and analysts
allowed promoting dialogue on strategic
developments, as well as on the recent
financial performance of the Group. The
Bank promoted greater awareness and
understanding of operating businesses,
developments, and events which have an
influence on the performance of the Bankʼs
share price.
NLB Group Annual Report 2018 18
NLB Group Annual Report 2018 19
Business Report
NLB Group Annual Report 2018 20
Chapter 2
Statement by
the Management
Board of NLB
Dear Shareholders,
In 2018, NLB Group continued its trend of
stable and profitable business operations,
further recognising the importance of its
regional presence. Not only has NLB Group
recorded a net profit of EUR 203.6 million,
with all SEE subsidiary banks reporting
profits and contributing substantially to
NLB Group’s result (37%12) and further
reduction of NPE ratio to 4.7%, it also
crossed a historic milestone concluding
partial privatisation of NLB. This enables
us to breathe with full lungs once more and
to, ultimately, start operating with our full
potential in the SEE market – the market of
our opportunities. Our course is clear. We
want to be the most logical choice for doing
business in the SEE region.
12. On NLB Banka, Skopje, the positive
effect from non-recurring income from
the sale of the subsidiary NLB Nov
penziski fond, Skopje in the amount of
EUR 8.5 million is excluded.
In 2018, 65% of the Republic of Slovenia’s
share in NLB in the first phase of
privatisation was sold. The second phase is
expected to be completed in 2019 to reduce
the Republic of Slovenia shareholding
to a 25% plus one share. The partial
privatisation opened new horizons to the
entire NLB Group. We are now a publicly
listed company, our shares having been
admitted for trading on the Ljubljana and
London stock exchanges, which ensures
independent and professional corporate
governance, and a new investment
opportunity for new investors. Some of the
most renowned global financial investors
joined our journey as our new shareholders.
The trust that was showed by them is
a confirmation of NLB Group’s strong
current performance and a perspective
value-creating future. NLB Group’s
potential was also recognised by rating
agencies that have upgraded NLB’s credit
rating and outlooks.
All this combined with the lifting of some
of the severely limiting commitments
imposed by the European Commission
enables us to, ultimately, start operating and
competing on the market with full potential.
From now on, we will be able to finance
projects in the international environment.
We want to strenghten the position
of regional specialist as the financial
organisation with a consistent strategy
across all our markets.
We are focused on delivering the best
customer experience on the market. We
are building unique omnichannel product
distribution, partnership programme, and
end-to-end customer solutions. Innovation
is at the core of our being. Traditionally,
NLB Group has been a market leader
in innovation. With the introduction of
new solutions such as the mobile wallet
‘NLB Pay’, and the transfer of our most
innovative offers on all our markets, NLB
Group maintains its position of trendsetter.
With our migration to the digital channels,
optimisation of the sales process, and
improved customer insight, we are ever
closer to our customers.
We are looking forward to justifying the
expectations of our shareholders not only
by continuing the trend of stable operations
and innovative solutions, but also by
proving our strong dividend potential.
NLB Group has been paying increasing
dividends since 2015, with pay-out
dividends in the total amount of EUR
270.6 million in 2018 (consisting of net
profit for the fiscal year 2017 in the amount
of EUR 189.1 million, and EUR 81.5
million of retained profit from previous
years). Our future intention is to distribute
dividends in the excess of NLB Group’s
target total capital ratio, in the amount
of approximately 70% of NLB Group’s
consolidated profit in the medium term. We
are committed to justifing the trust of our
shareholders by responsibly creating long-
term value and developing our business
potential.
NLB Group is the only financial institution
focusing solely on the SEE region.
NLB, together with other NLB Group’s
subsidiary banks, are systemically important
institutions in five countries. We are a
leading franchise in the region based on
total assets (compared to other banks
present in the same countries), with a
network of 327 branches and 1.8 million
active clients. The SEE region is our home.
We have a unique understanding of the
local environment. We know the language,
NLB Group Annual Report 2018 21
culture, and mentality. We pay special
attention to building personal relations
with our clients, our societies, and our
environment.
All of this enables us to positively affect
the quality of life and the stability of the
countries in this region. We accept this
role with pride and great responsibility.
That is why we excel not only at providing
innovative solutions for our clients and
sharing our knowledge and our expertise,
but also at recognising, nurturing,
mentoring, and developing talents and
supporting them on their path – whether
they are talents in culture, sports, or in
our banking area. We are as well proud of
the Top Employer certificate which was
awarded to us by the independent Top
Employers Institute for the third year in a
row. We understand this as a recognition
of our efforts and as an incentive for our
future – to become the most desirable
employer in the region.
In recent years, NLB Group has walked
a path towards becoming a modern,
competitive, efficient, and effective bank.
We have made substantial progress and
important steps toward ensuring the future
success of NLB Group. We are aware
of new macroeconomic and business
challenges that are on the horizon, and
we will make sure that our new business
strategy response to these challenges will
be effective and successful. We will make
sure that NLB Group will be prepared – for
whatever may come.
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 Annual Report 2018 Archibald Kremser
Member of the Management Board
Andreas Burkhardt
Member of the Management Board
Blaž Brodnjak
President & CEO
László Pelle
Member of the Management Board
24
Chapter 3
Statement by
the Supervisory
Board of NLB
To Our Shareholders,
We, at the Supervisory Board, tend to
think our clients should be somewhat
discontented at all times in order to
keep pushing NLB ahead and to drive
its commitment toward a constant
operational excellence. We also like to
think NLB Group employees should have
an uncompromising customer obsession to
drive their efforts to provide the best client
service and experience possible.
Even more, we think the Supervisory Board
has a duty to perform the supervision and
process navigation function in a way to
relentlessly pursue NLB’s purpose (mission),
NLB’s business plan (strategy), and NLB’s
vision of how the entire NLB Group should
look in the future.
Only if we all do these things right at all
times, will we continue to deserve the trust
of yourselves, NLB Group owners, of our
business partners, of our retail clients, of
the society around us, and especially of our
employees.
Having said that, NLB’s strategic focus
remains unchanged. As a regional specialist,
NLB Group is the only financial institution
focusing solely on the SEE region. We
have a unique understanding of the local
environment, the language, culture, and
mentality. The other strategic objective
is that NLB Group stays fully customer-
oriented, as we focus on delivering the
best customer experience and pay special
attention to building personal relations
with our clients, our societies, and our
environment.
By saying NLB Group is committed to
digital business, to the building of a unique
omnichannel product distribution network,
to partnership programs, and to end-to-end
customer solutions, we literally mean it and
we hold ourselves accountable for that.
To be able to deliver on our promises, we
should strive to have high standards (widely
deployed and at all levels of detail) to stay
ahead of our customers’ expectations.
If I’m allowed to borrow a few thoughts
from a great achiever like Jeff Bezos,
high standards are teachable, should be
articulated well for the employees to learn
and adapt them wholeheartedly, and
should be domain-specific. What does that
mean for NLB’s way of banking? It means
we, at NLB Group, need to know what is
absolutely the best banking practice on all
service and production levels, we should
have realistic expectations for how hard it
should be to achieve that, and strive to get
there as soon as possible.
2018 Developments in brief
Not to lose too many words on the widely
known macro perspective, the situation
in the Slovenian economy continued to
improve, though more slowly than in 2017
when it grew at a rather outstanding 5%
GDP growth rate. However, growth in the
construction segment, household disposable
income, and consumer loans, together
with higher spending by foreign tourists
supported the continuation of relatively
strong turnover growth in trade and other
service activities. Unemployment fell at a
moderate pace in the last months of the
year, but with an 8.2% unemployment level
and the widely-perceived 5% level that
represents full employment structurally (at
least in Slovenia), good talent is truly hard
to find. Not just in the banking industry.
For the financial year 2018, NLB Group
continued its trend of stable and profitable
business operations, with profit after tax
for the period amounting to EUR 203.6
million, on the back of the substantial
continued contribution from subsidiaries.
The operations of NLB Group were
underpinned by their strong liquidity and
capital positions with the total capital
adequacy ratio reaching 16.7%. From
a SOTP (sum of the parts) perspective,
NLB’s profit exceeded the budget due
to strict cost controls, higher net interest
income, and the release of impairments
and provisions. Across NLB Group, all
subsidiary banks recorded encouraging
net operating income (topline growth),
ranging from 16.4% YOY in our largest
subsidiary NLB Banka, Skopje, to 8%
NLB Group Annual Report 2018 25
Primož Karpe
Chairman of the Supervisory Board
annual growth in NLB Banka, Banja Luka,
with the only notable outlier being NLB
Banka, Sarajevo with 1.4% YOY growth.
This growth was, at the same time, coupled
with the highest achieved profit after tax in
the subsidiary’s history so far. All other core
companies, namely NLB Skladi, NLB Vita,
and Bankart finished 2018 with an annual
growth in net profit. Overall, the Group
has continued to generate positive results
and favorable trends in the areas of asset
leverage, balance sheet management, cross-
selling, cost control, and the cost of risk.
All in all, I am proud of what NLB Group
has delivered to all of its key constituencies
(shareholders, clients, employees, and
society) in 2018, especially given the fact
that we also completed the first phase of
privatisation in November 2018, as required
by the commitments given to the European
Commission. Looking back at all the efforts,
our IPO debut was a well-deserved success.
NLB Group maintains its corporate
governance principles in line
with the highest standards
NLB’s Supervisory Board monitors and
supervises the management and operations
of NLB Group. In doing so, it resolves
to utilise uncompromised principles of
professionalism and expertise, and to
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,
comprehensive, and data-supported inputs
from the latter, enabling the Supervisory
Board to adopt all its decisions in line with
the professional interests of NLB, whilst
adhering at all times to banking regulations
and its statutory powers.
Throughout 2018, the composition of the
Supervisory Board remained unchanged.
The Supervisory Board was composed of
eight members (out of nine as defined by
the Articles of Association), namely: Primož
Karpe - Chairman; Andreas Klingen -
Deputy Chairman; and Alexander Bayr,
David Eric Simon, László Urbán, Vida
Šeme Hočevar, Simona Kozjek, and Peter
Groznik (members). Two members of
the Supervisory Board (Šeme Hočevar
and Kozjek) submitted their resignation
statements with a three-month notice, but
NLB Group Annual Report 2018 26
only because we followed the commitments
in the field of corporate governance, which
the Republic of Slovenia submitted to the
European Commission in 2018.
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.
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 NLB
and NLB Group, and its duty of careful
and scrupulous performance, based on its
competences as laid down by the applicable
law and other regulations, as well as by
internal acts of NLB. The Corporate
Governance Code for Limited Companies
and the Corporate Governance Code for
Companies with State Capital Investment
was also observed by the Supervisory Board
in performing its duties.
In 2018 the Supervisory Board held
seven regular and four 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.
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 &
proper assessment, completed in March
2019. This provides the assurance that they
can carry out their supervisory roles in a
responsible manner and make decisions
that benefit and add value to NLB Group.
The delivery of critical and assertive
In line with the recommendation of
the Corporate Governance Code for
Listed Companies, and according to
good corporate governance practices in
November 2018, the Supervisory Board
with the help of a foreign professional
firm performed self-assessment of its
composition, performance, and potential
conflicts of interests of its members,
as well as the board’s functioning and
its cooperation with the management
board. In the process of evaluation, the
Supervisory Board also assessed the
work of its committees and adopted
the Action Plan, prepared according to
recommendations from the evaluation.
In accordance with the commitments
given by the Republic of Slovenia to
the European Commission (Decision
of the European Commission dated 10
August 2018), the Supervisory Board
invited a representative of KPMG,
poslovno svetovanje d.o.o., Ljubljana, to
all of its meetings – who is acting as a
Monitoring Trustee for implementation of
commitments.
Pursuant to the second paragraph of
Article 282 of the Companies Act (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
Companies Act (ZGD-1) and the report
above, the Supervisory Board asserts and
establishes that it regularly and thoroughly
monitored the operations of NLB and NLB
Group in 2018 within its competences, thus
adequately supervising the management
and operations of NLB and NLB Group
and overseeing NLB’s Internal Audit.
Review and approval of NLB
Group 2018 Annual Report
The Management Board of NLB submitted
NLB Group 2018 Annual Report to the
Supervisory Board, including the Business
Report and Financial Report with the
audited financial statements of NLB, the
audited consolidated financial statements
of NLB Group, and the auditor’s opinion.
According to the auditor, the financial
statements with accompanying notes
present fairly, in all material respects,
the financial position of NLB and NLB
Group as at 31 December 2018, and of
their financial performance and their cash
flows for that year in accordance with
the International Financial Reporting
Standards as adopted by the European
Union. It was also established that the
information contained in the business
section of the Annual Report is consistent
with the audited financial statements of
NLB and NLB Group.
In accordance with Article 34 of the
Articles of Association of the NLB the
Supervisory Board verified the submitted
Annual Report, and shall give a report
at the General Meeting of Shareholders.
Following a careful examination of the
NLB Group 2018 Annual Report, the
Supervisory Board had no objections, and
unanimously approved it.
Yours truly,
Supervisory Board of NLB
Primož Karpe
Chairman of the
Supervisory Board
NLB Group Annual Report 2018
27
NLB Group Annual Report 2018 28
Chapter 4
Macroeconomic
Environment
The global economy continued to enjoy
enviable growth in 2018 even though it has
slowed in the H2 2018. It maintained the
momentum gained from 2017 in the H1
2018 with 3.5% growth, whereas in the H2
2018 growth slightly lost steam falling to
3.2% annually. Developed countries noted
a drop in the unemployment rate and salary
increases, which in turn resulted in higher
consumption. Higher prices of crude oil
and food boosted inflation, particularly in
the Q2 2018. Thus, US inflation came close
to 3% in May, while in the Euro area it
reached a new high in more than a year at
the end of the H1 2018. The growth in US
inflation ensured that the FED increased
the key interest rate four times in 2018 at
2.25% to 2.5% in December 2018, above
the psychological level of 2%. In the US,
consumption, along with the steady job
gains, remains high and boosted economic
growth. Asia sustained high growth rates
despite slightly losing momentum due
to trade war concerns, whereas growth
in Latin America was insufficient due to
weaker activity in some key economies.
Emerging countries, nevertheless, felt the
consequences of the higher US interest
rates and subsequently capital outflows
toward the US.
In 2018, the European economy recorded
positive economic growth, although
slightly lower than in 2017. Euro area
real GDP increased in 2018 by 1.8% YoY.
The results were weaker than expected,
reflecting a weakening contribution from
external demand and some country- and
sector-specific factors. In December 2018,
Eurozone economic sentiment declined
noticeably, partially reflecting decreasing
confidence in industry which was consistent
with the third consecutive monthly fall in
November of industrial output in Germany.
Since Europe’s largest economy seems to be
shifting into a lower gear, this will also have
an inevitable diminishing effect on the Euro
area growth. At its December meeting, the
ECB decided to end the net asset purchases
in December 2018, while keeping the
key ECB interest rates unchanged until
at least the end of summer 2019 and
while enhancing the forward guidance on
reinvestment. In contrast, uncertainties
related to geopolitical factors and the
threat of protectionism, vulnerabilities in
emerging markets, and financial market
volatility remain prominent. Hence, the
ECB believes that a significant monetary
policy stimulus is still needed to support the
further build-up of domestic price pressures
and headline inflation developments over
the medium term. The Euro area sovereign
bond spreads have been largely stable, apart
from those for Italy, which have exhibited
considerable volatility. Although corporate
earnings expectations remain robust,
some downward revisions, in addition to a
repricing of risk have led to lower equity
and bond prices of Euro area corporations.
In FX markets, the euro has broadly
weakened in trade-weighted terms.
The overall global economic outlook is
showing signs of moderating momentum.
The maturing global economic cycle,
waning policy support across advanced
economies, and the impact of tariffs
between the US and China are weighing
on global activity. Global trade growth has
slowed slightly, and uncertainties about
future trade relations have increased.
At the same time, financial conditions
remain accommodative in advanced
economies, while they have tightened for
some emerging markets. Looking ahead,
global economic activity is expected to
slow down in 2019 and remain steady
over the following two years, as policy
support gradually diminishes and China
transitions to a lower growth path. In the
near term, the current cyclical momentum
is expected to support global activity. A
sizeable procyclical fiscal stimulus in the
US, including lower taxes and increased
expenditure, will also provide an incentive
to global growth amid a broader shift
towards more expansionary fiscal policies
among advanced economies. In SEE
countries, GDP growth is projected to
remain robust in the near term, whereas in
the large commodity-exporting countries
the economic activity is projected to
strengthen. The decline in oil prices and the
current oil futures curve suggests gradually
declining prices over the medium term,
and indicate a falling contribution from
energy prices to inflation, Conversely,
diminishing spare capacity at the global
level is projected to put some upward
pressure on inflation. The December 2018
Eurosystem macroeconomic projections
expect underlying inflation to increase
gradually over the projection horizon,
while annual real GDP growth should
slightly decrease. For both 2019 and 2020,
while slightly higher long-term lending
NLB Group Annual Report 2018 29
Table 7: Movement of key macroeconomic indicators in the Euro area and NLB Group region
GDP
(real growth in %)
Average inflation
(in %)
Unemployment rate
(in %)
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
1.9
3.1
3.1
2.9
2.8
3.3
4.1
2.4
4.9
3.5
4.7
0.2
2.0
4.2
1.8
4.5
3.1
4.9
2.7
4.3
4.1
1.3
3.3
3.1
2.8
2.9
3.4
4.1
1.4
2.9
3.1
2.9
3.1
3.3
3.9
0.2
-0.1
-1.1
-0.3
-0.2
1.1
0.3
1.5
1.4
1.2
2.4
1.4
3.2
1.5
1.8
1.7
1.4
2.6
1.4
2.0
1.1
1.4
1.7
1.6
2.3
1.8
2.4
1.6
1.5
2.0
1.7
2.0
2.0
2.7
1.8
10.0
8.0
9.1
6.6
8.2
5.4
7.8
5.1
7.7
4.9
41.7
38.4
36.0
35.1
33.8
17.7
16.1
14.9
15.0
14.8
23.7
22.4
21.0
20.3
19.5
15.3
13.5
12.7
11.6
11.0
27.5
30.5
28.8
28.0
27.5
Euro area
Slovenia
BiH
Montenegro
Macedonia
Serbia
Kosovo
3.2%
global economic
growth in 2018
1.8%
economic growth in
the Euro-area in 2018
4.5%
economic growth
in Slovenia in 2018
3.8%
economic growth in the
Group’s SEE region in 2018
Source: Statistical offices, Central banks, IMF, Eurostat, FocusEconomics
Note: Consensus Forecasts are highlighted in grey.
rates, lower stock prices and lower foreign
demand growth will dampen activity,
these effects are expected to be broadly
offset by the favourable impact of lower
oil prices, the weaker effective exchange
rate of the euro, and some additional fiscal
loosening. The risks surrounding the euro
area growth outlook can still be assessed as
broadly balanced. However, the balance
of risks is moving to the downside owing
to the persistence of uncertainties related
to geopolitical factors, Brexit, the threat of
protectionism, vulnerabilities in emerging
markets, and financial market volatility.
Economy in the Group’s region
The Group’s area of operations in the
SEE markets has shown an increase in
economic growth on average, growing
from 2.9% in 2017 to 3.8% in 2018.
Also, consumer prices increased by 1.7%
in 2018, as the Consensus Forecast from
FocusEconomics reported. Specifically, the
highest YoY increase of economic growth
was registered by Serbia, growing from
2% to 4.3%, and by Macedonia with the
increase from 0.2% to 2.7%. Montenegro’s
growth slightly increased from 4.7% to
4.9%, while Kosovo decreased (from 4.2%
to 4.1%) and BiH from 3.5% to 3.1%, YoY.
The fiscal balance as a percentage of GDP
was positive for the second consecutive
year in Serbia and BiH, whereas in
Macedonia, Montenegro, and Kosovo, it
was negative. The current account balance
as a percentage of GDP was negative in
all of these countries. Serbia revealed a
slowdown in the Q3 2018 after surging
growth in the H1 2018, but remained on
solid foundations with private consumption,
fixed investment, and exports all surging. In
the same period, Kosovo’s performance was
supported by higher wages, remittances,
and tourism. Montenegro’s performance
was reinforced by strong fixed investment,
Macedonia’s performance was supported
by robust consumption, while BiH’s slight
decrease was due to diminished exports.
In the Q4 2018 the growth remained
robust underpinned by wage growth and
compact labour markets, as well as still
solid expansion in the EU. Some risks
are growing from Kosovo’s introduction
of 100% tariffs on Serbian and Bosnian
imports. In contrast, in October 2018
Serbia and the IMF discussed the first
review of Serbia’s Policy Coordination
Instrument and agreed on a framework for
the 2019 budget. The framework targets
a fiscal deficit of 0.5% of GDP and is set
to further reduce the public-debt ratio. In
Macedonia, its parliament changed the
country’s name, which can end Greeceʼs
blocking of Macedonia to join NATO and
the EU. Montenegro and Serbia opened
further chapters as part of the EU accession
process, which will have a further positive
NLB Group Annual Report 2018
30
Table 8: Movement of balance of payment and fiscal indicators in the Euro area and NLB Group region
Current account balance
(% GDP)
Fiscal balance
(% GDP)
Public debt
(% GDP)
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
3.2
5.5
3.2
7.1
3.0
7.3
2.9
6.4
2.8
6.0
-4.9
-4.8
-4.8
-5.1
-4.6
-16.2
-16.1
-17.3
-16.7
-15.0
-2.9
-3.1
-7.9
-1.0
-5.2
-6.0
-0.3
-5.2
-7.1
-1.1
-5.0
-7.6
-1.4
-4.8
-7.3
-1.6
-1.9
1.2
-3.4
-2.7
-1.2
-1.1
-1.0
-0.7
-1.0
-0.9
89.1
86.8
85.6
84.1
82.9
0.1
2.6
-5.5
-2.7
1.1
-1.1
0.8
1.1
-3.2
-1.8
0.6
-1.3
0.4
0.7
-2.9
-2.6
-0.3
-2.3
0.3
0.6
0.1
-2.6
-0.7
-2.4
78.7
74.1
69.5
66.4
63.5
44.1
39.5
38.1
36.8
35.6
64.4
64.2
69.4
68.9
65.3
39.9
39.5
40.7
42.7
42.7
67.6
59.3
53.8
52.9
50.2
14.6
16.2
17.1
19.2
20.8
Euro area
Slovenia
BiH
Montenegro
Macedonia
Serbia
Kosovo
Source: Statistical offices, Central banks, IMF, Eurostat, Ministries of Finance, FocusEconomics
Note: Consensus Forecasts are highlighted in grey.
effect on the region, while BiH elected a
new tripartite state presidency as well as
over 500 other government officials in its
October general elections.
Slovenia’s economic growth remained
robust with 4.5% growth in 2018. Inflation
(HICP) increased to 1.7% in 2018
after lower levels in the previous years.
Favourable economic conditions continued
to have a positive impact on the labour
market, as well. The number of employed
persons grew by 3% on average for the
second consecutive year. In the Q3 2018,
SURS registered the highest employment
in the last 23 years. The market is now
steadily closing to a natural unemployment
level. The economic sentiment indicator fell
notably in the first nine months of 2018,
while in the last few months of the year it
slightly improved. In December still stood
12.3 p.p. above the long-term average. In
the Q2 2018, the house prices were on
average 13.4% higher at the annual level,
while on the quarterly level they went up
by 4.2%, which is the highest quarterly
growth since 2007. A lively real estate
market continued in the second quarter
2018, although the number of transactions
was the lowest since the Q3 2015. Industrial
production and construction output
continued with growth in the Q3 2018.
In 2018, industrial production was 4.6%
higher YoY, although a decrease started at
the monthly level in the last two months of
the year. Likewise, growth in construction
output strengthened notably in 2018. The
annual growth came to 19.9% compared
to 2017, which is a 2.2 p.p. higher increase
than in the previous year, according to
the SURS. The current account balance
remains positive, as well it is the general
government budget. Overall economic
growth contributed to a further decrease of
the public debt and its servicing.
The economic outlook shows signs of a
moderating momentum in the Group’s
region, nonetheless, it is expected to be
driven on solid foundations. The growth
should be supported by wage gains, EU
investment, healthy tourist arrivals, and a
robust external demand for goods, as the
Consensus Forecast from FocusEconomics
has reported. External risks stem largely
from greater global trade protectionism,
while internally the risks include political
tensions, particularly between Kosovo and
Serbia. The latter is expected to remain
one of the fastest growing countries in
the region in 2019. Vigorous domestic
demand should be underpinned by a
tighter labour market, Foreign Direct
Investment (FDI) inflows, and fiscal
spending. Bosnia and Hercegovina is
similarly positive, with the outlook for 2019
remaining promising. Job creation, higher
remittances and a growing tourism sector
should boost private consumption, while
FDI inflows will likely drive investment. A
fragmented government, however, could
stall important reforms. In Montenegro,
the economy is expected to settle into a
softer pace of growth in 2019. Tourism and
the energy sector are expected to support
growth, while FDI inflows should keep
investment strong. Still, imports related
to infrastructure projects will likely keep
the trade balance in deficit. Kosovo is
expected to advance at a solid pace in 2019.
Private consumption should be supported
by declining unemployment, remittance
inflows, and credit growth. However,
growing political disputes in the region
and the resulting trade tensions could
hinder important reforms and weigh on
investor confidence. In Macedonia, the
economic growth should gain traction in
2019. Household spending should pick up
because of an improving labour market,
while investment should improve after
2018’s poor performance on stronger FDI
inflows. Nonetheless, in the whole SEE
area the economic growth will be sensitive
to a potential slowdown in the Eurozone
and tighter global financial conditions.
The same is true for Slovenia. Slovenia’s
economy is set to a more moderate pace
in 2019, led by a deceleration in export
NLB Group Annual Report 2018
31
Table 9: Movement of key banking systems indicators in the NLB Group region
Corporate loans
Household loans Corporate deposits Household deposits Net interest margin
NPL
CAR
EUR
EUR
EUR
EUR
million ∆ % YoY
million ∆ % YoY
million ∆ % YoY
million ∆ % YoY
2017,
in %
2018,
in %
in % ∆ pp YoY
in % ∆ pp YoY
Slovenia
BiH
Montenegro
Macedonia
Serbia
Kosovo
8,470
2.2
10,078
7.0
7.3
6,788
6.6
18,733
1,904
11.8
6,210
4,725
4,409
1,133
2,679
9,142
3.6
9.8
4.5
6.9
1,279
13.3
1,304
2,533
10.3
1,589
1.6
9.5
1,848
4,107
8,607
12.5
7,273
22.1
11,782
1,746
10.7
999
11.2
718
13.6
2,334
6.8
7.8
7.6
9.5
9.2
7.5
1.8
3.2
4.3
3.7
5.4
5.3
1.8
3.0*
4.3*
3.3*
5.4*
5.3
5.6
-2.8
18.1
9.4*
-1.4
15.5*
6.9
-0.4
16.5*
5.0*
6.4*
-1.6
16.3*
-5.8
22.8*
0.0
-0.1
-0.3
0.1
0.3
2.7
-0.4
17.0
-1.0
Source: Statistical offices, Central banks, own calculation
Note: Net interest margin calculated on interest-bearing assets.
*Data in Q3 2018
growth amid a broad-based downturn
across the Eurozone. Fixed investment
will also likely grow at a more moderate
pace due to less favourable financing
conditions as the ECB moves to tighten
its monetary policy stance. Conversely,
household spending should be bolstered by
the minimum wage hike, and continue to
support a healthy pace of expansion.
Banking System in the Group’s region
The Group’s regional banking systems
improved in 2018. Kosovo’s corporate
loans growth represent a model for the
Groupʼs region with 10.7% YoY growth in
December, while on the other side, Slovenia
and BiH growths were more moderate
with 2.2% and 3.6% YoY, respectively. The
highest increase of household loans was
registered by Montenegro, with over 13%
YoY, whereas Slovenia and BiH recorded
7% YoY. Serbia showed the highest increase
in corporate deposits growth with 22.1%
YoY, while BiH and Kosovo both revealed
growth of over 10% as well, with 11.8%
and 13.6% YoY, respectively. Household
deposits growth remains solid in the
whole Group region, growing from 6.8%
YoY in Slovenia and up to 9.5% YoY in
Macedonia. The net interest margin was
the highest in Serbia and Kosovo with
over 5%, followed by Macedonia and
Montenegro with over 4%. Slovenia’s net
interest margin was more moderate with
1.8%, due to the constraints imposed by the
Eurozone and the ECB interest rate policy.
The NPL ratio as a measure of the quality
of bank loan portfolio improved in the
entire Groupʼs regional banking systems,
with Serbia leading these improvements
by 5.8 p.p. YoY. The CAR of the banking
systems remained at solid levels.
NLB Group Annual Report 2018 32
120%
100%
80%
60%
40%
20%
0%
EMU
Slovenia
Serbia
BiH
Macedonia Montenegro
Kosovo
2017
2018
Source: ECB, National central banks
Figure 3: LTD ratio in the Euro area and NLB Group region
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
EMU
Slovenia
Serbia
BiH
Macedonia Montenegro
Kosovo
2017
2018
Source: ECB, National central banks
Figure 4: ROE ratio in the Euro area and NLB Group region
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
EMU
Slovenia
Serbia
BiH
Macedonia Montenegro Kosovo
Loans to non-financial corporations, % GDP
Households loans, % GDP
Source: ECB, National central banks, National Statistical offices, Own calculations
Figure 5: Loans to non-financial corporations and households’
loans in the Euro area and the NLB Group region, 2018
The LTD ratio increased only in Serbia,
Montenegro and Kosovo, while the ROE
ratio increased in all of the Group’s
regional banking systems in 2018 except
for Kosovo, which moderated from 21% in
2017 to 19% in 2018.
The Slovenian banking system continued
to grow in 2018. The growth in loans to
the non-banking sector slightly increased
in December 2018 to 3.3%. Households
loans growth was 7%, with consumer loans
growth at 11.8%, and housing loans growth
at 4.7% YoY. Growth in loans to non-
financial corporations remains moderate
at 2.2% YoY. The growth of deposits by
the non-banking sector in December 2018
stood at 5.3%, and still exceeds the growth
in the balance sheet total. The share of
sight deposits in total deposits by the non-
banking sector was 72.4%, while the net
increase in deposits was sufficient for banks
to finance lending activities. The growth
of household deposits was relatively high,
6.8% YoY. The quality of bank investments
continues to improve. NPE ratio fell to 4%
in December 2018, whereas the NPL ratio
declined to 5.6%. In 2018, the banking
system operated with profit after tax by
16.8% higher than in the same period
of 2017. The LCR of 323% exceeded
the regulatory requirement in November
2018. The capital adequacy of the banking
system declined at the end of the third
quarter of 2018, but remained at a solid
level. On a single basis it reached 19.8%,
and on a consolidated basis it was 18.1%
and remains above the average capital
adequacy of the Euro area countries.
NLB Group Annual Report 2018 The outlook for the Group’s regional
banking systems remains positive. The
sustained growth of the global economy
and the Euro area are expected to remain
supportive even though there are signs
of moderating momentum. Nonetheless,
the impact of the trade war between the
US and China are weighing on global
activity, as well as the trade tensions
between the US and EU. The growth in
the Group’s region will be driven on solid
foundations and supported by wage gains,
EU investments and access to EU funds,
healthy tourist arrivals, and robust external
demand for goods, which should support
the corporate loan portfolio and the retail
loan portfolio growth. In Slovenia, a high
growth is expected to continue mainly in
construction and some private services.
Employment growth remains high and
employment forecasts remain positive.
The average wage growth last year was a
good three percentage points higher YoY.
Additionally, household spending should
be bolstered by the minimum wage hike.
These conditions should be supportive for
the corporate loan portfolio, as well as for
the retail loan portfolio growth. The surplus
in the current account exceeded 7% of the
GDP last year, despite a reduction in the
surplus of trade in goods. Public finances
were in surplus last year, and the same are
expected this year. Nevertheless, according
to estimates, the structural situation is
supposed to deteriorate this year, while
expenditure growth is expected to be higher
than that which is set by fiscal rules. The
LTD will most likely remain stagnant, as
deposits remain supported by the current
account surplus and high degree of saving.
Any major upward movement of interest
rate income remains limited for some time,
as well. Nevertheless, looking at the loans to
non-financial corporations and households’
loans as a percentage of GDP, it can be
observed that the whole Group has the
potential for further growth compared to
the levels in the EMU area.
33
5%
0%
-5%
-10%
-15%
-20%
-25%
-30%
2013
2014
2015
2016
2017
2018
Loans to corporate sector
Loans to households
Source: BoS
Figure 6: Annual loan growth in the Slovenian banking system
150
140
130
120
110
100
90
80
70
2012
2013
2014
2015
2016
2017
2018
Real index of retail sales, seasonal adjusted data
100=2012
Index of industrial production, seasonal adjusted data
Economic sentiment,
seasonal adjusted data
Source: SURS, European Commission
Figure 7: Growth of economic metrics in Slovenia
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
-8.0%
5
0
-5
-10
-15
-20
-25
-30
-35
-40
2012
2013
2014
2015
2016
2017
2018
Final consumption expenditures of households (annual growth, %)
Consumer confidence (percentage points)
Source: SURS
Figure 8: Households consumption expenditures and consumer confidence in Slovenia
NLB Group Annual Report 2018 34
Chapter 5
Overview of NLB
Group’s financial
performance
The Group achieved profit for the
• Continued loan growth in Strategic
fifth consecutive year in the amount
of EUR 203.6 million, down 10% from
the record in 2017 (2017: EUR 225.1
million). The strong result reflects
business growth at a stable margin
and the negative cost of risk.
This result is based on the following key
drivers:
• A strong positive performance in the
Bank with the year-end result of EUR
165.3 million. All Group subsidiary banks
in the SEE contributed an important
part to the consolidated net profit of the
Group (37%, i.e. EUR 75.813 million).
foreign markets (10% YtD) and in retail
loan balances in Slovenia (6% YtD).
13. On NLB Banka, Skopje, the positive
effect from non-recurring income from the
sale of the subsidiary NLB Nov penziski fond,
Skopje in the amount of EUR 8.5 million is
excluded.
• A very solid performance in the total net
operating income based on higher net
interest income and fee, and commission
income.
14. Core markets and activities include
Corporate banking in Slovenia, Retail
banking in Slovenia, Strategic foreign
markets, and Financial markets in
Slovenia.
• Continued solid performance with
negative cost of risk, due to release of
impairments and provisions.
• NPL levels were reduced by 26%, thus
the NPL ratio decreased to 6.9% (from
9.2% in 2017); the NPE ratio is already
at 4.7%.
15. Non-recurring income in 2017: the
positive effects from non-core equity
participation (EUR 9.5 million), a court
settlement with Zavarovalnica Triglav (EUR
1.2 million), and the negative effect from
the sale of noncore subsidiary NLB Factoring
Brno a.s. “v likvidaci” (EUR 1.6 million).
• ROE a.t. stood at 11.8%, whereas the
RORAC a.t. (on a normalised capital
requirements of 15.38% of RWA) was at
15.3%.
• Liquid assets portfolio amounted to EUR
5,172 million (41% of total assets), while
capital ratios for the Group stood at
16.7%.
• Non-recurring income from the sale of
the subsidiary NLB Nov penziski fond,
Skopje in the positive amount of EUR
12.2 million.
NLB Group Annual Report 2018 35
Strong result achieved in all Core
ROE a.t.
4.8%
6.6%
7.4%
14.4%
11.8%
markets and activities14 of the Group
The Core markets and activities achieved a
profit before tax of EUR 201.0 million, up
2% from 2017. Strategic foreign markets
contributed the largest share to positive
profit before tax in the amount of EUR
99.7 million, down 2% YoY, and included
the positive effect from non-recurring
income from the sale of the subsidiary NLB
Nov penziski fond, Skopje in the amount
of EUR 12.2 million. The profit before tax
also decreased slightly, EUR 0.8 million or
2% YoY in the segment of Retail banking
in Slovenia, but recorded a growth in the
Corporate banking in Slovenia segment, of
EUR 7.5 million or 14%.
Non-core markets and activities:
The positive result of operations
and continuing divestments
Non-core markets and activities performed
in line with the restructuring plan and
realised a profit of EUR 8.2 million, EUR
22.9 million or 74% lower YoY due to non-
recurring income of the segment in 201715.
The segment Other activities includes
categories in the Bank whose operating
results cannot be allocated to individual
segments. The result of this segment was
negative, by EUR 2.3 million.
CAGR* 48%
110.0
225.1
203.6
2016
2017
2018
62.3
2014
91.9
2015
* Compound Annual Growth Rate.
Figure 9: Profit after tax of NLB Group (in EUR million)/ROE after tax (in %)
102.0
99.7
60.4
52.8
41.7
40.9
27.3
26.5
31.2
8.2
Corporate banking
in Slovenia
Retail banking
in Slovenia
Strategic foreign
markets
Financial markets
in Slovenia
Non-core markets
and activities
2017
2018
Figure 10: Profit before tax of NLB Group by segments (in EUR million)
-2.3
-17.7
Other activities
NLB Group Annual Report 2018 36
Income statement
Table 10: Income statement of NLB Group and NLB
2018
2017
Change YoY
Q4 18
Q3 18
Q2 18
Q1 18
Q4 17
Change QoQ
NLB Group
in EUR million
Net interest income
312.9
309.3
Net fee and commission income
160.6
155.4
Dividend income
Net income from financial transactions
Net other income
0.1
14.7
4.9
0.2
26.7
-3.9
Net non-interest income
180.4
178.4
Total net operating income
493.3
487.7
Employee costs
-165.1
-164.5
Other general and
administrative expenses
-96.3
-92.4
Depreciation and amortisation
-27.2
-27.8
Total costs
-288.7
-284.7
204.6
203.0
3.6
5.2
1%
3%
-0.1
-34%
-12.0
-45%
-
1%
1%
0%
8.8
2.0
5.6
-0.6
-3.9
0.6
-3.9
1.6
81.0
40.7
0.0
3.1
-0.5
43.3
80.2
40.4
0.0
5.0
0.3
45.7
76.7
40.2
0.1
3.9
-8.2
36.0
75.0
39.3
0.0
2.7
13.3
55.4
80.6
40.2
0.0
4.2
-2.6
41.8
124.3
125.9
112.7
130.4
122.4
-43.2
-41.1
-40.6
-40.3
-43.9
-4%
-28.4
-22.5
-23.1
-22.3
-26.0
2%
-1%
-6.7
-6.9
-6.8
-6.8
-7.0
-78.3
-70.4
-70.6
-69.4
-76.9
1%
46.0
55.5
42.1
61.0
45.6
Result before impairments
and provisions
Impairments and provisions
for credit risk
Other impairments and provisions
Impairments and provisions
Gains less losses from capital
investments in subsidiaries,
associates, and joint ventures
30.2
-6.9
23.3
43.4
-13.2
-30%
-13.9
29.5
7.0
-6.3
50%
-21%
7.0
-2.7
4.3
7.6
-3.0
4.6
12.3
-0.8
11.6
3.3
-0.5
2.8
6.6
-14.3
-7.7
5.4
4.8
0.7
14%
1.3
1.6
1.4
1.2
1.0
-0.2
-14%
Result before tax
233.3
237.3
Income tax
Result of non-controlling interests
-21.8
7.9
-4.0
8.2
-4.0
-17.8
-0.3
-2%
-
-4%
Result after tax
203.6
225.1
-21.4
-10%
51.7
-5.1
1.2
45.3
61.7
-6.0
2.2
53.5
55.0
-6.3
1.5
47.2
65.0
-4.3
3.0
57.7
38.9
-10.0
-16%
3.2
1.0
41.1
0.9
-1.0
-8.2
15%
-44%
-15%
0.9
0.3
0.0
-1.9
-0.8
-2.5
-1.6
-2.1
-5.9
0.1
-7.9
-9.5
-0.6
0.3
-0.3
1%
1%
-25%
-38%
-
-5%
-1%
-5%
-26%
2%
-11%
-17%
-8%
10%
-6%
NLB Group Annual Report 2018 37
2018
2017
Change YoY
Q4 18
Q3 18
Q2 18
Q1 18
Q4 17
Change QoQ
NLB
in EUR million
Net interest income
158.0
158.8
Net fee and commission income
Dividend income
Net income from financial transactions
Net other income
100.2
49.7
8.4
7.1
98.5
58.1
17.0
-2.2
Net non-interest income
165.4
171.3
Total net operating income
323.4
330.1
Employee costs
-103.8
-103.7
Other general and
administrative expenses
-57.6
-54.2
Depreciation and amortisation
-17.5
-18.0
Total costs
-179.0
-175.9
144.4
154.2
-0.8
1.7
-8.4
-8.5
9.3
-5.9
-6.7
-0.1
-3.4
0.5
-3.1
-9.8
0 %
2 %
-14 %
-50 %
-
-3 %
-2 %
40.5
24.8
0.0
1.5
1.6
27.9
68.3
40.4
25.1
0.0
3.1
3.1
31.3
71.7
39.2
25.5
41.1
2.7
-7.5
61.8
101.0
38.0
24.8
8.5
1.2
9.9
44.4
82.4
42.4
25.1
10.0
2.1
-2.1
35.1
77.5
0 %
-27.6
-25.8
-25.3
-25.2
-28.0
0.1
-0.4
0.0
-1.6
-1.5
-3.4
-3.3
-1.8
0 %
-1 %
0 %
-52 %
-48 %
-11 %
-5 %
-7 %
-6 %
-17.7
-13.2
-13.6
-13.1
-15.0
-4.5
-34 %
3 %
-2 %
-4.4
-4.4
-4.4
-4.3
-4.5
-49.8
-43.4
-43.2
-42.6
-47.5
-0.1
-6.4
-2 %
-15 %
-6 %
18.6
28.3
57.8
39.8
30.0
-9.7
-34 %
Result before impairments
and provisions
Impairments and provisions
for credit risk
Other impairments and provisions
Impairments and provisions
Gains less losses from capital
investments in subsidiaries,
associates, and joint ventures
29.8
3.2
33.1
41.5
-11.7
-28 %
-10.8
30.7
14.1
2.4
-
8 %
11.7
3.1
14.8
6.7
-0.4
6.3
13.2
0.5
13.7
-1.7
0.0
-1.7
0.0
0.0
0.0
-
0.0
0.0
0.0
0.0
Result before tax
177.5
184.9
-7.4
-4 %
Income tax
Result after tax
-12.2
4.2
-16.4
-
165.3
189.1
-23.8
-13 %
33.4
-2.7
30.7
34.5
-3.3
31.2
71.5
-4.6
66.8
38.1
-1.6
36.5
20.9
-11.2
9.8
0.0
39.7
4.1
43.8
5.0
3.6
8.6
0.0
-1.1
0.6
-0.5
75 %
-
137 %
-
-3 %
18 %
-2 %
NLB Group Annual Report 2018 38
ROE a.t.
14.4%
3.6
5.2
225.1
-3.2
-3.9
-6.3
0.7
0.3
-17.8
11.8%
203.6
2017
Net interest
income
Net fees
& commissions
Other net
non-interested
income
Total costs
Impairments
and provisions
Gains and
losses*
Income tax
Result of
non-controlling
interest
2018
* Gains less losses from capital investments in subsidiaries, associates, and joint ventures.
Figure 11: Profit after tax of NLB Group (in EUR million) – evolution YoY
• Income tax higher by EUR 17.8 million;
namely, in 2017 the Bank recorded the
positive impact from a non-recurring
event related to the utilisation of
previously tax non-deductible expenses
of impairments on a subsidiary that was
divested in 2017, and the increase of
deferred tax assets to the amount that is
expected to be reversed in the foreseeable
future (i.e. within five years).
in 2017. The main reason is EUR 16.4
million higher income tax and EUR 8.4
million lower dividend income from core
subsidiaries, associates, and joint ventures
which amounted to EUR 49.7 million. In
October 2018, the Bank paid dividends in
the amount of EUR 270.6 million to its
shareholders (EUR 189.1 million of profit
for fiscal year 2017 and EUR 81.5 million
of retained profit from previous years).
Result reflects business growth at stable
interest margins and negative cost of risk
The Group generated EUR 203.6 million
of profit after tax, EUR 21.4 million or
10% less YoY.
The Group’s result was based on the
following key drivers and YoY evolution:
• Net interest income higher in the Group
level by EUR 3.6 million or 1%, mainly
due to loan volume growth and lower
interest expenses.
• Net fee and commission income higher
• Non-recurring income from the sale of
the subsidiary NLB Nov penziski fond,
Skopje, in the positive amount of EUR
12.2 million.
Lower profits compared to the previous
year in NLB Banka Skopje, and NLB
Banka Banja Luka were mostly due to
the lower release of impairments and
provisions. Significant improvement was
recorded in the Serbian and Montenegro
markets, and a favourable result was also
achieved in NLB Banka Sarajevo and NLB
Banka Prishtina.
by EUR 5.2 million or 3%; strong growth
was realised in the Retail segment in
Slovenia (4%) and in Strategic foreign
markets (4%).
• Non-recurring effect from the sale
of 28.13% minority stake in Skupna
pokojninska družba in the negative
amount of EUR 0.5 million.
• Total costs higher by EUR 3.9 million
or 1% YoY, due to major increase in
costs related to accelerated marketing/
promotion and business consulting.
• Release of impairments and provisions in
the amount of EUR 23.3 million, mostly
individual credit impairments.
Despite a competitive market environment
and strong competition, all banks in the
Group generated a profit.
The result of the Bank decreased by
13% YoY to EUR 165.3 million from the
exceptional EUR 189.1 million achieved
Profit before impairments and provisions
of the Group totalled EUR 204.6 million,
which is EUR 1.6 million higher YoY,
including regulatory expenses in the
amount of EUR 16.3 million, of which
EUR 13.8 million relates to DGS and EUR
2.5 million to SRF.
NLB Group Annual Report 2018 189.1
165.3
40.0
37.1
23.7
16.2
14.2
14.8
8.3
8.8
10.0
5.4
3.7
5.2
NLB
NLB Banka,
Skopje
NLB Banka,
Banja Luka
NLB Banka,
Prishtina
NLB Banka,
Sarajevo
NLB Banka,
Podgorica
NLB Banka,
Beograd
2017
2018
39
1%
203.0
7.5
204.6
7.1
211.5
195.5
213.9
197.5
1%
YoY
-16.0
2017
-16.3
2018
Non-recruting events
Regulatory costs
Regular profit before impairments
and provisions
Figure 12: Profit after tax of NLB Group banks (on a stand-alone basis)
Figure 13: Profit before impairments and
– evolution (in EUR million)
provisions of NLB Group (in EUR million)
Net effects from non-recurring events
EUR -0.5 million
Net effects from recurring events
EUR 2.1 million
7.1
3.6
5.2
-7.5
-0.8
-4.1
-1.7
-0.1
203.0
204.6
2017
Non-recurring
effects 2017
Non-recurring
effects 2018
Net profit from
financial transaction
Total costs
Net interest
income
Fees and
commissions
Other regular
net income
Dividends
received
2018
Figure 14: Profit before impairments and provisions of NLB Group – evolution YoY (in EUR million)
NLB Group Annual Report 2018 40
Net interest income
309.3
312.9
Net interest income of the Group
accounted for 63% of the Group’s total net
revenues, increasing by 1% YoY to EUR
312.9 million, supported by a higher net
interest income in the Retail banking in
Slovenia segment (EUR 6.6 million or 9%)
and in Strategic foreign markets (EUR 5.5
million or 4%), and due to lower interest
expenses of the Bank.
Net interest income was negatively affected
by lower interest rates on assets, which
was partly reduced by higher loan volume
growth, while the positive effects derived
from active discipline on deposit pricing
as a reinvestment of due deposits was
performed at a lower interest rate and due
to the maturity of the Bank’s bond in July
2017 (EUR 300 million bond issued in July
2014).
The net interest margin in the Group
remained stable at 2.56% and in the Bank
at 1.89%. The margin of the core banks
operating on the SEE markets is below the
level recorded in 2017.
The net interest income of the Key business
activities16 increased by 4% YoY, despite
ongoing margine pressures, especially in
Slovenia.
The net interest income in Key/mid/small
Corporate banking in Slovenia decreased
by EUR 2.2 million, or 6%, mainly due to
lower loan volumes in the Key corporate
clients segment.
Despite strong price pressures the net
interest income in the Retail banking in
Slovenia increased by EUR 6.6 million, or
9% YoY as a result of of 6% loan growth
and rising active interest rates on the new
loan production.
363.7
358.9
-54.4
2017
-45.9
2018
80.6
92.8
-12.2
80.2
81.0
91.6
-11.4
92.1
-11.1
Q4 2017
Q3 2018
Q4 2018
Interest income
Interest expenses
Figure 15: Net interest income of NLB Group (in EUR million)
-9.2
309.3
6.5
4.4
4.0
-2.1
312.9
2017
Interest rate
on assets
Interest rate on
liabilities
Volume
of assets
Volume
of liabilities
Derivatives
& other
2018
Figure 16: Effects on net interest income change (in EUR million) – evolution YoY
4.01%
2.57%
1.90%
3.76%
3.78%
3.83%
3.85%
2.49%
1.86%
2.51%
1.87%
2.53%
1.88%
2.56%
1.89%
2017
1-3 2018
1-6 2018
1-9 2018
2018
NIM (NLB)
NIM (NLB Group)
NIM (NLB Group - core foreign banks)
16. Key business activities include key/mid/
small corporates in Slovenia, Retail banking
in Slovenia and Strategic foreign markets.
Figure 17: Net interest margin of NLB Group (in %)
NLB Group Annual Report 2018 41
Strategic foreign markets improved net
interest income by EUR 5.5 million or 4%,
due to 10% or EUR 272.1 million YoY
increase of gross loan volumes.
The net interest income in Financial
markets decreased slightly by EUR 0.8
million or 2%, due to falling yields in the
securities portfolio (the maturity of some
high yielding assets and reinvestments
made in the still low yielding environment),
and due to higher expenses resulting from
the increased level of excess liquidity.
The net interest income in non-core
markets and activities was lower and
amounted to EUR 9.3 million (2017:
EUR 16.8 million) as a result of a lower
volume of operations according to the
restructuring plan.
Key business activities
2017: 254.2 | 2018: 264.1
150.1
144.6
79.3
72.8
36.9
34.6
key/mid/small
+
6.0 7.9
Restructuring
and workout
32.5
31.7
16.8
9.3
-0.2
-0.1
Corporate banking
in Slovenia
Retail banking
in Slovenia
Strategic foreign
markets
Financial markets
in Slovenia
Non-core markets
and activities
Other
activities
2017
2018
Figure 18: Net interest income of NLB Group by segments (in EUR million)
NLB Group Annual Report 2018 178.4
12.3
15.6
0.2
180.4
11.7
14.7
0.1
155.4
160.6
-5.1
2017
-6.8
2018
41.8
4.2
40.2
-2.6
45.7
0.8
5.0
40.4
-0.5
43.3
3.1
40.7
-0.5
Q4 2017
Q3 2018
Q4 2018
Net other income
Non-recurring items
Net income from financial transactions
Dividend income
Net fee and commission income
Figure 19: Net non-interest income of NLB Group (in EUR million)
17. Non-recurring income in 2017: the positive effects
from non-core equity participation (EUR 9.5 million),
a court settlement with Zavarovalnica Triglav (EUR
1.2 million), and the sale of noncore subsidiary NLB
Factoring Brno a.s. “v likvidaci” (EUR 1.6 million).
Non-recurring income in 2018: the positive effect from
the sale of core subsidiary NLB Nov penziski fond,
Skopje (EUR 12.2 million) and the negative effect of
the sale a 28.13% minority stake in the core subsidiary
Skupna pokojninska družba d.d. (EUR 0.5 million).
42
Net non-interest income
The net non-interest income increased
YoY and it reached EUR 180.4 million,
including the non-recurring effects of the
sale of NLB Nov penziski fond, Skopje
(EUR 12.2 million), and the sale of a
28.13% minority stake in the Skupna
pokojninska družba (EUR -0.5 million).
The net non-interest income was affected
also by regulatory costs in a total amount
of EUR 16.3 million, of which EUR 8.3
million was related to Slovenia (SRF and
DGS) and EUR 8.1 million to Strategic
foreign markets (DGS).
The regular net non-interest income
(excluding non-recurring income17) totaling
EUR 168.6 million increased by EUR 2.6
million or 2% YoY, due to the following
factors:
• Net other income lower by EUR 1.7
million, mostly due to a lower income
from the services provided by the Bank
to third parties (EUR 1.9 million)
and expenses related to issued service
guarantees (EUR 1.2 million).
• Net fee and commission income higher
by EUR 5.2 million or 3% YoY, mostly
due to new package offer for individuals
that simplified the use of the most
frequently used banking services. As
a result, the highest increases were
recorded in the Retail banking in
Slovenia (EUR 2.8 million or 4%) and
in Strategic foreign markets (EUR 2.1
million or 4%). The Financial markets
in Slovenia also recorded a substantial
increase (EUR 1.2 million or 26%) due to
growing revenues in assets management.
NLB Group Annual Report 2018 43
The net non-interest income of Key
business activities continues to increase in
Corporate banking in Slovenia (EUR 3.1
million or 10% YoY) and Strategic foreign
markets (EUR 16.8 million or 36% YoY).
Despite EUR 2.8 million or a 4% higher
net fee and commission income, Retail
banking in Slovenia recorded a slight
decrease of 1% due to EUR 2.2 million
higher regulatory expenses (DGS EUR 1.4
million and SRF EUR 0.8 million higher
YoY), and the negative effect from the
sale of 28.13% minority stake in Skupna
pokojninska družba d.d. (EUR -0.5 million).
The Non-core markets and activities
segment recorded a EUR 5.2 million of net
non-interest income, EUR 18.0 million or
78% lower YoY, due to the non-recurring
income in 2017 from successful divestment
of non-core subsidiaries18.
Key business activities
2017: 144.1 | 2018: 159.6
67.8
67.1
63.9
47.1
29.2
28.7
key/mid/small
+
1.8
5.5
Restructuring
and workout
23.2
7.3
7.1
5.2
4.5
4.9
Corporate banking
in Slovenia
Retail banking
in Slovenia
Strategic foreign
markets
Financial markets
in Slovenia
Non-core markets
and activities
Other
activities
Operating costs
2017
2018
Total costs amounted to EUR 288.7 million
(of which EUR 1.7 million comprised of
non-recurring costs related to restructuring
and the privatisation process, as well as
EUR 3.0 million in performance rewards),
and are thus by EUR 3.9 million or 1%
higher YoY. A major increase was recorded
in costs related to accelerated marketing/
promotion and business consulting (EUR
18.7 million).
Depreciation and amortization decreased
by 2% YoY, while employee costs, including
performance rewards, remained stable.
As a result, the CIR amounted to 58.5%,
and thus remained on the level of the
previous year.
Figure 20: Net non-interest income by segments of NLB Group (in EUR million)
CIR
58.4%
284.7
164.5
92.4
27.8
2017
0.6
0%
3.9
4%
-0.6
-2%
Employee costs
Other general
and administrative
expenses
Depreciation
and amortization
58.5%
288.7
165.1
96.3
27.2
2018
18. Please refer to note 15.
Depreciation
and amortization
Other general
and administrative expenses
Employee costs
Figure 21: Total costs of NLB Group (in EUR million) – evolution YoY
NLB Group Annual Report 2018 44
Release of net impairments
and provisions
In 2018, the Group released EUR 23.3
million of impairments and provisions 21%
less YoY.
Credit impairments and provisions were
released in the amount of EUR 30.2
million, mainly as a result of a successful
restructuring of several major exposures
and the recovery of NPLs. In 2017, credit
impairments and provisions were affected
by the release of pool provisions in the
amount of approximately EUR 21 million,
mostly in the Corporate segment. The
cost of risk in both periods is negative, but
increased from -62 bps to -43 bps.
Other impairments and provisions were
established in the net amount of EUR 6.9
million, EUR 7.0 million less YoY, mostly
due to established HR provisions in 2017
(EUR 8.6 million).
Asset quality
The Group’s lending strategy focuses on its
core markets of retail, SME, and selected
corporate business activities in the SEE
region. 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. Great emphasis is also placed
on intensive and proactive handling of
problematic customers, changes in the
credit process, and an early warning system
for detecting increased credit risk. The
efforts led to cumulatively very low new
NPLs formation in the amount of EUR
64 million, of which only EUR 19 million
comes from new business, which represents
0.2% of the total portfolio.
Gross NPL formation has been low since 2015.
in EUR million
50.0
40.0
30.0
20.0
10.0
0.0
-10.0
-20.0
-30.0
-40.0
43.5
-62
2017
in bps
0
-10
-20
-30
-40
-50
-60
-70
30.0
-43
2018
Credit impairments and provisions
Cost of risk
Figure 22: NLB Group credit impairments and provisions
(in EUR million) and cost of risk (in bps)
Formation / gross loans
1.2%
1.4%
0.7%
0.7%
Limited formation at front book* in 2015 to 2018:
EUR 51 million, o/w EUR 19 million in 2018
123
15
77
31
128
31
32
64
60
37
21
64
36
2
11
12
2015
2016
2017
2018
Corporate
SME
Retail/Other
* Refers to Corporate loans disbursed since 2014 and Retail loans disbursed since 2015.
Figure 23: NLB Group gross NPL formation (in EUR million)
NLB Group Annual Report 2018 45
Statement of financial position
Table 11: Statement of financial position of NLB Group and NLB
31 Dec
2018
31 Dec
2017
Change YoY
31 Dec
2018
30 Sep
2018
30 Jun
2018
31 Mar
2018
31 Dec
2017
Change QoQ
NLB Group
in EUR million
ASSETS
Cash, cash balances at central banks,
and other demand deposits at banks
1,588.3
1,256.5
331.9
26 %
1,588.3
1,557.4
1,298.7
1,341.4
1,256.5
31.0
2 %
Loans to banks
118.7
510.1
-391.4
-77 %
118.7
402.0
453.7
553.2
510.1
-283.3
-70 %
Loans to customers
7,148.4
6,994.5
154.0
2 %
7,148.4
7,080.9
7,059.0
6,935.3
6,994.5
7,627.5
7,641.2
-13.7
0 %
7,627.5
7,618.7
7,611.9
7,500.9
7,641.2
3,540.4
3,705.0
-164.6
-4 %
3,540.4
3,561.5
3,621.6
3,555.8
3,705.0
-21.1
3,726.5
3,470.2
256.4
7 %
3,726.5
3,663.5
3,588.0
3,515.7
3,470.2
63.1
360.5
466.0
-105.5
-23 %
360.5
393.8
402.3
429.4
466.0
-33.3
67.5
8.7
-479.0
-646.8
167.7
26 %
-479.0
-537.8
-552.9
-565.6
-646.8
58.8
11 %
Financial assets
3,399.2
2,963.4
435.8
15 %
3,399.2
3,276.7
3,214.1
3,070.3
2,963.4
122.6
4 %
- Trading book
63.6
72.2
-8.6
-12 %
63.6
45.2
67.5
47.9
72.2
18.4
41 %
- Non-trading book
3,335.6
2,891.2
444.4
15 %
3,335.6
3,231.4
3,146.7
3,022.4
2,891.2
104.2
3 %
37.1
43.8
-6.6
-15 %
37.1
37.8
42.3
43.5
43.8
-0.6
-2 %
236.0
240.2
35.0
35.0
-4.1
0.0
-2 %
236.0
234.0
235.8
239.2
240.2
0 %
35.0
31.1
32.7
33.6
35.0
2.0
3.9
177.1
194.4
-17.2
-9 %
177.1
163.9
179.8
208.1
194.4
13.3
12,740.0
12,237.7
502.3
4 % 12,740.0
12,783.7
12,516.2
12,424.6
12,237.7
-43.7
Deposits from customers
10,464.0
9,879.0
585.0
6 % 10,464.0
10,246.7
10,018.0
9,938.9
9,879.0
217.3
2,337.3
2,260.1
77.2
3 %
2,337.3
2,310.0
2,203.6
2,199.6
2,260.1
27.3
7,865.6
7,362.9
502.7
7 %
7,865.6
7,656.7
7,548.4
7,464.6
7,362.9
208.9
261.1
256.0
5.1
2 %
261.1
280.0
266.0
274.7
256.0
-18.9
-7 %
Deposits form banks and central banks
Debt securities in issue
Borrowings
Other liabilities
26.8
0.0
40.6
0.0
-13.8
-34 %
0.0
-
26.8
0.0
43.3
0.0
39.1
0.0
36.4
0.0
40.6
0.0
320.3
353.9
-33.6
-10 %
320.3
329.6
333.6
342.9
353.9
256.5
248.7
7.8
3 %
256.5
264.3
275.9
286.8
248.7
Subordinated liabilities
15.1
27.4
-12.3
-45 %
15.1
15.3
15.0
27.3
27.4
-16.5
-38 %
0.0
-9.3
-7.8
-0.2
-
-3 %
-3 %
-2 %
Equity
1,616.2
1,653.6
-37.3
-2 %
1,616.2
1,844.5
1,796.7
1,752.8
1,653.6
-228.3
-12 %
Non-controlling interests
41.2
34.6
6.6
19 %
41.2
40.1
37.9
39.5
34.6
1.2
TOTAL LIABILITIES AND EQUITY
12,740.0
12,237.7
502.4
4 % 12,740.0
12,783.7
12,516.2
12,424.6
12,237.7
-43.7
3 %
0 %
Gross loans
- Corporate
- Individuals
- State
Impairments and valuation
of loans to customers
Investments in subsidiaries,
associates, and joint ventures
Property and equipment,
investment property
Intangible assets
Other assets
TOTAL ASSETS
LIABILITIES
- Corporate
- Individuals
- State
1 %
0 %
-1 %
2 %
-8 %
1 %
12 %
8 %
0 %
2 %
1 %
3 %
NLB Group Annual Report 2018 46
31 Dec
2018
31 Dec
2017
Change YoY
31 Dec
2018
30 Sep
2018
30 Jun
2018
31 Mar
2018
31 Dec
2017
Change QoQ
NLB
in EUR million
ASSETS
Cash, cash balances at central banks,
and other demand deposits at banks
795.1
570.0
225.1
39 %
795.1
820.9
660.9
680.2
570.0
-25.8
-3 %
Loans to banks
110.3
462.3
-352.0
-76 %
110.3
380.3
448.6
489.6
462.3
-270.0
-71 %
Loans to customers
4,478.1
4,669.6
-191.5
-4 %
4,478.1
4,513.8
4,547.4
4,546.8
4,669.6
Gross loans
- corporate
- individuals
- state
Impairments and valuation
of loans to customers
4,703.7
4,986.7
-283.0
-6 %
4,703.7
4,760.6
4,808.2
4,825.2
4,986.7
2,190.3
2,502.5
-312.2
-12 %
2,190.3
2,248.1
2,329.6
2,345.1
2,502.5
2,241.6
2,121.2
120.5
6 %
2,241.6
2,210.5
2,168.0
2,146.3
2,121.2
271.7
363.1
-91.3
-25 %
271.7
302.0
310.6
333.8
363.1
-30.3
-10 %
-225.6
-317.1
91.5
29 %
-225.6
-246.8
-260.8
-278.4
-317.1
21.2
Financial assets
2,869.5
2,460.3
409.2
17 %
2,869.5
2,759.5
2,681.9
2,555.0
2,460.3
109.9
- Trading book
63.6
72.2
-8.6
-12 %
63.6
45.2
67.5
47.9
72.2
- Non-trading book
2,805.8
2,388.1
417.7
17 %
2,805.8
2,714.3
2,614.4
2,507.1
2,388.1
355.5
356.9
99.0
23.4
80.3
96.3
23.9
73.5
-1.4
2.7
-0.5
6.8
0 %
355.5
355.2
357.4
356.9
356.9
3 %
-2 %
9 %
99.0
23.4
80.3
96.3
20.5
89.2
94.8
21.7
95.8
95.4
22.9
103.8
96.3
23.9
73.5
8,811.0
8,712.8
98.2
1 %
8,811.0
9,035.7
8,908.3
8,850.5
8,712.8
-224.7
-2 %
Deposits from customers
7,033.4
6,811.6
221.8
3 %
7,033.4
6,986.8
6,879.4
6,864.9
6,811.6
46.6
1,392.2
1,434.7
-42.5
-3 %
1,392.2
1,423.8
1,393.8
1,424.0
1,434.7
-31.7
5,522.1
5,252.3
269.9
5 %
5,522.1
5,435.0
5,373.1
5,310.6
5,252.3
87.1
119.1
124.7
-5.6
-4 %
119.1
127.9
112.5
130.3
124.7
48.9
0.0
72.1
0.0
-23.2
-32 %
0.0
-
48.9
0.0
57.7
0.0
55.5
0.0
59.7
0.0
72.1
0.0
248.3
266.5
-18.2
-7 %
248.3
256.9
257.4
265.1
266.5
-8.8
-8.8
0.0
-8.7
Subordinated liabilities
0.0
0.0
185.2
181.5
3.8
0.0
2 %
185.2
198.9
207.1
217.6
181.5
-13.6
-
0.0
0.0
0.0
0.0
0.0
0.0
Equity
1,295.2
1,381.2
-86.0
-6 %
1,295.2
1,535.5
1,508.8
1,443.2
1,381.2
-240.3
-16 %
Non-controlling interests
0.0
0.0
TOTAL LIABILITIES AND EQUITY
8,811.0
8,712.8
0.0
98.2
-
0.0
0.0
0.0
0.0
0.0
0.0
-
1 %
8,811.0
9,035.7
8,908.3
8,850.5
8,712.8
-224.7
-2 %
Investments in subsidiaries,
associates, and joint ventures
Property and equipment,
investment property
Intangible assets
Other assets
TOTAL ASSETS
LIABILITIES
- corporate
- individuals
- state
Deposits form banks and central banks
Debt securities in issue
Borrowings
Other liabilities
-35.7
-57.0
-57.8
31.1
-1 %
-1 %
-3 %
1 %
18.4
91.6
0.3
2.7
2.9
-8.9
-10 %
9 %
4 %
41 %
3 %
0 %
3 %
14 %
1 %
-2 %
2 %
-7 %
-15 %
-
-3 %
-7 %
-
NLB Group Annual Report 2018 47
12,039.0
12,237.7
6,997.4
6,994.5
Slovenia
66%
2,778.0
1,734.6
529.1
2,963.4
1,766.6
513.3
31 Dec 2016
31 Dec 2017
12,740.0
7,148.4
3,399.2
1,707.0
485.3
31 Dec 2018
Loans to customers
Financial Assets
Other
Cash, cash balances at central banks, and other demand deposits at banks
Figure 25: Total assets of NLB Group (in EUR million) – structure
Serbia 4%
Montenegro 4%
Kosovo 5%
Other
0%
BiH
10%
Macedonia
11%
Figure 24: NLB Group total
assets by country (in %)*
* Geographical analysis based
on location of Group member's
headquarter.
In 2018, total assets increased by EUR
502.3 million, and totalled EUR 12,740.0
million, mainly driven by the continued
inflows of deposits from individuals.
Assets
Slovenia accounts for 66% of the total
assets, while the vast majority of the
remaining part of assets (34%) are in SEE
countries.
NLB Group Annual Report 2018 48
256.4
-164.6
167.7
-105.5
12,237.7
435.8
-391.4
331.9
-28.0
12,740.0
31 Dec 2017
Retail gross
loans
Corporate
gross
loans
State gross
loans
Impairments
and deviations
from FV
Cash, balances
with CB
and demand
deposits
with banks
Financial
assets
(securities)
Loans
to banks
Other assets
31 Dec 2018
Figure 26: Key changes of NLB Group assets (in EUR million)
2,457.2
2,660.6
Key business
activities
in loan book
1,992.1
2,280.7
230.7
254.7
6,730.0
6,796.6
2,122.5
2,013.5
175.1
221.1
7,019.6
3% YoY
2,932.7
2,243.4
1,843.5
217.5
101.8
31 Dec 2016
31 Dec 2017
31 Dec 2018
Financial markets in Slovenia
Key/mid/small corporate
Strategic foreign markets
Restructuring and workout
Retail banking in Slovenia
Figure 27: NLB Group gross loans to customers by core segments (in EUR million)
The Group recorded loan growth to
individuals (6% YoY), while the contraction
of the loan book persisted, which was
reflected in the increased volume of the
Group’s liquid assets.
Gross loans in Key business activities
increased slightly by EUR 223.1 million
or 3% YoY. A significant decrease in gross
loans of Key/Mid/Small corporates (EUR
170.0 million or 8% YoY) in Slovenia
because of a high amount of matured
loans, prepayment of several large
exposures, and transfer of some assets to
the restructuring segment was partially
neutralised by strong volume growth in the
Retail segment in Slovenia (6% YoY), and
in Strategic foreign markets (10% YoY) with
record growth in Kosovo, Montenegro, and
Serbia.
The credit portfolio of the Group is
well diversified, and there are no large
concentrations in any specific client
segment or industry. The majority of the
credit portfolio refers to euro currency,
while the rest originates from local
currencies of the Group banking members.
From interest rate type, half of the credit
portfolio is linked to the fixed interest rate,
and the rest to floating rate (mostly to the
Euribor reference rate).
NLB Group Annual Report 2018 49
Institutions 4%
Kosovo 6%
Serbia 5%
State** 13%
SME 23%
Montenegro 5%
Other 5%
Floating 51%
BAM 6%
MKD 7%
EUR 9.0bn
Retail
consumer
20%
Macedonia
12%
EUR 9.0bn
Corporates
19%
BiH 12%
Retail mortages
21%
Other 5%
Slovenia
55%
EUR 9.0bn
EUR 9.0bn
EUR 82%
Fixed 49%
Segment
Geography
Currency
Interest rate
* Includes drawn loans as well as used limits on current account or on credit cards.
** State includes exposures to Central Banks.
Figure 28: Credit portfolio* by segment, geography, currency, and rate type
10,513.4
298.7
351.5
2,182.6
10,549.6
276.1
256.0
2,260.1
11,082.6
271.5
261.1
2,337.3
6,905.1
7,362.9
7,865.6
277.7
497.7
31 Dec 2016
394.5
31 Dec 2017
347.0
31 Dec 2018
Other liabilities
Corporate deposits
Debt securities
State deposits
Individual deposits
Bank borrowings
Figure 29: Total liabilities of NLB Group – structure (in EUR million)
Liabilities
Total liabilities increased slightly and
amounted to EUR 11,082.6 million.
Deposits accounted for 94% of the total
funding of the Group and increased by 6%
YoY.
The Group’s funding base is dominated
by customer deposits accounting for 82%
of total assets in which sight deposits
prevail (79%, compared to 74% as at
year-end 2017). The majority of customer
deposits (75%) were from retail. Sixty-
seven per cent of deposits were collected
in Slovenia, and the rest at core foreign
subsidiaries. Wholesale funding activities
in the Group are conducted with the aim
of achieving diversification, improving
structural liquidity, and fulfilling regulatory
requirements.
NLB Group Annual Report 2018 50
12,237.7
77.2
5.1
-12.3
-47.5
-30.7
7.8
502.7
12,740.0
31 Dec 2017
Retail
deposits
Corporate
deposits
State deposits
Subordinated
debt
Wholesale
funding
Other liabilities
Total Equity
(including
Non-controlling
interests)
31 Dec 2018
Figure 30: Key changes of NLB Group liabilities and capital (in EUR million)
International
Slovenia
Term
36%
Term
13%
Sight
64%
Sight
87%
Figure 31: Deposits from customers by type
Due to a solid liquidity position, the Bank
and its Group members did not raise any
new wholesale long-term funds.
The LTD ratio was 68.3% at the Group
level; a decrease of 2.5 p.p. YoY as a result
of increased deposits, which was partially
neutralizes by growing, but still moderate
demand for loan. As a result of the low
interest rate environment, the maturity of
deposits continue to shorten, while loans
maturities are lengthening. That increases
the maturity mismatch between investments
and funding.
74.1%
70.8%
68.3%
31 Dec 2016
31 Dec 2017
31 Dec 2018
Figure 32: LTD ratio movement
NLB Group Annual Report 2018 51
Capital and capital adequacy
17.0%
15.9%
16.7%*
&$
In 2018, OCR amounted to 13.375%
for the Bank on the consolidated level,
consisting of:
• 11.50% TSCR (8% Pillar 1 Requirement
and 3.50% Pillar 2 Requirement); and
• 1.875% CBR (1.875% Capital
conservation buffer and 0%
Countercyclical buffer).
The applicable OCR requirement for
2018 has been raised to 13.375%, due
solely to the gradual phase-in of the capital
conservation buffer as prescribed by law.
From 1 March 2019, NLB is required to
maintain the OCR on the level of 14.75%
on a consolidated basis, consisting of:
• 11.25% TSCR (8% Pillar 1 Requirement
and 3.25% Pillar 2 Requirement); and
• 3.5% CBR (2.5% Capital conservation
buffer, 1% O-SII buffer and 0%
Countercyclical buffer).
The increase of the requirement in
comparison to the 2018 level is mainly
due to the phasing-in of the capital
conservation buffer and the implementation
of the O-SII buffer. On the other hand,
Pillar 2 Requirement decreased by 0.25 p.p.
to 3.25%, as a result of better overall SREP
assessment.
1,336
1,362
1,453
31 Dec 2016
31 Dec 2017
31 Dec 2018
CET 1 capital
CET 1 ratio
* CET 1 includes the H1 2018 result of EUR 109 million.
Figure 33: NLB Group CET 1 capital (in EUR million) and CET 1 ratio (in %)
The capital of the Bank and the Group
consists of the components of top quality
CET 1 capital, which is why all three
capital ratios are the same. It remained
strong, at a level which covers all current
and announced regulatory capital
requirements, including capital buffers and
other currently known requirements, as well
as the Pillar 2 Guidance.
At the end of 2018, the capital ratio for
the Group stood at 16.7% (or 0.8 p.p.
higher than at the end of 2017), and for
the Bank at 24.1% (or 2.3 p.p. higher than
at the end of 2017). The improvement
of capital adequacy derives from higher
capital, mainly due to the inclusion of
the H1 2018 result (EUR 108.8 million
for the Group), lower retained earnings
(EUR - 81.5 million) as part of the dividend
payout, the inclusion of the positive effect
from the implementation of IFRS 9 (EUR
43.8 million for the Group and EUR 27.7
million for the Bank), and the conclusion of
transitional arrangements relevant until the
end of 2017.
The Bank intends to further strengthen and
also optimize NLB Group capital structure
by issuing a Tier 2 instrument in 2019.
NLB Group Annual Report 2018 52
Table 12: 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 2018
31 Dec 2017
31 Dec 2016
Change YoY
8,678
7,180
544
953
8,546
7,096
501
949
7,862
6,865
105
893
1.5%
1.2%
8.8%
0.5%
The RWA for credit risk increased by
EUR 83.3 million, mainly due to loan
growth on the retail segment (EUR 244.2
million), and on the corporate segment
(EUR 158.7 million) as a consequence of
increased business. The increase in RWA
for market risks and CVA (EUR 43.9
million) is mainly the result of more open
positions in domestic currencies of non-
euro subsidiary banks. The increase in the
RWA for operating risks (EUR 4.0 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 5.25 to
the Audited Annual Financial Statements.
Liquidity position
The Group liquidity remains exceptionally
strong, with a significant level of liquid
assets in total assets (41%) that is reflected
in the LCR ratio standing at 361%,
compared to 276% as at 31 December
2017. The Group holds a comfortable
liquidity position at both the Group and
subsidiary bank levels, standing well above
the targeted risk appetite profile.
EUR million
3,500
3,000
2,500
2,000
1,500
1,000
500
0
2,467
2,624
2,675
2,972
3,151
&$
894
833
881
830
873
12/31/2017
LCR=276%
3/31/2018
LCR=315%
6/30/2018
LCR=304%
9/30/2018
LCR=358%
12/31/2018
LCR=361%
High quality liquid assets
Net liquidity outflows
Figure 34: LCR quarterly dynamic of NLB Group
NLB Group Annual Report 2018 54
Chapter 6
Trends and opportunities
NLB Group
Strategy
The Group has successfully undertaken
• A regional focus (reinforcing and
a restructuring strategy since 2016,
thereby stabilised its business and
returned to profit in all of its core
strengthening strategic position, self-
funded subsidiaries)
markets. The Group is now facing more
solid macroeconomic conditions and
improving banking sector performance
across SEE markets. Following a successful
• Smart banking (focus on advisory rather
than transaction services by branches,
improvement of sales processes, value-
creating insights from customer data)
conclusion of the Bank’s first phase
of privatisation, the Group is further
evolving into a regional champion, and
is now even more equipped to face
future challenges in order to sustain
• Measured risk-taking (improvements
in credit processes, risk governance,
modelling, and collections)
its profitability and achieve growth.
• Engaged employees (fostering cooperative
Current strategy
The Group continues to pursue its vision to
become innovative with simple, customer-
oriented solutions focused on Slovenia and
SEE countries.
The key priorities of the Group’s strategy
remain as follows:
• Innovative solutions addressing customer
needs (omnichannel distribution,
end-to-end solutions, and partnership
programmes)
• Simplicity (simple and understandable
products, fast and low-cost processes,
effective procurement, automation, etc.)
and engaging working environment,
initiatives to improve skills and
capabilities, etc.).
Reassessment of the strategy
Following the successful conclusion of the
Bank’s first phase of privatisation, one
of its priorities as a public company is to
rethink and refresh its current strategy. The
Bank has a new shareholder structure, and
therefore new expectations. In addition, as a
result of privatisation, some barriers imposed
by the EC in relation to the state aid granted
to the Bank do not exist anymore, and
some of the remaining ones are clearly
just temporary. Therefore, due to different
business and market conditions, the current
strategy needs to be reassessed and new goals
and priorities set. The ambition is to define a
new mid-term strategy that lasts until 2025.
The Group’s strategy and business
model going forward may be affected
by some of the following key trends and
opportunities. Alongside the process of
market consolidation that is currently
undergoing in Slovenia and the region, the
strategic endeavours are also influenced
by challenging economic conditions, with
a low interest rate environment and local
and international regulatory interventions.
In addition, more demanding and
knowledgeable clients with a preference
for digital channels on one side, and the
emergence of fintech companies that
represent lower cost competition on
the other, are changing the traditional
business models of the banking industry.
The Group is already a technology leader
among the banks in the SEE region. The
Bank is further adapting by innovating
new solutions based on customer insights
through big-data and social media, and also
by focusing on digitalisation.
Focusing on digitalisation
The Group recognised the importance of
digital transformation and is continuing
to direct comprehensive strategic efforts to
digitalise both sales channels and internal
operations such as workplace and process
automation. This should create a significant
positive impact on revenues and costs alike.
It is expected from the new digital channels
to expand the array of the Group’s
financial products and sales funnels, and
also to contribute toward improved cross-
selling activities. The latter is also one of
the Group’s prime focus points in terms
of growth. On the cost side, the focus on
digitalisation should bring better customer
service, a higher level of process efficiency,
and therefore additional labour cost savings.
It may also initiate further rationalisation
of the branch network in the future, due
to a decreased number of personal client
contacts just to execute a transaction.
NLB Group Annual Report 2018 55
The indicated mid-term targets are only
targets and not profit forecasts. The targets
constitute forward-looking statements
and are not guarantees of future financial
performance.
Dividend policy
The payment of dividends by the Bank will
depend on a number of factors, including
the Bank’s capital structure, risk appetite,
profits, financial condition, regulatory
requirements, general economic and
business conditions, and future prospects.
As at 31 December 2018, the Group had
CET 1 ratio of 16.7% which includes the
H1 2018 result of EUR 109 million. The
Bank intends to further strengthen and also
optimize Group capital structure by issuing
a Tier 2 instrument in 2019.
The Bank’s future intention is to distribute
dividends in excess of the Group’s target
total capital ratio. The said ratio currently
amounts to 17%, however is under revision
to reflect new (lower) capital requirement
(TSCR) that is applicable as of 1 March
2019. The Bank’s dividend policy envisages
yearly distribution of dividends in the
approximate amount of around 70% of the
Group’s profit.
Distributable profit as at 31 December 2018
amounts to EUR 194,491 thousand.
19. Target total capital ratio of around 17% will
be regularly revised by competent bodies to
reflect each time applicable capital requirements.
As at 1 March 2019 new TSCR of 11.25% will be
applicable (by then TSCR of 11.50% is applicable).
For more information see the Capital and capital
adequacy section of the Overview of NLB Group’s
financial performance chapter, and Events after
the end of the 2018 financial year chapter.
Since successful digitalisation requires
competitive IT infrastructure and
capabilities, the Group will continue to
invest significantly in these areas and
according to perceived priorities.
EC commitments
The Group is still subject to restrictions
imposed by the EC in relation to the
state aid granted to the Bank in the past.
Nonetheless, the successful completion of
the Bank’s first phase of the privatisation
has fulfilled the main condition for most
of the restrictions to be lifted. However, as
the Bank has not been privatised to the full,
pre-agreed extent (75% minus one share),
some of the EC commitments remain in
force until privatisation is fully executed
(envisaged to be concluded by 31 December
2019). It is expected that the complete
removal of EC restrictions may have
profound impact on the Group’s strategy,
as this will open new opportunities for
growth especially by conducting business
that was restricted due to EC commitments
(i.e. leasing, factoring). As the Group is well
capitalised and exhibits excess liquidity, it
is well-equipped to take advantage of such
opportunities.
Until all commitments from the EC are
removed, the Bank will not engage, and is
not considering M&A opportunities. After
removal of the EC commitments, the Bank
could consider M&A opportunites in the
region, only in close cooperation with other
relevant NLB stakeholders.
One of these commitments implies the
divestiture of NLB Vita, the insurance
segment of the Group. It is considered
as an important part of the Group, and
as such is fully included in the strategic
plans. However, as this potential divestiture
represents a contingency in the function of
EC commitments, it is hard to predict the
outcome of negotiations with the EC now.
Brexit impact on NLB
Group’s performance
As the Group operations are related to
the SEE region only, the estimation is that
Brexit will not have any significant impact
on the Group’s business performance.
Mid-term targets
Based on the measures and potentials
outlined above, the Bank has set the
following medium-term financial targets
for the Group as part of its five-year plan
for the years 2019 to 2023, which were
approved by the Supervisory Board in
September 2018, and updated certain
of the Group’s “Strategy 2020” targets
approved by the Supervisory Board in
August 2016:
• net interest margin > 2.7%
• LTD < 95%
• total capital ratio approximately 17%19
• CIR approximately 50%
• cost of risk < 90 bps
• NPE ratio < 4%
• ROE > 12%
• dividend pay-out (as a percentage
of the Group profits) ~ 70%
The mid-term targets and business strategy
assume the continuation of economic
growth in the SEE region. This will
positively affect the growth of all loan
segments. In addition, strategy in achieving
these targets assumes gradual increase in
Eurozone interest rates due to change in
monetary policy.
The key risks to strategy that should be
considered are market yields and interest
rates not increasing and developing
according to the Bank’s assumptions,
as well as lower economic growth and
potential margin compression due to
market competitiveness derived from recent
consolidation of the banking industry in the
region.
NLB Group Annual Report 2018 56
Chapter 7
Regulatory
Environment
During 2018, many changes in the EU
and Slovenian regulatory requirement
were adopted which the Bank
implemented in its daily business. This
chapter focuses on the material ones.
Regarding the Payment Services area,
Payment Services and the Services of
Issuing Electronic Money and Payments
Systems Act (Zakon o plačilnih storitvah,
storitvah izdajanja elektronskega denarja
in plačilnih sistemih; ZPlaSSIED) was
adopted in February 2018 that transposed
the Directive 2015/2366 on payment
services in the internal market (PSD2) into
the national law. PSD2 extends the scope of
payment services and their providers, more
clearly defines the exceptions to these rules,
improves cooperation and the exchange
of information between authorities, and
introduces stricter safety requirements
for electronic payments. During 2018, in
addition to aligning with the ZPlaSSIED,
the Bank proceeded with implementation
activities of directly applicable Regulatory
Technical Standards (RTS) further
regulating the PSD2 requirements,
which will need to be complied with and
affecting also, inter alia, the Application
Programming Interface management PSD2
system availability. Therefore, the Bank’s
implementation activities also focused
on: monitoring the requirements of the
RTS on Strong Customer Authentication;
common and secure communication
that were adopted with the Commission
Delegated Regulation (EU) 2018/389;
Implementing Technical Standars on the
details and structure of the information
entered by competent authorities in their
public registers and notified to the EBA;
RTS setting technical requirements on the
development, operation, and maintenance
of the electronic central register; and
on access to the information contained
therein, as well as the Guidelines on fraud
reporting under Article 96(6) of Directive
(EU) 2015/2366 (PSD2), the Guidelines on
the security measures for operational and
security risks of payment services under
Directive (EU) 2015/2366 (PSD2), and the
Guidelines on major incident reporting
under Directive (EU) 2015/2366 (PSD2).
Further, 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, and on the free movement
of such data and repealing Directive
95/46 / EC (GDPR) which was published
already in May 2016 and was applicable
from May 2018, the Bank ran several
implementation activities to ensure that
its business and personal data protection
system in place are aligned with GDPR
requirements. The GDPR upgraded the
data protection area in the EU to follow the
intense development of information and
communication technologies, the extent,
intensity, and transfers of personal data (e.g.
the development and expansion of the use
of cloud computing, social networking, and
smart phones) which all require adaptation
and modernisation of the EU legislative
framework. The GDPR presents an
important milestone in ensuring adequate
protection of fundamental rights of
individuals regarding the protection of their
personal data, addressing the development
of the digital economy, and strengthening
of the fight against international crime and
terrorism. The GDPR regulates the rights
of natural persons whose personal data are
processed. It also establishes the obligation
of persons responsible for data processing
regarding the provision of transparent and
easily accessible information to individuals
about the processing of their data. The
GDPR also specifies the general obligations
of the operators and persons who process
personal data on behalf of processors.
These obligations include the obligation to
implement appropriate security measures
and the obligation to notify personal data
breaches. Inter alia, the GDPR also gives
greater emphasis to (preliminary) analysis
of the effects on the protection of personal
data in the event of incidents, such as
loss of personal data, and establishes the
obligation of reporting to the supervisory
authority and, in some cases, all affected
individuals. The national legislation
regulating further rules set under the
GDPR (i.e. The Slovenian Personal Data
Protection Act; ZVOP-2) is expected to be
adopted in the first half of 2019.
The EC adopted IFRS 9 through
Commission Regulation (EU) 2016/2067
in July 2016. In accordance with that
Regulation, credit institutions that use IFRS
to prepare their financial statements are
required to apply IFRS 9 as at the starting
date of their first financial year starting on
or after 1 January 2018.
NLB Group Annual Report 2018 In June 2018, the new Building Act
was enacted and revises the scope of
construction of buildings, thus replacing
the existing Building Construction Act.
Essential novelties for the Bank included,
inter alia, Article 93, which specifies cases
when it is not allowed to conclude a credit
agreement due to illegal construction.
In the area of Financial Markets, during
2018 several organisational units in the
Bank were involved in the implementation
of the MiFID II and MIFIR rules. MiFID
II entered into force on July 2014 and was
amended by Directive (EU) 2016/1034
of the European Parliament and of the
Council of 23 June 2016; the majority of
the provisions applied from January 2018.
ESMA and the EC published the final
regulatory and implementing technical
standards and guidelines regarding the
implementation of various provisions in
2016. The national legislation transposing
MiFID II was adopted in November 2018
and will be effective for the Bank from
June 2019. 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 introduce
a number of changes to the banking
sector’s market infrastructure, conduct
rules (including enhanced suitability
requirements), and introduce new investor
protection measures, including product
governance requirements.
Regarding Information Security, the
Act on information security entered
into force in May 2018 and regulates
measures to achieve a high level of network
and information security, which, inter
alia, provides essential services for the
preservation of key social and economic
activities. It also provides minimum security
requirements and incident notification
requirements. The law transposes the NIS
Directive into Slovenian legislation. In
2018 the Critical Infrastructure Act also
came into force, which defines the financial
sector as a carrier of critical infrastructure.
The holders that will be appointed by the
government within six months after the
date of the entry into force of the law will
need to develop appropriate measures and
risk assessments in case of malfunction or
failure of a critical infrastructure.
On 19 July 2018, the Slovenian National
Assembly passed the Act for Value
Protection of the Republic of Slovenia’s
Capital Investment in Nova Ljubljanska
banka d.d., Ljubljana (Zakon za zaščito
vrednosti kapitalske naložbe Republike
Slovenije v Novi Ljubljanski banki d.d.,
Ljubljana; ZVKNNLB), which entered into
force on 14 August 2018. In accordance
with the ZVKNNLB, the Succession Fund
of the RoS (the Fund) shall compensate
NLB for the sums recovered from NLB by
enforcement of final judgements delivered
by Croatian courts with regard to the
Transferred Deposits (that is the principle
amount, accrued interest, court expenses,
attorney’s expenses, and other expenses
of the plaintiff and expenses related to
enforcement with the accrued interest).
In accordance with the ZVKNNLB
and pursuant to the agreement between
NLB and the Fund, as envisaged by the
ZVKNNLB, NLB has to contest the claims
made against it in court proceedings in
relation to transferred foreign currency
deposits, and use against court decisions
that are disadvantageous for NLB all
reasonable legal remedies and to continue
to actively challenge the judicial decisions
of the courts of the Republic of Croatia
57
in relation to transferred foreign currency
deposits on the basis of which enforcement
took place, leading, on the basis of
ZVKNNLB, to the compensation of the
sums recovered from NLB by enforcement.
From 14 November 2018, the Bank’s
financial instruments (shares and GDRs
representing the Bank’s shares) are listed
on the London Stock Exchange and
Ljubljana Stock Exchange. As a company
with GDRs representing Shares listed on
the London Stock Exchange, the Bank is
subject to the relevant provisions of the
Listing Rules (the LRs), the Disclosure
Guidance and Transparency Rules (the
DTRs), and the Prospectus Rules issued
by the FCA, the Admission and Disclosure
Standards of the London Stock Exchange,
and Regulation (EU) No 596/2014 of the
European Parliament and of the Council of
16 April 2014 on market abuse (MAR) on
an ongoing basis and regulations adopted
on the basis of MAR. As a company
with shares listed on the Ljubljana Stock
Exchange, the Bank is also subject to the
relevant provisions of the Ljubljana Stock
Exchange Rules, Instructions for Stock
Exchange Market Issuers, Guidelines on
the disclosure for listed companies, the
Slovenian Corporate Governance Code,
and the Takeover Act on an ongoing basis.
In December 2018, the European
Parliament and the Council of the EU
reached a political agreement on the
banking package amending CRD, CRR,
and BRRD. The agreed amendments
will include among other measures
to strengthen the resilience and the
resolvability of EU banks and supporting
banking lending to the EU economy,
introducing new regulatory requirements,
prudential, and other requirements for the
Bank.
On 10 August 2018, the EC adopted
Decision (EU) 2018/1840 of 10 August
2018 on State aid, which amended the
restructuring commitments of the Bank.
The new commitment package prolonged
NLB Group Annual Report 2018 In December 2018, the BoS adopted a
decision amending the decision on the
regulation of internal governance, the
governing body and the process of assessing
the appropriate internal capital for banks
and savings banks that regulated, among
other things, the ISM function. The new
ISM function monitors and controls
information security procedures with the
aim of preventing unauthorised access to
information in the storage, processing, or
transfer of information and their changes,
including the management of the risks
involved, and the preparation of risk
analysis for the purpose of the ICAAP
process.
58
the existing commitments and added
some new ones. The New Commitments
established that the old Commitments
ceased to apply on 31 December 2017.
Different time limits were set for the
fulfilment of different obligations under the
New Commitments, and the last possible
deadline for the fulfilment of, or compliance
with a particular obligation expires on 31
December 2019 (except if the shareholding
of the RoS in NLB is not reduced to 25 per
cent plus one share by that date, in which
case the last such deadline expires when the
shareholding of the RoS in NLB is reduced
to 25 per cent plus one share).
Further, in June 2018, Directive (EU)
2018/843 was published, which amends
Directive (EU) 2015/849 on the prevention
of the use of the financial system for the
purposes of money laundering or terrorist
financing, and Directives 2009/138/
EC and 2013/36/EU. This Directive
(otherwise known as the 5th Anti-Money
Laundering Directive) aims not only to
detect and investigate money laundering,
but also to prevent it from occurring. The
Directive needs to be transposed into
the national law by January 10, 2020.
The key changes to the Directive (EU)
2015/849 involve broadening access to
information on beneficial ownership and
improving transparency in the ownership
of companies and trusts, addressing
risks linked to prepaid cards and virtual
currencies, cooperation between financial
intelligence units, and improved checks
on transactions involving high-risk third
countries, as well as improved identification
of customers and verification of a
customer’s identity.
In November 2018, the ECB adopted the
new Guide to the ILAAP and the Guide to
ICAAP. The purpose of the ECB Guide to
the ILAAP is to provide transparency by
making public the ECB’s understanding
of the liquidity risk requirements following
from Article 86 CRD IV. The purpose of
this ECB Guide to the ICAAP is also to
provide transparency by making public
the ECB’s understanding of the ICAAP
requirements following from Article 73
CRD IV. Both Guides are aimed at assisting
institutions in strengthening their ILAAPs
and ICAAPs, and at encouraging the use
of best practices by explaining in greater
detail the ECB’s expectations of the ILAAP
and ICAAP, leading to more consistent and
effective supervision.
In 2016, the ECB adopted the Regulation
(EU) 2016/867 on the collection of
granular credit and credit risk data
(ECB/2016/13) – Anacredit, which sets
out the obligation to report on all credit
instruments and debtors in excess of the
threshold of EUR 25,000. The reporting
will be done through the national central
banks (BoS) monthly and quarterly, and
started in 2018.
In November 2018, the ECB adopted
Regulation (EU) 2018/1845 on the exercise
of the discretion under Article 178(2)(d) of
Regulation (EU) No 575/2013 in relation to
the threshold for assessing the materiality of
credit obligations past due (ECB/2018/26).
This Regulation applies exclusively with
regard to credit institutions classified as
significant, and sets a threshold which
comprises two components: a limit in terms
of the sum of all amounts past due owed
by the obligor to the credit institution, and
a limit in terms of the amount of the credit
obligation past due in relation to the total
amount of all on-balance sheet exposures to
that obligor for the credit institution. Credit
institutions shall apply the threshold for the
assessment of the materiality of a credit
obligation past due set by this Regulation
not later than 31 December 2020.
NLB Group Annual Report 2018
59
NLB Group Annual Report 2018 60
Chapter 8
Retail Banking
in Slovenia
Retail banking remains the solid anchor
of the Bank, proven by the leading
market position on the Slovenian market
in retail net loans and deposits. The
widespread branch network is supported
by upgraded client digital experience
and satisfaction. New products and
services are being constantly developed
to prepare the Bank for future
challenges. The Bank is committed
to enhancing customer relationships.
With routine and standardised
services being simplified, the Bank is
available to the customer as a digital
experience 24/7. Personal interactions in
Net non-interest income was burdened by
the negative effect from the sale of 28.13%
minority stake in Skupna pokojninska
družba (EUR -0.5 million), and due to
higher contribution of regulatory costs
(DGS, SRF). Nevertheless, net fees and
commissions income increased by 4%
YoY due to revenue growth in the asset
management business, and a new package
offer for individuals.
Loans to retail clients in Slovenia increased
by EUR 121.0 million, or 6%, and deposits
by EUR 277.3 million, or 5% YoY.
branches are focused on more complex
Market leader in retail
transactions and advisory services.
banking in Slovenia
In Slovenia, the Retail banking achieved
profit before tax in the amount of EUR
40.9 million, or 2% lower YoY. The result
is based on higher net operating income
(4%), higher costs (6%), and additional
impairments and provisions (26%).
Net interest income was still under
pressure given the continued low interest
environment, nevertheless it recorded a 9%
growth due to the growth of the retail loan
portfolio and slow growth in interest rates
on new loans.
The Bank maintained its leading position
with a market share in retail lending of
23.2% (2017: 23.4%) and 30.3% (2017:
30.7%) in deposit-taking. The market share
of housing loans is 22.2% (2017: 22.3%).
Market share in consumer lending is 25.2%
(2017: 25.1%).
The Bank’s main sales channel remains
its branch network of 94 branches, the
largest network in Slovenia. In the process
of rationalisation and cost optimisation,
14 branch offices were closed in 2018
as a result of moving from traditional
to digital sales channels. The Bank also
operates the largest ATM network (551
ATMs representing 34.9% market share in
Slovenia).
Clients
738,835
clients in total
651,675
active clients
473,912
payroll clients*
12,085
new clients joined
the Bank in 2018
*payroll or/and pension
Digital services
39.4%
digital users
179,289
mobile bank users
92%
digital payments
60.7%
of contactless payments
NLB Group Annual Report 2018
Table 13: Performance of the Retail banking segment in Slovenia
Net interest income
Net non-interest income
Total net operating income
Total costs
Result before impairments and provisions
o/w non-recurring items
Impairments and provisions
Net gains from investments in subsidiaries, associates, and JVs'
2018
79.3
67.1
146.4
-107.3
39.1
-0.5
-3.7
5.4
40.9
2017
72.8
67.8
140.6
-100.8
39.8
-
-2.9
4.8
41.7
6.6
-0.7
5.9
-6.5
-0.7
-0.5
-0.8
0.7
-0.8
Result before tax
Net loans to customers
Gross loans to customers
Housing loans
Interest rate on housing loans
Consumer loans
Interest rate on consumer loans
Other
Deposits from customers
Interest rate on deposits
Non performing loans (gross)
Cost of risk (in bps)
CIR
Interest margin
31 Dec 2018
31 Dec 2017
Change YoY
2,217.4
2,243.4
1,374.6
2.50%
599.0
5.88%
269.9
5,814.5
0.08%
43.0
17
73.3%
2.02%
2,083.9
2,122.5
1,324.6
2.46%
525.0
5.60%
272.9
5,537.1
0.14%
50.0
14
71.7%
1.95%
133.6
121.0
49.9
74.0
-3.0
277.3
-7.0
0.04 p.p.
0.28 p.p.
-0.06 p.p.
4
1.6 p.p.
0.07 p.p.
61
in EUR million consolidated
Change YoY
9%
-1%
4%
-6%
-2%
-
-26%
14%
-2%
6%
6%
4%
14%
-1%
5%
-14%
Digital sales channels are gaining prominence,
and the Bank is a market leader in providing
customers opportunities to do business. While
the electronic bank NLB Klik is an already
established platform for the Bank’s customers,
the mobile bank Klikin is getting increasingly
popular, with well over a quarter of the Bank’s
customers already using the app.
Customers can also reach the Bank through the
NLB Contact Centre, the largest and the only
24/7 bank contact center in Slovenia which is
able to advise customers on banking products,
and to conclude certain banking transactions.
The NLB Contact Centre is accessible by
phone, chat, and video call via mobile and
electronic banks, or other digital channels.
Highlights:
• The mobile wallet NLB Pay, an advanced
• Maintaining leading position
method of payment with cards with
in private banking.
mobile phones, was launched.
• NLB Skladi, is the largest mutual funds
• A package offer for individuals
company on the Slovenian market
simplifying the use of most commonly
with the market share over 32%.
used banking services was offered.
• NLB Vita is succesfully increasing coverage
• Klikin was ranked first among mobile
of Banks’ customers with its insurance
banks in Slovenia, while it continues
products, whereby the Bank distributed
to grow in the number of users and
more than 70% of all life insurances sold
expanding its functionalities.
through the retail banking channel.
• The portal “Ustvarjam dom” (Creating
home) was significantly upgraded.
NLB Group Annual Report 2018 62
30
25
20
15
10
5
0
)
s
d
n
a
s
u
o
h
t
n
i
(
.
s
n
a
r
t
/
s
d
r
a
c
/
s
r
e
s
u
f
o
r
e
b
m
u
N
339.0
352.2
388.7
389.4
456.3
299.8
304.9
237.1
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
Month volume (in 000 EUR)
# of cards
# of users
# of monthly transactions
Figure 35: NLB Pay in numbers
#1 bank in cards and payment
solutions in Slovenia
1,009
1,077
1,168
1,231
&$
In the beginning of the year, the Bank
launched mobile wallet NLB Pay, which
enables clients to pay with the NLB
MasterCard and Maestro cards with their
mobile phones contactless, simple, fast,
and safe payments on contactless POS (in
Slovenia and abroad), and also enables
installment payments. In 2018, 7,160 users
downloaded the app, and they carried out
over 140 thousand transactions in a total
volume of almost EUR 3 million. NLB Pay
is gradually being introduced in other Group
banks.
The Bank’s card market share represents
28.3% of the Slovenian market. Individuals’
debit and credit cards volumes of payment
transactions represented a total of EUR
2,078 million (2017: EUR 1,892 million),
and cash withdrawals in the total of EUR
2,531 million (2017: EUR 2,483 million).
The Bank was the first on the Slovenian
market to offer contactless ATMs to clients
(254 of ATMs). With the implementation of
contactless functionality, the level of safety
increased.
474.0
554.0
746.9
752.5
31 Dec 2015
31 Dec 2016
31 Dec 2017
31 Dec 2018
AuM (EUR million)
# of Clients
Figure 36: Assets under management and the number of private banking clients
#1 in private banking with best-in class-
Banking experience of the
advisory and asset management services
clients is important
Private banking has the leading position
among private banking providers in
Slovenia, with an increasing number
of clients (5.4% YoY) and assets under
management. In 2018, NLB’s private
banking clients were especially satisfied
with our attitude towards clients, and
mostly satisfied with products/services and
user experience. All this resulted in above
average loyalty to the bank, according to
the 2018 GfK Client Satisfaction Survey.
The Bank provides clients the right
solutions at the right time and place. One
such solution is providing packages for
individuals (Basic Package, Young Package,
Active Package, and Premium Package),
offered to clients early in the year, including
the most commonly used and needed
banking products, and greatly simplifying
the clients’ daily banking services. Various
options and procedures enable clients to
NLB Group Annual Report 2018
63
34.6%
27.4%
32.4%
21.7%
30.4%
16.4%
8.6%
31 Dec 2016
31 Dec 2017
31 Jun 2018
31 Dec 2018
NLB Klik
Klikin
Figure 38: Online and mobile banking penetration
The number of “Express Loan” concluded
via Klikin continues to grow in comparison
to “Express Loan” concluded in NLB
branch offices.
According to the analysis of an
independent market evaluation in 2018
(mBančništvo v Sloveniji 2018, performed
by E-laborat in 2018), the Bank remained
the most digitally developed bank in
Slovenia with a focus on user-friendly
business for the fourth consecutive year,
with the online bank NLB Klik and the
mobile bank Klikin ranking first among
comparative banks in Slovenia.
High quality client experience is provided
by the experienced and well-trained
personal advisors. The expertise and
level of service is confirmed by the
customer satisfaction index (2018 GfK
Client Satisfaction Survey), which is when
compared to competition, above average in
satisfaction of attitude towards clients and
user experience, including the digital use of
services.
Moving to digital
The use of the mobile bank Klikin
continues to grow; the total number of
users increased to 179,289 (76,854 of new
users in 2018), and reached more than a
quarter of all the Bank’s customers (a 11
p.p. penetration increase YoY). Several
Klikin upgrades were performed in 2018,
including Face ID log-in option, integrated
Chat and Video call for 24/7 support,
insight into NLB Packages details and an
option to initiate insurance take-out for
selected NLB Vita products.
change their existing personal account to a
package without visiting the branch office.
34.5%
As the first bank in Slovenia to offer special
services to private banking clients, a brand
new service called “NLB Lifestyle” was
introduced offering Mastercard Concierge
and Mastercard LoungeKey services.
Enhancement of the banking experience
was introduced by offering a complete
housing solution complementing financing
with consultancy in the pre-sales stage
and support in the after-sale stage of the
housing loan. The portal “Ustvarjam
dom” (Creating home) was upgraded to
give clients access to special offers for the
purchase of furnishings via the Bank’s
partners. In order to meet the market
demand, the financing of all types of
turn-key houses was introduced. To further
improve user experience, the possibility of
using a letter of credit account to draw the
loan was offered to the borrower.
77
79
77
NLB result 2018
NLB result 2017
Results for competitors (average) 2018
Figure 37: Overall satisfaction index
– retail customers in Slovenia
Through the NLB Welcome service a
client of any of the banking subsidiary of
the Group can use the banking services
of any other banking subsidiary. Such a
service enables an increase of overdraft
on accounts and credit cards, and money
transfers. There are no fees for ATM cash
withdrawals.
NLB Group Annual Report 2018 64
Growing ancillary businesses
complementing core banking products
NLB Skladi, the largest asset and mutual
funds management company in Slovenia,
increased its market share to 32.11%
(2017: 29.93%) and was also ranked first
in the amount of net-inflows (EUR 54.8
million) in an environment of other asset
management companies experiencing net
outflows. Total assets under management
were EUR 1,215 million (2017: EUR
1,202 million) of which EUR 792.8 million
consisted of mutual funds (2017: EUR
795.3 million) and EUR 422.5 million in
the discretionary portfolio (2017: EUR
407.0 million). The company launched two
new mutual funds: NLB Funds – Equity
Financials, and NLB Funds – Equity
Socially Responsible – Global Advanced
Markets.
NLB Vita is ranked third among classic life
insurance companies in Slovenia with a
increased market share, excluding pension
companies, of 14.6% (2017: 13.5%). The
company charged EUR 76.9 million in
gross written premium (a 9% increase YoY;
2017: EUR 70.8 million), of which EUR
73.1 million was in life insurance (2017:
EUR 67.6 million), with an estimated
balance sheet of EUR 459 million (2017:
EUR 453.0 million). NLB Vita successfully
improved the contribution of regular
premiums paid to the overall gross written
premium, especially with unit-linked
insurance product NLB Vita Varčevanje
+. NLB Vita’s flagship product remains
NLB Vita Multi, an ad-hoc premium paid
unit-linked product with partial capital
protection to the policyholder.
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. 5.1% more polices were
acquired YoY. The gross written premium
amounted to EUR 3.38 million (2017:
EUR 3.01 million), representing a 12.3%
increase YoY.
32.1%
29.9%
27.2%
24.8%
21.8%
19.2%
16.7% 16.4%
15.2%
6.0% 6.1%
9.1%
7.4%
11.4%
12.6% 12.5%
13.5%
14.6%
2010
2011
2012
2013
2014
2015
2016
2017
2018
NLB Vita
NLB Skladi
Figure 39: NLB Skladi and NLB Vita (traditional
life products) market share evolution
12.9%
13.4%
13.8%
14.0%
3.7%
1.2%
4.9%
1.5%
4.8%
1.5%
6.5%
1.5%
31 Dec 2016
31 Dec 2017
31 Jun 2018
31 Dec 2018
NLB Skladi
NLB Vita
Generali
Figure 40: Customers’ penetration of ancillary business (in %)
94
branch offices
28.3%
market share of cards
46.1%
contactless ATMs
NLB Group Annual Report 2018
65
NLB Group Annual Report 2018 Corporate clients
44,153
clients in total
36,872
active clients
889
new clients joined
the Bank
Digital services
98.1%
digital users
17,627
mobile bank users
36.4%
market coverage
with POS terminals
66
Chapter 9
Corporate and
Investment Banking
in Slovenia
Corporate Banking
The Bank’s strategic focus remained
the development of relevant solutions
through a genuine understanding
of the clients’ needs. With this
developing partnership relationship,
the Bank is a reliable partner to all
corporate segments. The Bank offers
a full spectrum of financial services to
its clients, as well as capital markets
advisory services, and continues to
Loans in key, mid, and small corporate
segments in Slovenia decreased in the
amount of EUR 170.0 million (-8% YoY).
A decrease in gross loans is due to the size
of matured loans in key and mid enterprises
(-10% and -7% YoY, respectively) and
prepayment of some larger exposures (a
higher decrease in syndicated loans), while
small enterprises continued to grow (9%
YoY). Corporate deposits increased by
EUR 39.9 million (4% YoY).
provide support by using tranditional
Market leader with a strong
and e- and m-banking solutions.
focus on customers’ needs
The Corporate banking segment in
Slovenia realised a profit before tax in the
amount of EUR 60.4 million, or 14%
higher YoY, mostly based on the higher
release of impairments and provisions
(19%), and higher net income from
financial transactions due to the effects
of the valuation of loans at fair value in
Restructuring and Workout. 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. credit
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.
The Bank is the leading bank servicing
corporate clients in Slovenia, with by
far the largest client base and a market
share of 18.2% in corporate loans (2017:
20.8%) and guarantees and letters of credit
24.5% (in 2017: 25.6%), and maintained
its stronghold in all client segments. The
Bank is increasingly focused on the mid-
corporate and small enterprises segment,
given low yields in large corporate segment.
One of the Bank’s key objectives is to
personally engage with its clients so that
the sales staff may become even better
acquainted with clients’ business models,
crucial opportunities and risks, and thereby
offer a professional and appropriate range
of services.
NLB Group Annual Report 2018
Table 14: Performance of the Corporate banking segment in Slovenia
67
in EUR million consolidated
Change YoY
-1%
10%
4%
1%
11%
19%
14%
-4%
-6%
-4%
-7%
25%
-17%
4%
-32%
2018
42.5
34.1
76.7
-43.0
33.7
26.6
60.4
2017
42.9
31.0
73.9
-43.6
30.3
22.5
52.8
-0.4
3.1
2.7
0.6
3.4
4.2
7.5
31 Dec 2018
31 Dec 2017
Change YoY
1,950.4
2,061.0
1,854.4
1,643.2
1.88%
211.2
206.1
1.69%
1,120.8
0.07%
179.7
-135
56.0%
2.61%
2,026.3
2,188.6
1,939.3
1,770.7
2.03%
168.6
248.7
1.51%
1,080.9
0.09%
262.8
-104
59.0%
2.29%
-75.9
-127.6
-84.9
-127.5
42.6
-42.6
39.9
-83.1
-0.15 p.p.
0.19 p.p.
-0.02 p.p.
-30
-2.9 p.p.
0.31 p.p.
Highlights:
• Mobile wallet NLB Pay was implemented for
• The Bank participated in the project
NLB business cards Maestro and MasterCard.
“Štartaj Slovenija” (Start it up Slovenia).
• Klikpro was upgraded with
• NLB Business Account or Business
quick loan/overdraft, video call,
Package can now be opened online.
and chat functionallities.
• A Group-wide payment offer was
launched for clients of the Group.
• A new package offer for
companies was introduced.
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 customers
Gross loans to customers
Corporate
Key/Mid/Small Corporate
Interest rate on Key/Mid/Small Corporate loans
Restructuring and Workout
State
Interest rate on State loans
Deposits from customers
Interest rate on deposits
Non performing loans (gross)
Cost of risk (in bps)
CIR
Interest margin
The Bank aims to provide its clients with
creative, targeted, and relevant solutions
to help secure primary relationships with
existing clients, as well to enable it to identify,
address, and attract new clients. The Bank
is available to its clients via various channels,
especially with the on-site advisory on
the Bank’s or company’s permises, while
less complex transactions can be handled
with the use of e- and m-banking apps,
depending on the information or product in
which the client has interest.
The Bank provides a wide range of trade
finance products where special attention is
given to letter of guarantees by which the
Bank supports major infrastructure projects
in Slovenia. For exporters, representing an
NLB Group Annual Report 2018 68
24.5%
International corporate business
Payments, cards and merchant acquiring
a market share in guarantees
opportunities in SEE
drive resilient corporate fee income
and letters of credit
36.4%
market share in
merchant acquiring
important part of the Slovenian economy,
trade finance product range and tailor-made
solutions are comprehensive from traditional
trade finance products, such as letter of credit
and collection to Bank Payment Obligation
and other modern structures which provide
safe financing throughout the supply chains.
The improved rating of the Bank and large
correspondent bank network helped to further
evolve the part of the business internationally
by offering all types of guarantees to exporters
and importers, which all reflect in the
significant market share.
A wide range of product supported by
flexibility and professional support
To simplify and ease every day banking for
small enterprises, the Bank prepared a new
package of offers for legal entities – NLB
Business Start Basic, NLB Business Start
Mobile, NLB Business Start Advanced,
NLB Business Package Basic, NLB Business
Package Comprehensive, and NLB Business
Package Non-profit, which combines the most
common daily banking products tailored
to different client segments’ needs. Legal
entities, entrepreneurs, and private individuals
can now submit the order to open an NLB
Business Account or any of the packages
online, and the rest is arranged by NLB
client advisors.
The Bank is not only well acquainted with
the business environment, it is also aware
that first steps in the entrepreneurial world
are the toughest. Therefore, the Bank
again participated in the project “Štartaj
Slovenija” (Start it up Slovenia). For all new
entrepreneurs and those who are still thinking
about it, the content was included on the
Bank’s web page focusing on various aspects
of entrepreneurship.
The Bank is committed to the Western
Balkans and is striving to become the
regional champion. This was also proved by
organisation of the NLB Business Forum,
which connected customers (existing and
potential) and the Group banks from the
region to explore potential opportunities
for Slovenian companies for growth and
investment in infrastructure projects.
After partial lifting of the EC restrictions,
the Bank, after several years, was able to
explore opportunities of international
financing, primarly in the SEE region, and
is expected that business opportunities on
international level will be further explored
in the years ahead. The first such business
was concluded in cooperation with of the
Bank and NLB Banka, Beograd at the end
of 2018 in Serbia with the participation in
a syndicated loan.
Digitalisation of product offering
The further digitalisation push is also shown
in Klikpro advances, which now enables
Face ID login and integrated Video call and
Chat functionalities for 24/7 support. The
explosive 56.7% YoY increase in Klikpro
users (17,627 users by the end of 2018)
brings the popularity of the platform close
to half of all corporate clients. The Bank
is the first bank in Slovenia to implement
24/7 availability of financing with Express
loan and Express overdraft in an amount
of up to EUR 15,000 – where the approval
process is completed within minutes.
The Bank’s mobile wallet NLB Pay app
was launched, enabling clients to make with
the NLB Business MasterCard and NLB
Business Maestro cards contactless, simple,
fast, and safe payments on the contactless
POS (in Slovenia and abroad). NLB Pay
also enables installment payments.
To cater to the Bank’s clients operating in
the region, all banking members of the
Group jointly launched the Group payment
offer for international payments of legal
entities operating within the Group.
The Bank maintains its position in debit
and credit business cards, and increased
its business volume growing 12.9% YoY
in a challenging business environment,
including new technologies (e.g. mobile
payments) implemented by Fintechs.
Key implemented initiatives included:
promoting the sale of unregulated business
(commercial) cards, pay-later payment
cards with instalment functionality, and the
introduction of mobile payment solutions
NLB Pay.
The Bank is a leader in merchant-acquiring
by accepting Visa, MasterCard, Maestro,
and Karanta cards, and being the first
Slovenian bank with a 100% contactless
POS network.
103.0
112.6
127.1
2016
2017
2018
Figure 41: Transaction volume of NLB
business cards (in EUR million)
1,803
1,894
2,054
2016
2017
2018
Figure 42: Transaction volume
at NLB POS (in EUR million)
NLB Group Annual Report 2018
69
Investment Banking
and Securities Service
The Bank remained a leading provider
of Investment Banking and Securities
Services in Slovenia, with full-scale
coverage of corporate and institutional
clients with offerings in debt and
equity capital markets, M&A, advisory,
and treasury solutions. Offering a
wide range of products and regional
• Assisted companies to broaden their
Highlights:
funding base and arranged the issuance
of both long and short-term instruments
in the total of EUR 62 million on debt
capital markets.
• The Bank successfully managed
and completed its first hedge
coordination project.
• Lead-managed the syndication market
transactions in Slovenia as a mandated
lead arranger, with EUR 453 million
of the total amount of syndicated
transactions.
• The Bank further strengthened its position
as a domestic market leader in syndication
transactions and issuance of long and
short-term financial instruments.
• Expansion of the client base in Custody
know-how, the Bank will pursue its
• Was active in M&A and other financial
services with assets under management
goals dedicated to and focused on the
region where the Group is present.
The Investment banking and Custody result
before tax decreased by EUR 0.6 million
YoY. Fewer concluded interest rate hedge
deals and consequently revenue decrease
in treasury solutions were compensated
by revenue growth in corporate finances,
revenue growth of brokerage fees, and
revenue growth of custody fees.
The total asset value under custody was
EUR 15.9 billion, a 8.23% increase YoY.
Debt capital markets and M&A advisory
The Bank provided its customers the whole
range of corporate finance solutions:
advisory engagements. As the sole
financial advisor it successfully organised
the sales process of one Slovenian
company and five takeover bids.
In January the Bank also acted as one of
the joint lead managers in the EUR 1.5
billion 10-year benchmark bond issuance
for the RoS.
Brokerage and Treasury Solutions
The Bank has stabilised its position as a
market leader in brokerage services to both
retail and institutional clients, performed
through its wide execution network on
domestic and international markets. The
total brokerage turnover amounted to EUR
954 million, representing 6.7% volume
growth and 30% growth of net non-interest
income YoY.
Table 15: Performance of the Investment banking and Custody services*
Total net operating income
Total costs
Result before tax
2018
8.5
-6.1
2.4
in EUR million consolidated
2017
Change YoY
8.8
-5.8
3.0
-0.3
-0.3
-0.6
-3%
-5%
-20%
* 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. In 2018 different methodology of
income distribution between segments Financial markets in Slovenia and Investment banking was adopted; all data for
previous periods are adjusted to new methodology.
reaching EUR 15.9 billion.
Standard treasury products to corporate
and institutional clients are provided by
the Bank. In addition to plain vanilla FX
spot transactions, the Bank also trades with
derivatives for hedging against currency and
interest rate exposures. In 2018 the overall
volume of these transactions reached EUR
1.3 billion (2017: EUR 2.0 billion), which
can be attributed to the cyclical nature of
transactions 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 addition,
the Bank, together with banking syndicate,
successfully managed and completed its first
hedge coordination project.
Custody
The Bank remains one of the top Slovenian
players in custodian services for Slovenian
and international customers, strengthening its
position by expansion of its client base in both
areas of business, custody services as ancillary
investment services and depositary services for
funds.
Assets under custody grew by approximately
EUR 1.2 billion to a total of EUR 15.9
billion. The Bank acts as a gateway into
the region using own network and partner
institutions for seamless service to its
customers. The Bank’s focus as a client-
oriented service provider remains strong.
NLB Group Annual Report 2018 70
NLB Group Annual Report 2018 Chapter 10
Highlights:
71
Strategic
Foreign Markets
The core part of the Group in foreign
markets consists of six banks and two
SPVs. The banks are distinguished by
a strong reputation and stable market
position. Best practice sharing within the
Group members led to continuous and
profitable growth in regular business.
Market shares of subsidiary banks
exceed 10% in four out of six markets.
Core members of the Group in foreign
markets, key profit generation units,
posted a profit before tax of EUR 99.7
million (2017: EUR 102.0 million), a slight
decrease of 2% compared to 2017. The
contribution to the Group results before
tax of the strategic foreign members was
39% (2017: 43%). All six banks produced
the highest profit before impairments and
provisions ever (EUR 114.3 million). This
is the result of strong loan production,
especially in the retail segment, improved
cost efficiency, the favourable cost of
risk developments and commitments
to client-centric digital solutions, talent
management, and active engagement
in social responsibility initiatives.
The year 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 99.7 million
(2017: EUR 102.0 million), including
the result of minority shareholders. The
contribution to the Group results before
tax of the strategic foreign members was
39%20 (2017: 43%). Despite the competitive
market environment and high pressure on
interest rates, net interest income increased
by 4% YoY. Strong growth was recorded
in net non-interest income (36% YoY),
mostly due to non-recurring income.
Moderate growth was recorded in fees and
commission income (4% YoY). In 2017 the
profit was positively affected by the release
of impairments and provisions in the
amount of EUR 7.6 million (release of pool
provisions in Q1 2017). Compared to 2017,
the operating result improved, due mainly
to higher operating income and lower
impairments and provisions.
All subsidiary banks continued strong loan
production with an increase in gross loans
of 10% with very low cost of risk in all
entities. Deposits also recorded a strong
growth of EUR 359.8 million or 12% YoY.
• 1.14 million active clients in six markets.
• A strong network of 233 branches.
• The contribution to the Group result
before tax of the strategic foreign
members was 39% (2017: 43%).
• EUR 39.3 million (2017: EUR 50.8
million) of dividend pay-outs.
Fee-related business also gained importance
and net non-interest income increased by
36% YoY.
Focus on operational efficiency and
rationalisation processes lead to a CIR of
47%, a YoY decrease of 4.0 p.p.
The results created a solid and sound basis
to focus on new business opportunities, a
continuation on client-focused digitalisation
activities, and investments in the employee
development. The regulatory framework
has changed in most of the countries to
gradually approach EU banking rules.
Subsidiary banks remain committed
to organic growth strategy, and boost
business operations and service excellence.
Continuous leveraging on synergies are
aimed at the areas of client centricity,
the introduction of modern technologies
and digitalisation, increased operational
excellence, and talent management. With
the expiring of commitments towards
the EC which restrain Group members
in certain areas of business, subsidiary
banks will be in a position to take up new
opportunities in the regional banking sector.
20. On NLB Banka, Skopje, the positive effect
from non-recurring income from the sale of
the subsidiary NLB Nov penziski fond, Skopje
in the amount of EUR 8.5 million is excluded.
NLB Group Annual Report 2018 72
Table 16: Results of the Strategic foreign markets segment
Net interest income
Net non-interest income
Total net operating income
Total costs
Result before impairments and provisions
o/w non-recurring items
Impairments and provisions
Result before tax
o/w Result of minority shareholders
Net loans to customers
Gross loans to customers
Retail
Interest rate on retail loans
Corporate
Interest rate on corporate loans
State
Interest rate on state loans
Deposits from customers
Interest rate on deposits
Non performing loans (gross)
Cost of risk (in bps)
CIR
Interest margin
31 Dec 2018
31 Dec 2017
Change YoY
2018
150.1
63.9
214.0
-100.0
114.0
12.2
-14.3
99.7
7.9
2017
144.6
47.1
191.7
-97.2
94.5
-
7.6
102.0
8.2
2,718.0
2,932.7
1,438.1
7.09%
1,405.0
4.92%
89.6
4.33%
3,438.1
0.61%
219.9
35
46.7%
3.85%
2,393.5
2,660.6
1,276.2
7.50%
1,277.9
5.41%
106.5
4.82%
3,078.3
0.86%
252.0
-39
50.7%
4.04%
in EUR million consolidated
Change YoY
5.5
16.8
22.3
-2.8
19.6
-
-21.8
-2.3
-0.3
324.5
272.1
161.9
4%
36%
12%
-3%
21%
-
-
-2%
-4%
14%
10%
13%
-0.42 p.p.
127.1
10%
-0.49 p.p.
-16.9
-16%
-0.50 p.p.
359.8
12%
-0.25 p.p.
-32.1
-13%
74
-4.0 p.p.
-0.19 p.p.
NLB Group Annual Report 2018 73
3.7
5.4
14.2
8.3
23.7
40.0
5.2
10.0
14.8
8.8
16.2
37.1
2017
2018
2.2
5.3
11.3
5.4
14.1
25.0
2016
6.7%
7.0%
22.2%
12.8%
29.3%
27.8%
2017
4.7%
7.3%
18.9%
9.1%
20.0%
20.8%
2016
Figure 43: Profit after
tax (in EUR million)
Figure 44: ROE a.t.
17.0
12.6
11.1
13.7
12.8
22.3
16.3
12.4
11.2
14.0
12.8
23.4
18.0
12.3
11.8
14.2
13.0
25.0
2016
2017
2018
81%
59%
40%
57%
47%
38%
2016
78%
58%
39%
55%
46%
37%
2017
7.9%
14.9%
21.6%
11.6%
18.7%
19.9%
2018
76%
52%
36%
55%
43%
34%
2018
14.7
17.2
23.5
16.9
18.3
46.3
18.0
16.4
24.5
18.1
18.1
49.7
19.8
18.0
27.4
17.6
19.1
48.8
2016
2017
2018
Figure 45: Net interest
income (in EUR million)
64
156
124
167
142
422
93
169
149
186
157
467
123
199
175
200
176
512
2016
2017
2018
Figure 46: Operating cost
Figure 47: CIR
(in EUR million)
Figure 48: Net loans to
individuals (in EUR million)
NLB Banka, Beograd
NLB Banka, Sarajevo
NLB Banka, Podgorica
NLB Banka, Banja Luka
NLB Banka, Prishtina
NLB Banka, Skopje
95
78
206
145
120
313
145
62
238
144
134
322
195
82
292
156
161
343
2016
2017
2018
Figure 49: Net loans to
corporate (in EUR million)
NLB Group Annual Report 2018 74
NLB Banka, Skopje
The Bank is the 3rd largest bank in
Macedonia with a 16.3% market share in
total assets, the 2nd largest bank with a
17.6% market share in gross loans to the
non-banking sector, and the 3rd largest
bank with a 17.4% market share in deposits
on a highly concentrated market. The
predominant strength of the bank is in the
retail segment. The bank provides a full
spectrum of financial services to retail and
corporate clients, and is a market leader
in the introduction of mass sale digital
platforms used by third parties (credit
intermediaries) and distribution of life
insurance products. By developing and
maintaining the NLB mKlik and NLB
Proklik platforms, the Bank was also the
leader in innovations in the local banking
sector.
The year was a dynamic and challenging
one for Macedonia. Nevertheless, the
economy surged compared to the moderate
growth in 2017, thanks to growing
household consumption and government
spending. The bank realised profit after
tax in the amount of EUR 37.1 million
(2017: EUR 40.0 million) and profit before
impairments and provisions in the amount
of EUR 47.7 million (2017: EUR 39.1
million), with capital gains from the sale
of NLB Nov penziski fond, Skopje in the
amount of EUR 8.5 million. ROE a.t. is
still high (19.9%), CIR improved to 34.4%,
and capital adequacy remained stable at
16.7% (2017: 14.4%). The result was driven
by strong retail lending, card operations,
payment services, the sale of insurance
products, and additionally by the capital
gain mentioned earlier. The total assets of
the bank rose by 9.2%, with 7.8% growth
in net loans to non-banking sector, and 7%
growth in deposits from the non-banking
sector. NPL ratio was further reduced to
5.1% (2017: 5.2%).
loan portfolio was dominated by consumer
loans (56.7% of retail loan portfolio).
The interest margin on consumer loans
is still high, but under significant pressure
coming from competition which offers
loans with lower interest rates and lower
requirements for collateral. A growth in net
retail loans was recorded, mainly due to
an increase of housing loans (15.7%), and
the bank retained a market share of 21.1%
in retail gross loans. The main focus was
on intensifying credit activities directly or
through loan intermediaries and mass-sale
platforms, meeting customer preferences,
supporting traditional housing loans, and
offering non-banking services. Deposits
from retail represent a major part of the
deposit base.
The bank invested in technical support
for digital services. The new service NLB
Pay Mobile Wallet was launched offering
easy-to-use and secure payments. ATM
funcionalities were upgraded in order to
use the ATMs as a distribution channel of
preapproved sales leads (preapproved credit
cards and preapproved limits for credit
cards). In order to provide more benefits for
personal banking clients and to improve the
level of satisfaction, the NLB Club Program
(loyalty programme) and new website for
NLB Club were introduced. The bank
has also expanded its presence with a new
branch that is available to clients as a 24/7
self-service zone.
Corporate experienced growth in net loans
(6.6%) and deposits (1%). The corporate
loan portfolio is dominated by SMEs,
which remain the main focus of the Bank.
A growth of 6.6% in net corporate loans
was recorded, and the bank had a market
share of 14.3% in corporate gross loans.
The bank has fostered a supportive business
climate for SMEs and offered reliable
service to corporates through constant
improvement of its sales force knowledge.
Retail, a predominant strength of the
bank, recorded a growth in net loans
(9.6%) and deposits (9.3%). The retail
The main opportunities the bank forsees
are the growth of loans, deposits, an
payment services, with a focus on high-
Highlights:
• 16.3% market share by total assets.
• Continuously profitable.
• Innovative products and services,
and diverse sales channels.
yield retail market products and enreach
the offer of non-banking products with a
focus on bancassurance. On the corporate
side the bank tends to extend the focus on
an array of financial products including
commercial banking, project financing,
custodial services, guarantee operations,
e-bank services, and develop joint offers
and approaches in order to strengthen the
market position in the region.
The bank received several awards for
the Best Bank in Macedonia (from The
Banker, Euromoney, and European Banking
Awards), Best Social Responsible Practices
for 2018 (from the Macedonian Ministry
of Economy), the best financial/banking
website in Macedonia (from the annual
manifestation “Page of the year”), and the
best commercial for NLB haPPy card (at
the Golden Ladybug 2018 Awards). The
bank has also been named the Best Bank in
Macedonia by ROE and ROA by Finance
Central Europe. Furthermore, according
to the votes by the readers of the finance
on-line magazine bankarstvo.mk, NLB
Banka, Skopje has been voted as the best in
the country in three categories: introducing
innovative products and services, the largest
number of branches and ATMs, and the
brand’s recognisability.
During the past year, the bank was actively
engaged in different corporate and social
responsibility activities coming to an
impressive total of 85 activities, which
further strengthened the relationship with
the employees, clients, prospective clients,
and the community.
NLB Group Annual Report 2018 75
Table 17: Key performance indicators of NLB Banka, Skopje*
in EUR thousands
Key performance indicators
2018
2017
Change YoY
Net interest income
Net non-interest income
Total costs
Impairments and provisions
Result before tax
Result after tax
48,781
23,972
49,665
12,846
-25,049
-23,381
-6,796
40,908
37,068
5,481
44,611
40,004
Antonio Argir
President of the
Management Board
Financial position statement indicators
Total assets
1,350,054
1,235,914
Loans and advances to customers (net)
858,592
796,678
Deposits from customers
1,076,154
1,005,282
-1.8%
86.6%
-7.1%
-
-8.3%
-7.3%
9.2%
7.8%
7.0%
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-to-income ratio (CIR)
Non-performing loans (NPL)
Non-performing loans/total loans (NPL)
Market share in terms of total assets
LTD (Net loans to customers/Deposits from customers)
199,808
156,609
27.6%
16.7%
4.0%
19.9%
3.0%
34.4%
55,967
5.1%
16.3%
79.8%
14.4%
2.3 p.p.
4.3%
-0.3 p.p.
27.8%
-7.9 p.p.
3.5%
-0.5 p.p.
37.4%
53,800
-3.0 p.p.
4.0%
5.2%
-0.1 p.p.
16.2%
79.2%
0.1 p.p.
0.5 p.p.
* Data on a stand-alone basis as included in the consolidated financial statements of the Group.
** Interest margin for 2017 is adjusted to the new methodology valid from 1 January 2018.
12%
21.1%
21.2%
21.1%
17.7%
16.2%
15.4%
17.9%
16.4%
14.8%*
17.4%
16.3%
14.3%*
Figure 50: Contribution to NLB Group
profit after tax – on consolidated basis
The contribution of NLB Banka, Skopje excludes realised
capital gains from the sale of NLB Nov penziski fond,
31 Dec 2016
31 Dec 2017
31 Dec 2018
Market share by total assets
Market share by (gross) retail loans
Market share by (gross) corporate loans
Market share by deposits NBS
Skopje in the amount of EUR 8.5 million corresponding to
* Refers to market share of non-financial legal entities.
the 49% ownership; nevertheless the consolidated profit
from the sale of NLB Nov penziski fond, Skopje amounted
to EUR 12.2 million.
Figure 51: 3-year market share evolution
NLB Group Annual Report 2018 Highlights:
• 18.3% market share in total assets.
• 14% growth in net non-interest income YoY.
• Improved synergies with NLB Banka
Sarajevo in client servicing.
Slovenia” took place in Sarajevo in May
under the sponsorship of the Slovenian
Ministry of foreign affairs and Slovenia’s
Embassy in Sarajevo in order to promote
networking among Slovenian companies
present in BiH and their business partners,
with both banks being co-organisers of the
event. The main opportunities the bank
foresees are consumer lending, process
excellence, and further development of
digital channels.
The bank received the Golden BAM award
for the highest ROE and ROA among
banks in BiH for 2017 and remained
an active member of social community
supporting young athletes.
76
NLB Banka, Banja Luka
The bank is the 3rd largest bank in the
Republic of Srpska with a 18.3% market
share in total assets as at of 31 December
2018 (preliminary data). It provides banking
services to customers through a broad
branch network of 57 branches and 74
ATMs. The bank is oriented in corporate
and retail segments, and has a very strong
deposit base. Further attention was put
on the modernisation of sales channels
and services providing improvements of
electronic and mobile banking services also
by introducing e-bills with selected utility
companies in its mobile bank.
The growth in BiH slightly decreased,
mostly due to weaker household
consumption growth and weaker exports
but remained at a solid pace thanks to
declining unemployment and the buoyant
tourist sector. The bank realised profit
after tax in the amount of EUR 16.2
million (2017: EUR 23.7 million) and profit
before impairments and provisions in the
amount of EUR 17.0 million (2017: EUR
15.0 million), ROE a.t. of 18.7% (2017:
29.3%), improved CIR of 43.5%; (2017:
46.1%), and increased capital adequacy of
15.6% (2017: 15.3%). The main driver of
the result was net interest income, while
the bank recorded a very strong 13.5%
YoY growth in net non-interest income
deriving predominantly from payment
and card transactions, as well as account
maintenance fees. Net non-interest income
represents 36% of total income, the highest
among NLB banking subsidiaries. The total
assets of the bank rose by 7.5%, with a 10%
growth in net loans to the non-banking
sector, and an 8% growth in deposits from
the non-banking sector. The NPL ratio was
further reduced to 3.2% (2017: 3.7%).
Retail banking had 12% growth in
loans where the bank supplemented
its traditionally good performance in
housing loans, representing 50% of the
retail loan portfolio, with strong growth
in consumer lending. The market share
in gross retail loans as at 31 December
2018 (preliminary data) was 16.1% (2017:
15.2%). The main focus remains cross-
selling among corporate and retail, and
upselling using upgraded CRM tools for
customised services according to client
needs. The bank was especially successful in
cooperation with local real estate investors,
who promoted the bank as a creditor. The
bank is in the process of acquiring a licence
for bancassurance to expand the bank’s
product range.
Corporate banking recorded a 20% growth
in loans, overcoming the drop in loans to
the state by 16%. The market share in
gross corporate loans as at 31 December
2018 (preliminary data) was 15.4%
(2017: 14.2%). The bank strengthened
cooperation with NLB Banka, Sarajevo
resulting in increased exposure and income
generation from the joint financing of
clients on the BiH market. Additionally,
the bank joined forces with NLB Banka,
Podgorica in the first cross-border financing
at the Group level and provided credit
support to a tourism project in Montenegro.
To further improve cooperation and achieve
the synergies with NLB Banka, Sarajevo,
both banks intensified the approach towards
clients on a joint principle, introduced a
joint welcome webpage, and refreshed
webpages to enhance the NLB brand and
image. Furthermore, both banks aligned
their marketing activities and as a result,
the bank recorded very good results from
a housing loan campaign. An event “I feel
NLB Group Annual Report 2018 77
Table 18: Key performance indicators of NLB Banka, Banja Luka*
in EUR thousands
Key performance indicators
2018
2017
Change YoY
5.0%
13.5%
-1.9%
-86.9%
-28.3%
-31.7%
7.5%
10.2%
8.1%
3.3%
0.3 p.p.
0.0 p.p.
Net interest income
Net non-interest income
Total costs
Impairments and provisions
Result before tax
Result after tax
19,057
10,939
18,146
9,636
-13,046
-12,803
1,387
18,337
16,184
10,579
25,558
23,694
Financial position statement indicators
Total assets
720,509
669,949
Loans and advances to customers (net)
384,806
349,102
Deposits from customers
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-to-income ratio (CIR)
Non-performing loans (NPL)
Non-performing loans/total loans (NPL)
Market share in terms of total assets***
LTD (Net loans to customers/Deposits from customers)
575,775
532,546
87,218
84,440
15.6%
2.8%
18.7%
2.3%
43.5%
19,199
3.2%
18.3%
66.8%
15.3%
2.8%
29.3%
-10.6 p.p.
3.6%
-1.3 p.p.
46.1%
20,151
-2.6 p.p.
-4.7%
3.7%
-0.5 p.p.
18.6%
65.6%
-0.3 p.p.
1.2 p.p.
Radovan Bajić
President of the
Management Board
* Data on a stand-alone basis as included in the consolidated financial statements of the Group.
** Interest margin for 2017 is adjusted to the new methodology valid from 1 January 2018.
*** Preliminary data.
8%
21.2%
18.7%
17.1%
15.0%
20.6%
18.6%
15.2%
14.2%
19.8%
18.3%
16.1%
15.4%
31 Dec 2016
31 Dec 2017
31 Dec 2018
Market share by total assets
Market share by (gross) retail loans
Market share by (gross) corporate loans
Market share by deposits NBS
Figure 52: Contribution to NLB Group
profit after tax – on consolidated basis
Figure 53: 3-year market share evolution
NLB Group Annual Report 2018 78
NLB Banka, Sarajevo
phase of launching NLB Pay, a Group
mobile wallet solution.
Highlights:
• Highest ever profit after tax
of EUR 8.8 million.
• Modernisation of bank’s branch network.
• Acquired licence for the sale of
bankassurance products.
Corporate net loans grew by 8% and
market share in corporate gross loans
decreased to 4.7% (2017: 5.0%) despite
large refinancing pressures in this segment.
The bank strengthened cooperation with
NLB Banka, Banja Luka in the corporate
segment resulting in increased exposure and
income generation from the joint financing
of clients on the BiH market.
Besides introducing the International Desk
initiative on the Group level, the bank
identified main growth opportunities on
the segment of SME loans and housing
loans, with additional potentials for income
growth estimated due to introduction
of new bankassurance products. Special
focus will be dedicated to the use and
development of digital channels (E-bank,
MBank, web chat, etc.), while exploring
further synergy potentials, in order to
optimise business operations and to improve
cost management on a country level.
The bank was elected as the second
most desirable employer in the financial
sector in BiH and the Bank’s CEO Lidija
Žigić was elected as the woman that
most contributed to the development of
the financial and banking sector in the
Federation of BiH. The bank was actively
engaged in more than 50 corporate and
social responsibility initiatives, through
active participation in various humanitarian
projects, sponsorships, and donations such
as sponsoring the second Economic forum
in BiH, and several cultural and sports
events. Donations were mainly given to
support health improvement, as well as the
education and promotion of young people.
The bank is the 6th largest bank in the
Federation of BiH with a 5.1% market
share in total assets as at 30 September
2018. It provides a variety of banking
services to customers through a broad
branch network of 38 branches spread
across the Federation. Modernisation of
bank’s branch network is underway with
several branches already being renovated
according to modern open-space standards.
Improving customer experience was
achieved with the introduction of new
digital products and solutions.
The growth in BiH slightly decreased,
mostly due to weaker household
consumption growth and weaker exports,
but remained at a solid pace thanks to
declining unemployment and a buoyant
tourist sector. The bank realised the highest
ever profit after tax in the amount of EUR
8.8 million (2017: EUR 8.3 million), and
profit before impairments and provisions
in the amount of EUR 11.7 million (2017:
EUR 11.5 million) in spite of the strong
competition and declining interest rates on
the market, with stable cost efficiency (CIR
of 54.8%; 2017: 54.8%) and increased
capital adequacy to 16.4% (2017: 15.2%).
The bank recorded a strong 11% YoY
growth in net non-interest income. Total
assets of the bank rose by 11.5%, with an
8% growth in net loans to the non-banking
sector and 10% growth in deposits from
the non-banking sector. The NPL ratio was
further reduced to 5.7% (2017: 6.9%).
Retail net loans grew 8% and held a market
share of 6.1% in retail gross loans (2017:
6.1%). This was due predominantly to
consumer lending. The bank introduced
an online loan application on its website,
and launched a new product for clients,
a MasterCard charge card that provides
purchasing in instalments via SMS message
on all POS in the country and abroad.
The bank acquired a licence for the sale
of bankassurance products, opening new
opportunities with clients and is in the final
NLB Group Annual Report 2018 79
Table 19: Key performance indicators of NLB Banka, Sarajevo*
in EUR thousands
Key performance indicators
2018
2017
Change YoY
Net interest income
Net non-interest income
Total costs
Impairments and provisions
Result before tax
Result after tax
17,586
8,271
18,059
7,453
-14,170
-13,973
-1,965
9,722
8,757
-2,000
9,539
8,300
Financial position statement indicators
Total assets
592,166
531,016
Loans and advances to customers (net)
359,499
332,557
-2.6%
11.0%
-1.4%
1.8%
1.9%
5.5%
11.5%
8.1%
10.4%
16.0%
Deposits from customers
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-to-income ratio (CIR)
Non-performing loans (NPL)
Non-performing loans/total loans (NPL)
Market share in terms of total assets***
472,297
427,932
80,174
69,086
16.4%
3.2%
11.6%
1.6%
54.8%
30,805
5.7%
5.1%
15.2%
1.2 p.p.
3.5%
-0.3 p.p.
12.8%
-1.3 p.p.
1.6%
54.8%
34,014
6.9%
5.2%
0.0 p.p.
0.0 p.p.
-9.4%
-1.2 p.p.
-0.1 p.p.
Lidija Žigić
President of the
Management Board
LTD (Net loans to customers/Deposits from customers)
76.1%
77.7%
-1.6 p.p.
* Data on a stand-alone basis as included in the consolidated financial statements of the Group.
** Interest margin for 2017 is adjusted to the new methodology valid from 1 January 2018.
*** Data for 2018 are per 30 September 2018.
4%
5.9%
5.8%
5.6%
5.3%
6.1%
5.5%
5.2%
5.0%
6.1%
5.5%
5.1%
4.7%
Figure 54: Contribution to NLB Group
31 Dec 2016
31 Dec 2017
31 Dec 2018
Market share by total assets
Market share by (gross) retail loans
Market share by (gross) corporate loans
Market share by deposits NBS
profit after tax – on consolidated basis
Figure 55: 3-year market share evolution
NLB Group Annual Report 2018 Highlights:
• Continuously profitable performance, with
substantial dividend pay-out capacity.
• Increased e- and m-banking users.
• Low CIR of 36.4%.
80
NLB Banka, Prishtina
The bank is the 3rd largest bank in Kosovo
with 16.8% market share in total assets
(2017: 15.7%) and one of the major players
on the competitive market with growth
potential on retail, as well as the corporate
side. Emphasis was is put toward clients and
digitalisation, with the bank encouraging
customers to use modern digital channels;
the number of e- and m-banking users
increased by 56% YoY, while the number of
total transactions was increased by 38% in
the same period.
The growth in Kosovo slightly moderated,
partially due to a downturn in exports,
and partially due to a contraction in
government consumption. In contrast,
a surge in the household consumption
contributed to solid economic growth. The
bank performed very well and achieved
profit after tax in the amount of EUR 14.8
million (2017: EUR 14.2 million), and profit
before impairments and provisions in the
amount of EUR 20.6 million (2017: EUR
17.8 million). Total income, net interest
income, and net non-interest income were
above 2017 levels, mostly due to an increase
of loan portfolio, cards, and electronic
banking operations. CIR decreased further
to 36.4% (2017: 38.7%) due to increased
income overweighting the increase in
costs. Total assets grew by 14.4% propelled
mainly by net loans to the non-banking
sector increasing by 21%. The amount of
deposits from non-banking sector increased
by 16%. Relatively low NPL ratio further
decreased to 2.4% (2017: 2.9%), mainly
due to an increase in the loan portfolio.
Capital adequacy reached 14.6% (2017:
15.9%).
Retail recorded high net loans growth
of 17.3% (the market share in retail net
loans was 17.9%) to reach EUR 175
million. Housing loans increased by 23%
and reached 60% of all retail loans, while
consumer loans increased 4%. The main
drivers were tailor-made campaigns for
specific target groups. High competitiveness
in the market caused slight pressure on
interest rates.
The corporate loan portfolio grew by 23%
to reach EUR 292 million. Market share
in corporate net loans increased to 17.6%
(2017: 16.2%). The main factor of increase
were investment loans with the increase of
32%. High competitiveness of the market
caused slight pressure on the interest rates,
as well.
The bank sees the main opportunities for
the future growth in the areas of cross-
selling, the large companies segment,
development of agro segment, and
upgrading clients’ experience.
Awards are the consequence of excellence
and the bank was recognised for being the
most active issuing bank for guarantees
in Kosovo (by EBRD), the best bank in
Kosovo and “Top Employer of the year”
(by Kosovo Chamber of Commerce). The
bank was also very active in the corporate
and social activites by supporting healthcare
campaigns, donations to the hospital,
and other humanitarian, sport, and
environmental projects.
NLB Group Annual Report 2018 81
Table 20: Key performance indicators of NLB Banka, Prishtina*
in EUR thousands
Key performance indicators
2018
2017
Change YoY
11.9%
9.2%
-5.0%
-74.3%
7.3%
4.5%
14.4%
20.7%
15.6%
7.6%
Net interest income
Net non-interest income
Total costs
Impairments and provisions
Result before tax
Result after tax
27,372
5,034
24,471
4,611
-11,801
-11,242
-3,792
16,813
14,836
-2,176
15,664
14,197
Financial position statement indicators
Total assets
668,127
584,086
Loans and advances to customers (net)
466,854
386,804
Deposits from customers
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-to-income ratio (CIR)
Non-performing loans (NPL)
Non-performing loans/total loans (NPL)
Market share in terms of total assets
LTD (Net loans to customers/Deposits from customers)
585,851
506,672
71,786
66,705
14.6%
4.4%
21.6%
2.4%
36.4%
14,362
2.4%
16.8%
79.7%
15.9%
-1.3 p.p.
4.5%
-0.1 p.p.
22.2%
-0.6 p.p.
2.6%
-0.2 p.p.
38.7%
14,804
-2.2 p.p.
-3.0%
2.9%
-0.5 p.p.
15.7%
76.3%
1.1 p.p.
3.3 p.p.
Albert Lumezi
President of the
Management Board
* Data on a stand-alone basis as included in the consolidated financial statements of the Group.
** Interest margin for 2017 is adjusted to the new methodology valid from 1 January 2018.
6%
16.3%
15.8%
15.5%
15.2%
17.9%
17.7%
17.6%
16.8%
17.0%
16.7%
16.2%
15.7%
Figure 56: Contribution to NLB Group
profit after tax – on consolidated basis
Figure 57: 3-year market share evolution
31 Dec 2016
31 Dec 2017
31 Dec 2018
Market share by total assets
Market share by (gross) retail loans
Market share by (gross) corporate loans
Market share by deposits NBS
NLB Group Annual Report 2018 Highlights:
• The best result in the history of
the bank with recorded profit
after tax of EUR 10.0 million.
• More than 17% growth of net loans.
• Substantial increase in ROE
a.t. achieving 14.9%.
The bank owes its influence on the financial
market to an active role in all areas of
social development. It carries out its socially
responsible acitivities through donations
approved primarily to organisations of
social importance (educational, health,
public, institutions for persons with special
needs, etc.), but also to organisations
registered for community assistance in
directly dealing with charity work.
The most significant socially-responsible
projects in the year were the donation of
the first electric bus to one of Montenegro
municipality, premium sponsorship contract
with Basketball Club “Buducnost Voli”, and
the campaign “Mali koraci mijenjaju svijet
nabolje”, which improved the conditions in
several Montenegrin maternity hospitals.
82
NLB Banka, Podgorica
The bank is the 5th largest bank in
Montenegro, with a market share in total
assets of 11.1%. The predominant strength
of the bank is seen in the segment of retail
housing and consumer loans, where the
bank is an important player on the market.
In addition, the bank is also increasing
importance in the corporate sector with a
client focus and digitalisation. One of the
most successful retail products launch in the
year was consumer loan NLB Super Fast
Cash Loan.
Despite the competitive market
environment, a positive performance was
recorded for the fifth year in a row and the
best result in the history of the bank (since
owned by NLB). This provided the basis for
a dividend payment for the second year in
a row.
The growth in Montenegro slightly
decreased, although still on high levels
due to strong performances from both
the domestic economy and the external
sector. The bank recorded a profit after
tax of EUR 10.0 million (2017: EUR 5.4
million) and profit before impairments
and provisions in the amount of EUR
11.5 million (2017: EUR 9.1 million).
Exceptional business performance wes is
also visible in increased ROE a.t. 14.9%
(2017: 7.0%), decreased CIR at 51.8%
(2017: 57.7%), and capital adequacy
of 16.2% (2017: 14.9%). The positive
result was a consequence of the increased
result before provisions, and lower net
impairments and provisions, with 9.9%
growth of net interest income (driven
by a growing performing portfolio and
improved structure in favour of loans with
higher yields), and 12.9% growth of net
non-interest income (driven by increase in
card operations, fees from basic accounts,
and other net income due to selling of
repossessed assets), while succeeding to
reduce the level of total costs by 0.6%.
Total assets of the bank rose by 7%, with a
17.2% growth in net loans to the non-
banking sector, and 9% growth in deposits
from the non-banking sector. The asset
quality was improved as well, and the NPL
ratio was decreased to 5.2% (2017: 8%).
Retail had a 15% growth in net loans,
higher compared to the banking sector
with 13.8% growth, with a market share
in retail gross loans reaching 16.0% (2017:
15.9%). Performance was excellent with
the main factor of growth being consumer
loans – a new product called “Super fast
cash loan” requiring only one visit to the
branch for the client. The bank is the
market leader in housing loans with a 25%
market share, and a 23% market share
in new production (2017: 27% and 23%,
respectively). An acceleration in the issuing
of housing loans was noticeable in the Q4
due to housing project 1000+ that was run
by the government. The better structure
of interest-bearing assets influenced the
increase of average interest rates on assets
with increased net interest margin.
Corporate had a 17.2% growth in net
loans, and the banking sector had 8.4%
growth and a market share of 7.6%
in corporate gross loans (2017: 7.1%).
Performance of the corporate segment
was also exceptional with EUR 97.6
million of new business meaning growth
of 20.3% (large corporate growth 19.5%
and SME growth 22.5%). Interest rates are
decreasing, however, with a slower pace
compared to 2017.
The main opportunities of the bank in the
future are: the SME segment in tourism,
the upgrade of comprehensive support
for customers, an upgrade of clients’
experience in all segments with the use of
modern technology and development of
sales staff to be able to support and advise
customers’ decisions and to enable the best
client experience.
NLB Group Annual Report 2018 83
Table 21: Key performance indicators of NLB Banka, Podgorica*
in EUR thousands
Key performance indicators
2018
2017
Change YoY
Net interest income
Net non-interest income
Total costs
Impairments and provisions
Result before tax
Result after tax
18,047
5,771
16,416
5,110
-12,340
-12,414
-1,267
10,211
10,033
-3,807
5,305
5,385
Financial position statement indicators
Total assets
489,283
457,236
Loans and advances to customers (net)
310,692
265,062
Deposits from customers
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-to-income ratio (CIR)
Non-performing loans (NPL)
Non-performing loans/total loans (NPL)
Market share in terms of total assets
LTD (Net loans to customers/Deposits from customers)
391,750
359,736
68,937
66,975
16.2%
4.1%
14.9%
2.1%
51.8%
20,627
5.2%
11.1%
79.3%
14.9%
3.7%
7.0%
1.1%
57.7%
31,054
8.0%
-2.8 p.p.
11.0%
73.7%
0.1 p.p.
5.6 p.p.
9.9%
12.9%
0.6%
66.7%
92.5%
86.3%
7.0%
17.2%
8.9%
2.9%
1.3 p.p.
0.4 p.p.
7.9 p.p.
1.0 p.p.
-5.9 p.p.
-33.6%
Martin Leberle
President of the
Management Board
* Data on a stand-alone basis as included in the consolidated financial statements of the Group.
** Interest margin for 2017 is adjusted to the new methodology valid from 1 January 2018.
16.6%
12.6%
12.5%
9.3%
5%
15.9%
16.0%
11.0%
7.1%
11.3%
11.1%
7.6%
Figure 58: Contribution to NLB Group
profit after tax – on consolidated basis
Figure 59: 3-year market share evolution
31 Dec 2016
31 Dec 2017
31 Dec 2018
Market share by total assets
Market share by (gross) retail loans
Market share by (gross) corporate loans
Market share by deposits NBS
NLB Group Annual Report 2018 Highlights:
• Well-positioned the in agro
segment (12.6% market share).
• Increased total assets of the bank by 31%.
• Improved e- and m-banking platforms.
The Association of Journalists for
Agriculture has awarded the bank for
the contribution to the development of
agribusiness. For the 7th year in a row
the bank organized the “NLB Organic
competition”, a landmark project
which recognises and awards the best
organic production projects, supporting
environmental protection and sustainable
development. The bank also supported
agribusiness by sponsoring agriculture
events in Serbia. In the domain of socially
responsible business, the bank devotes
special attention to humanitarian actions
and made several donations to hospitals,
schools, kindergartens, and others.
84
NLB Banka, Beograd
The bank is the seventeenth largest bank in
Serbia, with a 1.5% market share in total
assets with a specific focus on supporting
agro business where it achieved a 12.6%
market share. As Serbia is a market with
great potential, the bank puts a lot of
emphasis on trade finance, client experience
upgrade, renewed branch formats,
improved e- and m-banking solutions, and
new services like Instant Transfer, a service
available 24/7 that enables customers to
pay up to 300,000 dinars in real time.
The economic growth in Serbia surged,
mainly due to rising disposable income
and sustained remittance inflows which
supported private consumption. The bank
realised a profit after tax in the amount
of EUR 5.2 million (2017: EUR 3.7
million) and profit before impairments
and provisions in the amount of EUR
5.6 million (2017: EUR 4.7 million). The
better result resulted mainly of accelerated
new loan production which contributed
to higher ROE a.t. 7.9% (2017: 6.7%).
The bank recorded a 27% growth in
net non-interest income YoY. CIR was
still relatively high (76.2%), but with a
decreasing tendency compared YoY (2017:
77.8%), while total capital adequacy was
16.7% (2017: 20.1%). Total assets of the
bank rose by 31%, with a 34% growth in
net loans, and 36% growth in deposits from
the non-banking sector. The NPL ratio was
further reduced to 2.4% (2017: 5.0%).
In terms of funding, invested effort resulted
in the growth of deposits in both the
corporate and retail segments; the bank has
a market share of 1.5% (2017: 1.4%).
Retail recorded a 32% growth in net loans,
way above the Serbian banking sector
dynamic reaching 11.2% growth, and
increasing market share in retail gross loans
to 1.6% (2017: 1.5%). The loan portfolio
is dominated by cash/consumer loans in
local currency, representing 82% of the
retail portfolio. The interest margin on cash
loans is high, but under significant pressure.
To diversify the product mix, more focus
was put on housing loans. This resulted
in housing portfolio growth of 41% with
good prospects in the years ahead, and
opportunities for cross-selling.
Corporate recorded a 37% growth in
net loans, comparing well with the 2.7%
decrease in the Serbian banking sector,
and a market share of 1.6% in corporate
gross loans (2017: 1.2%). The portfolio is
dominated by loans to SMEs (79% of the
corporate portfolio). Higher demand is
noted in FX loans due to lower nominal
interest rates. The portion of local currency
RSD loans in the new production is steadily
increasing. Interest rates are decreasing,
however with a slower pace compared
to 2017 (2018: 2.9%, 2017: 3.2%). The
predominant strength of the bank is agro
business with a market share of 12.6%
(2017: 10.1%). During the year, the bank
was the market leader in loans to farmers
subsidised by the Serbian Ministry of
Agriculture (22% share in total new
production of such loans in the banking
sector).
The focus of the Bank’s strategy is growth
of loans and deposits, with the main
opportunities in cross-selling, the large
companies segment, continuation of very
successful work in the agro segment, and
improving client experience.
NLB Group Annual Report 2018 85
Table 22: Key performance indicators of NLB Banka, Beograd*
in EUR thousands
Key performance indicators
2018
2017
Change YoY
Branko Greganović
President of the
Management Board
Financial position statement indicators
Total assets
484,492
370,807
Loans and advances to customers (net)
318,792
238,795
Net interest income
Net non-interest income
Total costs
Impairments and provisions
Result before tax
Result after tax
Deposits from customers
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-to-income ratio (CIR)
Non-performing loans (NPL)
Non-performing loans/total loans (NPL)
Market share in terms of total assets***
59.0%
39.9%
39.4%
30.7%
33.5%
35.9%
10.2%
19,764
3,832
17,984
3,015
9.9%
27.1%
-17,981
-16,336
-10.1%
-377
5,238
5,202
-919
3,744
3,731
352,940
259,755
67,686
61,444
16.7%
20.1%
-3.5 p.p.
4.9%
7.9%
1.2%
76.2%
9,884
2.4%
1.5%
5.8%
6.7%
1.2%
77.8%
15,184
5.0%
1.2%
-0.9 p.p.
1.2 p.p.
0.1 p.p.
-1.6 p.p.
-34.9%
-2.6 p.p.
0.2 p.p.
LTD (Net loans to customers/Deposits from customers)
90.3%
91.9%
-1.6 p.p.
* Data on a stand-alone basis as included in the consolidated financial statements of the Group.
** Interest margin for 2017 is adjusted to the new methodology valid from 1 January 2018.
*** Data for 2018 are per 30 September 2018.
1.6%
1.6%
1.5%
1.5%
1.5%
1.4%
1.3%
1.2%
3%
1.1%
1.1%
1.0%
0.9%
Figure 60: Contribution to NLB Group
profit after tax – on consolidated basis
Figure 61: 3-year market share evolution
31 Dec 2016
31 Dec 2017
31 Dec 2018
Market share by total assets
Market share by (gross) retail loans
Market share by (gross) corporate loans
Market share by deposits NBS
NLB Group Annual Report 2018 86
Chapter 11
Highlights:
Financial
Markets
The segment is focused on the Group’s
activities on international financial
markets, including treasury operations.
In the challenging environment of low
interest rates on financial markets,
the continuous focus was on prudent
liquidity reserves management. Wholesale
funding activities contribute to Group’s
funding and were conducted with the
aim of achieving diversification, and
fulfilling regulatory requirements.
• Optimisation of asset management of
the Bank and the banking subsidiaries.
• Well diversified banking book portfolio from
geographical and asset class perspective.
management of the Group’s exposure
to market risk is decentralised. Uniform
guidelines and limits for each type of risk
are set for individual Group members.
The methodologies are in line with
regulatory requirements on an individual
and consolidated level, while reporting to
the regulator on the consolidated level is
carried out using a standardised approach.
Pursuant to the relevant policies, the Group
members must monitor and manage
exposure to market risks and report to
the Bank accordingly. The exposure of
an individual Group member is regularly
monitored and reported to the Group Asset
and liability committee (Group ALCO).
From the interest rate risk perspective,
the low interest rate environment and
surplus liquidity position of the Group
contributed to further growth of fixed
interest rate loans, mostly retail loans, and
investments in high quality debt securities.
In terms of funding, non-banking sector
deposits continued to increase mostly in
the form of sight deposits and savings
accounts. The Group manages interest rate
positions and stabilises its interest margin
by actively adjusting pricing policy, whereas
for managing interest rate risk exposure the
Group also uses plain vanilla derivatives,
in line with the Group’s conservative risk
appetite. Additionally, the exposure to
interest rate risk has been managed via fund
transfer pricing and external pricing policy.
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’s strategic markets.
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 24.0 million, despite a negative
interest rate environment and low returns
on the international fixed income market.
Net interest income in Financial markets
in Slovenia decreased by 1% YoY, due to
decreasing yields in the securities portfolio
(the maturity of some high yielding assets
and reinvestments made in still low yielding
environment), and due to higher expenses
resulting from the increased level of excess
liquidity. The decreasing LTD contributed
to increased cash equivalent positions with
negative yield, partially reallocated into
banking book securities. 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.
The Group’s ALM
The purpose of the Group ALM process
is to manage the Group’s balance
sheet with respect to the interest rate,
currency, and liquidity risk considering
macroeconomic environment and financial
markets development. Monitoring and
NLB Group Annual Report 2018 87
Table 23: Performance of the Financial markets segment in Slovenia*
2018
2017
Change YoY
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
Balances with Central banks
Banking book securities
Interest rate on banking book securities
Wholesale funding
Interest rate on wholesale funding
31.4
-1.1
30.3
-6.5
23.8
0.2
24.0
31.9
-0.9
31.0
-6.7
24.3
0.0
24.3
-0.4
-0.2
-0.7
0.1
-0.5
0.3
-0.3
31 Dec 2018
31 Dec 2017
Change YoY
575.0
350.8
2,755.2
2,337.4
224.2
417.9
-1%
-26%
-2%
2%
-2%
-
-1%
64%
18%
1.25%
244.1
0.48%
1.40%
260.7
0.51%
-0.16 p.p.
-16.6
-6%
-0.03 p.p.
* Investment banking and custody services as a part of the Financial markets in Slovenia segment is represented as a
separate part in the chapter Corporate and Investment Banking in Slovenia. In 2018 different methodology of income
distribution between segments Financial markets in Slovenia and Investment banking was adopted; all data for previous
periods are adjusted to the new methodology.
The Group’s FX risk is measured and
managed with the use of a combination
of sensitivity analysis, VaR and stress test
scenarios.
In terms of the liquidity risk
management, each Group member is
responsible for ensuring adequate liquidity
via the necessary sources of funding and
their appropriate diversification, and for
managing liquid assets and fulfilling the
requirements of regulations governing
liquidity.
Liquidity reserves management
The Group’s liquidity management focuses
on ensuring a sufficient level of liquid assets
to settle all due liabilities, minimising the
cost of maintaining liquidity, optimising
the structure of liquidity reserves, ensuring
an appropriate level of liquidity for
different situations and stress scenarios as
well as anticipating emergencies and crisis
conditions and implementing appropriate
contingency plans.
Liquidity reserves management in the
Group is decentralised. Each Group
member is responsible for its own portfolio,
while Financial Markets in Slovenia
manages liquid assets of the Bank.
The Group’s liquid assets as at year-end
were comprised of a cash equivalent
(EUR 1,705 million), a debt securities
portfolio (EUR 3,327 million), and credit
claims eligible for central bank secured
funding operations (EUR 141 million). The
liquid assets portfolio represents 41% of
total assets corresponding to EUR 5,172
million (45% as at 31 December 2017).
The main change is tied to the volume of
ECB eligible credit claims that decreased
due to the modification in ECB eligibility
criterion adopted on 7 February 2018 in
ECB Guideline (EU) 2018/570. A small
part of liquid assets (EUR 426 million as at
year-end) was encumbered for operational
and regulatory purposes. Liquidity reserves
represent liquid assets which are not
encumbered and can provide funding of
future core growth.
41%
liquid assets (% of total assets)
73%
government securities in the
Group’s banking book portfolio
4.15 years
average maturity of the Group’s
banking book portfolio
NLB Group Annual Report 2018
88
Liquid assets
in total assets
32%
6,000
5,000
4,000
m
R
U
E
3,000
2,000
1,000
0
4,541
52%
0%
9%
20%
19%
44%
5,495
45%
44%
44%
5,413
5,248
5,346
45%
5,455
58%
57%
50%
50%
53%
1%
9%
17%
15%
2%
13%
13%
16%
5%
16%
14%
15%
1%
13%
19%
16%
1%
13%
20%
13%
41%
5,172
63%
1%
6%
27%
3%
31 Dec 2012
31 Dec 2013
31 Dec 2014
31 Dec 2015
31 Dec 2016
31 Dec 2017
31 Dec 2018
ECB eligible credit claims
Cash & CB reserves
Placements with banks
Trading book debt securities
Banking book debt securities
Encumbered assets
Figure 62: Evolution of NLB Group liquid assets structure (in EUR million)
Other, 14%
AAA, 16%
Corporate, 0.1%
Covered
bond, 9%
GGB, 5%
BB, 8%
BBB, 5%
AA, 15%
Agency,
4%
Senior
Unsecured,
10%
NL, 5%
BE, 4%
DE, 6%
LU, 4%
FR, 9 %
FI, 4%
AT, 3%
SEE, 14%
OTH, 23%
A, 42%
Government sec., 73%
SI, 29%
“Other” in split of the portfolio by rating mostly represents exposures towards the sovereigns of subsidiary banks.
Figure 63: Banking book portfolio of NLB Group by Fitch rating,
asset class, and by geographical structure as at 31 December 2018
NLB Group Annual Report 2018 89
Table 24: Maturity profile of NLB Group’s banking book securities as at 31 December 2018
Domestic securities (the Group strategic markets)
Slovenia
Other SEE
International securities
Total
2019
2020-2021
2022-2023
2024+
Total
in EUR million
371.2
192.3
179.0
287.6
658.8
415.2
239.2
176.0
287.3
702.6
151.7
66.6
85.1
583.2
734.9
478.9
467.4
11.5
702.8
1,181.7
1,417.0
965.4
451.6
1,860.9
3,278.0
Wholesale funding
Wholesale funding activities in the
Group are conducted with the aim of
achieving diversification, improving
structural liquidity, and fulfilling regulatory
requirements. The Group undertook an
active liability management approach with
the optimisation of its long-term liabilities
through improvements of financial
conditions of certain agreements.
Banking book debt securities constituted
63% of the Group’s liquid assets as at
year-end. The purpose of the banking
book securities is to provide liquidity, along
with stabilisation of the interest margin
and interest rate risk management. When
managing the portfolio, the Group uses
conservative principles, particularly with
respect to the portfolio’s structure in terms
of issuers’ ratings.
The portfolio is well diversified from the
geographical and asset class perspective,
while the prudent tenors of the investments
also reflect the conservative risk appetite of
the Group.
The average maturity of banking book
securities was approximately 4.15 years in
2018 (3.95 years in 2017).
The average yield on the Group’s securities
was 1.4% (1.6% in 2017). The Group liquid
assets portfolio as at year-end represented
investments with yields ranging from
-0.40% (placements at ECB) to higher
yields achieved on the market for certain
asset classes.
NLB Group Annual Report 2018 90
Chapter 12
Highlights:
Non-core Markets
and Activities
The Non-core segment includes the
operations of non-core Group members
and the non-core part of the Bank’s
portfolio, consisting of loans to foreign
clients and a limited number of remaining
Bank’s equity participations, which are
to be terminated. The main objective
in the Non-core segment is a rigorous
wind-down of all non-core portfolios and
comprise loan exposures (approximately
61%), a smaller share of investment
properties and properties & equipment
received for the repayment of loans
(approximately 26%), and other assets.
The wind-down of the Non-core segment
in 2018 included:
the consequent reduction of costs. The
• a reduction of the Bank’s credit business
implementation of the wind-down has
with foreign clients
been pursued with a variety of measures,
including the sales of portfolios, sales
• divestment of non-strategic Group
of individual assets, the collection or
members
restructuring of individual assets, and
active management of real-estate assets.
• sale of the Bank’s equity participations
• Positive contribution to the Bank’s results.
• A decrease in the costs of operations,
which were reduced by as much as
16% YoY to the level of EUR 18.2
million (2017: EUR 21.7 million).
• Several individual exposures to clients in
different foreign markets were resolved,
thereby contributing to a reduction in
NPL and off-balance sheet exposure.
Divestment of non-strategic
Group members
Non-strategic Group members, including
those with operations in leasing, factoring/
trade finance, and real estate are in the
process of being wound-down, with new
business being suspended in all subsidiaries.
The total portfolio of non-strategic
subsidiaries is decreasing through regular
repayments, collection, and restructurings.
In the years 2015 – 2017 a liquidation
process has been initiated in almost all
non-strategic subsidiaries. The liquidation
process is running with thoughtful cost
management and well established collection
procedures, whereas some of non-strategic
members were successfully divested, such as
NLB Propria in 2018.
• active management of real estate assets.
Reduction of the Bank’s credit
business with foreign clients
Sale of the Bank equity participations
The wind-down of the legacy portfolio
continued in line with the restructuring
plan. The Bank was able to resolve and
therefore remove from its exposure a
significant number of individual cases in
Croatia, BiH, Montenegro, Bulgaria, the
Czech Republic, Austria, and Germany
with a positive P&L effect.
The Bank has continued divesting its equity
participations, and consequently by the
end of the year the overall asset volume of
equity participations is at EUR 0.99 million
(2017: EUR 0.90 million), due to increase
of market price for some remaining
participations. At the end of 2018 there
were still nine participations in the portfolio.
The Non-core markets and activities
pre-tax result was once again positive and
amounted to EUR 8.2 million (2017: EUR
31.2 million). The result was lower YoY due
to the reduction of the non-core portfolio,
and consequently the reduction of net
interest and net non-interest income. Costs
were reduced by as much as 16% YoY to
the level of EUR 18.2 million (2017: EUR
21.7 million).
Total assets in the segment of Non-core
markets and activities of the Group
amounted to EUR 263.7 million. The
figure was reduced by EUR 127.6 million
YoY in line with the Restructuring plan and
the strategy of non-core divestment. The
large majority of the non-strategic assets
NLB Group Annual Report 2018 91
in EUR million consolidated
Change YoY
Table 25: Results of the Non-core markets and activities segment
Net interest income
Net non-interest income
Total net operating income
Total costs
Result before impairments and provisions
o/w non-recurring items
Impairments and provisions
Result before tax
Segment assets
Net loans to customers
Gross loans to customers
Investment Property and Property & Equipment
received for repayment of loans
Other assets
Deposits from customers
Non performing loans (gross)
2018
9.3
5.2
14.5
-18.2
-3.7
-
11.9
8.2
2017
16.8
23.2
40.0
-21.7
18.2
10.7
12.9
31.2
-7.5
-18.0
-25.5
3.5
-22.0
-
-1.0
-22.9
31 Dec 2018
31 Dec 2017
Change YoY
263.7
160.9
288.6
68.5
34.3
9.6
391.3
269.9
448.5
81.6
39.9
10.2
-127.6
-109.0
-159.9
-13.0
-5.6
-0.6
179.7
279.7
-100.0
-44%
-78%
-64%
16%
-
-
-8%
-74%
-33%
-40%
-36%
-16%
-14%
6%
-36%
Active management of real-estate assets
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 2018 the team executed
or supported real-estate transactions
with a total sales value of over EUR
123.58 million, and directly or indirectly
contributed to a EUR 407.95 million of
NPL reduction, including EUR 77.90
million in 2018 alone.
Over
EUR 159.9 million
Reduction of gross loans
to foreign clients in 2018
Over
EUR 26.1 million
the total sales value of real estate
transactions executed or supported
by the real-estate team in 2018
NLB Group Annual Report 2018
92
Chapter 13
Processing Operations
and IT
present, cash supply services are provided
with their own capacities for the needs
of the Group. However, on two markets
(Slovenia and Macedonia) all-round cash
supply services for several other commercial
banks are performed. In total, the Group
banks provide cash supply services for 873
bank branches and 1,210 ATMs in total,
including the Group banks and other banks
branches and ATMs.
Know-how, own application support
for cash supply operations, and high-
performance technology enables the Group
to further automate operations, especially
in the regions with the highest volumes of
such business.
One of the most important goals in the
recent period is ensuring a high level of
ATM network performance, establishing
even better control over ATMs operation,
and the systematic reduction of errors.
Processing operations
Processing operations, namely Payments
processing and Cash processing, is a
notable part of the Group operations
demanding special expertise and
permanent investments in the
development of technical/infrastructural
support. By ensuring high quality
services and support to the Group’s
operations, the Bank is regarded as the
most trusted payment and cash supply
service provider in Slovenia. Facing
higher/emerging customer demands
and a rapidly changing environment,
the Group is constantly challenged
to retain its role and current market
position in this area also in the future.
Payment processing
In recent years the regular positive trend
to augment volumes of payments and
improve respective financial results has also
continued in 2018. The Group processed
146 million payment transactions in a total
of EUR 263 billion, and achieved a 1.0%
increase over 2017. The higher volume of
processed transactions has contributed to
the improved financial outcome. In 2018
the realised income of the Group related
to payments processing has risen to EUR
50 million, and represents a significant
part (34.0%) of the Group net fees and
commissions. This confirms that the Group
successfully retains its role as an important
market player and trusted payments service
provider, as demonstrated by the high
market share. The Bank’s market share
in the payments systems in Slovenia has
increased augmented to 24.1% (compared
to 23.9% in 2017).
In order to accommodate the ever-
increasing customer demands, the Group
is continuously improving the efficiency of
processing, thus securing the best customer
experience. Due to new trends on payment
markets (digitalisation) and rising customer
expectations, special emphasis is dedicated
to simple and efficient services. In this
respect, in 2018, significant progress was
made in the development and gradual
introduction of instant payments which
shorten the execution time to a few seconds.
An attractive commission for corporate
clients for payments within the Group
and Bank access to SWIFT GPI - Global
Payments Innovation were important steps
towards improved cross-border payment
services.
Cash supply and processing services
Cash services are an important part of the
Bank’s product line which aims to satisfy
customers’ needs. The Bank is successfully
pursuing the goal of standardisation and
unification of services on the Group level,
which is one of the key tasks in the future
as well. On all markets where the Group is
NLB Group Annual Report 2018 93
Information Technology
Highlights:
The Group has been providing its clients
• The availability of the information systems
sustainable and satisfactory services
is at an extraordinary high level (99.9%).
supported through highly reliable
and secure technology platforms. The
• The Bank is introducing key new platforms
technology transformation strategy
from world-leading providers for digital
has entered the implementation phase
banking, integration and data management.
and is based on proven market leading
innovative technologies to further
• Cyber security capabilities are continuously
enhance customer experience. The Group
monitored and strengthened to
has also undertaken important steps
provide safe and robust services.
in improving the regional governance
and joining collaborative efforts to
add leverage of new investments
for clients of the whole Group.
IT infrastructure and reliability
Main IT initiatives
IT performance is monitored through a
set of relevant indicators that are linked to
the Balanced Scorecard (BSC) system. The
indicators show the high performance of IT
operation and successful risk management
in this area. The availability of the
information system is at an extremely high
level (99.9%), and the share of unplanned
interruptions is very low (0.04%).
With users of the information system,
harmonised Service Level Agreements
(SLA) are in place, which the Bank
managed to fulfill in a very high proportion.
The satisfaction of IT users is regularly
monitored, and the Customer Satisfaction
Index for internal users is 83% and external
93%. The Group is constantly striving to
improve IT processes to maintain at least at
the 3rd maturity level (COBIT). High IT
operational performance is also recorded in
the Group members.
In 2018, the Bank mostly focused on
procurement and implementation planning
for strategic platforms as a part of the
technology transformation initiative.
The Bank has contracted market-leading
providers for the implementation of a
comprehensive data management platform,
hybrid integration platform, as well as a
digital banking platform. The Bank will
continue investing in these technologies and
capabilities to support the business strategy,
and to achieve superior client experience in
terms of quality, innovation, reliability, and
security.
In addition to the transformation initiative,
the Bank has delivered some major
improvements in mobile banking offering,
aside from the existing fully mobile end-
to-end loan origination process for private
individuals and small enterprises. The
Bank has been the market front-runner
in the introduction mobile payments with
NLB Pay. The Bank is providing timely
implementations of instant payments
initiative, has supported the introduction of
product bundling within pricing initiatives,
and has successfully supported the
privatisation process, including the sales of
common share in NLB branches.
24.1%
Payment services
market share by
the Bank
2,083
Total cash points
supplied by the Group
873
Bank branches
supplied by the
Group
1,210
ATMs supplied by
the Group
NLB Group Annual Report 2018
94
The technology transformation of the
Group follows the principles of open
architecture. Hence, all the subsidiaries
of the Group are investing in providing
standardised access to their core systems
which will enhance their integration and
innovation capabilities.
The Bank has important synergies in
centralising regional IT governance,
including the sourcing and procurement
practices.
Cyber security
The Group is dedicating special attention
to cyber security, and consequently assuring
confidentiality, integrity, and availability
of data, information, and IT systems that
support banking services and products for
customers. Cyber security in the Group
is constantly tested and upgraded by
applications, network and IT infrastructure
security assessments, independent reviews,
and penetration testing. Cyber security
is regularly discussed on the Bank’s
Information Security Steering Committee
and Management Board meetings. In
2018, the Security Operations Centre
(SOC) was set up in the Group to monitor
security events, detect anomalous behaviour
in information systems, and enable swift
incident response if needed. In 2018, no
cyber security incidents occurred that
had an impact on customer services or IT
processing.
All employees in the Group are also
being continually educated about on the
importance of information/cyber security.
The Group banks are providing employees
and customers with security notifications,
especially in the occurrence of threats in
the (global) environment with potential
impact on the banks’ IT systems, services,
and products. The Bank is also testing
the awareness of its employees with social
engineering attack simulations.
Digital channel penetration per markets
86%
3
2
6
.
1
3
48%
77%
30%
24%
8
2
2
.
8
4
6
1
.
7
1
2
7
8
.
6
3
15%
7
8
3
.
2
9
1
9
.
5
1
20%
0
1
6
.
1
8
0
2
.
8
1
7
6
.
6
9
8
6
.
8
2
8
4
.
1
9
3
9
.
4
6
4
5
.
7
1
2
2
2
.
4
NLB
NLB Banka,
Skopje
NLB Banka,
Banja Luka
NLB Banka,
Sarajevo
NLB Banka,
Prishtina
NLB Banka,
Podgorica
NLB Banka,
Beograd
# of active clients
# of active users
Penetration
Figure 64: E-banking penetration for corporate clients Group banks
35%
7
5
6
.
5
2
2
5%
1
3
3
.
8
1
7
0
2
.
2
7
3
5
7
6
.
1
5
6
1%
6
2
2
.
2
0
7
4
.
0
0
2
1%
9
6
2
.
1
5
7
7
.
7
2
1
8%
5
5
3
.
5
1
3
4
9
.
3
9
1
2
4
2
.
7
5
5%
3
3
9
.
2
5%
7
0
7
.
5
5
1
4
.
7
1
1
NLB
NLB Banka,
Skopje
NLB Banka,
Banja Luka
NLB Banka,
Sarajevo
NLB Banka,
Prishtina
NLB Banka,
Podgorica
NLB Banka,
Beograd
# of active clients
# of active users
Penetration
Figure 65: E-banking penetration for private individuals per Group banks
NLB Group Annual Report 2018 95
NLB Group Annual Report 2018 96
Chapter 14
Risk Management
Self-funded, strong liquidity and a
strong capital position continued
in 2018, demonstrating the Group’s
financial resilience. Efficient managing
of risks and capital is crucial for the
Group to sustain long-term profitable
operations. Robust Risk Management
framework is comprehensively integrated
into decision-making, steering, and
mitigation processes within the Group,
with the aim to proactively support its
business operations. Risk management
in the Group is in charge of 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 2018 the Group’s credit
portfolio quality remained overall solid
and improved further with a stable rating
structure and portfolio diversification. The
Group experienced healthy lending growth
and the negative cost of risk, resulting from
an improved macroeconomic environment
and active management of NPLs. The
stock of NPE volume further decreased,
as a result of successful restructuring of
some major exposures and the recovery
of NPL, and approached the average EU
banking level. In addition, the coverage
ratio remains high above the EU average,
enabling further NPE reduction without
significant influence on the cost of risk in
the years ahead. Positive trends have been
recorded in almost all SEE region, in terms
of clients putting greater trust in economic
developments, alongside the related
recovery in consumption and the real-estate
market.
In the still negative interest rate
environment, the Group faced growing
excess liquidity, whereby significant
attention was put into the structure and
concentration of liquidity reserves by
incorporating early warning systems,
while keeping in mind the 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 the
risk appetite tolerance toward this risk.
Moreover during 2018 the Group’s capital
and liquidity position remained strong
at both, the Group and subsidiary bank
levels, standing well within the targeted risk
appetite profile.
The Group was included into the
2018 ECB stress test exercise, whose
qualitative outcomes were included in the
determination of Pillar 2 Requirement,
namely as an element of risk governance,
and setting the Pillar 2 Guidance. The final
results of the bottom-up stress test for the
period of 2018-2020 showed that even
in a very unfavourable market conditions
defined by the EBA and ECB, the Group
holds sufficient resilience in terms of
capitalisation. The Group was able to
conclude the stress test exercise in the
second cycle of a total of three, as an early
termination, by providing sufficient quality
assurance.
Risk management principles
The Bank is, as a systemic bank, involved
in the Single Supervisory Mechanism,
whereby the supervision is under the
jurisdiction of the Joint Supervisory Team
of the ECB and the BoS. ECB regulations
are followed by all Group members,
where 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 business and operating environment,
relevant for the Group operations is
changing, with trends such as changing
customer behaviour, emerging new
technologies and competitors, and
increasing new regulatory requirements.
This considers that risk management is
continuously adapting with the aim of
detecting and managing new potential
emerging risks.
NLB Group Annual Report 2018 97
Highlights:
• A more than 77.7% reduction of NPL
portfolio in the last five years. The Group
reduced its NPL legacy portfolio from EUR
2,798 million to EUR 622 million in the
period from December 2013 – December
2018 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. In
2018 amount of NPLs decreased by
EUR 222 million, also exceeding the set
targets in the Group’s NPL Strategy.
• Favourable macroeconomic conditions,
prudent credit policy principles, and the
proactive NPL management approach
resulted in the negative cost of risk in
over the last two years. Its evolution
in the last five years was otherwise
relatively stable, in accordance with
set mid-term strategic orientations.
• The Group observed a steady
and healthy growth in the retail
portfolio, which increased by 29.3
p.p. over the last five years.
The Group gives high 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 the business strategy and risk appetite
orientations. Special focus is put on the
inclusion of the risk analysis into 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, regular education/
trainings at all levels of management,
and the assurance of overall compliance
with internal policies/rules and relevant
regulations.
Risk management focuses on managing
and mitigating risks in line with the
Group’s Risk Appetite and Risk Strategy,
representing the foundation of the Group’s
Risk management framework. Within
these frameworks, the Group monitors a
range of risk metrics in order to assure
the Group’s risk profile is in line with its
Risk Appetite. In addition, the Group is
constantly enhancing its risk management
system, where consistent incorporation of
ICAAP, ILAAP, Recovery plan, and other
internal stress-testing capabilities into
the risk management system is essential.
Moreover, in 2018 the ICAAP process
was substantially upgraded in accordance
with the newly published ECB guidelines,
including its stronger integration into the
overall risk management system in order
to assure proactive support for informed
decision-making.
Proactive risk management in 2018
On 30 April 2018, the Group received
the BoS Decree on the determination of
the MREL requirement which is based
on the Multiple Point of Entry (MPE)
approach. MREL is determined in the per
cent of TLOF on the sub-consolidated
level of the NLB Resolution Group (NLB
and non-core part of the Group). The
MREL requirement was determined to be
17.40% of TLOF and must be attained by
31 March 2019. Fulfilment of the MREL
requirement is a part of NLB Group Risk
Appetite.
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 in
accordance with the Risk Appetite, also
incorporating the established ICAAP
process under normal conditions and
stressed conditions. As at 31 December
2018, the Group had a strong level of
capital adequacy, CET 1 ratio of 16.7% as
the highest quality capital, which is above
the EU average as published by the EBA.
In line with SREP requirement, CET 1
and the total capital ratio of the Group
already meets the fully-loaded regulatory
requirements applicable for the year 2019.
Maintaining a solid level and structure of
liquidity represents the next very important
risk target. The Group holds a very
strong liquidity position at the Group and
individual subsidiary bank levels, which
are well above the risk appetite with the
LCR of 361% and the unencumbered
eligible reserves in the amount of EUR
4.742 million. Even in the event the stress
scenario would 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, namely in
the retail segment, representing a very
stable and constantly growing base. A
very comfortable level of LTD at 68.3%
gives 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. Great emphasis is also placed
NLB Group Annual Report 2018 98
on intensive and proactive handling of
problematic customers, changes in the
credit process and the early warning
system for detecting an increased credit
risk. The restructuring approaches are
focused on the early detection of clients
with potential financial difficulties and their
proactive treatment. 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 Group’s lending strategy focuses on its
core markets of retail, SME, and selected
corporate business activities. 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 focused on the retail and
of medium-sized and small enterprises
segments. Their primary goal is to provide
comprehensive services to clients by taking
prudent risk management principles
into account. The current structure of
credit portfolio (gross loans) consists
of 41% of retail clients, 19% of large
corporate clients, 23% of SMEs and micro
companies, while the remainder of the
portfolio entails other liquid assets. There
is no large concentration in any specific
industry or client segment.
The Group is actively present on the
market, financing existing and new
creditworthy clients. The successful
deleveraging of companies and new
investment projects in Slovenia has had a
positive influence on the approval of new
loans. In the retail segment, especially
in the consumer loan segment, positive
SME
Corporates
Consumer
Mortgages
State
Institutions
23%
19%
20%
21%
13%
3%
Note: Gross exposures also include reserves at Central Banks and demand deposits at banks.
Figure 66: NLB Group structure of the credit portfolio
(gross loans and advances) by segment
57%
58%
56%
61%
61%
12%
28%
25%
23%
18%
7%
6%
5%
5%
4%
25%
19%
14%
9%
7%
A
(Highest quality)
B
C
D and E
(Default)
2014
2015
2016
2017
2018
Figure 67: Structure of NLB Group credit portfolio by client
credit ratings (in EUR million) as at year end
25%
19%
19%
14%
14%
10%
9%
7%
7%
5%
69%
62%
72%
76%
78% 77%
65% 62% 65%
63%
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
NPE % in accordance
with EBA methodology
Share of non-performing loans (NPL)
in total loans
NPL coverage ratio 1: the coverage
of the gross NPL portfolio with loan
loss allowances on the entire loan
portfolio
NPL coverage ratio 2: the coverage
of the gross NPL portfolio with loan
loss allowances on the NPL portfolio
Figure 68: NLB Group NPE (NPE%
Figure 69: NLB Group Coverage
by the EBA) and NPL ratio
ratio and NPL Coverage ratio
NLB Group Annual Report 2018 99
361%
The Group LCR
4.7%
The Group
NPE % by EBA
- 43 bps
The Group Cost
of Risk was negative
volumes. The existing non-performing
credit portfolio stock in the Group was
reduced from EUR 844 million to EUR
622 million YoY, where the reduction
exceeded the set targets. The combined
result of all of the effects resulted in a
decreased share of NPLs from 9.2% to
6.9% YoY, while the internationally more
comparable NPE ratio based on EBA
methodology was reduced from 6.7% to
4.7% YoY. The active approach to NPL
management gives strong emphasis on
restructuring, and an increasing use of
other active NPL management tools such as
foreclosure of collateral, the sale of claims,
active marketing and the sale of pledged
assets.
An important Group strength is the NPL
coverage ratio 121, which remains high at
77.1%. Furthermore, the Group’s NPL
coverage ratio 222 stands at 64.6%, which is
well above the EU average as published by
the EBA (45.7% for Q3 2018). As such, it
enables a further reduction in NPLs without
significantly influencing the cost of risk in
the comming years. Moreover, it proves
that past reduction was done on average
without a negative impact to the profit and
loss account.
21. NPL coverage ratio 1: the coverage of the gross NPL
portfolio with loan loss allowances on the entire loan
portfolio.
22. NPL coverage ratio 2: the coverage of the gross NPL
portfolio with loan loss allowances on the NPL portfolio.
trends have been recorded throughout
the region, as a result of clients’ greater
trust in economic developments and rising
consumption alongside with the related
recovery in the real estate market. In 2018,
efforts led to cumulatively very low new
NPLs formation in the amount of EUR
64 million, of which only EUR 19 million
comes from new business, which represents
0.2% of the total portfolio. In addition, a
favourable macroeconomic environment
across region resulted in the negative cost
of risk, whose evolution during the year was
otherwise very stable and below mid-term
strategic orientations.
Implementation of IFRS 9 strengthened
the Group’s capital basis, arising mainly
from collective impairments due to very
favourable macroeconomic trends and the
improved quality of the credit portfolio.
The majority of the Group’s loan portfolio
is classified in Stage 1 (86.7%), then 6.4%
in Stage 2, and 6.4% in Stage 3. Loans in
stages from 1 to 3 are booked at amortized
cost, while the remained minor part (0.5%)
represents fair value loans through P&L
(FVTPL). The portfolio quality in 2018
was very stable with increasing Stage 1
exposures and a reduction of NPL loans.
The majority of increase in Stage 2
occurred due to NPL upgrades.
The 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 the
other most frequent loan collateral types are
insurance companies and guarantors.
The reduction of NPLs on the Group level
remained a key focus in 2018. Precisely
set targets in the Group’s NPL Strategy,
an active workout and macroeconomic
recovery supported a further substantial
reduction in the volume of the non-
performing portfolio despite falling loan
NLB Group Annual Report 2018
In addition, the Group was also diligently
managing other non-financial risks as a
part of the ICAAP process, referring to
the Group’s business model or arising
from other external circumstances. The
uniform stress testing framework, which
includes internally-developed models, stress
scenarios, and sensitivity analysis, was
additionally enhanced in connection with
relevant expected macroeconomic factors
and IFRS 9 principles. Such a stress testing
framework is the subject of regular internal
validations and back testing procedures.
100
When considering market risks, the Group
pursues a low risk appetite for market risk
in the trading book. Exposure towards
trading (according to the CRR) is allowed
only in the Bank as the main entity of
the Group, and is very limited. Market
risks predominately arise from the core
business activities, with an aim to support
the banking book and the liquidity reserves
portfolio activities. Moreover, the Bank
maintains a small trading portfolio, mainly
for monitoring market signals in the global
markets. As such, it does not represent a
material risk to the Group’s operations and
its tolerance for interest rate and credit
spread risk is very low.
The Group operates its main business
activities in euros, while in the case of the
subsidiary banks, beside their domestic
currencies, they also operate in euros, which
is the reporting currency of the Group.
The Group’s net open FX position from
transactional risk is low and amounts to less
than 2% of capital. Regarding structural
FX positions on a consolidated level, assets
and liabilities held in foreign operations are
translated into euro currency at the closing
FX rate on the balance sheet date. FX
differences of non-euro assets and liabilities
are recognised in the other comprehensive
income, and therefore affect shareholder’s
equity and CET 1 capital. Group ALM
employs different strategies to manage
foreign currency exposure.
The Group’s exposure to interest rate
risk is moderate and arises mainly from
banking book positions. In the last three
years the Group recorded the growth of
fixed interest rate loans and the long-term
banking book securities on the assets side
and transformation of deposits from term
to sight as a consequence of the low interest
rate environment and excessive liquidity.
The Group manages interest rate positions
and stabilises its interest rate margin
primarily with the pricing policy and fund
transfer pricing policy. An important part
of the interest rate risk management is
presented by the banking book securities
portfolio, whose purpose is to maintain
adequate liquidity reserves, and at the same
time it also contributes to the stability of the
interest rate margin. In addition, for interest
rate risk management the Group also uses
plain vanilla derivative financial instruments
such as interest rate swaps, overnight index
swaps, cross currency swaps, and forward
rate agreements.
The net interest income sensitivity of the
Group would amount to EUR 13.1 million
in the case of a market interest rate increase
by 50 bps, while in the case of a decrease
exposure would be lower due to zero floor
clauses included in the loan contracts. From
an economic perspective basis point value
(BPV) sensitivity of 200 bps equals 7.0%
of the Group’s capital.
In the area of operational risk
management, where the Group has
established a robust culture, the main
qualitative activities refer to the reporting
of loss events and identification, assessment
and the management of operational
risks. On this basis constant improvement
of control activities, processes, and/
or organisation is performed. In 2018,
additional efforts were made with regard
to proactive mitigation, prevention, and
minimisation of potential damage in the
future. Special attention was dedicated
to the stress-testing system, based on a
scenario analysis referring to the potential
high severity, low frequency events and
modelling data on loss events. Furthermore,
key risk indicators, servicing as an early
warning system for the broader field of
operational risks (such as HR, processes,
systems, and external conditions), were
additionally enhanced. Their upgrade
facilitates more detailed information for the
more effective planning of measures and
operational risk management, improves
the existing internal controls, and enables
reacting on time when necessary.
NLB Group Annual Report 2018 101
NLB Group Annual Report 2018 102
Chapter 15
Corporate Governance
The corporate governance of the Bank is
The General Meeting of Shareholders
based on applicable legislation of the RoS,
particularly the provisions of the ZGD-1
and the ZBan-2, the Decision on Internal
Governance, the Management Body and
the Adequate Internal Capital Assessment
Procedure for Banks and Savings Banks,
and the relevant EBA Guidelines on
internal governance, EBA Guidelines
on the assessment of the suitability of
members of the management body
and key function holders, as well
as EBA Guidelines on remuneration
practices. 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.
According to Articles of Association, 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
(General Meeting) is a body of the Bank
through which shareholders exercise
their rights, which include among
others: decisions on corporate changes
(amendments of the Articles of Association,
increase or decrease of share capital) and
legal restructuring (mergers, acquisitions),
adoption of decisions on all statutory
issues with respect to appointing and
discharging members of the Supervisory
Board and appointment of an auditor,
distribution decisions (appropriation of
distributable profit), and granting of
discharge from liability to the Management
and Supervisory Board. Competences of
the Bank’s General Meeting are stipulated
in the ZGD-1, ZBan-2, and the Articles of
Association.
Shareholders exercise their rights related to
the Bank’s affairs at the General Meeting
of the Bank. The rights of the RoS, as the
sole shareholder of the Bank, were until
14 November 2018 represented by the
SSH. The first phase of privatisation of the
Bank was thus concluded on 14 November
2018. On 31 December 2018 the RoS held
35% of shares of NLB, 55.36% of shares
in the form of GDR was placed with the
depositary (The Bank of New York Mellon).
During 2018 the General Meeting of the
Bank met three times, namely:
On 9 April 2018, the 30th regular
Shareholders’ Meeting was held. The
General Meeting adopted a decision in
which it mandated the Bank’s Management
Board to take certain measures regarding
the issue of transferred foreign currency
deposits of Croatian depositors.
On 27 June 2018, the 31st regular
Shareholders’ Meeting was held. The
General Meeting took note of the
2017 Annual Report, decided on the
appropriation of distributable profit
for 2017, and gave a discharge to the
Management Board and Supervisory Board
of the Bank for the business year 2017.
The profit for appropriation of the Bank as
at 31 December 2017 amounted to EUR
270.6 million, and included a net profit of
the business year 2017 in the amount of
EUR 189.1 million and retained earnings
of previous years in the amount of EUR
81.5 million. The General Meeting decided
to keep the entire profit for appropriation
in the amount of EUR 270.6 million
undistributed as retained profit.
The General Meeting also took note of the
2017 Internal Audit report and appointed
Ernst & Young d.o.o., Ljubljana, as the
auditor of the Bank for business years 2018,
2019, 2020, 2021, and 2022.
On 12 October 2018, the 32nd regular
Shareholders’ Meeting was held. Following
prior consent from the ECB, the General
Meeting adopted a resolution for
appropriation of distributable profit of the
Bank in the amount of EUR 270.6 million
(consisting of EUR 189.1 million of profit
for the financial year 2017 and EUR 81.5
million of retained earnings from previous
years) to its shareholders in a dividend,
which is EUR 13.53 gross per share, and
to keep the remainder of EUR 26,683.47
undistributed as retained profit.
NLB Group Annual Report 2018 The Group is governed:
• In accordance with fundamental
corporate rules through various bodies of
the Group members:
- by voting at general meetings of the
Group members
- with proposals for appointing the
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).
103
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
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
fully introduced with the main goal
of supporting and steering the Group
members, as well as being a strong link
between Group members and the Bank.
They also facilitate best practice sharing
on different levels. At the end of 2018
one country manager covered Serbia
and Montenegro, another both entities
in BiH, and the third one in Macedonia
and Kosovo. Stream coordinators were
introduced at the end of 2018 to address
the facilitation of more in-depth knowledge
of business lines and greater integration
between streams and the Group members,
the increasing transmission of current
information, needs and other requirements
from the Group members, and exploitation
of synergies at the Group level and
coordination of regional projects.
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.
Additionally, the General Meeting adopted
amendments to Article 20 of Articles of
Association, regulating the appointment
and membership of the Bank’s Supervisory
Board in accordance with the EC
decision binding the RoS to appoint only
independent experts to the Supervisory
Board of the Bank.
General information with respect to the
convocation of a session of the General
Meeting, participation in the General
Meeting, and on the method of decision-
making at the General Meeting, 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
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.
NLB Group Annual Report 2018 Further information about the work and
powers of the Supervisory Board is set
out in the section “Corporate Governance
Statement of NLB”.
104
Supervisory Board
The Supervisory Board performed
supervision of the management of the
Bank and its duty of diligent and prudent
conduct in line with powers defined in
ZGD-1 and supplemented by provisions of
the Article 48 of ZBan-2, other regulations,
and internal rules of the Bank (the Articles
of Association and Rules of Procedures of
the Supervisory Board of the Bank).
In accordance with Articles of Association,
the Supervisory Board consists of nine
members appointed at the General
Meeting. The last time the composition of
the Supervisory Board changed was on 8
September 2017, when three new members
of the Supervisory Board were elected at
the General Meeting. From the mentioned
date and throughout 2018 the Supervisory
Board was 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. On 30 November 2018,
the Supervisory Board took note of the
resignation of its members Simona Kozjek
and Vida Šeme Hočevar. Members of
the Supervisory Board submitted their
resignation statements with a three-month
notice in accordance with the Articles
of Association, which follows the EC
commitments on independence of all
members of the Supervisory Board (in the
field of corporate governance) that the
RoS submitted to the EC in 2018. After
the expiration of the notice period, the
Supervisory Board will continue to work
with full powers.
In accordance with the two-tier governance
system and the authorisations for
supervising the Management Board, the
Banks’ Supervisory Board issues approvals
to the Management Board related to
the Banks’ business policy and financial
plan, approves the strategy of the Bank
and the Group, the internal control
system organisation, the Annual Plan of
the Internal Audit, and to all financial
transactions. The Supervisory Board acts
in accordance with the highest ethical
standards of management, considering the
prevention of conflicts of interest.
In 2018, the Supervisory Board met at
seven regular and four correspondence
sessions. In addition to approvals mentioned
above the Supervisory Board took the
following decisions:
• Approved the materials for the Bank’s
General Meeting; Information on
resignation of two members of the
Supervisory Board; Proposal for the
General Meeting on selection of the
external auditor of the annual financial
statements for NLB and the NLB Group
• Approved the NLB Group Annual
Report for 2017 and the NLB Group
Corporate Social Responsibility Report
for 2017
• Approved key decisions on risk
management (ICAAP, ILAAP, Recovery
Plan, risk strategy, risk appetite, NPLs
wind-down strategy, etc)
• Approved the Annual Plan of the
Internal Audit and Compliance
• Acknowleged regular quarterly reports
of the Audit, Compliance and Risk
Function, etc.
• Acknowledged regular quarterly reports
on State Aid – Status Reports; Reports
on risks relating to the unfinished
procedures before the EC regarding the
State aid
• Acknowledged regular reports on
documents received from the regulator(s)
• Acknowledged/Approved decisions
on large exposures, sale of receivables,
write-offs of claims and divestment of the
Group companies.
NLB Group Annual Report 2018 105
Primož Karpe, MSc
Other important positions
• Deputy CEO, CFO PC Erste Bank, Kiev,
Chairman of the Supervisory Board
and achievements:
Ukraine (2010-2013)
Term of office: 2016-2020
Education:
• Obtained a master’s degree from San
Diego State University (Master of
Science - Business Administration)
• Graduated from the Faculty of
Economics in Ljubljana (majoring in
Finance)
Career:
• 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 (primarily health
care – at both the primary and secondary
levels, 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)
• His specialties are the preparation,
• Senior Associate in Lazard, Frankfurt/
assessment, negotiating, and structuring
of complex equity and debt transactions,
and restructuring/business management
Paris/London (1993-1998)
Other important functions
and achievements:
• Director of Angler Ltd. Zagreb, Croatia
Membership in NLB Supervisory
(since 2015)
Board committees:
• Member of Supervisory Board of Kyrgyz
• Partner (passive - investor) at Blue Sea
Capital SCSp, Luxembourg (2011 - to
date)
• Nomination Committee (Chairman)
• Audit Committee (Member)
• Partner (active - operational manager)
• Remuneration Committee (Member)
at Blue Sea Capital SCSp, Luxemburg/
Zagreb (2011-2015)
• Co-founder and the leading partner in
Membership in management bodies
of related or unrelated companies:
Investment and Credit Bank (since
December 2016)
• Member of Supervisory Board of Credit
Bank of Moscow (since November 2016)
• Member of the Board of Directors
of Komercialna banka Beograd a.d.
(November 2014 - November 2018)
company Vafer Ltd. (2008-2010)
• Angler d.o.o. - Director
• Member of Supervisory Boards of Banks
in CEE and Russia (2005-2013)
Membership in NLB Supervisory
Board committees:
• Managing Director of company
Publikum Korpfin d.o.o. (2007-2008)
Andreas Klingen
Deputy Chair of the
Supervisory Board
• Head of the business development
(M&A) department at Telekom Slovenija
d.d. (2006-2007)
• Assistant to the CEO of Mobitel d.d.
(2002-2006)
• COO at Eon d.o.o. (2000-2002)
Term of office: 2015-2019
• Nomination Committee (Deputy
Education:
• Master of Business Administration,
Rotterdam School of Management,
Rotterdam, The Netherlands
• Master of Science in Physics, Technical
Chairman)
• Risk Committee (Chairman)
Membership in management bodies
of related or unrelated companies:
• FX trader/head of the assets and
University, Berlin, Germany
• none
liabilities management department at
SKB banka d.d. (1996-2000)
Career:
• Independent Banking consultant,
entrepreneur, Berlin, Germany (since
2014)
NLB Group Annual Report 2018 106
Alexander Bayr, Mag
Membership in the NLB Supervisory
• Joint Branch Manager, Byblos Bank Sal,
Member of the Supervisory Board
Board Committees:
London (1986-1988)
Term of office: 2016-2020
Education:
• Faculty of Economics in Innsbruck
(1985)
Career:
• 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)
Other important functions
and achievements:
• CEO, BAWAG banka d.d., Ljubljana
David Eric Simon
(2009-2012)
Member of the Supervisory Board
Term of office: 2016-2020
• Primary expertise in credit, restructuring,
and NPL
• Real Estate Projects, BAWAGPSK,
Vienna (2008-2012)
Education:
• Management Board Member, Istrobanka
• IFS School of Finance (1974)
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,
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)
• Advisor (1994-2012), Head of
Restructuring (2004-2007), Head of
Central Europe Bad Debts Unit (2007
onwards) and Senior Restructuring
Officer (2007-2012), Ceskoslovenska
Obchodni Banka a.s.
representative
• Central Europe Industry Partners a.s.,
sole member of the Supervisory Board
László Urbán, Ph.D.
Member of the Supervisory Board
Other important functions
and achievements:
cooperating with USAID and EBRD
(1992-1994)
Education:
• Independent Banking Consultant,
Term of office: 2016-2020
• 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)
• Completed Advanced Management
Program, Harvard Business School,
Cambridge, MA (2000)
• Doctorate at Budapest University of
Economics, Hungary (1985)
NLB Group Annual Report 2018
107
• 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 (2012-2017)
Vida Šeme Hočevar, Ph.D.
Member of the Supervisory Board
• Member of the Supervisory Board at
Term of office: 2017-2021
EBRD (2010-2011)
• Counsellor to the Government, 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)
• CFO and Member of the Board of
Directors at OTP Bank (2007-2009)
(note of resignation with a three-month
notice submitted on 30 November 2018
expired on 28 February 2019)
• Senior Adviser - Ministry of Finance,
Ljubljana - International Relations
Department (1993-1995)
• Director, General Secretariat at National
Education:
Bank of Hungary (2005-2006)
• Acting Head of the Cabinet - Ministry of
Finance, Ljubljana (1992-1993)
• Vice President, Business Planning
Director at Citigroup, New York
(2000-2005)
• Deputy CEO and member of the Board
of Directors at Postabank, Hungary
(1998-2000)
• Doctor of Juridical Science - Faculty of
Law, University of Maribor (2006)
• Lawyer - Entrepreneurship Innovation
• Master of Laws - Faculty of Law,
University of Ljubljana (1996)
• Bachelor of Laws - Faculty of Law,
Centre, Ljubljana (1991-1992)
Other important positions
and achievements:
University of Ljubljana (1991)
• member of the Slovenian Insurance
• Director of Planning and Chief
Career:
Agency, Key Functions Committee (since
2017)
Economist at ABN-AMRO Bank,
Hungary (1996-1998)
Other important functions
and achievements:
• Member of the Board - Skupna
• work and cooperation with IMF, WB,
pokojninska družba d.d., Ljubljana (since
December 2018)
OECD, FATF, EBRD, EIB, ECB, UNO
• member of the EGMONT Group
• Authorised Officer of the Board - Skupna
(1997-2006)
• Visiting Fellow, Economist at The World
Bank, Washington DC (1995-1996)
pokojninska družba d.d., Ljubljana
(2017-2018)
• member and evaluator of the CoE
MONEYVAL Committee (1997-2006)
• Member of Parliament, Hungary
• Secretary General/Executive Director -
(1993-1994)
BoS, Ljubljana (2006-2017)
• in 1994 attended Postgraduate Trimester
• Associate Professor at Eotvos University
of Budapest (1985-1992)
Membership in the NLB Supervisory
Board committees:
• Risk Committee (Deputy Chairman)
• Remuneration Committee (Member)
• Undersecretary, Member of the
Management - Office for Money
Laundering Prevention, Ministry of
Finance, Ljubljana (2004-2006)
• A13 - TA Officer, Consulting Counsel -
IMF, Washington D.C., US (2003-2004)
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)
NLB Group Annual Report 2018
108
Membership in the NLB Supervisory
Other important positions
Board committees:
and achievements:
• Bachelor of Economics, Finance -
Faculty of Economics, University of
Ljubljana (1996)
• Remuneration Committee (Chairwoman)
• In 2014 became Certified Business
• Nomination Committee (Member)
Appraiser at the Slovenian Institute of
Auditors
Career:
• Audit Committee (Member)
• President of Supervisory Board of
svetovanje d.o.o., Ljubljana (since 2017)
• Owner and Director - NorthGrant,
Membership in management bodies of
• Member of the Management Board -
related or unrelated companies:
• Member of Supervisory Board of
Gorenje d.d. (2012-2017)
Avrigo, d.o.o. (2009-2012)
• As above (Management Board member
in Skupna pokojninska družba d.d.,
Ljubljana)
Simona Kozjek, MSc
Triglav naložbe, finančna družba d.d.
(2009-2013)
• Owner and Director - NorthGrant,
svetovanje d.o.o., Ljubljana (2010-2012)
• Member of Supervisory Board of Triglav
Skladi, družba za upravljanje, d.o.o.
(2013-2017)
• President of the Management Board
- KD Skladi d.o.o., Ljubljana (2009-2010)
Member of the Supervisory Board
• Member of Supervisory Board of Nama
• Director of Investment Department -
Term of office: 2017-2021
d.d. (2014-2017)
KD, NPD by 2008, KD Skladi and KD
Holding from 2008 to 2009 (2005-2009)
(note of resignation with a three-month
notice submitted on 30 November 2018
expired on 28 February 2019)
Membership in the NLB Supervisory Board
committees:
Membership in the NLB Supervisory
Board committees:
Education:
Chairwoman)
• Nomination Committee (Member)
• Remuneration Committee (Deputy
• Master of Science - Faculty of
• Risk Committee (Member)
• Risk Committee (Member)
Economics, University of Ljubljana
(2007)
Membership in management bodies
Membership in management bodies of
of related or unrelated companies
related or unrelated companies:
• Graduated from the Faculty of
in the past:
Economics, University of Ljubljana
(1999)
Career:
• none
• Member of Supervisory Board of Hit,
d.d. (since December 2018)
Peter Groznik, Ph.D.
• President of the Management Board -
Member of the Supervisory Board
Nama d. d. (2017 to date)
Term of office: 2017-2021
• Director of Middle Office -
Education:
Zavarovalnica Triglav d. d. (2013-2017)
• Analyst and Asset Manager -
Zavarovalnica Triglav d. d. (2000 -2013)
• Doctor of Science - Kelley School
of Business, Indiana University
Bloomington, US (2003)
• Master of Business Sciences - Kelley
School of Business, Indiana University
Bloomington, US (2001)
NLB Group Annual Report 2018
109
Committees of the Bank’s
Supervisory Board
The Supervisory Board appoints
committees that prepare proposals for
resolutions passed by the Supervisory
Board, ensures their implementation, and
performs other expert tasks. At the end of
2017 the Bank’s Supervisory Board had
four operational committees.
The Audit Committee
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.
Throughout 2018 the composition of the
committee was as follows: David E. Simon
(Chairman), Alexander Bayr (Deputy
Chairman), Primož Karpe, and Vida
Šeme Hočevar (members). There were five
regular sessions and two correspondence
sessions of the Audit Committee. The
following is a summary of key topics
considered by the Audit Committee:
• Annual plan of the Internal Audit and
Compliance
• Regular quarterly reports on the
operations of the Group, Internal
Audit’s report, report on the work of the
Compliance and Integrity for 2018
• Report on the documents received from
BoS and ECB and the report on the
implementation of the requirements of
the BoS and ECB
• Approval of the Annual Report of the
NLB Group, and Corporate Social
Responsibility Report for 2017
• Information about the effects of the
transition to IFRS 9
• Cooperating with the external auditor
in auditing the Group’s annual report,
in particular by means of exchanging
briefings on major audit-related issues
• Risk Appetite Statement, defining the
aggregate level and types of risk the
Group is willing to accept or avoid to
achieve its business objectives.
The Risk Committee
• Risk Strategy, determining the
The Risk Committee monitors and drafts
resolutions for the Supervisory Board
in all risk areas relevant to the Group’s
operations. It addresses the current and
future overall risk appetite and the risk
management strategy, namely to support
monitoring the implementation of the
Group’s strategy. Their ongoing monitoring
and discussion enables an appropriate
balancing between excepted level of
assumed risks and the Bank performance
targets. The duties of Committee include
also the review and where required given
recommendations on the Group’s risk
governance and related risk culture, the
internal control framework referring to risk
management and compliance, including
changes in the regulatory framework.
Throughout 2018 the composition of
the committee was 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 2018.
The Risk Committee reviews and
gives recommendations to the senior
management regarding implementation
of the risk appetite statement, the risk
management strategy and the related risk
profile of the Group, focusing on credit,
operational, liquidity, interest rate risk and
other relevant risks. In this respect regular
quarterly risk reports of the Group are
provided to the Committee, including
review of the mitigation measures when
needed to apply.
Moreover, the following key topics were
considered, discussed and approved by the
Risk Committee:
substantive risk principles for the relevant
risk types, related segments or types of
operations of the Group.
• ICAAP and ILAAP, in accordance with
new ECB Guide, enabling to maintain
adequate capitalisation, sufficient
liquidity position, active and efficient risk
management on on-going basis, even
under potential stressed circumstances.
• Recovery Plan where the Group
comprehensively assess the ability to
restore its financial viability under several
possible severe scenarios, by defining
the indicators, the procedures and the
measures which ensure that management
realises threats to the financial stability in
a timely manner.
• NLB Group Non-performing Exposure
and Confiscated Assets Management
Strategy for the 2018–2022 period,
with precisely set mid-term objectives
according to different segments and
anticipated results of single measures,
to further support NPL reduction.
Moreover, in relation to NPL Strategy
measures and write-offs to certain clients
were discussed and approved by the
Committee.
• Pillar III disclosures where risk
governance and internal control
framework of the Group are disclosed in
accordance with EBA Guidelines.
• Regular review of the Group’s largest
and most important group of clients,
monitoring whether conditions in the
clients business are in line with the bank’s
business model, risk principles and
targeted risk profile.
NLB Group Annual Report 2018 110
• Proposal for the issuance of prior
consent of the Supervisory Board in
accordance with the first paragraph of
article 164 of ZBan-2 to the conclusion
of legal transaction or transactions upon
occurrence of which the total exposure,
including indirect credit exposure, of up
to 10% of Bank’s capital.
The Risk Committee supported the
Compensation Committee in assessing
whether the compensation systems are
aligned to the Group’s business strategy
focused on the institution’s sustainable
development.
The Nomination Committee
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.
Throughout 2018 the composition of the
committee was as follows: Primož Karpe
(Chairman), Andreas Klingen (Deputy
Chairman), Alexander Bayr, Vida Šeme
Hočevar, and Peter Groznik (members).
There were four sessions of the Nomination
committee in 2018.
The following is a summary of key topics
considered by the Nomination Committee:
• Assessment of collective suitability of
members of the Supervisory Board
• Aspects of independence of Supervisory
Board members in line with new EC
commitments
• Information about the resignation of the
members of the Supervisory Board of
NLB.
The Remuneration Committee
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.
Throughout 2018 the composition of
the committee was as follows: Vida Šeme
Hočevar (Chairwoman), Simona Kozjek
(Deputy Chairwoman), Primož Karpe, and
László Urbán (members). There were three
sessions of the Remuneration Committee
in 2018.
The following is a summary of key
topics considered by the Remuneration
Committee:
• Amendments to the Policy of
Remuneration for the Employees
Performing Special Work
• Realisation of the goals of Management
Board of NLB for 2017 and goals of
Management Board of NLB for 2018.
NLB Group Annual Report 2018 111
In 2018, the Management Board, with
the support of the Bank’s internal project
team and external legal advisors, actively
worked to complete the first phase of the
sales process of the Bank, run under the
leadership of SSH. On 26 October 2018,
the SSH and NLB published a prospectus
for offering of the shares and GDRs to the
public in the RoS, and admission to trading
on the Ljubljana and on the London stock
exchanges. In October and November
the NLB Management Board, the
representatives of SSH, and the syndicates
of banks held a significant number of
meetings with the potential investors. On
14 November 2018, NLB’s ordinary shares
were admitted to trading on the Prime
Market sub-segment of the Ljubljana
Stock Exchange. At the same time, GDRs
representing NLB’s ordinary shares were
admitted to listing on the London Stock
Exchange. This completed the first phase
of privatisation of NLB and fulfilled the
commitment by the EC as amended in
August 2018 in that respect.
Through the year, the Management
Board devoted considerable efforts
to digitalisation, streamlining and
modernisation of processes and services of
the Bank and thus enabled that the entire
Group gave to technological development
and digitalisation new opportunities for
future growth.
Further information about the work and
powers of the Management Board is set
out in the section “Corporate Governance
Statement of NLB”.
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 2018, the Management Board of the
Bank consisted of Blaž Brodnjak, member
since 1 December 2012, Deputy President
since 5 February 2016, and president/CEO
since 6 July 2016; and members Archibald
Kremser, acting as CFO since 31 July
2013; Andreas Burkhardt acting as CRO
since 18 September 2013; and László Pelle
acting as 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 Annual Report 2018 112
Blaž Brodnjak
President & CEO
Term of office: 2016-2021
Education:
Other important functions
Membership in management
• MBA, IEDC Bled School of
Management (2009)
• Faculty of Economics, University of
Ljubljana (1998)
Career:
and achievements:
• Was a chairman or member of the
supervisory boards of 11 banking, three
insurance, and one production company
Direct responsibility:
or supervisory bodies of related
or unrelated companies:
• Chairman of the Supervisory Board:
NLB Banka, Sarajevo
NLB Banka, Banja Luka
NLB Banka, Skopje
• Strategy and Business Development
• Member of the Supervisory Board:
• President, CEO, and CMO of NLB
(July 2016-), Deputy President of the
Management Board (2016), Member of
the Management Board (2012-2016) in
NLB
• Legal and Secretariat
• Communication
• Head of Group Corporate and Public
Finance Division in the Hypo Alpe Adria
Group in Klagenfurt (2010-2012)
• Group Steering
• HR and Organisation Development
NLB Vita, Ljubljana
• President of the Supervisory Board:
Association of Banks in Slovenia
• Retail and Private Banking and
Corporate Banking
• Proxy of the Management Board of
Zavarovalnica Triglav (2009-2010)
• Member of the Management Board of
Bawag banka (2005-2009)
• Head of Corporate Banking at Raiffeisen
Krekova banka (2004-2005)
NLB Group Annual Report 2018 113
Andreas Burkhardt
Member of the Management Board
Term of office: 2016-2021
Education:
Other important functions
Membership in management
and achievements:
or supervisory bodies of related
or unrelated companies:
• 17 years of experience in the area of
banking, especially in the area of Central
Europe
• Chairman of the Board of Directors:
NLB Banka, Prishtina
Direct responsibility:
• Member of the Supervisory Board:
NLB Banka, Sarajevo
NLB Banka, Banja Luka
• Internal Audit
• Compliance and Integrity
• Risk (CRO)
• Workout
• Restructuring
• MBA, University of Dayton (1999)
• University of Augsburg, School of
Business Administration and Economics,
graduation (“Diplom-Kaufmann”) (1998)
Career:
• CRO of NLB (2013-)
• Head of risk management at Volksbank
in Hungary, involved in the upgrade and
rationalisation of collection and company
restructuring procedures (until January
2013)
• Member of the Management Board
of Volksbank, Romania, in charge of
finance, restructuring, and collection
(2010-2011)
• Member of the Management Board of
Volksbank BiH 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
NLB Group Annual Report 2018 114
Archibald Kremser
Member of the Management Board
Term of office: 2016-2021
Education:
- Leading efforts to reposition
Direct responsibility:
• Financial Accounting
• Controlling
• Financial Markets
• Investment Banking and Custody
• Group Real Estate Asset Management
Membership in management
or supervisory bodies of related
or unrelated companies:
• Chairman of the Board of Directors:
NLB Banka, Belgrade
NLB Banka, Podgorica
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 CEE
Other important functions
and achievements:
• More than 19 years of experience in the
financial services industry in Austria,
CEE, and SEE focusing on finance
and asset management, strategy, and
corporate development, as well as
performance improvement assignments
• MBA (INSEAD, France), specialising in
bank management and corporate finance
(2004)
• MSc Engineering, University of
Technology in Vienna (1997)
Career:
• CFO of NLB (2013-)
• Eight years in various senior
management functions/directorships
within Dexia/Kommunalkredit Group
(previously owned by Dexia SA and
Volksbanken Austria AG)
- Supervised the establishment and
operation of subsidiaries of Dexia
Kommunalkredit Bank in CEE 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)
NLB Group Annual Report 2018 115
László Pelle
Member of the Management Board
Term of office: 2016-2021
Education and training:
• Operations and Technology Director,
Other important functions
• 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 CEE. 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)
Consumer Bank, responsible for
operations and technology. Set-up of
the initial banking infrastructure for
credit cards and consumer banking in
Citibank Handlowy Warszawie, Poland
(1997-2002)
• Regional Business Planning and Analysis
Manager for Card Products, heading
the business planning and analysis
function (Pacific & CEEMEA countries)
in Citibank N.A. Asia Pacific CEEMEA
Regional Office, Singapore (1996-1997)
• Card Operations Manager, Systems
Development and Application Support,
start-up the retail bank and card product
platforms (Diners Club) in Citibank
Budapest Rt, Global Consumer Bank,
Hungary (1994-1996)
• 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)
and achievements:
• 24 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
Membership in management
or supervisory bodies of related
or unrelated companies:
• Chairman of the Supervisory Board:
Bankart d.o.o., Ljubljana
NLB Group Annual Report 2018 116
Further information about the work and
powers of the Management Board is set
out in the section “Corporate Governance
Statement”.
Collective decision-making bodies
Different committees, commissions, boards,
and working bodies may be appointed by
the Management Board of the Bank for
execution of individual tasks within powers
of the Management Board of the Bank.
The Corporate Credit Committee
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).
The Corporate Credit Subcommittee
The Corporate Credit Subcommittee
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 Subcommittee adopts
decisions in the scope of the Bank’s
investment policy and business plan,
as well as statutory powers.
The Subcommittee meetings are convened
once a week. The Subcommittee has
four members. The Chairman of
the Committee is the member of the
Management Board responsible for the
area of risk (CRO). The mentioned
Subcommittee was abolished from 1 March
2019.
The NLB Group Assets and
Liabilities Committee
NLB Group Assets and 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
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 Change the Bank Committee
The Change the Bank Committee 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 Development Council
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 responsible for the area
of operations (COO).
The Sales Board
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).
The NLB Operational Risk Committee
The 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 Group Annual Report 2018 117
The NLB Retail Credit Committee
The 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
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).
The Risk Committee
The Risk Committee monitors and
periodically reviews matters related to
risk and commercial risk, and prepares
materials for the Management Board
to make 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 Annual Report 2018
118
Chapter 16
Compliance
and Integrity
The Bank constantly builds, strengthens,
and supports the culture of business
compliance and due diligence within the
Bank and the Group. The Group addresses
the challenges of high regulation and
strict regulatory requirements with
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 its daily business. The
Group is continuously strengthening
the compliance function and diligence
of its operations. Compliance policies
within the Group are based on the
framework of internationally recognised
system in place on the level of the Bank
and its entire Group for managing and
publicly disclosing inside information in a
manner that enables it to comply with the
obligations related to inside information
identification and disclosure in accordance
with the rules and regulations applicable at
any time.
Due to the listing of Bank’s financial
instruments on the London and Ljubljana
Stock Exchanges, Compliance and
Integrity has strengthened the market abuse
prevention regime in accordance with
MAR. Rules and procedures of the Bank
were changed to ensure that good practices
are in place. Inter alia, a groupwide insiders
list was created together with the process of
timely updates.
standards of compliance management.
Other changes due to listing of
A key element of the Group’s long-
shares and GDRs on Ljubljana
term success is to follow reasonably set
and London Stock Exchange
rules and values. Compliance in NLB is
integrated into the day-to day business
of the Bank to support its operations,
to contribute to its strong internal
control environment, and to ensure
that compliance risks are mitigated.
Regime on inside information (MAR)
In line with the Financial Instruments
Market Act (ZTFI-1), MAR, and other
relevant regulations, the Bank has a
Certain additional requirements are arising
as a result of the fact that the Bank’s shares
are listed on the Prime Market of the
Ljubljana Stock Exchange, such as financial
reporting in accordance with IFRS,
publication of information in English,
publication of quarterly statements,
publication of a statement of compliance
with the Slovenian Corporate Governance
Code for Public Companies and publication
of a financial calendar. These rules were
already observed beforehand. The fact
that the GDRs are admitted to listing on
the Official List of the FCA to trading on
the Main Market for listed securities of
the London Stock Exchange gives rise to
the application of provisions of the FCA’s
Listing Rules (LR) and Disclosure Guidance
and Transparency Rules (DTR) relating
to the method of publication of regulated
information which apply to issuers of
securities listed in the UK regardless of
their home member state.
Related to the rules on transparency, the
requirements in relation to the disclosure
of periodic and ongoing information about
issuers whose securities are admitted to
trading on a regulated market situated
or operating within the EU (i.e. Public
Companies) are set out in the Directive
2004/109/EC (the Transparency Directive)
and the national legislation implementing
the Transparency Directive. The Bank is
required to observe primarily provisions of
Slovenian law relating to the disclosure of
periodic and ongoing information by the
Bank, as well as those transparency rules
in the UK that apply to the GDRs that are
listed on the London Stock Exchange.
Managing regulatory compliance risks
The Bank faced complex processes
of adaptation to the new regulatory
environment and complex requirements
in the field of personal data protection
(GDPR), payment services (PSD2), the
market of financial instruments (MiFID
II, MiFIR), and new listing requirements,
following the listing of the Bank’s
financial instruments on the London
and Ljubljana Stock Exchanges. All the
aforementioned regulatory changes needed
to be implemented in the bank’s business
operations, as well as internal processes,
and the compliance function supported and
coordinated these processes to ensure timely
implementation.
Within the Group the constantly changing
regulatory environment required several
NLB Group Annual Report 2018 119
118
more than 100 regulatory changes
relevant for the Bank were identified
and monitored in 2018. Moreover,
61 of them are directly applicable
and required immediate regulatory
compliance implementation
1,959.5
more than 1,900 hours were
dedicated to advising on
compliance issues by the
Compliance and Integrity in NLB
24
more than 20 different types
of trainings for various focus
groups were organised in 2018
on different compliance and
integrity topics in the Bank
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 Group core
members also provide quarterly reports to
the Compliance and Integrity of the Bank,
as well as to their Boards. Managers and
other employees were also informed in a
timely manner about issues of regulatory
compliance via regular monthly compliance
and integrity e-newsletters which also
include relevant information for raising
awareness about ethics and integrity.
Preventing Money Laundering
and Terrorism Financing
The Bank complies with national regulations
on Anti-Money Laundering and Counter-
Terrorism Financing (AML/CTF), including
the Guidelines of the BoS. The RoS is a
member of EU, and thus is subject to the
standards of the Financial Action Task Force
(FATF) and the European legislation based
on them. For the Group it is of paramount
importance to effectively mitigate the
risk of money laundering and terrorism
financing. This is why rules, procedures,
and technology in the area of AML/
CTF are the subject of strict and unified
policies/standards. The same approach
is applied for sanctions and embargo
screening. Headquarters are exercising
constant onsite and off-site monitoring of the
implementation and execution of standards
throughout the Group.
The Bank has observed an increased
number of clients with AML/CTF
indicators. Pursuant to AML/CTF
legislation, all of them were duly reported
to competent national authority and
business relationships were terminated
where criteria was met. The Bank has
adopted additional measures to prevent the
onboarding of clients with new types of
AML/CTF indicators. In 2018 the Bank
added additional FTEs to AML/CTF
team.
Information security and
personal data protection
The information security area inter alia
focused on upgrading the Bank’s Security
Operations Centre to the level of the Group
member banks, to ensure group-wide
activities are operationally in place 24/7,
through close cooperation of IT experts
within the Group. Furthermore, in line
with the plan, several internal assessments/
compliance checks were made on the basis
of ISO 27001, including related to external
providers (i.e. personal data processors and
external software providers). This year, the
testing of awareness was also conducted
related to social engineering, as part of
prevention measures in this area.
Further, to ensure timely compliance
with the GDPR and further evolution
of the personal data protection area,
the Bank ran several implementation
activities to ensure that its business and
personal data protection system in place
are aligned with the GDPR requirements.
The alignment with GDPR was, in the
Bank’s view, an important milestone for
upgrading the protection of the rights of
individuals regarding the protection of
their personal data. In line with the GDPR;
the Bank upgraded the necessary forms
and templates, as well as procedures and
internal acts to ensure that all measures
necessary were put in place, in line with the
new requirements. Within the Group, the
Bank observed the progress made in this
area in terms of transposition of this piece
of EU legislation, and member banks are,
as in other areas, ensuring that obligations
are met at all times. If necessary, further
alignments will be made where national
legislation regulating further rules set under
the GDPR (i.e. The Slovenian Personal
Data Protection Act; ZVOP-2) will be
adopted, which is expected for the first half
of 2019.
NLB Group Annual Report 2018
The Compliance and Integrity in the Bank
addresses the following risk areas: fraud
prevention and investigation; AML/CTF;
privacy data protection and information
security; focal points for regulators (ECB,
BoS); regulatory compliance; corruption
prevention; conflict of interests, gifts
and hospitality management; fit and
proper assessment procedures (as part of
assessing reputation, financial strength,
time availability, and conflict of interests);
identification, assessment and management
of compliance, and integrity risks at the
Bank and the Group levels; oversight,
monitoring, steering, and managing
the Group compliance function and
programme (established by standards for
compliance and integrity for the Group and
implementation of monitoring by off-site
data analysis and onsite visits); and business
ethics and corporate integrity.
The Group also continued with the
implementation of the Whistler, a special
IT tool for whistleblowers, whereas the
process of internal investigations is in place
and functioning. The Bank’s staff is obliged
to take part in yearly Compliance training
and education.
Particular attention is paid to advising
employees who have dilemmas regarding
compliance issues. Compliance and
Integrity dedicated more than 1,960 hours
for advisory activities, which is again a
signifant increase compared to 1,300
advisory hours in 2017.
Group-wide ethics and integrity standards
Within the framework of the program
of ensuring business compliance, the
Group also deals with the ethics and
integrity of the organisation. Such a
program encourages employees and
other stakeholders to conduct business,
which is consistent with a strong positive
organisational culture. The values of the
Group, embedded in the Group Code of
Conduct, provide guidance and principles
of behaviour regarding ethical conduct
and require appropriate conduct from all
employees at any level of the organisation,
including contractors.
120
Prevention
A reassessment of compliance risks (so
called ECRA) was carried out at the
Group level, following the methodology
which the Bank prepared already in 2016
after conducting this process in 2017. The
assessment allows the Group to reduce
the compliance and integrity risks with
already prepared risk-mitigation measures.
As part of compliance programme,
Compliance and Integrity is also involved,
inter alia, in risk assessments regarding
new and changed products, fit and proper
assessments for key function holders, and
are assessing risks related to outsourcing
and vendors.
The Compliance function prepared several
workshops and compulsory e-education
on ethics, the prevention of corruption,
conflicts of interest, protection of personal
data, Money Laundering and Terrorist
Financing Prevention (MLTFP) and other
relevant topics related to everyday work.
For all employees, yearly e-trainings are
mandatory on subjects such as ethics,
anti-corruption, mitigation of conflict
of interests, personal data protection,
information security, and similar themes.
Special workshops and target group
trainings (also e-trainings) were organised
as part of implementation of GDPR-
related requirements. Such trainings have
also been made part of the compliance
and integrity programme standards for
the Group’s core subsidiaries. The Group
seeks to promote a corporate culture that
facilitates compliance, and by continuously
raising awareness, for example through
communication via its monthly compliance
newsletter, detailing not only important
regulatory changes, but also current
information and case studies on different
compliance and ethics topics. The Group
also devotes a great deal of emphasis to
preventing harmful conduct and incidents
in the Bank. In 2018, employees at all
levels received information and training
about the prevention of harmful conduct,
procedures, and whistleblowing channels.
NLB Group Annual Report 2018 121
Chapter 17
Internal Audit
19,122
hours spent in audits
860
hours spent on consulting
24
Internal Audit experts
49
planned and extraordinary
audits conducted
Internal Audit reviews key risks in the
Group’s 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
perform 46 audits, out of which 43 were
conducted and three were postponed due
to objective reasons. Furthermore, six
extraordinary audits were conducted. Most
of the recommendations given in 2018 were
implemented within the agreed deadlines.
internal controls, and thereby strengthens
Implementation of uniform rules
and protects the value of the Bank.
Internal Audit is the independent, objective,
and advisory control body responsible for
a systematic and professional assessment
of the effectiveness of risk management
procedures, completeness, and functionality
of internal control systems, and the
management of the Group operations
on an ongoing basis. In 2018 Internal
Audit provided impartial assurance to the
Management Board and Supervisory Board
on the management of risks in key areas i.e.
cyber security, data management, GDPR,
vault operation, cash management, IT
Governance and IT projects, provisioning,
NPL management, credit process and other.
Performed audits
Internal Audit performs its tasks and
responsibilities on its own discretion and
in compliance with the annual audit
plan as approved by the Management
Board and confirmed by the Supervisory
Board. Based on its internal methodology
and comprehensive risk analysis for
2018 Internal Audit in NLB intended to
Internal Audit increases efficiency. It focuses
on monitoring the implementation of audit
recommendations, training and education,
updating the internal audit charter and
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
• Code of Internal Auditing Principles.
NLB Group Annual Report 2018
122
Chapter 18
Human Resources
HR drive improvements and innovative
On a path toward more
practices to enable the best possible
efficient organisation
employee engagement and strong
business results. The Group sees
investments in its employees as a
key change enabler. Acting as a
strategic partner to the business, HR
has been focusing on the need for an
organisational and cultural development.
In 2018 focus was mainly on top talents,
lean processes, social learning activities,
and implementation of practices
to enhance employee efficiency.
The Group beliefs that investments
in its employees are crucial for the
successful introduction of change.
In the past few years, the Group 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. Change of
organisational culture remained the top
HR priority, and innovative practices are
constantly being implemented. The Group
also decided to form a common leadership
brand, with carefully defined leadership
behaviours needed to drive business change
in the future.
In recent years the Group undertook
efforts to gradually optimise and right-size
its staffing level aligned with the current
organisational structure. In the last five
years the Group reduced the number of
employees by 14.8% (1,026 employees,
735 in the Bank alone) and concluded
several major reorganisations. With this
comprehensive HR strategy, the Group’s
business needs were profoundly analysed
and workforce planning schemes formed.
Accordingly, competency development
plans and talent career plans were formed
throughout the Group, aiming to support
future business needs.
To continue with upgrading HR processes
and improving qualitative analytics, a
new IT tool was introduced in the Bank,
supporting crucial HR processes (core
HR data, performance management,
recruiting, learning and development, talent
management, and career development). In
the upcoming years the same IT tool will be
integrated throughout the Group.
Proud to be recognised as
an attractive employer
The Group was recognised for its HR
practises as an attractive employer from
several reputable international and local
institutes. The Bank was awarded the Top
Employer certification process already
for the 4th consecutive year, as well as
“Family-Friendly Company”, Prishtina
was locally awarded Employer of the
Year, and Sarajevo was recognised among
the Best Employers on the national level.
The Group will further develop its HR
practice based on feedback from different
certification processes and strive to reach
the best in class level.
Continuing a longstanding tradition
of investing in employees
Investments in development and training
of employees contribute to a great extent
to the organisational culture, and assists
in 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 2018 the Group
developed and used systematic employees
training programmes to encourage and
motivate employees by developing relevant
job specific skills and competencies. The
Bank’s Training Centre has been operating
for nearly 45 years.
NLB Group Annual Report 2018 123
160,180
hours of education in 2018
280
talents in developmental
programme 2018
5,887
employees in the
Group in 2018
Number of employees (as at 31 December 2018)
2,786 (NLB: 2,690, other: 96)
471
939
308
893
476
1
4
9
5,887
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, achievable, relevant, and
time-bounded.
Positive trend of organisational
climate and employee engagement
The Group regularly conducts
organisational climate and employee
engagement surveys to assess the motivation
and satisfaction levels of its employees.
The 2018 survey showed a continuation of
positive trends in all banks. To further work
on improvements, several initiatives were
identified and action plans developed to
address specific elements of engagement.
Table 26: NLB Group employees by countries
Country
Slovenia*
Serbia
BiH (Republic of Srpska, Federation of BiH)
Montenegro
Macedonia
Kosovo
Germany
Switzerland
Croatia
Total (the Group)
* without Bankart, Prvi Faktor, NLB Vita.
Intensive talent development
for future challenges
Within the Group, the talent development
programme systematically supports career
development of recognised potentials
of employees. In 2018, development
frameworks were formed to enhance
employees’ leadership and other relevant
professional skills and competences.
Educational activities were a combination
of workshops and various training
programmes covering the most up-to-date
contents.
Remuneration system as a motivation
for engaged and committed employees
For an employee working in the companies
within the Group the salary is composed
of a fixed and a variable part. The fixed
part of the salary is determined according
to the complexity of the work for which
the employee has concluded a contract of
employment, while the variable amount
depends on the employee’s performance.
Apart from monthly compensation,
the employees are awarded with
annual rewards related to the business
performance of the bank in which they
work. Performance assessment is done by
the head of the employee’s organisational
NLB Group Annual Report 2018
124
Chapter 19
Corporate Governance
Statements
NLB Group Annual Report 2018 125
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
2018, and represent the actual and fair
financial standing of the Bank and the
Group, as well as their operating results in
the year that ended 31 December 2018.
The Management Board confirms that the
business report includes a fair view of the
developments and operating results of the
Bank and the Group and their financial
standings. The report also includes 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 Annual Report 2018 126
Types of Services for which NLB Holds Authorisation
2.
3.
custodian services according to the
law governing investment funds and
management companies
credit brokerage for consumer and
other loans.
Authorisation to perform banking services
is published on the official web page of the
Bank of Slovenia
(https://www.bsi.si/en/financial-
stability/institutions-under-
supervision/banks-in-slovenia/8/
nova-ljubljanska-banka-dd-ljubljana).
In accordance with the provisions of
Article 14 of the Regulation on Books of
Accounts and Annual Reports of Banks
and Savings Banks (Official Gazette of the
RS, No. 69/17) adopted by the Bank of
Slovenia on the basis of the authorization
from Article 93 of the Banking Act
(Official Gazette of the RS, no. 25/15
and subsequent amendments, hereinafter
ZBan-2), NLB d.d. hereby lists all types of
financial services which, in accordance with
the authorization of the Bank of Slovenia,
took place during the period for which the
business report was prepared.
NLB d.d. has an authorisation to perform
banking services pursuant to Article 5 of
the Banking Act (Official Gazette of the
Republic of Slovenia, No. 25/15, with
Amendments; hereinafter: the ZBan-2).
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, namely:
1.
2.
accepting deposits and other repayable
funds from the public
granting of loans, including:
• consumer loans
• mortgage loans
• purchase of receivables with or
without recourse (factoring)
• 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.
5.
6.
•
•
•
•
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
issuing of guarantees and other
sureties
trading for own account or for the
account of clients:
in money-market instruments
in foreign legal tender, including
currency exchange transactions
in standardised futures and options
in currency and interest-rate
instruments
in transferable securities
8.
•
7. participation in securities issues and
the provision of associated services
corporate consultancy with regard to
capital structure, operational strategy
and related matters, and consultancy
and services in connection with
corporate mergers and acquisitions
9. monetary intermediation on interbank
markets
10. advice on portfolio management
11. safekeeping of securities and other
related services
12. credit rating services: collecting,
analysing and disseminating
information regarding
creditworthiness
leasing of safe deposit boxes
investment services and transactions,
and ancillary investment services
in accordance with the Financial
Instruments Market Act (ZTFI).
13.
14.
It may perform the following additional
financial services, pursuant to Article 6 of
the ZBan-2:
1. brokerage in the sale of insurance
policies pursuant to the law governing
the insurance industry
NLB Group Annual Report 2018 127
Corporate Governance Statement of NLB
Pursuant to the fifth paragraph of Article
70 of the ZGD-123 NLB hereby gives
the following Corporate Governance
Statement as a part of the Business Report
of the NLB Group Annual Report 2018.
1. STATEMENT OF COMPLIANCE WITH
THE CORPORATE GOVERNANCE CODE
Information contained in this point
represents a “Statement of Compliance
with the Corporate Governance Code” as
defined in the Ljubljana Stock Exchange
Rules (Articles 25 and 26).
1.1. REFERENCES TO THE CODES, THE
RECOMMENDATIONS AND OTHER
INTERNAL REGULATIONS ON CORPORATE
GOVERNANCE
Corporate governance of the Bank is based
on applicable legislation of the Republic of
Slovenia (further in text: RoS), particularly
the provisions of the Companies Act
(ZGD-1) and the Banking Act (ZBan-
2), Decision on Internal Governance
Arrangements, the Management Body and
the Internal Capital Adequacy Assessment
Process for Banks and Savings Banks
(Official Gazette of the RoS, nr. 81/18)
and the EBA Guidelines on Internal
Governance (EBA/GL/2017/11; 21
March 2018). Apart from binding legal
framework NLB d.d. (further in text:
NLB or the Bank) also follows corporate
governance code(s) which represent a
supplement to legal provisions and are used
as best practice recommendations at home
and abroad.
23. 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).
In 2018, NLB abided by the following
recommended standards in conduct of its
business activities, namely:
• 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
available on the website http://www.sdh.
si) – until 14 November 2018
• Recommendations and Expectations
of the SSH (adopted on March 2018,
available on the website http://www.sdh.
si) - until 14 November 2018.
In further developing a transparent, clear,
and successful corporate governance
system, during 2018 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 Corporate Governance Code for
Listed Companies, thus further increasing
the confidence of investors, customers,
creditors, and employees of the Bank.
In addition, NLB also complied with
the Corporate Governance Code for
Companies with a State Capital Investment
as the RoS held a majority equity
investment in the Bank (until 14 November
2018). The purpose of the code is to
determine the standards of governance
and supervision in state-owned companies
and ensure that such companies develop
transparent and comprehensive corporate
governance system, with the objective
of ensuring the successful and long-term
growth of their assets.
Because a majority of shares of the
Bank was sold in the first phase of the
privatization, of the bank and that on 14
November 2018, NLB’s shares were listed
on Ljubljana Stock Exchange and the
global depositary receipts representing
NLB’s ordinary shares were listed on
London Stock Exchange, NLB became
a listed company. As of 14 November
2018, NLB will abide by the Corporate
Governance Code for Listed Companies
only (Slovenian Directors’ Association and
Ljubljana Stock Exchange, adopted 27
October 2016, valid from 1 January 2017).
The Code is available on the web site:
www.ljse.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. Mentioned commitments
were changed with the Amendment of
the restructuring decision of NLB on May
2017 and with the Amendment of the
restructuring commitments of NLB on 10
August 2018 (public versions of mentioned
decisions available on:
• http://ec.europa.eu/
competition/state_aid/
cases/269184/269184_1911771_145_2.
pdf and
• https://eur-lex.europa.eu/legal-
content/EN/TXT/?uri=uriserv:-
OJ.L_.2018.298.01.0017.01.
ENG&toc=OJ:L:2018:298:TOC).
The Corporate Governance Policy of
the NLB Group regulates corporate
governance of the NLB Group. 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
NLB Group Annual Report 2018 128
business area), also respecting the local
legislation and regulatory requirements
as well as the principle of proportionality
(e.g. the organizational possibilities in the
companies).
According to ZGD-1 (Article 70, para 5)
the Bank discloses its compliance with
mentioned codes based on the “comply or
explain” principle. The statement refers to
the Bank’s system of corporate governance
from the beginning to the end of financial
year, which also corresponds to the
beginning and the end of the calendar year
(January until December 2018).
The Bank publishes this statement as a
separate report on its website (https://
www.nlb.si/nlb/nlb-portal/eng/investor-
relations). The Corporate Governance
system of the Bank and all relevant
information on Bank’s management that
exceeds the requirements of this act are
published in the Corporate Governance
Policy of NLB d.d. and other documents
that are communicated to the stakeholders
by being published on the NLB website
(http://www.nlb.si/corporate-governance).
1.2. THE CORPORATE GOVERNANCE OF
NLB DEVIATES FROM THE FOLLOWING
RECOMMENDATIONS:
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: Current
Policy on the Provision of Diversity of
the Supervisory Board was adopted by
the General Meeting on 4 August 2016.
Mentioned 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. However, changes of the
policy are in the process of adoption at
appropriate managing bodies. The revised
version of the policy will include provisions
on diversity for the Supervisory Board, the
Management Board and key personnel
of the Bank. With changes to the policy
measurable goals for diversity will be set
according to experience, age, gender and
international experience.
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. 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 already included
into Fit & Proper procedure).
Recommendation no. 8.7:
Restriction regarding remuneration of
the Management Board members of the
fifth paragraph of the Act Regulating
the Incomes of Managers of Companies
owned by the RoS and its Municipalities
(ZPPOGD) ceased to apply from 14
November 2018. The remuneration of
Management Board members has also
been subject to restriction arising from
Decision of the EC on State Aid dated
18 December 2013 and the amendment
of the restructuring decision dated 11
May 2017. With the Amendment of the
restructuring commitments of NLB on
10 August 2018, that restriction no longer
applies. Regardless of the above restrictions
regarding remuneration were still in place
throughout 2018. This did not provide
remuneration to the Management Board
members that would correspond to their
responsibilities and the fines set by the
ZBan-2. However, activities are carried out
in the Bank with the aim of eliminating
inconsistencies.
Recommendation no. 8.9: In 2018,
the representatives of the external auditor
were not invited on the General Meeting
that acknowledges itself with the financial
statements.
Recommendation no. 10.1: In assessing
candidate’s eligibility for a Supervisory
Board member, statutory criteria are
applied, however candidates don’t have
Recommendation no. 12.2: The
Rules of Procedure of the Supervisory
Board to NLB do not include the list of
all types of transactions for which the
Management Board needs prior approval
of the Supervisory Board; 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 of NLB 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, scope of topics and time frames
of periodic reporting to the Supervisory
Board are included in annual Action Plan
of the Supervisory Board and also Articles
of Association. Professional services of the
bank take care that timely information is
provided to the Supervisory Board.
Recommendation no. 12.5: Material
for regular sessions of the Supervisory
Board is not provided through information
technology but in hard copy. However, in
the near future the Bank intends to start
using electronic channels.
Recommendation no. 12.11: The
Supervisory Board’s Report presented to
the General Meeting did not include the
information to what extent the Supervisory
Board’s self-assessment has contributed
to the improvement of Supervisory
Board’s performance. Self-assessment was
performed at the end of 2018. Results
of self-evaluation will be included in the
NLB Group Annual Report 2018 129
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 (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 Board and
Supervisory Board and the General
Meeting) on its website.
B) Corporate Governance
Code for Companies with a
State Capital Investment
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. 6.6: In
statements of independence for the last
composition of the Supervisory Board
(elected on 8 September 2017), all members
of the Supervisory Board NLB declared
themselves independent. Eventual conflict
of interest for members of the Supervisory
Board does not exist anymore, because one
member of the Supervisory Board, who
was a member of the Board of Directors
in a Serbian bank, his function ceased and
the other two members, whose eventual
conflict of interest could arise according
to European Commitments, offered their
resignations. Potential conflict of interest
was managed accordingly.
Supervisory Board’s Report presented to
the annual General Meeting in 2019.
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 and
is obliged to protect the confidentiality of
information by ZBan-2 and Labor Law.
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.
Recommendation no. 20.1: Drafting
a proposal on the Management Board
Succession Plan in 2018 was not necessary;
however, the Supervisory Board will
discuss/adopt a Management Board
Succession Plan on session in March 2019.
Recommendations no. 21 and 21.1.
After first phase of privatization of the
NLB was completed on 14 November
2018, restriction regarding remuneration
of the Management Board members of
the fifth paragraph of the Act Regulating
the Incomes of Managers of Companies
owned by the RoS and its Municipalities
(ZPPOGD) ceased to apply. That
restriction posed a severe impediment to
the winning over, and retaining of suitable
staff. However, restrictions provided by the
ZBan-2 still apply (article 170) with regard
to remuneration amount (sum, variable
bonus/fixed salary, ratio, etc.). Regardless
of the above restrictions on remuneration
were still in place throughout 2018. This
did not provide remuneration to the
Management Board members that would
correspond to their responsibilities and the
fines set by the ZBan-2. However, activities
are carried out in the Bank with the aim of
eliminating inconsistencies.
Recommendations no. 21.4 to 21.6:
In 2018, the Bank did not provide for
variable remuneration in the form of
shares, nor do stock option plans and
comparable financial instruments make up
the majority of the variable remuneration
of any member of the NLB Management
Board. However, there are incentives for
implementation of part of the variable
remuneration being paid in other forms
as stated in previous sentence. NLB
complies with the Guidelines of the Bank
of Slovenia (further in text: BoS) dated 22
November 2016 concerning the application
of the principle of proportionality in the
implementation of remuneration policies.
However, activities are carried out in
the Bank with the aim of eliminating
inconsistencies.
Recommendation no. 25.3: The
Bank deviates from the recommendation
on rotation of audit companies. In 2018,
the Bank followed provisions of ZBan-2
and the Recommendations and the
Expectations of SSH regarding the rotation
of audit companies, which define a longer
rotation period (which is 10 years).
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 29.3: the Bank does
not have a program of acquisition of own
shares yet. The Bank’s managing bodies
will discuss about adoption of mentioned
program in 2019.
NLB Group Annual Report 2018 130
Recommendation no. 7.2.1: NLB
complies with the Recommendations for
Reporting to Supervisory Boards (Slovenian
Directors’ Association, 25 October 2011
and 10 March 2014) with some deviations
from certain recommendations.
Recommendation no. 8.3: In 2018,
in the NLB Group Annual Report, NLB
disclosed the receipts and other rights of
the members of the Supervisory Board
in accordance with Appendix C to the
Corporate Governance Code for Listed
Companies (as attached to this statement).
When disclosing the income of the
members of the Management Board, the
gross variable income is not disclosed based
on 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. 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 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: In 2018,
the SSH was informed of the risks and
all open issues and proposals for their
elimination via regular meetings of the
Management Boards, within legally allowed
boundaries.
C) Recommendations and
Expectations of the SSH
NLB also takes a position on the adopted
Recommendations and Expectations of the
SSH, as follows:
Recommendation no. 1.1: In 2018,
NLB met 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 submitted
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: In
2018, NLB met expectations in this
recommendation in due time, taking into
account the applicable legislation. In line
with the agreement and the guidelines
of SSH, NLB submitted 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: In
2018, NLB met expectations in this
recommendation in due time, taking into
account the applicable legislation.
Recommendation no. 3.7: The Bank
does not disclose once a year the value
of transactions concerning the service
contracts.
Recommendation no. 4.4: A reporting
system has been set up for the Group
about the implemented payments from
Recommendation 4.3.2 in the COGNOS
system. Data on implemented payments
was not published on the NLB intranet site.
Recommendation no. 4.5: The Bank
does not publish the text of collective
agreements on its website because the
two applicable collective agreements are
available on the website of the NLB Trade
Union representing the Bank’s employees.
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 activity of refreshing the business
and IT/digital strategy, the self-assessment
using the recognized 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 organization and processes.
The Bank first started introducing process
ownership and achievement of the KPI
objectives in the sense of optimization and
quality improvement and continued with
Lean optimization.
There are dozens of projects in the bank;
one of them is the introduction of E2E
ownership of processes and the maturity pf
processes. Based on the analysis, the project
and phase 2 will be carried out based on
i.e. “Lean process optimization”. The first
5 to 7 processes will be selected, and later
on, all of them will be renewed. We already
renewed two processes, one is to be done
in near future and we are introducing
operational excellence project as well.
Recommendation no. 6.2: In 2018, the
General Meetings have been convened in
agreement with SSH.
Recommendation no. 6.3: In 2018,
only the convocation is published on the
Bank’s website, while the reasoning of
proposals were sent to the shareholder
first by e-mail, and also by a courier.
Such a specific method of informing the
shareholder was possible because SSH used
to be the sole shareholder.
NLB Group Annual Report 2018 131
Recommendation no. 6.4: If the sole
shareholder had any questions, NLB did
not publish them, but the management
provided answers at the General Meeting.
2. MAIN FEATURES OF INTERNAL
CONTROL AND RISK MANAGEMENT
SYSTEMS IN RELATION TO FINANCIAL
REPORTING
NLB is governed by the provisions of
the ZBan-2 and the Regulation on
Internal Governance Arrangements,
the Management Body and the Internal
Capital Adequacy Assessment Process
for Banks and Savings Banks regulating,
among other, the Bank’s obligation to set
up, maintain appropriate internal control,
and risk management systems. Due to the
above, the NLB has developed a steady
and reliable internal governance system
encompassing the following:
• a clear organizational structure with
precisely defined, transparent and
consistent internal relations in the area
of responsibility
• effective risk management processes
for identifying, measuring or assessing,
managing and monitoring risks,
including risk appetite, risk strategy,
ICAAP, ILAAP, recovery plan and the
reporting of risks to which the Group
is exposed or could be exposed in its
operations
• incorporating main strategic risk
guidelines into annual business plan
review, budgeting process and other
relevant decision making
• suitable internal control mechanisms that
include appropriate administrative and
accounting procedures
• appropriate remuneration policies and
practices that are in line with prudent
and effective risk management, and thus
promote risk management.
2.1. Internal control mechanisms
a) The Internal Audit Department
Suitability of the internal control
mechanisms are determined by the
independence, quality and validity of:
• the rules for and controls of the
implementation of the bank’s
organizational procedures, business
procedures and work procedures
(internal controls) and
• the internal control functions and
departments (internal control functions).
2.1.1 Internal Controls
Internal controls should put in place at all
levels of the bank’s organizational structure,
especially the levels of commercial,
control and support functions, and at
the level of each of the bank’s financial
services. In daily operations, the bank
follows the internal act System of Internal
Controls, which sets the system of internal
controls in NLB and responsibilities for its
establishment, continuous performance and
its upgrading. On the organizational level,
the Bank established middle-offices and
back offices.
In the event of deficiencies, irregularities
of breaches identified in the process of
implementation of internal controls the
breaches are discussed at the Operational
Risk Committee and appropriate actions
are taken. In the events of intentional
breaches of the bank’s rules as defined by
the NLB Group Code of Conduct, the
events are handled according to Integrity
and Compliance Policy of NLB and NLB
Group.
2.1.2. Internal Control Functions
The internal control functions are part
of the system of the internal governance
in the Bank. Internal control functions
include:
The Internal Audit function is organized
according to the Charter on the Internal
Audit of NLB adopted by the Management
Board on 13 November 2018, in agreement
with the Supervisory Board of NLB (30
November 2018).
The Charter of the Internal Audit of
NLB is the umbrella document about the
understanding and role of the Internal
Audit in NLB, which defines the purpose,
powers, responsibilities and tasks of the
Internal Audit in line with the International
Standards for the Professional Practice of
Internal Auditing. The mentioned Charter
lays down the position of the Internal Audit
in the organization, including the nature
of the relationship between the functional
responsibility of the Head of the Internal
Audit to the supervisory body, grants
authorizations to internal auditors for
accessing records, employees, premises and
equipment relevant for performing their
tasks, and defines the area and activities of
the Internal Audit.
The Management Board has set up an
independent internal audit function which
gives assurances and advice about risk
management, internal controls system and
management of the NLB. The mission
and the principal task of the Internal Audit
is to consolidate and secure the value of
the Bank by issuing objective assurances
based on risk assessment, with consultancy
and deep understanding of the Bank’s
operations. In addition to that, the Internal
Audit carries out regular control of the
quality of operation of the other internal
audit departments in the NLB Group and
takes care of constant development of the
internal auditing function.
NLB Group Annual Report 2018 132
Pursuant to the provisions of the law, the
Bank has organized the internal audit as an
independent organizational unit, primary
responsible to the Supervisory Board of the
NLB and secondary to the Management
Board of the Bank.
The Supervisory Board of NLB must
issue its approval of the appointment,
remuneration and dismissal of the Director
of the Internal Audit, which ensures their
independence and thus the independence
of the work of the Internal Audit.
b) The Risk Management Function
The Risk Management Function is
organized according to the Charter of
the Risk Management Function of NLB
adopted by the Management Board on 6
November 2015, in agreement with the
Supervisory Board of NLB. The Charter
on Functioning of the Risk Management
Function of NLB is the framework
document on understanding and role of
the risk management function; it defines
the purpose, validity and method of
operation as well as the authorizations and
responsibilities of the risk management
function according to the requirements of
the ZBan-2 and the Regulation on Internal
Management Arrangements, Management
Body and Internal Capital Adequacy
Assessment Process for Banks and Savings
Banks.
The risk management function in NLB is
organized within the Risk (CRO), covered
by the member of the Management Board
in charge of risk. Risk covers the following
organizational units:
• Global Risk
• Corporate and Retail Credit Analysis
Department
• Evaluation and Control
• Restructuring
• Non-Performing Loan Management
Department
• Non-Strategic Corporate (as of 1
January 2016).
The risk management function is
performed by the Global Risk, whereas
the manager or head in charge of the
risk management function is the Director
of the Global Risk. The Global Risk is
in functional and organizational terms
separate from other functions where
business decisions are adopted and where
conflict of interest may arise with the risk
management function. The head of the risk
management function has direct access to
the Management Board of the NLB and at
the same time unhindered and independent
access to the Supervisory Board of NLB
and the Risk Committee of the Supervisory
Board of the NLB. In accordance with
the competences, authorizations and
responsibilities of the Global Risk are
represented by its Director.
In members of the NLB Group, the
risk management function is organized
according to the local legislation,
taking into account the bases for set-up,
organization and activities in the area
of risk management in the members,
as defined in the document “Risk
Management Standards in the NLB
Group”. The described standards on risk
management provide the members of the
NLB Group the bases with which they have
to align their internal policies, organization,
work procedures, methodologies and
reporting system.
The risk management function represents
an important part of overall management
and governance system in the Group. The
Group gives high 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, representing the foundation of
Group’s Risk management framework.
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.
Moreover, main strategic risk guidelines
are integrated into annual business plan
review and budgeting process. Nevertheless,
the Group is constantly enhancing its risk
management system, where consistent
incorporation of the internal capital
adequacy assessment process (ICAAP),
the internal liquidity adequacy assessment
process (ILAAP), Recovery plan, and
other internal stress-testing capabilities is
essential.
NLB is, as a systemic bank, involved in
the Single Supervision Mechanism (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.
Additionally, the Group has set up early
warning systems in different risk areas with
the intention to strengthen the existing
NLB Group Annual Report 2018 133
internal controls and timely responding
when necessary.
compliance and integrity in the entire NLB
Group, in core and non-core members.
3. INFORMATION ON POINT 4,
PARAGRAPH 5, OF THE ARTICLE 70 OF
THE ZGD-1 regarding points 3, 4, 6, 8, and
2.2. Financial reporting
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 2018, NLB’s share
capital totaled EUR 200 million and was
divided into 20 million no-par value shares.
All shares belong to a single class and are
issued in book-entry form. The RoS has
been a 100% shareholder of NLB since 18
December 2013 until 13 November 2018.
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 authorizations, 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, the resulting
accounting, and other reports of the
Bank
• Compliance with legal and other
requirements.
NLB pays special attention to the system
of internal controls and risk management
in 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.
c) The Compliance and Information
Security Functions
The Bank adopted Integrity and
Compliance Policy of the NLB and the
NLB Group (Version 1, December 2016),
which regulates the method and scope of
the activities of the compliance function in
the Bank. Supervision over compliance of
operations is within the competence of the
Compliance and Integrity.
Compliance and Integrity is an
organization unit of the Bank, placed
directly under the Bank’s Management
Board in the organizational structure. This
enables the Compliance and Integrity to
operate independently from other Bank’s
departments. The head of the Compliance
and Integrity does not perform any other
function at the Bank that could possibly
lead to conflict of interests; its regular tasks
include direct reporting to the member of
the Bank’s Management Board responsible
for compliance, which additionally
ensures independence of operation of the
Compliance and Integrity; moreover, it has
direct access and separate reporting line
to the Bank’s Supervisory Board. NLB has
also introduced the compliance function
in the core members of the NLB Group.
Through specific binding standards in
the area of compliance and integrity, it
has also established a harmonized system
of standards and practices in the area of
NLB Group Annual Report 2018 134
Main Shareholder structure of NLB (as of
31 December 2018):
Shareholder
Bank of New York Mellon on behalf of the GDR holders*
- of which Brandes Investment Partners, L.P.**
- of which EBRD**
RoS
OTP banka d.d. - client account
Addiko Bank d.d. - Pension fund 1 - fiduciary account
Other shareholders
Total
Number of
shares
11,071,394
1,342,035
1,250,000
7,000,000
550,000
267,500
1,111,106
20,000,000
Percentage of shares
55.36
6.71
6.25
35.00
2.75
1.34
5.55
100.00
* The Bank of New York Mellon holds shares in its capacity as the depositary for the GDR holders and is not beneficial owner of such shares.
** The information on GDR ownership is based on self-declarations by individual GDR holders as required pursuant to the applicable provisions of Slovenian law.
More information on the Bank’s Share
Capital available on website: https://www.
nlb.si/shares.
Bank’s authorization. The authorization to
transfer the shares shall be granted by the
Supervisory Board.
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.
The Bank may refuse to grant
authorization 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
authorization to transfer shares shall not
be required if the acquirer acquires the
shares on behalf of third parties, and as
such it is not authorized 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.
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, based on 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 12
October 2018), 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
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 to company’s
Articles of Association (Point 8 of the
sixth paragraph 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
Deputy subject to a prior approval of the
Supervisory Board.
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.
Without having applied for authorization to
transfer shares, or without having received
the Bank’s authorization, the acquirer that
exceeds 25% of the Bank’s voting shares
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.
NLB Group Annual Report 2018 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.
4. 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
Supervisory Board
EXERCISING
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.
Changes to the company’s
Articles of Association
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.
Explanation regarding the
authorization of the members
of the management, particularly
authorizations to issue or purchase
own shares (Point 9 of the sixth
paragraph of Article 70 of the
ZGD-1)
According to the ZGD-1, authorization by
the General Meeting for the purchase of
Bank’s own shares has not been adopted.
Competences of the Bank’s General
Meeting are stipulated in the ZGD-1,
ZBan-2 and the Articles of Association of
the Bank. The General Meeting is a body
of the Bank through which shareholders
exercise their rights, which include among
others: decisions on corporate changes
(amendments of the Articles of Association,
increase or decrease of share capital) and
legal restructuring (mergers, acquisitions),
adopt decisions on all statutory issues in
respect of appointing and discharging
members of the Supervisory Board and
appointment of an auditor, distribution
decisions (appropriation of distributable
profit), granting of discharge from liability
to the Management and Supervisory
Board.
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.
135
The shareholders have the right to
participate at the general meeting of the
Bank, the voting right, pre-emptive right
to subscribe for new shares in case of
share capital increase, the right to profit
participation (dividends) and the right to a
share in surplus in the event of liquidation
or bankruptcy of the Bank and the right to
be informed.
5. INFORMATION ABOUT THE
COMPOSITION AND WORK OF THE
MANAGEMENT AND SUPERVISORY BODY
AND ITS 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 as
attachment to this statement.
5.1. The 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 2018, the Management Board of the
Bank consisted of Blaž Brodnjak, member
since 1 December 2012, Deputy President
since 5 February 2016, and president/CEO
since 6 July 2016; and members Archibald
Kremser, acting as CFO since 31 July
2013; Andreas Burkhardt acting as CRO
since 18 September 2013; and László Pelle
acting as 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 Annual Report 2018 136
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 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 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 license
from the BoS or the ECB, in accordance
with Articles of Association.
In 2018, the Management Board with
a support of the Bank’s internal project
team and external legal advisors actively
worked to complete the first phase of the
sales process of the Bank, run under the
leadership of SSH. On 14 November
2018, the first phase of privatization of
NLB was completed. Through the year, the
Management Board devoted considerable
efforts to digitalization, streamlining and
modernization of processes and services
of the Bank and thus enabled that the
entire NLB Group gave to technological
development and digitalization new
opportunities for future growth.
More detailed provisions on the method of
work of the Management Board are set out
by the Rules of procedure governing the
work of the Management Board adopted
by the Supervisory Board of the Bank.
5.2. 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 of the Supervisory Board of
NLB. The Supervisory Board may engage
legal and other consultants and institutions
required by itself or its committees to
perform their tasks.
Throughout 2018 the Supervisory Board
was 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. On 30 November 2018, the
Supervisory Board took note of resignation
statements of Simona Kozjek and Vida
Šeme Hočevar with a three-month notice
that expired on 28 February 2019.
In accordance with the two-tier governance
system and the authorisations for
supervising the Management Board, the
Banks’ Supervisory Board issues approvals
to the Management Board related to the
Banks’ business policy and financial plan,
approves the strategy of the Bank and
the Group, the internal control system
organization, the Annual Plan of the
Internal Audit and to financial transactions
defined in Articles of Association. The
Supervisory Board acts in accordance
with the highest ethical standards of
management, considering the prevention
of conflicts of interest.
In 2018, the Supervisory Board met at
seven regular and four correspondence
sessions. In addition to approvals
mentioned above the Supervisory Board
took the following decisions:
• Approved the materials for the Bank’s
General Meeting; Information on
resignation of two members of the
Supervisory Board; Proposal for the
General Meeting on selection of the
external auditor of the annual financial
statements for the NLB and the NLB
Group;
• Approved the NLB Group Annual
Report for 2017 and the NLB Group
Corporate Social Responsibility Report
for 2017;
• Approved key decisions on risk
management (ICAAP, ILAAP, Recovery
Plan, risk strategy, risk appetite, NPLs
wind-down strategy, etc.);
• Annual plan of the Internal Audit and
Compliance and Integrity;
• Regular quarterly reports of the Audit,
Compliance and Risk Function, etc.;
• Regular quarterly reports on State Aid –
Status Reports; Reports on risks relating
to the unfinished procedures before the
EC regarding the State aid;
• Regular reports on documents received
from the regulator(s);
• Decides on large exposures, sale of
receivables, write-offs of claims and
divestment of NLB Group companies.
5.3. The Supervisory Board Committees
All four Committees for the Supervisory
Board 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.
NLB Group Annual Report 2018 137
5.3.1 The Audit Committee of
the Supervisory Board of NLB
Throughout 2018 the composition of the
committee was as follows: David E. Simon
(Chairman), Alexander Bayr (Deputy
Chairman), Primož Karpe, and Vida
Šeme Hočevar (members). There were five
regular sessions and two correspondence
sessions of the Audit Committee.
Composition of the Audit Committee in
2018 is described in detail in the Appendix
C.2 of the Corporate Governance Code
for Listed Companies (as attachment to this
statement).
The Audit Committee monitors and
prepares draft resolutions for the
Supervisory Board on accounting
reporting, internal control and risk
management, internal audit, compliance
and integrity, and external audit, and
as well monitors the implementation of
regulatory measures.
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, 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:
• Accounting and financial reporting
• Internal control and risk management
• Internal audit
• Compliance of operations
• External audit.
Following is a summary of key topics
considered by the Audit Committee:
• Annual plan of the Internal Audit and
Compliance and Integrity
• Regular quarterly reports on the
operations of the NLB Group, Internal
Audit’s report, report on the work of the
Compliance and Integrity for 2018
• Report on the documents received
from BoS and ECB and report on the
implementation of the requirements of
the BoS and ECB
5.3.3 The Nomination Committee
of the Supervisory Board of NLB
• Approval of the Annual Report of the
NLB Group, and Corporate Social
Responsibility Report for 2017
• Information about the effects of the
transition to IFRS 9
• Cooperating with the external auditor
in auditing the Group’s annual report,
in particular by means of exchanging
briefings on major audit-related issues.
5.3.2 The Risk Committee of the
Supervisory Board of NLB
Throughout 2018 the composition of the
committee was 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 2018. Composition of the Risk
Committee in 2018 is described in detail
in the Appendix C.2 of the Corporate
Governance Code for Listed Companies (as
attachment to this statement).
The following is a summary of key topics
considered by the Risk Committee:
Throughout 2018 the composition of the
committee was as follows: Primož Karpe
(Chairman), Andreas Klingen (Deputy
Chairman), Alexander Bayr, Vida Šeme
Hočevar and Peter Groznik (members).
Composition of the Nomination in 2018
is described in detail in the Appendix C.2
of the Corporate Governance Code for
Listed Companies (as attachment to this
statement).
The following is a summary of key topics
considered by the Nomination Committee:
• Assessment of collective suitability of
members of the Supervisory Board
• Aspects of independence of SB members
in line with new EC commitments
• Information about the resignation of the
members of the Supervisory Board of
NLB.
Responsibilities of the committee are
defined in Rules of Procedure of the
Nomination Committee of the Supervisory
Board of NLB.
• Regular quarterly risk reports in NLB
5.3.4 The Remuneration Committee
and the NLB Group
of the Supervisory Board of NLB
• Recovery Plan
• NLB Group Non-performing Exposure
and Confiscated Assets Management
Strategy for the 2018–2022 period;
• ICAAP and ILAAP
• Approval the Risk Management Strategy
of the NLB Group
• Proposal for the issuance of prior consent
of the Supervisory Board of NLB in
accordance with the first paragraph of
article 164 of ZBan-2 to the conclusion
of legal transaction or transactions upon
occurrence of which the total exposure,
including indirect credit exposure, of up
to 10% of Bank’s capital.
Responsibilities of the committee are
defined in Rules of Procedure of the Risk
Committee of the Supervisory Board of
NLB.
Throughout 2018 the composition of
the committee was as follows: Vida Šeme
Hočevar (Chairwoman), Simona Kozjek
(Deputy Chairwoman), Primož Karpe, and
László Urbán (members). There were three
sessions of the Remuneration Committee
in 2018. Composition of the Remuneration
Committee in 2018 is described in detail
in the Appendix C.2 of the Corporate
Governance Code for Listed Companies (as
attachment to this statement).
The following is a summary of key
topics considered by the Remuneration
Committee:
• Amendments to the Policy of
Remuneration for the Employees
Performing Special Work
NLB Group Annual Report 2018 138
• Realization of the goals of Management
Board of NLB for 2017 and goals of
Management Board of NLB for 2018.
Responsibilities of the committee
concerning remuneration policies
are defined by Rules of Procedure of
the Remuneration Committee of the
Supervisory Board of NLB.
6. DESCRIPTION OF DIVERSITY POLICY
6.1. 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
realizing the goals of its strategy.
To ensure the diversity of the supervisory
board, in addition to all legal and statutory
requirements, the members of the
Supervisory Board must have appropriate
experience, skills, knowledge and
competences, including personal integrity
and the ability to dedicate sufficient time
to the performance of the function, so they
can successfully supervise the operation
of the Management Board and the
operations of the Bank. Members of the
supervisory board must have different skills
and experience, to complement each other
and must act in accordance with the goals,
strategies and policies of the Bank in the
best interest of the Bank.
In the composition of membership in
the Supervisory Board of the Bank, it
is also aim to ensure that both sexes are
appropriately represented.
As described in the chapter Corporate
Governance in the composition of the
Supervisory Board in 2018 two members
were females. However, on session of the
Supervisory Board dated 30 November
2018 Vida Šeme Hočevar and Simona
Kozjek submitted their resignation
statements with a three-month notice.
6.2. 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 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. The Policy also promotes
achieving variety in the composition of
the Management Board, including an
appropriate target representation of both
genders in its membership.
No changes in the composition of the
Management Board were made in 2018.
On 31 December 2018 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.
Current Policy on the Provision of
Diversity of the Supervisory Board
(adopted by the General Meeting on 4
August 2016) does not set out ways of
implementation of set objectives, as well
as the effects on the human resources
procedures and other processes of the
company. However, changes of the
policy are in the process of adoption at
appropriate managing bodies. The revised
version of the policy will include provisions
on diversity for the Supervisory Board, the
Management Board and key personnel
of the Bank. With changes to the policy
measurable goals for diversity will be set
according to experience, age, gender and
international experience.
7. 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.
In 2018, execution of Compliance Program
was additionally enhanced with new
organizational structure of Compliance
department to better reflect core activities
of Compliance Program. Following
that, four teams were established within
Compliance and Integrity department:
(i) Regulatory intelligence and prevention
(regulatory intelligence, compliance
monitoring, operations, education and
training), (ii) Internal investigations, (iii)
CISO and Data Protection Officer, (iv)
Anti Money Laundering and Counter
Terrorist Financing. Compliance team has
been intensively involved in education,
prevention, supervision and investigative
activities in Headquarters and in the
Group.
Since 2017, based on newly developed
Enterprise Compliance Risk Assessment
methodology, we yearly identify, assess
and mitigate compliance and integrity
risks within the NLB and the Group.
Furthermore, Compliance standards
as adopted by Headquarters and are
obligatory for all members of NLB Group,
implementation of standards is being
constantly monitored by Headquarters.
NLB Group Annual Report 2018 139
attempts or activities against our customers
or the Bank with a zero tolerance
approach.
violations, and taking the necessary
measures.
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
This Corporate Governance Statement
of the NLB is publicly available also on
NLB’s webpage: https://www.nlb.si/
corporate-governance.
Ljubljana,12 April 2019
In 2018, Compliance and Integrity team
has executed live trainings or educations
with more than 1,000 participants and
video or e-learnings with more than 2,000
participants with the goal to enhance
knowledge and fitness of employees and
by that contribute to further raising of risk
awareness within NLB and the Group.
We maintain an effective and agile
capability to detect and react to fraudulent
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 Annual Report 2018
140
Table 27: Composition of Management in financial year 2018 (C.1)
Name and Surname
Position held (president, member)
Area of work covered within
the Management Board
First appointment to the position
Conclusion of the
position /term of office
Citizenship
Year of birth
Qualification
Professional profile
Blaž Brodnjak
Andreas Burkhardt
Archibald Kremser
László Pelle
President
Member
Member
Member
CEO
CRO
CFO
COO
6 July 2016
13 September 2013
31 July 2013
26 October 2016
5 July 2021
5 July 2021
5 July 2021
Slovene
German
Austrian
26 October 2021
Hungarian
1974
1971
1971
1966
Membership in supervisory
bodies in companies not
related to the company
Banking / Finance
Banks' Association of Slovenia
MBA
MBA
MBA
MSc
Banking / Finance
Banking / Finance
Banking Operations
and IT Management
Table 28: Table 28: Composition of Supervisory Board and Committees in financial year 2018 (C.2)
Name and Surname
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
Primož Karpe
President
10 February 2016
Andreas Klingen
Deputy President
22 June 2015
Alexander Bayr
David E. Simon
Member
Member
4 August 2016
4 August 2016
László Urban
Member
10 February 2016
Vida Šeme Hočevar
Member
8 September 2017
Simona Kozjek
Peter Groznik
Member
8 September 2017
Member
8 September 2017
2020
2019
2020
2020
2020
2021
2021
2021
No
No
No
No
No
No
No
No
7/7
7/7
7/7
7/7
7/7
7/7
7/7
7/7
Professional
profile
Independence
under Article
23 of the Code
(YES/NO)
Existence of
conflict of
interest, in the
business year
Membership in supervisory bodies
(YES/NO)
in other companies or institutions
Gender
Citizenship
Year of birth
Qualification
male
male
male
male
female
female
male
Slovene
German
Austrian
British
Slovene
Slovene
Slovene
male
Hungarian
1970
MSc
Banking / Finance
1964 University Degree
Banking / Finance
1960 University Degree
Banking / Finance
1948
Higer National
Banking / Finance
Diploma in
Business Studies
1959
1967
1975
1971
PhD
PhD
MSc
PhD
Banking / Finance
Finance/ Insurance
Banking / Finance
Finance, industry,
investment banking
YES
YES
YES
YES
YES
YES
YES
YES
NO
YES
NO
NO
NO
YES
YES
NO
Kyrgyz Investment and Credit
Bank, Credit Bank of Moscow,
Komercialna banka Beograd
a.d. (until November 2018)
WKBG Bank, Vienna
Jihlavan a.s., Central Europe
Industry Partners a.s.
Hit, d.d. (since December 2018)
NLB Group Annual Report 2018
Table 27: Composition of Management in financial year 2018 (C.1)
Name and Surname
Position held (president, member)
the Management Board
First appointment to the position
Area of work covered within
Conclusion of the
position /term of office
Citizenship
Year of birth
Qualification
Professional profile
141
Membership in supervisory
bodies in companies not
related to the company
Blaž Brodnjak
Andreas Burkhardt
Archibald Kremser
László Pelle
President
Member
Member
Member
CEO
CRO
CFO
COO
6 July 2016
13 September 2013
31 July 2013
26 October 2016
5 July 2021
5 July 2021
5 July 2021
Slovene
German
Austrian
26 October 2021
Hungarian
1974
1971
1971
1966
MBA
MBA
MBA
MSc
Banking / Finance
Banks' Association of Slovenia
Banking / Finance
Banking / Finance
Banking Operations
and IT Management
Table 28: Table 28: Composition of Supervisory Board and Committees in financial year 2018 (C.2)
Position held
(president deputy,
First appointment
Name and Surname
member)
to the position
Primož Karpe
President
10 February 2016
Andreas Klingen
Deputy President
22 June 2015
Alexander Bayr
David E. Simon
Member
Member
4 August 2016
4 August 2016
László Urban
Member
10 February 2016
Vida Šeme Hočevar
Member
8 September 2017
Simona Kozjek
Peter Groznik
Member
8 September 2017
Member
8 September 2017
2020
2019
2020
2020
2020
2021
2021
2021
No
No
No
No
No
No
No
No
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
Gender
Citizenship
Year of birth
Qualification
Independence
under Article
23 of the Code
(YES/NO)
Existence of
conflict of
interest, in the
business year
(YES/NO)
Professional
profile
Membership in supervisory bodies
in other companies or institutions
7/7
7/7
7/7
7/7
7/7
7/7
7/7
7/7
male
male
male
male
Slovene
German
Austrian
British
male
Hungarian
female
female
male
Slovene
Slovene
Slovene
1970
MSc
Banking / Finance
1964 University Degree
Banking / Finance
1960 University Degree
Banking / Finance
1948
1959
1967
1975
1971
Higer National
Diploma in
Business Studies
Banking / Finance
PhD
PhD
MSc
PhD
Banking / Finance
Finance/ Insurance
Banking / Finance
Finance, industry,
investment banking
YES
YES
YES
YES
YES
YES
YES
YES
NO
YES
NO
NO
NO
YES
YES
NO
Kyrgyz Investment and Credit
Bank, Credit Bank of Moscow,
Komercialna banka Beograd
a.d. (until November 2018)
WKBG Bank, Vienna
Jihlavan a.s., Central Europe
Industry Partners a.s.
Hit, d.d. (since December 2018)
NLB Group Annual Report 2018
142
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 (applicable
on his/her mandate)
Vida Šeme Hočevar
Remuneration Committee
Simona Kozjek
Remuneration Committee
Primož Karpe
László Urban
Primož Karpe
Remuneration Committee
Remuneration Committee
Nominaton Committee
Andreas Klingen
Nominaton Committee
Alexander Bayr
Nominaton Committee
Vida Šeme Hočevar
Nominaton Committee
Peter Groznik
David E. Simon
Alexander Bayr
Primož Karpe
Nominaton Committee
Audit Committee
Audit Committee
Audit Committee
Vida Šeme Hočevar
Audit Committee
Andreas Klingen
Risk Committee
László Urban
Simona Kozjek
Peter Groznik
David E. Simon
Risk Committee
Risk Committee
Risk Committee
Risk Committee
06-Oct-17
06-Oct-17
15-Apr-17
06-Oct-17
15-Apr-16
19-Feb-16
06-Oct-17
06-Oct-17
06-Oct-17
07-Apr-16
26-Aug-16
19-Feb-16
06-Oct-17
19-Feb-16
26-Aug-16
06-Oct-17
06-Oct-17
26-Aug-16
2021
2021
2020
2020
2020
2019
2020
2021
2021
2020
2020
2020
2021
2019
2020
2021
2021
2020
President
Deputy President
Member
Member
President
Deputy President
Member
Member
Member
President
Deputy President
Member
Member
President
Deputy President
Member
Member
Member
3/3
3/3
2/3
3/3
4/4
4/4
4/4
4/4
4/4
5/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5
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 Annual Report 2018 143
Table 29: Composition and amount of remuneration of the management board members in the financial year 2018 (C.3)
Variable income - gross
Position
held
(president/
member)
Fixed
income
-gross (1)
on the
basis
of quantity
criteria
on the
basis
of quality
criteria
president
146,804.55
member
146,804.55
member
146,804.55
Name and
Surname
Blaž
Brodnjak
Archibald
Kremser
Andreas
Burkhardt
László Pelle
member
146,804.55
* This table does not include other benefits and cost refunds.
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
1,987.75
0.00
189,565.3
87,097.17
0.00
19,555.77
0.00
207,133.32
77,131.36
0.00
20,080.27
0.00
207,657.82
76,057.2
0.00
32,283.22
0.00
199,974.03
64,324.44
Total (2)
40,773.00
40,773.00
40,773.00
20,886.26
Table 30: Composition and amount of remuneration of members of the Supervisory Board and committee members
in the financial year 2018 (in EUR) (C.4)
Position held
(president
deputy,member,
external member
of a Committee)
Name and Surname
Primož Karpe
President
Andreas Klingen
Deputy President
László Urbán
Alexander Bayr
David Eric Simon
Simona Kozjek
Member
Member
Member
Member
Vida Šeme Hočevar
Member
Peter Groznik
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 net*
Travel expenses
37,500.00
27,750.00
22,500.00
22,500.00
26,250.00
22,500.00
30,000.00
22,500.00
5,445.00
4,565.00
4,345.00
5,005.00
5,225.00
4,345.00
5,665.00
4,565.00
42,945.00
32,315.00
26,845.00
27,505.00
31,475.00
26,845.00
35,665.00
27,065.00
42,945.00
21,287.41
17,683.97
18,118.73
20,734.09
19,524.46
25,939.24
19,684.47
9,858.10
11,702.39
6,930.59
10,935.71
16,205.86
0.00
266.18
1,487.00
* After the prepayment of income taxes which is not taken into account in potential subsequent balacing payment of
personal income taxes.
NLB Group Annual Report 2018
144
Statement of Management of Risk
NLB d.d.’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 68/17, 33/18
and 81/18) and Regulation (EU) 575/2013
(date of publication 21 December 2015),
article 435 (Risk management objectives
and policies), point (e) and (f), as well as EBA
Guidelines in on Disclosure requirements
(EBA GL/2016/11).
Risk management in NLB Group is
implemented in accordance with the
established internal policies and procedures
which take into account the European
banking regulations, the regulations adopted
by the Bank of Slovenia, the current EBA
guidelines and the relevant good banking
practices. EU regulations are followed by
all Group members, where the Group
subsidiaries operating outside Slovenia are
also compliant with the rules set by the
local regulators. NLB Group gives high
importance to the risk culture and awareness
of all relevant risks within the entire Group.
Business and operating environment, relevant
for the Group’s operations, is changing with
trends such as changing customer behaviour,
emerging new technologies and competitors,
increasing new regulatory requirements.
Consequently risk management is
continuously adapting with aim to detect and
manage new potential emerging risks.
Risk management function, acting as second
line of defence, represents an important part
of overall management and governance
system in the Group. NLB Group Risk
Management framework is defined and
organized with regard to the Group’s business
and risk profile, based on forward looking
perspective to meet internal objectives and
all external requirements. Proactive Risk
management and control system is based on
Risk appetite and Risk strategy, which are
consistent with the Group’s Business strategy,
and focused on early risk identification and
efficient risk management. Set governance
and different risk management tools enable
adequate oversight of the Group’s risk profile,
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.
NLB Group plans prudent risk profile,
optimal capital usage and profitable
operations on the long run, considering
the risks assumed. The Business strategy,
the Risk appetite, the Risk strategy and the
key internal risk policies of NLB Group,
approved by the Management Board and
the Supervisory Board of NLB d.d., specify
the strategic objectives and guidelines
concerning risk assumption, the approaches
and methodologies of monitoring, measuring,
mitigating and managing all types of risk
at different relevant levels. Moreover, main
strategic risk guidelines are integrated into
annual business plan review and budgeting
process. NLB Group is regularly monitoring
its target Risk appetite profile, representing
the key component of risk mitigation process.
Risk profile enables detailed monitoring and
proactive management. Risk limits usage
and potential deviations from limits or target
values 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.
Additionally NLB Group established
comprehensive stress testing framework and
other early warning systems in different risk
areas, with the intention to contribute to
setting and pursuing Group’s business strategy,
support decision making on on-going basis,
strengthen the existing internal controls and
timely responding when necessary. Stress
testing framework includes all material types
of risk and different relevant stress scenarios
or sensitivity analysis, according to the
vulnerability of the Group’s business model.
Stress testing has an important role when
assessing the Group’s resilience to stressed
circumstances, namely from profitability,
capital adequacy and liquidity forward looking
perspective. As such it is embedded into
Group’s Risk management system, namely
Risk appetite, ICAAP, ILAAP and Recovery
plan, as an important component of sound
risk management. Beside internal stress testing
NLB Group as a systemically important bank
also participates in the regulatory stress test
exercises carried out by ECB.
NLB Group is the largest Slovenian banking
and financial group with important presence
in the SEE region. In accordance with
its strategic orientations intends to be a
sustainably profitable, predominantly working
with clients on its core markets, providing
innovative but simple customer-oriented
solutions. NLB Group has a well-diversified
business model. Based on the Group’s business
strategy credit risk is the dominant risk
category, followed by operational risk, interest
rate risk in banking book, liquidity risk, market
risk and other non-financial risks. Regular
risk identification and their assessment is
performed within ICAAP process with aim
to assure their overall control and effective
risk management. Moreover, in 2018
ICAAP process was substantially upgraded
in accordance with newly published ECB
Guidelines, including its stronger integration
into overall risk management system in order
to assure proactive support for informed
decision making.
Managing risks and capital efficiently at all
levels is crucial for NLB Group sustained
long-term profitable operations. Management
of credit risk, representing the Group’s most
important risk, focuses on the taking of
NLB Group Annual Report 2018 145
The main NLB Group Risk Appetite
objectives are following:
• Cost of risk -43 bps
• The share of non-performing exposure by
• preservation of a prudent level of capital
adequacy, considering also regulatory
requirements and relevant capital buffers,
and maintaining of low financial leverage
• maintaining a solid level and structure of
liquidity where stable customers’ deposits
are representing the main funding base
• adequate quality and diversification of
the credit portfolio, sufficient coverage of
non-performing loans and sustainable cost
of risk across the economic cycle
• diversification of risk in exposures to banks
and sovereigns
• sustainable tolerance to net losses from
operational risk
• limited exposure to interest rate risk in
banking book and to foreign exchange risk
• sustainable profitability in terms of
risk-return
• sustainable size of subsidiary banks.
Values of the most important risk appetite
indicators of NLB Group as at the end of
2018, reflecting interconnection between
strategic business orientations, risk strategy
and targeted risk appetite profile, were
following:
• CAR 16.7%
EBA (NPE) 4.7 %
• LTD 68.3 %
• LCR 361 %
• Net stable funding ratio (NSFR) 158.7 %
• Net losses from operational risk 5.7% of
capital requirement for operational risk
• BPV sensitivity (of 200 bps) 7.0 % of
capital
Consequently NLB Group concluded the year
2018 as self-funded, with strong liquidity and
capital position, demonstrating the Group’s
financial resilience.
During 2018 no transactions of sufficiently
material nature to impact on NLB Group’s
risk profile or distribution of risks on the NLB
Group were carried out.
Condensed Statement of the management
of risk is also published on the NLB intranet
with the aim of strict adherence of the banks’
employees at daily operations of the Bank, as
regards the definition and importance of a
consistent tendency of the adopted risks, and
ways to take into account when adopting its
daily business decisions.
Ljubljana, 12 April 2019
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 NLB Group must
maintain an appropriate level of liquidity
at all times to meet its short-term liabilities,
even if a specific stress scenario is realised.
Further, with the aim of minimising this risk,
the Group pursues an appropriate structure
of sources of financing. When assuming
operational risk, the NLB Group pursues the
orientation that such risk must not significantly
impact its operations. Risk appetite for
operational risks is low to moderate, with
focus on mitigation actions for important risks
and key risk indicators servicing as an early
warning system. The NLB Group’s basic
orientation in the management of interest rate
risk is to limit unexpected negative effects on
revenues and capital that would arise from
changed market interest rates and, therefore,
a moderate tolerance for this risk is stated.
The conclusion of transactions in derivative
financial instruments at NLB d.d. is primarily
limited to servicing customers and hedging
Bank’s own positions. In the area of currency
risk, the NLB Group thus pursues the goals
of low to moderate exposure. The tolerance
for all other risk types, including non-financial
risks, is low with a focus on minimising their
possible impacts on the Group’s operations.
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 Annual Report 2018
146
Statement of the Arrangement of Internal Governance
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,
EBA guidelines on the assessment of the
suitability of members of the management
body and key function holders and EBA
guidelines on remuneration policies and
practices, based on the relevant regulations
of the Bank of Slovenia 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.
This Statement of the NLB is publicly
available also on NLB d.d.’s webpage:
https://www.nlb.si/corporate-governance.
Ljubljana,12 April 2019
NLB d.d. pursues internal governance,
including corporate governance, according
to the legislation applicable in the Republic
of Slovenia, adhering also to its internal
acts.
NLB d.d. fully complies with the acts
referred to in Article 9, paragraph two of
the Banking Act24 .
With the aim of strengthening internal
governance, the Bank operates especially in
compliance with:
1. the provisions of the Banking Act
defining the internal governance
arrangements, especially the provisions
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
management arrangements, management body and the
internal capital adequacy assessment process for banks
and savings banks, Official Gazette of the RS, no. 81/18.
26. https://www.bsi.si/financna-stabilnost/predpisi/
seznam-predpisov/ureditev-notranjega-upravljanja
NLB Group Annual Report 2018 147
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 2018, which is
published separately from the 2018 Annual
Report of NLB Group.
27. 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 Annual Report 2018 148
Disclosure on Shares and
Shareholders of NLB
1. Information pursuant to ZGD-1, Article
70, paragraph 6
1.1. Structure of the Bank’s share capital
The Bank has issued only ordinary
registered no-par value shares, the holders
of which have a voting right and the right
to participate at the general meeting of
bank’s shareholders, the pre-emptive right
to subscribe for new shares in case of
share capital increase, the right to profit
participation (dividends), the right to a
Table 31: Main shareholder structure of NLB (as at 31 December 2018)
Shareholder
Bank of New York Mellon on behalf of the GDR holders
- of which Brandes Investment Partners, L.P.*
- of which EBRD*
RoS
OTP banka d.d. - client account
Addiko Bank d.d. - Pension fund 1 - fiduciary account
Other shareholders
Total
share in surplus in the event of liquidation
or bankruptcy of the Bank, and the right to
be informed. All shares belong to a single
class and are issued in book-entry form.
Number of
shares
11,071,394
1,342,035
1,250,000
7,000,000
550,000
267,500
1,111,106
20,000,000
Percentage of shares
55.36
6.71
6.25
35.00
2.75
1.34
5.55
100.00
* The information on GDR ownership is based on self-declarations by individual GDR holders as required pursuant to the applicable provisions of Slovenian law.
The Bank of New York Mellon holds
shares in its capacity as the GDRs
depositary for the GDR holders, and is not
the beneficial owner of such shares. The
GDRs are issued against the deposit of
shares of the Bank pursuant to and subject
to an agreement made between the Bank
and the Bank of New York Mellon in its
capacity as the GDR depositary and are
admitted to trading on the London Stock
Exchange. The GDR holders have the right
to convert their GDRs into shares. The
rights under the deposited shares can be
exercised by the GDR holders only through
the GDR depositary, and individual GDR
holders do not have any direct right to
either attend the general meeting of bank’s
shareholders or to directly exercise any
voting rights under the deposited shares.
1.2. All restrictions relating to the
transfer of shares and the restrictions on
exceeded the 25% share of the Bank with
voting rights, increased by one share.
voting rights
The shares of the Bank are freely
transferable, subject to the provisions of
the Act of Association of the Bank which
require the consent of the supervisory
board, namely for the transfer of shares of
the Bank by which the acquirer, together
with the shares held by the holder before
such acquisition and the shares held
by third parties for the account of the
acquirer, exceeds the share of 25% of the
Bank’s voting shares, authorization by the
Bank is required. Approval for the transfer
of shares is issued by the supervisory board.
The Bank rejects the request for approval
of transfer shares if the acquirer, together
with the shares held by the acquirer before
the acquisition and the shares held by third
parties for the account of the acquirer,
Notwithstanding the provision mentioned
in the first paragraph, approval for the
transfer of shares is not required if the
acquirer of the shares has acquired them
for the account of third parties, so that it is
not entitled to exercise voting rights from
these shares at its sole discretion, while at
the same time committing to the Bank, it
will not exercise voting rights on the basis
of the instructions of an individual third
party for whose account it has acquired
the shares if, together with the instructions
for voting, it does not receive a written
guarantee from that person that this person
has shares for his own account and that this
person is not, directly or indirectly, a holder
of more than 25% of the Bank’s voting
rights.
NLB Group Annual Report 2018 149
The acquirer who exceeds the share of
25% of the Bank’s shares with voting
rights, and does not require the issuance of
approval for the transfer of shares, or does
not receive the approval of the Bank, may
exercise the voting right from 25% of the
shares with the voting rights.
There are no restrictions other than those
mentioned and those that are regulatory.
1.3. Qualifying holdings
Table 32: Significant direct and indirect ownership of the company’s securities in terms of achieving
a qualifying holding as defined in the Takeovers Act (as at 31 December 2018)
Shareholder
RoS
Brandes Investment Partners, L.P.*
EBRD*
* In the form of GDRs.
1.4. Securities carrying special
controlling rights
The Bank did not issue any securities
carrying special controlling rights.
1.5. The employee share scheme, if used
by the company, for shares to which the
scheme relates and about the method
of exercising control over this scheme, if
the controlling rights are not exercised
directly by employees
The Bank has no employee share schemes.
1.6. All agreements among shareholders
which are known to the company and
could result in restrictions relating to the
transfer of securities or voting rights
The Bank is not aware of such agreements.
1.7. The company’s rules on:
The appointment or replacement
of members of the management or
supervisory bodies
The Management Board of the Bank is
comprised of three to six members, one
of whom is appointed President of the
Management Board of the Bank. The
number of Management Board members
is determined by a resolution of the Bank’s
Supervisory Board. The President and
other members of the Management Board
of the Bank are 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
Number of shares
Percentage of shares
Nature of owner-ship
7,000,000
1,342,035
1,250,000
35.00
6.71
6.25
shares
GDRs
GDRs
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 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 written notice shall be
delivered to the Chair of the Supervisory
Board of the Bank. The notice term
may be shorter than three months if so
requested by the resigning member of the
Management Board of the Bank in his/her
notice and subject to the approval of the
Supervisory Board of the Bank.
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 obtained a licence
from the BoS or the ECB, if executing
the competences and tasks from Item (e)
of Paragraph 1 of Article 4 of Regulation
(EU) no. 1024/2013 for the performance
of the function of a bank’s management
board member under the law regulating
banking. The Bank assesses every candidate
following the Bank’s Policy governing
Fit&Proper assessment prior to the
appointment.
The supervisory board of the Bank
consists of (9) members, elected and
recalled by the Bank’s general assembly
from persons proposed by shareholders
or the supervisory board of the Bank.
Members of the supervisory board are
elected by an ordinary majority of votes
cast by shareholders. The members of the
supervisory board of the Bank are elected
for the period lasting from the day of
their election until the end of the Bank’s
annual general meeting of shareholders,
which decides on the use of accumulated
profit for the fourth business year since
they have been elected, unless otherwise
stipulated at the time of appointment of
individual members. The general meeting
of the Bank may dismiss an individual
or all members of the supervisory board
even before the expiration of their term
of office. A resolution on a dismissal shall
be valid if adopted with at least a three
quarter majority of all votes cast. The
Supervisory Board of the Bank shall at its
first meeting after an appointment elect
from among its members a Chair and at
least one Deputy Chair of the Supervisory
Board of the Bank. All of the supervisory
board members shall be independent
professionals as defined by the Articles of
Association.
NLB Group Annual Report 2018 the termination of the term of office. In
the event of resignation, the member of the
Management Board shall not be entitled to
any compensation for early discontinuation
of the term of office, unless otherwise
decided by the Supervisory Board.
150
To ensure the diversity of the supervisory
board, in addition to all legal and statutory
requirements, the members of the
Supervisory Board must have appropriate
experience, skills, knowledge, and
competences, including personal integrity
and the ability to dedicate sufficient time
to the performance of the function, so they
can successfully supervise the operation
of the Management Board and the
operations of the Bank. Members of the
supervisory board must have different skills
and experience to complement each other
and must act in accordance with the goals,
strategies and policies of the Bank in the
best interest of the Bank.
Complementarity and diversity must be
achieved through the composition of the
Supervisory Board, which must take into
the account the competences of the Bank’s
Supervisory Board, and also reflect:
• Different experience, age, education,
and professional skills at the level of
individual members of the Supervisory
Board and, consequently, Supervisory
Board as a whole, in particular in the
area of capital markets, financial analysis
and financial reports, issues related to
financial soundness, strategic planning,
corporate governance, and regulations
• knowledge of the local, regional, and,
where appropriate, global economic
markets, as well as the characteristics of
the legal and regulatory environment,
also taking into account the international
experience of individual members of the
Supervisory Board
• appropriate way of communication,
cooperation, and critical assessment or
discussion in the decision-making process
of the administration, to which the
attributes of each individual member of
the management contribute.
In the composition of the membership of
the Supervisory Board of the Bank, it is
also an aim to ensure that both sexes are
appropriately represented.
Amendments to Articles of Association:
A qualified majority of at least 75%
(seventy-five percent) of the votes cast
by shareholders at the general meeting
of bank’s shareholders is required for
the adoption of any amendments of the
Articles of Association.
1.8. Authorisations given to
management, particularly authorisations
to issue or purchase own shares
No authorisations to issue or purchase own
shares have been given to the management
board.
1.9. All major agreements to which the
company is a party and which take effect,
are changed or cancelled following a
change in control over the company
resulting from a bid, as laid down by the
Act governing M&A, and the effects of
such agreements.
There are no major agreements to which
the Bank is a party, and which would take
effect, be changed, or cancelled following
a change in control over the Bank resulting
from a bid.
1.10. All agreements between the Bank
and its management or supervision
bodies or its employees which envisage
compensation if, due to a bid as laid
down by the Act governing M&A,
these persons resign, are dismissed
without a well-founded reason, or their
employment is terminated
In line with the employment contracts of
the members of the Management Board,
in case the Supervisory Board recalls a
member of the Management Board “for
other business and economic reasons”, such
a member of the Management Board of
NLB is entitled to compensation for early
termination of his term of office. The
member of the Management Board shall
not be entitled to compensation for early
termination of the term of office if he is
employed in NLB or in NLB Group after
NLB Group Annual Report 2018 151
2. Number of shares held by members
of Supervisory Board and Management
Board
Table 33: Number of shares held by members of Supervisory Board and Management Board (as at 14 November and 31 December 2018)
Name of member of Supervisory Board
Primož Karpe
Andreas Klingen
Alexander Bayr
David E. Simon*
László Urban
Peter Groznik**
Simona Kozjek
Vida Šeme Hočevar
Name of member of Management Board
Blaž Brodnjak
Archibald Kremser
Andreas P. Burkhardt
László Pelle
Shares held as at 14 November 2018
Shares held as at 31 December 2018
Number
%
Number
606
378
—
582
303
350
160
—
1,136
151
151
151
0.003%
0.002%
—
0.003%
0.002%
0.002%
0.001%
—
0.006%
0.001%
0.001%
0.001%
606
378
—
582
303
350
160
—
1,136
151
151
151
%
0.003%
0.002%
—
0.003%
0.002%
0.002%
0.001%
—
0.006%
0.001%
0.001%
0.001%
* David E. Simon holds 2,910 GDRs, which is equal to 582 shares (as 1 share represents 5 GDRs).
** Peter Groznik holds Bank’s shares indirect through a company wholly owned by Peter Groznik.
3. Stock option agreements
The Bank has no stock option agreements
in relation with listed shares.
4. Dividend taxation
GDR depositary will be subject to the
deduction and withholding of Slovenian
tax at the rate of 25 per cent. A holder, an
owner of a GDR or a beneficial owner will
be entitled, if and to the extent applicable,
to claim a refund of the withholding tax.
Withholding tax
Application of Double Tax Treaties
A Slovenian payer is required to deduct
and withhold the amount of Slovenian
corporate or personal income tax from
dividend payments made to the certain
categories of payees:
• Individualist: 25%
• Intermediaries: 25%
• Legal entities (other than Intermediaries):
15%
If the payee is not an intermediary,
Slovenian tax authorities may approve the
application of a lower tax rate specified
in the double tax treaty between the
RoS and the country of residence of the
payee if the Slovenian payer provides
certain information on the payee and a
confirmation that the payee is resident for
taxation purposes in such a country, issued
by the tax authorities of such a country.
There are some exemptions if
Refund of Withholding Tax
dividends are paid to intermediaries
and legal entities
For the purposes of Slovenian tax
legislation, the GDR depositary will
qualify as an intermediary. Therefore, the
dividends paid by the custodian to the
If the Slovenian tax was deducted and
withheld at a higher tax rate than it would
be paid if a Slovenian payer would make
the dividend payment directly to such
person as a payee or higher tax rate, than
the one specified in the double tax treaty,
the payee of the dividend is entitled to
the refund of the overpaid tax. The tax
refund is enforced by filing a claim to the
Financial Administration of the Republic
of Slovenia.
Legal persons
Dividends in respect of the shares received
by a legal person which is Slovenian
resident are exempt from Slovenian
corporate income tax (davek od dohodkov
pravnih oseb).
Individuals
The amount of tax withheld from a
dividend payment received by an individual
constitutes the final amount of Slovenian
Personal Income Tax (dohodnina) in
respect of such a dividend payment.
NLB Group Annual Report 2018
152
Chapter 20
Corporate
and Social
Responsibility
The Group has an important socially
responsible mission – in addition to
good business performance the Group
wishes to contribute to society by
providing a higher quality of life in
general. In 2018, all NLB Group members
carried out numerous CSR activities
in accordance with the common CSR
Politics, looking for synergies, sharing
best practices and addressing new
opportunities to make the impact on
society meaningful and worthwhile.
As a caring mentor, the Group has a
commitment to be responsible to the
clients, employees, society, and the
environment. The key pillars of socially
responsible behaviour of the Group
are: knowledge and lifelong learning,
empowerment of entrepreneurship,
humanitarianism, promoting a
healthy lifestyle by supporting sports,
promotion of art, and preservation
of cultural heritage. The projects
supported reflect the Group’s values
and support its identity together with
everything for which the Group stands.
The contribution through CSR activities
have been recognised by society, and several
awards that the Group members gained in
2018 have also shown that actions matter.
The Bank holds the prestigious award
“Top Employer” for the third consecutive
year, and owns the Full Certificate of a
“Family-Friendly Company” for the second
year. Both are an important proof of
the efforts to ensure that employees have
family-friendly working conditions and
the opportunity to have a better balance
between work and domestic obligations.
Similar efforts have been recognised in
other Group members as well. NLB Banka
Prishtina received the Employer of the
Year 2018 award by the Kosovo Chamber
of Commerce. NLB Banka Sarajevo was
elected the second most desirable employer
in the financial sector in BiH, and the
Bank’s CEO Lidija Žigić was elected as
the woman that contributing most to the
development of the financial and banking
sector in the Federation of BiH. NLB
Banka Skopje won The National Award
for Best Social Responsible Practices for
2018 with the project, “Friendship with
Special Olympics Macedonia”, given by
the Ministry of Economy of Republic of
Macedonia.
Highlights:
• Key pillars of CSR activites in
the Group are: knowledge and
lifelong learning, empowerment of
entrepreneurship, humanitarianism,
supporting sports, promotion of art,
and preservation of cultural heritage.
A commitment to employees
The awards the Group won in the field of
employee care show constant development
and the effort to improve both working
conditions and other significant areas
that contribute to one’s healthier life. In
the Bank, there is a continouos project
“Healthy Bank”, that has promoted health
for more than three years, built awareness
and encouraged a healthy lifestyle among
employees. The emphasis is on disease
prevention, the identification of symptoms,
and learning to make healthy lifestyle
changes.
The Bank promotes education of its
employees, and is committed to high quality
standards as an ever-learning organisation.
Within the NLB Training Centre,
employees are being educated in different
areas, to gain both professional knowledge
and various social skills in cooperation with
renowned experts and professionals, within
and outside of the Bank.
Just before the summer season starts, there’s
a two-day event, “NLB Sports Games” for
employees from all Group members. They
participate in different sports games and
there is always a special social responsible
activity during the event. In 2018 the
Group donated a new volleyball playground
to the Municipiality of Murska Sobota.
Another big event was the New Yearʼs
NLB Group Annual Report 2018 153
In 2018, the Group continued with the
Children Health Care Project from the
previous years, as well as supporting other
hospital institutions in order to improve
the level of services. NLB Banka Prishtina
and NLB Banka Skopje mostly donate to
the orphanages in their region to focus on
helping the most vulnerable children.
The Group is especially proud on the
numerous humanitarian projects in
cooperation with clients and employees,
i.e. traditional blood donation, providing
infrastructure for fund raising through the
NLB Contact centre, etc.
Supporting Art and preserving
Cultural Heritage
The Group remains a supporter of the
arts and takes care of the preservation of
cultural heritage. Throughout 2018, 23
well visited exhibitions were organised
in galleries in the premises of member
banks in Ljubljana, Belgrade, and Skopje.
The Bank is proud of its Art Collection
by Slovenian authors of the 20th century,
which was, together with the Museum
Collection as an important cultural
heritage, in October 2018 declared as the
Slovenian national treasure.
celebration, which happened at the same
time in all member countries. It was a
perfect ending of the year, emphasising the
common goals and spirit of one big team
from six SEE markets.
important from the Bank’s point of view,
so that an entrepreneur can get funds,
insure its transactions, etc. to run a business
successfully.
Supporting professional sport and
Promoting financial literacy
encouraging sports for youth
and entrepreneurship
The Bank continues to support top
Slovenian athletes who are also the greatest
ambassadors of Slovenia in the world.
The Bank is a traditional Golden sponsor
of the Slovenian Alpine Ski Team for the
twentieth consecutive year, is also a big
sponsor of Slovenian Football Team, and
is the official sponsor of the Handball
Federation of Slovenia and sponsor of the
First Handball Men’s League of NLB.
The initiative “NLB Sports for Youth” was
successfully expanded in 2018, in order
to encourage and responsibly educate
young people. Thirty-eight sport clubs
in strategic disciplines in all regions of
Slovenia were connected and financially
supported. This initiative supports content
of the programme that is rich in fair
play education, promotes responsible
behaviour, and emphasises the importance
of recreation in general. The programme
was also established to connect various local
communities in Slovenia and raise the level
of sports participation, as well as socially
responsible practices among youths. All
Group members started to focus on their
key pillar sports to support professional
sports and to encourage young people to
get involved in sports.
Humanitarianism
A very important pillar of social
responsibility is humanitarianism. The
Group members help hospitals and other
humanitarian institutions in need by
donating funds for equipment they need for
the treatment of different diseases.
In the Group, special attention is put on
knowledge and lifelong learning. By helping
young people on their path to financial
independence, various incentives have been
introduced that promote acting responsibly
for a better and more prosperous future.
The Financial Literacy Program is
primarily aimed at pre-school children,
elementary school students, secondary
school students, faculty students, and
secondary school teachers. Depending
on the age and needs of children and
adolescents, tailor-made programs with
general and specific topics on money
management were created. In most primary
and secondary schools there is still lack of
financial knowledge themes, even though
this is a very important foundation for a
financially independent life.
Another similar initiative is empowering
entrepreneurs. In 2018, the Bank
Innovative Entrepreneurship Centre,
which was established to improve the
business climate and financial mentoring
in Slovenia, continued with education
and business events organised on its
own initiative or in cooperation with
recognised Slovenian partners. Most
significant projects in the year 2018 were
implementation of numerous Financial
Literacy Programs for secondary school
students and young people. Also, a new
project with the presentation of the
CANVAS model for the secondary school,
was implemented. NLB participated
in the “Start-up” Slovenia project for
the second year. It is a springboard for
young Slovenian entrepreneurs and their
brands, and the Bank is actively sharing its
knowledge of which business factors are
NLB Group Annual Report 2018 154
Chapter 21
GRI Standards
Disclosure for
NLB Group
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
organization’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.
In NLB Group Annual report for 2018
In NLB Group Annual report for 2018
In NLB Group Annual report for 2018.
In NLB Group Annual report for 2018.
In NLB Group Annual report for 2018.
In NLB Group Annual report for 2018.
NLB Group Annual Report 2018
155
GRI Topic
GRI Disclosure
Value
Comment
GRI 202 – Market
Presence
202-2: Proportion of senior management
hired from the local community
a. Percentage of senior management at
significant locations of operation that
are hired from the local community.
98% Republic of Slovenia.
100% Republic of Serbia.
100% Republic of Kosovo.
100% Federation of Bosnia and Herzegovina.
93.3% Montenegro.
100% Republic of Srpska (Bosnia and
Herzegovina)
100% Republic of Macedonia
b. The definition used for ‘senior management’
c. The organization’s geographical
definition of ‘local’.
d. The definition used for ‘significant
locations of operation’.
The recruitment procedure: In the event that
NLB evaluates that the pool of talents does not
provide a suitable candidate for the vacant senior
management position, NLB prepares the tender
invitation. The invitation is published on NLB'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. Fit & Proper rating
is also involved. The selected candidates are
employed at NLB for an indefinite period with 6
months’ probation period.
In Macedonia usually the selected candidates
for senior positions sign the first contract
for appointment on a definite period of
12 months, which is considered probation
period. Prolongation of contract then
follows the mandate duration.
Senior management: General Managers directly
subordinated to 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 and locations of NLB Group Members.
RoS and locations of NLB Group Members.
NLB Group Annual Report 2018
156
GRI Topic
GRI Disclosure
Value
Comment
GRI 205
– Anti-corruption
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 (MB): 4 members
(100%),
NLB Supervisory Board (SB): 8 members (100%).
NLB Group:
MB and SB: 119 members (91%).
b. Total number and percentage of
NLB: 2,748* (100%) of employees.
employees that the organization’s anti-
corruption policies and procedures have
been communicated to, broken down
by employee category and region.
NLB Group:
5,535* (100%) of employees
* figure is different from the figure in other part
of Business report due to reporting method.
d. Total number and percentage of governance
body members that have received training
on anti-corruption, broken down by region.
NLB:
Manangement Board (MB): 4 members (100%)
Supervisory Board (SB): 8 members (100%).
NLB Group:
MB and SB: 105 members (70%).
e. Total number and percentage of
employees that have received training
on anti-corruption, broken down by
employee category and region.
NLB:
In 2018 Successfully finished training: 2,323
employees, which is 85% of all employees
(including long sick leave, maternity leave etc.).
NLB Group:
In 2018 Successfully finished training: 4,590
employees, which is 83% of all employees
(including long sick leave, maternity leave etc.).
Members of the SB were acquainted with
this topic in the context of specialized
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 24 May 2018.
NLB Group
NLB Group core members are committed to
the same procedures as NLB (special anti-
corruption trainings and policies), non-core
members are informed and trained during
the adoptation process of the document
NLB Group code of conduct. The members
of MB and SB are informed: 100% for NLB
members, rest of them are external members.
NLB Group:
NLB Group core members are committed to
the same procedures as NLB (special anti-
corruption trainings and policies), non-core
members are informed and trained during
the adoptation process of the document
NLB Group code of conduct. The members
of MB and SB are informed: 100% for NLB
members, rest of them are external members.
NLB: Members of the SB were acquainted with
this topic in the context of specialized 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 5
September 2018.
NLB Group:
NLB Group core members are committed to
the same procedures as NLB (special anti-
corruption trainings and policies), non-core
members are informed and trained during
the adoptation process of the document
NLB Group code of conduct. The members
of MB and SB are informed: 100% for NLB
members, rest of them are external members.
NLB:
Anticorruption training is obligatory for all
employees.
NLB Group:
NLB Group core members are committed to
the same procedures as NLB dd (special anti-
corruption trainings and policies), non-core
members are informed and trained during
the adoptation process of the document NLB
Group code of conduct. The members of
MB and SB are informed: 100% for NLBdd
members, rest of them are external members.
NLB Group Annual Report 2018
157
GRI Topic
GRI Disclosure
Value
Comment
GRI 205
– Anti-corruption
205-3: Confirmed incidents of
corruption and actions taken
This means incidents of corruption (which
is meant to include bribery, fraud or
money laundering) and actions taken.
a. Total number and nature of confirmed
incidents of corruption.
NLB d.d:
3 confirmed incidents of corruption; bribery for
granting a loan.
NLB Group:
3 confirmed incidents of corruption;
bribery for granting a loan.
b. Total number of confirmed incidents
in which employees were dismissed
or disciplined for corruption.
NLB: 3
NLB Group: 3
c. Total number of confirmed incidents
NLB: 0
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 organization or its
employees during the reporting period
and the outcomes of such cases.
NLB Group: 0
NLB: 0
NLB Group: 0
NLB Group Annual Report 2018
158
Environmental
GRI Topic
GRI 301 – Materials
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 organization’s
primary products and services
during the reporting period, by:
renewable materials used.
NLB: 30.07 A4 pages per employee per
working day.
NLB Group: The reporting
system to be implemented.
NLB: 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 30.07 pages in 2018).
GRI 302 – Energy
302-1: Energy consumption
within the organization
electricity consumption in kWh
NLB: 12,475,496
NLB Group: The reporting
system to be implemented.
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
NLB Group: The reporting
system to be implemented.
NLB: In 2018 we continued with the
reduction of electricity consumption, which
is 3.5% lower than in the year 2017.
NLB Group: The reporting
system to be implemented.
NLB: The waste is being treated by
outsourced waste company.
NLB Group: The reporting
system to be implemented.
NLB: NLB received no fines or penalties
regarding failure to comply with
environmental laws.
NLB Group: The reporting
system to be implemented.
NLB Group Annual Report 2018
159
GRI Disclosure
Value
Comment
Social
GRI Topic
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.
NLB In total 148 new employees in 2018.
All employees were from the
Republic of Slovenia.
NLB Group: In total 441 new employees
in 2018 (strategic group members)
99% of new hires were hired
from local community.
NLB: In total 248 employees
departed from NLB in 2018.
NLB Group: In total 501 employees
departed from NLB Group in 2018.
NLB: In total 148 new employees in 2018.
68 were younger than 30 years, 45.9%
73 were between 30 and 50, 49.3% and
7 employees were older than 50, 4.7%
NLB Group: In total 441 new
employees in 2018.
204 were younger than 30 years, 46.3%
224 were between 30 and 50, 50.8% and
13 employees were older than 50, 2.9%
NLB: In total 248 employees
departed from NLB in 2018.
13 were younger than 30, 5.2%
107 were in the age between
30 and 50, 43.2%
198 employees were older than
50 years old, 51.6%.
NLB Group: In total 501 employees
departed from NLB Group in 2018.
55 were younger than 30, 11%
248 were in the age between
30 and 50, 49.5%
and 198 employees were older
than 50 years old, 39.5%
34.1% were men and 65.9% were women.
NLB Group: 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.
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.
NLB Group: 245 employees
NLB Group: 244 female, 1 male
NLB Group: 245 employees
NLB Group: 244 female, 1 male
NLB Group: 245 employees
NLB Group: 244 female, 1 male
d. Total number of employees that
NLB Group: 245 employees
NLB Group: 244 female, 1 male
returned to work after parental leave
ended that were still employed 12
months after their return to work.
e. Return to work and retention rates of
employees that took parental leave.
NLB Group: 100%
GRI 402 - Labor/
Management Relations
402-1: Minimum notice periods
regarding operational changes
NLB Group: 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
Worker's council and employer. Deadlines
for informing the Unions and the Worker's
council is in a minimum of 30 days.
NLB Group Annual Report 2018
160
GRI Topic
GRI Disclosure
Value
Comment
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.
NLB Group: 4 weeks in minimum prior
to implementation of new operational
changes with significant impact.
NLB Group: Global agreement
with trade union.
b. If so, the extent, as a percentage, to
NLB Group: 100%
GRI 404 – Training and Education
which various health and safety topics
are covered by these agreements.
404-1: Average hours of training
per year per employee
a. Average hours of training that
the organization’s employees
have undertaken during
the reporting period.
404-2: Programs for upgrading
employee skills and transition
assistance programs
NLB Group: 37.9 hours per
employee in the 2018.
NLB Group: In 2018 12,692 employees
participated in internal lectures and
workshops and 3,143 employees
participated on external training courses.
a. Type and scope of programs
implemented and assistance provided
to upgrade employee skills.
NLB Group: Internal education
(lectures and workshops),
e-trainings, external training courses,
courses for new employees.
Every 3-month Human Resources
department publish the list of all
trainings and education programs for
the next period. It includes 30 different
education programs at 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 total employees by
gender and by employee category
who received a regular performance
and career development review
during the reporting period.
NLB Group: Provided for all employees in
the case of termination of employment
in the case of structural downsizing.
NLB Group: 100%
NLB Group: The aim of the
organization was all employees to
receive a regular performance and
career development review.
NLB Group Annual Report 2018
161
GRI Topic
GRI Disclosure
Value
Comment
GRI 405 – Diversity and
Equal Opportunity
405-1: Diversity of governance
bodies and employees
a. Percentage of individuals within
the organization’s governance
bodies in each of the following
diversity categories:
Gender:
Management Boards in NLB Group:
27.9 % female
72.1 % male
Senior management in NLB Group (B-1)
52% female
48% male
As organization’s governance bodies
we consider NLB Management Board
and NLB Supervisory Board.
NLB Group:
Management Boards in NLB Group
members have 28 members,
25 male and 3 females.
Supervisory Board has 58 members, 37
male and 21 females.
Senior management: General Managers
directly subordinated to Management
Board (B-1), have 127 members in NLB
Group (61 male and 66 female).
NLB Group:
Under 30 years 0
31-50 years old 65.6 %
Over 51 years old 34.4 %
NLB Group:
Under 30 years 8.5 %
31-50 years old 62.3 %
Over 51 years old 29.2 %
Age group:
under 30 years old,
31-50 years old,
over 51 years old.
b. Percentage of each of the
following diversity categories.
405 – 2 Comparison of basic salary
based on gender of employees
405-2A Ratio of the basic salary and
remuneration of women to men
for each employee category, by
significant locations of operation
GRI 406 – Non-discrimination
405-2B The definition used for
significant locations of operation
406-1: Incidents of discrimination
and corrective actions taken
a. Total number of incidents
of discrimination during
the reporting period.
0
The level of wages in the bank is governed
by internal rules and collective agreements
and depends on the complexity of the
workplace and the performance of
employees. The level of complexity of
the individual workplace is determined
on the basis of the conversion of the
criteria set out in the systemization
rules of jobs using factor analysis
according to the job evaluation model.
All employees in the bank have the
same opportunities and opportunities
regardless of gender, age and location.
Republic of Slovenia and locations
of NLB Group Members.
NLB has a policy of zero tolerance to any
form of discrimination and violence.
NLB Group Annual Report 2018
162
Chapter 22
Events after the end of
the 2018 financial year
On 14 February 2019, the Bank disclosed
new decision establishing prudential
requirement from ECB, which is applicable
from 1 March 2019 and leading to total
SREP capital requirement (TSCR) of
11.25%, that includes minimum own
funds of 8% (Pillar 1 Requirement) and
own funds requirement of 3.25% (Pillar
2 Requirement) to be held in excess of
minimum own funds requirement on
consolidated level. With this decision, ECB
has decreased the Pillar 2 Requirement
from 3.5% to 3.25% of CET 1. This
decision together with applicable combined
buffer requirement leads to OCR of
14.75%.
On 20 February 2019, the Bank announced
that it started with analysing the alternatives
for optimizing the Bank’s capital by raising
additional capital (Tier 2).
On 8 January, 2019 the company REAM,
Beograd was merged with SR-RE,
Beograd.
On 15 January 2019 a decrease of
shareholders equity for KM 6,500,759.20
has been entered into register for the
company NLB Leasing, Sarajevo.
On 17 December 2018 there has been
a share transfer contract signed for the
transfer of a 100% share of the company
REAM, Zagreb from The Bank to
S-REAM. The share transfer was entered
into registry on 21 January 2019.
On 28 January 2019, after the end of the
liquidation proceedings, the company NLB
Lizing dooel, Skopje was deleted from the
companies register.
On 4 February 2019, the Bank joined
the new payment system Bankart Instant
Payment Settlement (BIPS) which enables
the implementation of instant payments
between banks on Slovenian territory.
On 7 February 2019, the Bank received
Top Employer Certificate for the fourth
consecutive year.
NLB Group Annual Report 2018 Financial Statements
Audited Financial Statements of NLB Group
and NLB pursuant to the International
Financial Reporting Standards as adopted
by the European Union
166
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 the 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, deposits and issued debt securities 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
2.35. Presentation of effects at transition to IFRS 9 as at 1 January 2018
3.
4.
Changes in subsidiary holdings
Notes to the income statement
4.1.
Interest income and expenses
4.2. Dividend income
4.3. Fee and commission income and expenses
168
173
175
176
177
179
181
182
183
183
183
183
183
184
184
185
185
185
186
186
186
186
190
193
193
194
194
194
194
194
195
195
195
195
195
196
196
196
197
197
197
197
198
199
203
210
211
211
212
212
NLB Group 2018 Annual Report 4.4. Gains less losses from financial assets and liabilities not classified at fair value through profit or loss
4.5. Gains less losses from financial assets and liabilities held for trading
4.6. Gains less losses from non-trading financial assets mandatorily at fair value through profit or loss
4.7. Foreign exchange translation gains less losses
4.8. Other operating income
4.9. Other operating expenses
4.10. Administrative expenses
4.11. Depreciation and amortisation
4.12. Provisions
4.13. Impairment charge
4.14. Gains less losses from non-current assets held for sale
4.15. Income tax
4.16. 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. Financial instruments held for trading
5.3. Non-trading financial instruments measured at fair value through profit or loss
5.4. Financial assets measured at fair value through other comprehensive income
5.5. Available-for-sale financial assets (IAS 39)
5.6. Derivatives for hedging purposes
5.7. Financial assets measured at amortised cost
5.8. Loans and advances (IAS 39)
5.9. Held-to-maturity financial assets (IAS 39)
5.10. Non-current assets and a disposal group classified as held for sale
5.11. Property and equipment
5.12. Investment property
5.13. Intangible assets
5.14. Investments in subsidiaries, associates and joint ventures
5.15. Other assets
5.16. Movements in allowance for the impairment of financial assets
5.17. Movements in allowance for the impairment of banks, loans, and advances to customers and other financial assets (IAS 39)
5.18. Financial liabilities, measured at amortised cost
5.19. Provisions
5.20. Deferred income tax
5.21. Income tax relating to components of other comprehensive income
5.22. Other liabilities
5.23. Share capital
5.24. Accumulated other comprehensive income and reserves
5.25. Capital adequacy ratios
5.26. Off-balance sheet liabilities
5.27. 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
167
213
214
214
215
215
215
216
217
217
218
219
219
220
221
221
222
223
224
226
227
229
233
236
236
239
241
242
243
248
249
251
253
255
261
263
264
264
264
265
268
269
271
274
297
308
321
322
330
332
336
343
NLB Group 2018 Annual Report 168
NLB Group 2018 Annual Report
Independent auditor’s report
NLB Group 2018 Annual Report
169
170
NLB Group 2018 Annual Report
NLB Group 2018 Annual Report
171
172
NLB Group 2018 Annual Report
173
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 December 2018,
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 December 2018, and their
financial results and cash flows for the year
then ended.
together with the accompanying notes,
have been prepared on a going-concern
basis for NLB Group and NLB, and in line
with valid legislation and the International
Financial Reporting Standards as adopted
by the European Union.
The Management Board 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,
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 2018 Annual Report
174
NLB Group 2018 Annual Report Income Statement
Interest income, using the effective interest method
Interest income, not using the effective interest method
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 non-trading financial assets
mandatorily at fair value through profit or loss
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 credit losses
Provisions for other liabilities and charges
Impairment of financial assets
Impairment of non-financial assets
Share of profit from investments in associates and joint
ventures (accounted for using the equity method)
Gains less 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.
4.6.
5.6.a)
4.7.
4.8.
4.9.
4.10.
4.11.
4.12.
4.12.
4.13.
4.13.
5.14.c)
4.14.
4.15.
175
NLB Group
NLB
in EUR thousands
2018
351,773
7,084
358,857
(45,947)
312,910
118
218,559
(57,944)
160,615
45
9,500
4,036
(56)
472
745
2,644
18,680
(28,268)
2017
356,932
6,801
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)
2018
174,296
7,135
181,431
(23,399)
158,032
49,692
132,677
(32,514)
100,163
(365)
2,885
5,284
(56)
472
218
123
9,768
(14,637)
2017
181,454
6,801
188,255
(29,466)
158,789
58,062
127,749
(29,240)
98,509
11,711
7,065
-
-
(813)
(1,007)
249
12,172
(15,249)
(261,432)
(256,907)
(161,439)
(157,877)
(27,224)
(27,802)
(17,531)
(18,010)
3,156
(1,512)
27,047
(5,414)
5,446
11,828
233,336
(21,759)
211,577
203,647
7,930
3,460
(8,711)
39,988
(5,207)
4,782
(2,686)
237,311
(3,997)
233,314
225,069
8,245
1,157
2,258
28,659
981
-
11,822
177,486
(12,187)
165,299
2,296
(9,640)
39,181
(1,173)
-
610
184,875
4,219
189,094
165,299
189,094
-
8.3
-
9.5
Earnings per share/diluted earnings per share (in EUR per share)
4.16.
10.2
11.3
The notes are an integral part of these financial statements.
NLB Group 2018 Annual Report 176
Statement of comprehensive income
NLB Group
NLB
in EUR thousands
notes
2018
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
Fair value changes of equity instruments measured at
fair value through other comprehensive income
5.4.c)
Share of other comprehensive income/(losses) of
entities accounted for using the equity method
Income tax relating to components of other comprehensive income
5.21.
Items that may be reclassified subsequently to income statement
Foreign currency translation
Translation gains/(losses) taken to equity
Debt instruments measured at fair value
through other comprehensive income
211,577
(14,337)
1,166
1,015
(1,120)
141
(1,128)
(1,128)
(12,343)
Valuation gains/(losses) taken to equity
5.4.c)
(12,073)
Transferred to income statement
4.4., 4.13.
(270)
Available-for-sale financial assets (IAS 39)
Valuation gains/(losses) taken to equity
Transferred to profit or loss
Share of other comprehensive income/(losses) of
entities accounted for using the equity method
5.5.c)
4.4., 4.13.
Income tax relating to components of other comprehensive income
5.21.
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.
-
-
-
(5,375)
3,307
197,240
189,430
7,810
2017
233,314
(3,100)
(810)
-
(11)
89
3,035
3,035
-
-
-
(7,261)
4,955
(12,216)
236
1,622
230,214
221,852
8,362
2018
165,299
(8,361)
884
(10)
-
(73)
-
-
(11,311)
(11,371)
60
-
-
-
-
2,149
156,938
156,938
-
2017
189,094
(8,882)
(950)
-
-
90
-
-
-
-
-
(9,904)
1,781
(11,685)
-
1,882
180,212
180,212
-
NLB Group 2018 Annual Report Statement of financial position
177
Cash, cash balances at central banks, and
other demand deposits at banks
Financial assets held for trading
Non-trading financial assets mandatorily
at fair value through profit or loss
Financial assets designated at fair value through profit or loss
Financial assets measured at fair value
through other comprehensive income
Financial assets measured at amortised cost
- debt securities
- loans and advances to banks
- loans and advances to customers
- other financial assets
Available-for-sale financial assets (IAS 39)
Loans and advances (IAS 39)
- debt securities
- loans and advances to banks
- loans and advances to customers
- other financial assets
Held-to-maturity financial assets (IAS 39)
Derivatives - hedge accounting
Fair value changes of the hedged items in
portfolio hedge of interest rate risk
Investments in subsidiaries
Investments in associates and joint ventures
Tangible assets
Property and equipment
Investment property
Intangible assets
Current income tax assets
Deferred income tax assets
Other assets
Non-current assets and disposal group
classified as held for sale
Total assets
Trading liabilities
Financial liabilities measured at fair
value through profit or loss
Financial liabilities measured at amortised cost
- deposits from banks and central banks
- borrowings from banks and central banks
- due to customers
- borrowings from other customers
- subordinated liabilities
- other financial liabilities
Derivatives - hedge accounting
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.
NLB Group
NLB
in EUR thousands
Notes
31 Dec 2018
1 Jan 2018
31 Dec 2017
31 Dec 2018
1 Jan 2018
31 Dec 2017
5.1.
1,588,349
1,255,824
1,256,481
795,102
569,943
570,010
5.2.a)
5.3.a)
5.3.b)
63,609
32,389
-
72,189
32,913
-
5.4.
1,898,079
1,654,856
1,428,962
1,301,413
118,696
509,970
7,124,633
6,956,362
75,171
67,046
72,189
-
5,003
63,611
29,141
-
72,180
32,748
-
72,180
-
634
-
-
-
-
-
1,528,314
1,283,767
1,274,978
1,178,088
110,297
461,830
4,451,477
4,594,286
42,741
38,915
-
-
-
-
-
1,777,762
82,133
462,322
4,587,477
38,389
609,712
1,188
719
349,945
6,932
87,051
9,257
23,911
2,196
19,758
8,692
2,564
-
-
-
-
-
-
417
2,517
-
37,147
-
-
-
-
-
-
-
1,188
719
-
2,276,493
82,133
510,107
6,912,333
66,077
609,712
1,188
719
-
43,765
43,765
177,404
188,355
188,355
58,644
34,968
877
22,847
70,971
4,349
51,838
34,974
599
19,745
93,349
11,631
51,838
34,974
2,795
18,603
93,349
11,631
-
-
-
-
-
-
417
2,517
350,733
4,777
86,934
12,026
23,391
-
22,234
10,637
1,720
-
-
-
-
-
-
-
1,188
719
349,945
6,932
87,051
9,257
23,911
-
20,318
8,692
2,564
12,740,029
12,296,736
12,237,745
8,811,047
8,742,334
8,712,832
12,300
4,190
9,502
5,815
9,502
635
12,256
3,981
9,398
5,166
9,398
635
26,775
258,423
40,602
279,616
40,602
279,616
48,903
244,133
72,072
260,747
72,072
260,747
10,464,017
9,878,378
9,878,378
7,033,409
6,810,967
6,810,967
61,844
15,050
100,887
29,474
-
80,134
12,152
2,499
14,840
74,286
27,350
111,019
25,529
440
93,989
3,908
2,558
9,467
74,286
27,350
111,019
25,529
440
88,639
2,894
1,096
9,596
4,128
-
62,212
29,474
-
56,994
10,784
-
9,543
5,726
-
71,534
25,529
-
67,232
1,014
-
4,057
5,726
-
71,534
25,529
-
70,817
-
-
4,181
11,082,585
10,562,459
10,549,582
7,515,817
7,333,442
7,331,606
200,000
871,378
7,823
13,522
523,493
200,000
871,378
24,300
13,522
588,186
200,000
871,378
26,752
13,522
541,901
200,000
871,378
15,839
13,522
194,491
200,000
871,378
24,244
13,522
299,748
200,000
871,378
25,699
13,522
270,627
1,616,216
1,697,386
1,653,553
1,295,230
1,408,892
1,381,226
41,228
36,891
34,610
1,657,444
1,734,277
1,688,163
12,740,029
12,296,736
12,237,745
-
1,295,230
8,811,047
-
1,408,892
8,742,334
-
1,381,226
8,712,832
5.7.a)
5.7.b)
5.7.c)
5.7.d)
5.5.a)
5.8.a)
5.8.b)
5.8.c)
5.9.
5.6.b)
5.6.c)
5.14.a)
5.14.b)
5.11.
5.12.
5.13.
5.20.
5.15.
5.10.a)
5.2.b)
5.3.
5.18.a)
5.18.b)
5.18.a)
5.18.b)
5.18.c)
5.18.d)
5.6.b)
5.10.a)
5.19.
5.20.
5.22.
5.23.
5.24.a)
5.24.b)
5.24.a)
NLB Group 2018 Annual Report 178
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, 26 March 2019
NLB Group 2018 Annual Report
Statement of changes in equity
179
in EUR thousands
NLB Group
Share capital
Share
premium
Accumulated other comprehensive income
Fair value
reserve of
financial
assets
measured
at FVOCI
Foreign
currency
translation
reserve
Other capital
reserves Profit reserves
Retained
earnings
Equity
attributable
to owners of
the parent
Equity
attributable
to non-
controlling
interests
Total equity
Balance as at 1 January 2018
200,000
871,378
47,595
(17,248)
(3,595)
13,522
541,901
1,653,553
34,610
1,688,163
Impact of adopting IFRS 9
-
-
(2,452)
-
-
-
46,285
43,833
2,281
46,114
Restated opening balance
under IFRS 9
- Net profit for the year
- Other comprehensive income
Total comprehensive
income after tax
Dividends paid
Transfer of fair value reserve
Other
200,000
871,378
45,143
(17,248)
(3,595)
13,522
588,186
1,697,386
36,891
1,734,277
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(14,200)
(1,027)
1,010
(14,200)
(1,027)
1,010
-
(2,241)
-
-
-
-
-
(19)
-
-
-
-
-
-
-
203,647
203,647
7,930
211,577
-
(14,217)
(120)
(14,337)
203,647
189,430
7,810
197,240
(270,600)
(270,600)
(3,133)
(273,733)
2,260
-
-
-
-
-
(340)
(340)
Balance as at 31 December 2018
200,000
871,378
28,702
(18,275)
(2,604)
13,522
523,493
1,616,216
41,228
1,657,444
Accumulated other comprehensive income
in EUR thousands
Fair value
reserve of
available-for-
sale financial
assets (IAS
39)
Foreign
currency
translation
reserve
Share
premium
Other capital
reserves Profit reserves
Retained
earnings
Equity
attributable
to owners of
the parent
Equity
attributable
to non-
controlling
interests
Total equity
NLB Group
Share capital
Balance as at 1 January 2017
200,000
871,378
52,971
(20,139)
(2,863)
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
-
-
-
-
-
-
-
-
-
-
-
-
(5,376)
2,891
(5,376)
2,891
-
-
-
-
-
(732)
(732)
-
-
-
-
-
-
-
225,069
225,069
8,245
233,314
-
(3,217)
117
(3,100)
225,069
221,852
8,362
230,214
(63,780)
(63,780)
(3,752)
(67,532)
168
168
(347)
(179)
Balance as at 31 December 2017
200,000
871,378
47,595
(17,248)
(3,595)
13,522
541,901
1,653,553
34,610
1,688,163
NLB Group 2018 Annual Report 180
NLB
Share capital
Share premium
Balance as at 1 January 2018
200,000
871,378
Impact of adopting IFRS 9
-
-
Restated opening balance under IFRS 9
200,000
871,378
- Net profit for the year
- Other comprehensive income
Total comprehensive income after tax
Dividends paid
Transfer of fair value reserve
-
-
-
-
-
-
-
-
in EUR thousands
Accumulated other
comprehensive income
Fair value reserve
of financial
assets measured
at FVOCI
Other capital
reserves
Profit reserves Retained earnings
Total equity
29,196
(1,455)
27,741
-
(9,077)
(9,077)
-
(44)
(3,497)
13,522
270,627
1,381,226
-
-
29,121
27,666
(3,497)
13,522
299,748
1,408,892
-
716
716
-
-
-
-
-
-
-
165,299
165,299
-
(8,361)
165,299
156,938
(270,600)
(270,600)
44
-
Balance as at 31 December 2018
200,000
871,378
18,620
(2,781)
13,522
194,491
1,295,230
NLB
Share capital
Share premium
in EUR thousands
Accumulated other
comprehensive income
Fair value reserve
of available-for-
sale financial
assets (IAS 39)
Other capital
reserves
Profit reserves Retained earnings
Total equity
Balance as at 1 January 2017
200,000
871,378
37,218
(2,637)
13,522
145,313
1,264,794
- Net profit for the year
- Other comprehensive income
Total comprehensive income after tax
Dividends paid
-
-
-
-
-
-
-
-
-
(8,022)
(8,022)
-
-
(860)
(860)
-
-
-
-
-
189,094
189,094
-
(8,882)
189,094
180,212
(63,780)
(63,780)
Balance as at 31 December 2017
200,000
871,378
29,196
(3,497)
13,522
270,627
1,381,226
The notes are an integral part of these financial statements.
NLB Group 2018 Annual Report Statement of cash flows
CASH FLOWS FROM OPERATING ACTIVITIES
Interest received
Interest paid
Dividends received
Fee and commission receipts
Fee and commission payments
Realised gains from financial assets and financial liabilities
not at fair value through profit or loss
Net gains/(losses) from financial assets and liabilities held for trading
Payments to employees and suppliers
Other income
Other expenses
Income tax (paid)/received
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 non-trading financial assets
mandatorily at fair value through profit or loss
Net (increase)/decrease in financial assets measured at fair
value through other comprehensive income
Net (increase)/decrease in available-for-sale financial assets (IAS 39)
Net (increase)/decrease in loans and receivables measured at amortised cost
Net (increase)/decrease in other assets
Increases/(decreases) in operating liabilities
Net increase/(decrease) in financial liabilities measured 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 sale of associates and joint ventures
Proceeds from non-current assets held for sale
Proceeds from disposals of debt securities measured at amortised cost
Proceeds from disposals of held-to-maturity financial assets (IAS 39)
Payments from investing activities
Purchase of property, equipment, and investment property
Purchase of intangible assets
Purchase of subsidiaries and increase in subsidiaries' equity
Purchase of debt securities measured at amortised cost
Purchase of held-to-maturity financial assets (IAS 39)
Net cash flows used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Payments from financing activities
Dividends paid
Repayments of subordinated debt
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.
390,588
(46,022)
1,830
216,603
(62,739)
1,201
10,045
(260,052)
21,462
(24,758)
(12,262)
235,896
(85,235)
10,773
-
3,288
(266,865)
-
148,042
19,527
525,311
(691)
527,007
-
(1,005)
675,972
498,388
5,841
19,629
4,600
301
468,017
-
(634,727)
(16,962)
(12,671)
-
(605,094)
-
(136,339)
(285,708)
(273,733)
(11,975)
-
(285,708)
(546)
253,925
1,475,714
1,729,093
NLB Group
2018
2017
NLB
2018
181
in EUR thousands
2017
210,292
(33,714)
58,062
125,760
(29,385)
11,883
3,646
383,615
(60,165)
4,394
206,100
(56,855)
12,455
9,421
216,528
(23,503)
49,692
130,488
(32,535)
791
3,819
(254,877)
(163,014)
(160,484)
27,135
(28,775)
(10,557)
231,891
(227,829)
9,001
1,801
-
-
(228,936)
(18,524)
8,829
86,953
(1,487)
361,928
(274,200)
712
91,015
108,446
37,274
38
238
493
-
70,403
(96,991)
(10,793)
(10,801)
(1,596)
8,252
(14,843)
(335)
175,340
209,016
10,773
-
8,464
(266,349)
-
454,865
1,263
160,647
(691)
161,004
-
334
545,003
409,337
80
12,526
4,600
158
391,973
-
(521,369)
(10,442)
(9,931)
(2,100)
-
(498,896)
(73,801)
11,455
-
(112,032)
(67,557)
(67,512)
-
(45)
(67,557)
(8,474)
34,913
1,449,275
1,475,714
(270,600)
(270,600)
-
-
(270,600)
(453)
162,371
662,419
824,337
12,391
(15,075)
(509)
182,867
45,391
9,001
1,487
-
-
(216,235)
250,062
1,076
(130,582)
(1,487)
145,241
(274,200)
(136)
97,676
71,247
75
38
238
493
-
70,403
(99,762)
(5,776)
(7,605)
(12,580)
-
(73,801)
(28,515)
(63,780)
(63,780)
-
-
(63,780)
(13,644)
5,381
670,682
662,419
NLB Group 2018 Annual Report 182
Notes to the financial statements
NLB Group
NLB
in EUR thousands
Notes
2018
2017
2018
2017
Cash and cash equivalents comprise:
Cash, cash balances at central banks, and other demand deposits at banks
5.1.
1,588,819
1,256,481
Loans and advances to banks with original maturity up to 3 months
Financial assets measured at fair value through other comprehensive
income with original maturity up to 3 months
72,170
68,104
148,784
-
Available for sale financial assets with original maturity up to 3 months (IAS 39)
-
70,449
795,190
29,147
-
-
570,010
92,409
-
-
Total
1,729,093
1,475,714
824,337
662,419
NLB Group 2018 Annual Report 183
been adjusted to conform to the changes in
presentation in the current year.
Compared to the presentation of the
financial statements for the year ended
31 December 2017, the schemes for
presentation of the Income Statement and
Statement of Financial Position changed
due to implementation of IFRS 9, and due
to changed schemes prescribed by the Bank
of Slovenia. Since comparative figures
have not been restated on the transition
to IFRS 9, the presentation of financial
statements in these financial statements
is a combination of classification and
measurement categories as required by IAS
39 (for balances as at 31 December 2017
and effects for 2017), and classification
and measurements categories as required
by IFRS 9 (for balances as at 1 January
2018 and 31 December 2018, and effects
for 2018). Due to the implementation of
IFRS 9, also IAS 1 changed and requires
“interest revenue calculated using the
effective interest method” to be shown
separately. Comparative amounts in the
Income statement have been adjusted to
reflect this change.
Changes of the schemes prescribed by the
Bank of Slovenia relate to presentation of
effects related to investments in subsidiaries,
associates, and joint ventures in the Income
Statements. Comparative amounts have
been adjusted to reflect these changes in
presentation.
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. Information on
the NLB Group’s structure is disclosed in
note 5.14. Information on other related
party relationships of NLB Group is
provided in note 8.
NLB is incorporated and domiciled in
Slovenia. The address of its registered
office is Trg Republike 2, Ljubljana. NLB’s
shares are listed on the Ljubljana Stock
Exchange, and the global depositary
receipts (‘GDR’) representing shares are
listed on the London Stock Exchange. Five
GDR represent one share of NLB.
As at 31 December 2018 the largest
shareholder of NLB with significant
influence is the Republic of Slovenia,
owning 35.00% of the shares. As at 31
December 2017 the Republic of Slovenia
was the ultimate controlling party of NLB
and was the sole shareholder.
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, except
for changes in accounting policies resulting
from application of new standards or
changes to standards.
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 (IAS 39), financial
assets measured at fair value through
other comprehensive income (IFRS 9)
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 on 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
NLB Group 2018 Annual Report 184
NLB Group
2017
NLB
2017
in EUR thousands
old presentation
current
presentation
change old presentation
current
presentation
change
Dividend income
Gains less losses from capital investment in
subsidiaries, associates and joint ventures
Share of profit from investment in associates and joint
ventures (accounted for using the equity method)
179
3,852
179
-
-
4,782
Gains less losses from non-current assets held for sale
(1,756)
(2,686)
-
50
58,062
58,012
(3,852)
58,171
4,782
(930)
-
451
-
-
610
(58,171)
-
159
More specifically, in the Income Statement
for the year ended 31 December 2017,
the line ‘Gains less losses from capital
investments in subsidiaries, associates,
and joint ventures’ included dividends
and effects from the sale of investments in
subsidiaries, associates, and joint ventures,
and effects from the equity method from
investments in associates and joint ventures.
In these financial statements the dividends
from subsidiaries, associates, and joint
ventures are included in the line ‘Dividend
income,’ and the effects from sale of
investments in subsidiaries, associates, and
joint ventures are included in the line ‘Net
gain or losses from non-current assets held
for sale.’
In 2018, the presentation of liabilities
for unused annual leave changed. More
specifically, in the Income Statement
for 2018 and 2017, the presentation of
liabilities for unused annual leave stayed
within the line ‘Administrative expenses,’
but the breakdown in note 4.10. changed.
For 2017, liabilities were included within
‘Other employee benefits,’ and for 2018
they are included within ‘Gross salaries,
compensations, and other short-term
benefits.’ In the Statement of Financial
Position for the year ended 31 December
2017 liabilities for unused annual leave
were included in the line ‘Provisions,’ and
for the year ended 31 December 2018
in the line ‘Other financial liabilities’ (31
December 2017: NLB Group: EUR 3,613
thousand, NLB: EUR 2,312 thousand).
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 the
control ceases.
Where necessary, the accounting policies
of subsidiaries have been amended to
ensure consistency with the policies
adopted by NLB. The financial statements
of consolidated subsidiaries are prepared
as at the parent entity’s reporting date.
Non-controlling interests are disclosed in
the consolidated statement of changes in
equity. Non-controlling interest is that part
of the net results, and of the equity of a
subsidiary, attributable to interests which
NLB 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.
NLB Group 2018 Annual Report 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 5.14.b).
NLB Group’s subsidiaries, associates, and
joint ventures are presented in note 5.14.
identified all the assets acquired and all
liabilities and contingent liabilities assumed,
and reviews the appropriateness of their
measurement.
The consideration transferred is measured
at the fair value of the assets transferred,
equity interest issued, and liabilities
incurred or assumed, including the fair
value of assets or liabilities from contingent
consideration arrangements. However,
this excludes acquisition-related costs such
as advisory, legal, valuation, and similar
professional services. Transaction costs
incurred for issuing equity instruments
are deducted from the equity, and all
other transaction costs associated with the
acquisition are expensed.
The goodwill of associates and joint
ventures is included in the carrying value
of investments.
2.7. A combination of entities or
businesses under common control
A merger of entities within NLB Group is
a business combination involving entities
under common control. For such mergers,
members of NLB Group apply merger
accounting principles, and use the carrying
amounts of merged entities as reported in
the consolidated financial statements. No
goodwill is recognised on mergers of NLB
Group entities.
Mergers of entities within NLB Group
do not affect the consolidated financial
statements.
185
exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and
losses resulting from the settlement of such
transactions and from the translation of
monetary assets and liabilities denominated
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 (IAS 39) or financial assets, measured
at fair value through other comprehensive
income (IFRS 9) 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 (IAS 39) or financial
assets, measured at fair value through
other comprehensive income (IFRS 9), 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.
2.8. Foreign currency translation
NLB Group entities
2.6. Goodwill and bargain purchases
Functional and presentation currency
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
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
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
•
NLB Group 2018 Annual Report 186
• 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 for all
financial instruments measured at
amortised cost, available-for –sale
financial assets (IAS 39) and financial
assets measures at fair value through
other comprehensive income (IFRS 9)
are recognised in the income statement
for all interest-bearing instruments on an
accrual basis using the effective interest
rate method. Interest income on all trading
assets and financial assets mandatorily
required to be measured at fair value
through profit or loss is recognised using
the contractual interest rate. 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.
Interest income is calculated by applying
the effective interest rate to the gross
carrying amount of financial assets other
than credit-impaired assets.
When a financial asset becomes credit-
impaired and is, therefore, regarded as
‘Stage 3,’ interest income is calculated by
applying the effective interest rate to the
net amortised cost of the financial asset. If
the financial assets cures and is no longer
credit-impaired, interest income is again
calculated on a gross basis.
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 within the line ‘Dividend
income’ when NLB Group’s right to receive
payment has been established and an
inflow of economic benefits is probable.
In the consolidated financial statement,
dividends received from associates and joint
ventures reduce the carrying value of the
investment.
2.12.
Financial instruments
NLB Group has adopted IFRS 9 as
issued by the IASB in July 2014 with a
date of transition of 1 January 2018,
which resulted in changes in accounting
policies for recognition, classification and
measurement of financial instruments, and
impairment of financial assets.
a) 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).
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,
NLB Group 2018 Annual Report 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 broadly 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 implemented
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 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); and
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.
187
made close to the final maturity, or sales in
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.
A 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
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 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.
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
Accounting policy for
modified financial assets
When contractual cash flows of a financial
asset are modified, NLB Group assesses
NLB Group 2018 Annual Report 188
if the terms and conditions have been
modified to the extent that, substantially,
it becomes a new financial asset. The
following factors are, amongst others,
considered when making such assessment:
• reason for modification of cash flows
(commercial or client’s financial
difficulties);
• change in currency of the loan;
introduction of an equity feature;
•
• replacement of initially agreed debtor
with a new debtor that is not related
party to initial debtor; and
if the modification is such that it
changes the result of the SPPI test.
•
If the modification results in derecognition
of a financial asset, the new financial
asset is initially recognised at fair value,
with the difference recognised as a
derecognition gain or loss, to the extent
that an impairment loss has not already
been recorded. If the modification does not
result in cash flows that are substantially
different, the modification does not result
in derecognition. Based on the change
in cash flows discounted at the original
effective interest rate, NLB Group records a
modification gain or loss, to the extent that
an impairment loss has not already been
recorded.
b) Classification and
measurement under IAS 39
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
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.
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.
NLB Group 2018 Annual Report 189
c) Reclassification under IFRS 9
Financial assets can be reclassified when
and only when NLB Group’s business
model for managing those assets changes.
The reclassification takes place from the
start of the reporting period following the
change. Such changes are expected to be
very infrequent and none occurred during
the period. Financial liabilities shall not be
reclassified.
d) Reclassification under IAS 39
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) Day one gains or losses
The best evidence of fair value at initial
recognition is the transaction price (i.e.
the fair value of the consideration given
or received), unless the fair value of that
instrument is evidenced by a comparison
with other observable current market
transactions in the same instrument (i.e.
without modification or repackaging), or
based on a valuation technique whose
variables only include data from observable
markets.
If the transaction price on a non-active
market is different than the fair value
from other observable current market
transactions in the same instrument,
or is based on a valuation technique
whose variables only include data from
observable markets, the difference between
the transaction price and fair value is
recognised immediately in the income
statement (‘day one gains or losses’).
In cases where the data used for valuation
are not fully observable in financial
markets, day one gains or losses are not
recognised immediately in the income
statement. The timing of recognition
of deferred day one gains or losses is
determined individually. It is either
amortised over the life of the transaction,
deferred until the instrument’s fair value
can be determined using market observable
inputs, or realised through settlement.
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.
f) Derecognition
i) Derivative financial instruments
A financial asset is derecognised when the
contractual rights to the cash flows from the
financial asset expire, or when the financial
asset is transferred and the transfer qualifies
for derecognition. A financial liability is
derecognised only when it is extinguished,
i.e. when the obligation specified in the
contract is discharged, cancelled, or expires.
g) Write-offs
NLB Group writes off financial assets in
their entirety or a portion thereof when
it has exhausted all practical recovery
efforts and has no reasonable expectations
of recovery. Criteria indicating that that
there is no reasonable expectation of
recovery include default period, quality
of collateral and different stages of
enforcement procedures. NLB Group
may write-off financial assets that are
still subject to enforcement activities
but this does not affect its rights in the
enforcements procedures. NLB still
seeks to recover all amounts it is legally
entitled to in full. Write-off reduces the
gross carrying amount of a financial asset
and allowance for the impairment. Any
subsequent recoveries are credited to credit
loss expense. Write-offs and recoveries are
disclosed in note 5.16.a).
h) 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
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);
• 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
NLB Group 2018 Annual Report 190
its assessment, both at the 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%.
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.
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.
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.
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.
2.13.
Impairment of financial assets
a) Expected credit losses for collective
allowances based on IFRS 9
IFRS 9 applies an expected credit 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.
When a hedging instrument expires or
is sold, or when a hedge no longer meets
hedge accounting criteria, any cumulative
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 the 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 the initial recognition,
NLB 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 NLB Group’s historical data,
experience, 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 the
validation of models. The Group classifies
financial instruments into Stage 1, Stage
2, and Stage 3, based on the applied ECL
allowance methodology as described below:
• Stage 1 – performing portfolio: no
significant increase of credit risk since
the initial recognition, NLB Group
recognises an allowance based on
12-month period,
• Stage 2 – underperforming portfolio:
significant increase in credit risk since
the initial recognition, NLB Group
recognises an allowance for lifetime
period, and
• Stage 3 – impaired portfolio: NLB
Group recognises lifetime allowances
for these defaulted financial assets.
The bank uses a unified definition of
past due and default exposures that is
aligned with Article 178. of Regulation
EU575/2013. Defaulted clients are
rated D, DF, or E based on the bank’s
internal rating system and contain
clients with material delays over 90 days,
as well as clients that were assessed as
unlikely to pay. The retail clients are
rated on the facility level, however the
rating can be deteriorated based on the
rating of other credit facilities of the
same client.
NLB Group 2018 Annual Report 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 grants the forbearance to
the borrower, 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 a macroeconomic impact
effect. Allowances in stage 1 are designed to
reflect expected credit 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
recognition. This calculation is also
based on a forward-looking assessment
that takes into account the 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.
Exposures below the materiality threshold
obtain collective allowances 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 are
recognised as a loss allowance.
The calculation of collective allowances
is performed by multiplying the EAD
(exposure at default) at the end of each
month with an appropriate PD and LGD
(loss-given default). The 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, the
ECL only takes a 12-month period into
account, while for Stage 2 all potential
losses until the 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. 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
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
191
the Group’s normal budgeting process,
while the better and worst 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.
b)
Individual assessment of
allowances for impaired financial
assets based on IFRS 9
Assets carried at an amortised cost
NLB Group assesses the impairments
of financial assets separately for all
individually significant assets classified in
Stage 3. All other financial assets obtain
collective allowances. The materiality
threshold is set at EUR 0.5 million
exposure for legal entities and EUR 0.1
million for private persons on the level
of NLB, while the Group members
apply lower thresholds applicable to their
portfolio size.
The amount of the loss is measured as
the difference between the asset’s carrying
amount and the present value of estimated
future cash flows, which are discounted
to the estimation date. The scenario of
expected cash flows can be based on the
‘going concern’ assumption, where the
cash flow from operations is taken into
account along with the sale of collateral
that is not crucial for future business. In
the case of the ‘gone concern’ principle,
the repayments are based on expected cash
flows from the collateral sale. The expected
payment from the collateral is calculated
from the appraised market value of the
collateral, the haircut used as defined in the
Haircut Methodology, and discounted. Off-
balance sheet liabilities are also assessed
individually and, where necessary, related
allowances are recognised as liabilities.
The carrying amount financial assets
measured at amortised cost is reduced
through an allowance account and the loss
is recognised in the income statement item
NLB Group 2018 Annual Report 192
‘Impairment of financial assets.’ If the
amount of allowances for ECL 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
account and gain is recognised in the
same income statement item. For off-
balance exposures, the amount of ECL is
recognised in the statement of financial
position in item ‘Provisions’ and in the
income statement in item ‘Provisions for
credit losses.’
The ECLs for debt instruments measured
at fair value through other comprehensive
income do not reduce the carrying amount
of these financial assets in the statement
of financial position, which remains at
fair value. Instead, an amount equal to
the allowance that would arise if the
assets were measured at amortised cost is
recognised in other comprehensive income
as an accumulated impairment amount,
with a corresponding charge to profit or
loss. The accumulated loss recognised in
other comprehensive income is recycled
to the profit or loss upon derecognition
of the assets or when the amount of
allowances for ECL decreases due to an
event occurring after the impairment was
recognised.
If the amount of allowances for ECL
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 and the
gain is recognised in the income statement.
c)
Impairment of financial assets IAS 39
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.
or held-to-maturity financial assets has
been incurred, the amount of the loss is
measured as the difference between the
assets’ 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
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.
If there is objective evidence that an
impairment loss on loans and advances
NLB Group writes off financial assets
measured at amortised cost if during the
NLB Group 2018 Annual Report collection process it assesses that the assets
in question will not be repaid, and that the
conditions for derecognition have been
met.
The current fair value of the instrument
is its market price or discounted future
cash flows when the market price is not
obtainable.
Assets classified as available for sale
2.14.
Forborne loans
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:
• 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.
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. 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
193
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
NLB Group 2018 Annual Report 194
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.s). 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.
2.16.
Offsetting
Financial assets and liabilities are offset and
the net amount reported in the statement
of financial position when there is a legally
enforceable right to offset the recognised
amounts, and there is an intention to settle
on a net basis, or to realise the asset and
settle the liability simultaneously.
2.17.
Sale and repurchase
agreements
Securities sold under sale and repurchase
agreements (repos) are retained in the
financial statements, and the counterparty
liability is included in financial liabilities
associated with the transferred assets.
Securities sold subject to sale and
repurchase agreements are reclassified
in the financial statements as pledged
assets when the transferee has the right
by contract or custom to sell or re-pledge
the collateral. Securities purchased under
agreements to resell (reverse repos) are
recorded as loans 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
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:
NLB Group and NLB
Buildings
Leasehold improvements
Computers
Furniture and equipment
Motor vehicles
in %
2 - 5
5 - 25
14.3 - 50
10 - 33.3
12.5 - 25
Depreciation does not begin until the assets
are available for use.
The assets’ residual values and useful lives
are reviewed and adjusted if appropriate
on each reporting date. Gains and losses
on the disposal of items of property and
equipment are determined as the difference
between the sale proceeds and their
carrying amount, and are recognised in the
income statement.
Maintenance and repairs are charged to
the income statement during the financial
period in which they are incurred.
Subsequent costs that increase future
economic benefits are recognised in the
carrying amount of an asset, and the
replaced part, if any, is derecognised.
2.19.
Intangible assets
Intangible assets include software licenses
and goodwill (note 2.6.). Intangible
assets are stated at cost, less accumulated
amortisation and impairment losses.
Amortisation is calculated on a straight-line
basis at rates designed to write-down the
cost of an intangible asset over its estimated
useful life. The core banking system is
amortised over a period of 10 years, and
other software over a period of three to five
years. Amortisation does not begin until the
assets are available for use.
2.20.
Investment properties
Investment properties include buildings
held for leasing and not occupied by NLB
Group, or to increase the value of a long-
term investment. Investment properties
are stated at fair value determined by a
certified appraiser. Fair value is based on
current market prices. Any gain or loss
arising from a change in the fair value is
recognised in the income statement.
NLB Group 2018 Annual Report 195
2.21.
Non-current assets and disposal
NLB Group as a lessee
Sale-and-leaseback transactions
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
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.
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.
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, deposits and issued
debt securities 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.
NLB Group 2018 Annual Report 196
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.
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
• under IAS 39 – the best estimate of
expenditure required to settle any
financial obligation arising as a result of
the guarantee, or
• under IFRS 9 – an ECL provision as set
out in note 2.13.
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 undrawn loan
commitments to extend credit, uncovered
letters of credit, and other commitments.
The nominal contractual value of
guarantees, letters of credit, and undrawn
loan commitments where the loan agreed
to be provided is on market terms, are
not recorded in the statement of financial
position.
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 2018 in Slovenia was 19% (2017: 19%).
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 (IAS 39), financial assets
measured at fair value through other
comprehensive income (IFRS 9), 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
NLB Group 2018 Annual Report 197
are recognised only to the extent that it is
probable that:
•
•
the temporary differences will be
reversed in the foreseeable future; and
taxable profit will be available.
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 (financial services, exempt
from value added tax (with the exception
of securities transactions) and the services
of insurance brokers and agents), is paid in
Slovenia. 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% (2017: 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 and expenses relating
fiduciary activities are generally recognised
in the income statement when the service
has been provided. 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 5.27.
Based on the requirements of Slovenian
legislation, NLB Group has additionally
disclosed in note 5.27. assets and liabilities
on accounts used to manage financial assets
from fiduciary activities, i.e. information
related to the receipt, processing, and
execution of orders and related custody
activities.
2.30.
Employee benefits
Employee benefits include:
• short-term employee benefits (such as
salaries, social security contributions,
compensations and non-monetary
benefits);
in the income statement as defined benefit
costs.
2.31.
Share capital
• retirement indemnity bonuses (post-
Dividends on ordinary shares
•
employment benefits); and
jubilee long-service benefits (other
employment benefits).
Dividends on ordinary shares are
recognised in equity in the period in which
they are approved by NLB’s shareholders.
Short-term employee benefits are
recognised in the period to which they
relate and included in the income
statement line ‘Administrative expenses.’
Among others they include the payment
of contributions for pension and disability
insurance, which according to local
legislation (for employer) amount to 8.85%
of the gross salaries.
According to legislation, employees retire
after 35-40 years of service when, if they
fulfill 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. For
post-employment benefits, 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.
Actuarial gains and losses that relate to
other employment benefits are recognised
Treasury shares
If NLB or another member of NLB
Group purchases NLB’s shares, the
consideration paid is deducted from the
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.
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 fund 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
NLB Group 2018 Annual Report 198
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.
2.33.
Critical accounting estimates
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) Allowances for expected credit
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
allowances for ECL. NLB Group creates
individual allowances for individually
significant financial assets attributed to
Stage 3. Such an assignment is based on
information regarding the fulfillment of
contractual obligations or other financial
difficulties of the debtor, and other
important facts. Individual assessments
are based on the expected discounted cash
flows from operations and/or the assessed
expected payment from the collateral.
Allowances are assessed collectively for
financial assets assigned to Stage 1 or 2 or
for financial assets in Stage 3 with exposure
below the materiality threshold. ECL in
this group of assets are estimated on the
basis of expected value of risk parameters
combining the historic movements with
the future macroeconomic predictions.
The models used to estimate future risk
parameters are validated and back-tested
on a regular basis in order to make loss
estimations as realistic as possible.
Stress testing for credit risk predicts the
impact of unfavorable macroeconomic
conditions on the default rate (transfer
of assets from performing to the default)
and loss rates (expected losses after the
occurrence of the default). The adverse
macro stress scenario predicts a real
economic crisis, prolonged macro-
economic shock driven by an adverse
environment for commercial banks.
The scenario is partially based on EBA
and ESRB scenarios. The scenario is
anchored in the data for Euro area gross
domestic product (GDP) deviations from
the baseline scenario under the distressed
banking sector scenario, which supposes an
adverse feedback loop between weak bank
profitability and low nominal growth amid
structural challenges in the EU banking
sector.
In terms of credit risk the described macro-
economic distress results in an increase of
the default rate (DR), as well as the loss
rate (LR). Based on the existing exposures
(static balance sheet assumption), additional
allowances for expected credit losses are
assessed on existing default exposures and
new default flows.
The results of the stress scenario for NLB
Group shows an increase of impairments
by EUR 75.2 million (2017: EUR 69.5
million), and an increase in the coverage of
the credit portfolio by impairments by 0.89
percentage points (2017: 0. 86 percentage
points) (note 5.16).
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
the applied credit spread. Changes in
assumptions regarding these factors could
affect the reported fair values of financial
instruments held for trading, available-for-
sale financial assets (IAS 39), and financial
assets measured at fair value through other
comprehensive income (IFRS 9).
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)
Impairment of investments in
subsidiaries, associates, and joint ventures
The process of identifying and assessing
the impairment of goodwill and other
intangible assets is inherently uncertain,
as the forecasting of cash flows requires
the significant use of estimates, which
themselves are sensitive to the assumptions
used. The review of impairment represents
management’s best estimate of the facts
and assumptions such as:
NLB Group 2018 Annual Report 199
• 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%.
Actuarial assumptions
Discount factor
Wage growth based on inflation, promotions, and
wage growth based on past years of service
Other assumptions
• The target capital adequacy ratio of an
individual bank is between 13 and 17%.
• The discount rate derived from the
For strategic NLB Group members in 2018
and 2017 there were no indications of
impairment for equity investments.
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
15.18% (31 December 2017: between
9.66 and 19.07%).
In 2018, NLB impaired equity investments
in non-core members in the amount of
EUR 544 thousand.
d) Employee benefits
Liabilities for employee benefits are
calculated by an independent actuary. The
main assumptions included in the actuarial
calculation are as follows:
NLB Group
2018
2017
NLB
2018
1.01% - 5.0%
0.8% - 3.1%
1.05%
1.4% - 3.8%
1.6% - 4.0%
1.8% - 2.3%
2017
1.0%
2.5%
Number of employees eligible for benefits
5,044
5,442
2,662
2,779
Sensitivity analysis of significant actuarial assumptions for post-employment benefit
NLB Group
NLB
31 dec 2018
Discount rate
Future salary increases
Discount rate
Future salary increases
Impact on employee benefits provisions -
post-employment benefits (in %)
(5.2)
5.7
5.6
(5.3)
(5.3)
5.7
5.6
(5.3)
+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.
e) Taxes
NLB Group operates in countries
governed by different laws. The deferred
tax assets recognised as at 31 December
2018 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 4.15. and 5.20.).
annual accounting periods beginning on 1
January 2018.
2.34.
Implementation of the new and
Accounting standards and amendments
revised International Financial Reporting
to existing standards effective for
Standards
During the current year, NLB Group
adopted all new and revised standards and
interpretations issued by the International
Accounting Standards Board (hereinafter:
‘the IASB’) and the International Financial
Reporting Interpretations Committee
(hereinafter: ‘the IFRIC’), and that are
endorsed by the EU that are effective for
annual periods beginning on 1
January 2018 that were endorsed by
the EU and adopted by NLB Group
• IFRS 9 (new standard) - ‘Financial
Instruments’ is effective for annual
periods beginning on or after 1 January
2018. In July 2014, the IASB issued
IFRS 9 Financial Instruments to
replace IAS 39 Financial Instruments:
Recognition and Measurement.
NLB Group 2018 Annual Report 200
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.
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 (note 2.35.).
The Tier 1 capital ratio for NLB Group
has increased by 0.4 percentage points.
NLB Group did not applied transitional
arrangements at the transition to
the expected credit loss model in
accordance with Regulation (EU)
2017/2395.
• 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 in
the principles that 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. There is no impact on
NLB Group’s 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
relief options to reduce the cost and
complexity for a company when it first
applies the new Standard. There is no
impact on NLB Group’s 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.
There is no impact on NLB Group’s
consolidated financial statements, since
IFRS 9 is already fully adopted.
• 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.
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 IFRS’s
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. Currently, the amendment has no
impact on NLB Group’s consolidated
financial statements.
• The ’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
NLB Group 2018 Annual Report
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. Currently, the interpretation has
no impact on NLB Group’s consolidated
financial statements.
Accounting standards and
amendments to existing standards
that were endorsed by the EU, but
not adopted early by NLB Group
• IFRS 16 (new standard) – Leases is
effective for annual reporting periods
beginning on or after 1 January 2019.
It replaces the old lease accounting
standard IAS 17 Leases. IFRS 16
establishes principles for the recognition,
measurement, presentation, and
disclosure of leases for both parties to a
contract, i.e. the customer (‘lessee’) and
the supplier (‘lessor’). The new standard
requires lessees to recognise most leases
in their financial statements, moreover
it introduces a single accounting model
for all leases (similar to the accounting
for finance leases under IAS 17),
with certain exemptions (“low value”
assets and short-term leases). At the
commencement date of a lease, a lessee
shall recognise a right-of-use asset and
a lease liability. The right-of-use asset
is initially measured at cost. The cost
of the right-of-use asset comprises the
amount of the initial measurement of
lease liability, adjusted for any payments
made at or before the commencement
date, any lease incentives received, any
initial direct costs incurred by the lessee
and an estimate of costs to be incurred
by the lessee at the end of lease term.
The value of lease liability is calculated
as the net present value of future lease
payments.
The term ‘Lessor Accounting’ under
IFRS 16 is substantially unchanged
from today’s accounting under IAS 17.
NLB Group has identified contracts
that meet the definition of a lease
in accordance with the IFRS 16
requirements. The most significant types
of leases are leases of business premises,
followed by the leases of vehicles and a
small number of parking spaces. One
of the most important assumptions for
calculation of the net present value was
the lease term signed for an indefinite
period. For these NLB Group assumed
5-year lease term with the exemption of
business premises on strategic locations
where management assessed a different
(longer) lease term. Another important
assumption for the calculation of the
net present value of the future lease
payments was the discount rate where
NLB Group applied the internal transfer
price for retail deposits.
At the transition to IFRS 16 NLB
Group chose modified retrospective
approach, where right-of-use assets are
measured as an amount equal to the
lease liability. Adoption of the IFRS
16 requirements did not have material
impact on the consolidated financial
statements of NLB Group as at 1
January 2019. More specifically, due to
a recognition of the right-of-use assets
and lease liabilities the consolidated
assets and liabilities increased by EUR
19.0 million (NLB: EUR 2.6 million).
The impact on the regulatory equity is
immaterial.
• IFRS 9 (amendment) – 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
201
have failed the exclusive payments
of principal and interest test and be
mandatorily measured at fair value
through profit or loss. This amendment
will not impact the NLB Group’s
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
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 fulfillment 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.
• 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
NLB Group 2018 Annual Report
in IAS 1 Presentation of Financial
Statements. The definition of material
in IAS 8 Accounting Policies, Changes
in Accounting Estimates and Errors has
been replaced with a reference to IAS
1, thus the Amendments ensure that
the definition of ‘material’ is consistent
across all IFRS Standards. NLB Group
does not expect an impact on its
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.
202
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 statement
• IAS 19 (amendment) – Plan
Amendment, Curtailment, or
Settlement is effective for annual periods
beginning on or after 1 January 2019
with earlier application permitted, if
disclosed. It clarifies the accounting
when a plan amendment, curtailment,
or settlement occurs. Entities are thus
required to use updated assumptions
to determine the current service cost
and the net interest for the period
after the remeasurement. Moreover,
amendments have been included to
clarify the effect of a plan amendment,
curtailment, or settlement on the
requirements regarding the asset
ceiling. The amendment will not impact
NLB Group’s consolidated financial
statements.
• Amendments to References to the
Conceptual Framework in IFRS
Standards are effective for annual
periods beginning on or after 1
January 2020. Amendments were
issued to support transition to the
revised Conceptual Framework for
companies that develop accounting
policies using the Conceptual
Framework when no IFRS Standard
applies to a particular transaction.
• IFRS 3 (amendment) - Business
Combinations is effective for annual
periods beginning on or after 1
January 2020. It aims to resolve
entities’ difficulties which arise when
determining whether they have acquired
a business or a group of assets. Among
others, the Amendment clarifies and
narrows the definitions of a business
and of outputs, provides additional
guidance and illustrative examples. NLB
Group does not expect an impact on its
consolidated financial statements.
• IAS 1 and IAS 8 (amendments) -
Definition of Material are effective
for annual periods beginning on or
after 1 January 2020 (with earlier
application permitted) and relate to a
revised definition of ‘material,’ namely:
“Information is material if omitting,
misstating, or obscuring it could
reasonably be expected to influence
decisions that the primary users of
general purpose financial statements
make on the basis of those financial
statements, which provide financial
information about a specific reporting
entity.” Three new aspects of the new
definition are particularly emphasised
and defined – “obscuring,” “could
reasonably be expected to influence,”
and “primary users.” The new definition
of material and the accompanying
explanatory paragraphs are contained
NLB Group 2018 Annual Report 2.35.
Presentation of effects at
transition to IFRS 9 as at 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 at 1 January 2018
are presented below:
203
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
NLB Group
in EUR thousands
NLB
58,160
36
(1,049)
(7,504)
(3,529)
46,114
(2,281)
43,833
37,319
(687)
(1,049)
(5,267)
(2,650)
27,666
-
27,666
The following table shows the original
measurement categories in accordance
with IAS 39, and the new measurement
categories under IFRS 9 for the financial
assets as at 1 January 2018.
Original
classification
under IAS 39
New classification
under IFRS 9
Original carrying
amount under
IAS 39
New carrying
amount under
IFRS 9
Original carrying
amount under
IAS 39
New carrying
amount under
IFRS 9
NLB Group
NLB
in EUR thousands
Financial assets - 1 January 2018
Cash, cash balances at central banks, and
other demand deposits at banks
Loans and advances - debt securities
Loans and advances to banks
Loans and advances to customers
Loans and advances to customers
Loans and advances - other financial assets
Loans and
receivables
Loans and
receivables
Loans and
receivables
Loans and
receivables
Loans and
receivables
Loans and
receivables
Amortised cost
1,256,481
1,255,824
570,010
569,943
Amortised cost
82,133
79,880
82,133
79,880
Amortised cost
510,107
509,970
462,322
461,830
Amortised cost
6,887,300
6,956,362
4,556,105
4,594,286
FVTPL mandatory
25,033
24,649
31,372
30,055
Trading assets
FVTPL
FVTPL
Financial assets designated at fair
value through profit or loss
FVTPL designated
FVTPL mandatory
Amortised cost
66,077
72,189
5,003
67,046
72,189
5,003
38,389
72,180
634
38,915
72,180
634
Available-for-sale financial assets - debt instruments
Available-for-sale financial assets - debt instruments
Available-for-sale financial assets - shares
Available-for-sale financial assets - shares
Held-to-maturity financila assets
Total
AFS
AFS
AFS
AFS
HTM
FVOCI
1,604,940
1,604,940
1,238,977
1,238,977
Amortised cost
618,376
612,317
491,936
488,992
FVTPL mandatory
FVOCI designated
3,261
49,916
3,261
49,916
2,059
44,790
2,059
44,790
Amortised cost
609,712
609,216
609,712
609,216
11,790,528
11,850,573
8,200,619
8,231,757
NLB Group 2018 Annual Report 204
The following table reconciles the carrying
amounts under IAS 39 to the carrying
amounts under IFRS 9 on transition to
IFRS 9 on 1 January 2018.
NLB Group
Amortised Cost
Cash, cash balances at central banks, and other demand deposits at banks
IAS 39 carrying
amount
31 December 2017
Ref
Reclassification
Remeasurement
in EUR thousands
IFRS 9 carrying
amount
1 January 2018
Opening balance
Remeasurement: ECL allowance
Closing balance
Loans and advances to banks
Opening balance
Remeasurement: ECL allowance
Closing balance
Loans and advances to customers
Opening balance
1,256,481
510,107
6,912,333
Subtraction: to financial assets FVTPL (mandatory)
(A)
(25,033)
Remeasurement: ECL allowance
Remeasurement: modifications
Closing balance
Other financial assets
Opening balance
Remeasurement: ECL allowance
Remeasurement: other adjustments
Closing balance
Debt securities
Opening balance
Addition: from financial assets available-for-sale
Addition: from financial assets held-to-maturity
Remeasurement: from fair value to amortised cost
Remeasurement: ECL allowance
Remeasurement: reclassified bonds
Closing balance
Held-to-maturity investments
Opening balance
Subtraction: to debt securities - amortised cost
Closing balance
66,077
82,133
618,376
609,712
609,712
(609,712)
(B)
(C )
(D)
(C )
Total financial assets measured at amortised cost
9,436,843
(657)
(137)
76,471
(7,409)
838
131
(4,476)
(2,096)
(2,236)
1,255,824
509,970
6,956,362
67,046
1,301,413
-
10,090,615
NLB Group 2018 Annual Report 205
NLB Group
Fair value through other comprehensive income (FVOCI)
IAS 39 carrying
amount
31 December 2017
Ref
Reclassification
Remeasurement
in EUR thousands
IFRS 9 carrying
amount
1 January 2018
Financial assets available-for-sale
Opening balance
Subtraction: to FVOCI - debt instruments
Subtraction: to FVOCI - equity instruments
Subtraction: to amortised cost - debt securities
Subtraction: to FVTPL (mandatory)
Closing balance
FVOCI - debt instruments
Opening balance
Addition: from financial assets available-for-sale
Closing balance
FVOCI - equity instruments
Opening balance
Addition: from financial assets available-for-sale
Closing balance
Total financial assets measured at fair value
through other comprehensive income
Fair value through profit and loss (FVTPL)
Trading assets
Opening balance and closing balance
Financial assets FVTPL (designated)
Opening balance
Subtraction: to financial assets FVTPL (mandatory)
Closing balance
Financial assets FVTPL (mandatory)
Opening balance
Addition: from financial assets FVTPL (designated)
Addition: from financial assets available-for-sale
Addition: from loans and advances to customers
Remeasurement: from amortised cost to fair value
Closing balance
(E)
(F)
(B)
(G)
(E)
(F)
(H)
(H)
(G)
(A)
2,276,493
-
-
2,276,493
72,189
5,003
-
(1,604,940)
(49,916)
(618,376)
(3,261)
1,604,940
49,916
(5,003)
5,003
3,261
25,033
Total financial assets measured at fair value through profit and loss
77,192
-
1,604,940
49,916
1,654,856
72,189
-
(384)
32,913
105,102
NLB Group 2018 Annual Report IAS 39 carrying
amount
31 December 2017
Ref
Reclassification
Remeasurement
in EUR thousands
IFRS 9 carrying
amount
1 January 2018
206
NLB
Amortised Cost
Cash, cash balances at central banks, and other demand deposits at banks
Opening balance
Remeasurement: ECL allowance
Closing balance
Loans and advances to banks
Opening balance
Remeasurement: ECL allowance
Closing balance
Loans and advances to customers
Opening balance
570,010
462,322
4,587,477
Subtraction: to financial assets FVTPL (mandatory)
(A)
(31,372)
Remeasurement: ECL allowance
Remeasurement: modifications
Closing balance
Other financial assets
Opening balance
Remeasurement: ECL allowance
Closing balance
Debt securities
Opening balance
Addition: from financial assets available-for-sale
Addition: from financial assets held-to-maturity
Remeasurement: from fair value to amortised cost
Remeasurement: ECL allowance
Remeasurement: reclassified bonds
Closing balance
Held-to-maturity investments
Opening balance
Subtraction: to debt securities - amortised cost
Closing balance
Total financial assets measured at amortised cost
Fair value through other comprehensive income (FVOCI)
Financial assets available-for-sale
Opening balance
Subtraction: to FVOCI - debt instruments
Subtraction: to FVOCI - equity instruments
Subtraction: to amortised cost - debt securities
Subtraction: to FVTPL (mandatory)
Closing balance
38,389
82,133
609,712
6,350,043
1,777,762
491,936
609,712
(609,712)
(1,238,977)
(44,790)
(491,936)
(2,059)
(B)
(C )
(D)
(C )
(E)
(F)
(B)
(G)
(67)
(492)
45,590
(7,409)
526
(2,232)
(1,225)
(2,236)
569,943
461,830
4,594,286
38,915
1,178,088
-
6,843,062
-
NLB Group 2018 Annual Report 207
in EUR thousands
IFRS 9 carrying
amount
1 January 2018
1,238,977
44,790
1,283,767
72,180
-
IAS 39 carrying
amount
31 December 2017
Ref
Reclassification
Remeasurement
(E)
(F)
(H)
(H)
(G)
(A)
-
-
1,777,762
72,180
634
-
1,238,977
44,790
(634)
634
2,059
31,372
NLB
FVOCI - debt instruments
Opening balance
Addition: from financial assets available-for-sale
Closing balance
FVOCI - equity instruments
Opening balance
Addition: from financial assets available-for-sale
Closing balance
Total financial assets measured at fair value
through other comprehensive income
Fair value through profit and loss (FVTPL)
Trading assets
Opening balance and closing balance
Financial assets FVTPL (designated)
Opening balance
Subtraction: to financial assets FVTPL (mandatory)
Closing balance
Financial assets FVTPL (mandatory)
Opening balance
Addition: from financial assets FVTPL (designated)
Addition: from financial assets available-for-sale
Addition: from loans and advances to customers
Remeasurement: from amortised cost to fair value
Closing balance
Total financial assets measured at fair value through profit and loss
72,814
(A) Certain loans and advances to
customers that were under IAS 39
classified as Loans and advances
measured at amortised costs,
under IFRS 9 meet the criteria for
mandatory measurement at FVTPL
because the contractual cash flows of
these assets are not solely payments of
principal and interest on the principal
outstanding.
(B) Certain debt securities held by the
Group may be sold, but such sales
are not expected to be more than
infrequent or significant. These
securities are held within a business
model whose objective is to hold
assets to collect the contractual cash
flows, and are therefore measured at
amortised cost under IFRS 9.
(C) Debt instruments previously classified
as held to maturity have been
reclassified to amortised cost under
IFRS 9, as their previous category
under IAS 39 was diminished.
(D) During the year 2009 NLB Group
reclassified certain bonds from
the trading category to loans and
advances, since it had a positive
intent and ability to hold them for the
foreseeable future or until maturity,
rather than trade them in the short
term. The fair value of reclassified
bonds on the date of reclassification
(1,317)
32,748
104,928
became their new amortised cost. At
transition to IFRS 9, NLB Group
recalculated amortised cost of
these securities as if they had been
measured at amortised cost since their
initial recognition.
(E) The Group holds certain debt
securities to meet everyday liquidity
needs. Under IFRS 9 these securities
are held within a business model
whose objective is achieved by both
collecting contractual cash flows
and selling financial assets, and are
therefore measured at fair value
through other comprehensive income.
NLB Group 2018 Annual Report 208
(F) Certain equity investments held by
the Group have been designated
under IFRS 9 as at FVOCI, because
they are not strategic and the Group
can’t control them. The changes in
fair value of such investments will no
longer be recognised in profit or loss,
not even in case of disposal. Before the
adoption of IFRS 9, these investments
were classified as available for sale.
(G) For certain equity investments,
management didn’t make an
irrevocable election at initial
recognition that subsequent changes
in fair value would be measured at fair
value through other comprehensive
income. These assets are, in
accordance with IFRS 9, classified
as mandatorily measured at FVTPL.
Also some shares that do not meet
definition of equity instruments are
classified in the same category.
(H) Before the adoption of IFRS 9, certain
investments in funds were managed
and evaluated on a fair value basis.
Under IFRS 9, these investments are
part of an “other” business model,
and so required to be classified as
FVTPL. Additionally, some equity
investments were designated at
FVTPL in order to reduce accounting
mismatch that would otherwise arise.
Under IFRS 9 these investments are
mandatorily measured at FVTPL.
The following table reconciles:
•
•
the closing balance of the loan loss
allowance for credit losses for financial
assets in accordance with IAS 39, and
provisions for credit losses for loan
commitments and financial guarantee
contracts in accordance with IAS 37 as
at 31 December 2017; to
the opening balance of the loan loss
allowance determined in accordance
with IFRS 9 as at 1 January 2018.
Measurement category
Loans and receivables under IAS 39/financial
assets at amortised cost under IFRS 9
Cash, cash balances at central banks, and
other demand deposits at banks
Loans and advances - debt securities
Loans and advances to banks
Loans and advances to customers
Loans and advances - other financial assets
Held to maturity securities under IAS 39/financial
assets at amortised cost under IFRS 9
Available for sale debt investment securities under IAS 39/
financial assets at amortised cost under IFRS 9
Available for sale debt investment securities under IAS
39/debt financial assets at FVOCI under IFRS 9
Loan commitments and financial guarantee contract issued
Total
NLB Group
in EUR thousands
31 December 2017
Loan loss allowance
under IAS 39/
Provision under
IAS 37
Interest loss
allowance
31 December 2017
Reclassification
Remeasurement
1 January 2018
Loan loss allowance
under IFRS 9
-
-
576
646,752
11,705
73
-
-
36,915
696,021
-
-
-
-
-
-
657
17
137
7,347
(27,737)
(76,471)
1
-
-
-
-
7,348
-
-
-
-
(5,435)
(33,172)
(838)
496
1,583
4,487
10,785
(59,147)
657
17
713
549,891
10,868
569
1,583
4,487
42,265
611,050
NLB Group 2018 Annual Report Measurement category
Loans and receivables under IAS 39/financial
assets at amortised cost under IFRS 9
Cash, cash balances at central banks, and
other demand deposits at banks
Loans and advances - debt securities
Loans and advances to banks
Loans and advances to customers
Loans and advances - other financial assets
Held to maturity securities under IAS 39/financial
assets at amortised cost under IFRS 9
Available for sale debt investment securities under IAS 39/
financial assets at amortised cost under IFRS 9
Available for sale debt investment securities under IAS
39/debt financial assets at FVOCI under IFRS 9
Loan commitments and financial guarantee contract issued
Total
31 December 2017
Loan loss allowance
under IAS 39/
Provision under
IAS 37
Interest loss
allowance
31 December 2017
NLB
Reclassification
Remeasurement
-
-
-
317,063
3,191
73
-
-
34,257
354,584
-
-
-
-
-
-
67
17
492
6,738
(25,753)
(45,590)
1
-
-
-
-
6,739
-
-
-
-
(5,037)
(30,790)
(526)
496
712
2,190
1,452
(40,690)
209
in EUR thousands
1 January 2018
Loan loss
allowance
under IFRS 9
67
17
492
252,458
2,666
569
712
2,190
30,672
289,843
For financial assets that have been
reclassified to the amortised cost category,
the following table shows their fair value
as at 31 December 2018, and the fair
value gain or loss that would have been
recognised if these financial assets had not
been reclassified as part of the transition to
IFRS 9.
From available-for-sale financial assets under IAS 39
Fair value as at 31 December 2018
Fair value gain/loss that would have been recognised during the year in OCI if the financial assets had not been reclassified
NLB Group
209,521
1,654
in EUR thousands
NLB
160,051
1,787
At transition to IFRS 9, as of 1 January
2018, NLB Group identified only few loan
exposures that did not pass the SPPI test
due to modified element of time value
of money, and are therefore measured
mandatorily at fair value through profit or
loss.
NLB Group 2018 Annual Report 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
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.
• Prospera plus d.o.o., Ljubljana – v
likvidaciji and NLB Leasing d.o.o. – v
likvidaciji, Ljubljana are formally in
liquidation.
210
3. Changes in subsidiary holdings
Changes in 2018
Capital changes:
• An increase in share capital in the form
of a cash contribution in the amount
of EUR 300 thousand in Prospera
plus d.o.o., Ljubljana – v likvidaciji for
covering operating costs.
• An increase in share capital in the form
of a cash contribution in the amount
of EUR 1,300 thousand in S-REAM
d.o.o., Ljubljana to ensure regular
business operations.
Other changes:
• In March 2018, NLB Group sold its
core subsidiary NLB Nov Penziski Fond,
Skopje (note 4.14. and 5.10.c).
• NLB Interfinanz, Praga – v likvidaci
and NLB Interfinanz, Belgrade – u
likvidaciji are formally in liquidation.
• In May 2018 S-REAM, poslovanje z
nepremičninami, d.o.o. Ljubljana was
established and will manage certain real
estate in NLB Group. NLB’s ownership
is 100%.
• In June 2018 NLB Propria d.o.o.,
Ljubljana – v likvidaciji was liquidated.
In accordance with a court order, the
company was removed from the court
register.
• In September 2018, NLB sold its
associate Skupna pokojninska družba d.
d., Ljubljana (note 4.14.).
• In December 2018, NLB received EUR
958 thousand from liquidation of NLB
Lizing Skopje (note 4.13.). In January
2019 liquidation was finished and the
company was removed from the court
register in accordance with court order.
• In December 2018, NLB sold its
subsidiary REAM d.o.o., Zagreb
to S-REAM, d.o.o., poslovanje z
nepremičninami, Ljubljana (note 4.14.).
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
NLB Group 2018 Annual Report 4. Notes to the income statement
4.1. Interest income and expenses
Analysis by type of assets and liabilities
Interest and similar income
Interest income, using the effective interest method
Loans and advances to customers at amortised cost
Securities measured at amortised cost
Financial assets measured at fair value through other comprehensive income
Loans and advances to banks measured at amortised cost
Loans and advances to customers (IAS 39)
Available-for-sale financial assets (IAS 39)
Held-to-maturity financial assets (IAS 39)
Loans and advances to banks and central banks (IAS 39)
Deposits with banks and central banks
Interest income, not using the effective interest method
Financial assets held for trading
Non-trading financial assets mandatorily at fair value through profit or loss
211
NLB Group
NLB
in EUR thousands
2018
2017
2018
2017
351,773
304,652
23,107
20,749
2,070
-
-
-
-
1,195
7,084
5,571
1,513
356,932
-
-
-
-
311,581
26,476
16,446
1,548
881
6,801
6,801
-
174,296
139,235
19,152
12,937
2,394
-
-
-
-
578
7,135
5,571
1,564
181,454
-
-
-
-
148,229
14,045
16,446
2,304
430
6,801
6,801
-
Total
358,857
363,733
181,431
188,255
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., 5.19.d)
Deposits from banks and central banks
Other financial liabilities
Total
Net interest
25,039
29,476
-
4,814
8,372
1,505
1,160
1,275
3,364
221
184
13
4,357
5,896
6,249
2,243
1,561
1,593
2,436
242
220
144
5,616
-
4,814
8,372
1,221
-
-
2,987
126
258
5
45,947
54,417
23,399
8,852
4,357
5,896
6,249
1,670
-
-
2,115
110
166
51
29,466
312,910
309,316
158,032
158,789
The item ‘Negative interest’ includes the
interest from deposits with banks and
central banks in amount of EUR 3,179
thousand for NLB Group (2017: EUR
2,107 thousand), and EUR 2,802 thousand
for NLB (2017: EUR 1,786 thousand), and
also interest from financial assets measured
at fair value through other comprehensive
income with negative effective interest rates
due to purchase with a premium in the
amount of EUR 185 thousand for NLB
Group and NLB (2017 available for sale
financial assets in amount of EUR 329
thousand).
NLB Group 2018 Annual Report 212
4.2. Dividend income
Financial assets measured at fair value through other comprehensive income
- related to investments derecognised during the period
- related to investments held at the end of reporting period
Investments in subsidiaries
Investments in associates, and joint ventures
Non-trading financial assets mandatory at fair value through profit or loss
Available-for-sale financial assets (IAS 39)
Total
NLB Group
NLB
in EUR thousands
2018
2017
2018
2017
95
12
83
-
-
23
-
118
-
-
-
-
-
-
179
179
-
-
-
47,955
1,714
23
-
-
-
-
53,797
4,215
-
50
49,692
58,062
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 gold cards
Investment banking
Guarantees
Other services
Total
NLB Group
NLB
in EUR thousands
2018
2017
2018
2017
66,552
48,829
56,472
16,369
10,840
4,757
5,467
60,976
43,485
56,997
17,070
11,111
4,073
5,810
41,015
36,378
39,459
32,699
27,151
28,408
4,991
7,095
4,199
3,897
5,000
7,306
4,060
3,900
209,286
199,522
124,726
120,832
43,461
38,064
26,131
22,980
6,125
1,148
2,062
161
2,200
5,675
1,465
1,433
231
2,891
55,157
49,759
829
906
764
30
1,059
29,719
812
983
345
170
1,210
26,500
Net activity fee and commission income
154,129
149,763
95,007
94,332
NLB Group 2018 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
213
NLB Group
NLB
in EUR thousands
2018
2017
2018
2017
1,418
1,240
574
5,151
795
95
9,273
2,728
59
2,787
6,486
1,171
1,351
123
5,090
613
38
8,386
2,697
34
2,731
5,655
1,367
-
574
5,120
795
95
7,951
2,736
59
2,795
5,156
1,153
-
123
4,979
613
49
6,917
2,706
34
2,740
4,177
218,559
57,944
207,908
52,490
132,677
32,514
127,749
29,240
Total a) and b)
160,615
155,418
100,163
98,509
4.4. Gains less losses from financial assets and liabilities not classified at fair value through profit or loss
Debt instruments measured at fair value through other comprehensive income
- gains
- losses
Debt instruments measured at amortised cost
- gains
- losses
Available-for-sale financial assets (IAS 39)
- gains
- losses
Financial liabilities measured at amortised cost
- gains
Total
NLB Group
NLB
in EUR thousands
2018
2017
2018
2017
941
(697)
6
(459)
-
-
254
45
-
-
-
-
12,455
(213)
-
12,242
785
(697)
6
(459)
-
-
-
-
-
-
-
11,883
(172)
-
(365)
11,711
NLB Group 2018 Annual Report 214
4.5. Gains less losses from financial assets and liabilities held for trading
Foreign exchange trading
- gains
- losses
Debt instruments
- gains
- losses
Derivatives
- currency
- interest rate
- cross currency interest rate
- securities
Total
NLB Group
NLB
in EUR thousands
2018
2017
2018
2017
18,762
(8,145)
551
(933)
260
(753)
-
(242)
9,500
19,469
(8,851)
1,093
(1,135)
1,232
1,170
(77)
166
13,067
10,947
(6,943)
551
(933)
257
(752)
-
(242)
2,885
11,243
(7,093)
1,093
(1,135)
1,698
1,170
(77)
166
7,065
4.6. Gains less losses from non-trading financial assets mandatorily at fair value through profit or loss
NLB Group
NLB
in EUR thousands
Equity securities
- gains
- losses
Debt securities
- losses
Loans and advances to customers
- gains
Total
2018
1,121
(834)
(10)
3,759
4,036
2018
1,088
(543)
-
4,739
5,284
NLB Group 2018 Annual Report 215
in EUR thousands
2017
(892)
-
(177)
62
(1,007)
NLB
2018
255
-
(37)
-
218
NLB Group
2018
782
(2)
(37)
2
745
2017
(381)
2,614
(177)
93
2,149
NLB Group
NLB
in EUR thousands
2018
8,176
988
3,328
2,152
1,708
4,759
730
121
4,894
18,680
2017
12,099
3,531
3,617
2,798
2,153
5,440
2,242
1,821
4,822
26,424
2018
5,653
988
3,328
437
900
543
169
69
3,334
9,768
2017
8,255
3,531
3,617
439
668
381
396
62
3,078
12,172
NLB Group
NLB
in EUR thousands
2018
13,818
774
2,506
2,772
3,068
840
635
3,855
28,268
2017
13,393
3,396
2,590
2,993
589
1,122
2,202
3,126
29,411
2018
5,746
65
2,506
1,001
3,068
361
635
1,255
14,637
2017
4,732
2,382
2,590
1,093
589
700
2,202
961
15,249
4.7. Foreign exchange translation gains less losses
Financial assets and liabilities not classified as at fair value through profit or loss
Disposal of a subsidiary
Financial assets measured at fair value through profit or loss
Other
Total
4.8. 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 5.12.)
Sale of investment property
Other operating income
Total
4.9. Other operating expenses
Deposit guarantee
Revaluation of investment property to fair value (note 5.12.)
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 5.19.)
Other operating expenses
Total
Other operating expenses mainly include
expenses associated with licences,
donations, and damages.
NLB Group 2018 Annual Report 216
4.10.
Administrative expenses
Employee costs
Gross salaries, compensations, and other short-term benefits
Defined contribution scheme
Social security contributions
Defined benefit expenses (note 5.19.d)
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 thousands
2018
2017
2018
2017
146,171
10,351
8,457
139
343
(204)
139,918
11,323
9,195
4,049
94
3,955
91,742
88,429
6,776
5,551
(225)
69
(294)
6,718
5,503
3,046
462
2,584
165,118
164,485
103,844
103,696
5,284
26,372
10,933
2,900
12,539
1,300
8,993
27,094
4,138
6,385
6,956
3,712
2,052
3,851
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
2,330
16,842
6,854
1,444
8,544
515
5,486
2,488
15,032
5,660
1,176
8,196
419
3,739
14,200
14,087
2,321
1,242
5,219
1,652
1,120
2,646
2,117
1,256
4,597
1,441
1,722
2,954
Technology
16,377
15,492
10,895
10,873
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
8,496
3,949
2,059
1,873
8,757
4,547
2,149
2,061
2,137
8,355
2,950
1,904
2,283
8,505
4,322
2,178
2,005
2,226
5,851
2,341
1,535
1,168
6,025
4,010
765
1,250
1,302
5,493
2,560
1,262
1,558
6,055
3,880
874
1,301
1,488
96,314
92,422
57,595
54,181
Total administrative expenses
261,432
256,907
161,439
157,877
Number of employees
5,887
6,029
2,690
2,789
Costs of other services include costs for
cash transport, archiving services, personal
insurance costs, and legal costs and fees.
NLB Group 2018 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
4.11.
Depreciation and amortisation
Amortisation of intangible assets (note 5.13.)
Depreciation of property and equipment (note 5.11.)
Total
4.12.
Provisions
217
NLB Group
NLB
in EUR thousands
2018
2017
2018
2017
497
492
6
995
NLB Group
2018
10,794
16,430
27,224
559
361
253
1,173
2017
10,916
16,886
27,802
206
479
6
691
NLB
2018
8,135
9,396
198
361
253
812
in EUR thousands
2017
8,555
9,455
17,531
18,010
NLB Group
NLB
in EUR thousands
2018
2017
2018
2017
Guarantees and commitments (note 5.19.b) and c)
(3,156)
(3,460)
(1,157)
(2,296)
Restructuring provisions (note 5.19.e)
Provisions for legal issues (note 5.19.f)
Other provisions (note 5.19.g)
Total
(21)
1,533
-
(1,644)
8,588
682
(559)
5,251
-
(2,258)
-
(3,415)
8,400
1,831
(591)
7,344
NLB Group 2018 Annual Report 218
4.13.
Impairment charge
Impairment of financial assets
Cash balances at central banks, and other demand deposits at banks
Loans and advances to individuals measured at amortised cost (note 5.16.a)
Loans and advances to legal entities measured at amortised cost (note 5.16.a)
Debt securities measured at fair value through other comprehensive income (note 5.16.b)
Debt securities measured at amortised cost (note 5.16.b)
Other financial assets measured at amortised cost (note 5.16.a)
Available-for-sale financial assets (IAS39) (note 5.5.b)
Held-to-maturity financial assets (IAS39) (note 5.9.b)
Loans and advances to banks (IAS39) (note 5.17.b)
Loans to government (IAS39) (note 5.17.b)
Loans to financial organisations (IAS39) (note 5.17.b)
Loans to individuals (IAS39) (note 5.17.a)
Loans to other customers (IAS39) (note 5.17.b)
Other financial assets (IAS39) (note 5.17.c)
NLB Group
NLB
in EUR thousands
2018
2017
2018
2017
(175)
7,724
(35,902)
(26)
733
599
-
-
-
-
-
-
-
-
-
-
-
-
-
-
23
(10)
187
(7,706)
(2,244)
8,916
(40,284)
1,130
21
3,155
(31,988)
148
25
(20)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
23
(10)
-
(1,891)
(15,569)
2,968
(25,289)
587
Total
(27,047)
(39,988)
(28,659)
(39,181)
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 5.11.)
Other assets
Total
Total impairment
-
-
-
643
4,771
5,414
-
-
-
717
4,490
5,207
(958)
20
(938)
-
(43)
(43)
674
19
693
390
90
480
(21,633)
(34,781)
(29,640)
(38,008)
In 2018, NLB impaired equity investments
in non-core subsidiaries and an associate
in a total amount of EUR 544 thousand
(2017: EUR 731 thousand), and released
an impairment in a total amount of EUR
1,482 thousand mainly due to repayment
from liquidation mass of non-core
subsidiaries (2017: EUR 38 thousand).
Impairments of investments in subsidiaries
and associate are included in the segment
‘Non-core markets and activities.’
NLB Group 2018 Annual Report 4.14.
Gains less losses from non-current assets held for sale
Gains less losses on derecognition of subsidiaries
Gains less losses on derecognition of associates
Gains less losses from property and equipment
Total
219
NLB Group
NLB
in EUR thousands
2018
12,178
(477)
127
11,828
2017
(928)
(2)
(1,756)
(2,686)
2018
9,203
2,465
154
11,822
2017
-
159
451
610
In 2018, NLB sold its subsidiaries NLB Nov
Penziski Fond a.d., Skopje and Ream d.o.o.,
Zagreb. At sale of NLB Nov Penziski Fond
a.d., Skopje NLB Group realised a profit
in the amount of EUR 12,178 thousand
and NLB in the amount of EUR 8,840
thousand.
In 2018, NLB sold its associate Skupna
pokojninska družba d.o.o., Ljubljana. At
sale, NLB Group realised a loss in the
amount of EUR 477 thousand and NLB
realised a profit in the amount of EUR
2,465 thousand.
4.15.
Income tax
Current income tax
Deferred tax (note 5.20.)
Total
Income tax differs from the amount of
tax determined by applying the Slovenian
statutory tax rate as follows:
NLB Group
NLB
2018
22,679
(920)
21,759
2017
12,688
(8,691)
3,997
2018
12,027
160
12,187
in EUR thousands
2017
2,945
(7,164)
(4,219)
NLB Group
NLB
in EUR thousands
2018
2017
2018
2017
Profit before tax
233,336
237,311
177,486
184,875
Tax calculated at prescribed rate of 19%
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
44,334
(3,100)
(2,438)
(141)
(1,920)
(8,715)
(8,324)
-
1,605
27
431
21,759
45,089
(2,089)
3,238
(14,810)
(1,550)
(10,919)
(9,081)
(5,066)
2,302
(2,688)
(429)
3,997
33,722
(10,223)
838
(319)
(1,536)
(11,957)
-
-
1,605
1
56
12,187
35,126
(11,133)
(1,007)
(14,202)
(1,436)
(4,589)
-
(6,734)
2,302
(2,117)
(429)
(4,219)
NLB Group 2018 Annual Report 220
Income tax rates within NLB Group range
from 9-32%. A tax rate of 19% was applied
in Slovenia in 2018 (2017: 19%).
The majority of non-taxable income relates
to dividends and income deemed to be
dividends. NLB excluded EUR 48,072
thousand in dividend income and income
deemed to be dividends from its tax base in
2018 (2017: EUR 57,053 thousand).
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 subsidiaries that were
divested.
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. Deferred tax assets for
temporary non-deductible expenses for
impairment of debt securities measured
at fair value through other comprehensive
income are excluded from this calculation,
as deferred tax liabilities are recognised in
the same amount in other comprehensive
income.
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 321,561 thousand as at 31 December
2018 (31 December 2017: EUR 322,186
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
382,053 thousand (2017: EUR 382,462
thousand).
The effective tax rate of the NLB Group
relating to operations in 2018 is 9.3%
(2017: 1.7) (calculated as a ratio of the tax
expense and profit before tax), and for NLB
is 6.9% (2017: -2.3%)
4.16.
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.
Net profit attributable to the owners of the parent (in EUR thousandss)
Weighted average number of ordinary shares (in thousands)
Basic earnings per share (in EUR per share)
Diluted earnings per share (in EUR per share)
NLB Group
NLB
2018
2017
2018
203,647
20,000
10.2
10.2
225,069
20,000
11.3
11.3
165,299
20,000
8.3
8.3
2017
189,094
20,000
9.5
9.5
NLB Group 2018 Annual Report 221
5. Notes to the statement of financial position
5.1. Cash, cash balances at central banks, and other demand deposits at banks
Balances and obligatory reserves with central banks
Cash
Demand deposits at banks
Allowance for impairment
Total
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
1,075,378
312,748
200,693
798,758
269,696
188,027
1,588,819
1,256,481
(470)
-
575,088
153,315
66,787
795,190
(88)
350,804
143,726
75,480
570,010
-
1,588,349
1,256,481
795,102
570,010
Slovenian banks are required to maintain
a compulsory reserve with the Bank
of Slovenia relative to the volume and
structure of their customer deposits.
Other banks in NLB Group maintain a
compulsory reserve in accordance with
local legislation. NLB and other banks in
NLB Group fulfill their compulsory reserve
deposit requirements.
NLB Group 2018 Annual Report 222
5.2. Financial instruments held for trading
a) Trading assets
Derivatives, excluding hedging instruments
Swap contracts
- currency swaps
- 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
Total securities
Total
- quoted securities
of these debt instruments
The notional amounts of derivative financial
instruments are disclosed in note 5.26.b.
b) 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 5.26.b.
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
13,561
1,081
12,480
414
85
329
937
937
11,739
384
11,355
847
276
571
439
439
13,563
1,083
12,480
414
85
329
937
937
11,734
379
11,355
847
276
571
435
435
14,912
13,025
14,914
13,016
18,659
6,770
11,889
30,038
48,697
4,117
-
4,117
55,047
59,164
18,659
6,770
11,889
30,038
48,697
4,117
-
4,117
55,047
59,164
63,609
72,189
63,611
72,180
48,697
48,697
59,164
59,164
48,697
48,697
59,164
59,164
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
11,343
956
10,387
86
86
871
871
8,855
367
8,488
276
276
371
371
11,302
915
10,387
86
86
868
868
8,751
263
8,488
276
276
371
371
12,300
9,502
12,256
9,398
NLB Group 2018 Annual Report 5.3. Non-trading financial instruments measured at fair value through profit or loss
a) Financial instruments mandatorily at fair value through profit or loss
223
Assets
Shares
Investment funds
Bonds
Loans and advances to companies
Total
- quoted securities
of these equity instruments
of these debt instruments
- unquoted securities
of these equity instruments
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2018
2,513
4,067
2,009
23,800
32,389
4,657
2,009
1,923
2,513
34
-
26,594
29,141
624
-
1,923
As at 31 December 2018, the value of
equity instruments obtained by NLB Group
from taking possession of collateral and
recognised in the statement of financial
position is EUR 624 thousand (note 6.1.s).
Liabilities
Loans and advances to companies
b) Financial instruments designated at fair value through profit or loss
Assets
Private equity fund
Other investments
Total
Liabilities
Structured deposit
Total
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2018
4,190
3,981
NLB Group
NLB
in EUR thousands
31 Dec 2017
31 Dec 2017
634
4,369
5,003
635
635
634
-
634
635
635
As at 31 December 2017 in NLB,
investments in private equity funds in
the amount of EUR 634 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
is the structured deposit from customers
from which the returns depend on the
returns from private equity funds, classified
as financial assets 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
NLB Group 2018 Annual Report 224
loss represent investments in other funds
that are managed and evaluated on a fair
value basis.
5.4. Financial assets measured at fair value through other comprehensive income
a) Analysis by type of financial assets measured at fair value through other comprehensive income
Bonds
- governments
- Republic of Slovenia
- other EU members
- non-EU members
- banks
- other issuers
Shares
National Resolution Fund
Treasury bills
- Republic of Slovenia
- non-EU members
Commercial bills
Total
Allowance for impairment
- 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 thousands
31 Dec 2018
31 Dec 2018
1,648,863
1,051,199
425,114
427,862
198,223
588,180
9,484
4,577
44,484
99,398
50,106
49,292
100,757
1,898,079
(4,470)
1,685,708
3,185
1,682,523
212,371
45,876
166,495
1,433,476
837,347
402,783
417,233
17,331
588,180
7,949
248
44,484
50,106
50,106
-
-
1,528,314
(2,339)
1,483,582
-
1,483,582
44,732
44,732
-
NLB Group 2018 Annual Report b) Movements of financial assets measured at fair value through other comprehensive income
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Additions
Disposals and maturity
Net interest income (note 4.1.)
Exchange differences on monetary assets
Changes in fair values
Balance as at 31 December
As at 31 December 2018, the value of
equity instruments obtained by NLB Group
from taking possession of collateral and
recognised in the statement of financial
position is 3,185 thousand (note 6.1.s).
By selling equity securities measured at
fair value through other comprehensive
income, in 2018 NLB Group realised a
net gain in the amount of EUR 2,101
thousand, and NLB a net gain in the
225
NLB Group
NLB
in EUR thousands
2018
1,654,856
(209)
1,579,126
(1,350,103)
20,564
964
(7,119)
2018
1,283,767
-
481,507
(243,219)
12,752
1,038
(7,531)
1,898,079
1,528,314
amount of EUR 44 thousand. This gain is
transferred to retained earnings (note 5.4.c).
c) Accumulated other comprehensive income related to financial assets measured at fair value through other comprehensive income
NLB Group
NLB
in EUR thousands
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Disposal of subisidiaries
Net gains/(losses) from changes in fair value
Gains/losses transferred to net profit on disposal (note 4.4.)
Impairment (note 4.13.)
Transfer of gains/losses to retained earnings
Deferred income tax (note 5.20.)
Share of other comprehensive income of associates and joint ventures
Balance as at 31 December
- debt securities
- equity securities
2018
45,315
(18)
(65)
(10,969)
(244)
(26)
(2,101)
2,394
(5,425)
28,861
26,818
2,043
2018
27,741
-
-
(11,381)
(88)
148
(44)
2,244
-
18,620
18,477
143
NLB Group 2018 Annual Report 226
5.5. Available-for-sale financial assets (IAS 39)
a) Analysis by type of available-for-sale financial assets
Bonds
- governments
- Republic of Slovenia
- other EU members
- non-EU members
- banks
- other issuers
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
b) Movements of available-for-sale financial assets
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Transfer to non-current assets and disposal group classified as held for sale (note 5.10.b)
Additions
Disposals and maturity
Net interest income (note 4.1.)
Exchange differences on monetary assets
Changes in fair values
Impairment (note 4.13.)
- impairment of equity securities
Balance as at 31 December
NLB Group
NLB
in EUR thousands
31 Dec 2017
31 Dec 2017
1,805,250
1,210,080
377,612
571,669
260,799
548,623
46,547
8,670
44,514
136,182
40,070
96,112
281,877
2,276,493
1,816,373
3,598
1,812,775
460,120
49,586
410,534
1,554,565
959,395
377,612
571,669
10,114
548,623
46,547
2,334
44,514
40,070
40,070
-
136,279
1,777,762
1,595,115
480
1,594,635
182,647
46,368
136,279
NLB Group
NLB
in EUR thousands
2017
2017
2,072,153
1,594,094
3,564
(3,790)
2,105,251
(1,911,882)
26,148
(4,454)
(10,474)
(23)
(23)
-
-
881,646
(695,299)
13,716
(3,253)
(13,119)
(23)
(23)
2,276,493
1,777,762
NLB Group 2018 Annual Report 227
As at 31 December 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, and by
NLB it amounted to EUR 480 thousand
(note 6.1.s).
By selling equity securities available for sale,
in 2017 NLB Group realised a net gain in
the amount of EUR 9,964 thousand, and
NLB a net gain in the amount of EUR
9,835 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
NLB Group
NLB
in EUR thousands
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Net gains/(losses) from changes in fair value
Gains/losses transferred to net profit on disposal or impairment
Deferred income tax (note 5.20.)
Share of other comprehensive income of associates and joint ventures
Balance as at 31 December
- debt securities
- equity securities
2017
53,001
(2)
4,957
(12,216)
1,657
201
47,598
43,865
3,733
2017
37,218
-
1,781
(11,685)
1,882
-
29,196
28,346
850
5.6. Derivatives for hedging purposes
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. The portfolio
duration is used as a measure of risk in the
management of securities in the banking
book.
NLB Group entities use various derivatives
such as interest rate swaps (IRS) and
currency interest rate swaps (CIRS) to close
open positions in an individual maturity
bucket. Micro and macro fair value hedges
are used for that purpose, i.e. the swapping
of a fixed interest rate on a hedged item
for a variable interest rate. Micro cash flow
hedges are also used, i.e. the swapping of a
variable interest rate on a hedged item for
a fixed interest rate. All cash flow hedges
were made on liability items, while fair
value hedges were used on both liability
and asset items.
Hedge accounting rules (fair value and
cash flow hedging) were applied in the
hedging of interest rate risk using interest
rate swaps. These hedge relationships
are created in such a way that the
characteristics of the hedge instrument
and those of the hedged item match (i.e.
the principal terms match), while the
dollar-offset method is used to regularly
measure hedge effectiveness retrospectively.
Prospective testing of hedge effectiveness
is carried out regularly for macro hedges
where the characteristics of both items in
the hedge relationship do not fully match
by comparing the change in the fair value
of both items with the shift in the yield
curve.
Hedge accounting rules were not applied
in economic hedges using CIRS. Thus,
the effects of valuation are disclosed in the
income statement in the item ‘Gains Less
Losses from Financial Assets and Liabilities
Held for Trading.’
NLB Group 2018 Annual Report 228
a) Fair value adjustment in hedge accounting recognised in profit or loss
in EUR thousands
NLB Group and NLB
Fair value hedge
Net effects from hedging instruments
- interest rate swap for micro hedge
- interest rate swap for macro hedge
Net effects from hedged items
- loans measured at amortised cost - micro hedge
- bonds measured at amortised cost - micro hedge
- bonds measured at fair value through OCI - micro hedge
- loans measured at amortised cost- macro hedge
- bonds classified as loans - micro hedge
- available-for-sale financial assets - micro hedge
- loans and receivables - micro hedge
- loans and receivables - macro hedge
As at 31 December 2018 and 2017, 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 Dec 2018
31 Dec 2017
2018
472
(4,224)
(2,425)
(1,799)
4,696
(170)
(783)
3,850
1,799
-
-
-
-
2017
(813)
5,599
5,656
(57)
(6,412)
-
-
-
-
(2,468)
(3,211)
(775)
42
Notional amount
Fair value
in EUR thousands
Asset
Liability
493,677
406,218
417
1,188
29,474
25,529
c) Accumulated fair value adjustments
arising from the corresponding
continuing hedge relationships
The table below presents accumulated
fair value adjustments arising from
the corresponding continuing hedge
relationships, irrespective of whether
or not there has been a change in
hedge designation during the year. The
accumulated fair value adjustment is
presented in the same lane of Statement
of financial position as a hedged item,
except for macro fair value hedges. In such
relationships, hedged items are presented
in the item ‘Financial assets measured at
amortised cost,’ while the accumulated fair
value adjustment is presented in separate
item ‘Fair value changes of the hedged
items in portfolio hedge of interest rate
risk.’
NLB Group 2018 Annual Report 229
in EUR thousands
2018
2017
Carrying amount
of hedged items
Accumulated
amount of FV
adjustments on
the hedged item
Carrying amount
of hedged items
Accumulated
amount of FV
adjustments on
the hedged item
439,374
11,554
397,669
8,187
4,422
78,655
356,297
-
-
-
114,224
114,224
446
1,974
9,134
-
-
-
2,517
2,517
-
-
-
5,123
82,133
310,413
71,345
71,345
-
-
-
616
2,287
5,284
719
719
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2018
1,428,962
118,696
7,124,633
75,171
8,747,462
1,274,978
110,297
4,451,477
42,741
5,879,493
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2018
1,138,415
81,990
183,715
27,740
1,431,860
(2,898)
1,428,962
982,856
81,990
183,715
27,740
1,276,301
(1,323)
1,274,978
NLB Group and NLB
Micro fair value hedges
Fixed rate corporate loans measured at AC
Fixed rate bonds measured at AC
Fixed rate bonds measured at FVOCI
Fixed rate corporate loans and receivables (IAS 39)
Fixed rate bonds classified as loans (IAS 39)
Fixed rate bonds classified as available-for-sale (IAS 39)
Macro fair value hedges
Fixed rate retail loans
5.7. Financial assets measured at amortised cost
Analysis by type
Debt securities
Loans and advances to banks
Loans and advances to customers
Other financial assets
Total
a) Debt securities
Government
Companies
Banks
Financial organisation
Allowance for impairment (note 5.16.c)
Total
NLB Group 2018 Annual Report 230
b) Loans and advances to banks
Loans
Time deposits
Purchased receivables
Allowance for impairment (note 5.16.a)
Total
c)
Loans and advances to customers
Loans
Overdrafts
Finance lease receivables
Credit card business
Called guarantees
Allowance for impairment (note 5.16.a)
Total
Analysis of loans and advances to customers by sector
Government
Financial organisations
Companies
Individuals
Total
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2018
1,710
116,450
662
118,822
(126)
118,696
40,073
69,639
662
110,374
(77)
110,297
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2018
7,051,289
311,366
86,842
120,611
8,092
7,578,200
(453,567)
7,124,633
4,408,703
178,590
-
60,130
6,613
4,654,036
(202,559)
4,451,477
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2018
352,746
88,676
3,041,159
3,642,052
7,124,633
267,716
177,744
1,790,350
2,215,667
4,451,477
NLB Group 2018 Annual Report Finance leases
Loans and advances to customers in NLB
Group include finance lease receivables:
NLB Group
The gross investment in finance leases by maturity
- not later than 1 year
- later than 1 year and not later than 5 years
- later than 5 years
Unearned future finance income on finance leases
Net investment in finance leases
- present value of minimum lease payments
The net investment in finance leases by maturity
- not later than 1 year
- later than 1 year and not later than 5 years
- later than 5 years
Total
231
in EUR thousands
31 Dec 2018
37,818
53,450
3,874
95,142
(8,300)
86,842
86,842
34,164
49,050
3,628
86,842
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 December 2018, the allowance
for unrecoverable finance lease receivables
included in the allowance for loan
impairment amounted to EUR 6,335
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.
NLB Group 2018 Annual Report 232
d) Other financial assets
Analysis by type of other financial assets
Credit card receivables
Receivables in the course of collection
Debtors
Fees and commissions
Dividends
Prepayments
Receivables from purchase agreements for equity securities
Other financial assets
Allowance for impairment (note 5.16.a)
Total
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2018
18,355
19,127
6,015
5,591
44
5,131
610
28,494
83,367
(8,196)
75,171
12,705
16,110
820
4,013
44
-
610
10,327
44,629
(1,888)
42,741
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
e) Movement of called non-financial guarantees
Balance as at 1 January 2018
Called guarantees
Paid guarantees
Write-offs
Balance as at 31 December 2018
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2018
20,398
17,923
11,420
4,757
20,673
75,171
NLB Group
1,375
1,127
(898)
(921)
683
11,686
2,903
7,170
1,505
19,477
42,741
in EUR thousands
NLB
1,263
457
(251)
(921)
548
NLB Group 2018 Annual Report 5.8. Loans and advances (IAS 39)
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 5.17.b)
Total
b) Loans and advances to customers
Analysis by type of loans and advances
Loans
Finance lease receivables
Overdrafts
Credit card business
Called guarantees
Allowance for impairment (note 5.17.)
Total
233
NLB Group
NLB
in EUR thousands
31 Dec 2017
31 Dec 2017
82,133
510,107
6,912,333
66,077
7,570,650
82,133
462,322
4,587,477
38,389
5,170,321
NLB Group
NLB
in EUR thousands
31 Dec 2017
31 Dec 2017
2,856
506,322
1,505
510,683
(576)
510,107
23,390
437,427
1,505
462,322
-
462,322
NLB Group
NLB
in EUR thousands
31 Dec 2017
31 Dec 2017
6,958,796
4,661,317
169,806
305,600
115,225
9,658
7,559,085
(646,752)
6,912,333
-
176,171
59,394
7,658
4,904,540
(317,063)
4,587,477
NLB Group 2018 Annual Report 234
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
- present value of minimum lease payments
The net investment in finance leases by maturity
- not later than 1 year
- later than 1 year and not later than 5 years
- later than 5 years
Total
As at 31 December 2017, the allowance
for unrecoverable finance lease receivables
included in the allowance for loan
impairment amounted to EUR 23,240
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.
NLB Group
NLB
in EUR thousands
31 Dec 2017
31 Dec 2017
457,080
77,202
3,006,105
3,371,946
6,912,333
358,675
268,184
1,878,056
2,082,562
4,587,477
in EUR thousands
31 Dec 2017
57,816
121,986
8,550
188,352
(18,548)
169,804
169,804
51,539
110,277
7,988
169,804
NLB Group 2018 Annual Report 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 5.17.c)
Total
235
NLB Group
NLB
in EUR thousands
31 Dec 2017
31 Dec 2017
24,522
13,398
8,018
6,170
2,204
163
23,307
77,782
(11,705)
66,077
19,642
10,467
1,029
4,723
-
163
5,556
41,580
(3,191)
38,389
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
d) Movement of called non-financial guarantees
Balance as at 1 January 2017
Effects of translation of foreign operations to presentation currency
Called guarantees
Paid guarantees
Write-offs
Balance as at 31 December 2017
NLB Group
NLB
in EUR thousands
31 Dec 2017
31 Dec 2017
16,519
14,819
13,855
5,387
15,497
66,077
NLB Group
4,229
12
4,101
(4,062)
(2,905)
1,375
10,308
1,761
9,222
2,157
14,941
38,389
in EUR thousands
NLB
3,509
-
1,167
(508)
(2,905)
1,263
NLB Group 2018 Annual Report 236
5.9. Held-to-maturity financial assets (IAS 39)
a) Analysis by type of held-to-maturity financial assets
NLB Group and NLB
Bonds
- governments
- Republic of Slovenia
- other EU members
- banks
- other issuers
Allowance for impairment
Total
- quoted
b) Movements of held-to-maturity financial assets
NLB Group and NLB
Balance as at 1 January 2017
Additions
Decreases
Interest income (note 4.1.)
Impairment (note 4.13.)
Exchange differences on monetary assets
Balance as at 31 December 2017
in EUR thousands
31 Dec 2017
609,785
560,565
353,634
206,931
45,885
3,335
609,785
(73)
609,712
609,712
in EUR thousands
611,449
74,108
(91,071)
16,446
10
(1,230)
609,712
5.10.
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
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
4,349
-
-
4,349
-
4,105
-
7,526
11,631
440
1,720
-
-
1,720
-
1,483
1,081
-
2,564
-
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
Item ‘Property and equipment’ includes
business premises, and assets received as
collateral that are in the process of sale.
NLB Group 2018 Annual Report 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
237
in EUR thousands
31 Dec 2017
3,790
3,354
180
20
44
138
7,526
335
61
44
440
7,086
42
65
NLB Group 2018 Annual Report 238
c) Disposal of NLB Nov Penziski Fond a.d., Skopje
The details of the assets and liabilities at the date of disposal (March 2018) and disposal consideration is as follows:
Cash, cash balances at cental banks, and other demand deposits at banks
Financial assets at fair value through other comprehensive income
Financial assets at amortised cost
Loans to banks
Other financial assets
Property and equipment
Intangible assets
Other assets
Other financial liabilities
Provisions
Other liabilities
Net assets of subsidiary
Non-controlling interest
Carrying amount of net assets disposed of
Total disposal consideration
Cash and cash equivalents in subsidiary sold
Cash inflow on disposal
The gain on disposal of the subsidiary comprises:
Consideration for disposal of the subsidiary
Carrying amount of net assets disposed of
Cumulative currency translation reserve on foreign operation recycled from other comprehensive income to profit or loss
Gains from disposal of subsidiary
in EUR thousands
12
3,961
3,967
174
18
41
137
409
60
59
7,782
(496)
7,286
19,464
(793)
18,671
19,464
7,286
(2)
12,176
NLB Group 2018 Annual Report d) Analysis of movements
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Additions
Transfer from/(into) property and equipment (note 5.11.)
Transfer from/(into) other assets
Transfer from/(into) investment property (note 5.12.)
Transfer to non-current assets and disposal group classified as held for sale
Disposals
Valuation
Balance as at 31 December
5.11.
Property and equipment
239
NLB Group
NLB
in EUR thousands
2018
11,631
5
32
381
-
-
-
(7,779)
79
4,349
2017
4,263
104
-
2,588
67
(201)
7,526
(745)
(1,971)
11,631
2018
2,564
-
-
242
-
-
-
(1,195)
109
1,720
2017
1,788
-
-
67
67
(201)
1,081
(493)
255
2,564
NLB Group
NLB
in EUR thousands
Land &
Buildings
Computers
Other
equipment
Total
Land &
Buildings
Computers
Other
equipment
Total
Cost
Balance as at 1 January 2018
321,712
69,940
105,461
497,113
197,666
47,009
58,064
302,739
Effects of translation of foreign operations
to presentation currency
Additions
Disposals
Impairment (note 4.13.)
Transfer to/from investment property (note 5.12.)
(13,012)
Transfer to/from non-current assets
held for sale (note 5.10.d)
(748)
(101)
(27)
(86)
(214)
-
-
-
-
5,264
6,607
4,428
16,299
3,048
4,885
2,130
10,063
(488)
(169)
(7,286)
(8,686)
(16,460)
-
-
-
-
-
-
(169)
(13,012)
(1,930)
(748)
(604)
-
-
(4,873)
(4,780)
(9,653)
-
-
-
-
-
-
-
(1,930)
(604)
Balance as at 31 December 2018
312,458
69,234
101,117
482,809
198,180
47,021
55,414
300,615
Depreciation and impairment
Balance as at 1 January 2018
165,545
53,757
89,456
308,758
128,987
35,336
51,365
215,688
Effects of translation of foreign operations
to presentation currency
(18)
(26)
(69)
(113)
(7,263)
(8,058)
(15,642)
-
-
-
-
-
(4,872)
(4,779)
(9,651)
Disposals
Depreciation (note 4.11.)
Impairment (note 4.13.)
Transfer to/from investment property (note 5.12.)
Transfer to/from non-current assets and
disposal group held for sale (note 5.10.d)
(321)
7,487
474
(4,135)
(367)
4,880
4,063
16,430
5,061
3,103
1,232
9,396
-
-
-
-
-
-
474
-
(4,135)
(1,390)
(367)
(362)
-
-
-
-
-
-
-
(1,390)
(362)
Balance as at 31 December 2018
168,665
51,348
85,392
305,405
132,296
33,567
47,818
213,681
Net carrying amount
Balance as at 31 December 2018
143,793
17,886
15,725
177,404
65,884
13,454
7,596
86,934
Balance as at 1 January 2018
156,167
16,183
16,005
188,355
68,679
11,673
6,699
87,051
NLB Group 2018 Annual Report 240
Cost
NLB Group
NLB
in EUR thousands
Land &
Buildings
Computers
Other
equipment
Total
Land &
Buildings
Computers
Other
equipment
Total
Balance as at 1 January 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 5.12.)
(5,846)
-
-
(5,846)
(5,825)
Transfer to/from non-current assets and disposal
group held for sale (note 5.10. b) and d)
(4,010)
(101)
(113)
(4,224)
(175)
-
-
-
-
(5,825)
(175)
Balance as at 31 December 2017
321,712
69,940
105,461
497,113
197,666
47,009
58,064
302,739
Depreciation and impairment
Balance as at 1 January 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 4.11.)
Impairment (note 4.13.)
(190)
7,732
717
Transfer to/from investment property (note 5.12.)
(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 5.10. b) and d)
(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 December 2017
165,545
53,757
89,456
308,758
128,987
35,336
51,365
215,688
Net carrying value
Balance as at 31 December 2017
156,167
16,183
16,005
188,355
68,679
11,673
6,699
87,051
Balance as at 1 January 2017
164,785
16,519
15,545
196,849
73,908
11,079
5,509
90,496
NLB Group and NLB had no assets held
under finance leases as at 31 December
2018 and 31 December 2017.
The value of assets received by taking
possession of collateral and included in
property and equipment by NLB Group
amounted to EUR 1,418 thousand (31
December 2017: EUR 1,355 thousand),
and in NLB amounted to EUR 7 thousand
(31 December 2017: EUR 7 thousand)
(note 6.1.s).
The net carrying value of assets leased out
by NLB Group under operating leases was
EUR 2,334 thousand as at 31 December
2018 (31 December 2017: EUR 2,913
thousand). A total of 44.9% of assets leased
out relates to motor vehicles (31 December
2017: 58.2%).
NLB Group 2018 Annual Report 5.12.
Investment property
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Additions
Disposals
Transfer from/(into) property and equipment (note 5.11.)
Transfer from/(into) non-current assets and disposal group held for sale (note 5.10.d)
Transfer from/(into) other assets
Net valuation to fair value (note 4.8. and 4.9.)
Balance as at 31 December
241
NLB Group
NLB
in EUR thousands
2018
51,838
(9)
99
(5,687)
8,877
-
3,570
(44)
58,644
2017
83,663
94
1,277
(34,743)
1,683
201
817
(1,154)
51,838
2018
9,257
-
-
(53)
540
-
2,178
104
12,026
2017
8,151
-
-
(60)
1,665
201
1,286
(1,986)
9,257
The value of assets received by taking
possession of collateral and included
in investment property by NLB Group
amounted to EUR 38,747 thousand (31
December 2017: EUR 40,809 thousand),
and in NLB amounted to EUR 6,464
thousand (31 December 2017: EUR 4,286
thousand) (note 6.1.s).
Operating expenses arising from investment
properties:
NLB Group
NLB
in EUR thousands
2018
1,155
455
1,610
2017
1,076
27
1,103
2018
432
412
844
2017
323
3
326
NLB Group
NLB
in EUR thousands
2018
2,941
5,801
336
9,078
2017
2,859
3,038
97
5,994
2018
603
2,097
236
2,936
2017
430
1,424
-
1,854
Leased to others
Not leased to others
Total
Future minimum operating lease income
from investment property:
Not later than one year
Later than one year and not later than five years
Later than five years
Total
NLB Group realised rental income arising
from investment properties in the amount
of EUR 4,759 thousand (2017: EUR
5,440 thousand), and NLB in the amount
of EUR 543 thousand (2017: EUR 381
thousand) (note 4.8.).
NLB Group 2018 Annual Report 242
5.13.
Intangible assets
Cost
Balance as at 1 January 2018
Effects of translation of foreign operations to presentation currency
Additions
Write-offs
Balance as at 31 December 2018
Amortisation and impairment
Balance as at 1 January 2018
Effects of translation of foreign operations to presentation currency
Amortisation (note 4.11.)
Write-offs
Balance as at 31 December 2018
Net carrying value
Balance as at 31 December 2018
Balance as at 1 January 2018
NLB Group
in EUR thousands
NLB
Software licenses
Goodwill
Total
Software licenses
232,296
32,336
264,632
203,742
(43)
10,798
(28,708)
214,343
-
-
-
32,336
(43)
10,798
(28,708)
246,679
-
7,615
(28,649)
182,708
200,851
28,807
229,658
179,831
(35)
10,794
(28,706)
182,904
31,439
31,445
-
-
-
28,807
3,529
3,529
(35)
10,794
(28,706)
211,711
-
8,135
(28,649)
159,317
34,968
23,391
34,974
23,911
NLB Group 2018 Annual Report Balance as at 31 December 2017
232,296
32,336
264,632
Cost
Balance as at 1 January 2017
Effects of translation of foreign operations to presentation currency
Additions
Transfer to non-current assets and disposal group held for sale (note 5.10.b)
Write-offs
Amortisation and impairment
Balance as at 1 January 2017
Effects of translation of foreign operations to presentation currency
Amortisation (note 4.11.)
Transfer to non-current assets and disposal group held for sale (note 5.10.b)
Write-offs
243
in EUR thousands
NLB
NLB Group
Software licenses
Goodwill
Total
Software licenses
222,605
32,336
254,941
196,455
340
15,246
(293)
(5,602)
-
-
-
-
340
15,246
(293)
(5,602)
192,164
28,807
220,971
173,110
233
10,916
(249)
(2,213)
-
-
-
-
233
10,916
(249)
(2,213)
-
12,466
-
(5,179)
203,742
-
8,555
-
(1,834)
179,831
Balance as at 31 December 2017
200,851
28,807
229,658
Net carrying value
Balance as at 31 December 2017
Balance as at 1 January 2017
31,445
30,441
3,529
3,529
34,974
23,911
33,970
23,345
5.14.
Investments in subsidiaries, associates and joint ventures
a) Analysis by type of investment in subsidiaries
NLB
Banks
Other financial organisations
Enterprises
Total
in EUR thousands
31 Dec 2018
31 Dec 2017
277,160
277,160
18,819
54,754
18,819
53,966
350,733
349,945
NLB Group 2018 Annual Report 244
Data of subsidiaries as included in the
consolidated financial statements of NLB
Group as at 31 December 2018:
Nature of
Business
Country of
Incorporation
Equity as at
31 Dec 2018
Profit/(loss)
for 2018
NLB’s
shareholding
%
NLB’s voting
rights%
NLB Group’s
shareholding
%
NLB Group’s
voting
rights%
in EUR thousands
Core members
NLB Banka a.d., Skopje
Banking
Republic of Macedonia
199,808
37,068
NLB Banka a.d., Podgorica
Banking
Republic of Montenegro
68,937
10,033
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
87,218
16,184
99.85
99.85
99.85
99.85
NLB Banka sh.a., Prishtina
Banking
Republic of Kosovo
71,786
14,836
81.21
81.21
81.21
81.21
NLB Banka d.d., Sarajevo
Banking
Republic of Bosnia
and Herzegovina
80,174
8,757
97.34
97.35
97.34
97.35
NLB Banka a.d., Belgrade
Banking
Republic of Serbia
67,686
5,202
99.997
99.997
99.997
99.997
NLB Srbija d.o.o., Belgrade
Real estate
Republic of Serbia
NLB Skladi d.o.o., Ljubljana
Finance
Republic of Slovenia
NLB Crna Gora d.o.o., Podgorica
Real estate
Republic of Montenegro
Non-core members
NLB Leasing d.o.o. - v likvidaciji, Ljubljana
Finance
Republic of Slovenia
Optima Leasing d.o.o., Zagreb - "u likvidaciji" Finance
Republic of Croatia
30,110
9,321
450
15,472
2,884
(536)
4,324
(870)
4,582
(946)
NLB Leasing Podgorica d.o.o.,
Podgorica - "u likvidaciji"
Finance
Republic of Montenegro
105
(453)
NLB Leasing d.o.o., Belgrade - u likvidaciji
Finance
Republic of Serbia
5,448
259
NLB Leasing d.o.o., Sarajevo
Finance
Republic of Bosnia
and Herzegovina
4,577
(180)
NLB Lizing d.o.o.e.l., Skopje - vo likvidacija
Finance
Republic of Macedonia
Tara Hotel d.o.o., Budva
Real estate
Republic of Montenegro
PRO-REM d.o.o., Ljubljana - v likvidaciji
Real estate
Republic of Slovenia
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., 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
Republic of Serbia
S-REAM d.o.o, Ljubljana
Real estate
Republic of Slovenia
REAM d.o.o., Zagreb
Real estate
Republic of Croatia
CBS Invest d.o.o., Sarajevo
Real estate
Republic of Bosnia
and Herzegovina
NLB InterFinanz AG, Zürich in Liquidation
Finance
Switzerland
NLB InterFinanz Praha s.r.o., Prague - v likvidaci Finance
Czech Republic
NLB InterFinanz d.o.o., Belgrade - u likvidaciji
Finance
Republic of Serbia
Prospera plus d.o.o., Ljubljana - v likvidaciji
Tourist and
catering trade
Republic of Slovenia
1,062
18,496
20,377
1,726
29
167
135
2,027
862
1,753
1,597
22
7,682
177
(21)
162
LHB AG, Frankfurt
Finance
Republic of Germany
3,543
87
1,568
(648)
1,184
(15)
(143)
(99)
(328)
(753)
(47)
928
(36)
210
(30)
(5)
(323)
780
100
100
100
100
-
100
100
100
100
100
100
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
NLB Group 2018 Annual Report Data of subsidiaries as included in the
consolidated financial statements of NLB
Group as at 31 December 2017:
245
in EUR thousands
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%
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
69,086
8,300
97.34
97.35
97.34
97.35
NLB Banka d.d., Sarajevo
Banking
Republic of Bosnia
and Herzegovina
NLB Banka a.d., Belgrade
Banking
Republic of Serbia
NLB Srbija d.o.o., Belgrade
Real estate
Republic of Serbia
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
Non-core members
NLB Leasing d.o.o. - v likvidaciji, Ljubljana
Finance
Republic of Slovenia
Optima Leasing d.o.o., Zagreb - "u likvidaciji" Finance
Republic of Croatia
NLB Leasing Podgorica d.o.o.,
Podgorica - "u likvidaciji"
Finance
Republic of Montenegro
NLB Leasing d.o.o., Belgrade - u likvidaciji
Finance
Republic of Serbia
61,443
30,582
8,744
7,513
1,320
11,119
3,821
558
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
Tara Hotel d.o.o., Budva
Real estate
Republic of Montenegro
PRO-REM d.o.o., Ljubljana - v likvidaciji
Real estate
Republic of Slovenia
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
Republic of Serbia
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
981
16,927
21,025
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
Changes in ownership interest in
subsidiaries of NLB Group in 2018 and
2017 are presented in note 3.
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 2018 Annual Report 246
Data of subsidiaries with significant non-
controlling interests, before intercompany
eliminations
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
Attributable to non-controlling interest
Other comprehensive income
Total comprehensive income
Attributable 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
Attributable to non-controlling interest
NLB Banka, Skopje
NLB Banka, Prishtina
in EUR thousands
2018
13.03
13.03
82,103
37,068
4,830
(938)
36,130
4,708
1,122
662,750
687,301
936,248
213,995
199,808
26,035
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
2018
18.79
18.79
38,462
14,836
2,788
721
15,557
2,923
1,974
338,536
329,591
494,208
102,133
71,786
13,489
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
b) Analysis by type of investment in associates and joint ventures
NLB Group
NLB
in EUR thousands
Carrying amount of the NLB Group's interest
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
Other financial organisations
Enterprises
Total
37,147
43,765
-
-
37,147
43,765
4,465
312
4,777
6,600
332
6,932
In 2018, NLB sold its associate Skupna
pokojninska družba, d.o.o., Ljubljana (note
4.13.).
NLB Group 2018 Annual Report 247
NLB Group’s associates
2018
2017
in EUR thousands
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
39.44
-
75.00
39.44
-
75.00
39.44
28.13
75.00
39.44
28.13
75.00
By contractual agreement between the
shareholders, NLB does not control ARG-
Nepremičnine, Horjul, but does have a
significant influence. Therefore, the entity is
accounted as an associate.
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
in EUR thousands
2017
11,781
1,338
40
1,378
2018
7,243
1,281
(59)
1,222
In 2018 NLB Group did not recognise
a share of profit of an associate in
the amount of EUR 83 thousand (31
December 2017: unrecognised profit EUR
65 thousand), as it still has the cumulative
unrecognised share of losses of an associate
that as at 31 December 2018 amounted to
EUR 2,254 thousand (31 December 2017:
EUR 2,337 thousand).
NLB Group’s joint ventures
NLB Vita d.d., Ljubljana
Prvi Faktor Group, Ljubljana
2018
2017
Nature of Business
Country of
Incorporation
Voting rights%
Voting rights%
Insurance
Republic of Slovenia
Finance
Republic of Slovenia
50
50
50
50
NLB Group 2018 Annual Report 248
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 January
Disposal
Share of results before tax
Share of tax
Net gains/(losses) recognised in other comprehensive income
Dividends received
Liquidation of associate
Balance as at 31 December
5.15.
Other assets
2018
88,492
7,829
(2)
(241)
(1,835)
8,330
(10,424)
(2,094)
4,165
(5,212)
in EUR thousands
2017
80,747
7,310
(2)
(212)
(1,520)
6,889
298
7,186
3,444
149
31 Dec 2018
31 Dec 2017
457,929
453,028
35
28
398,122
389,060
59,807
29,904
29,904
2018
43,765
(5,077)
7,201
(1,755)
(5,273)
(1,714)
-
37,147
63,968
31,984
31,984
in EUR thousands
2017
43,248
-
5,585
(803)
189
(4,215)
(239)
43,765
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
Assets, received as collateral (note 6.1.s)
60,173
77,500
Inventories
Deferred expenses
Claim for taxes and other dues
Prepayments
Total
3,346
5,247
1,421
784
8,879
4,324
1,675
971
70,971
93,349
10,637
5,815
378
3,862
400
182
4,811
335
2,886
375
285
8,692
NLB Group 2018 Annual Report 249
Assets, received as collateral and inventories
on NLB Group in the amount of EUR
59,540 thousand (31 December 2017:
EUR 76,222 thousand), and on NLB in
the amount of EUR 5,815 thousand (31
December 2017: EUR 4,811 thousand)
consist of real estate.
5.16.
Movements in allowance for the impairment of financial assets
a) Movements in allowance for the impairment of loans and receivables measured at amortised cost
Balance as at
1 Jan 2018
Exchange
differences
on opening
balances
Transfer
Increases/
Decreases Write-offs
in EUR thousands
Changes in
models/risk
parameters
Foreign
exchange
and other
movements
Balance as at
31 Dec 2018
Repayments
of written-off
receivables
NLB Group
12-month expected credit losses
Loans and advances to individuals
Loans and advances to legal entities
Other financial assets
Lifetime ECL not credit-impaired
Loans and advances to individuals
Loans and advances to legal entities
Other financial assets
Lifetime ECL credit-impaired
15,291
20,040
171
8,307
25,896
25
-
14,182
(12,238)
(54)
6,104
(144)
(49)
85
(8,357)
7,849
(59)
4,216
(2,856)
71
(40)
-
-
-
-
-
(29)
(33)
-
(13)
(25)
Loans and advances to individuals
60,513
(5,825)
13,578
(10,685)
Loans and advances to legal entities
420,557
1,345
(10,320)
(8,640)
(84,270)
Other financial assets
10,672
Of which: Purchased credit-
impaired financial assets
Loans and advances to legal entities
Other financial assets
1,680
-
1
-
-
(156)
1,143
(3,496)
-
-
504
1
-
-
(74)
(1,540)
6
461
118
(1)
1,426
(173)
7
-
-
1
39
2
3
(28)
28
17,162
24,416
182
8,263
27,274
58
-
-
-
-
-
-
47
59,054
3,278
(975)
317,524
22,667
(215)
7,956
467
-
-
2,184
1
-
-
in EUR thousands
NLB
12-month expected credit losses
Loans and advances to individuals
Loans and advances to legal entities
Other financial assets
Lifetime ECL not credit-impaired
Loans and advances to individuals
Loans and advances to legal entities
Other financial assets
Lifetime ECL credit-impaired
Loans and advances to individuals
Loans and advances to legal entities
Other financial assets
Of which: Purchased credit-
impaired financial assets
Loans and advances to legal entities
Other financial assets
Balance as at
1 Jan 2018
Exchange
differences
on opening
balances
Transfer
Increases/
Decreases Write-offs
Changes in
models/risk
parameters
Foreign
exchange
and other
movements
Balance as at
31 Dec 2018
Repayments
of written-off
receivables
4,908
11,396
24
2,050
4,266
5
20,009
210,321
2,637
1,656
-
-
-
-
-
-
-
-
-
-
-
-
5,288
(3,651)
(661)
12
156
(9)
(2,701)
1,619
13,054
(7,165)
18
(17)
-
(28)
(4)
-
(11)
-
(191)
(379)
4
284
1,261
-
(2,587)
5,286
(5,529)
1,121
(12,393)
(16,468)
(26,750)
(30)
419
(1,174)
-
-
489
1
-
-
58
3
-
-
1
27
-
3
-
-
47
(5)
-
-
-
6,355
10,511
27
1,255
11,405
6
18,347
154,763
1,855
2,145
1
-
-
-
-
-
-
1,313
9,451
420
-
-
NLB Group 2018 Annual Report 250
The contractual amount outstanding on
financial assets that were written off during
the year ending 31 December 2018 and
that are still subject to enforcement activity
for NLB Group amounted to EUR 41,116
thousand, and for NLB amounted to EUR
9,598 thousand.
b) Changes in gross carrying
amount of financial assets
In year 2018 the gross carrying amount of
loans and advances to banks decreased by
EUR 391,861 thousand for NLB Group,
and EUR 352,025 thousand for NLB, but
since all loans to the bank are classified in
Stage 1, this only decreased balance of loss
allowance for EUR 587 thousand at NLB
Group level and for EUR 415 thousand
on NLB level. Changes in gross carrying
amounts of loans to customers were less
material (increase of 1.7% on NLB Group
and decrease of 3.1% on NLB) and did not
contribute significantly to balances of loss
allowance either.
c) Movements in allowance for the impairment of debt securities
NLB Group
12-month expected credit losses
Debt securities measured at amortised cost
Debt securities measured at fair value
through other comprehensive income
Lifetime ECL not credit-impaired
Debt securities measured at fair value
through other comprehensive income
Lifetime ECL credit-impaired
Debt securities measured at fair value
through other comprehensive income
NLB
12-month expected credit losses
Debt securities measured at amortised cost
Debt securities measured at fair value
through other comprehensive income
Lifetime ECL credit-impaired
Debt securities measured at fair value
through other comprehensive income
Balance as at
1 Jan 2018
Exchange
differences on
opening balances
Transfer
Increases/
decreases
in EUR thousands
Changes in
models/risk
parameters
Foreign
exchange
and other
movements
Balance as at
31 Dec 2018
2,169
3,696
-
798
(4)
1
-
-
-
(108)
728
28
108
(33)
-
-
5
(21)
-
-
-
1
-
-
2,898
3,597
75
798
Balance as at
1 Jan 2018
Exchange
differences on
opening balances
Transfer
Increases/
decreases
in EUR thousands
Changes in
models/risk
parameters
Foreign
exchange
and other
movements
Balance as at
31 Dec 2018
1,298
1,392
798
-
-
-
-
-
-
20
169
5
(21)
-
-
-
1
-
1,323
1,541
798
NLB Group 2018 Annual Report 251
5.17.
Movements in allowance for the impairment of banks, loans, and advances to customers and other financial assets (IAS 39)
a)
Impairment of loans and advances to individuals
NLB Group
Granted overdrafts
Loans for houses
and flats
Consumer loans
Other loans
Balance as at 1 January 2017
16,138
31,867
Effects of translation of foreign operations
to presentation currency
Impairment (note 4.13.)
Write-offs
Repayments of written-off receivables
Exchange differences
Other
40
2,157
(4,725)
823
-
-
84
(1,072)
(1,405)
210
(236)
-
36,366
252
4,408
(1,546)
235
(3)
-
14,845
(413)
3,423
(4,421)
750
434
(4)
in EUR thousands
Total
99,216
(37)
8,916
(12,097)
2,018
195
(4)
Balance as at 31 December 2017
14,433
29,448
39,712
14,614
98,207
NLB
Balance as at 1 January 2017
Impairment (note 4.13.)
Write-offs
Repayments of written-off recievables
Exchange differences
Granted overdrafts
Loans for houses
and flats
Consumer loans
Other loans
12,754
1,513
(1,817)
-
-
18,422
97
(976)
20
(198)
6,211
(18)
(456)
-
-
in EUR thousands
Total
39,069
2,968
(3,608)
374
(198)
38,605
1,682
1,376
(359)
354
-
3,053
Balance as at 31 December 2017
12,450
17,365
5,737
NLB Group 2018 Annual Report 252
b)
Impairment of loans and advances to legal entities
NLB Group
Balance as at 1 January 2017
Effects of translation of foreign operations
to presentation currency
Impairment (note 4.13.)
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 thousands
Total
16,676
14
(7,706)
(352)
318
(10)
-
-
349
4
187
-
36
-
-
-
29,833
242,499
515,177
804,534
3
(465)
(249)
(693)
(2,244)
(22,596)
22
(22)
-
-
(34,422)
(45,633)
2,659
742
(4,153)
-
(5,862)
(50,047)
(141,024)
(209,605)
10,842
1,609
(6,898)
(213)
13,877
2,319
(11,051)
(213)
Balance as at 31 December 2017
8,940
576
4,996
161,227
373,382
549,121
NLB
Balance as at 1 January 2017
Impairment (note 4.13.)
Write-offs
Repayments of written-off receivables
Exchange differences
Loans and advances
to government
Loans and advances
to financial
organisations
Loans and advances
to large corporate
customers
Loans and advances
to Small- and
medium-sized
enterprises
6,057
(1,891)
-
210
-
50,797
(15,569)
(23,522)
-
(22)
167,142
(22,068)
(40,580)
1,617
(21)
241,683
(3,221)
(84,507)
2,383
(30)
in EUR thousands
Total
465,679
(42,749)
(148,609)
4,210
(73)
Balance as at 31 December 2017
4,376
11,684
106,090
156,308
278,458
c)
Impairment of other financial assets
Balance as at 1 January 2017
Effects of translation of foreign operations to presentation currency
Impairment (note 4.13.)
Write-offs
Exchange differences
Repayments of written-off receivables
Balance as at 31 December 2017
NLB Group
15,453
65
1,130
(5,043)
(17)
117
11,705
in EUR thousands
NLB
3,771
-
587
(1,189)
-
22
3,191
NLB Group 2018 Annual Report 5.18.
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
Subordinated liabilities
Other financial liabilities
Total
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
253
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
26,775
258,423
40,602
279,616
48,903
244,133
72,072
260,747
10,464,017
9,878,378
7,033,409
6,810,967
61,844
15,050
74,286
27,350
100,887
111,019
4,128
-
62,212
5,726
-
71,534
10,926,996
10,411,251
7,392,785
7,221,046
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
23,191
36,331
41,949
71,383
8,281,230
7,332,344
6,084,776
5,455,657
214,770
120,906
203,228
156,713
83,258
106,060
80,325
140,379
1,857,646
1,692,840
1,111,963
1,042,298
6,087,908
5,279,563
4,783,495
4,192,655
3,584
4,271
6,954
689
2,182,787
2,546,034
948,633
1,355,310
46,328
91,906
266,857
52,727
129,030
281,527
1,777,696
2,082,750
35,838
8,196
165,952
738,647
44,343
66,826
185,156
1,058,985
10,490,792
9,918,980
7,082,312
6,883,039
NLB Group 2018 Annual Report 254
b) Borrowings from banks and central banks and other customers
Loans
- banks and central banks
- other customers
- governments
- financial organisations
- companies
Total
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
258,423
279,616
61,844
10,582
45,417
5,845
74,286
17,058
49,257
7,971
320,267
353,902
244,133
4,128
-
-
4,128
248,261
260,747
5,726
-
-
5,726
266,473
As at 31 December 2018, NLB Group
and NLB had EUR 343,653 thousand in
undrawn borrowings (31 December 2017:
EUR 341,691 thousand).
c)
Subordinated liabilities
NLB Group
Currency
Due date
Interest rate
Carrying amount Nominal value Carrying amount
Nominal value
31 Dec 2018
31 Dec 2017
in EUR thousands
Subordinated loans
Total
d) Other financial liabilities
Debit or credit card payables
Items in the course of payment
Accrued expenses
Suppliers
Accrued salaries
Fees and commissions
Unused annual leave (note 2.3.)
Other financial liabilities
Total
EUR
EUR
EUR
30 Jun 2018
6 months EURIBOR +5% p.a.
30 Jun 2020
6 months EURIBOR + 7.7% p.a.
30 Jun 2025
6 months EURIBOR + 6.25% p.a.
-
5,110
9,940
15,050
-
12,221
5,000
10,000
15,000
5,132
9,997
27,350
12,000
5,000
10,000
27,000
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
22,567
20,360
11,988
16,404
9,510
1,861
3,645
14,552
100,887
36,578
20,931
11,343
14,826
9,665
1,682
-
15,994
111,019
20,511
4,451
4,741
13,191
6,595
1,802
2,389
8,532
62,212
32,132
4,393
4,456
11,146
6,662
1,627
-
11,118
71,534
Other financial liabilities mainly include
liabilities to insurance companies, liabilities
to employees, received warranties,
obligation for purchase of securities and
trust services.
NLB Group 2018 Annual Report 5.19.
Provisions
a) Analysis by type of provisions
Provisions for guarantees and commitments (note 5.26.a)
Employee benefit provisions
Restructuring provisions
Provisions for legal risks
Other provisions
Total
Legal issues
Provisions for legal risks are formed based
on expectations regarding the probable
outcome of legal disputes.
As at 31 December 2018, NLB Group was
involved in 34 (31 December 2017: 38)
legal disputes with material claims against
group members in the total amount of
EUR 374.620 thousand, excluding accrued
interest (31 December 2017: EUR 585.406
thousand). As at 31 December 2018, NLB
was involved in 17 (31 December 2017:
19) legal disputes with material monetary
claims against NLB. The total amount of
these claims, excluding accrued interest,
was EUR 205.686 thousand (31 December
2017: EUR 399.824 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 168,5 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
255
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
39,082
15,404
12,363
13,076
209
80,134
36,915
20,440
15,284
15,786
214
88,639
29,516
13,158
11,942
2,180
198
56,994
34,257
16,712
14,687
4,958
203
70,817
filed by the PBZ was refused and the
judgment became final in favour of NLB.
The 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 the other cases, with respect to which
court procedures described above are
pending, final court decisions have not yet
been issued.
Constitutional 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 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 the
Memorandum of Understanding to stay
all the proceedings commenced, the Court
of Appeal, the County Court of Zagreb,
ruled in five claims (as explained bellow in
details) in favour of the plaintiff. In three of
those cases, NLB filed a constitutional suit
and in four an extraordinary legal measure
with the Supreme Court of the Republic
of Croatia (two of these proceedings have
already been completed with the Supreme
Court of the Republic of Croatia and the
challenging of the court decisions in these
cases continues with the Constitutional
Court of the Republic of Croatia).
Contrary to the decisions of the court
described above in another case, a claim
NLB Group 2018 Annual Report 256
The table below summarises amounts
according to final court decisions (not
including penalty interest).
Date of the ruling
Plaintiff
Principal amount
in EUR
Costs of the
proceedings in HRK Measures taken by NLB
May 2015
PBZ
254.76
15,781.25
April 2018
PBZ
222,426.39
253,283.37
September 2017
ZaBa
492,430.53
748,583.75
November 2017
December 2018
PBZ
PBZ
220,115.98
688,268.12
375,938.42
679,926.08
Constitutional suit against the final judgement, as NLB found the court
decision contrary to the legislation in force and constitutional principles and
as well contrary to the Memorandum concluded between the Republic of
Slovenia and the Republic of Croatia. Constitutional Court of the Republic of
Croatia rejected the constitutional appeal of NLB d.d. on 21 May 2018.
Constitutional suit against the court decisions (including the decision of
the Supreme Court of the Republic of Croatia in the revision proceeding),
as NLB found the court decision contrary to the legislation in force and
constitutional principles, and as well contrary to the Memorandum concluded
between the Republic of Slovenia and the Republic of Croatia.
Constitutional suit against the court decisions (including the decision of
the Supreme Court of the Republic of Croatia in the revision proceeding),
as NLB found the court decision contrary to the legislation in force and
constitutional principles, and as well contrary to the Memorandum concluded
between the Republic of Slovenia and the Republic of Croatia.
NLB challenged the judgments with the extraordinary legal measure
(revision) on the Supreme Court of the Republic of Croatia and later, if
necessary, will challenge the judgments with all other available remedies
of the obligations of the old foreign currency savings in accordance
with Slovenian Constitutional Law are not the liabilities of NLB.
of Slovenia has already compensated the
sums recovered from NLB by enforcement.
All procedures related to claims filed by
PBZ and ZaBa and NLB’s view on this
topic have been communicated to ECB,
also in its role as regulator of both Croatian
banks.
Provisions for legal risks for claims filed by
PBZ and ZaBa are not formed, since NLB
believes that based on the factual and legal
evaluation there are greater prospects for
the court proceedings to end in favour of
NLB than opposite.
NLB Shareholders’ Meeting provided
the Management Board of NLB with
instructions how to act in the event of
existing or potential new final decisons
by Croatian courts against LB and NLB
regarding the transferred foreign currency
deposits, and especially not to voluntarily
settle the adjudicated amounts, and also
gave some additional instructions on the
usage of legal remedies and regarding the
management of the property from that
perspective.
On 19 July 2018, the National Assembly
of the Republic of Slovenia passed the
Act for Value Protection of Republic of
Slovenia’s Capital Investment in Nova
Ljubljanska banka d.d., Ljubljana (Zakon
za zaščito vrednosti kapitalske naložbe
Republike Slovenije v Novi Ljubljanski
banki d.d., Ljubljana, hereinafter: the
ZVKNNLB) which entered into force on
14 August 2018. In accordance with the
ZVKNNLB the Succession Fund of the
Republic of Slovenia (Sklad Republike
Slovenije za nasledstvo, javni sklad,
hereinafter: the Fund) shall compensate
NLB for the sums recovered from NLB by
enforcement of final judgements delivered
by Croatian courts with regard to the
transferred foreign currency deposits, that
is the principle amount, accrued interest,
expenses of court, Attorney’s expenses, and
other expenses of the plaintiff and expenses
related to enforcement with the accrued
interest. The Fund shall not compensate
NLB for its own costs or for the difference
between the book value of its assets sold
in enforcement proceedings and the price
obtained for such assets in enforcement
proceedings. There shall also be no
compensation for any voluntarily made
payments by NLB. In accordance with the
ZVKNNLB and pursuant to the agreement
between NLB and the Fund, as envisaged
by the ZVKNNLB (which was concluded
on 14 August 2018), NLB has to contest the
claims made against it in court proceedings
in relation to transferred foreign currency
deposits and use against court decisions
that are disadvantageous for NLB, all
reasonable legal remedies and to continue
to actively challenge the judicial decisions
of the courts of the Republic of Croatia
in relation to transferred foreign currency
deposits on the basis of which enforcement
took place, leading, on the basis of
ZVKNNLB, to the compensation of the
sums recovered from NLB by enforcement.
In the aforementioned case from May
2015, the Succession Fund of the Republic
NLB Group 2018 Annual Report b) Movements in provisions for guarantees and commitments
Balance as at
1 Jan 2018
Exchange
differences on
opening balances
Transfer
Increases/
decreases
in EUR thousands
Changes in
models/risk
parameters
Foreign
exchange
and other
movements
Balance as at
31 Dec 2018
NLB Group
12-month expected credit losses
257
Guarantees and commitments
6,928
(12)
2,424
Lifetime ECL not credit-impaired
Guarantees and commitments
4,833
Lifetime ECL credit-impaired
Guarantees and commitments
30,504
Of which: Purchased credit-
impaired financial assets
Guarantees and commitments
-
(8)
(6)
-
169
337
(470)
(110)
(1,779)
(645)
(2,869)
(213)
-
688
-
5
(9)
3
-
9,044
3,264
26,774
688
Balance as at
1 Jan 2018
Exchange
differences on
opening balances
Transfer
Increases/
decreases
in EUR thousands
Changes in
models/risk
parameters
Foreign
exchange
and other
movements
Balance as at
31 Dec 2018
NLB
12-month expected credit losses
Guarantees and commitments
Lifetime ECL not credit-impaired
Guarantees and commitments
Lifetime ECL credit-impaired
Guarantees and commitments
27,276
Of which: Purchased credit-
impaired financial assets
Guarantees and commitments
-
2,946
450
-
-
-
-
273
1,040
(189)
10
328
(283)
(2,365)
-
688
33
(4)
-
1
-
-
-
4,071
821
24,624
688
c) Movements in provisions for guarantees and commitments (IAS 39)
Financial guarantees
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Additional provisions/provisions released (note 4.12.)
Utilised during year
Exchange differences
Balance as at 31 December
NLB Group
NLB
in EUR thousands
2017
25,327
11
(2,587)
(13,254)
(3)
9,494
2017
23,131
-
(2,069)
(13,254)
(2)
7,806
NLB Group 2018 Annual Report 258
Non-financial guarantees
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Additional provisions/provisions released (note 4.12.)
Exchange differences
Balance as at 31 December
Other credit commitments
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Additional provisions/provisions released (note 4.12.)
Exchange differences
Balance as at 31 December
d) Movements in employee benefit provisions
Post-employment benefits
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Transfer to non-current assets and disposal group held for sale
Additional provisions (note 4.10.)
Provisions released (note 4.10.)
Interest expenses (note 4.1.)
Utilised during year (payments)
Actuarial gains and losses
Balance as at 31 December
NLB Group
NLB
in EUR thousands
2017
22,745
4
(3,024)
(1)
19,724
2017
21,777
-
(2,716)
8
19,069
NLB Group
NLB
in EUR thousands
2017
5,609
2
2,151
(65)
7,697
2017
4,957
-
2,489
(64)
7,382
NLB Group
2018
14,144
(3)
-
928
(585)
172
(333)
(1,166)
13,157
in EUR thousands
2017
10,886
-
-
462
-
93
(53)
950
NLB
2018
12,338
-
-
599
(530)
108
(43)
(884)
2017
13,130
9
(9)
559
(465)
188
(90)
822
14,144
11,588
12,338
NLB Group 2018 Annual Report Other employee benefits
NLB Group
NLB
in EUR thousands
259
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Transfer to non-current assets and disposal group held for sale
Transfer to other liabilities (note 2.3.)
Additional provisions (note 4.10.)
Provisions released (note 4.10.)
Interest expenses (note 4.1.)
Utilised during year
Balance as at 31 December
Other employee benefits include NLB
Group’s obligations for jubilee long-service
benefits.
e) Movements in restructuring provisions
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Additional provisions (note 4.12.)
Provisions released (note 4.12.)
Utilised during year
Balance as at 31 December
2018
6,296
(3)
-
(3,613)
243
(447)
49
(278)
2,247
NLB Group
2018
15,284
1
3
(24)
(2,901)
12,363
2017
6,628
11
(52)
-
4,131
(176)
54
(4,300)
6,296
2017
10,014
5
8,588
-
(3,323)
15,284
2018
4,374
-
-
(2,312)
91
(385)
18
(216)
1,570
NLB
2018
14,687
-
-
-
(2,745)
11,942
2017
4,498
-
-
-
2,584
-
17
(2,725)
4,374
in EUR thousands
2017
8,750
-
8,400
-
(2,463)
14,687
NLB Group has adopted a 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.
NLB Group 2018 Annual Report 260
f) Movements in provisions
for legal risks
Balance as at 1 January
Effects of translation of foreign operations to presentation currency
Additional provisions (note 4.12.)
Provisions released (note 4.12.)
Utilised during year
Exchange differences
Balance as at 31 December
g) Movements in other provisions
Balance as at 1 January
Additional provisions (note 4.12.)
Provisions released (note 4.12.)
Utilised during year
Balance as at 31 December
NLB Group
NLB
in EUR thousands
2018
15,786
8
4,529
(2,996)
(4,250)
(1)
13,076
2017
15,194
175
4,940
(4,258)
(245)
(20)
15,786
2018
4,958
-
293
(2,551)
(520)
-
2,180
2017
3,282
-
1,831
-
(155)
-
4,958
NLB Group
NLB
in EUR thousands
2018
214
-
-
(5)
209
2017
2,267
32
(591)
(1,494)
214
2018
203
-
-
(5)
198
2017
2,265
-
(591)
(1,471)
203
NLB Group 2018 Annual Report 261
5.20.
Deferred income tax
a) Analysis by type of deferred income taxes
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
Deferred income tax assets
Valuation of financial instruments and capital investments
25,834
25,513
25,747
25,475
Impairment provisions
Employee benefit provisions
Depreciation and valuation of non-financial assets
905
3,671
1,627
170
4,018
976
697
2,915
157
2
3,432
162
Total deferred income tax assets
32,037
30,677
29,516
29,071
Deferred income tax liabilities
Valuation of financial instruments
Depreciation and valuation of non-financial assets
Impairment provisions
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 and impairment provisions of financial assets measured
at fair value through other comprehensive income
- valuation of available-for-sale financial assets
- actuarial assumptions and experience
7,205
1,179
3,305
11,689
22,847
(2,499)
NLB Group
2018
920
248
282
(180)
570
-
2,226
2,394
-
(168)
10,077
1,097
1,996
13,170
18,603
(1,096)
2017
8,691
6,710
1,214
724
37
6
1,747
-
1,657
90
6,606
232
444
7,282
22,234
-
NLB
2018
(160)
147
33
(349)
9
-
2,076
2,244
-
(168)
9,067
246
-
9,313
19,758
-
2017
7,164
6,565
-
606
(7)
-
1,972
-
1,882
90
As at 31 December 2018, NLB recognised
EUR 29,516 thousand in deferred tax
assets (31 December 2017: EUR 29,071
thousand). Unrecognised deferred tax assets
amount to EUR 262,081 thousand (31
December 2017: EUR 277,325 thousand),
of which EUR 189,491 thousand (31
December 2017: EUR 204,657 thousand)
relates to unrecognised deferred tax
assets from tax loss, and EUR 72,590
thousand (31 December 2017: EUR 72,668
thousand) to unrecognised deferred tax
assets from impairments of non-strategic
capital investments.
NLB Group 2018 Annual Report 262
b) Movements in deferred income taxes
Deferred income tax assets
NLB Group
Employee benefit
provisions
Valuation of financial
instruments and
capital investments
Depreciation and
valuation of non-
financial assets Impairment provisions
Balance as at 1 January 2017
3,208
19,301
1,113
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 December 2017
Transition to IFRS 9
Effects of translation of foreign operations
to presentation currency
(Charged)/credited to profit and loss
(Charged)/credited to other comprehensive income
Balance as at 31 December 2018
-
(4)
724
90
4,018
-
1
(180)
(168)
3,671
-
-
6,607
(395)
25,513
(246)
-
38
529
25,834
7
-
(144)
-
976
-
-
651
-
1,627
387
6
-
(223)
-
170
720
1
14
-
905
NLB
Balance as at 1 January 2017
(Charged)/credited to profit and loss
(Charged)/credited to other comprehensive income
Balance as at 31 December 2017
Transition to IFRS 9
(Charged)/credited to profit and loss
(Charged)/credited to other comprehensive income
Balance as at 31 December 2018
Employee benefit
provisions
Valuation of financial
instruments and
capital investments
Depreciation and
valuation of non-
financial assets
Impairment
provisions
2,736
606
90
3,432
-
(349)
(168)
2,915
19,424
6,462
(411)
25,475
(246)
38
480
25,747
175
(13)
-
162
-
(5)
-
157
2
-
-
2
662
33
-
697
in EUR thousands
Total
24,009
13
(4)
6,964
(305)
30,677
474
2
523
361
32,037
in EUR thousands
Total
22,337
7,055
(321)
29,071
416
(283)
312
29,516
NLB Group 2018 Annual Report Deferred income tax liabilities
NLB Group
Impairment
provisions
Valuation of financial
instruments and
capital investments
Depreciation and
valuation of non-
financial assets
Balance as at 1 January 2017
3,471
12,233
1,278
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 December 2017
Transition to IFRS 9
Effects of translation of foreign operations
to presentation currency
Charged/(credited) to profit and loss
Charged/(credited)to other comprehensive income
Balance as at 31 December 2018
1
-
(39)
(1,437)
-
1,996
1,547
(11)
(268)
41
3,305
7
(8)
-
(103)
(2,052)
10,077
(754)
(2)
(210)
(1,906)
7,205
-
-
-
(181)
-
1,097
-
1
81
-
1,179
Other
19
-
(13)
-
(6)
-
-
-
-
-
-
-
NLB
Balance as at 1 January 2017
Charged/(credited) to profit and loss
Charged/(credited) to other comprehensive income
Balance as at 31 December 2017
Transition to IFRS 9
Charged/(credited) to profit and loss
Charged/(credited) to other comprehensive income
Balance as at 31 December 2018
Impairment
provisions
Valuation of financial
instruments and
capital investments
Depreciation and
valuation of non-
financial assets
-
-
-
-
416
-
28
444
11,463
(103)
(2,293)
9,067
(560)
(109)
(1,792)
6,606
252
(6)
-
246
-
(14)
-
232
263
in EUR thousands
Total
17,001
8
(21)
(39)
(1,727)
(2,052)
13,170
793
(12)
(397)
(1,865)
11,689
in EUR thousands
Total
11,715
(109)
(2,293)
9,313
(144)
(123)
(1,764)
7,282
5.21.
Income tax relating to components of other comprehensive income
NLB Group
NLB
in EUR thousands
2018
Before tax
Tax expense
Net of tax
Before tax
Tax expense
Net of tax
Actuarial gains and lossess
Financial assets measured at fair value
through other comprehensive income
Share of associates and joint ventures
Total
1,166
(11,328)
(6,495)
(16,657)
(168)
2,394
1,222
3,448
998
884
(8,934)
(11,321)
(5,273)
-
(168)
2,244
-
716
(9,077)
-
(13,209)
(10,437)
2,076
(8,361)
NLB Group 2018 Annual Report 264
2017
Actuarial gains and lossess
Available-for-sale financial assets
Share of associates and joint ventures
Total
5.22.
Other liabilities
Taxes payable
Deferred income
Payments received in advance
Total
NLB Group
NLB
in EUR thousands
Before tax
Tax expense
Net of tax
Before tax
Tax expense
Net of tax
(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
NLB
in EUR thousands
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
4,210
8,269
2,361
14,840
3,409
3,101
3,086
9,596
3,185
5,698
660
9,543
2,770
1,034
377
4,181
5.23.
Share capital
The share capital of NLB amounts to EUR
200,000 thousand and did not change
during 2018. It comprises of 20,000,000
no-par-value ordinary registered shares,
with the corresponding value of EUR 10.0
for one share. All issued shares are fully
paid and there are no un-issued authorised
shares. As at 31 December 2018, the
major shareholder of NLB with significant
influence is the Republic of Slovenia,
owning 35.00%. As at 31 December 2017,
the Republic of Slovenia was the only
shareholder of NLB. NLB Group does not
own treasury shares.
The book value of a NLB share on a
consolidated level as at 31 December
2018 was EUR 80.8 (31 December 2017:
EUR 82.7), and on solo level was EUR
64.8 (31 December 2017: EUR 69.1). It is
calculated as the ratio of net assets’ book
value without other equity instruments
issued and the number of shares.
Distributable profit as at 31 December
2018 amounts to EUR 194,491 thousand
(31 December 2017: EUR 270,627
thousand), and consists of NLB net profit
for 2018 in the amount of EUR 165,299
thousand (2017: EUR 189,094 thousand),
impact of adopting IFRS 9 in the amount
of EUR 29,121 thousand, the transfer of
fair value reserve in the amount of EUR
44 thousand on derecognition of equity
financial instruments measured at fair value
through OCI and retained earnings from
previous years in the amount of EUR 27
thousand. Its allocation will be subject to a
decision by the Bank’s General Assembly.
Proposal for General Assembly will be
prepared by the Management and the
Supervisory Board, considering Group’s
risk appetite, target capital adequacy at
Group level and actual prevailing capital
position at the time of the proposal.
In April 2018, ECB decided to require
NLB to obtain the approval of the ECB
prior to making any distributions to its
shareholders due to the evaluation of the
ECB that NLB was exposed to potential
losses from pending lawsuits in Croatia. In
August 2018 the Act for value protection
of Republic Slovenia’s Capital investment
in Nova Ljubljanska banka d.d., Ljubljana
came into force (note 5.19) and after NLB
provided additional argumentation and
documentation, ECB released NLB from
restrictions for dividend payments (for
retained earnings and for future dividend
payments). Therefore in October 2018
NLB paid dividends for previous year in
the amount of EUR 13.53 per share (2017:
3.189 EUR), which decreased retained
earnings for EUR 270,600 thousand (2017:
EUR 63,780 thousand).
5.24.
Accumulated other
comprehensive income and reserves
a) Reserves
The share premium account as at 31
December 2018 and 31 December 2017
comprises paid-up premiums in the
amount of EUR 822,173 thousand and the
revaluation of share capital from previous
years in the amount of EUR 49,205
thousand.
As at 31 December 2018 and 31 December
2017 profit reserves in the amount of EUR
13,522 thousand relate entirely to legal
reserves in accordance with the Companies
Act.
In 2018, NLB recorded a net profit in the
amount of EUR 165,299 thousand which
is included in the retained earnings as at 31
December 2018.
NLB Group 2018 Annual Report b) Accumulated other comprehensive income
Financial assets measured at fair value through other comprehensive income - debt securities
Financial assets measured at fair value through other comprehensive income - equity securities
Available-for-sale financial assets - debt securities (IAS 39)
Available-for-sale financial assets - equity securities (IAS 39)
Actuarial defined benefit pension plans
Foreign currency translation
Hedge of a net investment in a foreign operation
Total
5.25.
Capital adequacy ratios
Paid up capital instruments
Share premium
Retained earnings
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
265
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
27,166
1,536
-
-
(3,358)
(18,275)
754
7,823
-
-
43,860
3,735
(4,349)
(17,248)
754
26,752
18,504
116
-
-
(2,781)
-
-
-
-
28,346
850
(3,497)
-
-
15,839
25,699
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
200,000
871,378
293,026
108,829
3,598
13,522
(1,983)
(3,529)
200,000
871,378
296,773
29,280
(11,450)
13,522
(2,389)
(3,529)
200,000
871,378
29,192
103,335
15,839
13,522
(1,607)
-
200,000
871,378
81,533
-
(20)
13,522
(1,886)
-
(31,439)
(31,445)
(23,391)
(23,911)
COMMON EQUITY TIER 1 CAPITAL (CET1)
1,453,402
1,362,140
1,208,268
1,140,616
Additional Tier 1 capital
TIER 1 CAPITAL
Tier 2 capital
-
-
-
-
1,453,402
1,362,140
1,208,268
1,140,616
-
-
-
-
Total CAPITAL (OWN FUNDS)
1,453,402
1,362,140
1,208,268
1,140,616
RWA for credit risk
RWA for market risks
RWA for credit valuation adjustment risk
RWA for operational risk
7,179,678
7,096,413
4,150,987
4,369,557
541,901
2,563
953,482
499,726
850
949,493
273,476
2,563
596,586
269,988
850
593,750
Total RISK EXPOSURE AMOUNT (RWA)
8,677,624
8,546,482
5,023,612
5,234,145
Common Equity Tier 1 Ratio
Tier 1 Ratio
Total Capital Ratio
Total Capital Ratio
16.7%
16.7%
16.7%
15.9%
15.9%
15.9%
15.9%
17.0%
24.1%
24.1%
24.1%
21.8%
21.8%
21.8%
21.8%
23.4%
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 CET 1 capital
NLB Group 2018 Annual Report 266
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),
requirement set by the supervisory
institution through the SREP process
(together with the Pillar 1 requirement
it represents the minimum total SREP
requirement – TSCR);
which must be at least 8%.
• Applicable combined buffer
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 (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 the 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
NLB’s overall capital requirement on the consolidated level
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.
SREP requirement
Pillar 1 (P1)
Pillar 2 (P2R)
Total SREP Capital Requirement (TSCR)
Combined Buffer requirement (CBR)
Conservation buffer
O-SII buffer
Countercyclical buffer
Overall capital requirement (OCR) = MDA threshold
Pillar 2 Guidance (P2G)
OCR + P2G
As of 1 January 2018, NLB was required
to maintain the OCR on the level of
13.375% on consolidated basis, consisting
of 11.5% TSCR and 1.875% CBR, and
meet the following capital requirements on
a consolidated basis:
• 9.875% CET 1 ratio,
• 11.375% Tier 1 ratio,
• 13.375% Total Capital ratio.
CET1
AT1
T2
CET1
CET1
AT1
T2
CET1
CET1
CET1
CET1
AT1
T2
CET1
CET1
2018
4.5%
1.5%
2.0%
3.5%
8.0%
9.5%
2017
4.5%
1.5%
2.0%
3.5%
8.0%
9.5%
11.5%
11.5%
1.875%
0%
0%
9.875%
11.375%
13.375%
1.5%
11.375%
1.25%
0%
0%
9.25%
10.75%
12.75%
2.25%
11.50%
The above capital ratios are inclusive of
3.5% Pillar 2 Requirement (P2R) and
1.875% Capital Conservation Buffer
(CCB).
From 1 March 2019, NLB is required
to maintain the OCR on the level of
14.75% on a consolidated basis, consisting
of 11.25% TSCR and 3.5% CBR. The
increase of the requirement in comparison
to the 2018 level is mainly due to the
phasing-in of the capital conservation
buffer and the implementation of the O-SII
buffer. As prescribed by CRD IV and the
Banking Act (ZBan-2), CCB was linearly
increasing and has reached 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. On the other hand,
Pillar 2 Requirement (P2R) decreased by
0.25 p.p. to 3.25%, as a result of better
overall SREP assessment. The bank intends
to further strengthen and also optimize
NLB Group 2018 Annual Report NLB Group capital structure by issuing a
Tier 2 instrument in 2019.
As of 31 December 2018, NLB Group
capital ratios on a consolidated basis stand
at:
• 16.7% CET 1 ratio,
• 16.7% Tier 1 ratio,
• 16.7% Total Capital ratio.
The capital adequacy of the NLB Group
and NLB at the end of year 2018 remains
strong in accordance with risk appetite
orientations, 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.
In 2018, 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 are the same. Group’s
capital adequacy in terms of CET 1 was
within the stated risk appetite limit and
above the EU average as published by the
European Banking Authority (EBA).
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 2018, the capital ratios
for NLB Group stood at 16.7% (or 0.8
percentage points higher than at the end
of 2017), and for NLB at 24.1% (or 2.3
percentage points higher than at the end
of 2017). The improvement of capital
adequacy derives from higher capital,
mainly due to inclusion of the first six
months 2018 result (EUR 108.8 million
for NLB Group), lower retained earnings
(EUR - 81.5 million) as part of dividend
pay-out, the inclusion of the positive effect
from the implementation of IFRS 9 (EUR
43.8 million for NLB Group and EUR 27.7
million for NLB), and the conclusion of
transitional arrangements relevant until the
end of 2017.
The RWA for credit risk increased by EUR
83.3 million, mainly due to loan growth
on the retail segment (EUR 244.2 million)
and on the corporate segment (EUR 158.7
million) as a consequence of increased
business. The increase in RWA for market
risks and CVA (Credit value adjustments)
(EUR 43.9 million) is mainly the result of
more open positions in domestic currencies
of non-euro subsidiary banks. The increase
in the RWA for operating risks (EUR 4.0
million) arises from the higher three-year
average of income, which represents the
basis for the calculation.
267
In 2018 the internal capital adequacy
assessment (ICAAP) process was
substantially upgraded in accordance with
newly published ECB Guidelines, including
its stronger integration into the overall risk
management system in order to assure
proactive support for informed decision-
making. The most important goal of
ICAAP process in NLB Group is ensuring
adequate capital and sustainability on
ongoing basis. The purpose of this process
is to have in place sound, effective, and
comprehensive strategies and processes to
assess and maintain capital on an ongoing
basis, as well the adequate distribution of
internal capital that for covering the nature
and level of the risks to which NLB Group
is or might be exposed.
Under economic perspective Group
manages its capital adequacy by ensuring
that all its risks are adequately covered by
internal capital. A normative perspective
is a multiyear forward looking assessment
of NLB Group which shows its ability to
fulfill all of its capital-related regulatory
and supervisory requirements and risk
appetite of NLB Group. Within these
capital constraints, the NLB Group defines
its management buffers in the Risk appetite
above the regulatory and supervisory
requirement and internal capital needs that
allow it to sustainably follow its business
strategy. A normative perspective includes
several stress scenarios which are integrated
into Group’s annual business plan review
and budgeting process.
NLB Group 2018 Annual Report 268
5.26.
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 5.19.b), c)
Total
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
204,513
116,547
87,966
604,793
241,231
363,562
187,917
105,233
82,684
551,725
207,380
344,345
1,207,642
1,130,250
18,155
10,415
14,614
6,007
122,273
109,698
66,184
56,089
451,053
161,606
289,447
945,856
5,302
5,200
50,791
58,907
406,408
125,646
280,762
898,927
375
1,967
2,045,518
1,890,513
1,529,684
1,417,375
(39,082)
(36,915)
(29,516)
(34,257)
2,006,436
1,853,598
1,500,168
1,383,118
Fee income from all issued non-financial
guarantees amounted to EUR 5,096
thousand (2017: EUR 5,240 thousand) in
NLB Group, and to EUR 4,267 thousand
(2017: EUR 4,617 thousand) in NLB.
b) Analysis of derivative financial instruments by notional amounts
Swaps
- currency swaps
- interest rate swaps
Options
- interest rate options
- securities options
Forward contracts
- currency forward
Total
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
Short-term
Long-term
Short-term
Long-term
Short-term
Long-term
Short-term
Long-term
42,121
1,790,411
158,109
1,696,447
35,723
1,790,411
141,137
1,696,447
42,121
65,834
158,109
-
35,723
65,834
141,137
-
-
1,724,577
-
1,696,447
-
1,724,577
-
1,696,447
11,954
30,750
11,262
26,125
11,954
30,750
11,262
26,125
-
30,750
-
26,125
-
30,750
-
26,125
11,954
65,979
65,979
-
11,262
-
11,954
-
11,262
-
8,953
8,953
67,918
29,927
65,590
67,918
29,927
65,590
8,953
8,953
67,329
29,927
67,329
29,927
120,054
1,830,114
237,289
1,752,499
113,267
1,830,114
219,728
1,752,499
1,950,168
1,989,788
1,943,381
1,972,227
The notional amounts of derivative
financial instruments that qualify for
hedge accounting at NLB Group and
NLB amount to EUR 493,677 thousand
(31 December 2017: EUR 406,218
thousand). Derivatives that qualify for
hedge accounting are used to hedge interest
rate risk.
The fair values of derivative financial
instruments are disclosed in notes 5.2., 5.7.,
and 5.3.b).
NLB Group 2018 Annual Report
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
Later than five years
Total
d) Capital commitments
Capital commitments for purchase of:
- property and equipment
- intangible assets
Total
269
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
3,753
11,582
1,883
1,935
5,270
425
3,591
12,037
3,049
1,534
3,842
395
24,848
24,448
604
1,424
120
489
1,074
-
3,711
801
2,982
1,399
342
531
-
6,055
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
2,476
1,839
4,315
129
3,023
3,152
2,476
1,787
4,263
129
2,855
2,984
5.27.
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 2018 Annual Report 270
Funds managed on behalf of third parties
Fiduciary activities
Settlement and other services
Total
Fiduciary activities
Assets
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
24,879,612
24,638,065
24,062,542
23,532,746
1,251,416
1,684,218
1,220,641
1,647,375
26,131,028
26,322,283
25,283,183
25,180,121
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
Clearing or transaction account claims for client assets
24,815,258
24,596,576
24,003,252
23,498,114
- from financial instruments
24,808,718
24,591,369
23,997,062
23,493,388
- receipt, processing, and execution of orders
8,945,528
9,802,973
8,643,063
9,200,568
- management of financial instruments portfolio
437,066
422,222
-
-
- custody services
15,426,124
14,366,174
15,353,999
14,292,820
- 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
608
5,932
64,354
13,788
50,566
685
4,522
41,489
12,789
28,700
258
5,932
59,290
8,724
50,566
204
4,522
34,632
5,932
28,700
Clearing or transaction liabilities for client assets
24,879,612
24,638,065
24,062,542
23,532,746
- to client from cash and financial instruments
- receipt, processing, and execution of orders
24,876,258
24,634,743
24,059,499
23,530,705
8,965,387
9,807,819
8,662,922
9,205,414
- management of financial instruments portfolio
442,169
428,279
-
-
- custody services
15,468,702
14,398,645
15,396,577
14,325,291
- 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.
344
2,615
395
225
2,670
427
344
2,304
395
225
1,389
427
Fee income for funds managed on behalf of third parties
Fiduciary activities (note 4.3.b)
Settlement and other services
Total
NLB Group
NLB
2018
9,273
1,570
10,843
2017
8,386
1,296
9,682
2018
7,951
1,166
9,117
in EUR thousands
2017
6,917
943
7,860
NLB Group 2018 Annual Report 6. Risk management
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 approaches, methodologies,
and processes in all risk management
segments.
Managing risks and capital efficiently
is crucial for NLB Group sustained
long-term profitable operations. Robust
Risk Management framework is
comprehensively integrated into decision-
making, steering, and mitigation processes
within the Group. NLB Group gives
high importance to the risk culture and
awareness of all relevant risks within the
entire Group.
NLB 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 business goals,
budgeting, and capital planning process,
the internal capital adequacy assessment
process (ICAAP) and the internal
liquidity adequacy assessment process
(ILAAP),
• recovery plan activities,
• other internal stress-testing capabilities
and on-going risk analysis,
• regulatory and internal management
reporting.
Set governance and different risk
management tools enable adequate
oversight of the Group’s risk profile.
Moreover, they 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 use of its capital,
adequate liquidity structure and related
buffers to support financial resilience of the
Group.
Key risk management guidelines of NLB
Group are defined by its Risk Appetite and
Risk Strategy with regard to the Group’s
business model, based on a forward-looking
perspective. They 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 – a 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. The
271
Group’s fundamental orientation in the
management of interest rate risk is to limit
unexpected negative effects on revenues
and capital, therefore, a moderate tolerance
for this risk is stated. 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.
Risk management focuses on managing
and mitigating risks in line with the
Group’s Risk Appetite and Risk Strategy,
representing the foundation of the Group’s
Risk management framework. Within
these frameworks the Group monitors a
range of risk metrics in order to assure
Group’s risk profile is in line with its
risk appetite. The usage of risk 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. 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 2018 Annual Report
272
NLB Group are described in more
relevant details in the Section Credit risk
management. When hedging market
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 programme includes all material
types of risk and relevant stress scenario
analysis, 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 risk profile,
namely capital and liquidity position on a
forward-looking perspective. In addition,
the Group also performs reverse stress tests
with the aim to test its maximum recovery
capacity. Other partial risk assessments are
covered by the sensitivity analysis, based
on relevant stressed risk parameters, and
integrated into the process of setting a risk
management limit system.
b) Risk management structure
and organisation
NLB Group established three lines of
a defence framework with the aim to
manage risks effectively. The three lines
of defence concept provides a clear
division of activities and defines roles
and responsibilities for risk management
at different levels within the Group. Risk
management in the Group acts as a second
line of defence, accountable for appropriate
managing, assessing, monitoring, and
reporting of risks in the Bank as the main
entity in Slovenia, and as the competence
centre in charge for six banking members
and other non-core subsidiaries which are
in the controlled wind-out.
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, 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 the 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,
setting limits, establishing methodologies,
overseeing the harmonisation of risk
management policies within the NLB
Group, monitoring the NLB Group’s risk
exposures, and preparing external and
internal reports.
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.
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
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 banking group, NLB Group
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 with the
ECB regulation, while the NLB Group
subsidiaries operating outside Slovenia are
also compliant 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
NLB Group 2018 Annual Report EBA guidelines. With regard 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 exposure
to credit, market, interest, operational,
and non-financial risks, in addition to
prescribed regulations, 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) Data and IT system
Most of the risk data are calculated and
stored in NLB Data Warehouse (DWH).
The data are collected from transactional
source systems, group member’s DWH
and other source systems (e.g. general
ledger). The established process provides
an integrated information in common
reference structure where business users
can access in a consistent and subject-
oriented format. Data are regularly checked
and validated. Data used for internal risk
assessment, management, and reporting
are the same as data which NLB Group
uses for regulatory reporting.
e) Main emphasis of risk
management in 2018
NLB Group further enhanced the
robustness of its risk management system
in all respective risk categories in order to
manage them proactively, comprehensively,
and prudently. Risk identification in a
very early stage, its efficient managing,
and the corresponding mitigation
processes represent essential steps in such
a system. The business and operating
environment relevant for NLB Group
operations is changing with trends such as
changing customer behaviour, emerging
new technologies and competitors, and
increasing new regulatory requirements.
Considering that risk management is
continuously adapting with the aim to
detect and manage new potential emerging
risks.
Special focus is put on the inclusion of
risk analysis into 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, regular education/trainings at all
levels of management, and the assurance
of overall compliance with internal
policies/rules and relevant regulations. In
2018, the ICAAP process was substantially
upgraded in accordance with newly
published ECB Guidelines, including its
stronger integration into an overall risk
management system in order to assure
proactive support for informed decision
making.
The Group participated in the 2018
ECB Stress test exercise, whose
qualitative outcomes were included in the
determination of Pillar 2 requirement
(P2R), namely as an element of risk
governance, and setting Pillar 2 Guidance
(P2G). The final results of the bottom-up
stress test for the period of 2018-2020
273
showed that even in a very unfavourable
market conditions defined by the EBA and
ECB, NLB Group holds sufficient resilience
in terms of capitalisation. NLB Group was
able to conclude the stress test exercise in
the second cycle of a total of three, as an
early termination, by providing sufficient
quality assurance.
In April 2018, the Group received the Bank
of Slovenia Decree on the determination
of the MREL requirement. MREL
is determined in the percent of Total
Liabilities and Own Funds (TLOF) on
the sub-consolidated level of the NLB
Resolution Group and must be attained
by the end of March 2019. The MREL
requirement for the Group is based on the
Multiple Point of Entry (MPE) approach,
and was determined to be 17.40% of
TLOF. The Group defined fulfillment of
MREL requirement as a part of its risk
appetite.
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. Implementation of IFRS
9 strengthened the Group’s capital basis,
arising mainly from collective impairments
due to very favourable macroeconomic
trends and improved quality of credit
portfolio. The portfolio quality in 2018
was very stable with increasing Stage 1
exposures, representing a major part of
credit portfolio, and a reduction of NPL
loans, which are below the Slovenian
average. The majority of increase in
Stage 2 occurred due to NPL upgrades.
The Group managed to further reduce
the volume of non-performing exposures,
approaching the 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. An economic upswing and
other one-off occurrences resulted in a
negative cost of risk on the Group level,
whose evolution was otherwise very stable
NLB Group 2018 Annual Report 274
and in accordance with the strategic mid-
term financial targets.
greater detail by the internal methodologies
and procedures set out in internal acts.
In the still negative interest rate
environment, the Group faced growing
excess liquidity, whereby significant
attention was put to the structure and
concentration of the liquidity reserves
by incorporating early warning systems,
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. Moreover, during 2018
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. In 2018, additional efforts were
made with regard to proactive mitigation,
prevention, and minimisation of potential
damage in the future. Special attention
was dedicated to the stress testing system,
based on the scenario analysis referring
to high severity, low frequency events,
and on modelling data on loss events.
Furthermore, key risk indicators, servicing
as an early warning system for the broader
field of operational risks, were additionally
enhanced, with the aim of improving
existing internal controls and timely
responding when necessary.
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 even though it 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.
6.1. Credit risk management
• The quality of the credit portfolio,
a)
Introduction
In its operations, NLB Group is exposed to
credit risk, or the risk of losses due to the
failure of a debtor to settle its liabilities to
NLB Group. For that reason, it proactively
and comprehensively monitors and assesses
the aforementioned risk. In that process,
NLB Group follows the International
Financial Reporting Standards, regulations
issued by the Bank of Slovenia, and the
EBA guidelines. This area is governed in
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/Stage 2 receivables,
coverage with ECL allowances,
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 to 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.
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 an internal IRB approach
is used to estimate the RWA for
default risk, while credit concentration
add-on is estimated based on the HHI
concentration indexes.
NLB and other NLB Group members
assess the level of credit risk losses on an
individual basis for material claims, and
at the collective level for the rest of the
portfolio.
Individual review is performed for material
Stage 3 financial assets, which have been
rated as non-performing based on the
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
NLB Group 2018 Annual Report value of the financial asset in question,
impairment must be recognised.
Collective ECL allowances are made for
the remainder of the portfolio, which is
not assessed on an individual basis. Based
on IFRS9 requirements, financial assets
valued at amortized cost are attributed
to the appropriate stage based on the
estimated increase of credit risk of a
single exposure since initial recognition.
The stage of financial assets determines
whether a 12-month or lifetime ECL has
to be considered. The ECL calculation is
based on the forward-looking probability of
default (PD) and loss given default (LGD),
which are calculated using historic data and
statistical modelling, as well as predicted
macroeconomic parameters. For the off-
balance financial assets, the probability of
the redemption of guarantees is taken into
account when creating collective provisions.
The models used to estimate future risk
parameters are validated and back-tested
on a regular basis in order to make loss
estimations as realistic as possible.
b) Main emphasis in 2018
In the process of constantly complementing
and enhancing credit risk management
NLB Group focuses on taking moderate
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 in terms of the sustainability of
its portfolio structure, and herewith the
related cost of risk, and 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 and new
investment projects has had a positive
influence on the approval of new loans.
In the retail segment, positive trends have
been recorded in almost all the region in
275
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 non-
performing loans (NPL) formation. In
addition, the favourable macroeconomic
environment resulted in the negative cost
of risk, whose evolution during the year
was otherwise very stable and sustainable in
line with strategic orientations.
Great emphasis is also placed on intensive
and proactive handling of problematic
customers, changes in the credit process
and early warning system for detecting
increased credit risk. Reduction of NPLs
on the Group level remained a key focus
in 2018. 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 December 2018 the share of non-
performing exposure by EBA methodology
was 4.7% (reduced from 6.7% at the end
of 2017). Moreover, the coverage ratio
remains high at 62%, which is well above
the EU average published by the EBA
(45.7% in 3Q 2018).
NLB Group 2018 Annual Report 276
c)
Internal rating system and authorisations (IAS 39)
in EUR thousands
NLB Group
31 Dec 2017
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
8,155,255
100.0
24,149
57,310
47,711
518,158
647,328
0.5
2.9
12.1
61.9
7.9
in EUR thousands
NLB
31 Dec 2017
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
5,448,995
100.0
10,889
28,653
16,614
260,907
317,063
0.3
2.2
10.1
55.4
5.8
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 classification is an
investment grade for BBB, and an ‘invest
with care’ for BB and B.
The 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, the
Rating Group C is overall considered as
a substantial risk. The Bank reasonably
restricts cooperation with such clients and
decreases its exposure to them.
The Rating Group D (D and DF rating
classes) and E represent 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.
A
B
C
D and E
Total
*Other financial assets are not included.
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. The
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.
The Rating Group A is considered as
investment grade classification.
The Rating Group B (BBB to B rating
classes) includes clients with a low credit
NLB Group 2018 Annual Report 277
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.
d) Maximum exposure to credit risk
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
Cash, cash balances at central banks, and other demand deposits at banks
1,588,349
1,256,481
795,102
Financial assets held for trading
Non-trading financial assets mandatorily at fair value through profit or loss
Financial assets designated at fair value through profit or loss
Financial assets at fair value throuhg other comprehensive income
Financial assets at amortised cost
Debt securities
Loans to government
Loans to banks
Loans to financial organisations
Loans to individuals
Loans to other customers
Other financial assets
Loans and advances (IAS 39)
Debt securities classified as loans and receivables
Loans to government
Loans to banks
Loans to financial organisations
Loans to individuals
Loans to other customers
Other financial assets
Available-for-sale financial assets (IAS 39)
Held-to-maturity financial assets (IAS 39)
Derivatives - hedge accounting
Total net financial assets
Guarantees
Financial guarantees
Non-financial guarantees
Loan commitments
Other potential liabilities
Total contingent liabilities
63,609
25,809
-
1,849,018
1,428,962
352,746
118,696
88,676
3,642,052
3,041,159
75,171
-
-
-
-
-
-
-
-
-
417
72,189
-
102
-
-
-
-
-
-
-
-
82,133
457,080
513,461
77,202
3,371,946
3,006,105
66,257
2,227,099
609,712
1,188
63,611
26,594
-
1,483,582
1,274,978
267,716
110,297
177,744
2,215,667
1,790,350
42,741
-
-
-
-
-
-
-
-
-
417
570,010
72,180
-
-
-
-
-
-
-
-
-
-
82,133
358,675
462,322
268,184
2,082,562
1,878,056
38,389
1,730,914
609,712
1,188
12,274,664
11,740,955
8,248,799
8,154,325
809,306
357,778
451,528
741,540
312,613
427,029
1,207,642
1,130,250
28,570
20,621
573,326
227,790
345,536
945,856
10,502
518,004
176,437
339,669
898,927
2,342
2,045,518
1,892,411
1,529,684
1,419,273
Total maximum exposure to credit risk
14,320,182
13,633,366
9,778,483
9,573,598
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
NLB Group 2018 Annual Report 278
sheet items in the amount of their nominal
value.
e) Collateral from financial assets that are credit-impaired
31 Dec 2018
Financial assets at amortised cost
Loans to government
Loans to financial organisations
Loans to individuals
Loans to other customers
Other financial assets
Total
31 Dec 2018
Financial assets at amortised cost
Loans to government
Loans to financial organisations
Loans to individuals
Loans to other customers
Other financial assets
Total
NLB Group
in EUR thousands
Fully/over collateralised financial assets
Financial assets 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
3,463
-
29,828
93,655
120
127,066
8,261
-
98,207
557,261
12,894
676,623
NLB
860
18
11,955
57,088
1,743
71,664
-
-
9,344
119,392
128
128,864
in EUR thousands
Fully/over collateralised financial assets
Financial assets 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
3,462
-
18,442
59,646
66
81,616
8,170
-
43,043
289,742
1,976
342,931
-
5
6,240
38,196
847
45,288
-
-
2,560
64,966
79
67,605
NLB Group 2018 Annual Report f) Collateral from financial assets at fair value through profit or loss
31 Dec 2018
279
NLB Group
in EUR thousands
Fully/over collateralised financial assets
Financial assets 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
Loans mandatorily at fair value through profit or loss
23,800
39,465
-
-
31 Dec 2018
NLB
in EUR thousands
Fully/over collateralised financial assets
Financial assets 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
Loans mandatorily at fair value through profit or loss
21,596
34,756
-
-
NLB Group 2018 Annual Report Loans to financial organisations
27,812
68,696
280
g) Collateral from loans and advances (IAS 39)
31 Dec 2017
Debt securities
Loans to government
Loans to banks
Loans to individuals
Loans to other customers
Other financial assets
Total
31 Dec 2017
Debt securities
Loans to government
Loans to banks
Loans to financial organisations
Loans to individuals
Loans to other customers
Other financial assets
Total
NLB Group
in EUR thousands
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
-
-
296,220
513,461
49,390
2,024,762
3,748,858
1,347,184
1,773,629
4,142,117
1,232,476
421
19,429
65,836
-
6,979
-
366
73,767
384,075
551
4,069,617
8,287,558
3,504,567
465,738
NLB
in EUR thousands
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
1,077,102
2,075,580
22
1,996
-
200,846
462,322
240,820
510,454
800,954
38,367
-
3,528
-
205
26,702
285,985
487
2,916,558
5,010,051
2,253,763
316,907
h) Credit protection policy
NLB Group applies a single set of
standards to retail and corporate loan
collateral, as developed by the NLB Group
members in accordance with regulatory
requirements. 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 principles that
the NLB Group’s 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. If there is a lower probability
that this type of collateral would generate a
cash flow, NLB Group takes a conservative
approach and accepts the collateral while
reporting its value as zero.
i)
The processes for valuing collateral
In compliance with relevant regulations,
NLB Group has established a system for
monitoring and reporting collateral at fair
(market) value.
NLB Group 2018 Annual Report The market value of real estate used as
collateral is obtained from valuation reports
of licensed appraisers. The market value
of movable property is obtained from
valuation reports of licensed appraisers
or from sales agreements. Both, valuation
reports and sales agreements must not be
older than one year. The market value of
financial instruments held by NLB Group is
obtained from the organised market – such
as 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 for real estate. All
appraisals must be made for the purpose
of secured lending and in accordance
with the international valuation standards
(IVS, EVS, RICS). Appraisals related to
retail loans are generally ordered only from
appraisers with whom NLB has a contract
for real-estate valuations. For corporate
loans, appraisals are usually submitted by
clients. If a client submits an appraisal
that is not made by an appraiser included
on the NLB’s reference list, the NLB’s
expert department, which employs certified
appraisers in construction with licences
granted by the Slovenian Ministry of
Justice and certified real-estate 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 possessing
the necessary licences. NLB Group has
compiled a reference list of appraisers for
valuations of real estate located outside
the Republic of Slovenia. Appraisals
must be made in accordance with the
international valuation standards, and for
large exposures, real-estate valuations must
also 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.
If real estate, movable property, and
financial instruments serve as collateral,
NLB Group’s lien on such assets should
be top ranking. Exceptionally, where the
value of the mortgaged real estate is large
enough, the lien can have 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 the Republic of Slovenia).
j)
The main types of collateral
taken by the Bank
The 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.
The NLB Group accepts the following
material types of loan collateral:
281
• collateral in the form of business and
residential real estate;
• collateral in the form of 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
(for examples, life insurance policies
pledged to NLB).
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
• other types of personal loan collateral
(e.g. insurance with an insurance
company).
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 client’s
creditworthiness (credit ranking), loan
maturity, and varies depending on whether
the loan is granted to retail or a corporate
client.
NLB has also created, in the area of
real-estate loan collateral, an ‘on-line’
connection with the Surveying and
NLB Group 2018 Annual Report 282
Mapping Authority in the Republic of
Slovenia which allows direct and immediate
verification of the existence of property.
The NLB Group strives to ensure the best
possible collateral for long-term loans, in
particular mortgages where possible. As a
result, the mortgaging of real estate is the
most frequent form of loan collateral of
corporate and retail clients. In corporate
loans, the next most frequent forms of
collateral are government and corporate
guarantees, while in retail loans, it is
insurance companies and guarantors.
k) Evaluation risk of collateral
Client/counterparty credit risk is the
key decision parameter when approving
exposures. Collateral is a secondary source
of repayment, and therefore decisions on
approvals of exposures should not primarily
be based on the provided collateral.
However, collateral is an important comfort
element in the approval process and,
depending on the credit rating of the client,
a prerequisite. NLB Group has prescribed
the minimum ratios between the value of
collateral and the loan amount, depending
on the type of collateral and the client
rating. The ratios are based on experience,
regulatory guidelines, and are prescribed in
the Collateral Manual.
NLB Group pays particular attention
to closely monitoring the fair value of
collateral, and to receiving regular and
independent revaluations by applying
the International Valuation Standards.
Through a detailed examination of all
collateral received, NLB has ensured that
only collateral is taken into account from
which payment can be realistically expected
if it is liquidated.
NLB Group has the largest concentration
on collaterals arising from mortgages
on real estate, which is a comparatively
reliable and quality type 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.
The Collateral Manual regulates which
forms of collateral are acceptable, and
which preconditions a type of collateral
needs to fulfill to be able to be considered.
NLB Group 2018 Annual Report l)
Credit quality analysis for financial assets and contingent liabilities
283
in EUR thousands
31 Dec 2018
Debt securities at amortised cost
A
B
C
D and E
Loss allowance
Carrying amount
Loans and advances to banks at amortised cost
A
B
C
D and E
Loss allowance
Carrying amount
Loans and advances to customers at amortised cost
A
B
C
D and E
Loss allowance
Carrying amount
Other financial assets at amortised cost
A
B
C
D and E
Loss allowance
Carrying amount
Debt instruments at fair value through
other comprehensive income
A
B
C
D and E
Loss allowance
Contingent liabilities
A
B
C
D and E
Loss allowance
Carrying amount
NLB Group
NLB
12-month
expected
credit
losses
Lifetime
ECL not
credit
- impaired
Lifetime
ECL credit-
impaired
Purchased
credit-
impaired
financial
assets
12-month
expected
credit
losses
Lifetime
ECL not
credit
- impaired
Lifetime
ECL credit-
impaired
Total
Purchased
credit-
impaired
financial
assets
1,144,444
287,416
-
-
(2,898)
1,428,962
95,110
23,212
500
-
(126)
118,696
-
-
-
-
-
-
-
-
-
-
-
-
4,621,756
66,636
1,747,074
174,010
57,990
337,289
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- 1,144,444 1,144,444
-
-
-
-
287,416
131,857
-
-
-
-
(2,898)
(1,323)
- 1,428,962 1,274,978
-
-
-
-
-
-
95,110
108,931
23,212
1,443
500
-
-
-
(126)
(77)
118,696
110,297
-
-
-
-
-
-
-
-
-
-
-
-
- 4,688,392 3,095,962
9,340
- 1,921,084
987,771
52,167
-
395,279
63,011
146,684
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
1,144,444
131,857
-
-
(1,323)
1,274,978
108,931
1,443
-
-
(77)
110,297
3,105,302
1,039,938
209,695
-
-
567,236
6,209
573,445
-
-
293,852
5,249
299,101
(41,452)
(35,537)
(374,394)
(2,184)
(453,567)
(16,789)
(12,660)
(170,965)
(2,145)
(202,559)
6,385,368
542,398
192,842
4,025 7,124,633 4,129,955
195,531
122,887
3,104
4,451,477
46,518
25,959
181
-
(182)
72,476
1,501,073
347,707
-
-
(3,597)
87
254
549
-
-
-
-
9,793
(58)
832
-
-
238
-
(75)
(7,955)
1,838
-
-
-
-
(798)
-
-
-
-
-
-
26
(1)
25
46,605
34,797
26,213
6,692
730
9,819
(8,196)
156
-
(27)
4
161
51
-
(6)
-
-
-
2,765
(1,854)
75,171
41,618
210
911
- 1,501,073 1,429,332
347,707
54,250
238
-
-
-
(4,470)
(1,541)
-
-
-
-
-
994,318
793,590
932
870,583
539,091
59,892
111,076
9,119
62,477
-
-
-
-
-
-
-
-
-
-
-
(798)
-
-
-
-
-
-
3
(1)
2
-
-
-
-
-
-
-
-
34,801
6,853
207
2,768
(1,888)
42,741
1,429,332
54,250
-
-
(2,339)
794,522
598,983
71,596
983,559
10,759
784,251
86,332
16,435
94,641
-
-
66,283
3,258
69,541
-
-
61,325
3,258
64,583
(9,044)
(3,264)
(26,086)
(688)
(39,082)
(4,071)
(821)
(23,936)
(688)
(29,516)
1,775,201
188,468
40,197
2,570 2,006,436 1,337,729
122,480
37,389
2,570
1,500,168
NLB Group 2018 Annual Report 284
m) Net loans and advances neither past due nor impaired (IAS 39)
31 Dec 2017
Debt securities
Loans to government
Loans to banks
Loans to individuals
Loans to other customers
Other financial assets
Total
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
NLB
C
-
244
251
-
-
in EUR thousands
D and E
Total
-
-
-
-
-
82,133
355,009
462,322
268,086
2,034,673
3,219,833
38,474
27,055
159 3,285,521 2,019,919
2,446
12,308
861,666 1,557,306
270,397
6,334 2,695,703
700,560
912,760
82,940
4,218
1,700,478
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
Loans to financial organisations
45,448
17,955
13,692
77,095
40,522
180,631
46,933
n) Net loans and advances past due but not individually impaired (IAS 39)
NLB Group
NLB
in EUR thousands
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
33,298
6,768
-
-
16,180
10,309
118
-
-
-
827
15,287
46
3,995
20
15
44,986
58,894
6,932
-
-
6
16,447
1,451
10
-
-
-
5,242
242
16
-
-
-
8
10,730
4
-
-
6
21,697
12,423
30
70,139
28,543
16,160
114,842
17,914
5,500
10,742
34,156
31 Dec 2017
Loans to government
Loans to banks
Loans to financial organisations
Loans to individuals
Loans to other customers
Other financial assets
Total
* The loans and advances disclosed in the
above tables are not individually impaired
since they are fully or over collateralised.
NLB Group 2018 Annual Report o)
Individually impaired loans and advances (IAS 39)
NLB Group
Gross value
Impairment
provision
Net value
Gross value
8,652
2,899
107,917
695,443
10,278
825,189
(4,934)
(2,807)
(66,478)
(443,935)
(8,220)
(526,374)
3,718
92
41,439
251,508
2,058
298,815
6,107
2,899
49,882
397,123
3,938
NLB
Impairment
provision
(2,441)
(2,807)
(23,690)
(231,968)
(2,562)
459,949
(263,468)
285
in EUR thousands
Net value
3,666
92
26,192
165,155
1,376
196,481
NLB Group
in EUR thousands
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
2,695,703
57,267
7,160,527
-
3,718
-
92
41,439
251,508
2,058
298,815
-
3,995
20
15
44,986
58,894
6,932
114,842
NLB
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
1,700,478
36,983
4,939,684
-
-
-
6
21,697
12,423
30
34,156
-
3,666
-
92
26,192
165,155
1,376
196,481
Total
82,133
457,080
513,461
77,202
3,371,946
3,006,105
66,257
7,574,184
in EUR thousands
Total
82,133
358,675
462,322
268,184
2,082,562
1,878,056
38,389
5,170,321
31 Dec 2017
Loans to government
Loans to financial organisations
Loans to individuals
Loans to other customers
Other financial assets
Total
p) Net loans analysis (IAS 39)
31 Dec 2017
Debt securities
Loans to government
Loans to banks
Loans to financial organisations
Loans to individuals
Loans to other customers
Other financial assets
Total
31 Dec 2017
Debt securities
Loans to government
Loans to banks
Loans to financial organisations
Loans to individuals
Loans to other customers
Other financial assets
Total
NLB Group 2018 Annual Report 286
r)
Forborne loans
NLB Group
in EUR thousands
All forborne exposures
Impairment, provisions
and value adjustments
31 Dec 2018
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)
Governments
Other financial organisations
Non-financial organisations
Households
Debt instruments other than HFT
Loan commitments given
405,761
73,018
332,743
332,743
(5,174)
(203,851)
128,942
7,264
1,971
360,203
36,323
405,761
5,233
-
36
59,192
13,790
73,018
1,173
7,264
1,935
7,264
1,935
-
(1)
(3,802)
(1,935)
3,462
-
301,011
301,011
(4,694)
(190,200)
111,554
22,533
22,533
(479)
(7,914)
13,926
332,743
332,743
(5,174)
(203,851)
128,942
4,061
4,061
(10)
(1,055)
2,438
Total exposures with forbearance measures
410,994
74,191
336,804
336,804
(5,184)
(204,906)
131,380
NLB Group
in EUR thousands
All forborne exposures
Impairment, provisions
and value adjustments
31 Dec 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)
Governments
Other financial organisations
Non-financial organisations
Households
Debt instruments other than HFT
Loan commitments given
606,884
78,035
528,849
528,849
(9,110)
(317,912)
194,738
7,522
2,944
558,775
37,643
606,884
10,638
-
48
67,871
10,116
78,035
1,128
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
27,527
27,527
(1,138)
(11,825)
14,779
528,849
528,849
(9,110)
(317,912)
194,738
9,510
9,510
(1)
(6,081)
3,421
Total exposures with forbearance measures
617,522
79,163
538,359
538,359
(9,111)
(323,993)
198,159
NLB Group 2018 Annual Report 287
in EUR thousands
NLB
All forborne exposures
Impairment, provisions
and value adjustments
31 Dec 2018
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)
Governments
Other financial organisations
Non-financial organisations
Households
Debt instruments other than HFT
Loan commitments given
272,395
54,691
217,704
217,704
(3,794)
(115,793)
100,986
5,870
1,971
239,301
25,253
272,395
5,216
-
36
43,733
10,922
54,691
1,156
5,870
1,935
5,870
1,935
-
(1)
(2,408)
(1,935)
195,568
195,568
(3,430)
(108,016)
14,331
14,331
(363)
(3,434)
3,462
87,148
10,376
217,704
217,704
(3,794)
(115,793)
100,986
4,060
4,060
(8)
(1,055)
2,438
Total exposures with forbearance measures
277,611
55,847
221,764
221,764
(3,802)
(116,848)
103,424
NLB
in EUR thousands
All forborne exposures
Impairment, provisions
and value adjustments
31 Dec 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)
Governments
Other financial organisations
398,889
57,609
341,280
341,280
(5,762)
(186,782)
139,111
6,017
2,944
-
48
6,017
2,896
6,017
2,896
-
(3)
(2,373)
(2,806)
3,643
2
Non-financial organisations
365,879
50,535
315,344
315,344
(4,962)
(174,989)
125,712
Households
24,049
7,026
17,023
17,023
(797)
(6,614)
9,754
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
(1)
(5,414)
2,951
Total exposures with forbearance measures
408,379
58,727
349,652
349,652
(5,762)
(186,782)
142,062
NLB Group 2018 Annual Report 288
Forborne exposures by periods of restructuring
31 Dec 2018
Performing exposures
Non-performing exposures
Total exposures with forbearance measures
31 Dec 2017
Performing exposures
Non-performing exposures
Total exposures with forbearance measures
31 Dec 2018
Performing exposures
Non-performing exposures
Total exposures with forbearance measures
31 Dec 2017
Performing exposures
Non-performing exposures
Total exposures with forbearance measures
NLB Group
in EUR thousands
Up to 3 months
3 to 6 months
6 to 12 months
Over 12 months
4,527
1,309
5,836
3,656
12,313
15,969
14,911
5,081
19,992
910
6,054
6,964
NLB
11,042
3,096
14,138
2,259
17,189
19,448
37,364
126,178
163,542
62,100
175,381
237,481
in EUR thousands
Up to 3 months
3 to 6 months
6 to 12 months
Over 12 months
2,264
1,070
3,334
2,950
11,512
14,462
12,821
4,670
17,491
420
5,311
5,731
7,329
2,741
10,070
1,446
14,717
16,163
28,483
98,353
126,836
47,031
122,958
169,989
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
a single forbearance measurement or as a
combination of those.
NLB Group 2018 Annual Report 289
s) Repossessed assets
NLB Group and NLB received the
following assets by taking possession of
collateral held as security and held them at
the reporting date:
Nature of assets
Net value
Net value
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
Equity securities mandatorily measured at fair value through profit or loss (note 5.3.a)
Equity securities measured at fair value through OCI (note 5.4.b)
Securities available-for-sale (IAS 39) (note 5.5.b)
Investment property (note 5.12.)
Property and equipment (note 5.11.)
Investments in subsidiaries and associates
Real estates (note 5.15.)
Other assets (note 5.15.)
Total
t) Analysis of loans and advances by industry sectors
624
3,185
-
38,747
1,418
-
59,540
633
-
-
3,536
40,809
1,355
-
76,222
1,278
624
-
-
6,464
7
2,444
5,815
-
-
-
480
4,286
7
2,464
4,811
-
104,147
123,200
15,354
12,048
NLB Group
Industry sector
Banks
Finance
Electricity, gas, and water
Construction industry
Heavy industry
Education
Agriculture, forestry, and fishing
Public sector
Individuals
Mining
Entrepreneurs
Services
Health care and social security
Other financial assets
Total
31 Dec 2018
31 Dec 2017
in EUR thousands
Gross loans
Impairment
provisions
Net loans
(%)
Gross loans
Impairment
provisions
Net loans
118,822
(126)
118,696
72,219
(3,012)
69,207
139,953
(4,232)
135,721
253,536
(61,675)
191,861
1.62
0.94
1.85
2.61
514,037
(576)
513,461
60,485
(3,065)
57,420
155,911
(8,846)
147,065
236,617
(69,045)
167,572
851,033
(60,441)
790,592
10.77
819,887
(79,497)
740,390
12,593
55,129
(447)
(7,439)
12,146
47,690
248,448
(5,144)
243,304
0.17
0.65
3.31
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
3,726,531
(84,479)
3,642,052
49.60
3,470,153
(98,207)
3,371,946
44.52
17,171
(4,103)
13,068
143,636
(3,944)
139,692
599,224
(69,137)
530,087
25,785
83,367
(1,514)
(8,196)
24,271
75,171
0.18
1.90
7.22
9.25
8.58
0.33
1.02
15,404
(1,675)
13,729
128,534
(5,585)
122,949
662,657
(123,226)
539,431
0.18
1.62
7.12
839,171
(35,281)
803,890
10.61
840,189
(204,457)
635,732
31,331
(2,447)
77,962
(11,705)
28,884
66,257
8.39
0.38
0.87
7,804,189
(461,889)
7,342,300
100.00
8,233,217
(659,033)
7,574,184
100.00
Transport and communications
703,935
(25,090)
678,845
Trade industry
752,807
(122,910)
629,897
NLB Group 2018 Annual Report 290
NLB
Industry sector
Banks
Finance
Electricity, gas, and water
Construction industry
Heavy industry
Education
Agriculture, forestry, and fishing
Public sector
Individuals
Mining
Entrepreneurs
Services
31 Dec 2018
31 Dec 2017
in EUR thousands
Gross loans
Impairment
provisions
Net loans
(%)
Gross loans
Impairment
provisions
Net loans
110,374
(77)
110,297
162,765
(4,645)
158,120
100,813
(2,665)
97,225
(38,375)
98,148
58,850
2.38
3.41
2.12
1.27
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
561,905
(15,306)
546,599
11.80
551,816
(30,004)
521,812
10.09
7,314
14,373
(38)
(268)
7,276
14,105
151,818
(1,534)
150,284
0.16
0.30
3.25
8,779
15,087
(33)
(958)
8,746
14,129
199,650
(1,710)
197,940
0.17
0.27
3.83
2,241,624
(25,957)
2,215,667
47.84
2,121,167
(38,605)
2,082,562
40.28
9,645
(657)
8,988
51,173
(1,451)
49,722
404,209
(43,929)
360,280
0.19
1.07
7.78
7,454
(626)
6,828
50,923
(2,040)
48,883
494,815
(74,158)
420,657
0.13
0.95
8.14
Transport and communications
616,781
(10,986)
605,795
13.08
747,971
(17,192)
730,779
14.13
Trade industry
249,004
(55,673)
193,331
11,981
44,629
(1,075)
(1,888)
10,906
42,741
4.17
0.24
0.92
304,589
(96,358)
208,231
11,830
41,580
(1,113)
(3,191)
10,717
38,389
4.03
0.21
0.74
4,835,633
(204,524)
4,631,109
100.00
5,490,575
(320,254)
5,170,321
100.00
Health care and social security
Other financial assets
Total
u) Analysis of net loans and advances by geographical sectors
Country
Republic of Slovenia
Other European Union members
Other countries
Total
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
4,302,730
4,469,598
4,297,956
4,478,793
168,657
484,919
2,870,913
2,619,667
100,769
232,384
428,772
262,756
7,342,300
7,574,184
4,631,109
5,170,321
NLB Group 2018 Annual Report v) Analysis of debt securities and derivative financial instruments by geographical sectors
31 Dec 2018
NLB Group
NLB
291
in EUR thousands
Financial assets
measured at
amortised cost
Financial
assets held
for trading
Financial assets
measured
at fair value
through OCI
Non-trading
financial assets
mandatory at
FV through
profit or loss
Derivative
financial
instruments
Financial assets
measured at
amortised cost
Financial
assets held
for trading
Financial assets
measured
at fair value
through OCI
Derivative
financial
instruments
Country
Republic of Slovenia
452,212
36,808
513,229
-
10,797
452,212
36,808
460,838
10,797
748,529
10,121
984,904
1,271
4,203
748,529
10,121
974,281
4,203
Other members of
European Union
- Italy
- Ireland
- France
- Belgium
- Netherlands
- Austria
- Germany
- Finland
- Sweden
- Denmark
- Luxembourg
- Great Britain
- Slovakia
- Spain
- Portugal
- Poland
- Czech Republic
- Hungary
- Romunia
- Other
United States of America
Other countries
- Macedonia
- Serbia
- Bosnia and Herzegovina
- Montenegro
- Switzerland
- Kosovo
- Iceland
- Norway
- Other
Total
22,807
16,049
132,083
75,679
33,769
76,278
81,050
36,312
3,005
-
91,963
1,122
11,019
49,593
27,357
6,388
1,023
25,706
23,730
33,596
43,419
184,802
127,473
-
-
26,511
-
-
5,130
992
24,696
520
-
103
-
-
-
-
648
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
23,566
50,744
127,192
4,028
61,166
-
114,376
34,086
111,820
80,679
36,700
36,241
29,619
106,763
43,043
19,261
3,667
46,617
19,717
3,607
-
36,040
15,730
3,088
3,005
-
-
-
-
-
-
-
-
-
-
-
-
-
1,768
-
-
-
-
-
-
-
-
-
-
335,155
738
69,169
60,063
80,902
24,929
-
-
-
-
-
360
62,543
-
16,555
20,994
-
-
-
378
2,009
-
-
90
337
77
-
167
-
-
-
-
3,257
-
-
-
-
-
-
-
275
-
329
-
-
-
-
-
329
-
-
-
22,807
16,049
132,083
75,679
33,769
76,278
81,050
36,312
3,005
-
91,963
1,122
11,019
49,593
27,357
6,388
1,023
25,706
23,730
33,596
43,419
30,818
-
-
-
-
-
-
5,130
992
24,696
-
-
-
23,566
48,356
123,040
4,028
58,135
-
114,376
34,086
111,820
79,627
36,700
36,241
29,619
-
-
90
337
77
-
167
-
-
-
-
106,763
3,257
43,043
19,261
3,667
46,617
19,717
3,607
-
36,040
7,003
41,460
1,065
1,791
-
1,055
-
-
-
16,555
20,994
-
-
-
-
-
-
-
275
-
331
-
2
-
-
-
329
-
-
-
3,088
3,005
-
-
-
-
-
-
-
-
-
-
-
-
1,768
-
-
-
-
-
-
-
-
-
-
1,428,962
48,697
1,849,018
15,329
1,274,978
48,697
1,483,582
15,331
Other members of the European Union
included in the item ‘Other’ are Bulgaria,
Cyprus, Croatia, Lithuania, and Latvia.
Other members of the ‘Other countries’
in the item ‘Other’ are Canada, Australia,
and Russia.
NLB Group 2018 Annual Report 292
31 Dec 2017
NLB Group
NLB
in EUR thousands
Country
Loans and
advances
(IAS 39)
Financial
assets held
for trading
Financial
assets
designated
at fair value
through
profit or
loss
Available-
for-sale
financial
assets
(IAS 39)
Held-to-
maturity
financial
assets
(IAS 39)
Derivative
financial
instruments
Loans and
advances
(IAS 39)
Financial
assets held
for trading
Available-
for-sale
financial
assets
(IAS 39)
Held-to-
maturity
financial
assets
(IAS 39)
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
- Slovakia
- Spain
- Portugal
- Poland
- Czech Republic
- Hungary
- Romunia
- Other
United States of America
Other countries
- Macedonia
- Serbia
- Bosnia and Herzegovina
- Montenegro
- Kosovo
- Iceland
- Norway
- 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
45,025
31,357
13,378
49,459
-
-
-
-
-
22,082
1,023
22,401
21,830
55,342
17,229
444,346
171,751
56,615
78,421
49,401
64,848
3,218
11,260
8,832
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
45,025
31,357
13,378
49,459
-
-
-
-
-
22,082
1,023
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
22,401
21,830
55,342
4,117
17,229
-
-
-
-
-
-
-
-
-
23,310
-
-
-
-
-
3,218
11,260
8,832
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
Other members of the European Union
included in the item ‘Other’ are Bulgaria,
Cyprus, Croatia, Lithuania, and Latvia.
Other members of the Other countries in
the item ‘Other’ are Canada, and Russia.
NLB Group 2018 Annual Report z)
Structure of debt securities of the banking book according to the Fitch credit rating agency
293
in EUR thousands
Rating
AAA
AA
A
BBB
Other
Total
NLB Group
NLB
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
Carrying
value
529,385
500,702
1,367,418
164,439
716,037
in %
16.1
15.3
41.7
5.0
21.8
Carrying
value
365,985
373,302
1,486,656
200,019
489,294
in %
12.6
12.8
51.0
6.9
16.8
Carrying
value
520,658
492,466
1,312,639
164,439
268,358
in %
18.9
17.9
47.6
6.0
9.7
Carrying
value
365,985
373,302
1,411,405
200,019
72,048
in %
15.1
15.4
58.3
8.3
3.0
3,277,980
100.0
2,915,256
100.0
2,758,560
100.0
2,422,759
100.0
aa) Structure of debt securities of the trading book according to the Fitch credit rating agency
NLB Group and NLB
Rating
A
AA
AAA
F1
Other
Total
bb) Internal rating of derivatives counterparties
NLB Group and NLB
A
B
C
Total
31 Dec 2018
31 Dec 2017
in EUR thousands
in %
75.6
14.6
9.8
Carrying
value
36,808
7,116
4,773
-
-
48,697
100.0
Carrying
value
-
-
4,117
15,016
40,031
59,164
in %
-
-
7.0
25.4
67.7
100.0
31 Dec 2018
31 Dec 2017
in EUR thousands
in %
70.92
19.17
9.91
100.00
in %
71.47
28.24
0.29
100.00
All derivatives in the banking book are
entered into with counterparties with an
external investment-grade rating.
When derivatives are entered into on
behalf of NLB Group’s customers, such
customers usually do not have an external
rating, but all such transactions are covered
through back-to-back transactions involving
third parties with an external investment-
grade rating.
NLB Group 2018 Annual Report 294
cc) Debt securities in NLB’s and NLB Group’s portfolio that represent subordinated liabilities for the issuer
31 Dec 2018
Internal rating
Financial assets measured at amortised cost
- debt securities
- loans and advances to banks
- loans and advances to customers
Total
31 Dec 2017
Internal rating
Available-for-sale financial assets (IAS 39)
Loans and advances (IAS 39)
- loans and advances to banks
- loans and advances to customers
Total
NLB Group
B
-
-
-
-
NLB Group
B
-
-
-
-
A
523
-
-
523
A
581
-
-
581
dd) Presentation of net financial instruments by measurement category
NLB
B
-
-
-
-
NLB
B
-
-
-
-
in EUR thousands
C
-
-
5,833
5,833
Total
523
24,024
5,833
30,380
in EUR thousands
C
-
-
5,506
5,506
Total
581
10,962
5,506
17,049
in EUR thousands
C
Total
A
-
-
-
-
C
-
-
-
-
523
523
-
-
24,024
-
523
24,547
Total
581
A
581
-
-
10,962
-
581
11,543
NLB Group
Financial
assets held
for trading
Non-trading
financial assets
mandatory at
FV through P&L
Financial assets
measured at FV
through OCI
Financial assets
measured at
amortised cost Financial leases
Derivatives
for hedge
accounting
31 Dec 2018
Cash and obligatory reserves with central banks,
and other demand deposits at banks
Securities
- Bonds
- Shares
- Commercial bills
- Treasury bills
- Investment funds
Derivatives
Loans and receivables
- Loans to government
- Loans to banks
- Loans to financial organisations
- Loans to individuals
- Loans to other customers
Other financial assets
Total financial assets
-
-
-
-
-
-
-
-
-
-
-
1,588,349
48,697
18,659
-
-
30,038
8,589
1,898,079
1,428,962
2,009
1,648,863
1,414,007
2,513
49,061
100,757
-
-
99,398
14,955
-
-
-
-
-
4,067
14,912
-
-
-
-
-
-
-
-
23,800
-
-
-
-
23,800
-
-
-
-
-
-
-
-
-
-
7,162,822
80,507
345,838
118,696
88,611
3,601,829
3,007,848
75,171
6,908
-
65
40,223
33,311
-
Total
1,588,349
3,384,327
3,083,538
51,574
100,757
144,391
4,067
-
-
-
-
-
-
-
417
15,329
-
-
-
-
-
-
-
7,267,129
352,746
118,696
88,676
3,642,052
3,064,959
75,171
63,609
32,389
1,898,079
10,255,304
80,507
417
12,330,305
NLB Group 2018 Annual Report NLB Group
Financial assets
designated
at fair value
through
profit or loss
Financial
assets held
for trading
Available-for-
sale financial
assets (IAS 39)
Loans and
receivables
(IAS 39)
Financial leases
(IAS 39)
Held-to-
maturity
financial assets
(IAS 39)
Derivatives
for hedge
accounting
31 Dec 2017
Cash and obligatory reserves with central
banks, and other demand deposits at banks
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
- Loans to other customers
Other financial assets
-
-
-
1,256,481
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
3,295,336
2,945,112
66,257
-
81
76,610
60,993
-
-
609,712
609,712
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
634
4,267
-
-
-
-
-
-
-
-
53,184
281,877
136,182
-
-
-
-
-
-
-
-
-
-
59,164
4,117
-
-
55,047
-
-
13,025
-
-
-
-
-
-
-
295
in EUR thousands
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
3,006,105
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 2018 Annual Report 296
31 Dec 2018
Cash and obligatory reserves with central banks,
and other demand deposits at banks
Securities
- Bonds
- Shares
- Treasury bills
- Investment funds
Derivatives
Loans and receivables
- Loans to government
- Loans to banks
- Loans to financial organisations
- Loans to individuals
- Loans to other customers
Other financial assets
Total financial assets
31 Dec 2017
Cash and obligatory reserves with central
banks, and other demand deposits at banks
Securities
- Bonds
- Shares
- Commercial bills
- Cash certificates
- Treasury bills
- Private equity fund
Derivatives
Loans and receivables
- Loans to government
- Loans to banks
- Loans to financial organisations
- Loans to individuals
- Loans to other customers
Other financial assets
Total financial assets
NLB
in EUR thousands
Financial assets
held for trading
Non-trading
financial assets
mandatory at FV
through P&L
Financial assets
measured at FV
through OCI
Financial assets
measured at
amortised cost
Derivatives for
hedge accounting
-
48,697
18,659
-
-
795,102
2,547
1,528,314
1,274,978
-
1,433,476
1,264,958
-
2,513
30,038
-
14,914
-
-
-
-
-
-
-
-
34
-
26,594
-
-
-
-
26,594
-
44,732
50,106
-
-
-
-
-
-
-
-
-
-
10,020
-
-
4,561,774
267,716
110,297
177,744
2,215,667
1,790,350
42,741
63,611
29,141
1,528,314
6,674,595
417
8,296,078
NLB
in EUR thousands
Financial assets
held for trading
Financial assets
designated at fair
value through
profit or loss
Available-for-
sale financial
assets (IAS 39)
Loans and
receivables
(IAS 39)
Held-to-maturity
financial assets
(IAS 39)
Derivatives
for hedge
accounting
-
-
570,010
-
-
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
1,878,056
38,389
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
795,102
2,854,536
2,717,093
47,245
90,164
34
417
15,331
-
-
-
-
-
-
-
4,588,368
267,716
110,297
177,744
2,215,667
1,816,944
42,741
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
1,878,056
38,389
72,180
634
1,777,762
5,740,331
609,712
1,188
8,201,807
As at 31 December 2018 and 31 December
2017, all of NLB Group’s financial
liabilities, except for derivatives designated
as hedging instruments, trading liabilities,
and financial liabilities measured at fair
value through profit or loss, were carried at
amortised cost.
NLB Group 2018 Annual Report 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.
Global Risk also monitors and manages
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 to medium
exposure. NLB monitors the open position
of NLB Group on an ongoing basis. The
orientation of NLB Group in interest rate
risk management is to prevent negative
effects on the net revenues arising from
changed market interest rates. 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
297
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 the
parent Bank’s guidelines and standards, as well
as local regulatory requirements. 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 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 equity and CET 1 capital.
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.
NLB Group 2018 Annual Report 298
a) The amount of financial instruments denominated in euros and in foreign currency
31 Dec 2018
Financial assets
Cash, cash balances at central banks, and
other demand deposits at banks
Financial assets held for trading
Non-trading financial assets mandatorily
at fair value through profit or loss
Financial assets measured at fair value
through other comprehensive income
Financial assets measured at amortised cost
- debt securities
- loans and advances to banks
- loans and advances to customers
- other financial assets
Derivatives - hedge accounting
Fair value changes of the hedged items in
portfolio hedge of interest rate risk
NLB Group
in EUR thousands
EUR
USD
CHF
Other
Total
1,096,342
61,841
32,389
34,242
1,768
-
45,790
411,975
1,588,349
-
-
-
-
63,609
32,389
1,713,873
32,988
3,185
148,033
1,898,079
1,250,734
31,097
6,013,913
41,506
417
2,517
49,632
54,084
45,751
6,517
-
-
-
6,292
61,923
28
-
-
128,596
27,223
1,428,962
118,696
1,003,046
7,124,633
27,120
-
-
75,171
417
2,517
Total financial assets
10,244,629
224,982
117,218
1,745,993
12,332,822
Financial liabilities
Trading liabilities
Loans mandatorily 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
12,259
3,656
29,474
11,867
230,186
-
428
-
4,403
16,675
- due to customers
8,866,912
194,343
- borrowings from other customers
- subordinated liabilities
- other financial liabilities
Total financial liabilities
Net on-balance sheet financial position
Derivative financial instruments
Net financial position
31 Dec 2017
Total financial assets
Total financial liabilities
61,844
15,050
82,091
9,313,339
931,290
21,590
952,880
9,932,783
8,941,347
-
-
1,191
217,040
7,942
434
8,376
208,375
210,040
-
-
-
3,256
11,562
77,315
-
-
1,498
93,631
41
106
-
7,249
-
12,300
4,190
29,474
26,775
258,423
1,325,447
10,464,017
-
-
61,844
15,050
16,107
100,887
1,348,950
10,972,960
23,587
397,043
1,359,862
(16,473)
(14,992)
(9,441)
7,114
382,051
1,350,421
113,510
94,250
1,537,767
11,792,435
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
NLB Group 2018 Annual Report 299
in EUR thousands
NLB
EUR
USD
CHF
Other
Total
735,423
61,843
29,141
16,832
1,768
-
1,487,423
23,806
1,224,223
88,165
4,339,281
35,147
417
2,517
49,632
8,730
40,613
6,488
-
-
16,295
26,552
795,102
-
-
-
-
-
63,334
1
-
-
-
-
63,611
29,141
17,085
1,528,314
1,123
13,402
8,249
1,105
-
-
1,274,978
110,297
4,451,477
42,741
417
2,517
31 Dec 2018
Financial assets
Cash, cash balances at central banks, and
other demand deposits at banks
Financial assets held for trading
Non-trading financial assets mandatorily
at fair value through profit or loss
Financial assets measured at fair value
through other comprehensive income
Financial assets measured at amortised cost
- debt securities
- loans and advances to banks
- loans and advances to customers
- other financial assets
Derivatives - hedge accounting
Fair value changes of the hedged items in
portfolio hedge of interest rate risk
Total financial assets
8,003,580
147,869
79,630
67,516
8,298,595
Financial liabilities
Trading liabilities
Loans mandatorily 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
12,256
3,553
29,474
12,819
215,896
-
428
-
16,265
16,675
- due to customers
6,853,796
105,825
- borrowings from other customers
- other financial liabilities
Total financial liabilities
4,128
59,670
-
253
7,191,592
139,446
62,909
-
-
-
7,469
11,562
43,662
-
216
-
-
-
12,350
-
12,256
3,981
29,474
48,903
244,133
30,126
7,033,409
-
2,073
44,549
4,128
62,212
7,438,496
Net on-balance sheet financial position
811,988
8,423
16,721
22,967
860,099
Derivative financial instruments
21,509
-
(16,033)
(14,845)
(9,369)
Net financial position
833,497
8,423
688
8,122
850,730
31 Dec 2017
Total financial assets
Total financial liabilities
7,915,113
6,999,721
137,869
138,414
80,675
67,114
68,869
51,359
8,202,526
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
NLB Group 2018 Annual Report
300
b) FX sensitivity analysis
Scenarios
USD
CHF
CZK
RSD
MKD
JPY
AUD
HUF
HRK
BAM
31 Dec 2018
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 Dec 2018
31 Dec 2017
+/-6%
+/-4%
+/-3%
+/-2%
+/-2%
+/-7%
+/-5%
+/-4%
+/-1%
+/-0%
+/-6%
+/-5%
+/-3%
+/-2%
+/-3%
+/-7%
+/-7%
+/-3%
+/-2%
+/-0%
NLB Group
NLB
in EUR thousands
Effects on income
statement
Effects on other
comprehensive
income
Effects on income
statement
Effects on other
comprehensive
income
275
(263)
3
10
2
31
58
(244)
241
(3)
(10)
(2)
(22)
(40)
-
218
-
2,374
3,178
148
5,918
-
(200)
-
(2,280)
(3,077)
(145)
(5,702)
239
15
1
12
22
87
376
1
-
-
-
-
-
1
(212)
(1)
(13)
(1)
(12)
(22)
(77)
-
-
-
-
-
(337)
(1)
NLB Group 2018 Annual Report 301
in EUR thousands
NLB Group
NLB
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)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
are divided into the trading and banking
book according to regulatory standards.
It takes into account the positions in each
currency. Interest rate risk management in
NLB Group is adopted in accordance with
the risk appetite and risk strategy, based
on general Basel standards on interest
rate management in the banking book
(IRRB; hereinafter: ‘Standards’) and final
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, including all
significant sources of risk, taking into
account behavioural and modelling
assumptions. Part of non-maturing
deposits, which is considered as core
part is allocated long-term by using
replicating portfolio. Optionality risk is
mainly derived from behavioural options,
reflecting in prepayments and withdrawals,
and embedded options such as caps and
31 Dec 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
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 low
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 2018 Annual Report 302
floors. Moreover, in light of expected cash
flows, non-performing exposures, as well
as off-balance sheet items are considered
when measuring interest rate risk exposure.
Optionality models are, to a large extent,
based on linear regression using the
historical data as input.
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 an 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 the
parent Bank’s guidelines and standards,
as well as with the local regulatory
requirements. 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
the Group level. Exposure to interest rate
risk is discussed on ALCO monthly on
NLB’s individual level and quarterly on the
consolidated level
NLB Group 2018 Annual Report 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.
303
NLB Group
in EUR thousands
Non-interest
bearing
Total
Interest
bearing
Up to 1
Month
1 Month to
3 Months
3 Months
to 1 Year
1 Year to
5 Years Over 5 Years
31 Dec 2018
Financial assets
Cash, cash balances at central banks, and
other demand deposits at banks
1,588,349
468,535
1,119,814
1,119,814
-
-
-
-
-
11,830
Financial assets held for trading
63,609
14,912
48,697
-
26,828
10,039
Non-trading financial assets mandatorily
at fair value through profit or loss
Financial assets measured at fair value
through other comprehensive income
Financial assets measured at amortised cost
- debt securities
- loans and advances to banks
32,389
6,580
25,809
659
3,727
17,822
3,446
155
1,898,079
49,061
1,849,018
120,332
90,886
259,901
831,419
546,480
1,428,962
118,696
-
27
1,428,962
40,896
79,979
122,692
566,502
618,893
118,669
96,853
10,423
11,377
16
-
- loans and advances to customers
7,124,633
72,813
7,051,820
1,576,821
1,087,822
2,499,063
1,295,776
592,338
- other financial assets
Derivatives - hedge accounting
Fair value changes of the hedged items in
portfolio hedge of interest rate risk
75,171
75,171
417
417
2,517
2,517
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total financial assets
12,332,822
690,033
11,642,789
2,955,375
1,299,665
2,920,894
2,697,159
1,769,696
Financial liabilities
Trading liabilities
Financial liabilities measured at fair
value through profit or loss
12,300
12,300
4,190
4,190
Derivatives - hedge accounting
29,474
29,474
Financial liabilities measured at amortised cost
- deposits from banks and central banks
- borrowings from banks and central banks
26,775
258,423
-
-
-
-
-
-
-
-
26,775
26,775
-
-
-
-
-
-
-
-
-
-
-
-
258,423
4,498
74,431
162,384
16,811
- due to customers
10,464,017
73,980
10,390,037
8,699,749
350,176
895,822
440,544
-
-
-
-
299
3,746
- borrowings from other customers
- subordinated liabilities
- other financial liabilities
61,844
15,050
-
-
61,844
15,050
100,887
100,887
-
1,619
5,410
10,113
20,830
23,872
133
-
-
-
14,917
-
-
-
-
-
Total financial liabilities
10,972,960
220,831
10,752,129
8,732,774
430,017
1,083,236
478,185
27,917
Total interest repricing gap
(5,777,399)
869,648
1,837,658
2,218,974
1,741,779
NLB Group 2018 Annual Report 304
31 Dec 2017
Financial assets
NLB Group
in EUR thousands
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
-
Financial assets held for trading
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 (IAS 39)
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 (IAS 39)
- 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 (IAS 39)
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 measured 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 2018 Annual Report 305
in EUR thousands
Non-interest
bearing
Total
Interest
bearing
Up to 1
Month
1 Month to
3 Months
3 Months
to 1 Year
1 Year to
5 Years Over 5 Years
NLB
31 Dec 2018
Financial assets
Cash, cash balances at central banks, and
other demand deposits at banks
795,102
153,315
641,787
641,787
-
-
-
-
-
11,830
Financial assets held for trading
63,611
14,914
48,697
-
26,828
10,039
Non-trading financial assets mandatorily
at fair value through profit or loss
Financial assets measured at fair value
through other comprehensive income
Financial assets measured at amortised cost
- debt securities
- loans and advances to banks
29,141
2,547
26,594
298
6,903
18,684
554
155
1,528,314
44,732
1,483,582
45,335
45,929
187,225
672,455
532,638
1,274,978
110,297
-
11
1,274,978
38,025
76,090
101,186
440,784
618,893
110,286
30,244
17,086
54,573
8,383
-
- loans and advances to customers
4,451,477
47,373
4,404,104
1,175,203
892,032
1,641,273
376,628
318,968
- other financial assets
Derivatives - hedge accounting
Fair value changes of the hedged items in
portfolio hedge of interest rate risk
42,741
42,741
417
417
2,517
2,517
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total financial assets
8,298,595
308,567
7,990,028
1,930,892
1,064,868
2,012,980
1,498,804
1,482,484
Financial liabilities
Trading liabilities
Financial liabilities measured at fair
value through profit or loss
12,256
12,256
3,981
3,981
Derivatives - hedge accounting
29,474
29,474
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
48,903
244,133
7,033,409
4,128
-
-
-
-
- other financial liabilities
62,212
62,212
-
-
-
-
-
-
48,903
48,903
-
-
-
-
-
-
-
-
-
-
-
-
244,133
85
74,431
156,870
12,747
-
-
-
-
-
7,033,409
6,422,293
210,091
327,967
70,233
2,825
4,128
-
1
-
-
-
4,088
-
32
-
7
-
Total financial liabilities
7,438,496
107,923
7,330,573
6,471,282
284,522
488,925
83,012
2,832
Total interest repricing gap
(4,540,390)
780,346
1,524,055
1,415,792
1,479,652
NLB Group 2018 Annual Report 306
31 Dec 2017
Financial assets
NLB
in EUR thousands
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
570,010
143,725
426,285
426,285
-
Financial assets held for trading
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 (IAS 39)
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 (IAS 39)
- 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 (IAS 39)
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 measured 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
Cash flows are presented by taking into
account their contractual maturity and
according to the amortization schedule.
Financial instruments without maturity
such as sight deposits and financial
instruments with expired maturity such as
non-performing loans are presented in the
first gap irrespective of their behavioural
characteristics and the bank’s expectations.
For the purpose of risk management the
banks uses different cash flows modelling
techniques.
NLB Group 2018 Annual Report 307
b) Net interest income sensitivity
analysis and an economic view of
interest rate risk in the banking book
The analysis of interest income sensitivity
for the horizon of the next 12 months
assumes sudden parallel shock down in
interest rates by 50 basis points for EUR,
USD, and CHF currencies, while for all
other significant currencies 100 basis points
sudden parallel shock down is implied.
The analysis is based on the assumption
that the positions used remain unchanged.
The assessment of the impact of a change
in interest rates of 50/100 basis points on
the amount of net interest income of the
banking book position:
NLB Group
NLB
in EUR thousands
Average
(assessment)
Minimum
(assessment)
Maximum
(assessment)
Average
(assessment)
Minimum
(assessment)
Maximum
(assessment)
9,430
473
149
3,167
6,398
12,404
8,706
7,290
11,220
379
22
2,653
546
195
3,467
301
148
28
217
22
21
374
186
35
NLB Group
NLB
in EUR thousands
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
units. The BPV method is used to assess the
change in the value of a position in case
market interest rates change given the six
prescribed parallel and non-parallel shock
scenarios.
2018
Interest income sensitivity
EUR
USD
CHF
OTHER
2017
Interest income sensitivity
EUR
USD
CHF
OTHER
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
-50/100 basis points represents a realistic
and practical scenario. The “average” value
represents the arithmetic mean of monthly
calculations, while the “maximum” and
“minimum” values represent the highest
and lowest values calculated during the
period. The calculations of sensitivity of
net interest income are implemented in
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 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
NLB Group 2018 Annual Report 308
The assessment of the impact of a change
in interest rates of 200 basis points on
the economic value of the banking book
position:
2018
Average
(assessment)
Minimum
(assessment)
Maximum
(assessment)
Average
(assessment)
Minimum
(assessment)
Maximum
(assessment)
NLB Group
NLB
in EUR thousands
Interest risk in banking book - BPV
257,758
225,435
291,727
194,646
172,179
Interest risk in banking book - BPV, as % of equity
18.00%
16.55%
20.00%
16.39%
15.10%
224,718
18.55%
in EUR thousands
2017
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%
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 sudden parallel shift of the
yield curve is by 200 basis points, which
represents a “worst case” scenario for NLB
Group. 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 takes into the
account allocation of the core part of non-
maturing deposits and 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
banking book
NLB Group’s financial instruments trading
strategy includes guidelines for the effective
management of risks associated with equity
investments. Trading with equity securities
is not permitted in subsidiaries. Only
stockbrokerage services are provided.
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 notes 5.3. and 5.4.
for 2018 and for 2017 in note 5.5.
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.
There are two types of risk:
• 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
NLB Group 2018 Annual Report 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
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;
• 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; and
• 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 fulfillment 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 regularly prepares a 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 decentralised in
NLB Group. Each NLB Group member
is responsible for its own liquidity position
and carries out the following activities:
309
• 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
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. Decentralised
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.
NLB Group 2018 Annual Report 310
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 term
deposits at banks, debt securities and
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).
The minimum and optimum amount of
liquidity reserves is determined on the basis
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 structure of liquidity reserves is shown
in the following table.
Liquid assets
Liquid assets
NLB Group
NLB
in EUR thousands
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
Cash, cash balances at central banks, and other demand deposits at banks
1,588,349
1,256,481
795,102
Time deposits at banks
Trading book securities
Banking book securities
ECB eligible loans
Total liquid assets
116,450
48,697
506,322
59,164
69,639
48,697
3,277,980
2,915,154
2,758,560
2,422,759
140,777
717,503
140,777
717,503
5,172,253
5,454,624
3,812,775
4,206,863
570,010
437,427
59,164
As at 31 December 2018, 77.5% (31
December 2017: 74.6%) of debt securities
in the banking book of NLB Group
were government securities (including
government guaranteed bonds – GGB),
and 9.7% (31 December 2017: 18.0%)
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.
The ECB-eligible credit claims comprise
loans which fulfill 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.
NLB Group 2018 Annual Report 311
in EUR thousands
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
-
-
-
-
1,275,601
-
55,641
55,641
-
-
-
-
641,787
-
47,279
47,279
59,696
64,791
3,268,990
3,302,832
59,696
64,791
2,747,561
2,781,400
b) Encumbered assets
2018
Loans on demand
Equity instruments
Debt securities
Loans and advances other than loans on demand
59,421
Other assets
Total
-
119,117
-
-
7,282,879
737,801
12,620,912
-
-
54,928
-
114,624
-
-
4,576,181
683,615
8,696,423
-
-
NLB Group
NLB
in EUR thousands
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
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
-
-
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 thousands
2018
215,033
117,661
2017
193,439
118,179
2018
199,652
23,303
2017
180,034
29,024
7,360,279
7,415,905
3,735,514
3,763,844
7,692,973
7,727,523
3,958,469
3,972,902
NLB Group 2018 Annual Report 312
d) Source of encumbrance
NLB Group
NLB
in EUR thousands
2018
2017
2018
2017
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
39,597
54,928
33,529
53,964
39,597
54,928
33,529
53,964
5,533,871
59,696
5,277,263
63,341
5,533,871
59,696
5,276,547
62,625
Other securities of encumbrance
4,296
4,493
4,570
4,799
-
-
-
-
Total
5,577,764
119,117
5,315,362
122,104
5,573,468
114,624
5,310,076
116,589
As at 31 December 2018, NLB Group and
NLB had a large share of unencumbered
assets. On the NLB Group level, the
amount of encumbered assets equalled
EUR 119.1 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 Dec 2018
Financial liabilities and credit-related commitments
NLB Group
in EUR thousands
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 measured 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
26,453
1,701
103
5
814
106
3,981
12
325
-
-
4,190
26,795
22,541
74,910
163,859
263,825
- due to customers
8,657,887
289,160
910,094
602,592
34,090
10,493,823
- borrowings from other customers
- subordinated liabilities
- other financial liabilities
673
-
87,241
2,438
11,390
25,895
-
4,263
1,076
8,997
7,594
386
26,253
10,844
66,649
19,514
-
100,887
Credit risk related commitments
526,366
169,129
479,819
227,540
191,136
1,593,990
Non-financial guarantees
23,879
37,234
129,124
196,226
65,065
451,528
Total
9,324,200
503,146
1,563,159
1,139,449
491,247
13,021,201
Total financial assets
2,593,275
519,820
1,893,782
5,054,574
3,521,023
13,582,474
NLB Group 2018 Annual Report 313
in EUR thousands
31 Dec 2017
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
Financial liabilities measured 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
31 Dec 2018
Financial liabilities and credit-related commitments
NLB
in EUR thousands
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 measured 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
48,904
85
-
-
-
-
3,981
-
-
-
3,981
48,904
814
18,488
66,920
162,890
249,197
- due to customers
6,373,622
146,121
357,259
127,540
32,594
7,037,136
- borrowings from other customers
- other financial liabilities
1
58,511
-
3,230
4,088
471
32
-
7
-
4,128
62,212
Credit risk related commitments
465,022
145,198
299,398
162,577
111,953
1,184,148
Non-financial guarantees
16,693
28,418
97,807
170,993
31,625
345,536
Total
6,962,838
323,781
777,511
532,043
339,069
8,935,242
Total financial assets
1,285,864
319,997
1,072,658
3,500,232
2,827,595
9,006,346
NLB Group 2018 Annual Report 314
31 Dec 2017
Financial liabilities and credit-related commitments
NLB
in EUR thousands
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 measured 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
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 2018 Annual Report f) An analysis of the statement of financial position by residual maturity
315
in EUR thousands
Financial assets held for trading
14,912
26,828
10,039
1,588,349
-
-
31 Dec 2018
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 measured at fair value
through other comprehensive income
Financial assets measured at amortised cost
- debt securities
- loans and advances to banks
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
-
-
-
1,588,349
11,830
6,755
63,609
32,389
664
350
1,793
22,827
225,528
74,604
236,704
778,004
583,239
1,898,079
-
16,443
97,853
-
80,873
10,051
-
-
-
-
123,364
589,389
618,893
1,428,962
10,109
662
21
118,696
- loans and advances to customers
533,437
285,692
1,331,729
3,041,040
1,932,735
7,124,633
- other financial assets
Derivatives - hedge accounting
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 measured 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
72,238
417
-
-
-
-
-
-
294
-
156
2,777
-
-
-
-
-
-
-
-
-
-
-
4,349
-
-
-
-
583
-
5,598
1,525
33,488
-
-
294
-
19,290
43,262
11,801
-
-
22,668
30,208
-
-
2,223
-
75,171
417
2,517
4,349
158,114
177,404
15,382
23,167
37,147
-
179
152
58,644
34,968
37,147
877
22,847
70,971
2,555,733
480,079
1,754,935
4,559,445
3,389,837
12,740,029
12,300
-
29,474
-
26,450
1,670
-
103
-
-
-
-
106
-
-
-
-
3,981
-
-
325
-
-
-
-
-
12,300
4,190
29,474
-
26,775
743
21,444
71,453
163,113
258,423
- due to customers
8,656,216
286,558
900,073
587,656
33,514
10,464,017
- borrowings from other customers
- 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
604
-
87,241
2,021
1,047
-
6,642
2,249
10,731
23,692
-
4,263
462
337
-
459
133
8,997
29,885
10,768
-
3,125
5,000
386
24,568
9,917
61,844
15,050
-
100,887
45,268
2,498
-
2,200
4,614
-
299
-
80,134
12,152
2,499
14,840
8,823,665
295,174
985,262
744,575
233,909
11,082,585
526,367
23,879
169,129
37,234
479,819
129,124
227,540
196,226
191,135
1,593,990
65,065
451,528
Total liabilities and credit-related commitments
9,373,911
501,537
1,594,205
1,168,341
490,109
13,128,103
NLB Group 2018 Annual Report 316
31 Dec 2017
Cash, cash balances at central banks, and
other demand deposits at banks
NLB Group
in EUR thousands
Up to 1 Month
1 Month to
3 Months
3 Months
to 1 Year 1 Year to 5 Years
Over 5 Years
Total
Financial assets held for trading
13,025
55,060
Financial assets designated at fair value through profit or loss
-
102
1,256,481
-
-
5
-
-
2,438
-
-
1,256,481
1,661
4,901
72,189
5,003
Available-for-sale financial assets (IAS 39)
209,496
122,418
471,898
804,389
668,292
2,276,493
Derivatives - hedge accounting
Loans and advances (IAS 39)
- 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 (IAS 39)
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 measured 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 2018 Annual Report 317
in EUR thousands
Up to 1 Month
1 Month to
3 Months
3 Months
to 1 Year 1 Year to 5 Years
Over 5 Years
Total
NLB
-
-
-
795,102
11,830
2,722
63,611
29,141
297
37
1,749
24,336
45,335
45,929
187,225
672,455
577,370
1,528,314
14,909
26,269
76,089
17,087
101,470
463,617
618,893
1,274,978
32,025
10,999
23,917
110,297
Financial assets held for trading
14,914
26,828
10,039
795,102
-
-
31 Dec 2018
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 measured at fair value
through other comprehensive income
Financial assets measured at amortised cost
- debt securities
- loans and advances to banks
- loans and advances to customers
354,219
135,063
649,426
1,957,856
1,354,913
4,451,477
- other financial assets
Derivatives - hedge accounting
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
Other assets
Total assets
Trading liabilities
Financial liabilities measured 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
41,478
417
-
-
-
-
-
-
-
4,444
152
1,111
-
-
-
-
-
-
-
-
-
-
-
1,720
-
-
-
-
-
6,193
-
-
294
-
13,977
12,026
10,851
30,576
22,234
-
-
-
2,223
-
72,957
-
12,540
42,741
417
2,517
1,720
86,934
12,026
23,391
324,934
355,510
-
-
22,234
10,637
1,297,384
301,185
990,958
3,219,221
3,002,299
8,811,047
12,256
-
29,474
48,903
85
-
-
-
-
-
-
-
-
-
3,981
-
-
-
-
-
-
12,256
3,981
29,474
48,903
743
17,511
63,636
162,158
244,133
- due to customers
6,373,382
145,793
356,270
125,847
32,117
7,033,409
- borrowings from other customers
- other financial liabilities
Provisions
Current income tax liabilities
Other liabilities
Total liabilities
Credit risk related commitments
Non-financial guarantees
1
58,511
640
230
3,796
-
3,230
360
-
159
4,088
471
19,832
10,554
1,068
32
-
36,162
-
4,520
7
-
-
-
-
4,128
62,212
56,994
10,784
9,543
6,527,278
150,285
409,794
234,178
194,282
7,515,817
465,022
16,693
145,198
28,418
299,398
97,807
162,577
170,993
111,953
1,184,148
31,625
345,536
Total liabilities and credit-related commitments
7,008,993
323,901
806,999
567,748
337,860
9,045,501
NLB Group 2018 Annual Report 318
31 Dec 2017
Cash, cash balances at central banks, and
other demand deposits at banks
Financial assets held for trading
13,016
55,060
Financial assets designated at fair value through profit or loss
Available-for-sale financial assets (IAS 39)
Derivatives - hedge accounting
Loans and advances (IAS 39)
- debt securities
-
18,190
1,188
-
NLB
in EUR thousands
Up to 1 Month
1 Month to
3 Months
3 Months
to 1 Year 1 Year to 5 Years
Over 5 Years
Total
570,010
-
-
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
- 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 (IAS 39)
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 measured 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 2018 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.
319
31 Dec 2018
Foreign exchange derivatives
- Forwards
- Outflow
- Inflow
- Swaps
- Outflow
- Inflow
Interest rate derivatives
- Interest rate swaps and cross-currency swaps
- Outflow
- Inflow
Total outflow
Total inflow
31 Dec 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
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 thousands
(39,633)
(16,404)
(15,567)
39,670
16,422
15,589
(23,400)
(21,077)
23,258
21,141
(3,754)
3,754
(3,396)
3,399
(60,135)
60,244
-
-
-
-
(75,000)
75,080
(108,366)
108,397
(1,059)
(2,608)
(11,474)
(45,680)
(32,056)
(92,877)
116
1,325
6,125
24,231
35,234
67,031
(64,092)
(40,089)
(30,795)
(109,211)
(32,056)
(276,243)
63,044
38,888
25,468
87,874
35,234
250,508
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 thousands
(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
NLB Group 2018 Annual Report 320
31 Dec 2018
Foreign exchange derivatives
- Forwards
- Outflow
- Inflow
- Swaps
- Outflow
- Inflow
Interest rate derivatives
- Interest rate swaps and cross-currency swaps
- Outflow
- Inflow
Total outflow
Total inflow
31 Dec 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
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 thousands
(39,124)
(16,378)
(15,567)
39,160
16,395
15,589
(23,545)
(14,020)
23,409
14,150
(3,754)
3,754
(3,396)
3,399
(60,135)
60,244
-
-
-
-
(74,465)
74,543
(101,454)
101,557
(1,059)
(2,608)
(11,474)
(45,680)
(32,056)
(92,877)
116
1,325
6,125
24,231
35,234
67,031
(63,728)
(33,006)
(30,795)
(109,211)
(32,056)
(268,796)
62,685
31,870
25,468
87,874
35,234
243,131
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 thousands
(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
NLB Group 2018 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. The
risk is also gradually decreasing due to
the reduced complexity of operations
in the NLB Group, with disinvestment
process of non-core activities. The NLB
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. This is particularly valid
in strategic banking members.
All NLB Group banking members 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 or mitigation of the same
or similar loss events. The critical limit of
loss events is also defined, which in case of
exceeding requires an assessment of the
possible increase in the capital requirement
for operational risk within ICAAP and
other possible risk management measures.
In addition, the bank does not allow certain
risks in its business – for them a so-called
zero tolerance was defined. For monitoring
some specific more important key risk
indicators, that could show a possible
increase of an operational risk, the Bank
developed an early warning system. In
order to monitor certain important risks
that could indicate an increased operational
risk as an early warning indicator, the Bank
developed a specific methodology. Such
risks are periodically monitored in different
business areas, and the results are discussed
at the Operational Risk Committee. The
latter was named as the highest authority in
the area of operational risk management.
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 including their mitigation within an
individual entity. All NLB Group entities,
which are included in the consolidation,
have adopted relevant documents that are
in line with NLB standards. In banking
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 2018 were
approximately at the same level as 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,
their mitigation measures and defining
operational risks in all segments. To treat
major loss events appropriately and as
soon as possible, the Bank 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
321
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.
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 Business Continuity
Management System. The basis for
modernising the business continuity plans
is the regular annual Business Impact
Analysis (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 2018, 41 tests were carried out at
NLB (34 internal ones and 7 with external
business partners). No major deviations
were discovered.
In NLB Group, know-how and
methodologies are transferred to the
members (except non-core members
which are in the process of liquidation).
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 2018, NLB thus
NLB Group 2018 Annual Report 322
carried out a training course for members
and alternative members of the Crisis
Management Team, the Crisis Teams of
office buildings, and participants of annul
BIA.
Upon IT disasters/failures and “not IT”
disasters (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.
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 have or might have an
important influence on the risk profile
of NLB Group, are regularly assessed,
monitored, and managed. In addtion
they are integrated into internal capital
adequacy assessment process (ICAAP).
NLB Group established internal
methodologies for identifying and assessing
specific types of risk, referring to the
Group’s business model or arising from
other external circumstances. If a certain
risk is assessed as a materially important
risk, relevant disposable preventive and
mitigation measures are applied, including
regular monitoring of their effectiveness.
On this basis internal capital requirements,
as a part of ICAAP process, are also
considered.
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
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).
NLB Group 2018 Annual Report a) Financial and non-financial assets and liabilities measured at fair value in the financial statements
323
in EUR thousands
31 Dec 2018
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
48,697
14,583
Debt instruments
Derivatives
Derivatives - hedge accounting
Financial assets measured at fair value
through other comprehensive income
Debt instruments
Equity instruments
Non-trading financial assets mandatorily
at fair value through profit and loss
Debt instruments
Equity instruments
Loans
Financial liabilities
Financial instruments held for trading
Derivatives
Derivatives - hedge accounting
Financial liabilities measured 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
48,697
-
-
-
14,583
417
329
-
329
-
63,609
48,697
14,585
48,697
48,697
-
14,912
417
-
-
14,585
417
329
-
329
-
63,611
48,697
14,914
417
1,638,822
255,297
3,960
1,898,079
1,475,633
52,433
248
1,528,314
1,638,660
210,358
-
1,849,018
1,475,633
7,949
-
1,483,582
162
44,939
3,960
49,061
-
44,484
248
44,732
6,666
2,009
4,657
-
-
-
-
-
-
-
-
-
-
-
-
-
25,723
32,389
-
1,923
2,009
6,580
23,800
23,800
12,300
12,300
29,474
-
-
-
12,300
12,300
29,474
-
4,190
4,190
58,644
4,349
6,025
-
-
-
-
-
58,644
4,349
6,025
-
624
-
624
-
-
-
-
-
-
-
-
-
-
-
-
-
28,517
29,141
-
-
1,923
2,547
26,594
26,594
12,256
12,256
29,474
-
-
-
12,256
12,256
29,474
-
3,981
3,981
12,026
1,720
-
312
-
-
-
12,026
1,720
-
1,029
1,341
NLB Group 2018 Annual Report
324
31 Dec 2017
Financial assets
NLB Group
NLB
in EUR thousands
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
571
72,189
59,164
12,445
571
72,180
Debt instruments
Equity 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
13,025
-
-
-
-
1,188
5,003
102
4,901
-
-
12,445
1,188
-
-
-
-
-
59,164
-
571
13,016
-
-
-
-
1,188
634
-
634
-
-
-
634
-
634
59,164
59,164
Available-for-sale financial assets (IAS 39)
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 measured 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
1,914,963
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 2018 Annual Report 325
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
Debt securities
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
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 2018 and 2017, 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;
• derivatives: derivatives except forward
derivatives and options on equity
instruments that are not quoted on
active markets; and
the National Resolution Fund.
•
When valuing bonds classified on Level
2, NLB Group primarily uses the income
approach based on an estimation of future
cash flows discounted to the present value.
The input parameters used in the income
approach are the risk-free yield curve and
the spread over the yield curve (credit,
liquidity, country).
Fair values for derivatives are determined
using a discounted cash flow model
based on the risk-free yield curve. Fair
values for options are determined using
valuation models for options (Garman and
Kohlhagen model, binomial model, and
Black-Scholes model).
NLB Group 2018 Annual Report 326
At least three valuation methods are used
for the valuation of investment property.
The majority of investment property is
valued using the income approach where
the present value of future expected returns
is assessed. When valuing an investment
property, average rents at similar locations
and capitalisation ratios such as: the
risk-free yield, risk premium, liquidity
premium, risk premium to account for
the management of the investment, and
the risk premium to account for capital
preservation are used. Rents at similar
locations are generated from various
sources, like data from lessors and lessees,
web databases, and own databases.
NLB Group has observable data for all
investment property at its disposal. If
observable data for similar locations are
not available, NLB Group uses data from
wider locations and appropriately adjusts
such data.
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:
• equities: mainly Slovenian corporate
and financial equities that are not
quoted on active markets;
• derivative financial instruments: forward
derivatives and options on equity
instruments that are not quoted on an
active organised market. Fair values
for forward derivatives are determined
using the discounted cash flow model.
Fair values for equity options are
determined using valuation models
for options (Garman and Kohlhagen
model, binomial model, and Black-
Scholes model). Unobservable inputs
include the fair values of underlying
instruments determined using valuation
models. The source of observable
market inputs is the Reuters information
system; and
loans measured at fair value, which
according to IFRS 9 do not pass SPPI
test. Fair value is calculated on the basis
of the discounted expected future cash
flows with the required rate of return.
In defining the expected cash flows
for non-performing loans the value of
collateral and other pay off estimates
can be used.
•
NLB Group uses three valuation methods
for the valuation of equity financial assets
mentioned in first bullet: the income,
market, and cost approaches.
The most commonly used valuation
technique is the income approach, which
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 includes 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.
NLB Group 2018 Annual Report Movements of financial assets and liabilities at Level 3
Financial
instruments held
for trading
Available-for-
sale financial
assets (IAS 39)
Financial assets
measured
at fair value
through OCI
Non-trading financial assets
mandatorily at fair value
through profit or loss
327
in EUR thousands
Financial
liabilities
measured at fair
value through
profit or loss
NLB Group
Balance as at 1 January 2017
Exchange differences
Valuation:
- through profit or loss
- recognised in other comprehensive income
Decreases
Balance as at 31 December 2017
Transition to IFRS 9
Exchange differences
Valuation:
- through profit or loss
- recognised in other comprehensive income
Increases
Decreases
Balance as at 31 December 2018
Derivatives
Equity
instruments
Equity
instruments
Equity
instruments
Loans and other
financial assets
Total financial
assets
Loans and other
financial assets
405
-
166
-
-
571
-
-
(242)
-
-
-
329
5,903
(271)
(26)
235
(410)
5,431
(5,431)
-
-
-
-
-
-
-
-
-
-
-
-
3,853
127
-
(7)
-
(13)
3,960
-
-
-
-
-
-
-
-
-
-
-
-
6,308
(271)
140
235
(410)
6,002
1,578
24,649
24,649
-
-
127
345
2,749
2,852
(7)
26,399
26,399
(29,997)
(30,010)
-
-
-
-
-
-
-
-
-
5,180
20
(1,010)
-
-
-
1,923
23,800
30,012
4,190
Financial
instruments held
for trading
Available-for-
sale financial
assets (IAS 39)
Financial assets
measured
at fair value
through OCI
Non-trading financial assets
mandatorily at fair value
through profit or loss
in EUR thousands
Financial
liabilities
measured at fair
value through
profit or loss
NLB
Derivatives
Equity
instruments
Equity
instruments
Equity
instruments
Loans and other
financial assets
Total financial
assets
Loans and other
financial assets
Balance as at 1 January 2017
405
1,810
Valuation:
- through profit or loss
- recognised in other comprehensive income
Decreases
Balance as at 31 December 2017
Transition to IFRS 9
Exchange differences
Valuation:
- through profit or loss
- recognised in other comprehensive income
Increases
Decreases
Balance as at 31 December 2018
166
-
-
571
-
-
(242)
-
-
-
329
(26)
241
(172)
1,853
(1,853)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,215
140
241
(172)
2,424
275
1,578
30,055
30,055
-
4,272
(24)
4,169
-
26,161
26,161
(33,791)
(33,794)
345
-
-
-
-
(24)
-
(3)
248
-
-
-
-
-
4,531
20
(570)
-
-
-
1,923
26,594
29,094
3,981
NLB Group 2018 Annual Report 328
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.’
In 2017, effects from the valuation of
available-for-sale financial assets were
recognised in the income statement item
‘Impairment of financial assets’ and in the
accumulated other comprehensive income
item ‘Available-for-Sale Financial Assets.’ In
2018, effects from the valuation of FV OCI
were recognised in the accumulated other
comprehensive income item ‘Financial
assets measured at FV OCI’.
In 2018, NLB Group and NLB recognised
the following unrealised gains or losses for
financial instruments that were at Level 3 as
at 31 December 2018:
NLB Group
NLB
in EUR thousands
Financial assets
measured
at fair value
through other
comprehensive
income
Non-trading
financial assets
mandatorily
at fair value
through profit
or loss
Financial assets,
held for trading
Financial assets
measured
at fair value
through other
comprehensive
income
Non-trading
financial assets
mandatorily
at fair value
through profit
or loss
Financial assets,
held for trading
31 Dec 2018
Items of Income statement
Gains/(losses) from financial assets and liabilities held for trading
(242)
Gains/(losses) from non-trading financial assets
mandatorily at fair value through profit or loss
Item of Other comprehensive income
Financial assets measured at fair value through
other comprehensive income
-
-
-
-
4,104
-
(242)
(7)
-
-
-
-
-
-
5,084
(24)
-
in EUR thousands
31 Dec 2017
Items of Income statement
NLB Group
NLB
Trading assets
Available-for-sale
financial assets
(IAS 39)
Trading assets
Available-for-sale
financial assets
(IAS 39)
Gains/(losses) from financial assets and liabilities held for trading
166
-
166
-
Item of Other comprehensive income
Available-for-sale financial assets (IAS 39)
-
337
-
334
NLB Group 2018 Annual Report e) Fair value of financial instruments not measured at fair value in financial statements
329
in EUR thousands
NLB Group
NLB
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
Carrying value
Fair value Carrying value
Fair value Carrying value
Fair value Carrying value
Fair value
Financial assets measured at amortised cost
- debt securities
1,428,962
1,471,050
- loans and advances to banks
118,696
118,973
- loans and advances to customers
7,124,633
7,186,301
- other financial assets
75,171
75,171
-
-
-
-
-
-
-
-
1,274,978
1,313,913
110,297
123,377
4,451,477
4,472,075
42,741
42,741
-
-
-
-
-
-
-
-
Loans and advances (IAS 39)
- debt securities
- loans and advances to banks
- loans and advances to customers
- other financial assets
Held-to-maturity investments (IAS 39)
Financial liabilities measured at amortised cost
-
-
-
-
-
-
-
-
-
-
82,133
79,974
510,107
523,943
6,912,067
6,494,021
66,077
66,077
609,712
658,029
-
-
-
-
-
-
-
-
-
-
82,133
79,974
462,322
468,599
4,587,477
4,584,217
38,389
38,389
609,712
658,029
- deposits from banks and central banks
26,775
26,754
40,602
40,608
48,903
48,901
72,072
72,072
- borrowings from banks and central banks
258,423
268,003
279,616
287,165
244,133
253,376
260,747
267,866
- due to customers
10,464,017
10,478,309
9,878,378
9,892,052
7,033,409
7,039,583
6,810,967
6,817,618
- borrowings from other customers
61,844
62,226
74,286
74,677
4,128
4,135
5,726
5,728
- subordinated liabilities
15,050
15,209
27,350
26,923
-
-
-
-
- other financial liabilities
100,887
100,887
111,019
111,019
62,212
62,212
71,534
71,534
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 (IAS 39)
The fair value of held-to-maturity financial
assets 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 2018 Annual Report 330
Fair value hierarchy of financial instruments not measured at fair value in financial statements
NLB Group
NLB
in EUR thousands
31 Dec 2018
Level 1
Level 2
Level 3
Total fair
value
Level 1
Level 2
Level 3
Total fair
value
Financial assets measured at amortised cost
- debt securities
1,392,741
78,309
- loans and advances to banks
- loans and advances to customers
- other financial assets
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
-
-
-
-
-
-
-
-
-
118,973
7,186,301
75,171
26,754
268,003
10,478,309
62,226
15,209
100,887
-
-
-
-
-
-
-
-
-
-
1,471,050
1,235,604
78,309
118,973
7,186,301
75,171
26,754
268,003
10,478,309
62,226
15,209
100,887
-
-
-
-
-
-
-
-
-
123,377
4,472,075
42,741
48,901
253,376
7,039,583
4,135
-
62,212
NLB Group
NLB
-
-
-
-
-
-
-
-
-
-
1,313,913
123,377
4,472,075
42,741
48,901
253,376
7,039,583
4,135
-
62,212
in EUR thousands
Level 1
Level 2
Level 3
Total fair
value
31 Dec 2017
Level 1
Level 2
Level 3
Loans and advances (IAS 39)
- 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 (IAS 39)
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
-
-
-
-
-
-
-
-
-
-
-
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
-
-
-
-
-
-
-
-
-
-
-
79,974
468,599
4,584,217
38,389
658,029
72,072
267,866
6,817,618
5,728
-
71,534
6.6. Offsetting financial assets and
financial liabilities
NLB Group has entered into foreign
exchange netting arrangements with banks
with which concludes the majority of
foreign exchange transactions, which are
settled through correspondent banking.
Cash flows from all FX derivatives with
those banks, that are due on the same day,
are settled on a net basis, i.e. a single cash
flow for each currency. The same method
of settlement is applied to settlement of
foreign exchange transactions with all
corporates on the basis of concluded
master agreements. The settlement of all
interest rates derivatives is also carried out
by netting of both legs of transactions.
Assets and liabilities related to these 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 requirements of the
EMIR regulation, all derivatives (currency
and interest rate) are done under the
conditions of signed Master Agreements
(MA), with international banks ISDA MA is
in place along with CSA and for corporates
NLB Group 2018 Annual Report 331
domestic MA is in place, which enable daily
evaluation and exchange of margining.
In accordance with the EMIR
regulation, NLB Group also novated
certain standardised derivative financial
instruments (for the bank those are
interest rate swaps, the requirement also
applies to certain credit default swaps) 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 Dec 2018
Amounts not set-off on the statement of financial position
Financial assets/liabilities
Derivatives - assets
Derivatives - liabilities
Gross amounts of
recognised financial
assets/liabilities
15,002
41,730
Impact of master
netting agreements
Financial instruments
collateral
2,111
2,111
1,027
35,898
NLB Group and NLB
31 Dec 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
in EUR thousands
Net amount
11,864
3,721
in EUR thousands
Net amount
8,457
685
NLB Group and NLB have no financial
assets/liabilities set off in the statement of
financial position.
NLB Group 2018 Annual Report 332
7. Analysis by segment for NLB Group
a) Segments
2018
Total net income
NLB Group
in EUR thousands
Corporate
banking in
Slovenia
Retail
banking in
Slovenia
Financial
markets in
Slovenia
Foreign
strategic
markets
Non-core
markets and
activities
Other
activities Unallocated
Total
76,663
146,429
38,829
213,979
14,515
Net income from external customers
80,264
147,981
30,779
214,934
14,510
Intersegment net income
(3,602)
(1,552)
8,051
(955)
Net interest income
42,535
79,325
31,686
150,113
Net interest income from external customers
46,137
81,235
23,892
151,850
Intersegment net interest income
(3,602)
(1,910)
7,794
(1,737)
4
9,334
9,927
(593)
4,849
4,801
48
(83)
(131)
48
Administrative expenses
(38,963)
(96,960)
(11,487)
(90,863)
(16,794)
(8,358)
Depreciation and amortisation
(3,996)
(10,350)
(1,098)
(9,098)
(1,423)
(1,260)
Reportable segment profit/(loss) before
impairment and provision charge
Other net gains/(losses) from equity investments
in subsidiaries, associates, and joint ventures
33,703
39,119
26,244
114,018
(3,703)
(4,769)
-
5,446
-
-
-
-
Impairment and provisions charge
26,648
(3,692)
241
(14,286)
11,938
2,428
Profit/(loss) before income tax
60,351
40,874
26,485
99,732
60,351
40,874
26,485
91,802
8,236
8,236
(2,341)
(2,341)
Owners of the parent
Non-controlling interests
Income tax
Profit for the year
-
-
-
-
-
-
-
-
-
7,930
-
-
-
-
-
-
-
-
Reportable segment assets
1,975,803
2,347,174
3,634,975
4,293,207
263,690
188,033
Investments in associates, and joint ventures
-
37,147
-
-
-
-
Reportable segment liabilities
1,157,405
5,821,282
391,145
3,596,397
18,334
98,023
Additions to non-current assets
4,061
11,138
673
8,928
161
2,069
495,263
493,269
1,994
312,910
312,910
-
(263,426)
(27,224)
204,613
5,446
23,277
233,336
225,406
7,930
-
-
-
-
-
-
-
-
-
-
-
-
-
(21,759)
(21,759)
-
-
-
-
-
203,647
12,702,882
37,147
11,082,585
27,031
NLB Group 2018 Annual Report 333
in EUR thousands
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
2017
Total net income
73,919
140,558
39,804
191,655
39,976
Net income from external customers
78,301
140,898
31,039
193,264
39,789
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
39,793
27,391
94,452
18,249
(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)
-
4,782
-
(55)
-
-
-
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
-
-
-
-
-
-
-
-
-
-
-
-
-
490,219
487,708
2,511
309,316
309,316
-
(259,418)
(27,802)
202,999
4,782
29,530
237,311
229,066
8,245
(3,997)
(3,997)
-
-
-
-
-
225,069
12,193,980
43,765
10,549,582
30,609
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 fund transfer rates (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-core 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 d.o.o., Ljubljana – v
likvidaciji, Prospera plus d.o.o. Ljubljana
– v likvidaciji) and the non-core part of
the portfolio of NLB; and
• Other activities represent 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
NLB Group 2018 Annual Report 334
main indicator of a segment’s efficiency is
net profit before tax.
There was no income from transactions
with a single external customer that
amounted to 10% or more of NLB Group’s
income.
b) Geographical information
Geographical analysis includes a
breakdown of items with respect to the
country in which individual NLB Group
entities are located.
Revenues
Net income
Profit/(loss) before
income tax
Income tax
in EUR thousands
NLB Group
Slovenia
2018
2017
2018
2017
2018
2017
2018
327,594
328,111
284,157
289,892
136,206
121,015
(12,823)
2017
5,008
South East Europe
249,344
243,213
208,551
195,934
96,166
112,403
(8,930)
(8,999)
Macedonia
Serbia
Montenegro
Croatia
82,710
86,397
69,410
66,214
36,332
46,261
(3,879)
(4,756)
29,307
25,401
24,323
23,784
30,114
28,629
24,855
21,900
-
137
1,115
337
4,368
9,729
1,148
5,180
4,766
(1,208)
(219)
406
(143)
(59)
386
-
Bosnia and Herzegovina
68,751
67,908
56,476
54,578
27,832
41,796
(3,118)
(3,103)
Kosovo
Western Europe
Germany
Switzerland
Czech Republic
Total
38,462
34,741
32,372
29,121
16,757
15,608
(1,977)
(1,467)
596
8
588
-
494
8
486
2
561
(122)
683
-
(159)
96
(255)
2,041
994
779
215
(30)
2,018
3,915
(1,897)
1,875
(6)
-
(6)
-
(6)
-
(6)
-
577,534
571,820
493,269
487,708
233,336
237,311
(21,759)
(3,997)
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
Slovenia
South East Europe
Macedonia
Serbia
Montenegro
Croatia
Bosnia and Herzegovina
Kosovo
Western Europe
Germany
Switzerland
Czech Republic
Total
Non-current assets
Total assets
Number of employees
in EUR thousands
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
31 Dec 2018
31 Dec 2017
179,526
189,928
8,373,933
8,293,381
128,416
128,768
4,346,277
3,913,015
2,786
3,096
2,922
3,102
31,537
24,086
28,811
2,827
28,240
12,915
221
209
12
-
32,320
1,341,154
1,235,163
24,394
29,686
1,923
511,119
406,959
518,083
466,155
23,945
29,312
26,876
1,282,643
1,190,435
13,569
669,333
584,991
236
218
18
-
19,641
1,335
18,306
178
31,140
1,876
29,264
209
893
471
308
9
939
476
5
1
4
-
901
447
319
12
942
481
5
1
4
-
308,163
318,932
12,740,029
12,237,745
5,887
6,029
NLB Group 2018 Annual Report 335
The table below presents data on NLB
Group members before intercompany
eliminations and consolidation journals.
Slovenia
South East Europe
Macedonia
Serbia
Montenegro
Croatia
Revenues
Net income
Profit/(loss) before
income tax
Income tax
in EUR thousands
2018
2017
2018
2017
2018
2017
2018
388,060
398,851
341,840
353,327
186,366
191,115
(13,201)
2017
3,167
249,748
243,566
212,235
179,911
100,806
98,698
(8,815)
(8,005)
82,692
86,447
73,592
65,520
41,283
46,079
(3,879)
(4,756)
29,520
25,570
25,005
23,523
30,264
28,680
24,561
30
192
786
7,633
(50)
3,844
9,729
1,309
5,076
(8,693)
(1,205)
(104)
406
(143)
935
386
-
Bosnia and Herzegovina
68,780
67,936
55,885
54,203
27,828
41,777
(3,118)
(3,103)
Kosovo
Western Europe
Germany
Switzerland
Czech Republic
Total
38,462
34,741
32,406
29,082
16,813
15,664
(1,977)
(1,467)
634
4
630
-
650
9
641
1
202
(126)
328
-
(569)
87
(656)
294
996
780
216
(30)
2,151
3,916
(1,765)
189
(6)
-
(6)
-
(6)
-
(6)
-
638,442
643,068
554,277
532,963
288,138
292,153
(22,022)
(4,844)
NLB Group 2018 Annual Report 336
NLB Group 2018 Annual Report
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; major shareholder of NLB with
significant influence, 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:
Related-party transactions with
Management Board and other key
management personnel, their family
members and companies these
related parties have control, joint
control, or significant influence
Management Board and
other Key management
personnel
Family members of
the Management
Board and other key
management personnel
in EUR thousands
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
2018
2017
2018
2017
2018
2017
2018
2017
2,021
946
2,110
1,180
413
221
492
245
242
441
371
385
(1,064)
(1,269)
(287)
(324)
(452)
(514)
1,903
2,021
34
36
1,981
1,868
2,079
2,653
(2,117)
(2,751)
1,732
1,981
(4)
2,552
221
9
5
(3)
(9)
2,408
224
11
-
(5)
347
8
769
656
(978)
447
(1)
-
83
6
-
(1)
413
8
697
692
(620)
769
(3)
-
76
4
-
-
231
4
593
648
(1,139)
102
-
6
59
10
-
(58)
242
7
480
504
(391)
593
-
7
116
10
-
(77)
435
53
(75)
413
10
240
769
(668)
341
-
-
26
2
-
-
-
500
(65)
435
10
130
660
(550)
240
-
-
31
2
-
-
NLB Group and NLB
Loans issued
Balance as at 1 January
Increase
Decrease
Balance as at 31 December
Interest income
Deposits received
Balance as at 1 January
Increase
Decrease
Balance as at 31 December
Interest expense
Other financial liabilities
Guarantees issued and credit commitments
Fee income
Other income
Other expenses
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
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.
337
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.
in EUR thousands
NLB Group and NLB
Short-term benefits
Cost refunds
Long-term bonuses:
- severance pay
- other benefits
- variable part of payments
Total
Management Board
Other key management personnel
Supervisory Board
2018
661
5
-
6
143
815
2017
633
5
-
6
63
707
2018
4,734
88
4
73
1,352
6,251
2017
4,686
105
25
73
673
2018
251
57
-
-
-
2017
237
50
-
-
-
5,562
308
287
The reimbursement of cost comprises food
allowances and travel expenses.
Short-term benefits include:
• monetary benefits (gross salaries,
supplementary insurance, holiday
allowances, other bonuses); and
• non-monetary benefits (company cars,
health care, apartments, etc.).
NLB Group 2018 Annual Report 338
NLB Group 2018 Annual Report
Payments to individual members of the Management Board
Member
Blaž Brodnjak
01.12.2012
Andreas Burkhardt
18.09.2013
Archibald Kremser
31.07.2013
László Pelle
26.10.2016
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
2018
146,805
1,988
1,126
1,409
40,773
192,101
146,805
20,080
1,163
1,409
40,773
210,230
146,805
19,556
1,052
1,409
40,773
209,595
146,805
32,283
1,206
1,409
20,886
202,589
in EUR
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
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
Sergeja Slapničar
12.6.2013 - 20.3.2017
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
Session fees
Annual compensation
Costs refunds
339
in EUR
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
1,430
6,117
345
2018
4,565
27,750
11,702
5,445
37,500
9,858
4,345
22,500
6,931
5,005
22,500
10,936
5,225
26,250
16,206
4,565
22,500
1,487
4,345
22,500
-
5,665
30,000
266
-
-
-
-
-
-
-
-
-
-
-
-
NLB Group 2018 Annual Report 340
Related-party transactions with subsidiaries, associates, and joint ventures
Loans issued
Balance as at 1 January
Increase
Decrease
Balance as at 31 December
Interest income
Impairment
Deposits received
Balance as at 1 January
Exchange difference on opening balance
Increase
Decrease
Balance as at 31 December
Interest expense
Other financial assets
Impairment
Other financial liabilities
Interest expense
Guarantees issued and credit commitments
Fee income
Fee expense
Other income
Other expense
Gains less losses on derecognition of financial assets/liabilities held for trading
NLB Group
in EUR thousands
Associates
Joint ventures
2018
2017
2018
2017
1,296
120
(240)
1,176
38
20
4,958
-
14,750
(18,986)
722
-
22
-
1,418
134
(256)
1,296
42
22
5,838
-
3,030
(3,910)
4,958
-
27
-
1,131
1,109
-
35
107
-
38
140
(12,496)
(11,547)
196
(853)
(1)
224
(1,004)
-
4,333
58
(1,410)
2,981
40
99
6,856
5
19,857
210
(15,734)
4,333
59
1,767
5,198
31
90,948
139,077
(93,385)
(137,450)
4,424
6,856
(34)
347
-
231
-
26
4,325
(2,020)
132
(26)
-
(19)
347
(1)
103
(43)
29
4,155
(1,894)
132
(13)
-
NLB Group 2018 Annual Report 341
in EUR thousands
NLB
Subsidiaries
Associates
Joint ventures
2018
2017
2018
2017
2018
2017
1,418
134
(256)
1,296
42
22
-
-
-
-
-
5,838
3,030
(3,910)
4,958
-
27
-
Loans issued
Balance as at 1 January
Increase
Decrease
Balance as at 31 December
Interest income
Impairment
Deposits
Balance as at 1 January
Increase
Decrease
Balance as at 31 December
Interest income
Deposits received
Balance as at 1 January
Increase
Decrease
278,064
320,724
63,853
250,537
(154,173)
(293,197)
187,744
278,064
4,453
798
6,369
17,697
36,470
28,431
358,462
451,462
(338,148)
(443,423)
56,784
36,470
27
30
1,296
120
(240)
1,176
38
20
-
-
-
-
-
56,129
54,556
14,565,179
12,988,335
4,958
14,750
(14,580,995)
(12,986,762)
(18,986)
Balance as at 31 December
40,313
56,129
Interest expense
Other financial assets
Impairment
Other financial liabilities
Interest expense
(207)
745
-
86
-
(88)
730
-
61
-
Guarantees issued and credit commitments
25,413
25,718
Income/(expense) provisons for guaranties and commitments
Received loan commitments and financial guarantees
Fee income
Fee expense
Other income
Other expense
Gains less losses on derecognition of financial
assets/liabilities held for trading
(29)
4,811
5,746
(33)
587
(799)
-
(322)
1,000
5,723
(45)
525
(1,298)
-
722
-
22
-
1,078
1,008
-
35
-
-
107
-
38
-
-
140
(11,029)
(10,178)
196
(538)
(1)
224
(754)
-
4,272
53
(1,385)
2,940
38
99
-
-
-
-
-
19,822
140
(15,690)
4,272
57
1,767
-
-
-
-
-
4,855
80,802
4,443
75,571
(83,069)
(75,159)
2,588
4,855
-
347
-
140
-
26
-
-
4,203
(906)
131
(26)
-
(3)
347
(1)
25
(43)
28
-
-
4,041
(983)
132
(13)
-
NLB Group 2018 Annual Report
342
Related-party transactions with major
shareholder with significant influence
The volumes of related party transactions
with major shareholder are as follows:
Loans issued
Balance as at 1 January
Increase
Decrease
Balance as at 31 December
Interest income
Deposits received
Balance as at 1 January
Increase
Decrease
Balance as at 31 December
Interest expense
Investments in securities
Balance as at 1 January
NLB Group
NLB
Shareholder*
Shareholder*
in EUR thousands
2018
2017
2018
2017
127,781
16,862
(65,487)
79,156
2,579
-
-
-
-
-
178,589
5,531
(56,339)
127,781
4,137
70,005
5
(70,010)
-
(5)
123,659
16,778
(64,063)
76,374
2,495
-
-
-
-
-
173,160
5,416
(54,917)
123,659
4,022
70,005
5
(70,010)
-
(5)
901,511
934,336
826,362
869,941
Exchange difference on opening balance
-
1
-
-
Increase
Decrease
Valuation
Balance as at 31 December
Interest income
Other financial assets
Other financial liabilities
Guarantees issued and credit commitments
Fee income
Fee expense
Other income
Other expense
Gains less losses on derecognition of financial assets/liabilities not classified at FVPL
Gains less losses on derecognition of financial assets/liabilities held for trading
543,501
768,063
451,642
692,835
(532,384)
(803,950)
(417,190)
(739,302)
(4,365)
908,263
18,276
648
7
1,153
657
(37)
184
(203)
366
(334)
3,061
901,511
21,130
18
8
932
174
(41)
58
(106)
-
-
(4,923)
855,872
18,508
648
7
1,153
657
(37)
184
(203)
366
(334)
2,888
826,362
20,891
18
8
932
174
(41)
58
(106)
-
-
* In 2017 the Republic of Slovenia was the sole shareholder of NLB
NLB Group and NLB disclose all
transactions with the major shareholder
with significant influence. For transactions
with other government-related entities,
NLB Group discloses individually
significant transactions.
NLB Group 2018 Annual Report
NLB Group and NLB
2018
2017
2018
2017
Amount of significant transactions
concluded during the year
Number of significant transactions
concluded during the year
343
in EUR thousands
-
117,924
-
1
Year-end balance of all
significant transactions
Number of significant
transactions at year-end
2018
2017
5
1
-
2
5
-
1
2
2018
539,116
76,680
-
135,063
2017
575,024
-
82,133
135,006
Effects in income statement
during the year
2018
1,281
(81)
-
(63)
2017
4,933
-
(526)
(93)
Loans
Loans
Debt securities measured at amortised cost
Debt securities classified as loans and advances (IAS 39)
Borrowings, deposits and business accounts
Interest income from loans
Interest income from debt securities measured at amortised cost
Interest income from debt securities classified as loans and receivables (IAS 39)
Interest expense from borrowings, deposits, and business accounts
9. Events after the reporting date
In February 2019, NLB received a
new decision establishing prudential
requirement from ECB, which is applicable
from 1 March 2019, leading to total SREP
capital requirement. Detail information is
disclosed in note 5.25.
NLB Group 2018 Annual Report 344
Alternative
Performance
Indicators
Cost of risk - Credit impairments and
provisions from income statement divided
by Average net loans to customers.
CR 1 - NPL coverage ratio 1: the coverage
of the gross NPL portfolio with loan loss
allowances on the entire loan portfolio.
CR 2 - NPL coverage ratio 2: the coverage
of the gross NPL portfolio with loan loss
allowances on the NPL portfolio.
FVTPL - Financial assets measured
mandatorily at fair value through profit or
loss (FVTPL) are not classified into stages
and are therefore shown separately (before
deduction of fair value for credit risk; loans
with contractual cash flows that are not
solely payments of principal and interest on
the principal amount outstanding).
IFRS 9 classification into stages for loan
portfolio:
LTD - Net loans to non-banking sector /
Deposits from non-banking sector
Net interest margin - Calculated on the
basis of interest bearing assets (Net interest
income divided by interest bearing assets).
NPE - NPE includes risk exposure to D
and E rated clients (includes loans and
advances, debt securities and off-balance
exposures, which are included in report
Finrep 18; before deduction of allowances
for the expected credit losses).
NPE % - NPE % in accordance with EBA
methodology: NPE as a percentage of all
exposures to clients in Finrep18, before
deduction of allowances for the expected
credit losses; ratio in gross terms.
NPL - NPLs include loans to D and E rated
clients, namely loans at least 90 days past
due, or loans unlikely to be repaid without
recourse to collateral (before deduction of
loan loss allowances).
NPL % - Share of NPLs in total loans:
NPLs as a percentage of total loans to
clients before deduction of loan loss
allowances; ratio in gross terms.
IFRS 9 requires an expected loss model,
where an allowance for the expected credit
losses (ECL) are formed. Loans measured at
amortised costs (AC) are classified into the
following stages (before deduction of loan
loss allowances):
Stage 1 – A performing portfolio: no
significant increase of credit risk since
initial recognition, NLB Group recognises
an allowance based on a 12-month period;
Stage 2 – An underperforming portfolio: a
significant increase in credit risk since initial
recognition, NLB Group recognises an
allowance for a lifetime period;
Stage 3 – An impaired portfolio: NLB
Group recognises lifetime allowances for
these financial assets. Definition on 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 client forbearance or if the client is
placed on the watch list.
NLB Group 2018 Annual Report 345
NLB Group 2018 Annual Report 346
NLB Group 2018 Annual Report 347
NLB Group Chart
NLB Group 2018 Annual Report 348
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
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%
Bankart, Ljubljana
39.44%
39.44%
100%
100%
50%
50%
Foreign countries
NLB Srbija, Beograd
NLB Crna Gora, Podgorica
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
* Contractual based influence on management of the company
** 90% direct ownership Prvi Faktor, Ljubljana in liquidation, 5% NLB d.d., 5% SID banka d.d.
*** The agreement on transfer of ownership of REAM, Zagreb from NLB d.d. to S-REAM d.o.o., Ljubljana was signed on
17th of December, 2018. On 21st of January 2019 the registration of the transfer was made.
**** The company REAM, Beograd was deleted from the Trade Registry on 8th of January, 2019 due to the merger
with the company SR-RE, Beograd
***** The company NLB Lizing Dooel Skopje -in Liquidation was deleted from the Trade Registry on 28 of January 2019
Foreign countries
Foreign countries
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
Prospera plus, Ljubljana
in liquidation
PRO-REM, Ljubljana
in liquidation
BH-RE, Sarajevo
OL Nekretnine, Zagreb
in liquidation
S-REAM d.o.o., Ljubljana
ARG Nepremičnine, Horjul
100%
100%
100%
100%
100%
100%
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 2018 Annual Report
Nova Ljubljanska banka d.d., Ljubljana
Core members
Non-core members
349
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
Prospera plus, Ljubljana
in liquidation
PRO-REM, Ljubljana
in liquidation
BH-RE, Sarajevo
OL Nekretnine, Zagreb
in liquidation
S-REAM d.o.o., Ljubljana
ARG Nepremičnine, Horjul
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
75%
75%
NLB Banka, Skopje
NLB Crna Gora, Podgorica
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
100%
100%
50%
50%
NLB Banka, Sarajevo
NLB Vita, Ljubljana
NLB Banka, Podgorica
NLB Banka, Prishtina
NLB Banka, Banja Luka
NLB Srbija, Beograd
39.44%
39.44%
100%
100%
100%
100%
Foreign countries
99.997%
99.997%
97.35%
97.35%
99.83%
99.83%
81.21%
81.21%
99.85%
99.85%
86.97%
86.97%
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
* Contractual based influence on management of the company
** 90% direct ownership Prvi Faktor, Ljubljana in liquidation, 5% NLB d.d., 5% SID banka d.d.
*** The agreement on transfer of ownership of REAM, Zagreb from NLB d.d. to S-REAM d.o.o., Ljubljana was signed on
17th of December, 2018. On 21st of January 2019 the registration of the transfer was made.
**** The company REAM, Beograd was deleted from the Trade Registry on 8th of January, 2019 due to the merger
with the company SR-RE, Beograd
***** The company NLB Lizing Dooel Skopje -in Liquidation was deleted from the Trade Registry on 28 of January 2019
NLB Group 2018 Annual Report
350
Organizational
Structure of NLB
NLB Group 2018 Annual Report Supervisory Board
Management Board
CEO
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
Evaluation and Control
Financial Accounting
Large Corporates
Innovation Management
and Business Analysis
Information System
Development
Restructuring
Financial Markets
Mid Corporates
Data Management
Workout and
Legal Support
Investment Banking
and Custody
Trade Finance Services
IT Infrastructure
Private Banking
Payments Processing
NLB Contact Centre
Cash Processing
Distribution Network
Treasury and Financial
Markets Processing
Distribution Network
Back Office
Corporate Banking
Processing
Area Branch
Osrednjeslovenska - Jug
Retail Banking
Processing
Area Branch
Osrednjeslovenska - Sever
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.
352
NLB Group directory
Nova Ljubljanska banka d.d, Ljubljana
Dolenjska, Bela krajina,
Central region
Trg republike 2
1520 Ljubljana, Slovenia
Tel.: +386 1 476 26 11
Faks: +386 1 251 05 72
Northwest region
Ljubljanska cesta 62
1230 Domžale, Slovenia
Tel.: +386 1 724 54 75
Fax: +386 1 724 55 08
Southwest region
Pristaniška ulica 45
6000 Koper, Slovenia
Tel.: +386 5 610 30 29
Fax: +386 5 610 30 75
Podravsko-Pomurska region
Titova cesta 2
2000 Maribor, Slovenia
Tel.: +386 2 234 45 00
Fax: +386 2 234 45 53
Savinjsko-Koroška region
Kocenova 1
3000 Celje, Slovenia
Tel.: +386 3 424 01 11
Fax: +386 3 544 24 66
Innovative Entrepreneurship Centre
Trg republike 2
1520 Ljubljana, Slovenia
Tel: +386 1 476 31 49
Fax: +386 1 476 23 26
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
* From 1 March 2019.
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
Micro Enterprises*
Trg republike 2
1520 Ljubljana, Slovenia
Tel: +386 1 476 50 01
Fax: +386 1 540 03 45
Mobile banking*
Trg republike 2
1520 Ljubljana, Slovenia
Tel: +386 1 476 44 39
Fax: +386 1 252 26 45
Private Banking
Trg republike 2
1520 Ljubljana, Slovenia
Tel: +386 1 476 23 66
Fax: +386 1 476 23 33
Small and Mid Corporates*
Small Enterprises I*
Trg republike 2
1000 Ljubljana, Slovenia
Tel.: +386 1 476 49 52
Fax: +386 1 476 23 26
Small Enterprises II*
Titova cesta 2
2000 Maribor, Slovenia
Tel.: +386 2 234 45 09
Fax: +386 2 234 45 55
NLB Group 2018 Annual Report
353
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
Rr. Ukshin Hoti nr. 124
10000 Prishtina, Kosovo
Tel: +383 38 744 000
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
Members of NLB Group
NLB Banka a.d. Banja Luka
NLB Leasing d.o.o., Ljubljana – v likvidaciji
NLB Banka a.d., Belgrade
Bulevar Mihajla Pupina 165 v
11070 Belgrade, Serbia
Tel: +381 11 22 25 101
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, CEO
Marko Popovič, Executive Officer
Dino Redžepagić, Executive Officer
Milana Tepića 4
78000 Banja Luka, Republic of Srpska,
Bosnia and Herzegovina
Tel: +387 51 221 610
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 5 100 865
Fax: +389 2 3 105 681
E-mail: info@nlb.mk
www.nlb.mk
Antonio Argir, President of
the Management Board
Günter Friedl, Member of
the Management Board
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 Group 2018 Annual Report 354
NLB Leasing d.o.o. Sarajevo
Prvi faktor d.o.o. u likvidaciji, Sarajevo
NLB Skladi, upravljanje
Trg solidarnosti 2a
71000 Sarajevo, Bosnia and Herzegovina
Tel: +387 33 789 345
Fax: +387 33 789 346
E-mail: info@nlbleasing.ba
Denis Silajdžić, Director
Tanja Ibišbegović, Executive Director
NLB Lizing dooel, Skopje - u likvidaciji*
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
Optima Leasing d.o.o. u likvidaciji, Zagreb
Miramarska 24
10000 Zagreb, Croatia
Tel: +385 1 61 77 225
Fax: +385 1 61 77 228
E-mail info@optima-leasing.hr
Vjekoslav Budimir, Liquidator
Vito Cigoj, Procurator
Prvi faktor d.o.o., v likvidaciji, Ljubljana
Slovenska cesta 17
1000 Ljubljana, Slovenia
Tel: +386 1 200 54 10
Fax: +386 1 200 54 30
E-mail: klemen.hauko@prvifaktor.si
E-mail: marcel.osti@prvifaktor.si
Klemen Hauko, Liquidator
Marcel Mišanović Osti, Liquidator
Prvi faktor – faktoring d.o.o.,
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
NLB InterFinanz AG in Liquidation, Zürich
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.,
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
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
Blaž Bračič, 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
Matjaž Jevnišek, Management Board
Prospera plus d.o.o.,
NLB InterFinanz Praha s.r.o., v likvidaci
Ljubljana – v likvidaciji
Muchova 240/6, Dejvice
160 00 Prague 6, Czech Republic
CZECH DTMR Partners s.r.o., Liquidator
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
Beograd – u likvidaciji
NLB Vita d.d., Ljubljana
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
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
* See NLB Group Chart chapter
NLB Group 2018 Annual Report 355
S-REAM d.o.o., Ljubljana
Čopova 3
1000 Ljubljana, Slovenia
Tel: +386 1 586 29 16
E-mail: info@prorem.si
www.nlbrealestate.com
Jovica Jakovac, Director
Lamija Hadžiosmanović, 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
PRO-REM d.o.o., Ljubljana - v likvidaciji
SR-RE 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
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: satka.kahrimanovic@nlb.ba
Satka Kahrimanović, Director
NLB Srbija d.o.o., Belgrade
Bulevar Mihajla Pupina 165 v
11070 Belgrade, Serbia
Tel: +381 11 22 25 366
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
Gligor Bojić, Executive Director
Čopova 3
1000 Ljubljana, Slovenia
Tel: +386 1 586 29 16
E-mail: info@prorem.si
www.nlbrealestate.com
Jovica Jakovac, Liquidator
Lamija Hadžiosmanović, 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
REAM d.o.o., Zagreb*
Miramarska 24/6
10000 Zagreb, Croatia
Tel: +385 1 56 25 914
Tel: +385 1 56 25 918
E-mail: lamija.hadziosmanovic@
ream-cro.com
E-mail: klemen.fajmut@ream-cro.com
Lamija Hadžiosmanović, Director
Klemen Fajmut, Director
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
* See NLB Group Chart chapter
NLB Group 2018 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 2019
358
NLB Group 2018 Annual Report